Managerial Decisions There Are Many Essay

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(Note -- GM lost money in a lot of years). Saturn did not benefit from this, and had to cover all of its own costs, which never really happened because it was broken up right at the point when its popularity was becoming a threat to the entrenched interests within GM and the UAW -- the latter incensed that Saturn workers had rejected its contract. Once the production was moved around, Saturn became just another GM brand, and this did not have cachet in the marketplace. The Saturn brand no longer stood for anything and the cars were not as good. Overall, consumer interest in the brand declined.

I do not feel that escalation of commitment was a defining factor in GM's decision to continue with Saturn. By the 2000s, Saturn no longer had its own manufacturing facility, so those fixed costs were not weighing on the minds of GM managers. Some money had been invested in the brand, but internally GM was in disarray. It also held on to Pontiac and Hummer long past the point where they were unprofitable.

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But there is microeconomic logic to this. The decision making process would likely have involved the costs associated with unwinding the brand, and the reality that unwinding Saturn was going to cost a fair bit of money. When exit costs are higher than the losses incurred by keeping the business, even an unprofitable business will be kept running as long as marginal profit covers marginal cost. Remember that Saturn represented capacity utilization at GM's plants -- the cost of closing out a plant might have been too high given union contracts and the costs associated with mothballing a giant manufacturing facility. Thus, GM might have actually made a rational economic decision keeping Saturn open as long as it did. Or, of course, it might have just been stubborn the way it has been with a few of its dog brands -- either way it wasn't so much escalation of commitment because no escalation was being required of GM through this period......

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