Case Analysis

General Motors - 2005
Course Instructor: Prof Dr Ali Askari Date: October 29th, 2010 Group # 5
Niveen Qadri (29) Muzna Ahmed (28) Maryam Khan (21) Sidra-Tun-Nisa (37)

As a result. it had grown rapidly. . • Why has GM lost much of its competitiveness? GM has failed to adapt to the fast changes in the automotive industry relating to technological advancements and consumer preferences. Internal reasons that account for this decline are the failure of the company to adapt to the changes in the environment such as the consumer preferences and technology. • EXECUTIVE SUMMARY Mission: General Motors is committed to be a leader in providing transportation products and services of such quality that its customers will receive superior value. its employees and business partners will share their success and their shareholders will receive a sustained return on their investment. such as employee discounts. its product and positioning strategies have led its products to become obsolete.g. • From 1908 to 1976. this strategy is not sustainable and is a weak method of covering pension costs. GM is deriving its 100% profits from financing cars and not from the sales of vehicles. hybrid vehicles)? GM will find it hard to take advantage of launching hybrid cars as it would not be able to recover the heavy costs of productions through charging high costs. lack of differentiation applied to products and lack of effective cost leadership strategies to efficiently manage costs. I suggest the company increase the employees’ participation in covering the plan in the form of selling bonds directly to employees in the form of employee-stock-ownership-programs. Also.General Motors I. • To what degree is GM positioned to take advantage of new technologies (e. its strategy has been more reactive in terms of tapping opportunities in new markets and differentiating its products. as previously it has positioned itself as a supplier of cheaper cars through consistent discount offerings. • What should GM do about its junk-bond status? Because of the high risk of the bonds issued and low credibility of the company. But today its market share has fallen and together with challenges posed by economic conditions. in the form of rising healthcare costs and fuel costs and stiff completion GM is facing a tough time in sustaining its profits.

g. competitors compare to their foreign competitors in terms of sales and profits in the automotive and credit sectors? GM and ford seem to be benefiting more from their credit/financing divisions rather than from their automotive divisions in contrast with Honda. Restricted plans would allow retention of employees for a long term and it could also be suggested that the pension plans would be revived once the financial position of the company is restored. . For Honda 80% of its revenues come from automotive division. the strategy has to be towards differentiation of the products and more investment in R&D to enhance the product performance and attributes and to not allow any cars in future to become obsolete.S. Toyota and Hyundai. • What generic strategy should GM emphasize (e. In the long term. The three foreign companies are benefiting from high sales in China and other Asian markets and also through investing heavily in new technologies such as fuel efficient cars. GM would have to be clearer with them regarding its financial position.• How do GM and its U. differentiation versus low cost)? I would suggest both. • What should GM do about its pension and healthcare obligations? GM would have to negotiate with the employee unions to go conservative with the pension and healthcare obligations. whose vehicle divisions account more towards their overall profitability. in the form of demolishing the long term generous pension plans and replacing them with average level plans that other companies are offering. Short term strategy could be cost reductions. It would have to suggest employee stock ownership scheme and the alternative option of downsizing of employees if the pension plans are kept intact. the situation is the same. for Toyota.

II. one customer at a time. Mission General Motors is committed to be a leader in providing transportation products and services of such quality that its customers will receive superior value. a constantly changing destination. Strategic Posture i. Board of Directors . one truck. Vision: GM’s vision is to be the world leader in transportation products and related services. ii. STRATEGIC MANAGERS a. Becoming the best is an unending journey. its employees and business partners will share their success and their shareholders will receive a sustained return on their investment. teamwork and innovation of GM people. But that’s where we’re determined to drive – one car. Current Performance From 1908 to 1976. Strategies • • Bond offering to cover pension costs Market Development Sustaining growth of 37 per cent in China market • Product Development Launch of hybrid cars III. It will earn its customers’ enthusiasm through continuous improvement driven by the integrity. But today its market share has fallen from 47 percent to 26 percent and together with challenges posed by economic conditions and stiff completion GM is facing a tough time in sustaining its profits. b. GM is deriving its 100% profits from its financing division and not from the sales of vehicles. it had grown rapidly. CURRENT SITUATION a.

In addition. Lutz. Societal Environment (PEST) i. ii. • For the close distances price sensitive people weigh the cost of public transportation and that of private. Ricard Wagoner Jr. He is joined at the top by two key executives. Political-Legal EU has imposed taxes on carbon emission from cars to be paid by manufacturers which pushes further the need to produce fuel efficient cars and low carbon emitting cars. such as hybrid and electric cars that poses a serious concern for GM which is losing out on innovation and differentiation. Devine and Vice Chairman and Head of Global Product Development Robert A. who is the chairman of the board of directors. such as petrol and gas. G. With higher prices of vehicles consumers who travel short distances prefer public . Task Environment – Porter’s Five Forces Analysis i. IV. Thomas A. The prices of the vehicles have been strongly influenced by the recent increase in prices of the complementary products. iii. b. together with healthcare costs have risen up which have increased the prices of the products of the company as well as its annual pension plans for employees. Vice Chairman and Chief Financial officer John M.GM’s current organizational structure includes the CEO. Technological Competitors are investing heavily in more fuel efficient cars. Industry Rivalry • Threat of substitutes is moderate in the automobile industry but is always present nonetheless.. Gottschalk serves as executive vice president and general counsel. EXTERNAL ENVIORNMENT a. Economic Fuel prices.

And customers now look for more fuel efficient and low carbon emitting cars. iv. Corporate Structure • The organizational structure is flat but is centralized. • This is something that cannot be achieved over night and acts as an important barrier to entry apart from legal. • Although. Bargaining Power of Suppliers • The prices charged by the suppliers have a direct and a rather large impact upon the overall profitability of the vehicle manufacturers. Threat of New Entrants • There is less threat of new entrants in the automobile market owing to the many barriers to entry. the customers are increasingly becoming aware of the products. customers have little bargaining power. political and environmental pressures. having little bargaining power. they lean towards second hand cars which offer them the same brands in cheap prices. V. Also. through immense information availability via media or the internet. b.transportation. Corporate Resources . ii. Bargaining Power of Buyers • With regard to automobiles. INTERNAL ENVIRONMENT a. They have become less brand-loyal and more price sensitive. iii. which refers to having the power to influence the price. The existing automobile companies have acquired efficient economies of scale with massive production to cater to a larger market share.

Latin America and China. Situational Analysis (SWOT) i. Strengths • • Strong presence in the U. Finance • The company heavily relies on debt equity and as a result is heavily geared. The company covers pension or retirement plans. R&D • Low research and development activities and investments exist iv. Marketing • The company’s marketing efforts have previously been focused towards sales expansion through offering discount packages. Operations • General Motors’ operations are heavily focused in North America and spread across Europe. Weaknesses .S.5 percent to 32 per cent. and healthcare plans for its employees. ANALYSIS OF STRATEGIC FACTORS a. v. Human Resources • GM follows a very generous human resource strategy where the influence of employee unions is immense. increased market share from 25. ii.i. iii. ii. VI. Success of employee-discount-for-everyone strategy. previously a global automobile leader.

and a very meager share of equity.S. Threats • • Rising fuel costs and healthcare costs in the U.S. • • • • Overly dependent on its financing division for profits Some of GM’s brands have become obsolete Generous healthcare and pension plans for employees affects costs tremendously The company is highly geared with heavy reliance on debt financing for its operations and assets. more than two-thirds of its sales ae made in the U.• Overly dependent on the U. and other countries stiff competition . automobile market.S. Opportunities • • Enter Asian markets: China and India Hybrid cars iv. • low r&d investments due to shortage of cash inflow. iii.

which the competitors.VII. as previously it has positioned itself as a supplier of cheaper cars through consistent discount offerings. Why has GM lost much of its competitiveness? • GM has failed to adapt to the fast changes in the automotive industry relating to technological advancements and consumer preferences. As a result. hybrid vehicles)? • GM will find it hard to take advantage of launching hybrid cars as it would not be able to recover the heavy costs of productions through charging high costs. • GM failed to seek the new market opportunities. • GM has more of a reactive approach towards assessing market opportunities and threats. which has caused it to lag behind its competition. this strategy is not sustainable and is a weak method of covering pension costs. What should GM do about its junk-bond status? • Because of the high risk of the bonds issued and low credibility of the company. its product and positioning strategies have led its products to become obsolete. iii. How do GM and its U. ii. iv. I suggest the company increase the employees’ participation in covering the plan in the form of selling bonds directly to employees in the form of employee-stock-ownership-programs. RECOMMENDATIONS i.S. such as in China and other Asian countries. competitors compare to their foreign competitors in terms of sales and profits in the automotive and credit sectors? . such as employee discounts.g. such as Toyota and Honda tapped fairly early. To what degree is GM positioned to take advantage of new technologies (e.

v. In the long term. GM has limited r&d activities which causes lack of differentiation and market leadership in terms of new product development for the company. whose vehicle divisions account more towards their overall profitability. for Toyota. the situation is the same.• GM and Ford seem to be benefiting more from their credit/financing divisions rather than from their automotive divisions in contrast with Honda. vi. Restricted plans would allow retention of employees for a long term and it could also be suggested that the pension plans would be revived once the financial position of the company is restored. What generic strategy should GM emphasize (e. Toyota and Hyundai. differentiation versus low cost)? • I would suggest both. GM would have to be clearer with them regarding its financial position.g. It would have to suggest employee stock ownership scheme and the alternative option of downsizing of employees if the pension plans are kept intact. For Honda 80% of its revenues come from automotive division. the strategy has to be towards differentiation of the products and more investment in R&D to enhance the product performance and attributes and to not allow any cars in future to become obsolete. . in the form of demolishing the long term generous pension plans and replacing them with average level plans that other companies are offering. What should GM do about its pension and healthcare obligations? • GM would have to negotiate with the employee unions to go conservative with the pension and healthcare obligations. Short term strategy could be cost reductions. The three foreign companies are benefiting from high sales in China and other Asian markets and also through investing heavily in new technologies such as fuel efficient and low carbon emitting cars.

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