General Motors Corporation - Report Example

Economics Case Study – Gm Motors General Motors Corporation (GM), a multinational corporation, functions as a conglomerate manufacturing and selling,cars and trucks under the brands of Buick, Cadillac, Chevrolet, GM Daewoo, GMC, Holden, Hummer, Opel, Pontiac, Saab, Saturn and Vauxhall. Each of these brands has a number of cars and trucks under its division or arm. Even though, they are manufactured in one unit, vehicles coming under each brand are most times marketed differentially and some times in unison. Headquartered in Detroit, Michigan (USA), GM manufactures automobiles in 35 countries, capturing a sizeable portion of the world market share. GM was thus acknowledged as the worlds largest automaker, based on global industry sales. GM was able to hold on to this top position for the last 77 calendar years. But, its reign as the top automaker was threatened in the last few years. Apart from the intense competition put on by the fellow automakers, GM’s position was threatened by the prevailing political, economical and social factors, giving it head regarding the pricing options. In recent years, GM suffered because of acute financial turmoil, which includes a loss of 38 billion dollars in 2007. One of the important factors, which is causing these loses is the raising fuel costs. Competition General Motors face both homegrown competitors as well as foreign competitors. The American automakers who form the major competition for GM are Ford and Chrysler. Toyota, Nissan and Honda are the well known Asian automakers, who are the major competitors for GM motors both in its American as well as worldwide operations. Both these group of competitors pose a stiff challenge for GM in different car and truck segments, thereby declining its market share. Apart from these existing competitors, GM motors could face new competitors from India and China. As both these developing nations’ automobile industry is proliferating, GM is facing competitions in its home turf as well as in those countries. Chevrolet is the GM brand which is most visible in these two countries, but their range of cars and trucks are ‘countered’ by local brands like Maruti and Tata in India, and Geely and Cherry in China. Each of these competitors has various strengths and weakness, which determines their position viz GM motors. Starting with Chrysler, its strengths are its dependable V8 Hemi engines, good brand name and also three reputable marques - Dodge, Jeep, and Chrysler- which have a worldwide presence. It weakness is, it too much reliant on light van and trucks and so in 2008, Chrysler is facing continuous pressure from its rapidly decline sales of trucks, pick ups and minivans as consumers tend to buy more fuel-efficient vehicles given the soaring oil prices. Because of this weakness, Chrysler is planning to make some strategic moves. That is, it is exploring the option of tying up with Asian and European partners who specialize in fuel efficient vehicles, thereby directly challenging GM. “It makes sense for Chrysler to explore the possibility of foreign partnerships as it lacks resources to convert its production to smaller, more fuel-efficient cars” (Espinoza, 2008). GM’s other competitor, Ford has good strengths. It is has reputable brands like Mercury, Mazda, Ashton Martin, Volvo, etc in its ‘stable’. Like other American automakers, Ford’s weakness is its several big, gas-guzzling models. Ford announced that it will launch its more fuel-efficient European models to the U.S. in July 2008, but the cars did not arrive in time to stem the companys slide in customer satisfaction. Ford has initiated certain moves to make it less ‘baggy’ and more profitable, thereby fighting for the same market of GM. That is, Ford announced that it has reached agreement to sell its Jaguar and Land Rover operations to Tata Motors for $2.3 billion. The sale is expected to be completed by the end of the second quarter of 2008. This decision was made because Ford was finding it difficult to manage these two brands profitably. The Asian automaker and GM’s main competitor, Toyota’s strengths are good spending on R & D for future products and a strong commitment to continuous improvement. On the other hand, Toyota’s lack of brands is its weakness. The current moves of Toyota, which could also have a direct impact on GM, is its initiatives in direction of hybrid cars. Toyota was able to challenge as well as overtake GM mainly because of its success with hybrid technology. Pricing General Motors Corp to boost its sagging sales has introduced a new pricing strategy termed "Employee Discount for Everyone". According to this new pricing structure, all the customers will get employee-level discounts on almost all the Chevrolet cars and trucks. “GM will offer employee discounts on all 2008 model year Chevrolets… The offer also will include employee pricing on some 2009 model-year vehicles, including the Cobalt sedan and HHR compact wagon.” (Kim and Krolicki, 2008). Tried in 2006, this pricing strategy was re-introduced now to entice customers, who are already putting off their car buying plans because of the raising fuel prices. So, the basis and the factor that is responsible for this current pricing, is the downturn in US auto sales, caused by high fuel prices. GM hopes that with slightly reduced vehicle prices, it can entice the customers to buy the vehicles, and at the same time avoid affecting its profits. With its competitors also following the same low pricing strategy, GM want to reach a bigger customer base with this incentive offer. “The boost from that incentive offer was enough to allow GM to keep its top spot in the US market, heading off a threat from Toyota Motor Corp” (Kim and Krolicki, 2008) Strategy As the raising fuel prices started affecting the revenue of GM, with the customers avoiding its low fuel efficient and gas guzzling vehicles, it reoriented its marketing strategy. It started marketing and selling its fuel efficient cars, even reducing its prices as part of marketing strategy. With the global fuel prices showing minimal signs of subsiding, all the industries based on fuel are facing a lot of difficulties, and automobile industry is one of the worst affected. In this scenario, people wanting to buy cars and other vehicles, prefer buying the ones which are more fuel efficient. But, GM’s large and high gas consuming vehicles does not fit this criteria and this affects its profits. So, GM as discussed earlier has decided to optimally market its fuel efficient cars (particularly its fuel efficient small cars) and hybrids, instead of large trucks and SUVs. In the case of GM, its current customer base is concerned about the raising fuel costs and the low fuel efficiency of GM vehicles. But, the weakness of this marketing strategy is, GM is well behind its competitors in fuel efficient and hybrid technologies. That is, its competitors like Toyota and Honda have developed and launched hybrid vehicles 5 years earlier than GM, while it did not develop a hybrid vehicle until 2004. So its competitors have a good head start, with Toyota being the leader in hybrid vehicles. An important improvement that can be made to the GM’s strategy is to reduce the sheer number of brands and focus on few fuel efficient brands. Realistically, it is hard for GM or any other company to manage and market more than two brand of same product, let alone market as many as eight brands. So, GM can drop off (or sell) some of its brands, so it can maximally manage 3 or 4 brands. Among the brands, GM can drop Buick, Hummer, Saab, either Pontiac or Saturn, all consisting of heavy, less fuel efficient vehicles. If GM can take this step, it can market the other fuel efficient brands like Cadillac, Chevy, and GMC in a more effective way. Also, some of its brands particularly Buick is being viewed as cars of old generation. So, it would be better and profitable, if GM concentrates on younger and hipper brands, instead of following the current strategy of selling the old products using young celebrities. The young celebrity endorsers like Tiger Woods can be optimally used to promote younger brands. If GM can implement these improvements, the projected impacts will be mostly on the positive side. The fact uttered by GM R&D chief, Larry Burns which can aid the implementation step is, “The industry has tremendous growth potential since only about 13 percent of the people in the world today are vehicle owners. Wherever we go, we find people aspiring to the freedom that comes from owning an automobile, and I am confident the technology exists to enable sustainable growth”. So, if GM’s management with the help of its employees optimizes its current pricing plus marketing strategy, then it can fight off the competition and would have a successful and ubiquitous presence not only in USA, but all over the world References Burns, L., 2008, General Motors R&D Chief Larry Burns Sees Electric Drive across Product Line, accessed on November 24, 2008 from http://www.designnews.com/article/47485-General_Motors_R_D_Chief_Larry _Burns_Sees_Electric_Drive_across_Product_Line.php Espinoza, J., 2008, Can Chrysler Woo Fiat? accessed on November 24, 2008 from http://www.forbes.com/2008/08/14/chrysler-fiat-tieup-markets-equity-cx_je_0814markets23.htmlontent_id=1003811163L Kim, S and Krolicki, K., 2008, GM returns to employee pricing promotion to lift sales, accessed on November 24, 2008 from http://www.usatoday.com/money/autos/2008-08-18-gm-employee-prices-incentive_N.htm Read More