Analysis of General Motors and Toyota - Essay Example

? Comparison and Contrast of General Motor and Toyota Motor Comparison and Contrast of General Motor and Toyota Motor IntroductionIntroduction This study will be seeking to compare and contrast General Motors and Toyota through mostly analysing the working capital management of the companies, their income statements, balance sheets and lastly their statement of funds (Cummings, 1993). Comparing data from the financial statements of both companies right from 2006 to present, it is clear that while General Motors Corporation has been experiencing a series of losses, Toyota Motor Corporation has been recording profits continuously over the years in the recent past. The study will be therefore interesting as it will provide us with an intuit understanding of the reasons behind the struggling for survival of one company with the incurrence of such huge losses while the other company which is Toyota Motor Corporation is generating profit profits every year (Carr-Ruffino, & Acheson, 2007). To gain an in-depth understanding of both companies and the reasons behind the success of one and the losses by the other, this study will further make analysis of the contrasting strategies employed by both companies. Various studies on the situation of general motors has come to a conclusion that the problems facing General motors bore more significance that are beyond those directly involved (Saunders, 1989). It must thus be realized that the failure of General Motors will not only have huge psychological, social and economic impact in the United States where it has asserted its place as an iconic automobile manufacturer, but its failure will negatively impact on the United States economy in addition to adversely affecting other economies. Hence, the failure of General Motors would result to repercussions that would be felt worldwide (Drucker, 1994). General Motors Corporation History General Motors (GM) first came into existence in 1908 in Flint, Michigan as a holding company back then for Buick and was then controlled by William C. Durant. The company later acquired Oldsmobile later the same year (Cummings, 1993). Later, Durant brought in Cadillac, Oakland which later came to be known as Pontiac and Elmore amongst many more others. Reliance Motor Truck Company of Owosso, Michigan was acquired in 1909 in addition to the Rapid Motor Vehicle Company of Pontiac, Michigan which served as the predecessor of GMC Truck (Drucker, 1994). In charge of the corporation was Alfred Sloan who led the company to its post-war global dominance. The unprecedented growth of the company lasted through the late 70s into the early 80’s. The international expansion of the company continued through the establishment of General Motors Overseas Operation in 1938 which was in charge of all vehicles manufacturing and marketing outside the United States and Canada. This growth continued in the 1990s (Marketline, 2007). The Core Business of General Motors The core business of General Motors Corporation is to engage in the development, production and marketing of trucks, cars and automobile parts in addition to being engaged in insurance and finance operations. The primary operations of the company are centralized in North America and Europe with its headquarters being located in Detroit, Michigan and with a worldwide employee population of 280, 000 (Marketline, 2007). Core Technologies employed by General Motors Each of General Motors automotive divisions target specific market segments despite some having some shared components; the distinguishing factor between each division is the unique styling and technology employed. The strategy of General Motors for core technology is aimed at sharing components and common corporate management in a bid to create an upgrade path that is orderly (Carr-Ruffino, & Acheson, 2007). The entry level buyer starts with a very practical but which is at the same time economical, Chevrolet, and moving through the offerings of the different divisions until one purchases a Cadillac. Manufacturing Automation Protocol (MAP) This refers to an interconnection standard that operates in an open system for programmable devices of various different vendors in a factory environment that is sponsored by General Motors (Drucker, 1994). The interconnection standard extremely high quality Computer Integrated Manufacturing in each and every individual cell which improves the flow of information at different levels within a company while at the same time allowing flexibility that adds and removes automated plants from a network without necessarily requiring complex hardware and software alterations (Truss, Saroop, & Sehgal, 2006). Toyota Motor Corporation History Toyota Motor Company came into existence in 1937resulting from a spin-off from Toyoda Automatic Loom Works which had specialized in manufacturing of weaving machinery. The company launched their first small car popularly referred to as the SA Model in the year 1947. The company started exportation into the United States in the year 1959. The two companies, Toyota Motor Company and Toyota Motor Sales merged in 1982 forming Toyota Motor Corporation. Additionally, the Toyota Motor Manufacturing was also established in Kentucky in the year 1988 (Drucker, 1994). The year 2003 saw the company manufacture its first Lexus outside Japan in the company’s Cambridge factory in Ohio. Toyota Motor Corporation established Toyota Motor Engineering and Manufacturing North America in the year 2006 entitled with the responsibility of carrying out Toyota’s Research and Development and taking care of the company’s operations in the North America (Saunders, 1989). The Core Business of Toyota Motor Corporation Toyota Motor Corporation has become a leader in the automobile manufacturing industry in the world with the company making sells of its vehicles in more than 170 countries and regions world wide (Saunders, 1989). The primary market of Toyota for its automobiles is North America, Japan, Europe and Asia. The company is headquartered in Toyota City in Japan and boasts of an employment population of 299, 394 employees. During the last fiscal year, the company realized revenues approximating $203 billion with the operating profit for the fiscal year being $19 billion and the net profit approximating $14 billion presenting a significant increase compared to the previous financial period (Cummings, 1993). Core Technologies employed by Toyota Toyota pioneered a production system in the name of Toyota production system t help in the acceleration of the lean thinking revolution, a trend that is rapidly sweeping all manufacturing operations during this current generation. Toyota has gained popularity since the 1980s for setting up standards of quality and cycle time during its development of new models (Marketline, 2007). Through the customer and speed at which the company brings a model to the market in combination with the company’s commitment to lean thinking, the company has managed to increase the market share it controls continually. It gains an advantage from getting a slice of the market through factoring the new features that the consumers want in their products. Additionally, Toyota has become leaders in the automobile industry due to their popularity priced cars like the Camry and the various premium brands like the Lexus (Marketline, 2007). The lean manufacturing and production techniques employed by Toyota Corporation are meant to minimize inventory while at the same time increasing competitiveness of the company in the global market. The development of Toyota Production System alternatively referred to as the Just-In-Time Stockless Production during the mid-1950s and its continuation to ensure implementation of lean manufacturing techniques has enabled the company reduce waste and costs not directly adding value to the product assessed from the perspective of the customer (Carr-Ruffino, & Acheson, 2007). Amongst the advantages attributed to having a lean manufacturing system is mostly realized from not only the production of superior quality products, but also the production in a timely fashion and at the lowest possible costs achieved in a flexible manner right from a process generally beginning with assembly cells which have the ability of changing production rapidly that enables products to be manufactured in a greater variety in an almost customized fashion without incurring any cost penalty for small production (Drucker, 1994). The competencies Associated With Toyota The Toyota production system is designed in such a way that it embraces four significant components. The Just-in-time (JIT) production is a popularly employed management philosophy that is normally aimed at eliminating any wastes from each and every aspect of manufacturing and all activities that are related to manufacturing (Truss, Saroop, & Sehgal, 2006). Just in time refers to a company producing only what is needed, at the appropriate time when it is needed and just in the right amount it is needed (Marketline, 2007). The concept of total quality control implies to quality operation of the business with virtually all people in all spheres of a company’s organization that is involved in meeting the needs of the customer (Cummings, 1993). On the other hand, total productive maintenance implies to a concept of productive maintenance that is aimed at ensuring the company achieves overall effectiveness of the production system mostly achieved through the involvement of all the employees of the organization. The concept of computer-integrated manufacturing aims at integrating the operations of the company (Saunders, 1989). This is done right from the designing of a product, actual production of the product, through to distribution and offering after sell services and support to the consumers in the field and is achieved through the use of both computers and modern information technologies (Marketline, 2007). The new leadership at Toyota has continued to renew emerging technologies through its efforts on breaking down what had for long been perceived as a glacial decision making process at Toyota which had for long caused the company to lose numerous opportunities, pushing speed, enhancing flexibility and enhancing excellence in manufacturing while at the same time giving much focus on identification of problems and finding solutions to them as opposed to ignoring them and most importantly investing more cash into new models and advanced technology that enables the company expand their market share by taking up the market share of their competitors (Saunders, 1989). Currently, Toyota has established itself as the world’s leader when it comes to flexibility and speed with some studies speculating that some of the company’s 30 widely spread plants have the capacity of building 8 different models simultaneously on the same line (Cummings, 1993). Toyota has gained popularity for continuously investing for the future with various reports indicating the company invests 4 per cent of its sells in research and development. Despite Toyota only being the third-highest spender in the auto industry, its effectiveness in innovation has been lauded as the benchmark for its competitors in the industry. An example of this is the production of Toyota’s Lexus which has gained popularity for being designed totally for the consumers in the United States from dealership accessories but is not sold in Japan (Truss, Saroop, & Sehgal, 2006). Income statement Income statements provide a measure of the profitability of the company over a period of time. To find a company’s net income, all expenses are subtracted from the income. Income statements provide information regarding a company’s transactions incurred within a certain period of time referred in economics as an accounting period. Expenses include administrative expenses, purchases, income tax paid, depreciation, amortization and depreciation. The costs of goods sold value refer to the expenses resulting from the sale of the goods (Cummings, 1993). The cost of goods sold category comprises of the labour costs, overhead expenses and raw materials during sales for the period. Operating income is derived from subtraction of depreciation and both selling and administrative expenses from the operating income. A company’s income tax is paid from pre-tax income of the entity. The resulting figure after paying tax from the earnings is the net profit. The management may decide whether to pay dividends or not. The remaining income after payment of dividends is the retained earnings of the firm and is reinvested internally within the firm or externally (Drucker, 1994).  Working Capital Management Working capital Management refers to various strategies employed by different companies in a bid to maintain an efficient level of both components of a company’s working capital, current liabilities and its current assets with respect to each other. Working capital management ensures that any company has enough cash flow as it aims to meet its short term debt obligations and its operating expenses. The main goal of working capital management has always been to manage the company’s cash, accounts payables, account receivables and managing inventories (Saunders, 1989). Balance Sheet The assets, liabilities and equity of a firm for a given period are presented in the firms balance for the financial period. The balance sheet has two sub accounts. The asset account constitutes of all the current and fixed assets of a given company. The current assets is made up of variables such as cash, account receivables, market securities, prepaid expenses and inventories amongst many more others (Cummings, 1993). Also referred to as working capital, the company derives short term benefits from the current assets. Other items here include property, equipment, plant, goodwill, long term investments, intangibles, net receivables and other long term assets. The other sub accounts in a balance sheet include all the liabilities due by the company and the equity. The major components of the current liabilities of a company include account payables, accrued expenses, short term debts and net payables. The total liabilities consist of the total long term debt, minority interest and deferred income tax added to the total of current liabilities. The summation of the total liabilities and the total equity makes up the total liabilities and the shareholder’s equity which in most cases is always equal to the total assets (Marketline, 2007). Statement of funds The statement of funds shows the flow of cash into and out of the company. All the revenues generated by the company from its investments, operations and financing activities are all indicated in the statement of funds. Additionally, the statement of funds indicates the overall either net increase or decrease in the cash of a given company. The statement of funds helps an investor and the creditors to be able to assess the ability of the company to be able to generate future revenue, ability to meet their debt obligations in addition to being able to provide more insight into both the cash and non-cash aspects of both the financial and investing transactions of the company (Drucker, 1994). The operating activities of any given company include depreciation, net income, accounts receivables, either an increase or a decrease in the company’s marketable securities. All the cash that is involved either in purchase or sale of all fixed assets are categorized under investing activities. On the other hand, the sales and the retirement notes in addition to both preferred and common stock, bonds and corporate securities fall under financial activities while preparing the statement of funds report (Truss, Saroop, & Sehgal, 2006). Summary From the balance sheet of both companies’, Toyota has the least amount of current assets at 39% which basically implies that they lack much liquid able assets. This is attributed to the fact that the company has invested most of their assets into property/plant and equipment which accounts to 21.7% and the long term investments accounting to 18.1% of the company’s total assets (Saunders, 1989). The management of Toyota has keeps only 39.7% of the current assets in a bid to cover up the current liabilities which stand at 36.2% with the rest of the assets being kept for investment of future income (Cummings, 1993). Further analysis reveals that Toyota has low amount both long term loans and long term obligations. The company has the lowest amount of liabilities at 65.3% of the total assets compared to 72.6 percent of General Motors. This implies that the company has the most minimum amount of financial leverage risk since most the company’s funding is through equity financing (Cummings, 1993). An analysis of general motor reveals a fairly balanced overall performance of the company. The company has a higher percentage of payables at 16.9% compared to the lower receivables at 6.9% which in real sense implies high cash in flows with low cash outs. The company also has a balanced current assets and liabilities ensuring that assets are properly invested in the company (Carr-Ruffino, & Acheson, 2007). Instead of the scientists, engineers and management of Toyota Corporation employing flamboyant modern paradigm of innovation as advocated by California’s Silicon Valley, they have instead opted to remain meticulous and intensely loyal to the company while at the same time being collaborative in their outlook while often maintaining keenness at always keeping a low profile. The company has so far experience an impressive outcome, mostly demonstrated through numerous successful innovations exemplified through many different forms (Cummings, 1993). Toyota Motor Corporation has over the years developed a unique strategy both for the company’s core and the enabling technologies thus making it be in a position to not only offer products and services, but offer them at faster and cheaper rates while still ensuring that the services and products are of higher quality compared to that available in the market in the process giving Toyota a major competitive advantage (Truss, Saroop, & Sehgal, 2006). On the other hand, General Motors has insisted on keeping the age old strategies which offer multiple but similarly designed models without necessarily having comprehensive core and enabling technologies. The resulting outcome makes it clearly evident as to why core and enabling technologies have proved to be extremely vital in this very vital competitive global business environment. References Carr-Ruffino, N., & Acheson, J. (2007). The car makers: Who is in the lead and who is Catching up? Futurist, 41(4), 21-21. Cummings, M. (1993). 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