General Motors Company (GM) is known as one of the world’s top automakers that do business in more than 157 countries. By providing quality vehicle security, and information services, GM is always listed as one of the best choices that customers from different ages and social classes tend to pick. But recently, due to poor management decision, the recession of 2008, and its inability to be flexible to change and the loss of market share to foreign competitors, GM filed for Chapter 11 reorganization Bankruptcy in 2009.
But after the reorganization, the company is slowly getting back on track and recently has shown growth. This research paper focuses on four sections of GM: production strategy, marketing, financial analysis and SWOT analysis. Section one depicts the production strategy. Design globally, manufacture everywhere, and sell everywhere are the most important goals that the company wants to reach. This paper discusses what production strategy GM is using and developing not only to satisfy its own customer’s needs but also benefit the company from reducing costs at the same time.
Section two focuses on the marketing of GM. Marketing plays an important role to achieve company’s goals, objectives and it is even more pertinent in the sales of motor vehicles. They design different types of cars aimed toward individuals based on their income, age, family and occupation. This research paper mentions what types of marketing strategies are used by GM and how it affects its reputation and the financial outcome of these marketing strategies.
Section three focuses on the financial side of GM, a financial analyst will examine a company’s financial statements, such as balance sheets (asset, liability and stockholders equity) income statements (revenues and expenses) and Statements of Cash flow (cash inflows and outflows activities), using financial ratio to determine the company’s profitability, solvency, liquidity and stability. The next step is to compare these ratios of the current year with ratios of the past few years to determine the company’s performance and financial situation. Section four focuses on GM’S SWOT analysis.
The SWOT analysis GM’s internal strengths and weaknesses and the external environmental opportunities and threats. In addition, evaluation on the SWOT analysis will be discussed. In the following paragraphs, the four sections will be discussed and analyzed deeply. BODY PARAGRAPH Production Strategy Many recent external and internal effects have turned General Motors no longer to remain as one of America’s top automobile brands such as the economy crisis, financial problem, the increase of foreign brands, etc. These effects have forced GM to look into the future of the auto industry and realize what place it has in the automobile market.
To remain on the market, GM has planned some production strategies. These strategies help the company to rebuild and strengthen its own business. Furthermore, it can successfully expand not only domestically but multinationally. The first strategy is called brand restructuring. In this strategy, GM focus on restructuring their brand based on sales statistics. Chevrolet, Cadillac and Buick will remain at the core of its business. Other brands such as Saab, Saturn and Hummer will either be sold or closed because its sales lag behind throughout the board.
Closing these brands narrows GM’s concentration, so it can focus to invest brands that bring more benefit for them. Moreover, this strategy also supports the introduction of new models which have better positive impact on its sale. The second strategy is fuel efficiency. Green technology now becomes more sustainable and environmentally friendly, so GM also uses this new environmental initiative into their design not only for supporting industry to evolve, reducing the environmental impact of its vehicles but to create lifelong consumers as well.
Therefore, GM must appeal to the modern day environmentally friendly and economical American citizen in order to regain the trust. The company develops and increases their sales with new product lines that offer fuel efficient choices including electric, hybrid and FLEX fueled automobiles. On the other hand, many foreign brands have been industry leaders in fuel efficiency. General Motors has no choice but to play catch up. In the next few years, GM plans to increase about 50% of its efficiency capabilities through its Flex-Fueled cars. The third strategy is cost cutting.
Reduction of GM brands and models as mentioned above is the best way to gain cost savings. The sale of these brands will bring many dealership closings that become another cost reduction opportunity for GM. The company is also working to eliminate wasted spend on new products. It tries to use as few vehicle platforms as possible that supports development and lowers costs. By 2019, GM is pushed to reduce its 15 platforms; its costs will be cut by 20 percent. Marketing People notice a product or service by analyzing and interpreting information they see or hear.
The way they understand and experience affects their attitude and how they perceive that product. Marketing uses advertisement and promotion to influence the consumer decision making process. According to the article “GM’s Batey on Marketing Strategy, Agency Partners: ‘There is no Change’” by Rich Thomaselli, mentions about two marketing strategies that the company uses in order to advertise for their product. The first one is The Chevy “Love It or Return It” program. The company offers a buy-back program for new customers.
The co-chair of the Chevrolet Dealer Council, Steve Hurley, is confident about their new product line because he thinks once the customers get behind the wheel; they are more likely to take one home with them. Chevrolet held the same program on 2009 and according to the company’s statistic; there was less than one percent of customer returns. This program aims mostly for new buyers, the company creates an opportunity for them to try a new vehicle for two months and decide whether or not they want to keep it. Usually, the customers will get stuck with a vehicle they do not like and pay for the loan; this program reduces that burden for them.
The second one is being the domestic car and truck sponsor for the Olympics. They run ads during the games to attract more customers, familiarize the name of a brand, and reinforce company’s identity. GM has been in a continuous sponsor for the Olympics since 1996. Sponsoring the Olympic Games has a huge effect on the company sales because there are thousands of athletes that endorse sponsorships, media exposure, people in the audience, and television viewers. It also broadcasts worldwide on TV, internet, and smartphones ads. These recent technologies have increased the awareness and sales of the brand as an Olympics sponsor.
This article helps us to understand better the strategy GM uses to advertise for their vehicles, based on that, we can analyze how marketing helps boost up the sales of the company and effects of consumer decisions in choosing a product. All brands have their own unique characteristics that the marketers have to create personalities to attract consumers to that product. The “Love IT or Return It” plan and the Sponsoring of the Olympics in order to increase revenue within GM are both excellent marketing strategies that have proven to be very successful in the field of marketing. SWOT Analysis
Corporate management uses a variety of tools to evaluate the effectiveness of processes. A very popular tool used by major corporations is an analysis of a specific process’ strengths, weaknesses, opportunities, and threats or SWOT. In addition, the book written by Hill and Jones, states that “the goal of SWOT analysis is to identify the strategy to exploit external opportunities, counter threats , build on and protect company strengths , and eradicate weaknesses. ”(19) In June of 2012, an independent evaluation company produced a detailed SWOT to evaluate General Motors for its investment potential and long term viability.
The SWOT produced by MarketLine Corporation generated some surprising and not-so surprising results. With approximately 207,000 employees GM has the largest market share for vehicle sales in the United States, and the second largest market share internationally. Another Strength that GM is its strong commitment toward Research and Development (R&D). GM dedicates a minimum of 5% of sales revenue for R&D. GM’s R&D operations have generated several technologies for reducing the use of fossil fuels.
By identifying methods for increasing auto gas mileage, and the development of electric cars, GM has an excellent reputation for social responsibility. With the high demand for mobile communications, GM’s R&D department is focused on the development of hands-free voice operated wireless communications for vehicles. With GM’s vast international distribution network, their market reach as compared to the competition has far greater strength. This well established international manufacturing and distribution footprint allows GM to enjoy a far greater return on equity (ROE) than its competition. In 2011 GM had an ROE of 19.
9%, which is more than 1. 5 times that of their nearest competition. This is primarily attributed to GM’s ability to manage and allocate resources in an efficient way. The report noted that GM has a few operational and market weaknesses. With the demand for low cost, high quality vehicles, manufactured at an optimum rate, mistakes have been made. The highly publicized recalls of several GM models over the last few years has tarnished GM’s reputation within the consumer public. With the decline in sales revenue during the most recent financial crisis, GM has seen a few internal issues develop.
GM’s underfunded pension program has created tension with unions, and damaged GM’s credit standing with institutional lenders. With long-time employees retiring, the pension fund will see more stress in the coming years. GM will need to handle this disparity going forward. GM is enjoying an opportunity to cash-in with the greater demand for GM vehicles in Brazil, Russia, India, and China. These emerging markets will help boost GM’s international position and overall revenue. Also, GM is positioned to satisfy the increasing demand for energy efficient cars. GM’s hybrid and electric car designs will fit well into several foreign markets.
The primary threat for GM is price competition from manufacturers with access to highly motivated, lower paid labor forces. As domestic and international vehicle prices fall from competitors, GM’s revenue will likely suffer. This will place stronger pressure on GM to negotiate with unions for lower wages, and to lower manufacturing costs. This could have a long term effect on quality. In addition, greater demand from the public and government entities for reducing pollution output from vehicles and increasing gas mileage will place greater financial burdens on GM.
Financial Analysis The company’s current ratio in the past 3 years was 1. 22, 1. 24 and 1. 30 and it is above the industry average of 1. 23. This shows that the company is able to pay back its short term obligations and it’s in good financial health. On the other hand, it’s not too high to suggest inefficient use of current assets. The quick ratio for the company was . 5, . 6, and . 8. It was still above the industry average of 0. 6 and shows that the company will have no problem paying its short term obligations without having to sell its inventory.
As a Auto Industry business it’s important to look at the inventory turnover. The company’s ratio is 8. 7 which is above the auto industry average at 8. 4. This ratio tells us that the company has strong sales compared to the industry average and is able to sell and replace their merchandise in short periods. The company total asset turnover (TATO) in the past 3 years was . 9x, . 7x, and 1x. This ratio indicates how efficiently GM uses its assets to generate sales. Even though the company’s ratio has improved in the past 3 years is still behind the industry average of 1.
2x which means that the company needs to keep improving it assets utilization efficiency in order to generate more sales. The company’s debt ratio in the past 3 years was 49. 1, 48. 5, and 47. 9 while the industry average is 48. 3. The company has a lower percentage of debt compared to its assets and the ratio is well below the industry average which is good. The debt ratio is one of the most important ratios because it helps to determine the company’s level of risk. The net profit margin ratio for the past 3 years was 30. 6%, 25. 7%, and 27. 5%. We can notice an abrupt net income decrease from 30.
6% in 2010 to 25. 7% in 2011 (a drop of 62. 42%). After taking a quick look to the Income statement from 2010 to 2011 we noticed that sales decreased, however cost of sales (COGS) increased as well as Operating Expenses which shows operational inefficiencies. For 2012 the ratio increased to 27. 5% and was above the industry average of 27. 1%. Even though operational expenses and COGS increased from the previous they were sales increased by 12. 98% which allowed the net profit margin to increase. However, management should reduce operating expenses and increase efficiency to allow a greater growth in net profits.
CONCLUSION By analyzing four different sections, this research paper shows GM’s vision, what it does and how it has changed and improved to help itself out of crisis. To sustain and grow stronger, production strategies is used to rebuild and organize its brands. Those strategies assist the company to realize what to focus to develop its own products in order to regain GM’s market share and customer trusts in the United States. Brand image can be advertised from an event or from promotion and media, external influence, also plays an important part to help increase the sales and build up the company’s reputation.
That is why marketing serves as an important role in every business. Successful companies pay attention to their rival’s failures or successes, and use them to their advantage. In addition, the financial ratio analysis helps us identify trends over time for GM. After deeply analyzing three key aspects of a GM – Profitability, liquidity, and solvency – we develop a clear picture of GM’s financial position and conclude that GM’s operation is very efficient and its financial structure is healthy.
Furthermore, Based on GM’s internal strengths, weaknesses, and external opportunities and threats, the management of GM has created a very effective business model, which is focusing on a single global vision: to design, build and sell the world’s best vehicles. This powers the development of world-class products that are winning in the marketplace, and is helping to transform GM’s business and fortify GM’s balance sheet. (GM. com)