GM needs a sense of urgency regarding revising a strategic plan that incorporates 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 follows: 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 fueled 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 statements are as follows: Drive improvements in market share, revenue, brands, people, responsiveness, and cost effectiveness through the implementation of global common metrics and best practice sharing.
The new proposed 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.
Values Statement
The auto industry just like the global economy is going through tremendous change, due to rising fuel prices, and environmental 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 a 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 environmental concerns and issues. In order to overcome these potential threat, GM should consider mass producing a range of alternative fueled 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 DaimlerChrysler has positioned itself as an industry leader, with this come many strengths. The DaimlerChrysler umbrella covers many well-known brands such as Dodge, Chrysler, Mercedes Benz, and Jeep. This means DaimlerChrysler 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 businesses: Automotive and Financial Services. The Automotive business consists of the design, development, manufacture, sale and service of cars, trucks and service parts. 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 dominant automobile manufactures in the world. There are many strengths 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 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 strengths 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 or TQM. By using the Kaizen theory of continuous improvement, Japan caught up the U.S. 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 decisions 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 the 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 they 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 in 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 or theft. It also allows the driver and or passengers the ability to communicate with OnStar personnel at the click of a button.
Weaknesses
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. Poor Organizational Structure
As we can see in exhibit 1 of the case GM's organizational structure seems to be too vertically integrated. This causes a lack of communication between employees from top to bottom and may have played a part in GM falling behind on the alternative energy movement.
3. 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.
4. 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.
5. Overly Dependent on General Motors Acceptance Corporation (GMAC) Financing
GM has become too dependent on its financing program. Granted it is a great strength for GM, however they once again cannot rely solely on financing in order to turn profit, especially if they want to compete with Honda and Toyota who are rapidly growing.
6. Poor Credit Status
GM's credit status has like everything else has been steadily declining. Their current ratio is just barely above 1 and their acid test is even lower. Although, I 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 Styles 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 in 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 development 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 I 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 21st century.
3. Pension Payouts.
Part of this threat is their own doing and the other is simply unavoidable. 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 more people begin to collect.
4. Increased Health Care Costs
GM, like many large companies with quality employee health care benefits, is experiencing a large financial hit that only gets worse as time continues.
5. Rising Supply Costs, 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 identifying factors that are a threat to diminish profitability. One of the most efficient ways to assess competitive issues is to consider Michael Porter's five-force analysis. Porter (1980, 1985) has highlighted five such factors: (1) rivalry between existing competitors, (2) threat of entry by new competitors, (3) price pressure from substitute or complementary products, (4) bargaining power of buyers, and (5) bargaining power of suppliers.
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 has 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 competition (e.g., new car rebates and interest free loans) drives up fixed cost (new product development) and marginal cost (adding product features). 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 SUVs. 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 profits.
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 automobiles to require significant economies 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 products
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 (e.g., bus and rapid transit), 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 (e.g., gasoline, batteries, and tires) could have a significant impact on the demand for automobiles. The rising price of gas, an important complementary product, is likely to affect some firms more than others depending upon the vehicle composition. Recent rising fuel prices are likely to have a greater impact on the big three (GM, Ford Motor and 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
Buyer power refers to the ability of individual customers to negotiate prices that extract profit from 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 (prices and costs) 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 manufacturers and therefore pose a weak threat to industry profit.
5. Bargaining Power of Suppliers
Auto manufacturers require inputs-labor, parts, raw materials and services. The cost of these inputs can have a significant effect on profitability. Whether the strength of suppliers is weak, moderate or strong depends on how much bargaining power they can exert. The auto manufacturers have large supplier networks that appear to exert little bargaining power. Nevertheless, the United Auto Workers (UAW), the only supplier of labor, has historically exerted a great deal of leverage over the benefits and wages provided by the big three. Because of this 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 a five-forces analysis of the automobile industry.
Five-Forces Analysis
Core Competence
The core competence of General Motors is innovation. This is the driving 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, since 1908. In 1911, it conceptualized, engineered and commercialized the self-starter 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 minicars 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 consolidate 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 1990s, GM had regained market share up $ 80 a share. In 2000, the interest went up by the Federal Reserve to quell the stock market and a severe stock market decline following the September 11, 2001 attacks. Due to this factor, it affected a pension and benefit crisis at General motors and many other American companies. The current stock market price of General Motors are falling between $28- $29 per share. It has been 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 unfavorable results of GM’s consolidate net loss in 2007 were driven primarily by losses at GMNA due largely to unfavorable volume and product mix.
Suggested Strategies
Below is a list of 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
Implementations:
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 crowd at the same time. Prime example of their idea for a Hybrid SUV, it fits the GM profile with maintaining the SUV portion, but allows the firm to stay with trend patterns.
GM must also re-evaluate 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 favor for the company. An example of what GM could possibly do is produce a futuristic vehicle, which has been heard in rumors 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 theirs 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 financial 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 a 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 proving that they can maintain being number one, it's just a matter of product development being maintained and refocusing products to the correct target markets.
Amrita School of Business
