What is your evaluation of GM’s strategy and organization for developing fuel cell technology?
Environmental pollution is a current issue affecting the motor vehicle industry. There has been increased pressure for firms and the public to be concerned about the environment and promote environmental conservation in every activity. The motor vehicle industry is one of the industries that contribute to environmental pollution in several ways such as exhaust fumes emission and noise pollution among others. Petroleum companies have established ways of reducing environmental pollution such as the establishment of fuels that produce less carbon when used in cars. However, the efforts are not enough because vehicles remain some of the largest environmental pollutants.
Following this need, automobile firms have established ways to maintain the environment while maintaining a competitive edge. While some companies have sought other means of environmental conservation, GM motors sought to use the fuel cell that utilizes hydrogen to generate energy for its vehicles. This is a green strategy because its cell does not produce harmful elements to the environment. According to Fijalkowski (2010, p. 26), the company identified the product and its impact on the company’s clients. For the firm to be a technology leader, it had to pioneer developing and selling a million hydrogen fuels–cell vehicles by the year 2010
According to Hordeski (2009), GM’s organizational purpose for developing cell-fuel vehicles has been to enhance better performance, environmental conservation, and safety. The company has invested heavily in the achievement of these objectives by developing an Autonomy model to make a cell-fuel vehicle a reality. Towards the development of this model, the company has been faced with technical challenges such as the performance of a cell-fuel engine in cold weather. Other challenges include the cost of developing the new model and acquiring hydrogen raw materials, commercialization, and hydrogen infrastructure.
One of the firm challenges in developing fuel-cell technology is the availability and storage of hydrogen gas. Hydrogen is a very essential component of fuel-cell technology. One strategy to use in obtaining this raw material for this new engine will be through a reformation. In this process, hydrogen is obtained from hydrocarbons through electrolysis and by reforming the oil and extract hydrogen from it. An alternative approach to the future customer obtaining the needed fuel for the prototype vehicle will be achieved by the development of a gas station that will have electrolysis interface or reformers to provide the needed hydrogen to run the fuel-cell vehicle (Hordeski, 2009).
The company had plans to produce fuel cell vehicles in the mass vehicle by the year 2010. The production of hydrogen 3 and Hy-wire models of vehicles that will create the necessary test for fuel cell technology will achieve this. In spite of the efforts to utilize fuel cell vehicles as a competitive edge, GM is facing various issues that are affecting it’s maximizing the strategy. The dilemma however in the company strategy was indecisiveness concerning the project funds.
The firm failed to allocate substantial capital for the project to take off. Due to this issue, the project did not fully take off because of the inadequacy of funds for the creation of the autonomy model and the hybrid vehicle. Therefore, the project is good for the company because it is able to enable the firm to establish a competitive advantage in the industry besides conserving the environment. However, it has not been fully utilized by the firm and other competitors are increasing their competitiveness over the firm (Fijalkowski, 2010, p. 27).
What explains the different approaches to this technology among GM’s competition in terms of technical choices, make/buy decisions, levels of investment, and overall enthusiasm?
The different approach to this technology is being influenced by business strategy, product development, and technological development. General Motors’ policy was to invest heavily in fuel-cell technology was the need to provide environmentally friendly and equally high-performance vehicles. The technical choice for the company was motivated by the increased efficiency and market potential of the fuel cell. The fuel cell cuts emission by half and the vehicle developed from this technology is light in weight and has less noise, unlike the internal combustion engine vehicle. Fuel-cell-based technology on vehicles enables the chassis of the vehicles to completely separate through the use of drive-by wire technology.
The Autonomy model is a result of a radical rethink of traditional automobile technology. The model is made up of chassis also know as skateboard that contains the vehicle’s main systems. The vehicle combines fuel-cell power and drives by wire technology. However, the new model faced numerous challenges. First, the cost of commercializing the vehicle was too high i.e. about 10 times the cost of an actual fuel cell. There also was the storage of hydrogen in the vehicle as a backup source of power. Finally, there arose a problem of having hydrogen-refueling infrastructure.
The economic reasons to invest in a fuel-cell vehicle that will determine make or buy decision is the cost of producing the vehicle. The cost of obtaining hydrogen infrastructure, commercialization, and hydrogen storage are some of the cost factors that will determine the decision to make or buy decisions by the company (Steele, 1989, p. 10).
The economic approach to the adoption of fuel-cell technology lies in the intention to face out hybrid vehicles, which are seen to be inefficient, and of higher cost to sell to customers. The hybrid vehicle has a gas cost of 1.5 dollars a gallon with an additional cost of a battery of 3000dollars. Fuel-cell technology offers a better alternative to these extra costs by hybrid and internal combustion engine vehicles in terms of efficiency and performance.
The fuel cell was the largest innovation in GM company history. The project has a cumulative cost of nearly 1 million American dollars extending for a period of six months. The program to develop the fuel cell involved over 500 engineers and massive resources. Therefore, in order to realize substantial output, the firm must sell hydrogen fuel-cell vehicles in high volumes.
Should Burns pursue the approach to fuel cells embodied in autonomy, or adopt a more incremental approach. Why or why not?
Mr. Burns should adopt an incremental approach this is because of challenges such as storage problems brought about by fuel cells embodied in Autonomy. For example the fuel cell to obtain300 miles, one needs to store an equivalent volume of six kilograms of hydrogen. Other options to solve this problem would include the use of compressed gas, which had a public perception of safety risk while using the vehicle model (Mitchel, 2010, p.45).
The second option to store hydrogen in its liquid form that will require the gas to be maintained at -250 degrees centigrade. Another challenge was to develop a refueling station that supplied a prototype vehicle model with hydrogen. Due to all these challenges, it is rather difficult to pursue the approach to fuel cells embodied in the Autonomy model. The adoption of a more incremental approach would be viable, as it will ensure that fuel cell technology is proven first before it can be effectively utilized. In this approach, production costs need to drop significantly and the necessary adjustment provided before the model can be adopted. This process will involve the Hy-wire and HydroGen3 model that will be used to study the effectiveness of fuel cell technology (Hordeski, 2009, p.14).
Should Burns divert money from its fuel cell program to invest in hybrids? Why, Why not?
The burn should divert some money to invest in a hybrid project since hybrid vehicles are seen to be transitional models before fuel cell technology can be fully developed. The fuel cell projects still lack major components to be operational. Investment in fuel cells was considered a long-term future portion of GM investment. The focus was to be placed on improving hybrids and engine technologies. Mr. Burn as an interim solution that existed between the internal combustion engine and fuel cell viewed hybrids models.
The economics of hybrid was excessively expensive to adopt. The battery alone had a high cost of about 3,000 U.S. dollars with an additional cost of 1.5 dollars a gallon. The reasons for investing in fuel cell vehicles was that the technology would make the hybrid model obsolete. Honda for example admitted that it barely made profits with the highbred model. This was because of the low volume of vehicles purchased and the high cost of production incurred. For these reasons, Mr. Burn should divert the project money intended for the fuel cell to invest in hybrid. However, a significant amount should be left to develop the fuel cell technology as it holds potential.
List of References
Fijalkowski, T 2010, Automotive mechatronics: Operational and practical issues, Springer, Poland.
Hordeski, F 2009, Hydrogen and fuel cells: Advances in transportation and power, The Fairmont press, Florida.
Mitchel, J 2010, Reinventing the automobile: Personal urban mobility for the 21st century, MIT press, Massachusetts.
Steele, W 1989, Managing technology: The strategic view, McGraw-Hill, Michigan.
Zuckerman, A 2002, Managing technology, John Wiley & Sons, New York.
This financial research report is about a potential investment opportunity for a client interested in any publicly traded company in the US. The company preferred for the client is General Motors Company (GM). Established more than 100 years, GM designs manufactures, markets, distributes vehicles, and vehicle parts, and sells financial services across the globe (General Motors para. 1). With more than 215,000 employees, the company has been able to deliver 10 distinctive automotive brands under the General Motors corporate umbrella: Chevrolet, Buick, GMC, Cadillac, Opel, Vauxhall, Holden, Baojun, Wuling, and Jiefang (General Motors para. 1).
A Rationale for Choosing the Company for Which to Invest
GM is the oldest car manufacturer, which is viewed as a great company, given consumers’ interest for its a wide range of vehicles, from electric cars to heavy-duty full-size trucks sold globally. The company’s electric cars, specifically Chevrolet Volt, have won green initiative awards.
Economic Significant
GM is a company that has brought about significant economic changes in the global automobile industry. With the established sales channels across the world and innovative technologies, including an electric car, GM has critical implications for both the energy and transport sectors. In other words, GM is a company with innovative products and technologies with huge potential to change significant fractions of the economy and improve the US economic growth for many decades.
As GM is considered for this investment option, one must not forget that for decades, the company had acquired a bad reputation, leading to its bankruptcy in 2008 and a subsequent bailout by the public (Rosevear para. 14). Today, however, GM has changed tremendously with huge profits, growing dividends, shareholders’ support, and leading cars in the auto industry.
The company is positioned for growth, as the new management has demonstrated. The strength of this firm makes it important for the economy in specific areas related to employment and inflation and, therefore, of interest to any investors. GM has continued to improve its manufacturing processes to cut costs and return profits. In addition, it has significantly embraced new technologies to reduce the overall headcount in the factory – a strategy that has controlled growth in wages. Of course, in the US auto industry, issues associated with increasing labor costs are among the most complex ones. Nevertheless, the company continues to work with the United Automobile Workers Union (UAW), which represents autoworkers at three large automakers in the US to improve compensation and benefits (Cutcher-Gershenfeld, Brooks, and Mulloy 3).
Additionally, the big three automakers in the US are now seen as major players in the US auto industry after decades of turmoil. GM is now caught between technology and innovation to deliver new cars to customers. The firm has a relatively small production number of electric cars relative to gasoline-fuelled cars. GM’s production capacity for electric cars is poised to increase each year as demands for such cars increase. That is to say, the electric car market is growing faster, steadily, and rapidly than earlier thought. Analysts and investors have noted that the number of electric cars on the road in the US will reach 25% (up from the current 5%) by the year 2025 (Goldman Sachs para. 2). This emerging trend will ultimately change oil consumption in the US and other countries and create new oil demand patterns. Perhaps, the reduction in demands will be associated with many electric vehicles on the road, which would probably drive low oil prices. Therefore, GM and other electric car manufacturers will transform the economy in a significant way.
Financial Significant
Current financial reports indicate that GM is back to profitability, and it is likely to continue with this trend. Moreover, the firm has continued to realize increased revenues (except for the fiscal year 2015) because of year-over-year growing demands and sales across the globe.
For current and potential investors, GM resumed dividend payments in 2014, and it paid $1.2 and $1.38 for the fiscal years 2014 and 2015, respectively. Still, the company focuses on enhanced investment in different divisions to improve its technologies, particularly on more affordable electric cars.
The continued investment and dividend pay demonstrates that GM executives have confidence in the future performance of the company. To this end, the financial significance of the GM to the US economy or global economy and individual investors is significant and continues to reshape the US auto industry after decades of uncertainties. GM has massive financial, marketing, manufacturing, and technical resources, which it can leverage to facilitate the production, sales, and promotions of new cars globally. Its bailout following the financial crisis indicates how GM is important to the US general economy.
While the company pays dividends, GM stock would be suitable for the patient, long-term investors with the buy-and-hold approach. According to analysts, GM stock offers an important opportunity for investors who are focused on long-term rewards and patient enough to sell in the future (Rosevear para. 4).
As GM’s share price continues to rise, long-term investors have better buying opportunities at the company. To date, the so-called bailout stocks of auto and financial industries remain unattractive to most investors. Thus, this offers the best buying opportunities.
Other Factors of Consideration for the Selected Stock
Investors should consider GM as an automaker of the future. As stated above, electric cars are gaining traction, and GM is among the major players. This approach represents a strategic positioning for the company, which gives it competitive edge competitors.
Tesla is now strategically positioned in the middle of two emerging industries, electric, self-driving cars, and clean energy, which will move the company forward.
Further, the current leadership is also focused on the long-term success of the firm. The CEO, Mary Barra, has GM in the right direction for the future growth. Specifically, the GM is now shaping and leading in the trends that are expected to reshape the auto industry (Rosevear para. 1). In this case, the company will not go wrong with such approaches because it has embraced technologies lead other companies in the auto industry. GM stock price will continue to rise as revenues increase. Thus, it is a good bet for investors.
Primary Reasons Why the Selected Stock is a Suitable Investment for the Client
GM is currently considered as a yield stock and growth-oriented. A potential investor must evaluate the company’s stock to understand why it is a good buy right now. There are three important reasons. First, the valuation is important. The firm’s shares now trade at less than four times the last 12-month earnings. For a century-old firm, that stock is terribly cheap. Thus, it should not be less than 10 times the earnings. The company now pays stead quarterly dividends that are about 38 cents for every share. This implies that an investor can receive about 4.78% in yield from dividends if they purchase GM stocks now. However, the major challenge is the 4.8 P/E, implying that the company would take relatively shorter time to earn that investment because of the faster growth rate.
Second, low prices imply that GM can now yield about 4.8% in dividends. Of course, the industry is known for cyclical behaviors and, therefore, an increased dividend may not be sustained because the company may reduce dividends during downturns. Historically, GM and its major competitors, such as Ford, have often recorded losses during economic difficulties. Notably, the US car market is now getting to its peak and GM stock is relatively cheap. However, GM has managed to change, specifically by lowering its costs down to allow it survive and remain profitable in another recession. While a recession may cause a decline in profits, the company currently has about $20 billion in cash to fund research, product development, and other investment obligations, if at all a downturn will occur. Further, GM also claims that paying dividends will remain among the major obligations unless the recession is severe. However, investing in GM now should not be about dividend payment and then reinvesting later.
Finally, the third reason for purchasing this stock is the growth trajectory presented by the CEO about two years ago. The CEO presented a thorough plan to revamp the company’s pre-tax profit margin to about 10% and sustained in the next decade. While the plan is intricate, the simple observation is that the plan has allowed GM to earn more profits and will continue to do so in even in difficult periods. Since the CEO presented the plan in October 2014, the company’s margin was 6.1% but today it is about 8.3%. Investors must always acknowledge that it could be difficult to get high-yielding, sustainable dividends, high-value price, a strong management team, and a remarkable profit-growth-oriented company (Rosevear para. 7).
A Description of the Client’s Profile
The investor is a growth-oriented and yield focused one. The investor will strive to leverage the long-term potential of GM profitability through buy-and-hold approach. GM share price is characterized by price fluctuations, but it is currently rising. The investor generally has a long-term investment vision.
The investor is a rich and whose main goal is wealth creation. Current income generation or the yield offered is not the primary goal of the investment decision. Hence, it will be important for the long-term growth oriented investor to hold off on GM’s stock until the company sustains its profitability margin beyond 10%, perhaps in the next decade.
The investor must be patient. Besides, they must be a supporter of GM in the recovery and reshaping of the US auto market, and believes in long, growing future of the company and the comprehensive plan of the CEO. The investor understands that the loss-making trend will soon end, and Tesla will start paying dividends.
The investor is a long-term value-oriented one. Long-term value-oriented investors find General Motors stock or Ford’s stock extremely attractive. Thus, they should buy, get dividend yields, and hold for a long time as share price rises. GM currently has positive operating margins and operating cash and, therefore, the company presents limited investment risks, which are not critical investment challenges. GM stock is, therefore, perfect for such an investor.
Analysis of Financial Ratios
Liquidity
Current ratio is important for assessing an overview of GM’s ability to repay its short-term debts using its short-term assets. Current ratio for the last three fiscal years is as follows.
Table 1. GM’s current ratio. Source: GuruFocus.com, LLC.
2013
2014
2015
1.31
1.27
1.09
The ratio has been declining, but GM is still efficient in its operations and, therefore, issues may not occur. The acceptable ratio ranges between 1 and 3. Although the ratio is declining, it does not necessarily imply that GM will face bankruptcy again.
Quick ratio shows whether GM will be able to meet its short-term obligations based on its liquid assets but not inventories.
For the last three fiscal years, GM has noted a declining quick ratio, which demonstrates that the company is highly leveraged and struggling to grow and sustain sales. Thus, the diminishing trend is not good, and GM may struggle to cover its financial obligations.
Earnings per share ratio reflects the value of earnings per outstanding share of Tesla’s stock. The dividend preferred has been subtracted to eliminate common manipulation through non-recurring items, depreciation, or amortization rate. This presents better performance of the company.
Table 3. GM’s earnings per share ratio. Source: GuruFocus.com, LLC.
2013
2014
2015
2.38
1.65
5.91
The earnings per share is an important indicator of the current GM share price performance, and it is necessary for investors who want to evaluate the general profitability of GM. In this case, GM is profitable.
The current price-earnings ratio is 5.75, implying that the company is making profits. That is, GM has positive earnings and posts profits albeit, fluctuating year-over-year.
While this ratio is positive show that GM is doing relatively well, it is not consistent. The low ratio (below 20%) also shows that GM has not created sustainable competitive advantage in the auto industry. Consistency of gross margin is important for competitive edge.
The Risk Level of the Stock from the Investor’s Point of View
GM is not a high-risk stock, but the company has a bad reputation associated with the bailout. Consequently, many investors have shunned the company shares, but the conventional wisdom states that investors should concentrate on stocks out of favor and then hold until they become favorable. GM is not alone in this predicament. Citigroup Inc., American International Group Inc., and JPMorgan Chase & Co. continue to trade below their book values because investors were not pleased with the bailout idea.
Vehicle recall is major issue facing the auto industry and eventually affects stock performance. The company has to repair and compensate affected customers. Earnings were also not stable in the fiscal year 2015. A failure to reach expected target negatively affects yield and investment decisions. Moreover, sales may also decline in the core market, especially in North America. GM also faces branding issues. In this case, customers argue that the company is among the ‘old school’ auto manufacturers. Notably, the company has transformed its technologies to introduce new brands of cars, including electric cars. Overall, recalls, unstable earnings, and branding continue to challenge the company’s stock. Nevertheless, market share and profits continue to grow.
Key Strategies to Use to Minimize These Perceived Risks
While GM is equally attractive, the investor should also consider other investment options perhaps in different industries. For example, the long-term investor may also opt for corporate bonds because of comparatively low risks compared to GM stock investment because such fixed-income instruments can help the investor to counter possible losses at GM. Additionally, the investor should continuously improve the portfolios to mitigate risks in stocks. This implies that the investor will maintain a fixed risk-return ratio in the portfolio to account for the long-term growth-oriented and fluctuating yields from GM. Notably, other long-term value-oriented stocks offered by Ford or Tesla should be considered in the same industry. Overall, low-risk investment option is a strategy to mitigate adverse effects of GM shares.
The investor should also evaluate GM’s quarterly performance and assess its global market performance to predict possible challenges. The announcement that Chevrolet Volt EV will be a long distance car, for instance, has put GM as the industry leader competing against Tesla. Thus, such developments should influence future decisions to buy more, hold, or sell immediately.
Recommendations of This Stock as an Investment Opportunity
Following the analysis, it is recommended that the long-term growth-oriented and yield-driven investor should invest in GM stock. Notably, GM stock has huge potential to appreciate and generate massive returns because the company is currently trading below its book value. The decision to buy and hold is supported with the following facts.
GM Growth
GM has been acquiring market share while positioning itself to realized over 10% in pre-tax profits and sustain that rate in the next decade. In fact, latest data indicate that GM now leads Ford, Toyota, Chrysler, Nissan, and Honda in acquisition of retail segment market shares (Bajpai para. 2).
Dividend Yields and Repurchase
Investors have continued to earn dividends from the company. Besides, the company has expressed its capabilities to pay dividends even during hard economic periods.
Efficiency
GM is now focusing on efficiency by eliminating needless costs. GM strives to make every division and business segment the ‘industry best’. The company’s efficiencies are meant to save more than $2.5 billion by 2018. Moreover, the comprehensive plan will also assist the company to realize these goals.
Overall, GM share prices have dropped and short-term value-oriented investors may regret their investment decisions. However, for long-term value-driven and yield-oriented investors, GM presents massive investment opportunities. In fact, the company depicts growing strength in several aspects, but the same improvements have not been shown on the current share price. The company is gaining its financial strength, has sustained dividend payments, focused on technologies, vehicle innovation, diversification in financial services, and a leader in the industry. The company now concentrates on changing transportation. It is a recommended stock for patient investors who can buy and hold while earning dividends.
Works Cited
Bajpai, Prableen. 5 Reasons to Buy General Motors (GM) Stock. 2016, Web.
Cutcher-Gershenfeld, Joel, Dan Brooks, and Martin Mulloy. The Decline and Resurgence of the U.S. Auto Industry. Economic Policy Institute, 2015.
This paper discusses General Motors (GM) Company in the context of how the costs of its production systems affect its various operations. This is a critical provision since the company operates in a competitive industry where operational and production costs are soaring, overwhelming, and critical.
There are numerous costs of production that the company faces in its business endeavors. These incorporate the costs regarding raw materials, labors costs, equipments, outsourced services, and other relevant production provisions that the company incurs their costs. In this context, there are short-run costs that the company incurs in its operations.
This incorporates costs that vary with the demand for the company’s products (McConnell, Brue & Flynn, 2009). For example, when the company experiences increased demand for tracks, cars, and other motor vehicle models, it will need more materials and labor hence increasing its production costs.
Nonetheless, this condition is temporal since it will change when the demand for such commodities diminish. It is crucial to consider such provisions in the contexts of their viability and applicability in the business realms. Precisely, short-run costs in this context incorporate the changing labor and raw material provisions depending on the demand of the concerned products.
Concurrently, General Motors is being affected by the economic cost structures in the contexts of decision making. This occurs in numerous ways depending on the situation at hand. The company has to operate with viable visions, missions, and expenditures in order to enhance its returns in the business contexts.
Additionally, economic cost structures assumed by the company has necessitated it to formulate viable business decisions in order to remain cost effective, competitive, and relevant in the automobile industry (McConnell, Brue & Flynn, 2009). Despite the production, economic, and market challenges, the company does not experience diminishing returns in its operations. Evidently, GM has been registering substantial returns in the past years despite the competition and economic challenges.
In this respects, there are numerous factors that have led the company to decrease the prices of its commodities in order to capture and retain a considerable number of clients globally. This incorporates the aspects of competition due to the emergence of numerous motor vehicle manufacturing companies worldwide.
Despite the high costs of production and the economic crisis experienced by numerous organizations, the company sets the prices of its commodities competitively in order to remain relevant and competitive in the market. In this aspect, the company makes its optimal business decisions in situations where Marginal Benefits equal the Marginal Cost experienced by the company (McConnell, Brue & Flynn, 2009).
It is agreeable that consumers usually make rational decisions when purchasing automobile products. They consider the aspects of benefits versus costs. If the benefits of similar products tend to be the same, consumers tend to consider prices. Conversely, they consider the benefits in case prices are the same. GM considers these factors in its pricing decisions.
The type of the long-run costs that GM would face incorporate the aspects of business expansion, running the entire company for years despite the challenges, continuous innovation, and market strategies among others. This factor entails the aspects of varying inputs that allow firms to enter and exit an industry at will (Mankiw, 2012).
The issues relating to the Long-run costs are numerous. They form the core provisions for any business. It is crucial to consider these factors in the business realms. Long-run costs affect GM in the aspects of strategies, future prospects, and in enhancing its competitive advantages.
References
Mankiw, N. (2012). Principles of microeconomics. Mason, OH: South-Western Cengage Learning.
McConnell, C., Brue, S. & Flynn, S. (2009). Economics: Principles, problems, and policies (18th Ed.). Boston, MA: McGraw-Hill Irwin.
General Motors Corporation has Toyota Motors and Ford Motors at present as main competitors. Both of them are multinationals. General Motors is headquartered in USA was founded in 1938 by William C. Durant. In the year 2008, General Motors stands as the world’s largest automaker firm according to industry statistics around the globe. (Bunkley) it is present in around 35 nations and has 284000 people at present. The brands sold by the firm are Buick, Chevrolet, GMC, Opel, Pontaic, Saturn, GM Daewoo, Cadillac, Holden and Saab. (About GM) As a publicly traded company it is the fifth largest in the world as ranked by Fortune Global 500.
General motors at the moment have reached level of maturity in the business cycle. This cycle is called election cycle at this level the firm has borrowed more or credit than they use equity shares this cycle in the business requires reinvention and reinvestments in order to remain competitive if the firm does not take care they will find themselves closing the shop because of credit facilities that they took this cycle of bankruptcy under which general is at with makes them loss a lot of business because customers will not willing to transact business with a bankrupt institutions. However, most firms in the united states of auto industry are facing similar circumstances what it means is that the automobile industry in the United States has reached this bankruptcy level.
When the firm reaches this level it starts experiencing diminishing returns if technology and competitiveness is not embraced. The cause of diminishing returns for firms such as general motors is inability to use factors of production well the share holders of the company should inject new capital, to inject liquidity and remove some unwanted debt.
Ratios Analysis
Liquidity
(all figures in millions)
2007
2006
2005
Current ratio Current assets Current liabilities
1.06:1
60403 70338 =0.86:1
64480 69036 =0.93:1
99414 113943 =0.87:1
Quick ratio Current assets-stock Current liabilities
0.85:1
60403-20222 70338 = 0.57:1
64480-20046 69036 =0.64:1
99414-33384 113943 =0.58:1
Cash ratio Cash marketable securities Current liabilities
n/a
24,817+2139 70338 =0.38:1
24123+138 69036 =0.35:1
30726+19726 113943 =0.44:1
On short term financial stability, the current ratio indicates that the firm is not financially stable since in 2005. This ratio was 0.87:1 in 2005 it improved to 0.93:1 in 2006 before slighting back to 0.86:1 lower than the two previous years while the industry average is 1.06:1. As a result of the company’s fluctuating current liabilities, decreasing current assets and decreasing performance in has lead to poor liquidity. Its quick ratio has fluctuated from 0.58:1 to 0.64:1 before settling at 0.57 in years 2005, 2006 and 2007 respectively while the industrial average is 0.85:1. The cash ratio is also having the same trend.
Although these ratios improved in year 2007 but the performance was not as in year 2005. This current ratio means that for every dollar the company owes in short term liabilities, it has 0.87 dollars, 0.93 dollars and 0.86 dollars in current assets for years 2005, 2006 and 2007 respectively. The current ratio indicates that the firm is not financially stable as it is less than the recommend ended average although the auto is performing poorly. Current liabilities may or may not include short-term borrowings.
Creditors consider current assets as a buffer for current liabilities and hence they prefer a higher ratio. However there is an increase in the ratio. This is due to an increase in investment in debt securities and decrease in accrual expenses. The quick ratio indicates how able the firm is in meeting its financial obligations from the most liquid assets. It shows that the firm is strong in it liquidity.
Should be there Technical default then the company will not be liquidated as liquid assets are enough. The recommended ratio should be 1:1. The Quick Ratio shows that the liquidity position of the firm gone down in terms of its ability to meet short-term obligations. The reason why these are so high is due low investment in debt security which the company then increases steadily in the subsequent years.
Working capital amount is quite adequate which increase consistently during the past three years. It shows that company is in good position to finance its short term financial needs. In terms of liquidity the company is performing than industry as it can be depicted by the industry average of 1.06:1 and 0.85:1 for the current ratio and quick ratio.
Profitability ratio
(all figures in millions)
2007
2006
2005
ROA EBIT Total Assets
4.25%
(3,351)*100 148883 = -2.25%
11,998*100 186192 =6.44%
(1,163)*100 476078 =-0.24%
ROE Net Income Equity
12.1%
(38732)*100 (37094) =104.42%
(1978)*100 (5441) =36.35%
(10567)*100 14597 =-72.39%
Return on sales EBIT SALES
6.72%
(3,351)*100 181122 = -1.85%
11,998*100 207,349 =5.79%
(1,163)*100 192,604 =-0.60%
From its fiscal years ending December 31, 2005, 2006 and 2007, general motors showed fluctuating net income figures available to common shareholders. From a loss of $10.567 billion in fiscal year ending December 31, 2006 to just $1.978 billion in the fiscal year ending December 31, 2006 while 2007 the loss increased to 38.732 billion decline of more than 100 per cent for that period: 72.39 per cent in 2005, 36.35% for 2006 and 104.42 per cent in 2007.. The decline in profitability was exacerbated by a non-parallel decrease in selling, general and administrative expenses which resulted to a decline in operating income.
Return on Assets is also used for the same purpose of measuring the overall performance. However to be meaningful to calculate the ROA it should be adjusted for implicit interest which is difficult to estimate and hence makes the process unnecessarily complicated. The figures show that performance is lower in 2007 than in 2006 and the performance ratio is 0.60% and 5.79% respectively while the industrial average was 4.25%. this means that the company is doing poorly than the industry.
The return on owner’s equity also shows a downward trend through the periods 2005 to 2007. From the period 2005 to 2007, it was below the industrial average which is 12.1%. However in 2006, the ratio improved. However, there exists no record of the industrial average to compare with.
As to the ability of the company to continue showing profitability in the next three years or so, that depends on how fast the US economy will recover from the economic crisis. After all, general motors business is strongly dependent on the economy. Therefore it is difficulty it is difficult to say that the performance of the company itself has increased.
Market price
Industrial average
2007
2006
2005
Market to book value price per sharebook value per share
1.22
31.189 -62.60 =- 0.50
26.116 -10.75 =-2.43
26.90 16.82 =1.6
Price earnings ratio price per share earnings per share
0.17
31.189 -63.50 = -0.49
26.116 -3.24 =-8.06
26.90 -17.32 =-1.55
Earnings yield earnings per share price per share
1.65
-63.5*100 31.189 =-203.60%
3.24*100 26.116 -12.41%
-17.32*100 26.90 =- 64.39%
The decline in profitability of the company and the worsening situation of the US economy was eventually reflected into the price of general motors stocks as they traded in the stock exchanges: from a price high of $31.189 in the fiscal year ending December 31, 2007 to just $3.18 in the fiscal year ending, 2008.
This decline resulted to a price earnings ratio of -0.49 times from -1.15 times in December 31, 2007 and 2005, respectively which is below rhe industrial average0.17. This and other factors such as earnings yield, made the company’s total investment return to its shareholders for the period ending December 31, 2005 at a negative 64.39 per cent. This means that if an investor invested $1,000 in General Motors stocks on February 1, 2005, that investment is only about $204 at the end of the period – December 31, 2007.
However, the market estimated that General motors earnings per ordinary share in the next fiscal year, December 31, 2008, is actually higher than their estimate of this year’s earnings per ordinary share last year. The estimate for the price earnings multiple, on the other hand, is lower than this year. Market price to book value also went down from 1.6 to -0.5 in years 2005 to year 2007 while industrial average was 0.17. earning yield also show the same trend go on that is industrial average is more favorable as compared to the three year company rates.
Leverage ratio
Ratio
Industry average
2007
2006
2005
INTERST BURDEN EBIT-INTEREST EBIT
1.06:1
(3351)-2902 (3351) = -1.87:-1
11998-16945 11998 = -0.41:1
(1163)-15768 (1163) =-14.6:-1
INTEREST COVERAGE EBIT INTEREST EXPENSE
00.00
(3351) 2902 = times -1.15
11998 16945 =times 0.71
(1163) 15768 = times -0.074
Leverage Assets equity
1.06:1
148,883 (37,094) =-4.01:1
186,192 (5441) =-34.22:1
476,078 14597 =32.61:1
Compound leverage factor Interest burden x leverage
1.06x 1.06 = 1.1236
-1.87x -4.01 = 7.499
-0.41x-34.22 = 14.03
=-14.6×32.61 = -476.106
Interest coverage ratio improved from times 3.5 in the year 2006 to 4.3 in the year 2007 as well as 2008. What it means is that interest coverage ratio improved and credit providers will be confident with the profitability of the company. Cash coverage ration also improved from 2.5 to 2.6 before coming back to times 2.5. It means that some expenses in the company were affected by inflation tendency due to financial and at the same time the management was unable to convert receivables into cash.
Asset utilization
Industrial average
2007
2006
2005
Total assets turnover Sales Total assets
0.62
181,122 148883 = times 1.22
207349 186192 = times 1.11
192,604 476078 = times 0.405
Fixed assets turnover Sales Fixed assets
–
181,122 88,480 = times 2.05
207349 121,712 =times 1.704
192,604 376,664 =times 0.511
Inventory turn over Cost of goods sold Average inventory
7.23
169,001*2 (20,222+20046) = times 8.4
164,682*2 (20046+33384) = times 6.16
171,033*2 33384 =5.12
Days receivable Average accounts receivable X365 Annual sales
8.43
(9659+20173)/2*365 181,122= 30 days
(20173+15578)/2*365 207,349=32 days
15578*365 192604=30 days
Despite the declining net income and net margin figures reported by General Motors, the company showed an improvement in its asset turnover ratio from 0.405 times to 1.11times for the fiscal years ending 2005 and 2006 respectively. While in the year 2007 it was times 1.22.
An analysis of the company’s balance sheet, on the other hand, shows that current assets, total assets, current liabilities, long term debts, total liabilities and total shareholders equity all declined at the end of 2007. However, due to lower sales and slower inventory turnover, the company’s total inventory by 2006, as a proportion of total assets and all the rates are below the industry of 0.62 which is an average for 5 years.
The company’s Inventory turnover is 8.4 times in 2007 which is the higher turnover than 2006 that is times 6.16 meaning that the average stock was turned 8.4 times in 2007. It shows that company declined in its performance in terms of converting its inventory into sales resulting in higher sales figure during the year 2006 and 2007. the industry has an average of 7.23. this means the company manages stock better the other players industry.
The rate at which the company converts debtors/receivable into cash in 2007 is times 30 days which are higher than the figure of 2005 and 2006 of times 30 and 32 respectively while the industry average is 8.43. It means that the efficiency with which the firm is utilizing its debtors to generate cash is improved.
Sales to account receivable is has fluctuated over the three years showing that company is rapidly converting its receivable into cash. Same is the case with inventory. The company is converting its inventory into sales rapidly over these years resulting in higher sales. It shows that company is converting its inventory into receivables and receivable into cash quite efficiently.
Valuation
In valuing this company dividend growth model will be used as well as earnings per share. Using published financial statement, capital pricing model will be used to arrive at the cost of equity for the firm which in turn will be used to determine the value of the company. This company has a beta of 1.77 as at 26th November
The cost of equity will be calculated as follows through equity,
Ke = Rf + β(Rm –Rf)
whereas;
Rf is the risk free rate
Rm is the market rate
While β is beta.
From the information available, risk free rate is the American Treasury bill rate which is 4.23%. the market rate is 11% and β is 1.77. Therefore cost of equity is
4.23+ 1.77(11-4.23) = 16.21%.
Using the dividend growth model which is
Wheres:
Ke is the cost of equity,
Div is dividend one year from now
While g, is growth of dividend
In this case growth of dividend will be measured by measuring the growth in net income available to common holders.
Therefore the value of the share is
0.41
0.1621
=2.53
Recommendations
From the calculations carried out I can conclude that the shares of this company are overvalued in the market therefore I will advice an investor not to purchase the share since the intrinsic value is lower than the market value. Overall, the market’s outlook on General motors is a hold.
In order to achieve better future results, better or close to industrial average, the firm needs to cut down its operating expenses. This would considerably improve the profitability ratios. They also have to review their policy on capital management and keep optimal levels of various items of current assets.
This would improve the firm’s liquidity position. In order to improve the return on owner’s equity ratio, the management should invest in viable projects that would yield positive NPV’s. This has the effect of maximizing their wealth. To improve on the financial ratios, the firm would ensure that it has more liquid assets and also resort to internal sources of finance as opposed to external ones.
Based on the debt ratio, and if the restaurant is to finance the operations , it is should not be through external borrowings (debt), then it would be advisable to do so. This is because Blue Ribbon’s debt management is efficient as shown by the declining trends of debt. However, the management of the restaurant is not efficiently utilizing the current equity as shown by a decline in the return to equity over time.
If additional borrowings would however adversely affect the restaurant’s balance sheet position, they should withdraw the expansion plan. Additional borrowings can increase the restaurant’s gearing hence subjecting it to financial risk.
Work cited
Brown, Philip George foster , and eric Noreen, security analysis multi-year earnings forecast and capital market. Sarasota, FL: American accounting association.1985.
Cohen, Jerome B.,Edward D. Zinbarg, and Arthur Zeikel, Investment Analysis and Portfolio management, 5th ed. Homewood, IL; Richard D.Irwin, 1987.
Davis, H.Z,. and Y.C Peles , measuring equilibrating forces of financial ratios , the accounting review ( 1993)
Fama, Eugene and Kenneth French, the CAMP is wanted, dead or alive, working paper, graduate school of business, University of Chicago, 1995.
Largay, James A III and Clyde P. Stickney, cash flows, ratio analysis and the W.T Grant Bankruptcy, financial analysis journal (1980)
Saunders, Anthony, financial institution management: a modern prospective 2nd ed. (Chicago, IL: Richard D Irwin) 1997.
Train, John, Money masters. New York: Harper and Row 1987
General Motors was founded at the beginning of the twentieth century and initially they were the manufacturer of Buick- a motorcar with an internal combustion of engine and horse-driven vehicles. They gradually developed more auto cars and in 1916, Alfred P. Sloan who led the company to an unprecedented growth over the years owned it. GM grew up into a huge global corporation despite all the tribulations it went through.
As GM is a gigantic conglomerate, it has several branches. GM has four organs for administration and reporting while GM North America (GMNA) had the largest sales. The GM maintained an overall percentage of 26 % to 28 % of all industries in this region.
However, its profits fell in 2005, which was due to lesser quantity of products and an unfavorable product mix and it was the result of plant closures, changes in product liability and other major impacts on net income. In Europe, GM (GME) faced continuous losses amounting to US$ 1.0 bn by 2004 due to continued negative price pressures and unfavorable exchange rates. GM in Asia Pacific (GMAP) had good sales, here with a very good position in China.
India and Thailand also yielded good earnings. GMAP showed very high net margin with about 10% in 2003 & 2004. GM in Latin America, Africa, and the Mid-east (GMLAAM) was unpredictable with losses in 2002 & 2003, mounting to profits in 2004. The net margin was higher in 2002, which fell to 0.4 % in 2003, which increased to 0.9% in 2004.
The GMAC was the financial subsidiary of GM, initially introduced to finance GM operations. This section had continuous profits and gradually it grew up into a global financial company, offering mortgages and insurances. The total revenues from the financing & insurance operations showed a gradual increase, which was 31000 million in 2004 and a net income of 2800 million in both 2003 & 2004 but however, there were also some losses in some other sectors.
The shares of GM and other American companies declined from 1990 to 2004, whereas shares of foreign companies rose and these led to restructuring. There was high competition and GM faced new challenges.
Strengths and Weaknesses of GM
The internal strengths of GM are market share, sales volume, performance of subsidiaries, labor force, financial strength, restructuring process and long experience, brand awareness in the US market, application of technology, and many other features. On the other hand, the external threats are Reduction of market share in the US market from 1990 to 2004, provision of North American Free Tread Agreement, operating expenses, excessive investment, and model of the cars, political factors, strategic decision, and stock performance.
Strengths:
Market Share: According to the annual report 2010 of GM, it has business operation in more than 157 countries and still has a significant share in global market. In addition, its current market position in North America zone is outstanding in terms of market share and volume of sales;
Sales Volume: Wall Street Journal forecasted that General Motor is in the highest position considering the number of car sales because it has been sold 232,538 cars in the fiscal year 2010/11 while Ford Motor Company sold only 189,284 cars and Toyota Motor Sales USA Inc. sold 159,540 cars in this zone (WSJ, 2011). However, the following figure demonstrates the position of car manufactures in terms of car sales –
Figure 1: Position of GM in the US market
Source: WSJ (2011)
Performance of Subsidiaries: It has many regional subsidiaries like GM Daewoo Auto & Technology, Shanghai General Motors, SAIC-GM-Wuling Automobile Co and many others subsidiaries those performance help to increase profit in consolidated financial statements.
Labor force: GM has more than 209,000 efficient employees to operate the business in adverse economic condition and save the company from such position. However, most of the employees are higher educated in particular subject and their own field and they have innovative new idea to offer better services for the customers;
Internal control: the management team follow local rules and regulations where it operates and it has own controlling system. However, it follows listing rules and other provisions of Sarbanes-Oxley Act of 2002 to control the business and avoid mismanagement and internal conflicts;
Financial strength: GM Corporation is one of main player in the automobile industry, which has financial capabilities to compete with other car manufactures in national and international market by implementing its new business strategies in the present market place. According to the annual report 2010 of GM, its present key financial variables are –
Key variables
2010 ($ million)
2009 ($ million)
2008 ($ million)
2007 ($ million)
2006 ($ million)
Total Sales Revenue
135592
57474
148979
179984
204467
Net income (loss)
6503
(3786)
109003
(31051)
(38136)
Total Assets
138898
136295
91039
148846
185995
Total GM Company equity (d)
37159
21957
(85076)
(35152 )
(4,076 )
Diluted earnings (loss) per share:
$ 2.89
$(3.58)
$(53.47)
$(76.16)
$(4.39)
Table 1: – Financial information of GM
Source: self generated from of GM (2010, p.47)
Restructuring process: This company was become bankrupt due to the adverse impact of global financial crisis but it was successfully restructured by taking direct help from the government;
Experience: As the company established in 1908, it has long experience to operate global market with strong brand image.
Weaknesses: Besides strong points, GM has many weak issues like –
Decrease Market Share in the US market: From 1990 to 2004, GM lost a significant percentage of the US market share, such as, its market share fell about 35.5% to 27.3% while Toyota and Honda’s market share climbed by 18.3% to 26.2% in this zone;
Figure 2: US Market share of Automobiles
Source: General Motors (2010, p.7)
NAFTA: the competitors of international market particularly Toyota and Nissan have easily entered in the North American zone by taking facilities of NAFTA[1] and captured large market share;
Operating expenses: the total costs and expenses of GM are increasing each year, for instance, this expanses were $130508 million in 2010, $62402 in 2009 and $170209 million in 2008, which shows gradual increase of this costs;
Excessive Investment: The main requirement of huge investment, fixed costs, excessive cost for training and development of staff and capitalization are eligible to put greater pressure on any car manufacturer regarding GM. Those variables also create severe problems of over capacity by recession and lower sales revenue or under capacity for upturn;
Model of the cars: Most of the car manufacturing companies change the model of the car frequently, but GM is not concentrate on this issue more seriously.
Political factors: GM’s net selling market in the USA has been adversely affected since 1990 due to fluctuate economical and political situations. For this circumstance, the company is shifting its selling vision towards rising automotive car market of China, which offers lower profit margin than general projection.
Strategic decision: Toyota, Honda and Nissan have taken measures to save the company from unusual events, for instance, these companies have introduced environmental friendly sport utility vehicles (SUVs) to increase profit margin;
Stock Performance: the performance of GM in Stock market is not satisfactory as this share price is decreasing day-by-day especially its share price decreased dramatically in April 2011 and the subsequent figure shows the position of GM in Stock market.
Figure 3: – Basic chart of GM
Source: Yahoo Finance (2011)
The External Environment of GM
Hitt, Ireland, & Hoskisson (2001) stated that the external environment of the company is depend on political, economical, social, and technological factors; therefore, this report will consider PEST analysis of GM-
Political factors: General Motors (2010, p.29) reported that political unsteadiness in the Middle East and African countries could weaken the demand of cars and it must effect on the integrate market share of GM and annual financial performance. On the other hand, foreign direct investment policy in China, taxation policy of local and foreign countries, hostile attitude of the government of Nigeria and Venezuela, Israel- Palestine clash, and Iranian political environment influence the company both positively and negatively to operate the business.
Economic factors: According to the report of Reuters (2011), GM experienced economic hardship due to the influence of bankruptcy in the fiscal year 2008 and 2009, but it enjoyed exceptional success in the year 2010, for instance, net income of GM was $6503 million, though the share price is decreasing at this moment (Reuters, 2011). However, Conklin (2005) projected $4.0 billion operating lose in 2005 due to high maintenance costs such as healthcare costs were $5.60 billion, which extremely higher than competitors’ expenses. However, Reuters (2011), forecasted that government provided fund from bailout bill to help the company to recover from recessionary impact, and the company started to gain its confidence and its share price would be in stable position in next three years.
Figure 4: Basic Chart of General Motors for 2009 to 2013
Source: Online Journal Reuters (2011)
Socio- cultural factors: GM provides effort to build up efficiency level of the employees in order to offer quality products and services to the customers. As employees are the key assets of the company, GM provide high remuneration to them as they are responsible for research and design, increase quality of the products and improve sales rate; so, GM increases annual pension and healthcare funds for the staff as more than 679000 families depend on this funds (Ivey Management Services, 2005).
Technological factors: The research team of GM is working hard to reduce petroleum consumption by introducing hybrid and electric technologies as Toyota and Honda have already captured a significant market share by developing environmental friendly products. At the same time, technological factors play vital role to introduce the vehicles with alternative fuels, and reduce oil and water consumption or launch next- generation hybrid power technology for gaining efficiency and ensure safety issues.
Porter’s five forces model analysis of GM
In order to discuss the competitive environment of GM, this report will focus on Porter’s five forces model –
Figure 5: Porter’s five forces model of competition for GM
Source- Self generated form analysis
Threats from new entrants: According to the annual report of GM Corporation, the automobile companies had suffered intense competition in the local and international market for financial downturns, unstable fuel prices, and reduction of the employment rate. In addition, it is important to have strong financial condition with advance technological supports in order to enter this industry as new player. As a result, it is hard for the new companies to occupy the market share of General Motors but there is huge risk of competitive stress from newer domestic automakers of China and India because these new manufacturers are popular to the middle class target groups. At the same time, large automobiles like Toyota, Honda or other companies’ subsidiaries can captured the market of GM as its market share in the US market is decreasing;
Bargaining power of suppliers: As per the annual report 2010 of General Motors, the main suppliers are raw materials suppliers, which supply steel, aluminum, oil, rubber, motor engine, resins, color, simple parts, engine, glass, copper, lead, systems, components, and other body parts of cars etc. Nevertheless, the bargaining power of these suppliers differs from nation to nation and the availability of the suppliers of particular products, such as, General Motors always clear the payment second month of the delivery due to avoid any misunderstanding in the supply chain management system.
Bargaining power of buyers: Prior to the global financial meltdown, buyers were comparatively less influential factors to the automobiles industry because most of the customers of GM had concerned on quality rather than price of the products though the fact of this statement differed from one market place to another place. However, the bargaining power of buyers is now high because of the current pressure of global financial downturn, as the customers of new cars now like to purchase cars at lower price. In addition, this power of buyers helped the competitors of GM to increase their sales profit as most of the competitors offer lower price of the cars;
Threats of substitute products: Besides competition with direct competitors, General Motors also suffered hard competition from some other substitute transportation system. As the demand of public transports like bus, railways system, and trams have provided huge facilities, the people take the advantage of public transport system in this economic condition;
Rivalry among existing firms: This Company has to compete with numerous direct and indirect auto manufacturers at both home and abroad, for instance, the key competitors of this company are Honda, Ford motors, Chrysler, Nissan, Mitsubishi, Land Rover, Toyota, BMW, etc. However, the rivalry among existing firms is extremely high as all companies change their strategies to expand its market share; therefore, market share in the US car and truck market of GM fell about 22.1% to 18.8% from 2008 to 2010 only for the intense competition. However, the following figure compares the position of GM with other direct competitors –
Figure 6: Direct Competitor Comparison
Source: Yahoo Finance (2011)
The external threats and opportunities of GM
Opportunities:
Growth: This company has capability to perform strongly in existing market and enter new market with exclusive offer particularly EU market is potential for the company;
Joint venture: Joint venture with local companies or large multinational companies can bring success for the company
Hybrid cars: GM has scope to develop its hybrid technology, new vehicle styles and models for the target customers;
International strategy: It should try to apply international strategy to enter highly populated regions enlisting India, China, and Russia to generate long- run return.
Threats:
Recessionary Impact: It had been acted as the most vulnerable and dangerous factor of the General Motor company in terms of falling its certified dealership concerning 475 outlets among which 401 were linked with GMNA. In addition, it also generated stiff credit industry, disorder in the mortgage sector and fluctuated fuel rate for diminishing customer loyalty;
Competition: Intense competition among the market players is one of the key threats for the company while competitors rapidly occupied large market share.
Legal Litigation: Recently, legal litigation costs had increased as the company is responsible for environmental issues, employees and customer safety concerns, product quality, customers’ safety and other government policies;
Fuel price: The volatility of fuel price decrease the demand of GM cars as the customer would like to purchase cars those require consumption rate of fuel is very low. However, the marketer of GM has already addressed this issue and this company is going to launch 19 FlexFuel vehicles in FY2011 with intent to capture 40 percent its total sales revenue;
Compensation: Executive compensation committee has established considering the provisions of the ARRA[2] 2009 to maintain the remuneration system; however, it has many high-compensated employees, which become threat for the company at moment of financial crisis.
Strategy of GM
At around 2005, GM had been experiencing high losses. GM was also compelled to provide payment for retired employees and pensions. In addition, there was intense competition. Therefore, GM would have to take steps in order to overcome these difficulties. The earlier principles were best products, consumer focus, and unity, accept stretch targets and working rapidly. GM would now have to change its working strategies.
Among the US companies, which were the competitors of GM were The Big Three companies, Ford, Daimler-Chrysler and GM, which copied each others decisions involving models and prices which threatened continued profitability. On the other hand, foreign companies introduced newer models of cheaper improved products and they employed younger people & paid less salary to them.
The US companies strived to retain seniority distinctions, which hindered the innovation of new technologies. Many first time buyers preferred used cars but the older products of US Companies had poor performance, which created a bad impression in their minds. Consumers sometimes say that due to poor quality the US companies offered lesser prices. Repeated price and interest concessions led to customers waiting for the next sale.
Moreover, such programs served to decrease prices of used and new vehicles and consumers preferred cars that might have constant resale value. Thus, the US companies closed some of their plants. The US companies decreased prices from suppliers and enhanced the prices to the dealers, which led to reduced profits. The complexity and size of the huge companies like GM delayed changes in technological and corporate cultures.
Thus, the goals of GM were to increase shares by acting strategically. It would also have to introduce strategies to impress its customers. Thus, the company planned to undertake different corporate strategies.
GM’S Saturn Strategy
This project was that GM initiated a new branch in a new area with new employees. The Saturn vehicle was made especially different by providing it a plastic dent-free body. The sellers had fixed listed prices, for creating confidence to the customers of the company.
This produced high consumer satisfaction but the profits could not meet its expectations. The Saturn Strategy required distinctive features and new employees. This was expensive so GM decided to make Saturn just another simple brand, with engineering and marketing being shifted to GM’s centralized operations.
GM’s Strategy of Alliances
GM created alliances in several countries for expanding their business. They had an equity position with the Swedish manufacturer Saab, and also created joint venture with the Russian company for building SUVs for Russia. They had an alliance with Suzuki of Japan for producing engines for Suzuki vehicles. They also had remarkable alliance with Fiat, Daewoo and SAIC.
GM’s Fiat Strategy
GM had alliance with Fiat hoping to increase sales in Europe. Fiat hoped to increase sales of its luxury cars in the US. GM and Fiat reduced costs by sharing engines and platforms. They exchanged technologies. They also exchanged shares in each others companies. However, this alliance was disastrous. Fiat had decreasing sales and lesser profits. GM and Fiat worked individually and some Fiat shareholders argued GM was obliged to purchase the remaining 80% of Fiat. Finally, GM made an out-of-court settlement of $2 billion.
GM’s China Strategy
GM had a 50 per cent share with a Chinese auto manufacturer, SAIC. They had numerous competitors with about 200 carmakers, retaining a 40 percent market share. In addition, the government had interventionist policies, such as the foreign ownership of assembly factories should be limited to 50 per cent.
However, intellectual property was not protected resulting in models being copied and hence, threatening a decrease in prices. Moreover, GM faced risks that the joint venture might be dissolved or that the SAIC and others may turn into their global competitors; therefore, there were many challenges.
GM’s Daewoo Strategy
GM made an alliance for buying Daewoo assets forming GMDAT. This led GM to gain access to the market in Korea and also to provide low-cost cars for GM dealers worldwide. Initially, GM had a 33 per cent market share, which fell to 9.5 percent in 2004 and the situation was becoming tougher.
GM’S “Non-Market” Strategies
Governments made policies, which influenced automakers strategies. In some places, such as Canada, government provided free health care for the people thus decreasing the production costs and influencing plant location decisions.
For years, governments considered the automotive industry as a job creator, involving assembly operations and also dealers and suppliers. Therefore, the government provided significant financial assistance by which new plants or R & D facilities could be introduced. Hence, each automaker started requesting for financial assistance.
GM’s Healthcare and Pension Strategies
GM had numerous employees and thousands of families relied on it for pension funds. In 2005, the cost of healthcare amounted to $5.6 billion and GM was considering to reducing these huge healthcare obligations.
In 2005, GM thought to reduce benefits for retired UAW workers, but the UAW argued that this would be a breach of their contract. The union’s view was that before the union members chose to agree to reduce rises in their salaries expecting higher pension and health promises; thus, GM was legally and morally bound to the customer.
GM’S Environmental Strategy:
The governments were attempting to reduce gasoline consumption and emissions by increasing mileage for which they introduced regulations. Under the new regulations, sales were easier for Honda and Toyota than GM, which was compelled to sell smaller trucks at lower profit margins.
Automakers were thinking to alter the engines for enhancing gasoline mileage by using batteries or other electrical sources. GM introduced models, which relied on lead acid batteries and which it required charging. GM was also working for developing a six-cylinder diesel engine. Toyota and BMW was also working on new types of engines. GM and other automakers also considered fuel cells for producing electricity.
In fact, some countries signed the Kyoto Protocol, for decreasing carbon dioxide emissions while the US and some countries did not sign. However, GM voluntarily took measures to reduce carbon dioxide emissions monitoring its energy use and carbon dioxide emission launched a website.
Business Level Strategy of GM
The GM’s market share in the US fell from 35.5 per cent to 27.3 per cent. The global share of GM was 15 per cent in 2002, which was approximately 14.5 per cent in the following yrs. Thus, the consolidated net income rose by about 1 million from 2002 to 2004. The net margin from continuing operations was above 1 per cent throughout the 3 yrs.
An analysis of the financial data of global automakers would reveal the global position of GM. GM had the highest number of sales worldwide in 2004, but this does not mean an entire profit since the operating profit margin was -0.2% and the return on equity was -4.4%.
This indicates that the company is going through losses. On the other hand, Nissan and BMW had a high profit margin of about 9%, which means that the company is having high profits. Nissan had a return on equity of 20% also indicates the high profitability of the company. The Stock Change of GM was -38.6% whereas that of Nissan was about 228%. Hence, in comparison it appears that the position of GM is poor in the market.
In 2005, the CEO of GM intended to introduce new objectives. Following this, GM offered substantial discounts to attract consumers and lessen inventories. The CEO declared that the number of employees would be reduced to 25000., the CEO introduced a new strategy which included a) spending more on new vehicles, b)explaining the functions of each of GM’s eight brands; c) focusing more on lowering costs and improving quality; d) searching for ways to lessen the enormous healthcare costs.
GM planned to reduce healthcare costs in US. Nevertheless, this was not such a pressing matter for Canada due to differences in publicly funded healthcare systems. The CEO decided to be in charge of the GMNA. He made internal changes within the company by assigning the former chairman of the NA division and GMNA President to global product development and manufacturing and labor. The intention was to reinforce GM’s global focus.
The CEO also expressed a new strategy related to pricing, marketing and models of vehicles and said that if each product could be produced with more special features for attracting consumers it would be better.
For positioning the models uniquely so that customers can easily understand GM brought new strategies. Among the eight brands, Chevrolet and Cadillac would remain in the market and some models might be eliminated for lessening duplication. GM thought to use sticker prices, which would be much close to the original prices paid by customers to allow customers to compare prices of GM’S products with products of other companies.
GM also started new advertisements focusing the theme “Only GM” emphasizing safety features and in-vehicle communications service and electronic stability control and some other features.
The major problem faced by the company:
According to the case of Conklin (2005), the major problems faced by the company are-
Competition from Japanese automobiles: The foreign automakers particularly Japanese carmakers offer lower price for their new model quality cars those are concentrate on the environment friendly with low fuel consumption to the customer. Besides trucks and small car markets, these companies also penetrated the market of luxury vehicles with latest technology and these companies develop global networks to sales their products. However, GM is in number one position in terms of car sales but it is facing serious problem to sustain as a market leader in automotive industry from last three decades.
Competitors’ products: the competitors especially Toyota and Honda are manufacturing quality products and building strong brand image, which becomes one of most significant problems for GM.
Internal controlling system: the present management team is in under pressure due to the provision of previous rules as these rules create impeding to apply new technology and bring organizational change at the time of crisis.
Resale value: According to the report of Ivey Management Services, the government, rental service providers and many companies offer second hand cars at lower price; therefore, many potential customers purchase second hand cars instead of first hand cars of GM.
Customers’ respond: Most of the customers of GM stated that the value of this brand is higher than any other foreign company’s car and the quality also lower in terms of the price of the GM brand. Therefore, the customers would like to purchase competitors model as they get new car at lower price with similar or better features, which influence the market to reduce integrate sales of the company.
Restructuring process: In 2004, Wagoner in annual report of the company stated that GM should restructure its strategies in order to gain competitive advantages in future and it was a difficult task for the top management, as they had to take many decision going beyond existing culture of the company. For instance, it had twenty-seven different purchasing organizations but it is now performing as a single organization for global operation
The “Push” industry effect: Push strategy indicates that “pushing” the production through distribution channels to final consumers where the manufacturer directs all the marketing actions toward channel members for reminding them to carry out the production and to endorse those to final customers; however, GM followed these strategy and automatically reduced the market share.
The possible solutions/ alternatives for solving the problem:
Explanation of Scale: Each criterion was evaluated and given a score between 1 and 5, with 1 being very unfavorable and 5 being highly favorable
Alternative 1: Develop new product line
Annual report of GM stated that this company has focused on creating a strong business by introducing innovative products with excellent features; consequently, GM has already launched few models those can run by using alternative fuels consumption system (such as bio-diesel and ethanol blends) with other eco-friendly technologies (GM, 2010, p.12).
The purpose of this strategy is to increase the market share in the US market as the foreign companies penetrated the US market with these product lines; for example, Toyota became the market leader in the Hybrid and Plug-In Electric Vehicles while Honda is the major competitor of Toyota.
However, GM has already changed its objective related with the cost effective fuels issues and it has introduced 19 Flexmation considering these facts and added new features to operate with bio-fuels including E85 ethanol by the fiscal year 2012.
At the same time, GM (13) reported that new model hybrid electric vehicles would play vital role to change customer behaviour and increase sales revenue from the US and European car market; therefore, it would like to introduce Hydrogen Fuel Cell Technology, OnStar and Other Technologies in their new products.
Decision Criteria for Strategic Alternatives
Evaluation Criteria
Evaluation Criteria
Strategy 1
Builds brand awareness
GM is already market leader in the US market in terms of car sales, but Toyota leads the hybrid car market; so, strategy 1 would need to implement to build brand awareness within short time in this sector
4
Aligns with vision
This strategy complied with the vision of the company
4
Exploits core competency
It has addressed areas that can add value for GM automobile and further develop the world class experience
3
Competition
As the car market is too competitive, this strategy would create new dimension to compete with competitors
4
Differentiates and helps to create unique experience
The customers have experienced of the eco friendly models. Therefore, it will not help the company to create unique experience
3
Creating loyal customer base
As Toyota and Honda offer similar products at lower price, then it would be difficult to create loyal customer base
3
Financial risk
Implementation of this strategy may create problem due to lack customer demand, which will increase financial challenges
3
Short and long term Growth rate
It would be possible to expand market and sustain for long time in some business zone
3
Think customer first
It is not meet the criteria of think customer first
3
Degree of Flexibility
It would be possible to develop market share in the US and other European countries
4
Total / 50
34
Alternative 2: Restructuring Pricing Strategy
The marketer of GM should research on the market trends, external business environment, the effect of global financial crisis, demand, market competition and buyer behavior in order to restructuring its pricing strategy.
However, GM has long experience to operate business in national and international market as a major player but it lost its glorious market position due to higher competition and price war from Japanese companies. As a result, restructuring pricing strategy is one of the most essential criteria to sustain in competitive market while all competitors setting price considering customers’ purchasing power.
Decision Criteria for Strategic Alternatives
Evaluation Criteria
Evaluation Criteria
Strategy 2
Builds brand awareness
Japanese car manufacturing companies developed their brand image by using this strategy
4
Aligns with vision
In 2009, GM’s sales have been lowered by 30% than 2008 and the company decided to fire 3800 personnel in order to overcome the recessionary impact. In this circumstances, the position of the company can be improved by following this pricing strategy
4
Exploits core competency
GM would need a longer period of time to regain its glorious position in terms of more vehicle sales if it not consider this strategy
4
Competition
As Japanese competitors ask lower price to capture the market, GM should hit the market by restructuring their pricing policy
5
Differentiates and helps to create unique experience
Most of the case value creation depends on geographic factors include target region or country and population density
3
Creating loyal customer base
Due to ongoing instability of oil prices over 2008, a lower demand situation has been created for some of the GM’s higher margin cars involving full- size sport utility vehicles. Therefore, restructuring pricing strategy is the only one solution to create large customer base;
5
Financial risk
4
Short and log term Growth rate
In 2009, the overall conditions threatening the company to the extent that it would not sustain for long without a bailout from the US government. Consequently, alternative 4 must help the company to operate in near future with highest market share
4
Think customer first
This strategy meet the criteria of Think customer first
4
Degree of Flexibility
Cost Leadership is the effective strategy for future sustainability
5
Total / 50
42
Alternative 3: Joint Venture and Acquisition strategy
The company can achieved competitive advantages by joint venturing with large automobiles to share their resource and capabilities to expand the business in outside of the US market.
Decision Criteria for Strategic Alternatives
Evaluation Criteria
Evaluation Criteria
Strategy 3
Builds brand awareness
In some case, this would effective strategy to increases Brand recognition
4
Aligns with vision
It is more likely to result in a successful outcomes as it creates a customer centric culture, making their accessibility and needs to most important thing
4
Exploits core competency
It has identified areas that can add value for the company
4
Competition
Reduce completion between two contacting parties
5
Differentiates and helps to create unique experience
Differentiate the mountain to suit target group needs, each mountain in unique within itself ensuring that the experience is unique and entwined in the mountains culture
3
Creating loyal customer base
Increased infrastructure and services increases capacity for more customers, ensuring the experience to create loyal customer base
4
Financial risk
In case of joint venture, it has minimal start up costs, and few overhead. However, in case of acquisition, it requires a large financial investment both with the initial purchase and the development of infrastructure expenses
3
Short and log term Growth rate
It offers large potential growth in the long-term in some place
3
Think customer first
This strategy has designed with think the company first
2
Degree of Flexibility
It limits its adaptability
3
Total / 50
39
Alternative 4: Combination of Alternative Strategy 1 and Strategy 2
Decision Criteria for Strategic Alternatives
Evaluation Criteria
Evaluation Criteria
Strategy 4
Builds brand awareness
It would be the best solution to create brand image in global market
5
Aligns with vision
This strategy is complies the vision, as the vision of the company is to be the world’s best vehicles by building large market share, revenue, earnings and by developing the quality of the vehicles
5
Exploits core competency
GM has already experienced success for outstanding offerings where new pricing strategy would increase its profits
4
Competition
Strategy 4 would be the best solution to compete with Toyota, Honda and other foreign competitors
5
Differentiates and helps to create unique experience
The behavior of the customer would be changed due to the new strategy
5
Creating loyal customer base
It would be possible for the company to build loyal customer base like competitors
5
Financial risk
There is almost no financial risk to implement this strategy
5
Short and long term Growth rate
Short and long-term growth of the company would be depending on the customer behavior and strong customer base. However, it can assume that this strategy will expand in near future rapidly
5
Think customer first
This strategy first think customer
5
Degree of Flexibility
It would be possible to focus on other countries
5
Total / 50
49
Recommendation
This report recommended that Alternative strategy 4 is the best solution considering the evaluation criteria of decision-making process and this strategy would help the company to create brand image in global market including developing countries. Alternative strategy 4 only considers the new product development with exceptional features, but the company would never be able to capture large market share if the customers purchase the low price products of competitors. As a result, combination of pricing strategy with development of product line would be the most successful strategy to regain its market position in the US market and establish the company as market leader in global market.
Reference List
Conklin, D. C. (2005) General Motors: Acting Strategically. Ontario: Richard Ivey School of Business.
General Motors (2010) Annual Report 2010 of General Motors Company). Web.
General Motors is an American multinational automotive manufacturing company which has been viewed as the world’s second largest in the automotive industry. This paper seeks to discuss the company’s history, from its establishment up to its bankruptcy in the year 2009. The paper will look into the company’s history and its SWOT analysis.
History of General Motors
The establishment of the General Motors traces its origin to the nineteenth century. In the year 1892, a person by the name Olds, through his savings decided to convert an engine manufacturing company into a motor vehicle company.
The commercial production of vehicles however did not start immediately as the company’s initiatives were for a number of years restricted to experimentation. These experiments led to the first test being done in the year 1895 when the company took a road test of its first model vehicle that had the capacity to move at about eighteen meters per hour.
Mr. Olds, who had named his transformed company as Olds Motor Vehicle Company, then established a motor vehicle manufacturing company in Detroit. This was the first motor vehicle manufacturer in the American region. The company received a positive reception in the market as it managed to sell more than one thousand vehicles in the few years before the close of the century. General Motors was then a development of a merger between the Olds Company and another company, Buick that had been developed.
The merger took place in the year 1903 following an economic recession that called for measures to ensure profitability in the industry. The general motors company then continued its expansion and innovations that fostered its developments until the economic recession that was realized after the Second World War.
The company’s management, however, proved its competence by developing new policies that that saved the company. The company also exerted its competitiveness in the industry in the closing years of the twentieth century. It, however, experienced a set back from the year 2008 when it greatly shrank its operations and expenditure. Further economic pressure then led to the company’s bankruptcy in June of the year 2009 (Funding 1).
SWOT analysis
SWOT analysis refers to the analysis of strengths, weaknesses, opportunities and threats that face an organization. The history of the general motors company exhibits a wide range of features as relates to strengths, weaknesses, opportunities as well as threats.
Strengths experienced by General Motors
One of the strengths that the General Motors Company had was an advantage over some of its competitors with respect to the variety of products that it had been offering to its customers. This advantage had been to the benefit of the General Motors Company over its long time competitor, Ford. Ford had resorted to production of a single model of car which was model T. The strategy of the general motor’s competitor was to produce a large number of the same model of vehicle and maximize on the economies of scale.
The General Motors whose car models were mainly targeting the rich classes of people changed its strategy to producing a wider variety of vehicle that would as well target lower economic classes of people. Its wide variety of production, which was based on grouping sections of the company departments to specialize in production of vehicles for specific market targets, helped the company to counter the competition that it faced from its competitor.
Another strength that the company developed was the decentralization of the groups that it had formed in order to expand its market. The then CEO of the General Motors, Sloan, made the groups to be autonomous in the operations and management.
The aim of this move was to create competitiveness among the company departments in terms profitability. This would be a motivational move as each department would strife to outdo one another thereby increasing the overall profitability of the company.
The diversification of product models, therefore, gave the company advantages in two perspectives: beating its competitor which was successful as well as increasing its profitability through an established healthy internal departmental competition. The company through this advantage controlled the vehicle market (Case Study 252-263).
Another strength that was identified with the company was its move that established and nurtured new skills that were less costly to the company’s operations. This strategy was a replication of some of the techniques that Japanese company used.
General Motors through this move established a cheaper means of production that provided it with a more competitive advantage over its competitors whose products were considered to be of lower quality. This further led to a relatively lower production costs in the company’s special department that was established to employ Japanese techniques.
The lower costs would then give the company higher profits if it maintained its selling price of the department’s products and even gave it an opportunity to lower its prizes to beat its competitors out of the market. The General Motors Company also entered into a venture with the Japanese Toyota Company through which General Motors intended to learn from Toyota how the Japanese managed to produce at low costs.
Though the ventured threatened to fail, it was eventually undertaken and General Motors acquired the technologies that empowered it to produce vehicles that were of high quality and at lower costs of production. The joint venture, therefore, gave the company more advantage to manipulate the market since it acquired more capacity of generating profits (Case Study 252-255).
General Motors Company also established branches to reach the global market. Measures such as formation of mergers with companies in foreign states were undertaken in the bid to spread the impact of the company into the global market.
Establishments of partnerships such as that which was done in Hungary between the General Motors and a local company in Hungary for supplies of its materials used in assembling vehicles helped the company to localize itself in foreign markets. These strengths helped the General Motors Company to hold on through the tough economic times that the company faced in the vehicle manufacturing industry.
Weaknesses
Weaknesses refer to setbacks that face an entity. Being a business organization and one that deals with production and marketing of commodities, the General Motors has been and is still bound to face challenges in its operations and marketing as well as in its internal activities.
One of the weaknesses of the company has been its inability to foresee and plan to control its susceptibility to loosing its market control in the motor vehicle industry.
The General Motors Company controlled a greater percentage of the motor vehicle market in the United States which was estimated to be more than fifty percent. It, however, lost its control to be shared among other companies. The company also suffered from impacts of its technologies as well as models that were much inferior to the ones that were owned by the other companies.
Technologies that were for a long time employed by the American company had a lot of disadvantage to the company. It is reported that at the time when the company started to lose market control in the first and the second decades of the twentieth century, the company was characterized by poor efficiency levels as well as the manner in which the company captivated its customers.
Responses that General Motors received from its customers were relatively worrying leading to lost touch between the company and its customers. Though the management moved to counter the market loss by diversifying the range of products that it offered, the company should have foreseen the possibilities of these occurrences and taken appropriate measures prior to their happening that cost General Motors its dominance in the motor vehicle market of which it had previously controlled more than half.
The range of products that the general motors company offered to its consumers also turned out to be its weakness. The company had seemingly specialized in relatively expensive models of vehicles that were only affordable to the richer classes of people.
This then played a role in the company’s loss of the market control share as Toyota and other car companies that joined the motor vehicle market. The Japanese marketer, for example, introduced two brands of vehicles that were relatively cheaper as compared to the brands that were offered by general motors.
Consumers, especially the group that could not afford the costly brands that were offered by general motors then shifted to purchasing the Japanese vehicles. General Motors was only reported to have planned for strategies to counter the Japanese cheaper provisions by trying to introduce models that would fit middle and low economic classes in the market (Case Study 252-263).
The General Motors Company also suffered from inferior business model that it applied in its operations as well as its market. Elements such are costs of production processes and even qualities of the products that the company had offered were generally regarded to be poorly managed.
The company was, for example, cited to be incurring a lot of unnecessary expenditures that strained its profits. The company, for example, spent a lot of money in the year 1990 in a bid to improve its quality production and check on its costs, though the result of that expenditure was not significantly realized. The company also failed to control its expenditures in times by reducing its expenses on resources especially its number of employees which analysts had identified as a major strain to the company (Case Study 252-263).
Opportunities
Throughout its history in the twentieth century and the first decade of the twenty first century, General Motors Company had a number of opportunities at its disposal. The first opportunity that the company had was influencing the American market so that it could have a monopolistic power in the country. Being the first provider in the market, the company had an opportunity of researching into its customer needs such as producing the cheaper car models that the Japanese company came to provide.
The oil shortage that rocked the world in the 1970s and raised an alarm over the use of heavy oil consuming vehicle, a characteristic of the type produced by General Motors Company, was also an opportunity for the company to read into the demand of the market and start producing vehicle brands that consume lesser amount of fuel.
An opportunity for General Motors Company to eliminate its competitors through fair means has also occasionally emerged for the company. Possibilities of acquiring competing companies which seemed to be smaller than General Motors occurred in the year 1990 when the company spent an amount of money, on restructuring, that was enough to acquire its two competitors through purchasing them.
This acquisition move would have restored the company’s market control as well as its profitability. The company equally had the opportunity to lead in exploring the global market which could have given it an advantage to counter its lost market in America. Some of these opportunities still remain to be available to the company (Case Study 252-263).
Threats
The company has as well faced a number of threats in its operations, profitability and survival in its entire existence. Most of these threats are also continuous and might continue to burden the company in future. One of the threats to the general motors company is global economic instability.
The company is reported to have greatly suffered from the major economic recessions that took place after the Second World War and the one that occurred at around the year 2009. Both these recessions cost the company its stability. Future recessions, therefore, remain to be a threat to the company. Competitors’ innovations has and still remains to threaten the company’s market and profitability since it is always seen to trail behind other companies in almost every initiative (Case Study 263).
Control Systems
General Motors are taking up measures to ensure that they are meeting the demands of their customers, for instance, the company in 2007 certified the web control system to engage in online customer who wish to make purchases (Irvine 1). on the accounting systems it has been reported that the company still might be facing some challenges with its internal system as company officials have at one moment described it as not effective (Caleb 1).
The company needs to tighten its grip on the control system to make it possible for it to advance. There is a need for the company to engage the customers more closely in order to ensure that the products that the company makes meet the needs of the consumers.
Recommendations
The company should be more innovative through market research in order to break competitors’ strength in markets. More sensitivity to changing technologies and market structure and demand should also be adapted in the company. Critical changes in the company’s operations structure together with sensitivity to views such as those of experts in economics and commerce fields can help the company to at least develop its profitability. Much rigidity and conservation of the company’s culture might just further ruin the company.
Conclusion
From very humble beginning to being a giant manufacturer of motor vehicles, the General Motors Company has a long history of downs and ups. Though the recent economic times have heavily cost the giant, there is still room for more expansion.
General Motors Company commonly referred to as GM is one of the largest automakers in the world. It started its operations back in the year 1908. It’s global headquarters is in Detroit. GM employs close to 210,000 people in every major region of the world and its operations are spread in more than 120 countries.
GM produces cars and trucks in 31 countries and the company sells and provides service to these vehicles through well known brands like Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden and Isuzu among others. China is the GM’s largest market.
General Motors has continuously enjoyed a welcome to the market and that is the reason why it was able to grow very fast. The market attention that General Motors got was not like the one its founders anticipated. Soon GM made a lot of profits and eventually became one of the top 200 companies that were accepted in motor car market (General Motors, 2011).
During the 1900’s, a lot of motor companies found themselves in financial problems. This posed a market opportunity for GM. It bought companies that built car parts as well as accessories. In the year 1908, the wide range of companies started operations under the umbrella of GM. This made GM to control a significant number of market share in automobile.
This as well made GM to experience high rate of growth than experienced before.GM continues to make world class cars and trucks but of late it has been faced by a number of financial problems. The financial problems have been caused by various factors but key among these include resisting change, health care for retirees, too many dealership and pensions among others.
It is clear now that General Motors has awakened to financial problems and worries. Of late it has grown desperate for a federal bailout. The question which financial analysts and interested parties are asking is whether the bailout will postpone the inevitable given the internal and external factors at play or not (General Motors, 2011; Burtonshaw-Gunn & Salameh, 2009).
About The Video
The video is about the financial problems facing GM. GM is facing many financial problems which have been brought about by many factors. The video highlights some of the financial problems of GM. The video starts by showing the audience small part of a graduation party. The party took place in the last spring at Colombia University.
The graduates are MBA students. The GM manager poses a series of questions to the students and they give responses. One of the questions which the manager asks the students is the numbers of students who will go to Wall Street and to New York. There is also a question about the number of students who are going to California High Tech. Then there is a question about the number of students going to Detroit Industry.
The reason behind this was to show what was good for GM and what direction GM should proceed in. One of the students brings the issue of GM bankruptcy when he is asked about working for GM. The General Motors had lost $4 billion the previous year and had recently announced a layoff of 30,000 employees.
Looking at the GM’s fall, it is cleat that this was a long term fault that was committed by GM. There is the issue of the health insurance costs which the workers pay nothing out of their money and with retirees paying just a small amount.
Some people have called this generous coverage costs which totals to $5.6 billion per year. These health care costs have put a lot of pressure on the finances of GM and it has finally found itself in a tight position
It’s clear that GM is going through a cost disadvantage. The first of these cost disadvantages was mentioned by the vice president of the GM Global Community. He said that “GM has 145,000 active employees and GM spent $5.2 billion on health care coverage for all its employees in the United States” (General Motors, 2011, p.1).
In comparison, this cost is equal to $15,000 a car which forms more than the cost of steel in an average car. These costs are too high as compared to costs incurred by companies like Toyota operating in the same status (Cummings & Worley, 2008).
One of the GM managers asked some of the employees how they feel about the company in general. Most of them were positive with some putting it clear that they were happy. Some expressed need to go to school on fulltime basis as opposed to sacrificing a lot of time and effort in GM.
This is because GM will help by paying for their tuition and still give them paychecks. It’s mentioned that when a job bank is added to the insurance GM has a total cost disadvantage of $125,000 more than its non-US rivals. It implies that the non-U.S rivals can take advantage of this and pose a major competition stress to GM.
This is a loss of $125,000 per car before it even begins to make it. This means that even before GM starts manufacturing a car, it starts with a loss of $125,000 per car. One man who designed 55 car models is willing to become the GM president and the son is the industry’s top analyst. Is there a possibility that GM negotiated a too generous union deal?
Earlier, GM was said to make car models for everyone’s purpose but it later started making other products .These include weapons, aircraft engines and tanks. People thought that GM was lucky because it was doing so well in the market. Some even said that what was good for GM was also good for the country.
This was said by the chairman in 1952 because the first corporation that made a profit of $ 18 billion was forced to share it with the workers. Between world war two and Vietnam War, the real income for GM doubled. At the same time, GM benefited from its great productivity.
Earlier, GM controlled about half of the U.S. market. Today it has one quarter, a situation he blames on GM’s lack of listening to its customers. In Colombia University, Professor Michael Feiner agrees that it is bureaucracy, slow to change and moving large hooks that take forever to go from one step to another.
They therefore can not sell cars and afford to meet their costs. This is because customers can not pay more than normal for poor quality products of GM. This is not solely the fault of GM because foreign marketers and the U.S. plan to retain much of the $25,000 per car cost. According to the vice president and the GM global community Tom Kowaleski, the amount is a lot of money and the competitors can take the advantage and reduce the prices of the cars without the need to increase the price of the cars with that amount.
According to General Motors (2011), “the big news according to GM is that it is cutting costs, closing costs, closing on profitable plans and negotiating a good health deal with unions”(p.2). The company is becoming the leader in the Chinese market.
This means that there are some signs of hope. GM will try to strategize to take advantage of the opportunities in the market. As it does this, it’s major competitors will also position themselves strategically not to be pushed to the wall by GM. GM continue to decline in the overall performance and this could cost all of GM operations and partners.
According to economist Peter Merisi, we should look at it from another perspective like what is good for GM is terrible to America instead of what is good for GM is good for America.GM is finally cutting costs. This is because GM is closing on profitable plans. GM is also negotiating cheaper health deals with unions. GM has endeavored to make brands on the GD power, quality. GM has become number one producer in China so there seen to be some signs of optima
Analysis of the Video
From the video it’s clear that GM performance has declined over the years. There are several reasons behind this dismal performance. One of the main reasons is the organizational culture.GM organizational culture is strong and rigid and this can explain the reason why GM has not been dynamic in the market.
This is the reason why it has not been able to make changes necessary for it to remain relevant in the market. There is pressure on people to do exactly what the management wants without a consideration of what the market and customers in specific wants.
This translates to a hostile working environment that prevents innovation and worker participation in responding to the market. Still on organizational culture, the management thinks that they can use the same policies they used to succeed many years ago. The truth is that despite the fact that these policies are good, a lot has changed and those policies will deliver the same results they delivered in the past (Kaufman, 2003).
GM’s organizational culture made them not to update their style of management and policies to fit into contemporary requirements, current market and competition. This is what was called by Cohan as confirmation bias. This is the scenario in which managers select information and omit the information that does not relate to their pre-conceived philosophies.
The company is also faced by extensive bureaucratization. It’s impossible for low-level employees to reach top management and the result of this is that valuable opinions and suggestions from this category of workers don’t reach top management (Gomez-Mejia, Balkin & Cardy, 2005).
The second cause of poor performance and financial troubles is failure by GM to take advantage of the competitive advantage. GM for instance, failed to sustain competitive advantage when the Asian automobile industry was growing. Their vehicles lacked competitive edge set by other companies like Toyota Motors Company. Their cars were very costly to manufacture and they also took too long to have them out in the market.
This combined with the fact that they were also poorly designed posed financial problems to GM. It’s also important that the GM designs were also easy to duplicate and competitors took advantage of this and their duplicated them and added few features.GM continued to use their initial strategies without restructuring them thus they lost competitive advantage. GM cars were also expensive as compared to competitors because of high after sales costs and poor performance.
The social responsibility aspect of GM is also a factor in its financial problems. For long, it has acted as finance company giving customers highly profitable car loans. These loans made GM to incur heavy loses ands it’s strongly linked to its cause of bankruptcy. This act of giving car loans to customers though is a very good gesture of social responsibility since it helps customers but in needs accountants not marketers.GM has been led by marketers not accountants.
Poor planning can never be ignored in this discussion. Its planning that helps management to focus on what is happening in the external environment and act appropriately. GM decided to ignore the competition in the Asian automobile industry and eventually lost the competitive advantage they previously had.
Planning entails scanning the market to observe all factors affecting the firm both directly and indirectly .In the scanning process, GM should have discovered the rapid growth of Asian automobile market .But GM failed to monitor the market wisely to change its policies to appeal to the market. The planning mistake also made GM to place primary importance on the employees as opposed to its market and customers in the mission statement.
This has made Toyota to take advantage of pleasing the customers with quality products and services. GM has included unnecessary details in the mission statement which is a reflection of disorganized way they do business. This is poor planning. The objectives of GM also are a factor. The objectives are inaccurate and have made GM to allocate resources in areas where there are no priorities. The resources allocation and implementation guidelines are also inaccurate because of the inaccurate objectives.
Suggestions
GM needs to formulate a number of strategies in order to change the situation that it is facing. First, GM needs to reduce the bureaucracy. It needs to make it possible for low-level employee to raise opinion to the top management. Employees need to be empowered and motivated to make innovative and workable decisions. Unless employees take part in shaping the company, the GM will continue to lose important ideas which can make it more competitive and customer focused.
The power of top managers needs to be reduced so that middle and lower level management class is given more powers to play a role in policy formulation of the company. The existing culture of conservatism and closed environment needs to be changed and replaced with an open and dynamic environment. This is a situation where GM can readily adapt to change and take advantage of dynamic market.
This is also a situation which will make the company to respond to customer demands and market needs in a faster and competitive manner. GM should embrace risk taking in its culture which encourages competition. There is need to take risk particularly with profitable options in order to stay at per with the competitor. There is also the need to encourage individual contribution. This will enhance idea generation which will propel the company in a new level.
There is need for GM to focus more on what is going on in the market. This is through market analysis and coming up with some market intelligence reports. GM needs to change focus from employees to customers. Customer should be treated as the most important party without whom business can not proceed.
Customer feedback should be treated as an important strategic asset. It will be important for GM to pursue a customer driven techniques in doing business. Customer’s preferences, lifestyles and values need to be strongly considered during design, marketing and general customer delivery efforts (Kaufman, 2003).
Another suggestion that can help GM to turn round the situation it is currently facing is by taking full advantage of its competitive advantage. It can do this by offering after-sale services, customer services and improving on the quality of the products.GM needs to take advantage of the fact that it has been shown that Toyota is losing competitive edge in terms of reliability.
It can take this advantage by improving the quality of the products. To beat its competitor, GM needs to focus on its core competence and on its unique skills and knowledge. It needs to abolish its belief of quantity and focus on a narrow product line that satisfies customers.
It needs to have few brands like Toyota. GM can for instance, abolish Hammer and focus on hybrid cars and abolish non-profit brands like Saturn, Pontiac and SAAB. GM needs to borrow a leaf from Toyota in manufacturing small cars that meet customer needs. There is need to develop high-efficiency car. These types of cars have a very high appeal to customers because they are cost friendly, perform well and are reliable as well as being highly durable.
They are cost effective in that the after-sale costs are low. Since there has been an increase in environmental awareness because of campaigns about global warming, there is the need for GM to manufacture car brands that are environmentally friendly. This will bring a lot of appeal to the customer because they will be able to associate themselves with the brands since they appeal to their needs and the desire to have a clean safe environment (Cummings & Worley, 2008).
On social responsibility GM needs to improve performance by developing a new focus in the area of social responsibility.GM has a high sense for social responsibility towards employees. Looking keenly at they way they carry out social corporate responsibility, this social responsibility aspect has not gone well with company’s overall financial performance.
Some people claim that in cutting the deal GM has been over generous. For GM to be financially outstanding, it needs to cut down on the wages it pays to its management team. The cutting of the wages should be done considering the wage rates in the companies related to GM and those operating in the same industry like Toyota. It should be done in a way that it does not result in discouragement of employees.
GM should avoid a scenario where a manager in GM is paid more than double his counterpart in Toyota. The benefits it advances to other employees, fired staff and retirees need to be reduced. It good to be socially responsible but in business it does not make sense to be over generous to a level that it puts strain on profits. GM should look into ways of trimming the powers of its unions which are very influential and seem to negotiate way too ambitious packs for the employees.
These over ambitious plans then latter prove to be a hindrance to company’s overall growth and development. GM needs to undergo a massive restructuring campaign. In doing so, GM needs to exercise the right to modify or terminate its retirees’ health care and life insurance benefits. These are among the factors that are causing the company to undergo financial problems.
The company needs to focus on planning in order to change the situation it is currently facing. President Obama has insisted that GM must undergo planning so that it reduces outstanding debt and existing liabilities to a level where they are consistent with its cash flow.
The GM planning must also achieve full competence with foreign transplants and introduce new brands. GM can make use of outsourcing in order to cut down the costs. Instead of producing everything, the company can look at whether it can outsource in order to cut down the operational costs.
It’s important that GM focus on working with qualified but cheap labor as this will go a long way to reduce operational cost and in return increase profitability. It’s important that GM considers where it has come from and what it has gone through. They must learn from their successful past and learn from the mistakes that it has done throughout its operational period.
GM will benefit from learning about the success stories of Toyota. They need to consider what has worked well for Toyota an implement those strategies it considers successful.GM needs to carry out S.W.O.T. analysis. This will help GM to understand its core strengths opportunities threats and weaknesses.
After it has done that, GM will need to take advantage of the strengths and weaknesses in the internal environment. It will then be aware of the opportunities and threats in the external environment and device a way of dealing with them. It’s important that GM analyze the external environment very well. The external environment holds success to GM in that the other firms have succeeded by capitalizing on the opportunities in the external environment and a good example in this case is Toyota (Kaufman, 2003).
Generally, the financial problems in GM were occasioned by failure to understand the general environment well. The company should thus scan the industry, understand competition in the industry, understand the macro-environment and conduct its SWOT analysis. This will help the company in planning and formulating strategies which will help it to succeed in the highly competitive global arena.
The company should also embrace technological innovations in order to produce high quality products and stay ahead of competition. The company should review its value chain and ensure that all non-value adding activities are eliminated. This would enhance production of top quality products.
Conclusion
GM continues to face financial crises that can be resolved by restructuring the operations of GM. Most of the causes of these problems come from the policies that GM follows. For instance, despite the market being highly dynamic GM continues to operate using the same policies it used 101 years ago. Although these policies and strategies worked those years, for now they might not be practical. There is need for GM to continue regaining its competitive edge by coming up with customer focused service delivery.
Customer needs to take central stage in GM’s mission statement and finally GM product line should respond to the customer needs in the market. It needs to drop its older non-profit generating cars and manufacture new cars which are both convenient and also cheaper. In redesigning their products, they should not forget about the need to have a safe and clean environment so the cars produced should be environment friendly.
References
Burtonshaw-Gunn, S. & Salameh, M. (2009). Essential tools for organizational performance: tools, models and approaches for managers and consultants. London: John Wiley and Sons.
Cummings, T. & Worley, C. (2008). Organization development & change. New Jersey, NJ: Cengage Learning.
General Motors. (2011). General Motors. Retrieved from www.gm.co.ke.
Gomez-Mejia, L., Balkin, D. & Cardy, R. (2005). Management: People, performance, change. New York, NY: McGraw-Hill/Irwin.
Kaufman, R. (2003). Strategic planning for success: aligning people, performance, and payoffs. London: John Wiley and Sons.
Based in Detroit, General Motors Corporation was founded in the early 90’s, with Durant W. C. being the company’s controller. Operating under automobile industry, General Motors produces several magnificent brands such as GMC, Chevrolet, Vauxhall, and many more others. Denoted as GM, the company suffered severely following the economic crunch that hit US and the world as a whole.
1. GM distributors transport body parts and automobiles from the company’s production division to several customers around the globe. It is also the duty of GM distributors notify the company about their encounters and observations.
2. Distribution strategy is the designing of channels that ensure the free flow of commodities from manufacturers to consumers (Gitman & McDaniel, 2007). The strategy entails giving a concise description on how the company will meet its distribution objectives such as swift penetration, timing, and geographical coverage.
3. There are several other potential ways that GM can use to distribute its products. It can either distribute its products via dealers who will later on sell them to consumers, or expand its outlets and distribute their product via those outlets.
4. & 5. GM has several websites and email accounts that act as avenues for communications between the company and its customers. Additionally, the company provides information to its customers’ via media and customer care units. As a way of advancing its communications, the company can increase its face to face communication with its customers. Furthermore, Faxing and mailing can also act as a way of communicating to consumers.
Advertisements are used as avenues for introducing and informing consumers about new products. However, the costs behind advertisements are often exceptionally high. Apart from creating rapport with customers, employing personal selling develops a remarkable consumer-producer relationship. Furthermore, personal selling provides adequate room for clarifying any misunderstanding. Personal selling can be practically impossible especially when consumers are numerous.
Sales promotion such as free gifts provides an opportunity for consumers to test certain commodities. However, this approach requires massive investment for its impacts to be realized. Public relation develops consumer and societal trust thus placing a company at a better position of winning several commercial contracts. Public relation is a sovereign department thus the danger of delivering inaccurate information to the public.
7, 8 & 9The amount allocation for the company’s communication is determined during budgetary allocations period; however, the communication department settles on how the amount is going to be spent. Price is the cost or worth of a commodity; however, other sees it as a way of communicating a product’s quality. Upper limit price is the uppermost possible price that a product can be valued in a market; whereas, lower limit is the lowest probable market cost of a product.
10 11 & 12. Pricing objectives are the targets that a company intends to attain through pricing (Pride & Ferrell, 2007). It is essential for the objectives to be measurable, realistic and attainable. Companies’ price their product by taking many factors into account.
Such factors may include: competition, current market prices, profits, production cost, market forces, and many more factors. There are several other pricing strategies such as customary pricing, premium pricing, valuable pricing, flexible pricing, leader pricing, and bundle pricing (Avis, 2009).
13 & 14 Different tactics are often employed in pricing commodities; some of them include: discounting, skimming, loss leader, penetration, Odd value pricing and many more others. The final decision on pricing commodities is based on the amount consumers are willing to give. Additionally, the price should be able to attract other new customers.
Conclusion
General Motors is a well established organization that employs different marketing strategies. However, there are a number of different marketing approaches that the company has not employed. There are several strategies and tactics that companies employ in order to achieve a favorable price.
References
Gitman, J. L. & McDaniel, C. (2007). The future of business: the essentials. Florence: Cengage learning
Pride, W. M. & Ferrell O. C. (2007). Foundations of marketing. Florence: cengage learning.
Based in Detroit, General Motors is an international organization that dwells in the production of automobile commodities. GM operates in the automobile industry thus produces several automotive products and services such as vehicle repair and vehicle servicing. GM is also known as the topmost producer of automobiles, with incredible brands such as GMC, Cadillac, Chevrolet, and Buick (General Motors Company, 2010).
Current position of GMC
In 2009, the company experienced extremely serious financial problem following the financial crunch that hit the US and the world in general. As a result, the company engaged in massive borrowing of funds, which ultimately left it in a liquidated state. Currently, the company is fighting to overturn its unfavorable financial state, to a more stabilized one.
For instance, the multinational company sold quite a number of its financial assets as part of the efforts to stabilize its current situation. Moreover, its liquidated state led to closure of certain branches such as Pontiac, which were extremely significant to the company. Due to this reason, the company, currently, lacks adequate assets for production thus reduced productivity, growth and expansion.
The effects of the crisis also affected the company’s sales and profitability level. In fact, until now the company has not regained its previous profitability and sales level; instead, it is still struggling to control its incredible sales reduction. This was noted in the last two consecutive years, whereby the company registered tremendous sales reduction i.e. up to 30%.
Despite the unpleasant experience, GM has employed several strategies to intervene their current situation. The company plans to acquire several assets, which will in turn increase its production capacity. GM is also spending quite a fortune in repaying the massive loans that the company previously borrowed. For instance, in the mid month of this year, GM repaid the government an incredible amount of cash as part of its efforts to reduce the company’s liquidity level.
It is noted that their efforts are paying off; the company recently registered considerable profits i.e. 865 million within the first quarter of this year (Business Day, 2010). GM also faces stiff competition from other automobile companies such as ford motors. The competitors are taking advantage and capitalizing on GM’s unfavorable financial condition thus posing extraordinary pressure on company.
Strategy for GM
GM faces profound challenges with regard to their finances, production, sales, and competition; therefore, my strategy will be based on strengthening the company within those specific aspects. My strategy will be to minimize production cost, increase acquisition, and raise funds with the aim of improving and advancing the current state of GM. My strategy can, extensively, be explained using various models designed by business scholars such as Michael porter.
Porters Generic Strategies
Porter developed three fundamental approaches that significantly contributed to the advancement of strategic management. After designing his strategy, he proceeded to name them as differentiation, cost leadership, and focus (Porter, 1998, p. 35). He also proceeded to give a profound explanation of his concept and further elaborated on their applications.
His superb ideologies on cost leadership can, extensively, be used to back up my approach on reviving General Motors. He explicated cost leadership basing his arguments and ideologies on competitive advantage (Faulkner, 2002, 314). Porter explained that, a company gains competitive advantage, if it minimizes its production costs. He further explicated that, minimization of cost increases the margin between revenues and production costs, which translates to profit increase.
I could employ this incredible model to uplift the current position of General motors, in different capacities. Porter’s strategy of cost leadership primarily adopts the idea of minimizing production costs; therefore, I would employ several approaches to achieve this policy (Klug, 2006, 11).
In point of fact, to achieve a minimized production cost, there must be a profound reduction in the cost of production resources such labor and raw materials. Following this argument, I would consider obtaining raw materials from other cheap sources, but still ensure that excellent quality is maintained.
For instance, I may consider obtaining raw materials by collecting scrap materials, and then recycling them for production use. However, I would still ensure that the idea of topmost quality continue to linger in my mind, so as to achieve fabulous and competitive products.
Additionally, I may consider seeking and looking for several raw material suppliers in the market, who sell their product at cheaper prices. Ultimately, carrying out researches on the best policies to adopt can also be beneficial to the company. This is because; effective, viable and tested strategies will be developed and adopted by the company, which translates to effective performances.
As noted in porter’s competitive advantage policy, the feasibility of these policies can create a remarkable gap between production cost and product price. As a result, the company will earn relatively high profits thus improving its competitiveness in the market. Moreover, the extra profit gained can be ploughed back, to improve certain crucial aspects of the company. For instance, the extra profit can be invested in expanding the company’s production capacity i.e. by making several acquisitions.
Apart from improving the financial strength of GM, the extra profits can also be used to repay the remaining financial obligations of the company. Investments can also be done on marketing the company’s products and services thus improving the company’s sales and the overall profits.
In addition to cost leadership strategy, porter also developed and explained “focus” in his model. He explained focus as the strategy of investing more on less competitive markets (Porter, 2008, p. 54).
This approach can be applied in various capacities incase one intends to improve the current state of GM. For instance, the company can focus more on services rendering rather than concentrating on automobile product production. This is because; the company faces less competition on services as compared to products i.e. with respect to its counterparts.
Moreover, the market of servicing vehicles is extensive and less competitive, since most of its competitors dwell in vehicle production. In employing this strategy, GM will experience a tremendous increase in sales and profits, due to limited market competition. Consequently, the company will attain a stabilized financial position, which eventually boosts its capacity to expand and also repay its financial obligations.
Ansoff’s Matrix
Ansoff’s Matrix is an extremely significant model for advancing the growth of a product and service. The model contains several strategies that can be used to advance the market of GM, especially at this moment when they are facing a tremendous decrease in production and sales. The four strategies can be summarized as follows: diversification, market penetration, market development, and product development (Graham & Allan, 2008, p. 100).
Market penetration from Ansoff’s model can, extensively, be adopted to lure customers, to purchase GM products. This strategy can be applied in various capacities incase one intends to advance and diversify the market of GM.
Market Strategies such as international media adverts, sales promotion, personal selling and also favorable pricing; can be employed to boost the GM’s current market condition. In fact, this can be a brilliant step, especially at this time when customers have lost faith in GM Company; they fear purchasing products from a liquidating company.
Market development strategy in Ansoff’s model can also be adopted, to improve current market of GM (McDonald, Ward, & Smith 2007, p. 174). This approach is extremely significant due to its extensive effects i.e. it not only awake dormant customers, but also assists in attracting new customers. Developing new markets, especially in countries where only few competitors have ventured, can significantly increase the GM’s market.
In fact, this is what suits GM best, since new market provide an alternative market; instead of only struggling in a competitive market. Moreover, new market also provides the company with new customers; instead, spending more resource in wooing the ones who have lost faith on GM.
In addition to increased marketing of GM’s product and services, market penetrations can also boost the company’s competitiveness in the market (Bowie, & Buttle, 2004, p. 329). GM can introduce new supply channels to serve the newly identified markets. Increased distribution channels increases the accessibility of GM’s product thus attracting new customers.
Incredible and eye-catching packaging can also be a magnificent strategy to attract new customers, within the newly developed markets. Such strategies attract new customers thus increasing the company’s sales, which translates to increased profitability levels.
More profits empower GM economically thus enabling them to perform several development tasks. For instance, GM will now have the financial muscle to expand its production operating capacity i.e. by making several acquisitions. Moreover, the profits can also be used to reduce the liquidity level of GM i.e. by refunding their lenders.
Performance monitoring
All these selected strategies can prove infeasible, incase performance monitoring is left out. Performance monitoring analyses numerous aspects of a company such as productivity of strategies, thus one can gauge how strategies are progressing (Stimson, Stough, & Roberts, 2006, p. 73). Therefore, all these strategies employed in GM should be monitored from their adoption up to the end of their application. This vastly assists in ensuring strategies meet the set goals and standards.
Some of these employed strategies such as cost minimization and market expansion may sometimes fail to proceed and hang within the reviving process. Therefore, it is extraordinarily necessary to adopt a team that may be responsible for ensuring that the strategies meet the set goals.
Moreover, strategies that shift from the plan easily and swiftly noticed. Consequently, a rescue or mitigating plan can be employed before the situation worsens. Moreover, employing all these strategies is extraordinarily expensive and interrelated; therefore, if any one of them goes astray, the company may suffer immense consequences i.e. massive losses.
Conclusion
GM is one of the high-flying automobile companies with numerous superb brands of vehicles and tracks. However, in the recent past, the company has experienced unfavorable trading environment following the financial crunch that hit US and the whole world in general.
The challenges are crucial to the extent of affecting the company’s productivity, sales and also profits. This situation can be overturned, if GM adopts certain vital strategies such as porter generic strategies, Ansoff’s strategies and finally performance monitoring.
List of References
Business Day, 2010, General Motors, New York Times. Web.
Bowie, D. & Buttle F. 2004, Hospitality marketing: an introduction, Butterworth Heinemann, Oxford, pp. 329-342.
Faulkner, D 2002, Strategy: critical perspectives on business and management, Taylor & Francis, New York, pp. 314-350.
Graham, T. & Allan, W. 2008, CIMA Official Exam Practice Kit Management Accounting Business Strategy, Butterworth-Heinemann, Oxford, pp. 100-115.
General Motors Company, company profile, General Motors Company. Web.
Klug, M. 2006, Market Entry Strategies in Eastern Europe in the Context of the European Union: An Empirical Research into German Firms Entering the Polish Market, Springer, New York, pp. 11-13.
McDonald, M., Ward, K. & Smith. B 2007, marketing due diligence: reconnecting strategy to share price, Elsevier, Oxford, pp.174-180.
Porter, E. 1998, Competitive strategy: techniques for analyzing industries and competitors: with a new introduction, Simon and Schuster, New York, pp. 35-50.
Porter, M. 2008, on competition, Harvard Business Press, Boston, pp. 54-60.
Stimson, R. Stough, R. & Roberts, B. 2006, Regional economic development: analysis and planning strategy, Springer, New York, pp. 73-75.
Branding is one of the most valid practices of marketing management in firms. Best practices in brand management result in the attainment of high volumes of sales by the company. This paper presents a case of branding and its impact on Saturn, which is one of the key brands of the General Motors Company.
The paper is subdivided into three major parts. The first part of the paper is the background, which gives an overview of the case. The second part of the paper is the situational analysis, which explores the issue of brands and branding that are brought out in the case. The third part of the paper is the analysis of alternatives, in which suggestions to the issues of brand management identified in the case are given.
Introduction
Marketing is one of the most critical practices of firms amidst the competition that prevails in the market in which firms operate. Each company keeps coming up with marketing strategies as a way of improving the capacity of the firm to ease the competitive pressure that emanate from the practices of other firms in the market. Firms often develop a number of strategies, some of which favor the company while other marketing strategies result in complications and impact negatively on market sustenance (Ferrell & Hartline, 2011).
The General Motors Company is one of the world’s most renowned companies in the global automotive industry. This implies that the company has managed to produce brands that have ensured its competitiveness in the industry. It should be observed that the automotive industry is a technical industry, which makes it one of the most competitive industries in the world. For any firm in the industry to thrive in the market, it has to continuously embrace innovation and creativity.
There are a number of other established companies in the industry. These include Ford, Nissan and Toyota. This paper presents a case analysis of marketing practices in General Motors. The case presented in the paper focuses on Saturn, one of the brands of the General Motors Company. The paper begins by expounding the problem in the case, after which an analysis of marketing issues that comes out of the case is done.
Background of the case
General Motors has managed to sustain its operational competitiveness in the industry and the market at large through the production and positioning of different brands in the market. Therefore, this case centers on the marketing initiatives and practices that appertain to one of the General Motors Company brands in the market.
The case revolves around the marketing decision by Saturn to produce and market other brands of cars. Since its establishment, Saturn has emerged to be a strong and independent brand, irrespective of the fact that the brand still lies under the umbrella of General Motors Company.
This was an aggressive development basing on the fact that General Motors had only relied on three brands in the 1990 decade. While this was seen as a step of bringing about a revolution in Saturn, a number of concerns were raised over the influence of this development of the company and its position in the market. The main concern came from the fact that the company had been dwelling on a narrow line of production, which captured a certain line of customers.
The introduction of diverse brands implies the enlargement of the target market and the expansion of the market segments of Saturn, an exercise that may be quite daunting for Saturn and General Motors. The decision to develop diverse brands is welcome, but at the same time lots of doubts are raised about how the diverse numbers of products are to be managed in the market.
Saturn set out its operations back in the year 1990 with the rolling out of three brands of cars in the market. These three brands are: a sedan, a wagon and a coupe, thrived the market due to their features. Innovative and marketing management attracted an extended number of customers.
These features attracted a new set of customers who could not have been captured by the General Motors Company. Five years into its operations, Saturn had attained a higher level of recognition in the market, making the company to be nominated for diverse awards basing on its score on satisfaction index.
This performance implied that Saturn defied most of the odds of the industry, which is often deemed to be highly competitive and hard to penetrate. However, the sudden mushrooming of the company in the market began to be bound by the shrinking in sales, even with the introduction of a series of other new brands of cars in the market. The company also saw a number of newer brands like the L-series vanish from the market within a short time.
The question that ought to be posed here is why the company was witnessing a reduction in the amount of sales, in spite of increasing the number of car brands in the market. Irrespective of the reduction in sales, General Motors has kept banking on Saturn to raise its performance.
General Motors banks heavily on the capacity of Saturn, which lays in a number of things, among them the loyal base of Saturn customers. The central question in the case is the dynamic focus of Saturn and the implications that it has on raising the performance of the company in the market. With the adoption of diversity in production, several concerns are raised in the segment of the market, which will be central to the company.
The effects of production diversification on the customers of the company are also issues of concern. The impact of diversification of the company’s production leaves a lot of pending questions on the interactions between the company and its customers. The General Motors’ hope of market expansion through investment in Saturn lies in a number of things that have shown up in the brand. These are innovation, employee focus, social responsibility, and customer sustainability.
Situational Analysis
Overview of the environment
The General Motors Company is ranked among the leading producers of cars in the world. However, the global automotive industry has volatile competition, which necessitates the application of competitive strategies by companies that are operating in the industry.
One trend that is common in the competitive landscape in the global automotive industry is the innovative practice that results in the production of different car brands. However, attraction and sustenance of customers through the brands, remains to be a key challenge to a substantial number of firms operating in the industry, General Motors, being among the challenged companies.
Companies in the industry have nonetheless kept inventing strategies that are geared at helping them access and gain significant control of customers in the market. Competition remains to be a fundamental guiding force in the industry that keeps steering the struggle for market and the subsequent sustenance of firms in the market. Branding is one of the key characteristic of marketing that is used by a substantial number of firms in the automotive industry (Wiedmann et al., 2011).
The General Motors Company has been on the forefront in terms of developing brands as one of its competitive strategies in the market. One critical thing that has been observed in the case is that the General Motors Company has leveraged a substantial number of individual car brands in the market.
However, the most critical thing that denotes the internal development of the company is the development of the Saturn brand. Saturn produced is the first brand of cars in the year 1990. The brand accessed the market quickly, enabling the brand to quickly attain a respectable position in the market. According to George (2004), Saturn can be considered to be one of the key heritage brands of the General Motors Company.
The three types of cars that were rolled into the market by Saturn in 1990 gained wide acceptance from a certain segment of customers in the market. This can be attributed to market research by Saturn, which enabled it to come up with brands that were appealing to customers. The pace at which a given product gains access and acceptance in the market is dependent on a number of factors. The most compelling factors are the ability of the products to meet the consumption demands of the customers.
The consumption needs are based on prices, the level of utility of the product and the tastes and preferences of the customers. It can be said that the features of the three products that were rolled out by Saturn in 1990 met the needs of the customers. From the case, it has been noted that Saturn went further to produce another set of car brands later. These brands did not attain the level of sales that was attained by the first of their key brands that were unleashed earlier.
The marketing mix
Competing in the market through the nature of products is a complicated exercise as it involves a change in the nature of products in the market. One main thing that has been noted in the global automotive industry is that firms in the industry often compete through branding.
As one of the main brands of the General Motors Company, Saturn has given a lot of attention to the development of diverse brands of products. While the first three brands gained a quicker access in the market, a series of other car brands that were produced as part of expanding the presence of the company in the market.
A substantial number of market researchers have argued that the release of many brands in the market by firms can be an undoing factor for the company. At the same time, firms can use the deployment of several brands in the market as one of the tactics of dominating the market. While competing with products, one critical thing that a firm ought to observe is the entry point in the market.
In the case under study, it was observed that that Saturn entered the market with a smaller range of products in the market, which made it gain fame in the market. The introduction of other brands by Saturn resulted in the complication of managing a wide range of products in the market. New products imply the expansion of the marketing segment of the company, which increases the task of managing a wider number of products in the market (Pride & Ferrell, 2012).
Pricing plays a vital role in shaping the performance of products in the market due to the changing conditions of the economy that affect the buying behavior of customers. The change in the number of products in the company that were introduced by Saturn in the market denotes a change in pricing.
Pricing was one of the key attributes of marketing that attracted customers to the Saturn products. Saturn has not paid much attention to pricing, but rather to the broadening of the range of products in the market. The factors of production and the channels of procuring materials are part of the key considerations in the establishment of prices in an industry that is labor intensive (Biller et al., 2005).
The market where a company operates in acts as a guiding factor in the establishment of marketing strategies. As noted in the earlier analysis conducted in the paper, Saturn produces brands that compete with numerous other car brands that are produced by other companies in the market like. The General Motors Company poses competitive threat to other giant companies in the market like Toyota and Ford.
Saturn targets a wider segment of the market, which is the reason why the company decided to expand its brands by venturing into the production of other brands apart from the first three brands. With the new car models, it can be said that the company wants to extend its brands to the young generation across the global market. However, the performance of the brands in the market raises questions about whether targeting the youths more can help to attain a desirable number of sales for the company as it is echoed out in the case.
Spahi (2008) observed that the strategy of conquering the market through the enlargement of brands can result in the problem of managing customers. It denotes the expansion of the market, which could jeopardize the attractive aspect of the prevailing brands to the segment of customers already captured by the brands.
Promotion is done through several means, one of which is the production of brands with features that are appealing to a certain segment of customers. It should also be noted that the promotion of Saturn brands in the market is enhanced by the fact that the company has established itself as a brand in itself, an aspect that de-links it from the other long established brands of the General Motors Company like Chevrolet.
The other promotional factor for the company in the market is the customer centric approaches that are held by the management of the company. This concurs with the argument that was advanced by Nadeem (2007), who noted that customer centric approaches are critical to the attainment of customer loyalty and, by extension promoting the brand in the market.
Analysis of Alternatives
While gaining customers is easily attainable, the sustenance of customers through brands is a whole complicated exercise because of the dynamics in brands and branding practices of firms in the market. The loyalty of customers is often attained through the brands that are released by firms in the market and the supportive mating management practices that accompany the brands (Kerr & Balakrishnan, 2012).
The problem in the case presented in this paper revolves around the issue of brand management in the market by Saturn. The question that ought to be asked is whether it was worthwhile for Saturn to introduce a series of other brands in the market, bearing in mind that the brands that already prevailed in the market had a remarkable performance.
Arguing from the perspective of commanding the market through brands, it can be said that a substantial number of companies often opt for using the tactic of flooding the market with their brands as one way of controlling their competitiveness in the market.
However, Saturn ought to introduce new brands on a one-by-one basis since it operates in a highly competitive market. This is a desirable exercise as it gives firms time to monitor and ensure that a given brand has attained the desired level of acceptance and commands loyalty from the customers.
This is backed by the finding of a research that was conducted by Bowman and Gatignon (1996), who sought to know the impact of the multiple brand introductions to the management of product mix. Brown and Gatignon concluded that it is quite daunting to manage multiple brands in the market, especially when they are introduced at the same time by the company in the market.
From their observation, they argued that firms need to prioritize the entry of brands in the market as this helps to ease the pressure of managing brands in the market. A reasonable gap needs to be given in order to ensure that customers gain familiarity with a give brand before another brand is presented to them by the company (Bowman & Gatignon, 1996).
The other key alternative of marketing management in this case entails the utilization of other aspects of marketing management as a way of catching and managing the attention of customers on the brands released by Saturn in the market. It should be noted that the marketing function in firms is comprised of diverse practices, all of which help the company to gain and sustain customers.
Brand positioning is often attained not by the nature of the brand itself, but through the nature of marketing practices that are deployed by the company in its quest to familiarize the brand in the market.
As observed in the case, the earlier key brands of Saturn were able to gain a wider acceptance from the customers through the practices that were deployed in releasing them to the customers. This reiterates the need to embrace diversity in marketing practices if at all the General Motors Company wants to boost its presence in the market through Saturn. Such practices are elusive and begin with the exercise of motivating the marketing team of the company.
They denote the deployment of aggressive marketing tactics that aim at ensuring that a substantial number of brands have gained the desired level of attention in the market. Promotion of each individual brand in the market through pricing and other marketing offers is essential for differentiating the brands in the market (Morris & Martin, 2000). Saturn needs to be creative so that it does not deploy similar tactics in promoting the different bands in the market.
Conclusion and recommendations
Brand management is a critical yet a complex exercise. From the case, it has been noted that managing multiple brands in the market is quite daunting and can result in market loss by a given company. Saturn had a good command of the market when it introduced a few brands in the market.
However, its sales declined amidst its decision to introduce a series of other brands in the market. Several arguments arose, among them the issue of differentiating brands in the market segments. As noted in the analysis of alternatives, Saturn needs to pay attention to two critical issues in order to avert the problems of branding that are facing it.
First of all, Saturn should recognize the need to manage the pace at which it introduces brands in the market. The most desirable way to do is by marketing each brand at its own time. This is critical in differentiating the brands in the market. The company can also focus each brand on a given market segment. This is one way of avoiding the generation of conflict of interest among the customers already attained by the preceding brands.
The second critical point that should be considered by Saturn is the deployment of different strategies of marketing management for each of the new brands that are released by the company in the market. This can greatly aid in maintaining the difference between the brands and sustenance of the brands in diverse market segments.
References
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