The Analysis of General Motors - Research Paper Example

The Analysis of General Motors 1. Internal and External Analysis of General Motors External Analysis PESTEL Political Forces General Motor discarded their plans to sell of their Opel and Vauxhell plants in Europe, as they felt that they have improved on their financial conditions and would be very much able to continue with those plants. German Government was backing the bid by providing a loan of £4.5 billion, out of which they have already lent £1.5 billion to Opel. So hearing the announcement of reversal, the German Government, who had gone through the difficult as well as complicated negotiations, could not stop itself to express the fury over this decision. They said the decision is fully unacceptable. Even the Russian prime minister expressed his disappointment in this scenario. The political environment in German went adverse for GM to carry on its operations there (BBC, 2009). Economic Forces Since last few years the automobile industry has shrunk to certain extent; the sales for GM were already declining. Then the recent economic downturn happened; people were loosing on their jobs or facing a pay cut; hence the unemployment increases. At the same time the oil and gas prices had increased drastically. People were more inclined to make savings instead of spending. The automakers around the globe were getting the heat. GM was not an exception to that. In the month of February, 2009, GM revenue fell by $ 31 billion. GM started loosing on money in almost everywhere including Asia and Latin America where they used to make profits. In some three or four months, GM wasted some $5 billion in cash. Such a weak financials have enforced GM to announce its bankruptcy in the month of June, 2009. Social Issues After making its mind up to retain Opel, GM was all set to restructure its subsidiaries in Europe. GM management said that could include 10,000 job cuts as well as several pay cuts (CNN, 2009). Many of the German employees went on strike to oppose this decision. The social pressure was immense on the company, while going for restructuring. Technological To stay ahead from the competitors, one needs to be technically strong enough to come with new technologies frequently. This is very much true for the auto mobile and moreover when the company is operating globally. Companies can sell off their technology to others, what exactly GM did. GM has sold its ‘Saab’ technology to BAIC; according to the deal Chinese company can make its own brands in the China market. (Times Online, 2009). Environmental There were some environmental issues propped up socially. One of them was mainly about carbon emissions. The European consumers were worried about the same and that might be a reason behind low auto sales. In short GM got the hit of environmental issues. Legal GM had gone through the agreement, signed on the documents to sell off Opel, then when it has decided to discard the deal. So it is very much likely for GM to face some legal issues in near future, while carrying out the restructuring process. Porter’s Five Forces Bargaining power of suppliers The automobile industry is loosing on sales for this shrinking economic conditions. The players in this industry now prefer to make less number of cars. It is getting very much difficult even for the suppliers of this industry to make their survivals. So it will not be so wrong to say that the suppliers (mainly automobile parts providers) in this industry will have a low bargaining power. Bargaining power of buyers In a situation where the automobile industry is struggling to sell of their cars; the bargaining power of buyers bound to high. To increase their sales, GM and some other companies are even offering discounts on their car prices. Potential New Entrants In a situation, where the economy is suffering from recession, the industry is struggling for revival; there will be no investors to take on the risk of investing on new entrants. At least from the time being the sign of potential new entrants seem to be gloomy. Rivalry among competitors As the industry is suffering from low sales; most of the companies including GM are trying their level best to attract customers to increase sales. Many of the companies are offering lower prices for their cars; somewhat this has taken the shape of price war within the industry. Some other companies are focusing on the specification to create differentiation. Rivalry among competitors is quite high in this industry. Threat of substitutes The companies are very much in introducing differentiating designs and technology for their cars. For this each of the company has invested a good chunk of money to its research and development divisions. The threat of substitutes is high for GM. Internal analysis Core Competence and Competitive Advantages Despite of being in tough situations, GM has kept up its optimism high in the sky. In case of restructuring the Opel subsidiaries, the same tone was heard in the tone of their chairman. The chairman has said that they would be shorting starting off with their plans. He said that GM is confident that the plants would be financeable. Even he was confident enough that GM is capable to carry on with a global business (Businessworld, 2009). Financial Analysis Post bankruptcy GM has been transformed to Motors Liquidation Company. The financials will reveal the fiscal condition of this company. Respective tables and charts have been put into appendix. GM faced a drastic decrease in revenue in the year of 2009; revenue in 2009 was almost half of the revues reported in March, 2008. The earning per share had been negative through out the years, observing the worst situation in the last year. The interest coverage ratio is negative for this company giving an idea that it has a noticeable amount of debt burden in its portfolio and its ability to meet the interest expenses is very much gloomy. Receivable turnover is quite high for this company when compared to the industry average; implying that it mainly operates on cash basis or it has an efficient credit collection system in place. Even inventory turnover ratio is comparatively high for this company. This means that GM might be recovering on its sales or it might not be keeping much inventory for low sales. Net profit margin is quite negative for this company as well as the net income per employee. Return on invest is highly negative raising a prominent concern among the shareholders. Overall the financials are dark for GM; but there are ray of hopes with high values in their efficiency ratios. GM should keep up its operating efficiencies and the outcome will follow. 2. SWOT Analysis Strengths 1. Although the market share of this company has dropped to 19.9 percent from 22.3 percent (BusinessWeek, 2010), still GM is holding the largest market share in US market. After having a close escape from bankruptcy, one can hope that GM will be able to increase its market share in near future. 2. Once it had been a market leader in this industry; the brand name is huge for GM. It has some outstanding brands under the name of GM. To name a few, Chevrolet, Cadillac, Hummer and Daewoo. 3. A significant strength of this company is that GM has its presence around the globe. Its global experience can fetch good outcomes for this company. In today’s market GM has presence in almost 140 countries. The strategic partners of GM have been working in some 34 countries (GM, 2010). Weaknesses 1. GM’s organizational structure is mostly vertically integrated. In top down approach, this can cause a lack in communication to the employees in top down approach. This might be a reason that GM is battling through its employee satisfaction for years around. 2. Though GM has its presence around the globe, its main activities are very much concentrated in US market, which is not desirable. GM already has presence to many countries and now it should increase its activities over there. 3. The financial condition of GM has raised concerns among many including the Government. In 2009 they have even filed for bankruptcy. By the help of US government, GM had a close escape from the situation. Opportunities 1. Recently GM has been doing well in China car market and an opportunity to being the market leader in that region. 2. The research and development is always necessary to being in automotive industry. So GM has the opportunity to introduce new models and cars to create differentiation against their competitors. Threats 1. A prominent rise in fuel prices in past years has hit GM very badly. The sales of GM have decreased drastically. This is one of the main reasons behind such a poor performance shown by GM. 2. The market share of GM has decreased from 22.6% to 19.9 %, while Ford increased its market share to16.1% from 15 % and Toyota hit 17% from 16.7% (Green, 2010). Though it is still the market leader in US market; but there is a huge competition coming ahead for GM in near future. GM has decided to sell off its Opel and Vauxhell brands to Magna, the Canadian company. Even it has filed for its bankruptcy in the month of June, 2009. GM has survived its bankruptcy threats, backed by $50 billion from US government (); and it has also made up its mind to retain its subsidiaries in Europe. The funding from US Government has also enabled GM to directly send the funding to Opel, if needed (Businessworld, 2009). So it is an opportunity for GM to use this amount for its restructuring process in those plants. Rise in oil prices have reduced the sales of GM. Now in such a scenario, it can look for alternative energies for their cars; they can make their threats to end up at their opportunities. 3. Frameworks to identify and evaluate potentially suitable options available to GM After understanding the strength and weakness possessed by GM’s internal environment and the external threat as well as opportunity which the market offers to GM, it management can finalize the future strategy. Certain strategy management tools will be used to determine available options for GM and these tools are provided below: Ansoff’s Matrix: (Source: Egan, 1995 p146) The matrix is highly useful to determine which strategy the management should adopt for enhancing the market share in any specific market. This matrix is also famous as product/market matrix because it assists in determining the market growth opportunity (Basu, 2004 p268). Market penetration: the company will adopt this strategy if it finds the products have a potential market and the existing market is not saturated. The market in western countries is almost saturated so GM cannot enhance its sale by concentrating more on these countries, so this is not an appropriate strategy for GM at present. Product development: almost all the western developed economies are suffering with state of slowdown and consumer demand is low, so if GM introduces any new product in these markets, it might not get a good response from existing customers. Already many other car manufacturing companies are there in western market which offers a wide range of innovative products. To compete with these rivals GM have to make huge investment in R&D which is not a feasible idea at present. Market development: this strategy will be adopted by a company to capture new market with its existing products. After the financial crisis, many third world companies have preformed quite well in terms of economical growth. The consumers in these countries have huge potential as they possess strong purchasing power. So GM can enter these third world countries with its existing product portfolio hence should adopt “Market development” strategy. Diversification: when a company enters into a new market with a new product, this is called diversification strategy. GM is at a poor financial state and has lost its market share in US as well other developed nations hence diversification will be good strategy. GM can also plan for mergers and acquisition for diversifying the existing business. If the management finds any specific business unit is a loss making concern, they should do away with it by selling. GM has several methods available for adopting the predetermined strategy of market development and diversification. As described by Edward D. Hess (2001-02) an organization grow can growth in four main ways such as organic growth (internal operation), Acquisitive growth, growth achieved through investments and finally growth achieved through aggressively interpretation of GAAP (Hess & Kazanjian, 2006 p6). Figure: Process of Making Strategic Decision (Source: Hess & Kazanjian, 2006 p126) Organic growth option refers that the company increases profitability within its own business by enhancing the sales and reducing expenditures. At present GM was huge liability in its balance sheet, so the company cannot go for further loan to pour capital in existing business. Hence the company might not be able of attain high organic growth. Merger: if the company has to enter in a new market, it needs certain knowledge regarding the customer’s preferences, consumer behaviour, demand and supply scenario, culture, ethics and value system. The best way to acquire them is through merger. GM can merge its prevailing business with any other company which is in the same business so the local knowledge and expertise can bother result a profit making concern. Joint venture: GM might not be willing to merge its century business with any other car manufacturing concern because through merger GM might lose their brand name. For developing a new product with innovative features, GM might undergo joint venture. This will assist them to in-cash their brand name and on the same time get assistance from a company with adequate cash flow. Strategic alliance: this is more or less same as joint venture and considering the condition of GM strategic alliance decision will more appropriate. This will assist in developing new product through which GM can enter in new potential markets. Acquisition: GM can acquire any car making company which is conducting business in a developing market. But the financial condition of GM does not permit it to make such heavy investments. Disinvestment: the monitory grand from US government has proved life saver for GM, but this is not the solution to handle its short term solvency state. The debt/equity ratio is already quite high so getting loan is a tough work for GM, but if the company sell-out its loss making businesses and concentrate on the core competencies, GM can manage to overcame this tough time. Corporate level strategy development: BCM matrix: it assists in developing the corporate strategy for GM in EU market. In the horizontal axis one has to place relevant market share and in the vertical axis market growth rate has to be placed. The segregation of different brands of GM in EU is as follows: Star Cadillac Question mark Hummer Vauxhall Cash caw Saab Opel Dog Chevrolet (Source: GM Europe Corporate, 2009) Business level strategy: for that Porter’s Generic Strategy is used. (Source: Salaman & Asch, 2003 p133) Considering the Porter’s Generic Strategy matrix it can be determined that GM is not in the state of taking cost leadership possession, neither can it focus on cost. So the company has to go for differentiation strategy and have to develop new product for the existing market for a new unexplored market. 4. Impact on stakeholders As discussed earlier GM was into selling off their Opel brands to Magna followed by a decision to retain the same. GM was not interned to sell off their subsidiaries in Europe but they were compelled by their poor financial conditions to take such a decision. So after the survival from the bankruptcy, when GM was able to make an improvement on their financial condition, they went into denial mode for the deal. The deal was backed by some £4.5 loans from the German Government; even a Russian Bank, Sber was supposed to have their shares in this deal. Moreover in German GM have almost 25,000 Opel workers. All these concerning bodies are the stakeholders in this deal. So it is obvious that GM will feel the rage while implementing the restructuring process. The German Government has a very high interest in the whole deal as well as is carrying the high power. They have already paid £1.5 billion to GM for this deal to take place. Magna had promised to keep four Opel plants open in German. As GM has decided to retain Opel with it, it was predicted that they might close down two Opel plants in German. The German Government said that the decision of GM to reversal of its previous plan is totally unacceptable. Now in such a scenario the Government want their money back from GM. Magna and Sber, the Russian Bank was supposed to share the ownership of the new company. The Russian bank was backed by their government, so they seem to be having high power with high interest. The Russian prime minister has expressed his disappointment in this case. He said that the company did not bother to warn anybody before taking such decision, while the documents were all signed (BusinessWorld, 2009). The bank has demanded compensation from GM for failing to keep up on its deal. In the previous deal with Magna, the Opel workers were supposed to have 10% stake in the new company. After the reversal of the deal, this is not going to take place. GM has decided to carry out a restructuring plan for its subsidiaries in Europe. For this they indicated to cut on jobs of 10000 employees and more over others are going to have a pay cut. This created huge rage among the employees. Thousands of workers called for a strike to protest the decision. They have a high interest in this deal but having comparatively low power. All these people were those who were against this decision of keeping the Opel plants under the control of GM itself. Some of them have high power, while some others have comparatively low power. Almost every one of them is carrying a great deal of interest in GM’s decision. Britain was a bit upset for German interests getting more privileged in this deal. So the decision to reverse the proposal was welcomed by the Britain Government with cautious optimism. They had comparatively much low interest in this deal but definitely carrying high power. The other Opel workers do not have much interest in this deal and may be happy for GM’s decision to retain Opel under their own managerial control; as they will not face any change in management in this case. They were the stakeholders who have low interest with having low power. Spanish officials were much relieved after the announcement of discarding the deal with Magna, as Madrid has seen its Opel division as among the best run operations in Europe (Earthtimes, 2009). The GM management was happy to retain their divisions under their control. They had high power and high interest in this case. So they were the people who were supporting this decision. Their interest have been varied from low to high as their control of power; but at the same time they were happy that GM is retaining its control over Opel and Vauxhell. Reflective Report Our team comprised of six members for this project; and that including me. We were supposed to make a report for the same as well as arrange a seminar for the same. The seminar was named on ‘Will GM be able to make its turn from the U-turn it took in case of Opel’. Only fifteen days in our hand and we need to revamp ourselves to work as there were loads of work pending. Our team members selected me as the team leader and obviously I was delighted about it till the time I started getting the hit of the responsibilities. Here it comes, my convention with leadership; my first experience of being a leader. At the very first I did the division of work among the group members, mostly looking at their capabilities. In this case I have used participative leadership, that means even I was assigned some work to carry on. We were working towards achieving a specific goal and to achieve that it was very much important to have discipline within the group. Few of our group members have personal biases against each other. To encourage co operation with the team it was very much necessary to have a shared value with released communication. So I have to handle it all, starting from designing the outline of the work till resolving the personal issues, technical problems. The report was ready. Now the time came, when we need to work on field. It was time to get sponsorship for our seminar. For this I was supposed to meet the corporate managers and get finance from them. I had been good in negotiations and this time it paid off. We had a fabulous seminar and the whole group was very happy about it. I see my leadership to be a combination of participative, supportive, goal oriented and situational base. I used ‘Path Goal theory ‘to lead my group members to achieve the goal by taking away the obstacles from their way. The group members were different in their views, motivating factors, working styles; so in this case I followed situational style as per the need. I think some of the qualities, which I had been possessing, helped me a lot through out the project period. I have always been interested in paying attention to details. Even in this case whenever my team members were sending me some drafts, I always tried to go through it in detail Even I have motivated my team members to use more detailed research while writing the report, and that made the whole report perfect. The realistic approach towards deadline made all tasks to get finished within the timeline. More of all, I feel that I have the passion to drive for the goal and the confidence to achieve the same. I tried to share the same passion with my team members and it happened; the team made it. Reference Basu, R. 2004. Implementing quality: a practical guide to tools and techniques: enabling the power of operational excellence. Cengage Learning EMEA. BBC. 2009. German fury over GM Opel U-turn. [Online]. Available at:http://news.bbc.co.uk/2/hi/8341870.stm [Accessed on January 12, 2010]. BusinessWeek. January 06, 2010. GM Cedes U.S. Market Share as Rising Demand Buoys Ford, Toyota. [Online]. Available at: http://www.businessweek.com/news/2010-01-06/gm-cedes-u-s-market-share-as-rising-demand-buoys-ford-toyota.html [Accessed on January 11, 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 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 11, 2010]. EarthTimes. 2009. German Opel workers strike as Europe digests GM U-Turn. Available at:http://www.earthtimes.org/articles/show/293412,german-opel-workers-strike-as-europe-digests-gm-u-turn--summary.html [Accessed on January 12, 2010]. Frean, Alexandra. December 14, 2009. General Motors sells Saab technology to Beijing Automotive Industry Holding Corporation. [Online]. Available at: http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article6956032.ece [Accessed on January 12, 2010]. GM. 2010. Global Operations . [Online]. Available at: http://www.gm.com/corporate/about/global_operations/ [Accessed on January 12, 2010]. GM Europe Corporate. 2009. GM in Europe Facts and Figures March 2009. [Pdf]. Available at: http://www.gm.com/europe/corporate/download/GM_factandfigures_2009_low.pdf [Accessed on January 12, 2010]. Hess, D. E. & Kazanjian, K. R. 2006. The search for organic growth. Cambridge University Press. Reuters. 2010. Financials. [Online]. Available at: http://www.reuters.com/finance/stocks/financialHighlights?symbol=MTLQQ.PK [Accessed on January 12, 2010]. Salaman, G. & Asch, D. 2003. Strategy and capability: sustaining organizational change. Wiley-Blackwell. Bibliography Stoll, J.D., Terlep, S. and Kellogg, P.A. February 18, 2009. GM Seeks $16.6 Billion More in U.S. Aid. Available at: http://online.wsj.com/article/SB123489494750801713.html. Business Week. 2008.UAW Concessions Are Critical to GM's Survival. [Online] Available at:http://www.businessweek.com/bwdaily/dnflash/content/dec2008/db2008125_164191.htm. Appendix Table 1 Table 2 (Source: Reuters, 2010) Read More