General Motors Internal and External Analysis - Case Study Example

General Motors Internal and External Analysis (Automotive Industry) General Motors Internal and External Analysis (Automotive Industry) Analysis of the external environment of General Motors (GM) is done through the use of various analysis tools for in-depth understanding of the external environment of GM and aid in the formation of perspective on the strategic issue. The tools to be used in the analysis of the external environment include PESTLE, Dominant Economic Features, Driving Forces analysis, Porter’s forces, Strategic group map, competitor analysis framework, and key success factors. Company’s Internal Analysis The automotive industry is affected by various factors as envisaged in the external analysis of GM. 1. PESTLE PESTLE aids in the evaluation of the variables in the external environment that affect the ability of a company to operate efficiently in a certain industry mainly, in the long run (Witcher and Chau, 2010). Political: Regulations on the safety and environmental effects of vehicles in the automotive industry are one of the political influents of the external environment. Re gelation and successful implementation of guidelines on vehicle’s safety and environmental impacts began in 1960 and have increased since then (Robertson, 2008). Economic: the automotive industry is important in the economy through the creation of jobs and being the main user of iron, steel, plastic, vinyl, textiles, rubber, computer chips, and aluminium creating demand and augmenting economic growth Social: these factors include increased concern for the environment, emphasis on eco-friendly products, and attitudes (Baki et al., 2004). The automobile industry produces quality vehicles that provides for esteem and provide for their owners and ensuring esteem and safety. Technological: increased internet connection and social media resulting in the increased use of social media in generating and finalizing car purchases. Environmental: challenges of environment protection in accordance with US Environmental Protection Agency affect the automotive industry. Addressing issues of climate change is one of the main factors that have to be considered by the automotive industry players. Legal: regulation and legal matters affecting the automotive industry include ELV endorsement by the Automobile Recycling Law affecting the performance of the automotive industry players. 2. Dominant Economic Features analysis The automotive industry has dominant economic features including that it is at the maturity stage owing to sales equating to the amount of sales experienced four years ago of 13.9% growth. Other dominant economic features are dominance by a few large firms including GM, Ford, Toyota, Honda, and Nissan, global competition, and having a foreign industry presence is required for success by firms in the automotive industry. Other dominant economic features include large number of buyers purchasing one car at a time and increased price competition with innovations lasting for a long period in the market. Research and development are very important since technology plays a high role in product differentiation. 3. Porter’s 5F analysis Threat of new entrants: low threat of entrants because of the need for high investment for entry and knowledge of the automotive industry to be successful. Threat of substitute products: low to moderate threat of substitute products owing to the available of bus, taxi, metro though they cannot fully replace the vehicle owing to limited destination. Bargaining power of suppliers: there is a strong bargaining power of the suppliers because of unity as exemplified by United Auto Worker that has been in a position to extend high leverage on wages and benefits. Bargaining power of buyers: low consumer bargaining power because they deal with dealers and have individual power, but the power cannot be extended to the manufacturers. Competitive rivalry: there is high rivalry between competitors because of intense competition evident in the automotive industry. From the Porter’s five forces, low threat of entry, low threat of substitute products, strong supplier bargaining power, low consumer bargaining power, and high competitive rivalry show the nature of the US automotive industry. 4. Driving Forces Analysis The main driving force at GM is product development and engineering that result in the creation of quality products, technology incorporation in the vehicles and running of large scale operations to take advantage of economies of scale. The leadership at GM is also the other driving force at GM and has propelled the company to achieve the results it has garnered. 5. Strategic Group Map analysis The strategic group map evidences the low performance, price and reputation at GM and that it has many models in the automotive industry resulting in its inability to compete with Toyota, Honda, Volkswagen, and other new competitors in the market. 6. Framework for Competitor Analysis The automotive industry has major players with different percentages in terms of market share with Toyota leading with 10.2% followed by Volkswagen at 9.6%. General Motors has 6.9% market share, Ford has 5.6% while other companies have 67.7% combined market share. Innovation, differentiation, and development of an export market are the main frameworks for competition in the automotive industry. 7. Key Success Factors Analysis 1. Ensure perceived higher value to the consumers to provide customer loyalty 2. Offering good products at a lower cost 3. Differentiation of products to allow for better products and charge premium prices 4. Development of the best product in the market 5. Incorporation of technology and innovation in new vehicle designs and releases for the consumers 6. Producer at the lowest cost to be competitive in pricing 7. Manufacture of more reliable and durable products in the market 8. Augmenting the performance of the vehicles produced by a manufacturer to meet customer needs 9. Effective cost controls and the establishment of export markets are the other key success factors 8. Conclusions of Relevant findings From the external analysis of the automotive industry, it is evident that the automotive industry is good for profitability despite the need for innovation, export market development, and low cost production. The external environment has a large impact on the performance of General Motors. Company’s Internal Analysis 1 Financial analysis The appendix contains the main financial statements relating to the income statement and ratios with this part of the internal analysis aimed at analyzing the financials of the company. GM had net incomes of $1.1 billion in the fourth quarter of 2014 making the total annual income $3.9 billion a fall from the previous $5.3 billion. Earnings per share reduced from 2.38 in the last financial year to 1.65 in the last quarter of 2014. Dividends of 1.20 were paid by General Motors in 2014 having not paid for the last five years showing the steady improvement in the company with the results depicting five year profitability. The payout ratio was 72.2 in the Q4 of 2014. For the last four years, the liquidity ratios at GM have been improving despite a fall in the 2014 financial year in comparison to those of 2013. The current ratio for GM was 122% in 2011, 130% in 2012, 131%, and 127% in 2014 year end with the quick ratio and cash ratio at 95% and 62% for 2011, 102% and 52% for 2012, 108% and 48% for 2013, and 107% and 45% for 2014 year end showing the improvements that GM has been making in the last four years. The profit margin has however been declining in the last four years with the profit margin in 2011 being 6%, 4% in 2012, 3% in 2013, and 3% in 2014 year end showing the declining profitability of GM in the last four years. Before tax return on earnings were at 24% for 2011, 79% for 2012, 18% in 2013, and 12% in 2014. The after tax return on investment from has had a steady decline from 24% in 2011, 17% in 2012, 13% in 2013, and 11% in 2014 also depicting a reduction in the ability of the company to generate return on earnings. The return on investment is relayed in the table below depicting the changes in the return on equity and assets at GM that has been declining for the last four years. Return on Investment Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Return on equity (ROE) 11.14% 12.55% 17.07% 24.11% 17.06% Return on assets (ROA) 2.22% 3.21% 4.14% 6.36% 4.44% Financial data on gross margin show improvements in 2013 from 2012 but reduced slightly in 2014 with the sales and revenue increasing in 2013 and decreasing in 2014. Financial Data Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Automotive Gross Margin 13,010  17,167  10,059  18,480  16,519  Automotive Sales and Revenue 151,092  152,092  150,295  148,866  135,311  Relating the net profit margin of GM to the competitors shows that GM has fallen short of the competition and is trudging especially in regards to Toyota and Honda in the last two financial years. Ford’s net profit margin has been declining too but in the previous four years was better than GM’s as depicted in the following table. Net Profit Margin Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 General Motors 2.61% 3.51% 4.12% 6.17% 4.56% Ford 2.35% 5.13% 4.48% 15.77% 5.50% Honda 4.85% 3.72% 2.66% 5.98% 3.13% Toyota 7.10% 4.36% 1.53% 2.15% 1.11% https://www.stock-analysis-on.net/NYSE/Company/General-Motors-Co/Ratios/Profitability 2 Quantitative and qualitative analysis 1 Identify Company’s Vision, Mission, Objectives (financial and strategic) Vision: to be a world leader in transportation products and related services (General Motors, 2015). GM aims at achieving this vision through continuously improving aided by teamwork, integrity, and innovation (General Motors, 2015). Mission: G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stockholders will receive a sustained superior return on their investment." (General Motors, 2015). Objectives: To meet the diverse needs of customers in over 120 countries in which GM products are sold (General Motors, 2015). To ensure the diversity at the workplace is achieved to allow the employees have a conducive environment for working at the highest potential To work in harmony with the suppliers in building the world’s best vehicles To support the community where it is established and attends events aimed at improving the livelihoods of the community making any contribution possible to achieve the objective (General Motors, 2015). To promote the development of a profitable dealer network for all the GM brands and meets the diverse needs of clients (Welch, 2009). Identify company’s competitive approach General Motors have a number of core competencies that has allowed the business to flourish in the global market including: Product research and development are undertaken through improvement of vehicles, new battery technology and gas efficiency Technology uses improving digital network, reduce costs of logistics, reduce manufacturing plants, and management of supply chain of quality under former CEO Richard Wagoner Good brand status and its international improvement through success in international marketing efforts at GM Enhanced information systems allowed GM to offer manufacturing in a worldwide scale and centralize logistics Large scale operations allow for augmented market presence and worldwide market share Product development, research, and engineering have aided GM in developing new low cost fuel saving cars meeting the needs of clients from domestic and emerging markets Product reliability through high quality, minimum recall, and many production checkpoints augment consumer confidence in GM Consolidate brands through more investment and marketing of main GM brands Establishment of core values at GM allow for employee awareness and personalized workmanship Market research has allowed GM to have better a understanding of consumer trends and preferences and incorporating it in the manufacture of new vehicles breeding success Leadership has seen the utilization of Bob Lutz’s skills in development of hybrid and electric cars and improvement 2 Identify and analyze key performance indicators The key performance indicators for GM include high presence in the international market, access to the third largest market share after Toyota and Volkswagen, and development of new technology and software. Having unique brands in the market is the other performance indicator for GM. 3 SWOT Analysis Strengths 1 Large scale operations with over 21,000 dealerships in global locations Achieved quality improvement through outsourcing with 25% of parts used for assembled in 2006 being manufactured outside the United States 2 GM’s annual productivity between 1994 and 2004 was the highest in the automotive industry 3 Radical product development aimed at changing the nature of the automotive industry with over 8.1 billion dollars spent on research, manufacturing, design, and development activities 4 GM is the highest telematics provider through the OnStar communications system (Slywotzky & Wise, July 2013) 5 Choice of a new leadership allows for a new drive and commitment to succeed at GM 6 With the new leadership emanated a strategic culture that would enable GM to succeed further 7 Partnership with China and joint ventures also ensure GM is able to effectively operate in a global scale 8 Global sourcing with a centralized decision making Weaknesses 1 Negative press and publication received by GM 2 Fall in market share evidenced by a 23% fall in sales in 2007 3 Increased health care costs and unfunded healthcare obligations for retirees has negatively affected the company 4 Declining financial performance and failure of the Saturn strategy failure resulting in $15 billion losses 5 Foreign production has resulted in quality problems 6 Drastic downsizing and abuse of financial help from the government Opportunities 1 Global expansion to emerging market 2 Make strategic alliance with Apple and Google in integration of OnStar 3 Develop brand reputation and consumer confidence 4 Learn from the loss in Saturn and incorporate the knowledge in new development 5 Increase demand for hydrogen and electric vehicles 6 Decrease life cycles and costs while increasing quality through the use of global design and engineering talents 7 Individual branding with the aim of distinguishing eight unique brands Threats 1 Loss of market share to Toyota in BRIC countries as the gap continues to decrease 2 Consumer lawsuits from low quality products (“Whistleblower: Toyota-GM Plant Hid Defects", MSNBC (1). 3 A decline in the USA infrastructure 4 ELV in Japan affects the margins for GM 5 Increased cost of raw materials and transport costs with a 1.8% increase in 2007 6 Perceived better quality and value of competitors including Honda and Toyota 7 China regulations have also affected GM negatively 4 Value Chain Analysis Primary Activities Strengths Weaknesses Logistics Integrated 27 purchase organizations into a global sourcing unit Annual productivity Optimization of supply chain through logistics company Increased distribution efficiency RIM system launch allowed for centralized inventory management Product development Global integrated product development OnStar development in 2009 depicting new product creation and improvement 2002 creation of computer-aided design Development of electric battery, vehicle, and hybrid technologies as part of GM Marketing Reducing the prices to reposition brands including $2600 for 2006 Chevy Malibu below the 2005 Toyota Camry Focus on Chevrolet, Buick, GMC, Cadillac in marketing strategy Spending on namesake brand allowed for 50% sales increase in 2008 Little attention to marketing of weaker brands including Pontiac Vibe Customer service and dealer support 2006 drive to increase customer service satisfaction Happy customers with GM dealers There is a need to have more attention to customer service Secondary Activities Strengths Weaknesses Leadership Strong leadership allowed GM to restructure to a centralized entity Visionary leadership from Bob Lutz Criticism of previous leadership before Mary Barra was chosen as CEO Technology Pioneered telematics systems in the case of 2008 OnStar Use of advanced propulsion technology Development of new lithium ion battery for electric vehicles Development of electric control and software better than the competition Takes time in development of new technology Human resource management Reduced bureaucracy from the start of 7,000 GoFast workshops Excellent manager training to strategic partners Talent growth from centralization Roll out of global standard training High Average health care costs compared to competition (Japan) Information systems GM Buy Power aids in access of customer information and purchases Built digital loyalty Revamped IT infrastructure Has not fully harnessed the benefits of IT 5 Representative Weighted Competitive Strength Assessment Compared to its rivals, GM is not as competitively as strong as its main rivals Toyota and Volkswagen as shown by the low performance in terms of market share and financial position. GM has failed to meet consumer needs in recent that have resulted in a reduction in its market share and a fall in its profitability and financial position. 6 Strategic Issue The strategic issue identified is how to solve the product reliability in terms of both product and consumer perception? 7 Strategic Issue facts and reasons for managerial attention The main issue that arose from the analysis is product reliability in terms of product and perception by the consumer. The lack of quality control systems and lack of quality assurance at GM is evidenced by massive product recalls. The reliability of almost half of General Motors models are below average (“Report Crad for Detroit”, Consumer Reports, 2009). The appendix data on financial statements shows declining profit margins and net incomes from the reduced reliability of products showing the impact lack of product reliability has on GM. PESTLE finds that the main success factors in the automotive industry include product reliability that GM has failed to achieve hence low sales and declining profit margins. Lawsuits realized in the SWOT analysis are as a result of low product reliability adding to the managerial importance of the strategic issue. References "Report Card for Detroit." (February, 2009). Consumer Reports. Pepperdine U, Malibu. “Whistleblower: Toyota-GM Plant Hid Defects." MSNBC. 20 Nov. 2007. 2 Feb. 2009 . Baki, M., Copus, S., Green, M., Highfill, D., Smith, J. And Whineland, M. (2004) Automotive Industry Analysis - GM, DaimlerChrysler, Toyota, Ford, Honda, Kansas State University, General Motors (2015). Retrieved on March 17, 2014 from http://www.gm.com/company/aboutGM/diversity/focus_areas.html Robertson, L. (2006), “Motor Vehicle Dealth: Failed Policy Analysis and Neglected Policy”, Journal of Public Health Policy, Vol. 27, p. 182-189. Slywotzky, A., & Wise, R. (July, 2003). "Demand innovation: GMs OnStar case." Strategy & Leadership, 31(4), 17-22. Welch, D. (2009). "GM Plays Brand Favorites." Business Week Online: 19. Pepperdine U, Malibu. Witcher, B. & Chau, V. (2010). Strategic management. Andover: Cengage. Appendix The financial statements of General Motors are attached depicting the revenue changes in the company and a fall in net income in the last financial year from $5.3 billion to $3.9 billion though the revenues have not decreased. Retrieved from http://www.bloomberg.com/research/stocks/financials/financials.asp?ticker=GM http://www.nasdaq.com/symbol/gm/financials?query=ratios http://www.bloomberg.com/research/stocks/financials/ratios.asp?ticker=GM Read More