Strategic Analysis: General Motors - Essay Example

? Strategic Analysis: General Motors Introduction Continuing losses and market share declines caused by drastic fall in sales forced General Motors to file for bankruptcy protection in 2009. Subsequent to filing Chapter 11 bankruptcy protection, General Motors was renamed as Motors Liquidation Company (MLC). As per reports (Reuters, 2011), through this Chapter 11 reorganization, the company aimed at four objectives including settlement of claims of unsecured creditors, eco-friendly management of MLC’s remaining assets, handling of possible asbestos-related claims, and management litigation claims. This strategic analysis paper will examine MLC’s external and internal environments, business and corporate level strategies, organizational structure and overall competitive position. External and competitive environments There are specific analysis models used for evaluating a firm’s external and competitive environments. PEST analysis is the model designed to assess a company’s external environment whereas its competitive environment can be analyzed using Porter’s five forces model. PEST analysis of MLC While analyzing the political factors affecting MLC, it seems that various laws and government level regulations have been affecting the company for the last half century. Evidently, consumers today are highly concerned about health and environmental sustainability. Hence, such consumer concerns would force governments to enforce some strict regulations on automobile manufacturing. Since the present global economy is not stable, it does not offer favorable business environment to MLC. To illustrate, in an inconsistent business environment, it would be difficult for the company to allot sufficient operating funds; and this may affect the MLC’s operational efficiency. Socio-cultural factors raise potential expansional opportunities for MLC since today’s automobile consumer are moving towards more feature oriented vehicles. As Sample (2012) points out, people hold the view (it is true) that the society would judge a person’s economic class based on the type of car he drives. Fomin and Krcmar (2003) opine that rapid technological advancements, particularly internet development, over the last two decades have dramatically influenced the automobile industry. Surveys indicate that currently majority of people search the web before making a new vehicle purchase decision. Hence, technological sector provides automobile manufactures like MLC with competitive market opportunities. Porter’s Five Forces Model Degree of competitive rivalry Degree of competitive rivalry is very high in the automobile industry (slideshare). Some giant market players like Toyota raise potential competition threats to MLC. Since customers look for more innovative features, it would be very difficult for the company to vie with the market competition. Buyer power Relatively, buyer power is low in this industry since customers are less likely to make bulk purchase of automobiles. However, MLC’s declined market reputation provides its customers with a competitive bargaining power over the company. Supplier power Similarly, supplier power is also low in the manufacturing industry as there are numerous potential suppliers. However, the firm’s damaged market stature may give suppliers an edge over the company. Threat of new entrants Threat of new entrants is very low in the automobile industry because of higher entry cost. In addition, extensive industry knowledge and automobile marketing expertise are necessary for new players to survive the stiff market competition. Threat of substitutes The growing electric car industry is becoming a substitution threat for MLC since electric cars do not emit toxic gases or need combusting fuels. In the context of mounting petrol prices, electric cars are likely to dominate the automobile industry in the near future. Internal Competencies SWOT analysis may be an effective tool to evaluate the MLC’s internal competencies. Strengths Undoubtedly, as per the Strategic Analysis Review (2011), diversified product portfolio and worldwide presence are the major strengths of MLC. The diversified product portfolio assists the organization to meet the interests of various customer groups; and in addition, the company’s extensive product line allows its customers to purchase from a wide variety of choices. Finally, the global presence benefits the company to spread risk factors and avoid overdependence on a particular region. Weaknesses Legal proceedings constitute the MLC’s major internal weakness. The company is currently facing a range of investor claims and governmental investigations and this situation may negatively affect the firm’s brand image. In addition, weak performance and high debt status are some other potential weaknesses of the organization. The company’s gross profit dropped by nearly 76% in 2008 from that of the previous year; and MLC’s total debts represented $46,540 million in 2008 (Strategic Analysis Review 2011). Opportunities New strategic initiatives taken to cut costs and improve debt status raise many opportunities for the company. In addition, growing demand for hybrid vehicles also creates potential opportunities for the MLC. It is expected that launching new cars is likely to benefit the company as market trends predict higher demand for small cars in the near future. Threats Obviously, global economic downturn remains to be a potential threat to MLC as this condition limits the company’s market operations. In addition, cut-throat competition and rise in labor costs also would threaten the firm’s market growth. Business and Corporate Level Strategies While analyzing the MLC’s business level strategies, it seems that the company has adopted an integrated strategy and gives primary focus on cost cutting practices. As part of this strategy, the company cuts down the number of dealers, employees, and products. In addition, as reported in Forbs.com (n.d.), the firm has decided to focus on its four core brands namely Chevrolet, Cadillac, Buick, and GMC. The organization also closed a number of unprofitable plants. Centralization of key processes and multi divisional structure represent MLC’s corporate level strategies. In addition, those strategies give emphasis on maintaining autonomous regional strategic business units. The firm’s corporate level strategies greatly resemble its business level strategies in case of cost reductions. Corporate Control Systems The continuing sales declines and weaker performance have persuaded MLC to give more focus to corporate control systems. As discussed earlier, the company has developed management level control systems to cut down unnecessary spending and thereby maintain balance between inflow and outflow of money. According to the Bloomberg Businessweek reports (“Company Overview of Motors Liquidation Company”, n.d.), amendments to the corporation’s Restated Certificate of Incorporation were other steps taken to ensure better control over the firm’s business operations. In addition, the company’s board of directors frequently monitors various business decisions made by top executives. Organizational Structure Subsequent to Chapter 11 protection filing, the company has mad notable changes to its organizational structure. Considering the weak market position of MLC, the company management follows a strict organizational structure to improve the firm’s business performance. The firm follows a centralized task allocation strategy to ensure that different tasks are distributed among employees in accordance with their skill and efficiency. The Vice Chairman Robert A. Lutz is responsible for coordinating and supervising various managerial activities for the achievement of stated organizational objectives. Financial Statements The General Motor’s debt to equity ratio was 0.55 in 2009 whereas it was a negative figure in 2008 (General Motors). The firm’s current ratio improved from 0.58 in 2008 to 1.13 in 2009. This improvement indicates that the company has regained its ability to pay short term obligations. During this bankruptcy period, the firm’s dividend yield almost reached a zero position. In 2009, the company’s long term debt was $15.78 billion and this situation made the company vulnerable to a corporate scandal. In case of quick ratio, the company’s position was 0.41 in 2008 whereas it slightly increased to 0.94 in 2009. However, the ratio was still less than one and this condition indicates that the firm would face difficulties in meeting its short term obligations using most liquid assets. Over the bankruptcy period, the company showed a poor revenue growth rate. The rate worsened from -17.75% in 2008 to -29.8% in 2009. In 2008, the concern’s net income indicated the figure $-30.86billion while it improved and reached $104.69 billion in 2009 (General Motors). Finally, General Motor’s market share (as cited in Canis and Yacobucci, 2010) declined from 22% in 2008 to 15% in 2009. However, while analyzing the firm’s corporate history, it seems that the organization held a market share of 46.2% during 1950s (cited in ‘Cars for the stars’, n.d.). Conclusion From the above discussion, it is clear that the General Motors underwent bankruptcy even though it had held a nearly market share of 50% during 1950s. PEST, SWOT, and Porter’s five forces models do not predict a good future for the company. The company has made extensive changes to its organizational structure and corporate culture after filing bankruptcy under Chapter 11. References Canis, B & Yacobucci, B. D. (2010). The U.S. Motor Vehicle Industry: Confronting a New Dynamic in the Global Economy. Congressional Research Service. Retrieved from http://www.fas.org/sgp/crs/misc/R41154.pdf Cars for the stars. Retrieved from http://www.carofthecentury.com/answer_to_gm's_market_share_plunge.htm Company Overview of Motors Liquidation Company. Bloomberg Businessweek. Retrieved from http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=177126 Fomin, V & Krcmar, H. (2003). Information Technology and Automobile Industry Transformation. 16th Bled eCommerce Conference eTransformation Bled, Slovenia. Retrieved from https://domino.fov.uni-mb.si/proceedings.nsf/Proceedings/313ED2AD47FBCBECC1256EA200319912/$File/15Fomin.pdf Forbes. Com (n.d.). General Motors Company (NYSE: GM). Retrieved from http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=gm General Motors. (n.d.). wikinvest. Retrieved from http://www.wikinvest.com/stock/General_Motors_(GM)/Data/Key_Metrics Reuters. (2011). Update 1-old GM exits Chapter 11, carved into four trusts. http://www.reuters.com/article/2011/03/31/oldgm-exit-idUSN3121109620110331?feedType=RSS&feedName=cyclicalConsumerGoodsSector&rpc=43 Sample, I. (2012). Upper class people are more likely to behave selfishly, studies suggest. The guardian. retrieved from http://www.guardian.co.uk/science/2012/feb/27/upper-class-people-behave-selfishly Slideshare. Presentation on automobile industry. Retrieved from http://www.slideshare.net/yugeshkumardubey/automobile-sector-2691513 Motors Liquidation Company - Strategic Analysis Review. (2011). Global Data. Read More