general motors

					       General Motors’ Strategic Analysis


       Automotive Industry

The automobile industry is the industry involved in the design, development, manufacture,

marketing, and also of motor vehicles. In 2007, more than million vehicles, including cars and

commercial vehicles were produced.

In 2007, a total of 71.9 million new automobiles were sold worldwide: 22.9 million in Europe,

21.4 million in Asia-Pacific, 19.4 million in USA and Canada, 4.4 million in Latin America, 2.4

million in the Middle East and 1.4 million in Africa. The markets inn North America and Japan

were Stagnant, while those in South America and Asia grew strongly. Of the major markets,

Russia, Brazil and China saw the most rapid growth.

In 2008, with rapidly rising oil prices, industries such as the automotive industry, are

experiencing a combination of pricing pressure from raw material costs and changes in consumer

buying habits. The industry is also facing increasing external competition from the public

transport sector, as consumers re-evaluate their private vehicle usage.

The united States is the World’s largest consumer market for light vehicles, passenger cars and

light trucks. The United States auto industry is dominated by the Big three or General motors,

Ford Motors and Daimler/Chrysler. These three account for roughly a little over half of the

production of cars and light trucks in the industry. What has currently started to happen in the

recent years is that the Big Three accounted for 41.5% of the light vehicle sales when compared

to the top three foreign companies which accounted for the 36.6% (Toyota, Honda, & Nissan).

Overall the Big Three account for 54.9% of the U.S. market in 2006. This was down from 58.2%
in 2005, 60.1% 2004 and 61.8% in 2003. This trend is expected to continue but to taper off in the

coming years

Factors Affecting the Automotive industry (PEST Analysis)

1. Political

Laws and government regulations have affected since the 1960s. Almost all of the regulations

come from consumers increasing concerns for the environment and the concern for safe

automobiles

2. Economic

 The automobile industry has a huge impact on every country’s economy. According to various

studies this industry is the major user of computer chips, textiles, aluminium, copper, steel, iron,

lead, plastics, vinyl and rubber. The study also showed that for every autoworker there are seven

other jobs created in other industries. These industries include anything from the aluminium to

lead to vinyl.

3. Socio cultural

Today’s society judges people on the type of car you drive. Society does not like to admit to this

but it is very true. Manufactures know this happens and targets their markets by these thoughts.

Anyone who drives a nice vehicle is thought to be wealthy. No one wants to be seen driving an

unattractive piece of junk because of the other people will think of him or her. Consumers also

just feel better when they are driving a nice or new car, if makes them feel better about

themselves.

4. Technology

The internet ha affected just about every industry in the world and has also had a huge impact on

the automobile industry. A study was conducted by J.D Power and Associates in 2002 and
involved more 27000 new vehicle buyers. The study showed that 60% of the buyers referred to

the internet before masking their purchases and out of that 60%, 88% went to the auto websites

before going and taking a test drive. Business to business marketplaces has given the industry

many opportunities because of the internet, such as more efficiency and lower cost.

5. Demographics

For many years now, the baby boomers generation has been the main target market for just

about every product. As their generation is getting ready to retire and spend less money, the

automakers are looking at the younger generation. Right now, the focus is turn towards the baby

boomers children (generation X) who are in their mid 20’s and 30’s. According to analysts, five

years from now Gen X will account for at least 30% of vehicles sales.

6. Global

General Motors, Ford Motor Company, Daimler Chrysler, BMW, Volkswagen,, Volvo, Toyota,

Mazda, and Nissan Motor Company come together to create a new trade association created the

Alliance of Automobile Manufactures. The organization was to replace the American

Automobile Manufactures Association that only consisted of American manufactures, the global

of the association were to work together on public policy matters of common interest to provide

credible industry information and data, and seek consistent global regulatory standards.

GENERAL MOTORS

General Motors Corporation is a multinational automobile manufacturer founded in 1908 and

headquartered in the United States. General Motors is the World’s largest automaker as

measured by global industry sales and has been the global sales leader for the last 77 years. As of

2008, General Motors employs about 266.000 people around the world. It manufactures its cars

and trucks in 35 different countries and sells them under the brands of Buick, Cadillac,
Chevrolet, GM Daewoo, GMC, Holden,, Hummer, Opel, Pontiac, Saab, Saturn, Vauxhall, and

Wuling. As of 2008, General Motors is the ninth largest publicly traded company in the world. In

recent years the company has endured significant financial turmoil, including a 38 billion dollars

loss in 2007.

GM needs a sense of urgency regarding revising a strategic plan that incorporation the next

generation of vehicles. In today’s global economy and highly competitive auto industry GM has

no time to procrastinate. As Stated, GM has just too much at risk in not becoming an industry

leader in alternative fuel technology. Fuel-economy legislation is sparking the race. This is a

critical time in auto industry with many threats, but opportunities as well. The next several years

will redefine GM.

VISION STATEMENT

The GM vision is as follow: GM’s vision is to be the World leader in transportation products and

related services. GM will earn our customers’ enthusiasm through continuous improvement

driven by the integrity, teamwork, and innovation of GM people.

The proposed new vision for GM is as follows: For GM to become the automotive industry

leader in alternative fuelled vehicles and providing superior quality products that global

consumers call to mind when they think of quality and innovation

My vision for GM is to be the industry leader in innovation and where all other industry

competition strives to imitate.


MISSION STATEMENT

The current GM mission statement are as follows: Drive improvements inn market share,

revenue, brands, people, responsiveness, and cost effectiveness through the implementation of

global common metrics and best practice sharing
The new proposal mission statement will be as follows: GM will become an industry leader, not

a follower. To regain lost market share that was lost to foreign competition and once again be the

auto industry leader in sales and market share in today’s global market.

VALUE STATEMENT

The auto industry just like the global economy is going through tremendous change, due to rising

fuel prices, and environment worries, such as global warming, GM must use these threats as

opportunities and take advantage of changing consumer buying habits. GM needs to change

consumer perception of the company, from dull, poor quality vehicles to innovative, quality and

environmentally friendly company. To do this GM must portray an image that states that GM

values what the consumer wants and what the environment needs. Listen to what consumers are

saying directly and indirectly about GM’s current products, and create innovative, green,

vehicles that turn consumers into customers. At the same time provide GM stakeholders pride

and financial incentives to remain with GM.

Environmental Analysis

GM and the entire auto industry are currently challenged with the perfect storm. The auto

industry is being hit by a weak US and global economy rising fuel prices, and social and political

environment concerns and issues. In order to overcome these potential threat, GM should

consider mass producing a range of alternative fuelled vehicles, i.e. fuel cell, electric, and hybrid.

Competitor’s Analysis

The major competitors of General Motors are domestic companies like DamilerChrysler & Ford

Motor and foreign companies like Toyota Motor & Honda Motor.

DamilerChrysler
As the number two auto manufacturer in total revenues DamilerChrysler has positioned itself as

an industry leader, with this come many strength. The DamilerChrysler umbrella covers many
well known brands such as Dodge, Chrysler, Mercedes Benz, and Jeep. This means

DamilerChrysler has strong brands that are recognizable in almost every part of the World.

Ford Motor Company

Ford Motor Company is a global company with two core business: Automotive and Financial

Services. Ford has been focusing on cutting costs to increase margins more than its competitors.

It has used reverse engineering in the development of their products. Thus Ford has been an

innovator in the auto industry.

Honda Motor Company

Honda Motor Company is not your average Japanese car manufacturer. Originally know for

motorcycles, Honda has managed to elude the dominate keiretsu system in Japan and become

one of the dominate automobile manufactures in the world. There is much strength to Honda,

Honda has a reputation for producing high quality products from cars to motorcycles. Honda has

won many awards for initial quality and customer’s satisfaction. Their automobiles are reliable

and generally fuel efficient. Their research has afforded them competitiveness in innovative

products.

Toyota Motor Corporation


The Toyota Motor Corporation was incorporated in 1937 and has many strength being one of the

industry leaders in the automotive industry. Toyota has three major brands underneath the

company umbrella; Toyota, Lexus, and Scion. By having these three distinct brands, it lets the

company reach many sectors of the globe in a choice of vehicle for customers. Toyota has

traditionally also been the leader in Total Quality Management. By using the Kaizen theory of

continuous improvement, Japan caught up the US auto makers during the 1980s.
       SWOT ANALYSIS


STRENGTHS


1. Large Market share

Although GM’s market share in the US has dropped it is still very much competitive at 26

percent. They also have an increasing share in the Chinese market. With the right decision there

is no reason for GM to not become the automotive leader it once was.

2. Global Experience

As explained above even with GM’s recent decline they still have market share and the

experience to bounce back. They have been a worldwide company for nearly a century now and

have established themselves as the global leader for most of them. If you recall I mentioned

above that a current opportunity for GM is to expand globally and as we can see already have the

experience to do so. It is just a matter of the correct planning and proper implementation of those

plans that will decided whether or not GM’s goals are achieved.

3. Variety of Brand Names

GM as I mentioned has been the automotive leader for the majority of the last century. A large

reason for that is the wide variety of quality brand names that appeal to all target markets. The

current GM brands include: Chevrolet, GMC, Cadillac, Buick, Pontiac, Saturn, Hummer, Saab,

Daewoo, Opel, and Holden.

4. GMAC Customer Financing Program

Since its establishment in 1919 it has proven to be GM’s most reliable source of revenue.
5. OnStar Satellite Technology

Developed inn 1996 Onstar currently has over 3 million subscribers and is standard on all GM

vehicles. This technology allows the vehicles to be tracked in the event of an emergency of theft.

It also allows the dreiver and or passengers the ability to communicate with Onstar personnel at

the click of a button.

WEAKNESS

1. Behind on Alternative Energy Movement

This is GM’s biggest weakness. The alternative energy/hybrid trend has begun to take place in

the automotive industry and GM has been one step behind the competition in terms of alternative

energy vehicles. This has led to many problems including loss of market share and a decrease in

company profit. In order for any automotive company to be successful from this point forward

they must be Hybrid friendly and fuel efficient.

2. Stagnant Profitability


Looking at GM’s profit we see that they are certainly struggling with respect to the size of their

company. Their profit margin was about 1.5% and the ROE has dramatically decreased over the

recent years dropping to 10% in 2004. This is a situation that shareholders will not be pleased

with.

3. Overly Dependent on US market

GM has become too dependent on the US market and must take advantage of the opportunity to

expand globally. The competition is becoming too strong to focus on just one country.
4. Poor Credit Status

GM’s credit status has like everything else has been steady declining. Their current ratio is just

barely above 1 and their acid test ratio is even lower. Although we don’t see them getting denied

based on their credit at this point, the seriousness of the matter is certainly apparent.

Opportunities

1. Alternative Energy Movement

It is obvious that GM was behind its competition with regards to the research and development

of hybrid vehicles. However hybrid technology is still very much new giving GM the

opportunity to once again become the automotive industry’s leader in innovation and technology.

2. Continuing to Expand Globally

Recently GM saw an increase in the Chinese automotive market. Which proves their needs to be

more emphasis put on foreign markets? If GM can infiltrate these markets and successfully

grow along with their continuing focus on the US market they will be headed in a positive

direction.

3. Low Interest Rates

With the right marketing strategy the low interest rates have the potential to generate an

immediate increase in sales.

4. Develop New Vehicle Style and Models

This is an opportunity that will never be satisfied, meaning that GM should always be attempting

to develop the automotive world’s most popular vehicles, and as we know, what is an today will

be out tomorrow.
THREATS

1. Rising Fuel Prices

With GM being a large producer in both trucks and SUV’s, sales have drastically decreased due

to the lack of fuel efficiency. The rise in fuel prices has played a significant role in creating the

opportunity for developing of both hybrid and more fuel efficient vehicles. As you will find with

most threats, an equal opportunity will usually emerge as is the case here with GM’s opportunity

mentioned above.

2. Growth of Competitors

GM no longer has the luxury of being the known leader in the automotive industry and faces the

reality that they are in serious trouble. As we mentioned earlier Toyota took the first step in the

direction of hybrid technology and has since drastically grown and become the questionable

automotive frontrunner to start the 21 st century.

3. Pension Payments

Part of this threat is their own doing and other is simply unavailable. GM is responsible for

providing generous pension benefits to its employees, which at the time seemed like a great idea,

however they are now experiencing problems as more and people being to collect.

4. Increase Health Care Costs

GM, like many large companies with quality employee health care benefits, is experience a large

financial hit that only gets worse as time continues.
5. Rising Supply, i.e. Steel

Once again this threat affects the entire automotive industry and forces each company to cut

manufacturing and production costs as much as possible, without taking away from the quality of

the product.

PORTER’S FIVE FORCES ANALYSIS

The competitive structure of an industry is another important component of their identifying

factors that are a threat to diminish profitability. Once of the most efficient ways to assess

competitive issue is to consider Michael Porter’s Five- forces analysis. Porter (1980, 1985) has

highlighted five such factors:

1. Rivalry between existing Competitors

With the rise of foreign competitors like Toyota, Honda and Nissan in the 1970’s and 80’s,

rivalry in the American auto industry as become much more intense. Firms compete on both

price and non-price dimensions. The price competition erodes profits by drawing down price-

cost margins while non-price competitors(e.g, new car rebates and interest free loans) drives up

fixed cost and marginal cost. One of the other reasons there is such high rivalry is that there is a

lack of differentiation opportunities. All the companies make cars, trucks or SUV’s. The

competitors are compared to one another constantly. In recent years there has been significant

market share variation, another indication of rivalry and its very strong threat to profit.

2. Threat of Entry by new Competitors

The presence of new firms in an industry may force prices down and put pressure on profits.

There are, however, barriers to entry that tend to protect established firms. One would expect the

production of automotive to require significant economics of scale, an important barrier to entry.
The new entrant would have to achieve substantial market share to reach minimum efficient

scale, and if it does not, it may be at a significant cost disadvantage. While the evidence suggests

that economies of scale in the auto industry are substantial, there are also indications that large

size may not be as important as commonly assumed. Nevertheless entry would represent a large

capital investment to any new firm and the body of research still indicates that economies of

scale represent a substantial barrier to entry. Consequently, entry is currently a weak threat to

profitability.

3. Price pressure from Substitute or complementary production

While five-forces do not directly consider demand, it does consider two factors that influences

demand—substitutes and complements. Although new cars generally are slightly price elastic,

suggesting few real substitutes, the demand for a particular model is highly sensitive to price

because of the availability of close substitutes for a given model. A change in the price of a

complementary product could have a significant impact on the demand for automobiles. The

rising price of gas, an important complementary product, is likely to effect some firms more than

others depending upon the vehicles composition. Recent rising fuel prices are likely to have a

greater impact on the big three (GM, Ford Motor Daimler-Chrysler) whose most profitable

models are energy inefficient pick-up trucks and sports utility vehicles. On balance, the overall

impact on “industry” profitability from substitutes and complements is weak to moderate.

4. Bargaining Power of Buyers

Buyers Power refers to the ability of individual customers to negotiate prices that extract profit

form the seller, individual consumers have some influence over price within a given dealership,

but little power over manufacturers. Customers can easily, and with little cost, switch to other

auto dealers. Furthermore , customers now have access to market information from the Internet
that enhances their negotiating power. But when you have many individual customers, each

representing a small proportion of total sales, they will have little bargaining power with

manufacturing and therefore pose a weak threat to industry profit.

5. Bargaining Power of Suppliers

Auto manufacturers require inputs-labour, parts, raw materials and services. The cost of these

inputs can have a significant effect on profitability. Whether the strength of suppliers is waeak,

moderate or strong depends on how much bargaining power they can exert. The auto

manufactures have large supplier networks that appear to exert little bargaining power.

Nevertheless, the United Auto Workers(UAW), the only supplier of labour, has historically

exerted a great deal of leverage over the benefits and wages provided by the big three. Because

of his historical dominance by the UAW and the uncertain results of their current negotiations

with the big three, one has to characterize supplier power, at least in this segment of the

American market, as a strong threat to profits.

The following table summarizes the results of five-forces analysis of the automobile industry



                               FIVE-FORCES ALAYSIS

                  FORCES                   THREAT TO PROFIT

                Internal rivalry                    Strong

                     Entry                           Weak

        Substitutes and Complements           Weak to Moderate

                 Buyer power                         Weak

               Supplier Power                       Strong
    CORE COMPETENCE

The core competence of General Motors is innovation. This is the force behind its $190 above

turnover. General Motors has been utilizing innovation in service ad technology to secure itself a

dominant position in the automobile industry sine 1908. In 1911 , its conceptualized, engineered

and commercialized the self-starting engine for the first time. Then in 1926 its product Cadillac

was the pioneer in devising a nationwide service strategy. In 1996, General Motors introduced

Onstar satellite technology which allows equipped vehicles to be tracked in case of an

emergency or theft and allows the passengers to communicate with Onstar personnel. Other new

car concepts include mini cars such as Chevy Aveo.

However in the case of hybrid vehicles, General Motors was unable to keep up to the pace of the

market demand.

FINANCIAL RESULTS

Based on the GM’s consolidates net sales and revenue, it shown that general Motor Corporation

revenue has been falling to $192.6 billion in 2007 from 193.5 billion in 2004. GM incurred a

consolidated net loss in 2007 of $ 10.6 billion, compared to net income of $2.8 billion in 2004.

In the last 1990’s, GM had regained market share up $80 a share. In 2000, the interest went up

by the Federal Reserve too quell the stock market and a serve stock market decline following the

September 11.2001 attacks. Due to this factor, it affected a pension and benefit crisis at General

Motors are falling between $28-$29 per share. It has falling down gradually in the past six years.

General Motors North America market share in 2007 fell to 25.5% compared to 26.7% in 2004.

Decreased in market share also due to sales declines in segment where GM has high volume such

as large sport utilities, mid-sized utilities, and mid-sized cars.
The unfavourable results of GM’s consolidate net loss in 2007 were driven primarily by losses at

GMNA due largely to unfavourable volume and product mix.

SUGGESTED STRATEGIES

 Below is a list possible Strategies General Motors could use to redirect profits and be able to

maintain survival for the future.

1. Market Development

2. Market Penetration

3. Product Development

4. Restructuring

5. Retrenchment

6. Liquidation

IMPLEMENTATION

Recommended strategies for General Motors would start with product development then market

development, liquidation, and restructuring. Reasons for product development being at the top of

priorities is that GM has to create a type of Hybrid Vehicle that will allow it to keep up with the

pace of the competitive environment, but must be a product that stands out from the crowed at

the same time. Prime example of their idea for a Hybrid SUV, it fits the GM profit with

maintaining the SUV portion, but allows the firm to stay with trend patterns.

GM must re-valuate the market they are trying to approach, because for so long they have

continued with a tradition outlook for automobiles, but now that times are changing their original

target market is not looking for what they once were. General Motors needs to take a step back

and take look at how they want to position themselves and towards what market since what they

have been doing is no longer in favour for the company. An example of what GM could possibly
do is produce a futuristic vehicle, which has been heard in rumours from Toyota about their next

plan of action. If General Motors could provide a “futuristic” vehicle before Toyota has the

chance to hit the market with their GM would be a step ahead of the competition. Liquidation is

important to GM because their assets are a lot higher than revenues, and if GM could turn assets

into cash then their would be more readily available funds and then GM would not have to

depend some much on their U.S sales, which only include 2/3 of that market and their financing

tactic wouldn’t be as much of a risk. Liquidation would clearly help out the financing parts of the

organization.

Last but not least is restructuring, which General Motors most desperately needs to review

possibilities. The company has taken a large hit in recent years and needs to find a way back to

the top. This is only going to be achieved if something drastic is changed. Restructuring the

product development pace would be a start as well as cutting back on employees because the

company is growing in size but not in profit, which causes e red flag for GM. The company

needs to be re-evaluated in many ways, but GM has been strong for many years that it is very

possible for the company to come above these issues.

EVALUATION

The biggest thing for General Motors is to develop a Hybrid vehicle that will maintain the pace

of the competition for the firm as well as one that will stand out from the crowd to make the

product new and exciting. Creating a Hybrid SUV is a brilliant idea and if GM can pull that off

by the end of 2007 the future could look very bright for them. The company has a huge

background providing that they can maintained being number one, it’s just a matter of product

development being maintained and refocusing products to the correct target markets.

				
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