Upon your request, I have prepared the enclosed report on the effect of external environmental changes on General Motor’s strategy. The content of the report includes an evaluation of General Motors current overall strategy and recommended reaction for the President’s newly imposed policy.
Saab is a product differentiator with specific target customer groups.
Safety-oriented, high-quality, environmental-friendly, Saab has its unique value proposition. Unlike brands like Chevrolet which is known for a broad range of products, smaller brands like Saab focus on specialized market instead. On its website, Saab emphasizes how the turbo-charged technology is “reliable, durable and exhaust-driven”[i], which makes it different from other brands. It has a mid-high price range among competitors. That’s probably why Saab has competitors like BMW, Volvo and Mercedes. Customers for Saab cars are people who care more about the car’s safety features and less about the price.
Industry factors show that Saab has a pretty strong competitive advantage.
Auto manufacturing industry is in mature stage of its development. The trend towards environmental-friendly and fuel-saving have had great impact on the industry in the past few years. There are very few barriers to entry for potential competitors. However, the fact that we are heading towards a recession is hurting the demand for cars. So there are very limited threats of new entrances. I think the power of suppliers is neutral.
There are several suppliers available for providing raw materials, mainly steel. However, there are not that many suppliers for key parts such as the engine of a car. The power of buyers is high, as customers’ concentration is low and that customers don’t have a high switching cost. The availability of substitutes is very high, considering public transportations are popular nowadays. (See attached Exhibit 1) The industry is well concentrated, as “the eight largest companies account for more than 90 percent of revenue”[ii] In Saab’s perspective; rivalry among competitors is strong. For instance, Volvo cars have exceptional good reputation of being “safe”.
In reference to macroeconomics point of view, the fact that the nation is heading towards a recession limits the buying power of customers on large purchases like cars. Within auto manufacturing industry, “the profitability depends largely on manufacturing efficiency, product quality and effective marketing.”[iii] As the price of gasoline bouncing up and down drastically over the last few years, customers have been more cautious than ever when they consider purchasing a vehicle. Therefore, the power of buyers lowers to neutral.
The announcement leads to a more supplier-powered industry of automobiles.
The introduction of new engines implies that the new trend of automobile market is going to be all about the type of engine you are using. The engine suppliers will have much greater power than they used to, since there are only a certain number of them.
The tax imposed on purchasers of traditional engines and the set price of new engines will certainly increase costs for auto manufacturers like Saab. It means the firm will have to cut costs other way around. For example, GM’s Corporate Responsibility Report 2005-2006 raised the issue of health care. GM gives itself a heavy responsibility when it promises to give every employee a great coverage of health-care. With its large population of employees, GM will have to figure out an accessible plan along with the government to “improve quality of health-care and reduce costs.”[iv] Through ways like sharing costs with government, GM may have a better standing point within the new version of industry.
Saab should lead another innovation with new bio-fuel engines.
I believe that along with the safe, high-quality advantages that Saab already has, and the innovation that is going to take place with its core products, bio-fuel engines, Saab is ready to be at the top of the competition again.
When the government lifts off the barrier of licensing, all firms will start trying to take back market shares. Saab is likely to have the options between merging/acquiring one of the licensed engine manufacturers or to try to produce engines with the same effects. Merging or acquiring another manufacturer seems like an easy and popular approach for most auto-manufacturers. However, Saab needs to be creative if it wants to stand out among its competitors. As a brand that has been focusing on bio-technology associated engines in its history, Saab is well on its way towards more innovated engines. (See attached Exhibit 2)
The new model titled 9-4X is a good example of how well advanced Saab is than other car manufacturers. The concept is about a 2.0-litre turbo engine that runs on bio-fuel, and compact exterior dimensions. “The lightweight, aluminum, four-cylinder engine is optimized for E85 fuel (85 percent bio-ethanol).E85 has a higher octane rating than petrol, making it more resistant to harmful pre-detonation, when the fuel/air mixture is compressed in the cylinder.” [v]
———————–[i] “Saab Techonolgy.” 09 Sept. 2008 .
[ii] Automobile Manufacture Industry Overview. Rep.No. Hoovers.
[iii] Automobile Manufacture Industry Overview. Rep.No. Hoovers.
[iv] Rep.No. General Motors. 2005/06 Corporate Responsibility Report. 2006. .
[v] Linklater, David. “Biopower at heart of strategy.” The New Zealand Herald. 10 Feb. 2008..