General Motors is an automobile manufacturer that held the title of the largest American automobile company until 2008 and for 77 years held the title of the largest automobile manufacturer in the world (General Motors, 2012). The production of the company is established in 35 countries around the world and its automobiles are sold in 192 countries. The headquarters of the company is located in Detroit, USA. The automobiles manufactured by General Motors were marketed under many brands – most renowned among them were Buick, Cadillac, Chevrolet, GMC, Holden, Hummer (which was discontinued in 2010), Opel, Pontiac and Saturn. But in the context of the restructuring of the group, which officially began in June 2009, only six brands are kept by the company, and the rest are either sold or discontinued. In a difficult environment for the American automobile industry and the economy in general, General Motors is currently on the verge of bankruptcy. Since the year 2000, General Motors had lost $86 billion, while the balance sheet of the company had lost more than 90% of its value. The group had received $50 billion through the federal government protectionism, in the form of loans or increase in equity. Since 2010, the head of GM is Dan Akerson. Background
The company was founded in 1908 by William Crapo; however, it was his successor Alfred P. Sloan who transformed it into the largest car manufacturer in the world. Initially, the company’s headquarters was located in Flint in the state of Michigan, and then later moved to Detroit. GM bought Pontiac and Cadillac in 1909, as well as, its major component suppliers for backward integration (Naughton & Clothier, 2012). General Motors tried to buy Ford for a bid of 9.5 million dollars in 1909, but it later abandoned the deal. In the year 1915, GM entered the index Dow Jones. 1915-1917 was exponential growth for the company and the production of Chevrolet increased from 10,000 units to more than 100,000. The flagship model of the group was Chevrolet at the time (Crumm, 2010). In 1916, the share price of GM exceeded 1000 dollars on the NYSE which was very rare at the time. International expansion for General Motors came in the year 1912, when General Motors acquired the largest car factory in Germany named Opal. Under the Hitler regime, the production turned to the military sector. This new orientation increased profits generated by GM. By the end of 1939, the value of Opel exceeded 86 million, or nearly doubled the initial investment of GM (Gall, 2010).
During this time, GM continued to reap profits by exploiting cheap labor, which would work up to 60 hours a week. The company used a portion of its profits to reinvest in Germany, including the acquisition by a foundry in Leipzig. Figure 1 – General Motors Operating Margins (source: Bloomberg Website) At the end of the first decade of the 19th century, General Motor’s financial condition deteriorated. By June 2009, the company initiated the procedure of bankruptcy. Under the terms of the bankruptcy, the U.S. government provided the company with about $ 30 billion, and in return received a 60% interest in the concern; the Government of Canada gained 12% of the stake for $9.5 billion, while the United Auto Workers union assumed ownership of 17.5% of the shares. The remaining 10.5% of shares were divided between the major lenders of the company. It was assumed that after the bankruptcy of the concern will be split into two companies, the first of which will include the most unprofitable division, and the second will comprise of the most profitable brands of Chevrolet and Cadillac. Competition and Industry Dynamics
Figure 2 – Percentage Market Share in Automobile Industry (source: goodcarbadcar.net) Automotive industry is a very diverse sector, which includes manufacturers, suppliers, dealers, retailers, automotive engineers and auto electronics manufacturers. International automotive industry is largely dominated by five major corporations, namely: Toyota, General Motors, Ford Motor Company, Volkswagen AG, and Daimler Chrysler. These corporations have their presence in almost every country and they continue to invest in production facilities in emerging markets such as Latin America, Middle East, Eastern Europe, China, Malaysia and other markets in Southeast Asia. The main goal of all automobile manufacturers is reduction of production costs. The largest manufacturing companies as of the year 2010 in terms of manufacturing are ranked below:
1. Toyota (Japan) – 8.56 million units
2. General Motors (USA) – 8.48 million units
3. Volkswagen (Germany) – 7.34 million units
4. Hyundai Motor (South Korea) – 5.76 million units
5. Ford (U.S.) – 4.99 million units
6. Nissan (Japan) – 3.98 million units
7. Honda (Japan) – 3.64 million units
In the first decade of the nineteenth century, the most rapid pace development in automotive industry took place in mainland China, due to its leading position in terms of attracting foreign capital, as well as, active anti-crisis fiscal measures and credit support initiatives taken by the state. In 2010, production in China grew by 32.4% compared to 2009 and reached 18.26 million vehicles, including 11.6 million passenger cars, which helped to keep for the second consecutive year and the first position of the country in terms of automobile manufacturing (Rosevear, 2012 ). It is assumed that in 2011, China’s auto industry will grow by 10-15%, and for the first time the level of production of the country will reach 20 million vehicles. Figure 3 – Global Vehicle Production (source: rba.gov.au)
The Global Financial Crisis and Automobile Industry With the onset of the global financial crisis in 2008, the global automotive industry was among the most depressed sectors of the global economy (with the exception of China). GM and Chrysler were forced to the fall in 2008 to turn to the U.S. government for billions of dollars of loans, without which their survival had become virtually impossible. Similar loan requests were made by the automakers operating in Europe to their national governments. The total volume of production cars in the world in 2009 was 61.7 million (12.8% less compared to 2008 figures).
In 2010, the global auto industry began to come out of the recession, as sales increased. In 2011, global sales reached the level of 75-85 million cars. The earthquake and ensuing tsunami in 2011 in Japan created an energy shortage and automobile assembly lines were stopped (Gall, 2010). It also suspended exports of Japanese cars and spare parts due to the closure of main sea ports in the country. This eventually led to that Toyota, the former leader of the global automotive industry, to fall back to third position in terms of production behind General Motors and Volkswagen group. SWOT Analysis
– Large market share- Large financial resources- Global experience- Variety of brand names- GMAC consumer financing program- OnStar Satellite Technology| – Behind on alternative energy movement- Poor organizational structure- Stagnant profitability- Overly dependent on US market- Overly dependence on GMAC program- Poor credit status| Opportunities| Threats|
– Alternative energy movement- Continuing to expand globally- Low interest rates- Develop new vehicle styles and models- Growing middle income group in emerging economies| – Rising fuel prices- Growth of competitors- Pension payouts- Increased healthcare costs- Rising supply costs | SWOT analysis is a method of strategic planning used to evaluate the factors and phenomena affecting an organization. All the factors which are part of SWOT analysis are divided into four categories – strengths, weaknesses, opportunities and threats. The method used to carry out SWOT analysis includes definingorganizational goals and identifying the internal and external factors that contribute to achieving or hindering those objectives. Strengths The SWOT analysis for General Motors shows that the major strength of the organization is the existing large market share of the company in consumer markets of United States and other developed countries.
This large market share is the biggest strength since it ensures that the business receives a huge inflow of cast from these markets on a regular basis. In addition, the brand equity of the various brands owned by the company is a major source of revenue for the business (Rosevear, 2012 ). It is essential for the business to leverage this strength to reach its corporate objectives and goals. Another major strength of the organization the global experience of the organization which enables it to have a competitive advantage in almost all regions of the world and this company is effectively able to compete with local competition in any region in which it operates. The management team of the organization possesses the acumen to make business decision for every market in which the company finds potential revenues (King, 2012). GMAC is a consumer financing program which enables the organization to beat competition in consumer decision making process. This program is responsible for providing a much needed edge for the business to beat competition in consumer markets. Weaknesses The major weakness of the organization is that it lags behind by a significant margin on alternative energy movement.
While Toyota has established itself as an environmentally conscious organization through its Prius brand, General Motors has lagged behind its competitor is establishing brands which run on alternative fuels. Similarly, the poor organizational structure of General Motors is responsible for slow decision making and late responsiveness of the organization to changes in consumer preferences. Over dependence on US market is a weakness because it implies that in the case of an economic downturn in US market, the business wouldn’t be able to cope with the decrease in demand by gaining revenues from other market. In fact, US is a highly volatile market in the post Global Financial Recession 2007-08 era, when the consumers are highly conscious about pricing and stability of income is low in middle income group of the country. Poor credit history of the company implies that the business won’t be able to secure much needed finances for its growth. Opportunities Despite the above mentioned problems faced by the organization, the external environment of the business offers highly lucrative opportunities.
General Motors can join in the movement for alternative energy vehicles and create new brands which tap into environmentally conscious market (General Motors, 2012). Several countries around the globe are undergoing economic growth and are the middle income group in those countries in growing at a rapid pace. General Motors can use its financial resources to gain from the economic growth in those regions and strengthen its presence in those regions. The policy of maintaining low interest rates by US Federal Reserve implies stimulation in US consumer demand, from which General Motors can benefit if its positions its brand in accordance with the needs of the consumers.
Threats The threats faced by the company from its external environment are rising petroleum prices which are likely to plunge demand for large models of automobiles. General Motors largely possess automobiles which are less fuel efficient than Toyota. The rising cost of steel in international market will shrink consumer margins for General Motors. Mounting costs of pension and healthcare of its workforce is likely to increase financial distress on the company, which is a major threat for the organization and the source of the current problems faced by the organization. Strategic Measures Taken By General Motors
There are a number of strategic measures taken by General Motors to adapt to environmental changes. Foremost amongst these measures is focusing on markets other than US. Although GM has long been present in Latin America and Asia, until recently, the level of sales there was only a small proportion of the total income of the company abroad. However, GM plans there is a significant change in the situation. Foreseeing that Asia, Latin America and Eastern Europe are growing automotive markets, GM began a venture to invest $ 2.2 billion in four new industrial plants in Argentina, Poland, China and Thailand. This scale-up production of the related change in the philosophy of GM management in international production activities is likely to bring much needed revenues for the company. . Organizational structure and culture at GM is also changing and decision making is being delegated within the company. As for the subsidiaries in Europe, the management is carried out quite independently now.
Regional entities are often allowed to develop their own models and to formulate their own marketing strategy. This regional and national autonomy has allowed GM European subsidiaries to produce cars that meet the needs of the local population. However, this leads to costly repetition of effort in design and production and the inability to share valuable technology skills and practices among subsidiaries. Thus, while the GM maintains strict management over its production capacity in developing countries, the control of the enterprises in Europe is weak. The result is a company whose international branches lack coherence. GM is trying to change that by switching from a centralized view of the world from Detroit to the philosophy that superior centers of the company can be anywhere in the world. The company is trying to use these centers to support its international operations in latest technology.
Four new production plants are currently being built in developing countries that are the embodiment of this new approach. GM is also trying to develop and produce vehicles which have a common international platform. Teams of engineers from Germany, Detroit, South America and Australia are working on this initiative. Local plants will have the right to modify elements of machines to meet the tastes and preferences of local customers. Adhering to a common international platform, the company can reduce its overall cost structure (Rosevear, 2012 ). The first result of this effort is Cadillac Seville, which was developed in 1998 for sale in more than 40 countries. Group GM minivans with front wheel drive was also designed with a common platform, which will be made in different places of the world, as was the case with Opel Astra, which is the most popular of all GM cars in Europe.
In addition, GM is beginning to focus on Chinese market. The company is offering new products and technologies, and building new factories in China, which is now regarded as one of its most important markets (Rosevear, 2012 ). In the first quarter of 2009, in contrast to the business units in other regions that have failed to reverse the trend of decline, the volume of sales in the Asia-Pacific region grew by 6 per cent, while in China it grew by 17 percent. General Motors has set a goal to double its production in the next five years sales in the Chinese market. Currently in China there are two GM automobile plant, both located in Shanghai. Conclusion
The paper discusses General Motors which is one of the largest automobile manufacturers in the world. The paper discusses the strategic problems faced by the company and carried out SWOT analysis of the organization to gain an understanding of the problems through which the organization is going through. The paper also reviewed various measures taken by the organization to overcome its strategic difficulties.
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