General Motors Analysis

Rick Wagoner is the CEO of GM. He is from Richmond, VA, 55 years old and he graduated from Harvard Business School. His current salary is $1. 5 million a year, not including benefits and bonuses. (maybe not now since he has resigned). Wagoner started at GM in the treasurer’s office in 1981. After moving up through the company in May of 2003 he became their CEO. While he has been at GM, they have lost $85 billion. He has been complimented for his efforts in cutting cost and blamed for slow change. He has also been accused of having a lack of vision and on March 29, 2009 he resigned.

Wagoner Alan Mulally is the CEO of Ford. He is from Oakland, CA, 63 years old and he graduated from Massachusetts Institute of Technology (MIT). His current salary is $2 million a year, not including benefits and bonuses. Mulally went to work for Boeing straight out of college as an engineer. He made great contributions to Boeing and worked for them until he became CEO of Ford in 2006. The first thing he did was to bring the Taurus back, which was a best seller. He took charge of “The Way Forward” program, which resulted in lowering its enormous losses and declining market share.

He is given credit for equalizing Ford’s place in the current market. Mulally Fujio Cho is the CEO of Toyota. He is from Japan, 72 years old, and he graduated from Tokyo University with a Law Degree. Cho went to work for Ford in 1960 and in June of 2006 he became the CEO. During this time he held several different titles and performed several different functions. He is only the second person, not a member of the Toyoda family, to run the company. This says a lot for Cho because the Japanese put strong emphasis on family and relationships. Cho Company Overview and History

GM was founded in 1908 in Flint, Michigan. Based on sales, it is the second largest car manufacturer in the world and employs about 266,000 people in the world. Its global headquarters are in Detroit, Michigan. GM makes its cars and trucks in 35 countries around the world. It started out as just a holding company for Buick. In the course of its life GM took control of the Yellow Coach Bus Company and founded Greyhound. During the 1980’s several well-meaning ideas went wrong in every direction. This cost GM to lose money for the first time since the 1920’s. Lousy management,

product quality, and numerous lawsuits were affecting sales and causing GM to lose market share to foreign automakers. GM corrected this problem by creating two joint ventures with two Japanese companies. As we all know, everyone is affected by the recession of 2008. This recession hits home with the automobile industry. During this current recession GM is facing the possibility of bankruptcy, but is hoping to be helped out by the government. History I. Analysis of External Environment a. Analysis of the General Environment One driving force of change is technology.

The automobile industry is constantly focusing on technology in order to make themselves and their cars better. They constantly compete to be the “first” one to have the newest and best idea. One of these ideas is an electric vehicle. GM, Ford, and Toyota all have electric automobiles. GM has the Chevy Volt. Volt One of Ford’s electric cars is the Electric Ranger. Ranger Toyota had the Rav4 EV, but due to discouraging sales it stopped production. “Toyota remains committed to developing an "Eco Vehicle," one that will have a minimal impact on the environment.

” Rav4 One purpose of the electric automobiles is to have the ability to drive to work using only electricity. Currently during longer trips you would have to use a combination of electric and gasoline power. Electric Car Another area of technology that the automobile industry is working on is fuel cells. Even though it is predicted that automobiles using fuel cells will not be released until 2010, Fuel Cell Vehicles (FCV), may be the next revolutionary idea in automobiles. FCVs reflect a completely new way of thinking about automobiles. FCVs use electric motors, but instead of a battery they are engineered to make their own electricity.

This would alleviate the problem of having to recharge the battery on an electric car. “FCVs can be twice as efficient as similarly sized conventional vehicles and may also incorporate other advanced technologies to increase efficiency. ” Fuel Cells One more area of the automobile that is becoming more technologically advanced is the dashboard. Since a large portion of consumers are hooked on their iPods, the automobile is turning more into a “personal electronic device”, than just gauges that only tell necessary mechanical functions of a vehicle.

Drivers will soon be able to use data systems that are more customizable, like an iPod. Automobile makers are taking a cue from the computer industry and starting to use the newest technology to enhance their vehicles’ dashboards. One of the latest ideas is to not only to be able to customize the gauges on a vehicle, but also for consumers to be able to move them to where they want them. Dashboards Another driving force of change is demographics. As the elderly population grows their preferences must be considered by the automobile industry.

One affect the elderly population has on the automobile industry is as the baby boomer generation retires and becomes more conservative with their money, automakers may need to focus on their younger consumers. However, since the elderly population uses personal vehicles more than any other type of transportation, they must not be forgotten as the automobile industry markets their vehicles. Since the baby boomers are retiring and 80% of them are driving, they must not be forgotten. Considering the elderly is becoming a larger part of the population, automakers should benefit by remembering the needs of the baby boom generation.

Demographics Another driving force of change is the political and legal area of the automobile industry. One of the biggest legal forces is the United Auto Workers (UAW). The UAW is pressuring the government to bail out the automakers to avoid bankruptcy. If the bankruptcy happens then a judge could order the union to be broken or at least force them to change their contracts to be more realistic. They cost the automakers a lot of money. On average, each worker cost the automaker $70 an hour, which includes benefits and the cost of the packages for the retired employees. Unions A second legal influence is the environmental factor.

Some of the environmental compliance guidelines apply to the following: ? Safety and Pollution Prevention in Auto shops ? Roles and Responsibilities of workers and employers ? Hazard Communication and Material Safety Sheets ? Worker-Training Programs This is just a small area of compliance where the automakers must comply. They must also adhere to any and all emission and safety laws for all vehicles and manufacturing facilities. Environmental The current external environment of General Motors and other major automakers is a very volatile and complex market that has seen rapid change in the past five years.

Many things on the macroeconomic level could be considered when speaking of General Motors and its competitors demand for change and how well that adaptation has been carried out. One of the factors that have been influencing change in the automobile industry on the macroeconomic level is that of the credit crisis. With the failing banking industry many people who before could obtain credit easily are finding this more difficult and costly. Mark Lanever, head of North American Sales for GM is estimating 10,000-12,000 less sales per month because of these strict lending policies.

Credit Crisis Increasing prices of oil and gas has had a significant effect especially on the United States automakers. While Americans really desire to have large and luxurious automobiles Detroit seemingly still is producing these SUV’s and trucks that require lots of costly fuel. Although Americans do wish for the comfort of these vehicles many are pushing for small fuel-efficient vehicles and Detroit is just not responding as quickly as they should. GM 10K Directly correlated to these price increases in fuel and the cost of producing energy is that of the pricing of commodities.

Many of the automakers including GM has seen huge spikes in the cost of raw materials such as steel, aluminum, copper and precious metals. This has presented a problem not only with the manufacturer such as General Motors but with suppliers who are experiencing hardship as well. GM 10K Other affects to consider when speaking of the General Motors’ external environment is that of the global markets. Much change has developed recently in the markets that the automakers are focusing their products toward. The strategy shift has been to focus heavily on these developing Asian countries. Much growth has been seen in the country of China and India.

Many of these countries’ families did not necessarily even own one car but now the automobile is becoming a key method of transportation. Also the size of the population in these economics is a huge attraction for the automakers. With the demand from the people to own automobiles like never before there is a significant number that they potentially could market their products to. Statistical data represents the growth in years between 2000 and 2005 being over a 175% growth change in the country of China. Market Growth Many other countries such as Thailand as well as India have similar results.

International Another global issue is that of providing cars that are tailored to the markets in which they serve. Many companies like Toyota have avoided this strategy until recently. They would provide a similar or standard model such as the Camry in many countries without making drastic modifications. General Motors seeks to fine-tune the industry by catering to the specific tastes of the market. They have decided that a low cost alternative to make this happen was to produce the vehicles with cosmetic features as well as amenities the market they were selling to would appreciate.

They would use the same unibody and part though that would be interchangeable. Although the car might look drastically different the mechanical features were similar and produced in a centralized fashion. Platform Sharing Another of the important driving forces of change the automobile industry is facing is that of the sociocultural nature. These demands provide the shape of what the market of the current industry desires and the forces that drive its change into either success or failure. In recent times the Japanese automakers have weathered the economic downturn much stronger then GM or it’s American competitors.

Much of this success is due to the demand from the American public for more fuel-efficient vehicles. As with the global and macroeconomic levels of the environment it plays a huge factor in the types of cars that Americans want to buy. They want to buy something that is both fuel-efficient and style conscious. General Motors has lacked in sales and both of these factors could contribute to its decline. They simply aren’t producing cars that are using advance forms of alternative fuel use or styling that the American public desire. Other factors that the socioculture aspect could include would be that of its enormous work force.

Unions and organizations that are vital to the success and betterment of the employees of General Motors have caused much strain between the employees and the corporation as well as the public image related to this strain. With employees still wanting the same level if not better benefits, lower layoffs, and pensions all with the unstable state the automakers are in. These demands are showing that they are harder to meet than what was expected and are creating greater challenges for General Motors and it’s competitors b. Analysis of the Competitive Environment i.

Dominant Economic Characteristics of the Industry Environment 1. Market size and growth rate The automotive industry has been in a steady decline for the past few years. Car companies sold 13. 5 million new vehicles in the U. S. in 2008, down from 16. 5 million in 2007. 10k Vehicle Sales. Worldwide sales decreased from 70. 7 million to 67. 1 million in 2008. Light vehicle sales which include domestic and import light cars and trucks was down from 2, 210,000 to 1,340,000 from Feb 2008 to Jan 2009. With the sales rate from Feb 2009, the projected sales rate for the year would be 9.

2 million, which is below January’s rate of 9. 6 million, which automakers hoped would be rock bottom. GM President Fritz Henderson told an analysts' conference that the automaker is forecasting U. S. sales this year of 10. 5 million, down from the 12 million vehicles it predicted last month. Sales. 2. Number and sizes of competitors GM has had largest market share in the industry for decades. They have had more global and U. S. sales than any of the other competitors for 77 years. However for the past couple years Toyota has been gaining market share from GM and Ford.

GM Market. The top competitors in the automotive industry are GM, Toyota, Ford, Chrysler, Honda, and Nissan, with GM’s top two competitors Toyota and Ford. Up until last year GM held onto the title of world’s largest automaker as measured by number of cars sold. Toyota has had more profitability, number of cars produced, and market capitalization for several years, but they finally passed GM in cars sold globally. Toyota. Toyota’s gaining market share and sales increase is due mainly because of the increase of gasoline prices for the past few years.

Toyota’s hybrid Prius became in greater demand and as well as their Camry hybrid. Ford actually stopped production on its Excursion and GM stopped production on its Hummer H1. Because of tough economic times, inexpensive cars are seeing a subtle increase in sales. Kia was up . 4% in February 2009 along with Subaru, whose sales were up 1. 4% in February 2009 mainly because of its push on the Forester, one of its least expensive models. Subaru. Hyundai also seen an increase in sales from last year, partly because of its new Hyundai Assurance Plan.

This plan lets buyers miss up to three months of payments if they lose their jobs, and return the car without paying for depreciation if they still can't find work. Consumers also took an interest in clean diesel engines offered in new cars from Volkswagen and Mercedes-Benz because of their good fuel economy and exceptional performance. A common way to measure the size of a company is by market capitalization which is obtained by multiplying the number of shares outstanding by the current price of a share. Toyota has by far the largest market capitalization in the industry with around 94.

7 Billion. Many automakers have been losing market capitalization to Toyota over the past couple years. GM’s highest market capitalization ever was in 2000 at 56 Billion and now is only around 1 Billion. MarketCap. 3. Stage in the industry life cycle The automobile industry is in the late maturity stage. There is slowing demand growth within the industry and the market is saturated at this point. Sales have been dropping for the past couple years and are expected to drop even more this year because of the economic situation. The industry isn’t expected to recover until the credit crisis is over.

The United States’ auto industry isn’t the only one experiencing falling sales and profits. Italy, France, and Germany have all had problems, but with government sales incentives, these countries have all seen a rise in sales. What is expected to happen to happen in the industry life cycle is as sales within the automotive industry start falling, new technology will take over and the industry will regain momentum and sales will start picking up. ii. Strategic Group Analysis 1. Strategic Group Maps a. Identify Primary Competitors There are different levels of competition for GM.

Kia, for example, only really competes with the Saturn brand, whereas companies like Ford or Honda compete with almost all of GM’s brands. However, there is only one direct competitor for GM: Toyota. Toyota and GM manufacture brands or lines in practically every possible type of car, from fuel saving small vehicles to luxury SUVs. And Toyota is rapidly gaining ground on GM (10-K). b. Identify Potential New Entrants Though it is doubtful that a company would be able to directly compete with GM or Toyota, at least any time soon, there is a strong possibility of companies taking business from certain of GM’s brands.

Besides lines that already compete with certain GM brands, there is a possibility of smaller companies, like Kia, expanding their product lines to compete with a broader spectrum of GM’s brands. Also, since GM is subject to the whims of a fickle public, there is always a chance of outsiders suddenly being a major concern. If, for example, the current recession were to drag on for an extended period, there would be a growing demand for cheap cars from companies like Tata Motors, which produces $2,200 cars (Tata). iii. Five Forces Analysis (relevant to strategic group) 1. Rivalry among existing competitors

Rivalry within the automobile industry is very intense. Rivalry in this industry consists of price competition, and mortgage financing. The markets for automotive and mortgage financing, insurance, and reinsurance are highly competitive. Consumers are financing vehicle purchases in North America and Europe. The lending arm of General Motors, GMAC’s mortgage business faces major competition from banks, savings institutions, and mortgage companies. GMAC’s insurance business faces competition from insurance carriers, reinsures, third party administrators, brokers, and other insurance-related companies.

Many of GMAC’s competitors have positions nationally or in the markets in which they operate. A lot of their competitors have lower cost structures, lower cost of capital. GMAC also faces competition in, rates product offerings, pricing and fees, and customer service. This competition may increase. GMAC has increased pricing on certain lending activities recently. If GMAC is unable to compete effectively in the markets in which it operates, then General Motors’ profitability and financial condition could suffer (GM 10K). There is a possibility for price competition in the competitive U. S.

market. A competitor introduced a new full-size truck and offered customer incentives to gain market share. GM also increased customer incentives on our recently launched full-size trucks. This was not previously anticipated (GM 10K). 2. Threat of potential entry The threat of new entry is weak due to the high entry barriers. These barriers include a large number of production units and distribution outlets for the automotive industry to achieve economies of scale. Also, a large of amount of human capital is needed in order to be competitive. In 2008, GM sold 953,000 vehicles in North America.

They sold 769,00 vehicles in England, and 361,000 units in Latin America. They sold 226,000 in Asia, totaling two-million, three hundred-nine thousand vehicles sold in 2008. The large sales figures needed for a new company to enter the market make the threat of new entry weak (GM 10K). On the product distribution side, in 2008 GM had 6,375 dealers in the United States, along with 715 in Canada, and 270 in Mexico. There were also 14,242 outlets throughout the rest of the world (GM 10K). Human capital is another factor that affects the threat of new entry.

The large human capital needed again makes the threat of new entry weak which also increases the barrier for entry for a new firm. In 2008, GM had 243,000 employees within their company (GM 10K). 3. Competition from substitutes In 2008 there was a slight increase in the use of public transportation due to high gas prices. However, the competition for substitutes in automobiles has been very weak. Possible substitutes for cars include such mass transit systems as subways, buses, and taxis. Biking and walking could also be substitutes for commuting in short distances.

At the present time, it is estimated that only 5% of the U. S. population mass transportation. This leaves 88% of the United States population commuting via their personal vehicles. Although public transportation numbers are slightly higher in New York, 63% of commuters still use their personal vehicle as a means for transportation. Locally in Tennessee, only 1% of the population used mass transportation. The data taken from the United States census shows that there still is a great need for automobiles; therefore, making the competition from substitutes weak (Census). 4. Power of suppliers

General Motors, like the auto industry as a whole, has a diverse array of suppliers, from large companies like HP’s Electronic Data Services (EDS) and Delphi, to smaller companies like Eagle Ottawa LLC. Then there are the numerous mom-and-pop style companies the industry employs for specialty projects and smaller orders. And, just as there are multiple sizes of companies in the supplier chain, there are multiple levels of supplier power. Some of these suppliers get only a small portion of their revenue from sales to auto companies, while some get practically (or literally) all their revenue from auto manufacturers.

Think of it as a continuum, with companies like EDS on one end and companies like Delphi on the other (Crains). Delphi has almost zero power over any automotive company; GM alone constitutes some 80% of their business. While EDS would certainly be affected by the loss of the industry’s business, they are diversified enough to survive, and in a much better position than Delphi (Time). The odd thing about the auto industry’s power over their suppliers is that while they have a large amount of control, that control doesn’t necessarily translate to a competitive advantage, at least to the largest competitors.

For instance, most of GM’s suppliers also supply Toyota, Ford, Chrysler, and Honda. And each company makes up a significant portion of the supplier’s revenue. So, even if GM were to succeed in pushing down the prices of the supplier, GM’s rivals would simply do the same. At most, GM has developed parity with its rivals. 5. Power of customers Probably the biggest problem facing GM, at least within the 5 forces model, is the power of its customers. GM has not been able to successfully differentiate itself from other car companies, so the switching cost to buyers is low.

Also, information on GM, and the auto industry as a whole, is widely available. This leads to a well-informed, and thus more powerful, customer base. Though GM has a very high customer retention rate (64. 7%, second to Toyota), the company’s inability to differ itself from other brands has left it with low influence over its customers (Autos, Discussion). iv. Critical Success Factors In order to succeed, GM is going to have to reduce the size and expense of their organization. Some of the shrinking that is to be done is shrinking of their brands.

With GM having so many brands with repetitive models and the only difference between these models are the trim lines or subtle cosmetic differences. This redundancy is neither cost effective nor profitable. Branding When GM cut one of their oldest brands, Oldsmobile, they paid over $3,000 per vehicle sold in the last year to so that dealers would have some sort of compensation for the ending of the brand. GM had to make sure that they purchased back the cars that were unsold and even tools that were used to work on these cars. After the elimination it is estimated that the final cost of it was over $1 billion.

Oldsmobile Elimination GM wants to reduce the models they sell and like their competitors focus more money and attention on a quality product that consumers desire. GM currently has 89 models spending $7 billion while Toyota has 26 spending $15. 3 in R&D. The sales as a result of this investment are evident. R&D Expense General Motors is expected that they will consider the possibility of bankruptcy. There will be a division of the profitable and not profitable portion of the company. The new “GM” maintains key brands such as Chevy and Cadillac as well as several international units.

Old “GM” would be composed of brands like Hummer or Saturn that are under performing. The obligations such as union issues with the Auto Workers Union would be transferred to the Old “GM”. When the company is split into two division the retiree benefits and other things that are suppressing the New “GM” from being profitable would be no longer there. The Old “GM” once it found a buyer while being protected by bankruptcy would then disturbed the profits to creditors and retirees. Division of GM II. Internal Analysis (relative to primary competitors) a. Value Chain Analysis Gm’s value chain has many strengths and weaknesses.

Some of their strengths are their people, suppliers, Chevy Volt battery, innovation, research and development department, innovation, and their technical center. The World Environment Center in China and GM has worked together over the last two years on a project that has saved energy, water, and the environment. Through these efforts they have strengthened their competitive advantage and at the same time created ways to save money. "GM's participation in this project allows us to expand our corporate environmental initiatives through WEC's direct, on-the-ground approach to capacity building.

This is enabling us to further integrate sustainable development directly into our business process and across our supply chain," stated Kevin Wale, President and Managing Director of the GM China Group. One major focus area of WEC is the supply chain. The payoff from the alliance between GM and WEC prove that explicit and significant results were obtained throughout the supply chain process, which benefits both GM and the WEC. Green GM made a joint venture arrangement with Kroger, Enterprise, and VeraSun for their flexible fuel vehicles. The fueling stations will be located at Kroger stores.

This makes Kroger the first national retailer to offer E85 fuel. As a response to this joint venture, Enterprise Rent-A-Car has allocated specific rental locations as E85 branches. One-fourth of the automobiles at these locations will be GM FlexFuel vehicles. Joint Venture Another strength is their building complex at the General Motors Technical Center. This building houses a world-class computer network system, state-of-the art engineering facilities, and a climatic wind tunnel. The Research and Development team consists of 650 with more than 85 percent have earned PhDs.

The top universities are thoroughly represented among these employees. The R & D department is where high spending occurs because this is the main focus of GM’s competitive advantage. Complex Still another strength is the Chevy Volt Battery. This remains a strength because the knowledge of how to make the battery and produce the electronic controls remains here in the U. S. GM saves money by importing the battery and other materials from Korea. Volt The QS-9000, which is the quality management system standard for GM, is a strength and a weakness.

It is a strength because it takes preventative approaches to quality issues by holding the manufacturer and customer specific requirements. This saves the automaker money by maintaining continual improvement, placing emphasis on preventing defects and lowering in the amount of waste in the supply chain. The weakness of this system is all suppliers much register with this system, which is expensive and may deter some suppliers. QS-9000 One weakness of GM is they have not grasped the idea that the main source of their profits should come from ideas not necessarily the metal or plastic in the vehicle.

They should expand their focus from just making profits on automobiles to making money from the applications needed in the automobile. GM has focused on the automobile and needs to focus more on ideas and ways to get consumers to keep coming back. Apple Another weakness is their size and their slow responses to change. One reason for their slow responses to change is the fact they are so large. When a company becomes so big it makes it difficult to keep up with exactly what everyone is doing. It makes it more difficult to change things.

It is possible to make things go smoothly and change more easily, but it takes a concerted effort on the part of top management. b. Distinctive Competencies One of GM’s strongest competencies is its global awareness. GM is constantly looking all over the world for the best places to manufacture and sell its vehicles. GM is currently located in 34 countries and employing 252,000 people in these countries. A second area of strong competency is safety. GM puts a lot of research and effort into its safety measures. GM has measures for before, during, and after a crash.

Before a crash the drivers can use electronic stability controls to give themselves more control of the automobile and lower the chance of a possibility of a crash. The electronic controls will be able to sense the difference in the angle of the steering wheel and applies fast and precise force to a particular brake trying to help the driver regain control. ABS helps prevent a crash by lowering the possibility of the brakes locking up by quickly changing the brake pressure during hard breaking conditions. During a crash GM’s methods of safety is the air bag. GM has the only dual- depth air bag.

“The dual-depth passenger-side frontal air bag customizes restraint levels by deploying in different sizes and at different pressures, depending on seat position, safety belt usage, and crash severity. ” Advanced air bags uses a sensor in the passenger’s seat and the car will automoatically turn the air bag off if a child or someone who is not tall enough for the air bag is sitting in the front seat. This helps reduce the possibility for injuries caused by the passenger side air bag. Side impact air bags are child-friendly air bags and GM was the first to offer this type of air bag.

Head curtain air bags will release in the event of a rollover. Two other aspects that keep the driver safe during a crash is the safety cage and crush zones. The safety cage circles the driver and is made to absorb and redirect crash engergy in order to protect its occupants. Crush zones are made to collapse on impact allowing them to also absorb engergy. After a crash GM uses OnStar to help the drivers. OnStar is a safety, security, and communication system. During a crash an advisor is notified immediately and can send help to your exact location.

An advisor can also notify the first responders with any critical information. If a driver is in an accident and can not reply to the inquiry from the OnStar advisor help will be sent immediately, even if you did not ask for it. Safety A third competency is realization it is not a travel agency. 100,000 U. S. employees were taking business trips and GM was making all of the arrangements for their employees. Everything from dinner reservations to entertainment arrangements. By outsourcing these activities GM was able to save 3. 7 million dollars per year. Travel A final competency is GM’s focus on information technology.

GM took a lesson from Apple with regards to applications and partnered up with Sony to put their memory sticks in GM automobiles. This way consumers can take their music anywhere and everywhere they go. c. Financial Analysis The financial condition of GM is precarious, to say the least. A comparative ratio analysis, followed by a glance at the balance and income sheets should paint the picture pretty well. Below is a table outlining the main ratios to look at when comparing GM to Toyota and Ford (moneycentral). |Ratios | |GM |Toyota |Ford |Industry | |5 year AVGs | | |Net Margin |-9. 4 |6. 1 |-2. 9 | | |Interest Cov |-3.

3 |70. 06 |-0. 74 | | |ROA | |-13. 18 |5. 04 |-2. 3 | | |ROE | |26. 56 |13. 7 |86. 12 | | |Current | | |Rec. Turnover |17. 2 |14. 1 |1. 4 |8. 1 | |Inv. Turnover |10. 7 |10. 5 |14. 6 |7. 6 | |Leverage Ratio |-1. 1 |2. 7 |-12. 6 |3. 3 | The first discussion point is the net profit margin. Note that GM has a smaller profit margin than either of its competitors, although Ford is in dismal shape as well. It should be clear that something must be done to cut GM’s costs, but exactly what is a completely different, and difficult, subject. While there would certainly be a benefit from reduction of labor costs (including those