General Motors Value Chain - Case Study Example

 GM Report Table of Contents Task A 2 1) Internal Analysis 2 External Analysis 3 2) SWOT Analysis 6 3) Analysis of GM’s decision 10 4) Stakeholders theory 13 Task B 17 References 19 Appendices 22 Task A 1) Internal Analysis Value Chain As far as General Motors is concerned, the company has strong network of suppliers and this enables the company to operate in a cost effective way. GM cars are manufactured in different countries. It is already mentioned that GM’s manufacturing plants are located in 34 different countries in the world. Manufactured cars then reach to the dealers and from there it finally reaches to the end customers. Company’s sales and marketing division take care of all the marketing and sales strategies and ultimately achieving sales targets. Currently GM is the second largest automobile manufacturer in terms of number of cars sold globally. Sales and marketing team also take care of after sales services. Financial analysis General motors, the company has come out from bankruptcy and is not publicly traded anymore. The new company is now known as Motors Liquidation Company. The inventory turnover ratio is quite high when compared to the industry average. It indicates that either the company has higher sales or unproductive buying, hence less inventory. GM’s return on assets (-29.61) and return on investment (-93.2) ratios are in negative figures which indicate that the company has been unable to get the return on its invested amount. These ratios are much lower than the industry figures. Company’s net profit margin ration is as low as -26.17 and this indicates that the company is running in loss. The other ratios are quite low for the company. The ability to meet its interest expenses is quite questionable; as the company is suffering from debt burdens. Return on equity seemed to be very low for this company; that is definitely a concern for their shareholders. This can be explained with the negative net profit margin. The financials indicate danger for this company. External Analysis Porter’s five forces analysis Bargaining power of suppliers: Profitability of an automobile company would significantly depend on the cost of these variables. There are several automobile labor unions in UK and these unions mainly interfere in decisions regarding wages of labors, incentives etc. Overall it can be said that suppliers have high bargaining power in case of automobile industry. Bargaining power of buyers: As far as individual customers is concerned they might have some power to negotiate with an automobile dealer in a particular area as they can easily change the auto dealer and there is hardly any cost involved in it. But when a group of customers is concerned they not only have bargaining power on the dealers but they also have significant bargaining power on the manufacturers. This is because if a group of customers decide to change a dealer or manufacturer then it would definitely affect the total sales of the manufacturer. But in reality this hardly happens and as a result bargaining power of buyers is quite low. Threat of new entrants: The automobile industry is highly capital and labor intensive industry. In order to operate successfully in this industry companies need economies of scale. Any new auto manufacturer would need to attain a significant amount of market share in order to have minimum amount of efficient scale and this a key factor to gain cost advantage. So it is quite clear that threat posed by new entrants is significantly low in case of automobile industry. Threat of substitutes: Unlike threat of new entrants, threat of substitutes is not that weak in the automobile industry and the main reason behind this is the continuous change in technological environment. Each and every new technology that is coming up today would have its substitutes day after tomorrow. Same is the case of automobile industry where most of the model and technology stay for a very short time in the industry. Industry has seen how patrol and diesel have been replaced by natural gas which might be replaced by some other advanced technology. So it could be stated that substitutes poses a moderate threat in this industry. Competition among rivalries: this is a strong force that dominates the automobile industry since its beginning. Automobile industry is a highly competitive industry. There are several big players in the industry and each of them has their own competitive advantage. Auto manufacturers mainly compete on two dimensions, price and non price. Other important reason behind this intense competition is the lack of opportunities of product differentiation. PESTEL Analysis Political: It has been found that politically United Kingdom is conservative. Government is very much concerned about the safety measures and environmental issues. There are several government regulations which sometime affect auto manufacturer’s business. Economic: UK economy is one of the very few trillion dollar economies in the world. It is the leading financial center and trading power in the world. In 2008 country’s GDP was 2.236 trillion in terms of purchasing power parity (Central Intelligence Agency, n.d.). In 2009 country’s economy has seen the toughest time as it heavily contracted due to global financial meltdown. Even in the 3rd quarter country’s GDP contracted by 0.2% but in 2010 situation is likely to be better. As far as automobile industry is concerned UK is considered to be a manufacturing base for all the major car manufacturers like Ford, BMW, GM, Toyota, Honda etc. The industry very important for the country’s economy as it creates huge job opportunity in the country. Almost 550,000 people are employed only in motor trade and retail sector (Auto industry, n.d.). Social: Automobile industry has major impact on the society of a particular country as people today are judged by the car they are driving. Currently people are preferring fuel efficient and environment friendly cars with excellent interior and exterior. Technological environment: There have been several changes in technological environment over the years. Many advanced technology has redefined the industry. Perhaps most significant change in the automobile technology has come in the form of alternative energy. This has enabled the car manufacturer to produce more fuel efficient car. The there is hybrid cars where more than one source of energy is being used and all these newly developed technologies have actually helped the manufacturers to produce more environment friendly and fuel efficient cars. Environment: Like any other country UK also has become more environment conscious. As a result people today prefer more environment friendly cars and manufacturers are also focusing on producing fuel efficient environment friendly automobiles. Legal: UK’s legal environment is very strict as far as car safety and pollution is concerned. Automobile manufacturers have to meet all the requirements while they are manufacturing cars. 2) SWOT Analysis Strengths of GM Huge experience: It has been almost a century now that General Motors is operating as one of the largest automobile manufacturer in the world. The company has incomparable experience in the automobile industry as it has its presence in 140 countries around the world today. Market Share: GM was the market leader for almost 75 years. Being a US company, it is market leader in that part of the world. In 2008 General Motors market share in America was 22% (PronCon, March 30 2009). Excellent brand image: The brand GM is perhaps more popular than the company itself. General Motors has excellent brand image in all over the world and the main reason is that there are number popular brands under the mother brand GM. OnStar technology: it can be said that GM cars are safe of OnStar technology which is developed on the basis of cellular technology and GPS (Global Positioning System) technology (OnStar, n.d.). GMAC Customer Financing Program: Several customer friendly financial solutions are available to the customers through dealers of General Motors. The program was established in 1919 (GM, n.d.). Weaknesses of GM Late in adopting alternative energy solution: GM has failed to adopt Hybrid/alternative energy early and as a result of this the company’s market share was down by a significant amount which has badly affected its profitability. Excessive dependency on American market: Originally General Motors is US based company. As a result the company is too much dependent on that market. Struggling profit growth: As far as growth of GM’s profitability is concerned it has been found that in the last few years there has been hardly any growth in company’s profitability. With a profit margin of 1.5% GM is really found to be struggling. Communication gap: It has been found that there is huge communication gap between the management and the employees and the main reason behind that is the weak organisational structure of the company. Opportunities Global expansion: General Motors should continue its expansion throughout the world especially in the developing countries like China and India as the overall demand of car in these areas is continuously increasing. Development of new models: Basically developing new designs and models is an important opportunity in case General Motors. The company should try to create attractive and innovative models and styles. Adoption of alternative energy: General Motors has the opportunity to immediately start using alternative energy in order to make its cars more fuel efficient. Threats Competitors: Two biggest threats to GM is the intense competition of the industry and tough competitors. Competitors like Toyota, Honda, Hyundai, and Ford are challenging GM with their improved models and technologies. Fuel Price: This is a big threat to the company because it is late in adopting alternative energy solution technologies and fuel price is continuously increasing. Recession: GM has seen perhaps its toughest time in the history of the company during this recession. The company has made huge loss with each and every car it has sold in this period. Strengths Weaknesses Huge experience Market Share Excellent Brand image GMAC Customer Financing Program OnStar Technology Late in adopting alternative energy solution Excessive dependency on American market Struggling profit growth Communication gap Opportunities Threats Adoption of alternative energy Development of new models Global expansion Recession Fuel Price Competitors Key Issues The main issue that GM is dealing with is whether to sell its European arm or not. The company has been facing the toughest time in the history as its sales have drastically fallen due to the present financial meltdown. The company was about to face bankruptcy but fortunately a 50 billion dollar aid from the US government has saved it. Since it was unable to run all its plants and brands, it decided to sell its European arm Opel. But finally it withdrew its decision thanks to the 50 billion dollar US aid. 3) Analysis of GM’s decision GM’s decision of selling its European arm i.e. Opel to Magna International, the Canadian automotive parts manufacturer, which had impact on both European automobile market and US automobile market. The decision was taken when the economy of both US and Europe was struggling in recession as a result of which thousands of people have lost their jobs. So, it is quite clear that there would be long term effect of this decision in terms of job creation and losses. Mainly there were four options to the GM board while they were deciding on the issue. These are retaining Opel with it, selling Opel to Magna, protecting bankruptcy and accepting the RHJ international offer (Macalister, September 10 2009). GM board decided to accept the bid of Magna but recently it has withdrawn its offer. GM’s decision of withdrawing Magna offer was not correct. GM, for the last few years, was facing continuous lowering in profit and in the current recession the situation has become worst as the company was about to face bankruptcy. So in such a situation it was not possible to run Opel in Europe by. Furthermore it was question of thousands of employees’ life. If GM would have stick to its decision of selling Opel to Magna it would be a wise decision, because Magna is financially sound organization even in the period of recession. Magna is in a better position to save the jobs of all the Opel employees and even create jobs in near future in the continent. If GM’s overall business condition is concerned then an Ansoff matrix would be effective in identifying various options that are available to the company. Ansoff matrix is a very useful strategic tool where there are four options to the firm and these options are found by analyzing two important factors, product and market. There are four quadrants in the matrix representing four available options to the firm. In case of GM also there are four options which are market penetration, product development, market development and diversification. General Motors is already operating in no less than 140 countries sin all over the world. Moreover the company has wide range of products and brands which have already reached their saturation point in terms of market share. So it is clear that market penetration would not be wise decision for the company considering its current market presence. Another option is new product development for existing market and this would be perhaps the most appropriate option for General Motors in the present market situation. GM has already lagged behind in the competition of producing alternative energy or hybrid car. So GM has the opportunity of creating cars with new fuel technology. The company can also come up with new models or designs. The third option that is available to GM is developing new markets with its existing product line. It would also be a useful option for the company as there are many countries in Asia, Africa and Latin America where economy is growing at a fast rate. As a result financial condition of the people in these countries would definitely improve which in turn would increase the overall demand of car in those markets. So GM always has the opportunity of increase its market share in the developing economies with its strong product lines. Fourth and final option would be diversification which could be considered at the extreme condition. GM was the market leader in the industry for almost a century and currently it is the second largest auto manufacturer in terms of sales. GM would perhaps never think of diversifying from the automobile industry as it has dominated market for a century. So this would be last available option for the company. SFA Analysis SFA refers to analysis of suitability, feasibility and acceptability of various options available to the firm. In this case of General Motors the four options which are derived from Ansoff matrix could be analyzed with respect to their suitability, feasibility and acceptability. As far as the option of market penetration is concerned in the context of GM it is not suitable and feasible. GM has its presence in almost all the countries. It has huge market share in US and Europe. There is hardly any potential market where GM is not operating. As a result scope of market penetration with its existing product line is limited and hence it is not suitable. Furthermore GM’s current financial condition is very poor, so it could not afford launching of any new brand or product but GM’s competitors were in a better position in terms of financial condition and they were coming up with new models and designs. So the option of market penetration is not likely to be feasible and hence not acceptable. On the other hand if product development and market development are considered they are very much suitable considering the current condition of the company. GM can come up with new fuel efficient models and designs for its existing market. It can also try to develop new market with its existing product line. These two options are very much suitable because they would provide some strategic advantage to the firm. But as far as the feasibility is concerned both of them are not feasible in terms of funding although in terms of capability they are very much feasible. The last option of diversification is not at all suitable in case of GM because the company cannot get into other business model with the current capability and financial strength. 4) Stakeholders theory Stakeholders of a company include certain organizations or individuals who can have interests in the performance and operation of the organization. The stakeholders can be either internal or external. Mainly internal stakeholders are the people who are inside the organization and are committed to serve the company. The internal stakeholders of GM are the owners, managers, employees and shareholders. The customers and suppliers as well as the Government and the community are the external stakeholders for GM; and it was quite obvious that whenever GM would make some tactical decision, somehow or other it would impact its stakeholders. General Motors had a plan to sell off a noticeable stake in the Opel and Vauxhall brand in U.K. to a Canadian car parts manufacturer, Magna International Inc. Under this bid, GM was supposed to keep 35% stake and Opel workers would keep 10% stake. The German government had been involved into this by offering about £4 billion to back the bid. However it was obvious that the workforce would be exposed to a restructuring in Europe. GM’s discarding this deal was much welcomed in UK but was totally unacceptable in German. There were four plants as well as 25000 employees in Germany. The German government too has expressed rage towards this decision. They want the tax payers’ money back. German government has demanded the repayment of 1.5bn euro from GM (BBC, 2009). One of the Russian banks, Sber bank, was involved in the deal with Magna. Even Russian prime minister has said that he found it quite ‘surprising’. On the other hand Unite union has expressed their happiness in such decision. Basically GM was never interested in selling off their UK operations as they had an idea that doing the same could badly affect their presence in global competition. Now as their business has seen a certain sustainable profit, GM was not ready to sell off the parts. The implementation process would have a greater affect on the structure, systems, staffs, style, skill, strategy and shared values of the company. GM has decided to carry out a restructure plan at its Europe subsidiaries. It would include around 10,000 jobs cut in those parts. GM management said that they would like to introduce pay cuts while doing the restructuring (CNN, 2009); although these days their financial condition has been improving gradually. The German employees were hit badly by the decision. Almost thousands of employees from Opel division went on strike to protest the same. On the other side the workers in Britain were very much pleased to hear the restructuring plant. After a close exit from bankruptcy by using around $50 billion from US government, General motors planned to keep its Opel plants in Europe subsidiaries. GM chief executive, Mr. Henderson was confident about financing their firms (BusinessWorld, 2009). The reasoning what GM gave to retain both the brands was enhanced financial position as well as sustainable stability in profit margin. The management team is headed by the Chairman of GM, Frederick A. Henderson, who is a very polite man. In his long 25-year career at the company, he has gained the reputation of being a cleanup man, a problem-solver (BusinessWeek, 2009). They also had skilled labors around the globe; although they loose on the trust of their German workers on the Opel issue. The German Government thinks that General Motors have betrayed with them. Russian Prime minister said that the company did not give warning to anybody. They even did not bother to speak to anyone, despite being in agreement; even the documents were all signed (BusinessWorld, 2009). It seemed GM would face a lot of turmoil while implementing its restructuring plans. Lewins Force field Theory This case of GM could be analyzed with the help of force field model which says that there are two types of forces in case of change in decision, one is driving force and restraining force. In case of GM issue is selling company’s European arm Opel to any other organization. The driving force behind the decision was bad financial condition of the company due to global recession and this was a strong driving force. On the other hand there was restraining force in the form of huge financial aid ($50 billion) from US government. This aid make the company feel that they could overcome the difficult situation. Since in this case restraining force was more powerful as compared to the driving force, GM decided not to sell Opel to Magna international. Task B a) Leadership is the key issue for any team work. The team that has worked on this project includes Rachel, David, Leeza, Lai and Mohammed. In this team all the members have made their important contributions to make it a successful one. Two Malaysians Leeza and Lai have worked hard. David is the person who is having excellent technical knowledge. As a result all the technical problems were handled by him only. After completing their respective part successfully everybody used send that to Rachel as she was responsible for bringing the whole thing under one umbrella. So it is quite clear that everybody worked under Rachel’s leadership. Technical parts of the project were led by David but the entire project was led by Rachel. He has excellent motivating, interpersonal and leadership skills which helped the team to complete the project within the time successfully. b) As far as personal leadership skill development is concerned, I certainly did not lead the team from the front, but I completed my part successfully. However I learned aspects of leadership by closely observing Rachel. I learned how to motivate and lead each and everybody of a team to get the best out of that. Both my interpersonal and leadership skills have developed after working in this team. c) One must have excellent leadership skills to lead a team and help it to achieve its objectives. But apart from leadership skills, a leader must have a good understanding regarding all the subjects that are relevant to the project. The person must also have clear idea about its team members’ abilities and core competencies. Managing team members and motivating them are the two important tasks that a leader needs to perform in this kind of projects. So it is quite clear from the above discussion that if I want to be a good leader the competencies that I need to maintain are excellent leadership skills, motivating skills, interpersonal skills and sufficient knowledge on the subject of the project. References Auto industry, No Date, UK profile, [Online] Available at: http://www.autoindustry.co.uk/ukprofile [Accessed on January 12, 2010] BBC. 2009. German fury over GM Opel U-turn. [Online]. Available at:http://news.bbc.co.uk/2/hi/8341870.stm [Accessed on January 7, 2010]. BusinessWeek. December, 2009. Inside the Collapse of GM's Opel Deal. [Online]. Available at:http://news.bbc.co.uk/2/hi/8341870.stm [Accessed on January 7, 2010]. BusinessWorld. November 6, 2009. GM Readies Opel Plan, Workers Strike. [Online]. Available at: http://www.businessworld.in/bw/2009_11_06_GM_Readies_Opel_Plan_Workers_Strike.html [Accessed on January 9, 2010]. Central Intelligence Agency, No Date, united kingdom, The World Factbook, [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html [Accessed on January 12, 2010] CNN. November 6, 2009.Opel workers strike after GM abandons sale. [Online]. Available at: http://edition.cnn.com/2009/BUSINESS/11/05/germany.opel.gm/index.html?iref=topnews [Accessed on January 9, 2010]. Chen, J. Li, C. Morabito, G. Rosi, T. No Date. Maintaining Leadership in the Chinese Market, General Motors, [online] Available at: http://www.mcafee.cc/Classes/BEM106/Papers/2009/GM.pdf [Accessed on January 7, 2010]. GM, No Date, Company profile, About GM, [online] Available at: http://www.gm.com/corporate/about/company.jsp [Accessed on January 7. 2010]. GM, No Date, GM financial services, GM finance, [online] Available at: http://www.gm.com/vehicles/services/gmac.jsp [Accessed on January 7. 2010]. Kurtz, D. L. 2008, Contemporary Marketing, Cengage Learning Macalister, T. September 10 2009, Fears for UK jobs as General Motors sells European arm to Canada's Magna, Guardian.co.uk, [online] Available at: http://www.guardian.co.uk/business/2009/sep/10/vauxhall-general-motors-job-fears [Accessed on January 7. 2010]. OnStar, No Date, OnStar technology, [online] Available at: http://www.onstar.com/us_english/jsp/explore/onstar_basics/technology.jsp [Accessed on January 7. 2010]. PronCon, March 30 2009, Detailed Determination, Viability Determination, [online] Available at: http://bigthreeauto.procon.org/sourcefiles/GM_determination_of_viability.pdf [Accessed on January 7. 2010]. BusinessWorld. November 6, 2009. GM Readies Opel Plan, Workers Strike. [Online]. Available at: http://www.businessworld.in/bw/2009_11_06_GM_Readies_Opel_Plan_Workers_Strike.html [Accessed on January 9, 2010]. CNN. November 6, 2009.Opel workers strike after GM abandons sale. [Online]. Available at: http://edition.cnn.com/2009/BUSINESS/11/05/germany.opel.gm/index.html?iref=topnews [Accessed on January 9, 2010]. Welch, D. September 10 2009, GM Will Sell Opel to Magna After All, Busionessweek, [online] Available at: http://www.businessweek.com/bwdaily/dnflash/content/sep2009/db20090910_941273.htm [Accessed on January 7. 2010]. Appendices Read More