Impact of Financial Losses for GM Auto Manufacturers - Essay Example

Running Head: FINANCIAL LOSSES GM Impact of Financial Losses for GM Auto Manufacturers (School) Impact of Financial Losses for GM Auto Manufacturers Over the past ten years General Motors (GM) has lost almost half its value, and the past year has been especially dismal with the company facing a plummeting market share. How does the company plan to rally Are they being realistic in their efforts to meet foreign competition Are they actually looking at the areas that need further attention, or are they looking for short-term incentives as a means of increasing their market share Specific issues must be addressed before GM can begin to recoup its losses, and certain areas call for a more focused study by GM's executives on customer satisfaction, employee loyalty, environmental concerns, and world competition. The days when American companies monopolized the auto industry in the United States are over, and the global aspects of big business have taken over the marketplace. Development of General Motors Throughout the Twentieth Century General Motors (GM) began its climb to success in 1908, and as the twentieth century progressed so did the automobile industry. By mid-century, the automobile was a necessity in every U. S. household, and GM led the way with Ford and Chrysler close behind. The Big Three controlled the industry from Detroit, Michigan. According to Wikipedia, the period from 1960-1985 was perhaps the "greatest in GM's history, as it eventually held slightly over 50% of the U.S. Market" (General Motors, 2006, 2.3). At the time, it was all about status, having the most popular brand. Unfortunately, in the mid 1990s, a downward spiral began, which has yet to be resolved for American car makers. It could have been predicted in 1984 when a joint venture between GM and Toyota gave Toyota an opportunity to establish a base in the United States and avoid newly established tariff on foreign pick-up trucks. Toyota's growth has accelerated ever since, with a $4.1 billion dollar gain in 2005 compared with GM's $10.6 billion dollar loss ( Solman, 2006). In a recent PBS interview, GM CEO Rich Wagoner noted that restructuring is taking place in the company in an effort to "compete in the global auto industry and global economy" (Solman, 2006, par. 12). He claims that the company is launching new products, and accelerating the application of biofuels E85. Wagoner also mentions a "breakthrough" health care deal with United Auto Workers (UAW) and the major restructuring of GMAC. With attrition and plant closings, he is optimistic that the company will be more streamlined and better able to compete globally. What sounds like positive action, however, definitely has its down side, with employees about to be faced with increased co-pay for health care and pharmacy and heavy job losses as plants close down. The company's "failure to foresee drop in demand for gas-guzzling SUVs, slow entry into hybrid market and Toyota's reputation for high quality" puts them behind in the race for market share (Kellar, 2006, par. 2). Micheline Maynard, Detroit bureau chief for The New York Times, claims in her book, The End of Detroit (2003) that by focusing on high-profit light trucks, American automakers, including General Motors, turned its back on people wanting to own cars rather than trucks and opened the door to Toyota, Honda and Hyundai. Consumers retaliated by turning their backs on trucks and purchasing foreign-brand cars. General Motors obviously does not look beyond present trends to what the future might bring. Krolicki's Reuters article (2006) is only one of several news stories (Wall Street Journal, Bloomberg, CNW) reporting the bankruptcy of Delphi, one of GM's most important suppliers, which, along with GMAC filing errors, brought about even more losses in 2005 than had been previously noted. In keeping with General Motors' short-term goals to increase market share, Associated Press writer Dee-Ann Durbin recently announced the company's gas-price incentive, which offers a monthly gas-credit for one year in California and Florida capped at $1.99 a gallon (2006). The promotion is limited to certain brands and requires signing up for GM's On-Star, free for one year and then $16.95 a month. In addition, all of the Big Three auto companies are offering major promotions in order to "clear out cars and trucks that have been sitting too long on dealer lots" (Bunkley, 2006, par. 2) The problem with this effort is that the discounts might lead to public perception that the vehicles being built by American companies are not worth buying except when they are on sale. Summer television ads focus on "huge savings" for American cars, while foreign car makers stress innovation and future improvements. Kelly Sims Gallagher, Director of Energy Technology Innovation at Harvard (2006), offers statistics on Chinese auto production and warns automakers to be concerned with environmental issues such as air pollution and harmful emissions. Shanghai GM is just one of the companies in Gallagher's case studies, and she claims the opportunity has been missed by all automakers to look ahead at future needs. In a study of alliances among competing auto firms in Europe, North America, and Asia (Dussauge et al, 2004), the focus of link alliances was on relative market share. The study determined that link alliances led to more asymmetric outcomes than scale alliances, perhaps due to uncertainty of new-product markets, suggesting lack of commitment for American automakers. GM is definitely in a bind, and if the company wants to regain top spot in the auto industry, they must stop focusing on temporary incentives and concentrate on research and development to create a product that will compete with foreign cars in safety, fuel efficiency, and practicality. Toyota on the Rise Toyota has long enjoyed a positive relationship with the public by going beyond consumer expectations to build a dependable product. GM, on the other hand, has concentrated on putting status over dependability. Table 1 below indicates clearly the growth of Toyota in 2004, a slow and steady increase in market share that has continued into 2006 (Table 2). The figures offer a clear picture of how GM fares against Toyota, with emphasis on loss and gain over the last few years. Table 1 By the Numbers General Motors Toyota Best selling vehicle In U.S. Chevrolet Silverado 680,768 sold in 2004 Toyota Camry 426,990 sold in 2004 U.S. sales in 2005 4,454,386 down 4.3% from 2004 2,260,296 up 10.1% from 2004 Profitability per vehicle Loses $2,331 per vehicle Makes $1,488 per vehicle Worldwide sales in 2005 9.2 million 8.2 million Global market share In 2005 14.2% down from 14.6% in 2002 12% up from 10.6% in 2002 NPR study by Diane Geng (2005) Table 2 By the Numbers General Motors Toyota Rating of mid-sized cars In U.S. Chevrolet Impala 114,014 sold in 2006 Jan. - June 7th place Toyota Camry 177,090 sold in 2006 Jan. - June 1st place Profitability in 2005* $10.6 billion loss $4.1 billion profit Worldwide sales in 2006 9.12 million overall 8.5 million - 9.2 million overall Global market share In 2006 13.0% down from 14.2% in 2005 14.6% in 2002 **14% up from 12% in 2005 10.6% in 2002 **Toyota predicts that it will have a 15% market share by 2010. *http://www.pbs.org/nbr/site/research/educators/060322_28a/ http://www.pbs.org/newshour/bb/business/jan-june06/gm_4-20.html **http://www.motortrend.com/features/editorial/112_0506_thebigpicture/index1.html American auto manufacturers are concentrating on getting rid of inventory that doesn't fit present customer needs, while Toyota and other foreign car companies are slowly and surely creating a secure niche in the market, especially in China. In the meantime, Ford's F-150 series has taken over top spot in the U.S., beating out GM's Chevrolet Silverado. The Pontiac Grand Prix was named the best large car, and the GM plant that manufactures them received the top award for North American plants. Unfortunately, this plant is scheduled to close in the next few years. It should be noted that the Hummer became a high-status car, which enjoyed popularity for awhile with those who could afford it, but in a fuel conscious society, the Hummer H2 gets 9 mpg, while the Toyota Prius hybrid gets 55 mpg and is the most fuel efficient automobile in the United States. It is not surprising that the Hummer is scheduled to stop production this year (China Economic, 2006). Problems and Proposed Research In a car-dependent society, can Americans help the environment by using biodiesel or are they apt to use up the supply Is it renewable Is the supply continuous Activist Alexis Ziegler's journal article (2005) explores the problems that can arise with the growing acceptance of this alternative fuel. For all intents and purposes, biodiesel is said to be the recycling of discarded cooking oil. However, according to Ziegler, this product is also used to create livestock feed, pet foods, chemicals and lubricants, and it is not discarded. It is reprocessed and made into a marketable commodity, dependent on supply and demand. Unfortunately, projected consumption of diesel far exceeds supply. Biodiesel, Ziegler says, is a "powerful movement that is rapidly gaining force" (par. 10). With a limited supply, demand will raise prices and ultimately require an alternative source. "If not biodiesel, then what" (Ziegler, par. 11). While GM and other American auto manufacturers concentrate on short-term incentives, Toyota not only offers a successful fuel-efficient hybrid with Toyota Prius, it is offering a hybrid Toyota Camry (43 mpg). With Camry its No. 1 seller, putting such a hybrid into the market can only increase Toyota's market share. Is GM doing anything at all to increase public perception of its products The most successful product GM sells is the Chevrolet Silverado, which is a large, expensive truck that recently has been overtaken by Ford's F-150 series. The company has introduced a hybrid Silverado, but it has had very little promotion, perhaps because the priority is to sell the regular Silverados first. Also, a one-year test shows this vehicle to be less than adequate in fuel efficiency, and not as comfortable to drive as would be expected. These are problem areas that need to be addressed to make its higher price feasible. At least the company is making an effort to meet current needs. When quality becomes a priority for GM, its market share will rise. Conclusions An overview of GM's standing in the global community indicates that the company has not really addressed the problems it faces. Granted, they have showed a willingness to suffer major losses in the effort to, as noted by GM CEO Rich Wagoner, "really fundamentally restructure the company to be competitive in what is now a global auto industry and a global economy" (Solman, 2006, par. 11). But the way in which these losses are being incurred is based on a backward look rather than going forward with an effort to meet customer demands and to base their research and development efforts on creating products that will establish a more positive customer image. Once attrition, layoffs, and plant closings have been realized, GM would do best to increase employee loyalty by looking at the needs of workers and making the company a leading contender for capable, experienced staff. The two major issues to be faced in today's economy are environmental and global. In the automobile industry, alternate and environmentally safe fuel sources are a priority. It is also evident from research that China is the major market of the future, and GM already has a foothold there. If GM looks ahead to the resolution of the difficulties they already have faced in their Chinese market, if they are willing to concentrate on quality over profitability, and if they look into the benefits of partnership with foreign automakers, they could well regain their standing as No. 1. Unfortunately, American auto manufacturers have a tendency to keep repeating their mistakes instead of studying the reasons for success in a company like Toyota. They also have trouble committing to an alliance with a foreign company, although cooperation has been shown to be far more productive than competition. According to a fairly recent journal article (Veloso & Fuchs, 2004), Asia as an integrated market is predicted to play a central role in the global automotive industry, and GM would do well to become part of that integration. Alternative auto designs specific to Asian markets will form a second tier market. China is a critical base and destination for automakers and suppliers. The growing body of electronics and increased Internet usage in the world today calls for clear-cut communication based on knowledge of culture, language and technology. The following areas need further exploration if GM wants to once more become successful in the marketplace: 1. Internationalism 2. Collaboration 3. Ethics 4. Electronic technology innovations 5. Environment Chevrolet Silverado Hybrid Toyota Camry Hybrid References Bunkley, Nick. Detroit is Thinking Fire Sale. (2006, June 29). New York Times News Service. China Economic Net. (Last updated 2006, May 15). GM plans to stop production of the gas-guzzling symbol. Shanghai Daily. Retrieved July 7, 2006, from http://en.ce.cn/World/biz/200605/15/t20060515_6960495.shtml Durbin, Dee-Ann. (2006, May 24). GM will cap gas prices for buyers in California, Florida. AOL Money & Finance. Retrieved June 19, 2006, from http://articles.news.aol.com/business/article.adpid=20060523171409990005&cid=403 Dussauge, P., Garrette, B., & Mitchell, W. (2004). Asymmetric performance: the market share impact of scale and link alliances in the global auto industry. Strategic Management Journal, Vol. 25, Issue 7, pp. 701-711. Gallagher, Kelly Sims. (2006, May). China Shifts Gears: Automakers, Oil, Pollution, and Development. Cambridge, Mass.: MIT Press. General Motors. (Last modified July 1,2006). Wikipedia, the Free Encyclopedia, pars. 1-6. Retrieved July 2, 2006, from http://en.wikipedia.org/wiki/General_Motors Kellar, Maryann. (2006, March 22). Collision: GM, Toyota, and Volkswagen and the Race to Own the Twenty-first Century. Video #28: How Toyota and GM Differ. Nightly Business Report. Retrieved July 2, 2006, from http://www.pbs.org/nbr/site/research/educators/060322_28a/ Krolicki, Kevin. (2006, March 16). GM raises 2005 loss by $2 billion. Reuters. Retrieved July 1, 2006, from http://www.mindfully.org/Industry/2006/GM-$2B-Loss16mar06.htm Maynard, Micheline. (2003). The End of Detroit: How the Big Three Lost Their Grip on the American Car Market. New York: Random House. Shanghai GM. (updated May 29, 2006). Wikipedia, the Free Encyclopedia. Retrieved July 2, 2006, from http://en.wikipedia.org/wiki/Shanghai_GM Solman, Paul. (2006, April 20). Reviving General Motors. PBS NewsHour Online, retrieved July 2, 2006, from http://www.pbs.org/newshour/bb/business/jan-june06/gm_4-20.html Veloso, F. & Fuchs, E. (2004). The future of the Asian auto industry: regional integration, alternative designs, and Chinese leadership. International Journal of Vehicle Design, Vol. 35, No 1/2, pp. 111-136. Ziegler, Alexis. (2005). Biodiesel: salvation or disaster. Earth First! Journal, Vol. 25, Issue 4, n.p. Retrieved July 3, 2006, from http://www.earthfirstjournal.org/articles.phpa=864 Read More