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Case Analysis

GM in 2009

Submitted to : Mr. Niaz Patwary (NzP) Lecturer School of Business North South University Date of submission: 16th October, 2011

Company Overview
General Motors Company commonly known as General Motors or GM, formerly incorporated (until 2009) as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker. The company was founded on September 16, 1908, in Flint, Michigan, as a holding company for Buick, and then controlled by William C. Durant. At the turn of the 20th century there were fewer than 8,000 automobiles in America and Durant had become a leading manufacturer of horse-drawn vehicles in Flint, MI, before making his foray into the automotive industry. GM's co-founder was Charles Stewart Mott, whose carriage company was merged into Buick prior to GM's creation. Over the years Mott became the largest single stockholder in GM and spent his life with his Mott Foundation which has benefited the city of Flint, his adopted home. It acquired Oldsmobile later that year. In 1909, Durant brought in Cadillac, Elmore, Oakland and several others. Also in 1909, GM acquired the Reliance Motor Truck Company of Owosso, Michigan, and the Rapid Motor Vehicle Company of Pontiac, Michigan, the predecessors of GMC Truck. Durant lost control of GM in 1910 to a bankers' trust, because of the large amount of debt taken on in its acquisitions coupled with a collapse in new vehicle sales. The next year, Durant started the Chevrolet Motor Car Company and through this he secretly purchased a controlling interest in GM. Durant took back control of the company after one of the most dramatic proxy wars in American business history. Durant then reorganized General Motors Company into General Motors Corporation in 1916. Shortly after, he again lost control, this time for good, after the new vehicle market collapsed. Alfred P. Sloan was picked to take charge of the corporation and led it to its post-war global dominance. This unprecedented growth of GM would last into the early 1980s when it employed 349,000 workers and operated 150 assembly plants. GM led global sales for 77 consecutive years from 1931 through 2007, longer than any other automaker. In 2008 and 2009, GM has ranked as the second largest global automaker by sales. GM is expected to retake the number one spot at the end of 2011 from Toyota.

SWOT Analysis
SWOT means Strength, Weakness, Opportunity, and Threat for a company. Among these components, strengths and weakness are internal factors; opportunity and threats are the external factors for an organization. Bellow we analyze SWOT for GM case: Strengths Size and market share Technology potential New leadership Quality improvement and perception there of Model acceptance improved

Weakness Failure to make technology work Product design problems Negative effects of downsizing Still much to learn about lean production High cost producer Opportunities Use of knowledge gained from experience joint venture business. Expansion of their global presence - their own European model operation as an example. Continue to build on the newfound customer confidence. Changing consumer demand for new model types and styles Expansion and leadership. Threats Domestic and foreign competition U.s. Federal legislation and regulation Foreign legislation and regulation Declining quality of the infrastructure in this country Declining value of Japanese yen

Environmental Analysis
GM and the entire auto industry are currently challenged with the perfect storm. The auto industry is being hit by a weak US and global economy, rising fuel prices, and social and political environmental concerns and issues. In order to overcome these potential threat, GM should consider mass producing a range of alternative fueled vehicles, i.e. fuel cell, electric, and hybrid. Porters Five-Forces Analysis The competitive structure of an industry is another important component of identifying factors that are a threat to diminish profitability. One of the most efficient ways to assess competitive issues is to consider Michael Porter's five-force analysis. 1. Rivalry between existing competitors With the rise of foreign competitors like Toyota, Honda and Nissan in the 1970's and 80's, rivalry in the American auto industry has become much more intense. Firms compete on both price and non-price dimensions. The price competition erodes profits by drawing down pricecost margins while non-price competition (e.g., new car rebates and interest free loans) drives up fixed cost (new product development) and marginal cost (adding product features). One of the other reasons there is such high rivalry is that there is a lack of differentiation opportunities. All

the companies make cars, trucks or SUVs. The competitors are compared to one another constantly. In recent years there has been significant market share variation, another indication of rivalry and its very strong threat to profits. 2. Threat of entry by new competitors The presence of new firms in an industry may force prices down and put pressure on profits. There are, however, barriers to entry that tend to protect established firms. One would expect the production of automobiles to require significant economies of scale, an important barrier to entry. The new entrant would have to achieve substantial market share to reach minimum efficient scale, and if it does not, it may be at a significant cost disadvantage. While the evidence suggests that economies of scale in the auto industry are substantial, there are also indications that large size may not be as important as commonly assumed. Nevertheless, entry would represent a large capital investment to any new firm and the body of research still indicates that economies of scale represent a substantial barrier to entry. Consequently, entry is currently a weak threat to profitability. 3. Price pressure from substitute or complementary products While five-forces do not directly consider demand, it does consider two factors that influences demand substitutes and complements. Although new cars generally are slightly price elastic, suggesting few real substitutes (e.g., bus and rapid transit), the demand for a particular model is highly sensitive to price because of the availability of close substitutes for a given model. A change in the price of a complementary product (e.g., gasoline, batteries, and tires) could have a significant impact on the demand for automobiles. The rising price of gas, an important complementary product, is likely to affect some firms more than others depending upon the vehicle composition. Recent rising fuel prices are likely to have a greater impact on the big three (GM, Ford Motor and Daimler-Chrysler) whose most profitable models are energy inefficient pick-up trucks and sports utility vehicles. On balance, the overall impact on "industry" profitability from substitutes and complements is weak to moderate. 4. Bargaining Power of Buyers Buyer power refers to the ability of individual customers to negotiate prices that extract profit from the seller. Individual consumers have some influence over price within a given dealership, but little power over manufacturers. Customers can easily, and with little cost, switch to other auto dealers. Furthermore, customers now have access to market information (prices and costs) from the Internet that enhances their negotiating power. But when you have many individual customers, each representing a small proportion of total sales, they will have little bargaining power with manufacturers and therefore pose a weak threat to industry profit.

5. Bargaining Power of Suppliers Auto manufacturers require inputs-labor, parts, raw materials and services. The cost of these inputs can have a significant effect on profitability. Whether the strength of suppliers is weak, moderate or strong depends on how much bargaining power they can exert. The auto manufacturers have large supplier networks that appear to exert little bargaining power. Nevertheless, the United Auto Workers (UAW), the only supplier of labor, has historically exerted a great deal of leverage over the benefits and wages provided by the big three. Because of this historical dominance by the UAW and the uncertain results of their current negotiations with the big three, one has to characterize supplier power, at least in this segment of the American market, as a strong threat to profits. The following table summarizes the results of a five-forces analysis of the automobile industry. Five-Forces Analysis FORCE Internal Rivalry Entry Substitutes and Complements Buyer Power Supplier Power THREAT TO PROFIT Strong Weak Weak to Moderate Weak Strong

Evaluate the SWOT analysis


General Motors is a big company and it has also a big market share. It has the opportunity for technological improvement, but it cant do the technological innovation as time demanded. The new leadership of GM looks potentials, but, there has some negative effect of downsizing. The new management is trying to improve the quality and they are also aware about their competitors. One of the mentionable weaknesses is that the production cost is high which may hamper their profit margin. GM has the experience and knowledge gained from joint venture business. It can use the experiences in future. The presence of GM at global market is one of the most important things for them. But it has to compete with both domestic and foreign companies. Both U.S and other countries law and legislation can hamper its growth also. The infrastructure quality of GM is not prospective. These factors can be threats for the company with time being. But recently GM are getting back the customers confidence and its new leadership can also show prospect.

Overall by looking to the SWOT analysis it seems that GM should goes for more technological innovation. It should improve the quality of product. GM should be more careful to its employee and workers to bring out their full potentials. It should improve the infrastructure quality and work to boost up the customers confidences.

Corporate-level Strategy
Mission Statement of GM "G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stock-holders will receive a sustained superior return on their investment." General Motors main mission is to satisfy its customers with its world class motor vehicles. Along with their customer satisfaction they are dedicated to satisfy their stock holders with a sustainable return on their investment. Vision of GM "GMs vision is to be the world leader in transportation products and related services. We will earn our customers enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people." GMs major five car brands Chevrolet Sequel Cadillac. Etc.

Corporate Strategy With the success of 1925- 1975 GM started to expand their business into full range vehicles from cars to full size trucks, lightweight trucks, and various forms of specialized vehicles such as vans and ambulances. GM became highly vertically integrated; it was making 65% of its vehicles components, like it took over Fisher body Company which was making body for GM cars. GM also internally developed many of its own car parts manufacturing operations, such as its Delco division, which supplied GM with most of its electronic components. In 1982 GM began to develop low cost manufacturing skills and quality cars called Saturn. This division was created to compete against Japanese low cost/high quality cars. In 1983 GM attempted to learn Japanese techniques in lean manufacturing by creating a joint venture with Toyota called New United Motor Manufacturing, Inc. (NUMMI) to produce Chevrolet Novas in GMs Freemont, California. This failed eventually because of poor quality and bad labor management relations.

In 1990s GM started to lay off its employees and close some of its assembly plants. In 2004 GM finally closed down its Oldsmobile division also GM started to get components for their cars from outside their own high cost components manufactures. GM also started to invest heavily into its IT sector to help implementing is new global structure to provide the integration necessary to manage the enormously complex transactions around the world. GM used software and consultancy service from IBM. In 1996 GM formed a joint venture with Isuzu motors and Suzuki to establish facilities and make specialized engines and transformers for GM cars. Also in its European divisions Vauxhall and Opel it invested heavily. In 2000 GM acquired 20% of equity share in Fuji, manufacture of Subaru brand vehicles. After the acquisition Subaru established a strategic alliance with Honda. Along with Japan GM also planned to enter in Chinese and European market. In 2001 GMs new assembly plant in Shanghai, China, began production of the Regal economy car for the Chinese market. Ford acquired U.K carmaker Jaguar and Swedens Volvo, to fight back GM acquired Saab in 2000 and bought 20% stake of Fiat. However their counterpart Japanese carmaker never bought out any luxurious European car company rather they made their own luxurious version like Toyota Lexus and Nissans Infinity. In 2005, GM had to pay $2 billion to terminate its failure project Fiat alliance. Saab operation also were a disaster, losing hundreds millions of dollars. In 2000, GM decided to acquire Korean company Daewood to help them to enter in Chinese market.

Business-level strategy
Beginning of GM In the beginning GM was simply a holding company a central administrative office surrounded by its 25 divisions which produces hundreds of models of cars. Their target was wealthy customers who could afford them at that time. Their cost for manufacturing cars was too high at that time. GMs main competitor was Ford. Ford developed a mass production technology based on continuously moving conveyer belts that brought the car being assembled to unskilled workers who performed each of the individual operations necessary to complete the final vehicle. Before mass production, small teams of skilled workers assembled cars. Ford also started using standardized car parts that could be easily fitted together to make the assembly process easier and faster. Ford were able to cut their cost and they targeted the middle class people, while GM still were producing expensive cars and targeted small number of wealthy people. In the process Ford started to grow and GM started to loss their market share.

GMs fight against Ford and other major Japanese car makers GM found out that Ford was making cars for only one segment of the market and ignoring the other luxurious segment which GM was serving. So they tried to develop a new superior product for the middle class segment and explore that part of the market. GM chose to group the 25 companies into five major self-contained operating divisions: Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac. Each of the divisions was given the responsibility to produce a range of cars targeted at a specific socioeconomic customer segment. Also these divisions were instructed to adopt Fords mass production plan. Chevrolet was producing entry level cars for the market; Oldsmobile and Buick were producing for more prosperous customer segment, while Cadillac was producing specialized high priced cars for luxury directed customers. GM priced their cars carefully by following a price order, from Chevrolet to Buick to Cadillac. GM divides into five different car divisions to operate as an independent profit center that could evaluate its own profitability; more over there were completion within these five divisions. They were competing to grow their own divisions efficiency and receive a greater share of Gms capital. From 1925 to 1975 with this efficient strategy GM became the market leader of the U.S. market and sustained their position. GM decentralized its decision making and integrated its design and manufacturing operations in 1990s. It consolidated its nine engine groups into five and combined all its car divisions engineering and manufacturing units. All these were done to achieve economic of scale for GM. Problems with GM GM was producing hundreds of cars under 25 different companies where ford were mass marketing with their one single model. Also GMs high priced cars were competing against one another for the same market segment. 1970s oil crisis and the emergence of low-cost and high quality Japanese competitors were the overall problem for U.S. car makers. At the same time because of oil embargo customers were looking for fuel efficient low cost cars. GM believed large cars means large profit which were proven false by Japanese car producers with their lean production process. Also by late 70s and early 80s European luxury car companies like Mercedes and BMW entered into U.S. market. In 1982 after creating a car division called Saturn to fight against Japanese car companies like Honda and Toyota; GM found out it was not easy to compete with them. In 2000s, even after having some increase in their production unit GM couldnt increase their profitability, because of its CEOs unwillingness to solve the problems they had with their union contracts, car dealer network, and high-cost internal suppliers. Their main problem was in their value chain system, when they tried to solve that; it was too little too late for them. Also GM had strict union rules with UAW that made them from laying off employees or closing down facilities at a high cost. They had to pay 60% of the salary if they lay off an employee.

Companys Structure and Control System


In the early 1920s, Alfred P. Sloan, the CEO of GM back at the time, summed up all the 25 different companies under GM and made five major groups. The structure that the company was following was a divisional structure. The five self-contained groups had their own functional units such as sales, manufacturing, engineering, and finance. Another added trick to the strategy was that all the divisions were evaluated separately on their profitability. This allowed the divisions to push their efficiency as well as respond to the demands of their corresponding market segments. This worked significantly well until and external threat appeared: the global oil crisis. In the 1970s and 1980s, GM had been terminating thousands of employees. The issue at hand was the unprofitable divisions with excessive and costly employees or labors. In 1986, GMs productivity reached a new record because of the joint venture, NUMMI, with Toyota using flexible work teams. However, the organizational structure of GM was revolutionized during the 1990s. The company had 100,000 excess white collar employees and even greater number of production employees. In 1992, when Jack Smith was the president and John Smale was the CEO, GM reconfigured their workforce downsizing 80,000 workers and reducing corporate staffs by 13,500 to 2,300. GM also realized the importance of streamlining its operations, decentralize decision making, and integrate its design and manufacturing operations. Finally, due to the engineers need to share resources and come up with differential cars, changed its global organizational structure and adopted the Global Matrix Structure. In a matrix structure, the value chain activities are grouped into two ways. The vertical axis consists of GMs five main business units, the four world regions in which GM operates: North America, Europe, Asia-Pacific; and Latin America, Africa, and the Middle East. The fifth business unit is GMs financial services division that is responsible for the sale of GMs cars throughout the world. On the horizontal axis are the main value-chain-activities required to efficiently orchestrate the global production of its cars: supply chain, product development, production, customer expenses and business services. Overall, the organizational structure paid off in the 1920s and had been paying off for almost 50 years. The change in external environment, however, shifted the market and thus had to shift the structure of the company. From this point onward, a number of CEOs did not know how to best fit the new structure. The one and only motive for GM after 1973 was to master lean manufacturing and they learnt a lot for the Japanese competitors. Therefore, there company structure and control system were moderately effective most of the companys lifetime with a few exceptions as they did not lay off workers when they had to. The key problem, outside of organizational structure and control system, was the companys expensive labor agreement.

Recommendations
In 2009, GM goes in and out of Chapter 11 Bankruptcy in federally backed restructuring. GMs vice chairman and car design champion Bob Lutz said that the company has been dragged down by historic legacy costs for more than 20 years and they will come out of it and focus on product development. It is true; the UAW was on the back for the company like a sponge for at least two decades eating up all of the profits. The very first thing, when the current terms of the contract expire in 2015, GM needs to employ conditions that will favor the company. The company was not even close to being competitive because of one bad agreement; it should not suffer any longer if it has to avoid future bankruptcy. Secondly, GM is well reputed to invest in ventures, expansions and innovations and every time they manage to lose money. They cannot make the same mistakes again. Roger Smith spent $100 billion in the honest motive to reduce costs where as they could buy off Toyota and Honda. So, decisions on investments, no matter small or large, have to be done very wisely. Thirdly, GMs September, 2011 sales in Chine rose by 15.3%. Therefore, they should focus on markets which are profitable at the moment and should not run experiments until they reach a stable financial ground. Finally, producing world class cars are GMs bread and butter and so, as Bob Lutz commented, they have to come up with brilliant innovations soon enough.