International Joint Venture: General Motors and Toyota (1983)



International Joint Venture: General Motors and Toyota (1983)

Overview of the Case

The 1980s period proved to be a troublesome period for General Motors as the political forces of the Middle East caused the oil prices to increase which hence decreased the demand of large high fuel consuming cars, which General Motors specialized in. During 1981 General Motors initiated a project to beat its major Japanese competitor, Toyota but in the en d it ended up making a joint venture with Toyota to manufacture smaller cars which were in high demand. The two companies started to operate for joint interests manufacturing cars which were smaller and more fuel efficient. The joint venture occurred between the two giants of the automotive industry who had the majority share of the market in their respective markets. However, General Motors had to face the shocks of Oil prices more severely than Toyota because the large size cars which General Motors manufactured and marketed in the US automotive market had become less desirable and their demand shrunk considerably. The oil price fluctuations led to the demand of small and fuel efficient cars, and cars which could be manufactured according to the specifications of the customers to increase in the US auto market. The Japanese counterparts on the other hand were making use of their efficient production systems, and their small and fuel efficient car designs. Toyota had high demand of its cars in the US market for which it decided to invest in the US market and start its production in the new market. The US import restrictions on foreign cars were too high, which also was another reason that made Toyota and Honda to start its operations in the US market (Kwoka Jr, J. E., 1994).

Hence, the joint venture was formed and named New United Motor Manufacturing, which was supposed to be a separate company from that of its parent companies with the shares to be split equally between General Motors and Toyota. The new joint venture was led by Toyota because it was Toyota that suggested the design of the new cars to be produced and the car components too were imported from Japan. The venture resulted in the formation of a company that was dominated by Toyota higher officials and the production system implemented too was of Toyota (Inkpen, A. C., 2008).

Legal and other Issues

The first issue that the joint venture had to resolve was the likely conflict and lack of cooperation among the two companies. The issue was resolved by the identification of an appropriate geographic market segment and the relevant products that were to be launched in the respective areas. The legal issue that the joint venture had to face was related to the design of the small cars. The venture proposed a design of subcompact cars to be introduced, however the concern that was raised over this design was that if the price of these cars was raised it would make the consumers ...