Plans And Strategy To Get Back Up Of General Motors Company - Case Study Example

Plans And Strategy To Get Back Up Of General Motors Company INTRODUCTION Europe is the world’s biggest motor vehicles producer making the automobile industry crucial to the prosperity of Europe. Worrall (2009) said that the European automobile industry generates almost €360 billion (US$560.516 billion), representing almost 3.5% of gross domestic product of Europe. This sector is the largest employer of expert and talented workforce making them a vital source of knowledge and innovation. Many car manufacturers have invested billions of dollars in the R&D in automobile industry. One such company is General Motors who have invested heavily in the market and manufactures its cars under the label of Vauxhall in United Kingdom and Opel in the remaining European countries. This paper analyzes the General Motors Company in Europe that has caused the company to withdraw its operations from the country. EXTERNAL ANALYSIS PESTLE ANALYSIS Political Environment: The automobile industry in Europe is the most important source of revenue for the country. The economic turmoil has had a great impact on the companies operating in this industry. Many bailout plans have been presented by the government for the car manufacturers but according to the CEO of Fiat and Chrysler (Linebaugh & Mitchell, 2009) these bailout actions by the government countries of Europe favor only a few manufactures which is bad for the competition. The CEO of Fiat and Chrysler further said that the aid packages provided by the governments are implemented within their national borders and for the country as a whole (Linebaugh & Mitchell, 2009). The main problem of overcapacity of cars has still not been addressed by European countries. According to Linebaugh and Mitchell (2009), many European countries such as France are acting in their own self-interest by providing loans and subsidies and so on help their auto industry only. Economic Environment The economic environment of Europe is affected by the global downturn as other countries. According to the European Automobile Industry Report (2009), the demand for new cars across Europe had fallen down to 2% and making the market crash for all types of vehicles. In addition to this, many countries in Europe such as UK reported a decline in demand by more than 50% (European Automobile Industry Report, 2009). In addition this production of automobiles fell by 25% in 2009 compared to the 20% in 2008 (European Automobile Industry Report, 2009). The car production in the country was up by 20% than the demand according to MacLellan (2009). Overall the environment for operating in the country seems adverse due to the falling GDP rate and demand. The decline in demand has caused serious economic repercussions such as reduction in employment levels and manufacturing plants shut down threatening billions of euro in revenues for the entire Europe. Social Environment The environmental pollution and road traffic blockage is causing the demand for automobiles to fall forcing the automobile industry in the country to listen to what the society wants. The customers now want a car that is fuel efficient as the fuel is expensive and an eco-friendly car as the customers are now getting environment friendly. According to European Automobile Industry Report (2009), it was reported that almost 400,000 people in UK have deserted cars in favor of traveling by public transport due to the traffic hassle in the country. Although the people are known to like cars, certain political and legal policies can hinder their behavior due to which car traveling has fallen by 4% since 1999 (European Automobile Industry Report 2009). Technological Environment Rapid technological changes are occurring in response to the consumers’ demand of better performance features and overall car features. The manufacturers in Europe were given a CO2 regulation framework concerning the automobiles (European Automobile Industry Report, 2009). .For this reason, car manufacturers are investing heavily in R&D and technology to find solutions for providing environment friendly cars while offering better, safe and luxurious automobiles. Advances are being made in alternative fuel resources and cars with Hybrid technologies are being created on the assembly line. Ecological Environment The issues related to the environment have always been about the pollution created by the car manufacturers. In addition to this, as the cities of European countries such as UK and Germany become crowded, demand for mobility increases that is ease of transport, preferably public transport as cars are becoming less important for the citizens of European countries (Loire et al 2008). Legal Environment The legal environment concerning the automobile industry is linked with the environmental issues. The automobile industry must meet the requirements of safety, business and environment standards of national and international levels. One such legislation as given by European Automobile Industry Report (2009) regulates that the reduction in tailpipe CO2 should be 130 g/km till 2012 through different technological methods. PORTER’S FIVE FORCES ANALYSIS Rivalry between Existing Competitors The European automobile industry is becoming drenched with competitors such as GM, Volkswagen, BMW and Ford who are fighting aggressively for the market share not just in the European market but in the international market as well. The market share of GM fell to 7.3% in 2009, while that of BMW was 3.6% as compared to Volkswagen market share that rose to 11.6% overtaking GM (Reiter, 2009). As the production is becoming inactive, these firms are devising new strategies to attract the customers by adding new features that the customers demand. As the differentiation opportunities are few and the price competition is tough, the rivalry between the competitors is very aggressive. Although GM is the world leader in the automobile market, it is facing serious competition in the European market from other famous brands such as Volkswagen, BMW and Porsche. Threat of Entry by New Competitors The threat of entry by new competitors is low due to the high level of entry barriers such as investment capability of new firms, R&D investment, access to the distribution channels, achieving economies of scale to generate profits (Welch, 2004). The European market will also see the entry of some new competition in the years to come but this market has recently been approached by the Korean car manufacturers although the threat rate from them is not high due to high brand loyalty of existing companies. In addition to this, the market current position of the Europe does not pose a lucrative and profitable market for the car manufacturers and thus barring an entry in the market Price Pressure from Substitute or Complementary Products The European and UK people are now favoring public transport over personal transport due to the traffic problems and also because it is much cheaper. The rising of fuel prices and gas also has the impact of the buying behavior of the customers which is impacting the sales of GM, Ford and BMW greatly. The oil prices have increased to $71 per barrel in 2009 (Kollewe, 2009) as compared to $30 in December 2008 (Amadeo, 2008). Overall the impact on the profitability of the industry is moderate. Bargaining Power of Buyers There is a very strong bargaining power in the automobile market in Europe and UK due to the increased availability in choice of cars. The availability of various information channels and service providers has increased the buyers bargaining power. Unless low priced and fuel efficient cars are not available the bargaining power will increase as the consumers will switch to brands offering better rates in this time of economic downturn. Bargaining Power of Suppliers The market is becoming increasingly tensed as the pressure builds on the suppliers of raw materials for car parts to supply the manufactures at a low cost. Suppliers and manufacturers are therefore resorting to collaborative measures to ensure that both of them would get enough profits to carry them out of the recession. MARKET SEGMENTATION The European market for automobiles consists of different market segments based on size and price of the cars. According to Subramaniam(1999) the European car market is divided into many segments which are mini, small, lower medium, upper medium, executive, luxury, sports, dual purpose and multipurpose segments. Each of these segments is concentrated by different car manufacturers such as Ford, GM, and BMW and so on. As the automobiles are becoming over-produced, the consumers are becoming indifferent to the cars except on the basis of the price. For example the premium market segment consisting of Audi, BMW and Daimler Chrysler grew by 20% (Worrall, 2009). The other market segments such as mid size class segment and small car segment that consist of GM brands such as Vauxhall and Opel have declined due to the overproduction and the economic crisis. INTERNAL ANALYSIS The General Motors is the world’s largest automobile manufacturer with almost 14.5% of world market share (Helper, 2009). Due to the recent sales position of the GM brand cars Vauxhall and Opel in UK and Europe with total sales for both the cars been 1,459,000 in 2008 which was 10.5% down as compared to 2007 (General Motors, 2008), investors have lost faith in the future of these brands. Although it is said that it will take time for GM to become profitable, the company still has to fight the growing competition in the market and a potential threat to its world leading position. STRATEGIC CAPABILITIES GM Europe has 10 production facilities and caters the needs of over 40 markets in the European region. One of the strategic capabilities of GM is the technology which it has used to research in new fuels for the car as petroleum cannot be sufficient for the growing demand in the region. Therefore, the company is investing in propulsion energy (GM in Europe, 2009). In addition to this, the size of the company and global expertise and intelligence adds to its competitive advantage in the European market. As it is integrated with its global partners such as Daewoo group in Korea and Suzuki motor company (GM in Europe, 2009), the company can make best use of its capabilities in the market. VALUE CHAIN Value chain can help the company to identify the activities that needs attention and where the resources are being spent. Outsourcing is most vital for GM as most of its operations are outsourced in countries where the labor is cheap. Over the years, GM has shifted its production all over Europe causing a disruption in its value chain (GM Europe et al. 2008). GM is restructuring its operations and value chain causing many job losses. The works council in Europe also raised a question against GM as to why they are not undertaking value chain reorganization (GM Europe et al. 2008). CORE COMPETENCES The core competence of GM is innovation. But lately this, core competence has been neglected and focus on sales volume has gained weight. In the early years of its establishment, GM utilized innovation and technology to create better engineered and stylish cars for the consumers but soon lost its focus. The sales figures for its cars under the Vauxhall and Opel brand show a decline with sales of both the cars being 1,459,000 in 2008 which was 10.5% down as compared to 2007 (General Motors, 2008). KEY ISSUES The key issues for the GM brands in the UK and rest of Europe are the problems of Overcapacity or overproduction Falling market share due to the prices as a result of failure of remaining cost effective in the market. Increasing competition due to introduction of innovative car brands SWOT ANALYSIS STRENGTHS Large market share in the world as well as in the European market Global experience that can be used to bounce back in the European market Variety of brands that can be introduced in the market besides the existing Vauxhall and Opel General Motors has its own customer financing program under the name of GMAC that can be revised according to the market conditions OnStar Satellite Technology making GM the only manufacturer with its personnel tracking software. Given the position of GM, it has great technological potential that can be used. WEAKNESS Failure to cope with the new alternate energy movement such as hybrid technology There is much vertical integration in the organization structure causing lack of communication Declining profit margin due to the reliance on the sales volume It is much dependent on the US market and therefore is failing to take initiatives in the EUROPEAN MARKET FOR EXPANDING ITS SALES Facing criticism on the restructuring plan in the UK plants. OPPORTUNITIES Hybrid technology is still new which can give the GM Company to invest in R&D to develop such cars and promote them in the European market Potential to expand in other markets such as Chinese market rather than relying on US and UK markets With the present exchange rate situation and right marketing strategy, GM can increase its sales of Vauxhall and Opel in the European market Invest in the technology to make better and stylish models as this innovation can lead to increase in sales. THREATS Rising fuel prices as the GM brand cars are not fuel efficient Growing competition in the market The labor union in UK due to the restructuring of the plants in the country Certain European countries such as Germany wants to buy Opel division The economic crisis prolongs for a few years. ANSOFF’S MATRIX The Ansoff’s Matrix consists of four strategies based on the market and product. These are the Market Penetration Market Development Product Development Diversification The strategy used by the General Motors is the European market using its brands Vauxhall and Opel is the market is the market development strategy. The reason for using this strategy is that GM is trying to overhaul its current product lines in a cost effective manner and to promote the cars as more efficient and less costly than the competitors to again gain the market share it has lost in Europe. According to the CEO of Opel (Webber, 2009) the Opel brand will soon launch Opel mini and also continue to manufacture light commercial vehicles. The market revaluation is taking place because they want to change their traditional outlook for automobiles and re-position themselves in the market not only to retain the old customers but also to attract the new ones. One such example is the creation of new futuristic automobile to get ahead of their competition by acquiring funds from its US operations. Furthermore, the company is also looking into product development to cater the demands of the customers for eco-friendly cars such as hybrid cars. Product development is on the top of its priorities as the company has to keep pace with its competitors especially Toyota that seems to have taken the leading position in the global auto manufactures. Another reason for doing so is that the product should stand out in a crowd of other hybrid cars already in the market. These two strategies have been chosen after careful consideration of the European market and the internal analysis of the company. The remaining strategies are not related to GM. As the company does not operate a market penetration strategy because of its selected customer focus and niche strategy. The diversification strategy is been used by the company as it has expanded itself in the food division but this division is not related to the GM’s downfall in the automobile industry and therefore is not discussed further. INTERNAL & EXTERNAL STAKEHOLDERS INTERNAL STAKEHOLDERS Dealerships The scope and size of the dealerships across the Europe has increased but so has the competition. Due to this most of the dealerships are located in areas that are now no longer successful as the prime locations are not attractive anymore. As the company sells its automobiles through its dealerships, this is becoming a high cost disadvantage for both the dealers and the company. Suppliers Suppliers are vital internal stakeholders who will suffer directly if the company suffers. As the GM is suffering decline in market share, the big suppliers of auto parts also suffer from revenue decline. As a result, most of the suppliers are diversifying with other auto manufacturers and are relying less on the GM that is going towards restructuring. The CEO of Schmald Tool & Die, supplier of auto parts to GM, says that diversification is the key to survive the GM decision and the economic downturn (Klein, 2009). Employees The European GM employs more than 50,000 workers whose main concern is the Opel. Therefore any move made by the GM will directly affect the employees and considering the restructuring plans it is estimated by new CEO of GM Europe (Henning, 2009) that 9000 jobs will be lost mainly in Germany and many assembly and manufacturing parts will be closed Investors The creditors are other key stakeholders in the company who will suffer the decline of the GM. According Zino (2009), the company has outstanding $17 billion in long term debt that needs to be paid as soon as possible. Most of the financing will go in the restructuring of the company which increases the possibility that the investors will not be able to recover their full investment. EXTERNAL STAKEHOLDERS Government The European states in which GM is currently operating are providing funds to rescue GM and aid in its restructuring. One such stakeholder, Germany, is more interested in it as has pledged around 4.5 billion Euros to keep GM running (German government et al. 2009) so that the employees are not laid off. If the GM Europe plant closes, many states will face increase in unemployment and a loss of most valuable car manufacturer in the region. IMPLEMENTATION ISSUES WITH RESTRUCTURING As the company has fallen back from its number position, drastic changes are required. For this, the company is planning to lay off most of its employees as it is growing in size but not in profits and cutting down on the workforce is one way of cutting down its costs. The company is trying to retain the global approach to business conduct but as the restructuring is taking place, additional funds are required to sustain a few operations. For this reason, the company is trying to bring about $1.2 billion in cost reductions that include closures and spinoffs of certain facilities. One such spinoff decision taken by the company was regarding its brand in Europe under the name of Opel (Hetzner & Heller, 2009). But recently, General Motors has decided to take back the decision about the spinoff of the Opel brand. Different strategies are being made to partner with German government in order to solve the issues of near term liquidity. The decision regarding the Opel spinoff was taken back due to many issues. Some of these issues were related to the pressurizing of German government to give the deal to Magna as a lot of jobs will be saved that way. But the company wants another buyer and is interested in RHJ to come up with a bid that is attractive for GM to sell its division to that company. Therefore the company is apparently buying some time for a good deal to come (Stern, 2009). CONCLUSION The external and internal analysis shows that the GM Europe is suffering heavy losses and given the increase in competition, it has deteriorated the company’s number one position. The company is now trying to devise plans and strategy to get back up but requires support from all its stakeholders. In addition to this, the decision pending in regards to Opel’s spinoff is casting a doubtful cloud over the company’s future in Europe and whether the company will eventually wind up its operations and expand in other foreign markets or not. Word Count: 3282 REFLECTIVE REPORT The activity done within the seminar group brought to light many leadership qualities within me that I did not know of. During the group activities many conflicts arose among the members of the group that needed to be resolved. As a group leader it was my responsibility to overcome these conflicts. According to the Lewin et al (1939) there are three leadership styles that one person can posses. The autocratic leadership style is which in leaders provide clear instructions of what is required, how it is to be achieved and when it is supposed to be carried out. The participative leadership style follows that all the members in the group are encouraged to participate but the final decision will be taken by the leader. The last leadership style is the delegative style in which decision making and independent working is encouraged. During the seminar, the members were encouraged to present their ideas and give suggestions on the work is to be carried out. Thus the leadership style followed by me was the participative style. By undertaking such style, I was able to bring out the best in everyone and consequently the group worked better and more enthusiastically. Following the participative theory, I was also able to evaluate myself as how well I can manage the leadership role given to me and had a chance to discover my capabilities as a leader. I learnt that I can inspire the members to complete a task by helping them accomplish their potential capabilities as well thus reflecting the relationship theory of leadership. It is said that conflicts of idea within a group reflects the creative process of thinking. Such constructive conflicts can also lead to destructive consequences if it gets out of hand. One such situation did arise in which the matters got out of hand. In order to solve this issue, I asked each member to think of an idea and a reason for choosing it. Then all the ideas were put in front of the group and the pros and cons of all the ideas were evaluated. The final decision was although in the hands of the leader, but a majority vote was still taken to get a fair idea about the member’s decision. This type of conflict resolution is a combination of participative style and relationship style leadership theory (Lewin et al 1939). According to these two theories, leader acts as motivation figure for the members of the group and by allowing active participation from the fellow members can increase their interest in the project and also train them how to work in groups as well as respecting ideas and thoughts of other group members. According to Lewin et al (1939) the leadership style and theories depend well upon the personality of the leader. If a person likes to be make more decisions and always remain in control will follow the autocratic style of leadership based on trait theories. My personality is therefore reflected in my leadership style. Word Count: 498 REFERENCES Amadeo, K. “Crude Oil Prices Definition.” About.com. nd. Retrieved from http://useconomy.about.com/od/economicindicators/p/Crude_Oil.htm Bradford W. “Europe will stay world's toughest auto market ", Automotive News Europe. Vol. 9 Issue (2004) Bradley, D., Bruns, M., Fleming, A., Ling, J., Margolin, L. & Roman, F. “Automotive Industry Analysis.” 2005. Retrieved from http://www.srl.gatech.edu/Members/bbradley/me6753.industryanalysis.teamA.pdf Bradsher K. "G.M. to sell wider range of vehicles in China ", New York xTimes. 2003 Grant, R. “Contemporary Strategy Analysis.” Wiley Blackwell 2005. ISBN: 140519985 Helper, S. “GM Risks Cutting Capability in Trimming Costs.” Wall Street Journal. 2009. Henning, D. “GM Europe announces 9,000 job cuts.” World Socialist Website. 2009. 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