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Critique: Sarah James & Nicole King Case Study Analysis: John Sallee & Ramiro Sanchez
General Motors (GM) has led global automotive sales since 1931 Operates under various brands in the U.S., Canada, Latin America, & Europe Provides a range of financial services European and Latin market ventures were struggling
S.Fiat Background Fiat was founded in 1899 by Giovanni Agnelli Introduced its first automobile in 1904 In 1910.000 workers and became a driving force in Italy¶s economy Ventured into U. Fiat employed 50. market in 1970s but pulled out a few years later Acquired several other Italian car companies during the 1980s .
Fiat Background Experienced declining market share and revenues in European and Latin markets in 1990s Agnelli family continues to be the controlling shareholder of the company .
Fiat Background Declining market share and increased competition forced Fiat to search for a partner Tried to merge with both BMW and Volvo but unsuccessful Daimler-Chrysler attempted to buy Fiat GM intervened. offering an alliance .
GM-Fiat Alliance As a result of the alliance: ± Both companies obtained synergies Purchasing advantages Cost advantages ³Powertrain´ ± GM obtained a 20% stake in Fiat for $2.4 billion ± Fiat received 32 million shares of GM ± Put option for Fiat ± ³Allies in cost.´ . competitors in markets.
Central Issue Primary Issue ± Find an alternative to the put option between Fiat and GM without hurting either company or resorting to litigation Contributing Factors ± Fiat diluted GM¶s stake to 10% by selling-off portions of the company after the alliance ± Fiat continued to increase its debt ± GM wanted no part of Fiat¶s billion dollar debt ± GM believed the put option was invalid .
Vision & Goals GM Vision ± To be the world leader in transportation products and services through: Continuous Improvement Customer Enthusiasm Innovation Integrity Teamwork Individual Respect & Responsibility Fiat Vision ± ³An Italian Company that builds cars with original styling and a wealth of intelligent solutions that are therefore capable of guaranteeing a better quality of everyday life´ through: Balance of value and good performance Safety Continuous Innovation .
Constraints to the Situation Primary Constraint ± GM wants no connection to Fiat Other Constraints ± Fiat has continues to lose revenue & accumulate debt ± Fiat diluted GM stake through sell-offs ± Put option would only hurt GM and provide marginal help to Fiat .
Functional Area Problems Management Finance Sales Marketing .
Management No one at the top seems to be in agreement No real direction Family vs. Creditors .
Finance Finances are an issue for both companies ± GM faces the payment of billions of dollars for retiree health and pension plans ± Fiat in continuous battle with creditors Neither company has a firm financial footing .
Sales & Marketing Problems in these areas can be attributed to management problems Management lacks clear direction. therefore: ± Sales will continue to lag ± Marketing will be inefficient .
SWOT Analysis ± GM Strengths ± Size ± Industry sales leader for 76 years ± Diversified ± Improved market share in Europe Opportunities ± Alternative out of put option obligation ± Join with other automaker Threats ± Losing money in avoidable situations ± Massive layoffs if forced to comply with put option ± Introducing non-fuel efficient vehicles Weaknesses ± Long-term financial strains ± Losses from prior alliances ± Put option obligation .
SWOT Analysis .Fiat Strengths ± Strong customer relations ± Has held on through two decades of financial strife Opportunities ± Revamp company ± Put option with GM Threats ± Failure to pay down loans ± Creditor threats to dissolve company ± Loss of put option ± Loss of customer loyalty Weaknesses ± Huge debt totaling $6 billion in 2002 ± Family owned .
Porter¶s Five Forces of Competition Threat of New Entrants ± Low for start-up companies Industry categorized as oligopolistic ± Buyouts or partnerships more of a threat but still unlikely Rivalry Among Competitors ± Very high ± Few players create tougher competition ± Alliances and JVs intensify rivalry .
Porter¶s Five Forces of Competition Bargaining Power of Suppliers ± Moderate bargaining power ± Auto giants can easily establish relationships with other suppliers if agreements are unattractive Bargaining Power of Customers ± ± ± ± Very high level of bargaining power Key players now face competition from used cars Shorter terms of ownership are on the rise Customer needs must be met or sales will be lost to competitors .
Porter¶s Five Forces of Competition Threat of Substitute Products ± Fairly low ± Possible substitutes include: Public transportation Bicycles Walking ± Most people enjoy the freedom of their own vehicle .
Honor the Put Option ± GM could honor the put option and invest more than $2 billion in Fiat ± Already invested around $2 billion when alliance was formed ± Total of $5 billion invested in a non-profitable venture ± This option helps Fiat but damages GM .Relevant Alternatives Alternative #1.
Relevant Alternatives Alternative #2 ± Invalidate the Put Option ± Based on the sell-offs and their now diluted stake. GM could attempt to negate the put option ± Lengthy and costly litigation may result if this option is pursued .
Relevant Alternatives Alternative #3 ± Avoid GM-Fiat Merger ± Large initial costs for GM ± Long-term benefits for GM ± Same financial outcome for Fiat ± Family retains ownership of Fiat .
Best Alternative Alternative #3 ± Avoid GM-Fiat Merger ± GM no longer faces the potential of being saddled with a declining company ± GM learns a lesson for the future ± Fiat still receives its $2 billion with the possibility of more due to penalty payments ± Family retains ownership and customer loyalty .
Implementation Plan If put option is invalidated: ± Continue alliance to take advantage of synergies ± GM should refrain from investing additional money in Fiat If put option remains: ± GM should hope Fiat sees a turnaround finding it unnecessary to exercise the put option ± Or. GM should hope Fiat can hold on until the put option expires in 2010 .
especially in diesel-engines ± Since 2000. 2005 ± GM paid $2 billion to avoid being forced to acquire Fiat ± Fiat Auto had little market value and had $10 billion in debt ± GM & Fiat continue to cooperate in certain areas.Additional Information February 14. GM-Fiat have generated $2 billion in savings ± Not enough for GM Europe or Fiat to rebound .
Additional Information July 25. 2006 ± In first half of 2006 Fiat revenues jumped 21% ± Positive operating profits for 3rd consecutive quarter ± What would GM¶s original stake be worth today? ± Did GM make a mistake by bailing out? .
" (CNN. Fiat has staged an astonishing recovery. 2008) .´ (Economist. They will try to get out of it as best they can with negotiations and a legal challenge. 2005) ³With some fine new cars and financial figures to match." said Ferdinand Dudenhoeffer. director of the Center of Automotive Research at Gelsenkirchen University in Germany. "They made a mistake when they agreed to the put option. and this mistake will cost money.Points to Consider "GM has no choice but to settle.
com/2000/03/13/worldbiz/gm_fiat CNN. 2008 from: http://money.detnews.net. Edmondson./06/300_company/2_twenty/320.com/displaystory. 3.autozine.money. 14. Mar. Ireland. Fiat pulls auto option talks brake to a halt.org/Manufacturer/Italv/htm CNN Money.html 2005/06 corporate Responsibility Report.com/corporate/responsibility/. 2008 from: http://www. ItalianCar. (2000) www. 2007 BusinessWeek. Hoskisson. www.html FACTfile-Fiat Grande Punto. GM Fiat still in Standoff.org/articles/show/1356. www. Retrieved April 26. 2005.net/site/FACTfile/fiat/GrandePunto/GrandePunto-2. 25.com/2005/02/02/news/international/gm_fiat/index. Fiat¶s Comeback-is it for real?.html GM will pay $2 billion to dump Fiat. (2008). Jan.htm The Economist. July 25. Copyright.economist. GM. Fiat rebirth of a car maker.intaliancar.(2008) www. Retrieved April 26. (2005) www. gm. 2006.earthtimes. www.cfm?story_id=11090197 The Earth News. (2005). (2007). Gail. Fiat to take stake in each other.html . Our Vision and Values..Strategic Management 7th Edition Competitiveness and Globalization: Concepts and Cases.cnn..com/2005/autoinsider/0502/14/A01 Hitt.Resources Italian Car Makers.com/globalbiz/content/jul2006/gb20060726_749437.businessweek. Feb.cnn.
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