General Motors (GM) is one of the largest companies involved in the business of designing, building, selling and servicing automobiles and parts in the global market. Company owns several brands such as Chevrolet, Cadillac, Buick, Pontiac, GMC, Oldsmobile, Opel, Hummer, Saturn and Saab Founded by William “Billy” Durant in 1908, GM held only Buick Motor Company initially, but in a matter of few years acquired more than 20 companies including Oldsmobile, Cadillac, and Oakland, today known as Pontiac.
As demand for vehicles started increasing to unexpected levels during the 20s, GM set the pace of innovation in production, design, and marketing for others to follow [www. gm. com]. Due to the challenging times in America and political turmoil in Europe, GM went through uncertain times during 30s. Post World War II, automobile market opened up again with increased consumer optimism and GM responded to the situation with continued innovation. The 60s and 70s saw an unprecedented revolution with increased prices and foreign competition.
Responding to the environment, GM downsized its vehicles, making it lighter and fuel efficient. GM led the automotive technology revolution by introducing catalytic converter in reducing emission and by offering airbag in their cars. During 70s, GM vehicles were built to run on low-lead or unleaded gasoline. 80s and 90s marked globalisation in the automobile industry. While Japanese, Korean and German manufacturers where leading the American automobile market, GM started aggressively to expand globally.
By new millennium, GM had become a global company with strong presence in emerging markets such as Brazil and China. GM renewed focus on innovation with push to electric vehicle technology, hydrogen powered fuel-cell concept and flex fuel vehicles. However, recession with global credit crisis pushed the car sales to near depression levels and dried up operating capital for GM. US treasury has offered a bridge loan with the condition that the company will undertake restructuring to come out of the crisis.
Post-bankruptcy filing on June 1, 2009, new general motors company has been created on July 10, 2009 with U. S Treasury, Canadian Government, and UAEW Retiree Medical Benefit Trust as its major shareholders. This new GM is smaller, leaner company than its predecessor with fewer brands, more focussed dealer network and competitive labour agreement with it’s unions. ? 3. Strategic Position 3. 1External Analysis 3. 1. 1Macro Environment PESTEL Framework
PESTEL framework helps understand different external factors that may have influence of the business strategy of the organisation. PESTEL Analysis for General Motors Political Government laws and regulations have a great deal of impact on the automobile industries. While the labour laws and taxation of the land will have an impact on the companies which has the manufacturing facilities on the land, restrictions on trade and other regulations of market will have an impact on the sales.
Following political factors have influenced the global automobile industry in the past decade •Political uncertainty in oil producing countries like Iraq has made the gasoline price go up in the last one decade and hence demand for gas guzzling SUVs and other heavy vehicles has slowed down •With the growing awareness about global warming, emissions norms in most of the countries have been tightened •With the GDP growth of the developed countries continue to remain low, majority of the countries have maintained aggressively low interest rates to stimulate the economy Economic
•High Gasoline price •Increased volatility of the raw material price including steel price •Decreasing oil reserve is expected to have a major impact on the automobile industry •Increase in disposable income amongst the middleclass population of emerging markets like India and China has boost the demand for small and medium size cars •Growth from non-traditional markets like Asia Pacific and Africa – as indicated in the table below Region2001200520102020
North America19. 621. 52325 Western Europe16. 6151313 Asia Pacific12. 418. 521. 727 Central / Eastern Europe2. 534. 56 South America2. 4347 Middle East1. 3233 Africa0. 81510 Total55. 66474. 291 * Source: Nieuwenhuis and Wells (2003) Table 1 – Automobile Market Growth and Forecast (million units) Socio-cultural Socio-cultural factor has a great deal of influence on the automobile industry across geographies(Bruno et al.
2008) •Demand in North American and European market largely comes from the replacement purchases since most of the household already one or more vehicles •Consumers are willing to pay for the vehicles that fit their taste and needs •There is a growing realisation amongst American population for “Made in America” and hence increased demand for cars made in America
•Similarly, cars manufactured in Europe are set to benefit from the increasing demand from the domestic market since European consumers prefer European brand •Vehicle has become a status symbol in the recent times, resulting in increased demand for luxury cars •Consumer needs in each market depends to a large extent on the cultural aspect in that region. While people in markets like India look for “value for money” cars, need for developed market is luxury •Consumers in the current market are demanding fuel efficiency and safety. * Source: KPMG’s Global Automotive Executive Survey 2011 Figure 1 – Importance of product issues to consumers Technological
Technology revolution has brought in several changes in the way automobiles are designed, built and driven around the word. Consumers are demanding •Modern cars have become lighter with sheet metal technology and safe with the use of technology in safety equipment. Fuel efficiency has been increasing with innovations in fuel handling and engine designs •Technology is changing so frequent that the new technology emerges making it difficult for the car manufacturers to keep up with the design •Electric systems and electronic controls have enhanced the user experience •As with other industry, internet boom has impacted auto industry. Consumers have been making more informed choices about their vehicle purchases Limitations of PESTEL framework
•Effectiveness of PESTEL depends to a large extent on access to quality data on the external environment •Too much data sometimes poses challenge in identifying which factor is more critical •External factors used for PESTEL analysis are dynamic and change quite often. It poses risk of leaving out factors having big influence while overdoing factors which are insignificant •It’s simplicity of presentation is also considered as a limitation. Unless the degree of impact is analysed, findings will not have much value •While the focus is mainly on the external environment, internal factors and scenarios are ignored 3. 1. 2Micro Environment Industry Life Cycle 5 Forces
Analysis of five forces helps organisations understand the business environment of their industry and carve out a position that is more suitable for the organisation As identified by Michael Porter, forces that influence the industry are competitive rivalry, threat of substitute, barriers to new entrants, bargaining power of buyers and suppliers Competitive rivalry With high degree of concentration in U. S, Japan, Korea and Germany, rivalry in Automobile Industry is intense. U. S and European markets with high market share is a playground for global automobile companies. Since the growth is slow in these established markets, global players are fighting fierce battle to grow their market share.
With huge growth potential in the emerging economies like India and China, most of the global automobile manufacturers are changing their strategies to reap the benefits. Rivalry in the automobile industry is further heightened fixed cost of manufacturing across the players and cost of switching for the consumers.
Threat of substitute Even though there are reliable alternatives to transportation, threat to automobile industry is fairly low except for mega cities with high population density. While there are several transportation systems available which are less expensive, they don’t offer the same level of convenience and independence of the cars. Moreover, owning personal transportation vehicle is a status symbol in some parts of world and it has social and cultural
impact With increasing focus on developing infrastructure in emerging economies, threat of substitute is sub seeding in those markets too. Barriers to new entrants With unprecedentedly high level of capital investment required, starting a new automobile company is very challenging.
Achieving the scale of economy required to compete with the existing and established player is extremely difficult. With the manufacturing facilities required automobiles is highly specialised, retooling may not be easy in the event of a failure. While barriers for the new entrants to the industry are substantially high, entering new market for the existing player is fairly easy. Bargaining power of buyers
In the current situation, with majority of the global automobile manufacturers having global presence, options available with the consumers is high and they enjoy the benefit of power. With most of the manufacturers offering similar products and with low cost of switching between the competitors, buyers walk away as winners.
Bargaining power of suppliers If there is any battle for power between the Automobile Manufacturer and the supplier, power is clearly with the manufacturer. With increasing standardisation, parts and services are becoming commoditised. With hardly few major manufacturers, power equation surely is with the manufacturer 3. 1. 3Opportunities and Threats External environment scan reveals several opportunities and threats for General Motors Opportunities
Increasing demand for personal vehicles in emerging economies like India and China provide the best opportunity for GM to expand their business further in that region Increased awareness amongst consumers about the fuel efficiency and green vehicles, GM should continue to focus on innovation to lead the hybrid, electric and other unconventional fuel vehicles Characteristics and needs of consumers in each market is different and hence GM should bring in more localisation in the new markets Low interest rates in developing countries provides opportunities for increases the sales in the near future Threats In the current internet era, consumers are making more informed purchases.
Maintaining quality and consistency is critical. With history as the guide, GM will face challenge in convincing customers that it makes the best cars in the world With depleting oil reserves and growing gasoline prices resulted in significant drop in the sales of SUVs and Trucks.
GM being the large producer in this segment faces the maximum heat Competitors of GM have grown significantly in the past few decades and pose threat to GM enjoying the luxury of being the leader in automobile industry Having paid generously in the past and with the growing labour costs, GM faces stiff completion from other player in the highly competitive automobile industry. Rising cost of healthcare and pension pay-outs add to the problem. Rising raw material cost including steel is affecting the entire automobile industry. Organisations are forced to cut the cost of production without compromising the quality. 3. 2Internal Analysis 3. 2. 1Resource Audit Financial Unable to control their cost of operation, GM reported flat to negative earnings during early 00’s till 2008 – 2009. High Debt ratio added to the problem.
GM was facing the challenge of overcapacity and reduced sales, cash flow had dried down and company was facing significant shortage of operating capital. With quarterly loss of more than 1 billion in 2005, GM’s credit rating was reduced to junk. According to their Letter to Stockholders, GM’s main problems consist of “over-capacity, price deflation, increasing healthcare costs, unstable fuel prices and high competition * Source: www. gm. com Figure 2 – GM's Annual Sales and Profit (Loss) In November 2006, GM sold a 51% controlling ownership interest in GMAC, resulting in a significant decrease in total consolidated assets and loans payable. GM has reported a net loss $ 38. 7 Billion in 2007 which is
attributed to poor quality of the products, manufacturing inefficiencies. While GM made a desperate attempt to cut down the cost and increase the sales. Company has worked out agreements with their unions both in U. S and America to reduce the cost of labour and aggressively expanding in emerging economies like India and China. Increased focus on hybrid cars to increase the fuel efficient models. However, global financial turmoil during 2008 pushed the car sales to near depression levels and dried up operating capital for GM. Company has filed for bankruptcy protection in June 1, 2009 US treasury has offered a bridge loan with the condition that the company will undertake restructuring to come out of the crisis.
New general motors company has been created on July 10, 2009 with U. S Treasury, Canadian Government, and UAEW Retiree Medical Benefit Trust as its major shareholders. This new GM is smaller, leaner company than its predecessor with fewer brands, more focussed dealer network and competitive labour agreement with it’s unions * Source: www. gm. com Figure 3 – GM's Annual Sales and Profit (Loss) Despite the volatile demand and challenging environment, GM has clocked 10 consecutive quarters of profitability as on second Quarter 2012. This is a huge turnaround for GM Human Leadership team under CEO Rick Wagoner was at the helm of GM since 2000. Under Wagoner’s leadership, GM has undertaken ambitious restructuring.
During his tenure, focus was mainly on fuel guzzling SUVs and light trucks. While these vehicles offered high profitability, it was not sustainable due to the increasing gasoline price. Then vice chairman Bob Lutz was known to be a visionary who led the innovation to make electric vehicle. However, sufficient focus was not provided to this program. As described by Wagoner in an interview to Motor Trend (June 2006), worst decision of his tenure at GM was stopping electric car program and not providing required resources and focus to hybrid cars. With U. S. Federal Government taking over the control of GM, Daniel F. Akerson became the Chairman and CEO in July 2009.
Under Akerson’s leadership, GM has launched a largest IPO in the history which is worth $23 billion. His leadership team was largely successful in bringing the company back to profitability and in regaining the lost market share by changing consumer perception about the GM product quality. Through consistent growth, GM was able to re-inves in manufacturing and job creation to help re-establish the U. S. economy. GM, in-line with other American automobile manufacturers has paid generous salary, healthcare and other benefits to its large employee base. At one stage, average healthcare cost per vehicle was more than $ 1,500 in U. S which was three times more than their Japanese competitors.
While this generosity has been the cause of concern for the company to stay competitive, this has helped GM build a strong human resource base GM has pioneered several Human Resource Development initiatives like “GoFast” by conducting series of workshops, company was successful in achieving more than % 500 Million by cutting down the bureaucracy and encouraging on-spot problem solving GM has a very tight vertically integrated structure making it poor in employee communication Physical Through its existence for more than a century, GM has amassed huge physical resources which play to its strength.
Company has large scale manufacturing facilities and product R&D centres. Resource / CapabilityStrengthWeakness Product Research and Development• Engineering Facilities• Manufacturing Plants• Large Scale Operations• Product Quality• Intangible GM has the reputation of building American cars in America for Americans.
While they have a large portfolio of successful brands like Chevrolet, Cadillac, GMC, Pontiac and others, it lacks quality from consumer perspective. GM vehicles goes through major breakdown on reaching just 100,000 kms where as cars made by Japanese competitors runs great for up to 300,000 kms GM led the automotive technology revolution by introducing catalytic converter in reducing emission.
It was first to introduce Airbag in their production vehicles and hence raising the safety standards for other to follow. GM has pioneered advanced propulsion technology and achieved high fuel efficiency of more than 30 MPG in several of their vehicles. They are also leading in developing lithium battery technology for electric vehicles.
GM continue to develop its own electronic equipment, powertrain controller and body control technology which beats out most competitors GM has a strong Information System backbone with global manufacturing information technology infrastructure and web based GM BuyPower for customers to search vehicles. GM ranked No. 1 innovator for four consecutive quarters during 2011 among 183 companies rated by patent board in its quarterly automotive and transportation industry scorecard.
GM was granted 1,123 U. S. patents in 2011 for global product engineering, global powertrain engineering global research and development and OnStar organizations (source: www. gm. com) Relationship with suppliers and dealers has been a weak area for GM. 3. 2. 2Competences Core competencies of GM are its engineering and product development facilities, Technology, large scale operation and leadership.
However, these abilities are being endangered by threats and crippling internal weaknesses such as competitive automotive markets and escalating costs that must be competently managed Porter’s Value Chain As described by Grant (2008), a value chain analysis separates the activities of the firm into sequential chain. Michael Porter’s representation of the value chain distinguishes between primary activities (those involved with the transformation of inputs and interface with the customer) and support activities.
Entire organisation can be modelled as sequence of value creating activities. Activities which are interrelated and common to a wide range of organisations, as identified by Michael Porter are – Inbound Logistics, Operations, Outbound Logistics, Marketing & Sales, and Services.
These activities are critical in providing competitive advantage to the organisation. Limitations of Porter’s Value Chain •Value chain analysis may not be useful for long term strategic decision making since the data used for analysis is usually derived from a single period. •Value chain analysis does not offer any scientific approach for deriving the revenue, cost and assets for each value chain activities. •Due to lack of scientific approach, managers / employees might find it difficult to understand •Some critics find Michael Porter value chain as heavily focussed on manufacturing industry 3. 2. 3Comparative Analysis Historical Analysis Benchmarking Financial Analysis 3. 2.
4Balance of the Organisation BCG GE/McKinsey ADL# 3. 2. 5Strengths and Weaknesses Strengths •Product Research and Development •Engineering Facilities •Large Scale Operations Weaknesses •Manufacturing Plants •Product Quality 3. 3SWOT Analysis SWOT is a strategic evaluation framework used to understand the strengths, weaknesses, Opportunities and Threats. While internal analysis of the company gives insights into its strengths and weakness, external analysis is done to identify the opportunities for growth and the threats the company has to face. 3. 3. 1Limitations of SWOT framework While SWOT analysis is used extensively, it has its own limitations.
It does not provide the order of priority of strengths, weaknesses, opportunities and threats. It does not provide guidance on how to identify the four elements and how to prioritise or rank the same. Those performing SWOT analysis may identify an element as strength but may not be aware of the issues / problems related to the area. At times, it’s difficult to differentiate situations in the external environments as to it offers an opportunity or threat and framework does not offer any ways to distinguish between the two. SWOT analysis is usually done with elements having very few phrases and very little justification as to why a particular element is classified in the category.