Poletown

Initial Analysis

1. From the perspective of General Motors’ executive management, what are the key issues in this situation?

The key issue is whether executive management should make decision based on their shareholders’ interest or to fulfill the company’s social responsibility.

Executive management was facing the decision where to build the new plant that would replace their two old facilities-the Cadillac Assembly and the Fisher Body Fleetwood Plants. There were two qualified sites available in this case. The expense of acquiring and preparing the Central Industry Park site for construction of the new plant was estimated at over $200 million, and would require the taking by eminent domain of 1,200 homes in the community of Poletown. But the alternative sites in neighboring midwestern states would cost no more than $87 million. The task force felt pressure to reach a decision soon.

In addition, General Motors wanted to have the new plant ready for production of the 1983 model year cars. Therefore, the land for the plant would have to be available for the commencement of construction in the middle of 1981. Time was running out.

2. What are the economic factors involved in the site selection?

The parcel of land for the new plant had to be rectangular and approximately 500 acres in size. The plant itself would take up three million square feet to accommodate a state-of-the-art one-story assembly line that would wind through the building. In order to implement “just-in-time” inventory methods to save cost, the new plant had to have access to both a long-haul railroad and freeways in order to provide links with suppliers and routes to ship finished cars.

Besides, there was a training cost for both experienced and inexperienced work force. And the cost of relocating workers was up to $50 million to $55 million, if the replacement plant were built more than 50 miles from the site of the closed facility.

Acquisition costs was...