Analysis of General Motors Corporation - Essay Example

A Case Study of General Motors Corporation Introduction General Motors is world’s leading automobile manufacturer. Although the historical roots of GM can be traced to 1897, it was in 1908 that General Motors Corporation came into existence under the leadership of Billy Grant. He soon incorporated Buick Corporation. Oldsmobile was the second company to amalgamate into the GM the same year. GM is now headquartered at Renaissance Center, Detroit (MI) US. The brands owned and currently in manufacture by GM are Buick, Cadillac, Chevorlet, Subaru, Saturn, Vauxhall, Pontiac, Holden, GMC, and Hummer. GM manufactures cars, Suvs, and trucks in units spread out globally. In 2006, 9.1 million GM cars and trucks were sold worldwide. General Motors employs a staff of 284 000 according to gm.com. General Motors enjoys world supremacy in sale of cars and faces the stiffest challenge from Toyota Motor Corporation, the Japanese automobile company. In the first quarter of 2007, Toyota edged GM for the first position in Global sales by selling 2.35 million vehicles against 2.26 vehicles of GM. GM had been world’s leading car maker since 1931. GM also faces a challenge from the local Ford Motor Corporation and Daimler-Chrysler Group. During the World War II, General Motors was only manufacturing equipment, war gear, wagons, truck, tanks, and aeroplane engines to be used by the Allied Powers. Nothing epitomised the national consciousness of US in industry better than GM. In an incident dating back to 1935, Charles E. Wilson, President of General Motors, offered the following response during a U.S. Senate hearing held to determine his qualifications for Secretary of Defense. Responding to a question concerning any possible conflict of interest, he answered: "I cannot conceive of one because for years I thought that what was good for our country was good for General Motors, and vice versa.” But today General Motors has a global identity with manufacturing facilities in 33 countries that are supported by sales in 192 countries of the world with a big dealership network. GM’s largest market automobile market is in the US, China, Canada, the UK and Germany. GM is the major stakeholder in Daewoo Corporation of South Korea and has strategic tie ups with some of its well known competitors like Toyota, DaimlerChrysler, Suzuki, Shanghai Automotive Corporation, and Renault. General Motors is a single business entity manufacturing vehicles. However, it has interests in business allied to the transportation like providing repair and spare services, manufacturing auto-accessories, insurance, and financial services. The Finance and Insurance interests of GM are looked after by General Motors Acceptance Corporation. In 2006, GM sold 51% of its stake in this consortium. Mission and Objectives The vision statement of GM throws light on its mission. GM’s vision is to be the world leader in transportation products and related services. “We will earn our customers’ enthusiasm through continuous improvement driven by the integrity, teamwork and innovation of GM people,” says the statement. The global business of GM is further guided by the following values: 1. Customer enthusiasm 2. Integrity 3. Teamwork 4. Innovation 5. Continuous improvement 6. Individual respect and responsibility GM also seeks to earn customer’s enthusiasm through continuous improvement in products and by giving due care to social and environmental concerns. GM has commitment to social interests of communities it works with. GM believes that fossil fuel alone will not suffice for world’s transportation need and is hence actively experimenting with electric vehicles, and hydrogen based vehicles to replace petroleum based gases. . The company is concerned over increase in greenhouse gases and is actively pursuing emission controls. GM constantly innovates to address the passenger safety especially child safety concerns and making GM vehicles more safe and secure. GM envisions goals social parity in its corporate philosophy by taking into fold members of various ethnic, racial groups as employees and in dealer network. Hence GM truly stands by its motto of: Many people, One GM. Markets and Company Structure The top GM hierarchy of GM is: G. Richard Wagoner, Jr. Chairman & Chief Executive Officer Frederick A. Henderson Vice Chairman and Chief Financial Officer Robert A. Lutz Vice Chairman, Global Product Development The Board of Management with of GM has eleven members. The Board is further assisted in decision by five committees: 1. Audit Committee 2. Directors and Corporate Govenance Committee 2. Executive Compensation Committee. 3. Investment Funds Committer 4. Public Policy Committee. The members of the above-mentioned committees are members of the GM Board. The Board of Management in its policy statement emphasizes that its task is not only to protect the interests of the owners by running a successful business but also to safeguard interests of its employees, customers, dealer network and communities, wherever GM operates. Market Operations Company’s global manufacturing and sales operations are divided region wise into four regional units: 1. GMNA—GM North America 2. GME—GM Europe 3. GM—Asia and Pacific 4. GMLAAM—GM Latin America, Africa, and Middle East. GMNA—General Motors North America division is the most important arm of the company. The manufacturing facilities of General Motors in North America are located in the US, Canada and Mexico. In April 2007, GM North America produced 335,000 vehicles (120,000 cars and 215,000 trucks). To fight intense competition and growing influence of Toyota Motor Corporation, a Japanese automobile manufacturing company, in GMNA, the Chairman and CEO, GM, G. Richard Wagner took charge of General Motors’ North American operations in 2005. Buick, Cadillac, Chevrolet, GMC, HUMMER, Pontiac, Saab and Saturn brand products are available in North America. GMLAAM—It stands for General Motors Latin America, Africa, and Middle-east division. For operational ease this division is further bifurcated into LAO sub-division of Latin America and AMO of Africa and Middle East. In the LAO sub-division that operates in South America, the GM sells vehicles only under the Chevorlet brand. The only exception is Argentina where Suzuki and Isuzu brands are also produced. GLAAM recorded vehicle sales of 880847 units in 2005. In the first quarter of 2007, it has built 222,000 vehicles. GMAP—It stands for General Motors Asia-Pacific division. General Motors has assembly facilities and sales operations in 15 countries in the Asia-pacific region including Japan, India, China and Australia. Buick Cadillac Chevrolet Daewoo, Holden, Opel, Saab brands are available in Asia-Pacific region. GM holds 20 percent interest in Suzuki Motors, Japan, 21 percent hold in Fuji Heavy Industries, Japan and a 12 percent hold in Isuzu Motors, Japan. GM built 544,000 vehicles in the first-quarter of 2007 in the Asia-Pacific region. GME—GME stands for General Motors Europe division. GM sold 9.2 million vehicles in Europe, in 2006, to consolidate a market share of 9.2 percent. Brands available in Europe are Cadillac, Corvette, Saab, Hummer, Opel, Vauxhall, Corvette, and Chevrolet. General Motors has manufacturing facilities in 11 countries and it sells in 30 countries through a network of 30000 dealers. In the first quarter of 2007, GM Europe built 511,000 vehicles. Competition Problems In North America, there is intense competition between GM, Ford, ChryslerDaimler, and Toyota. The former three business entities enjoy the home-turf advantages. GM had to abandon one of its oldest products Oldsmobile in the past and a similar fate is threatening Buick—another of GM’s vaunted brands. Other Japanese manufacturers Honda, Nissan, and Isuzu are not far off in the race. Market share of GM in North American market has shrunk from 28.05 percent to 25.1 percent from the year 2000 to 2006. GMs market value has plunged 35 percent this year and its credit rating is hovering one notch above junk-bond status. The mammoth organisation on which it once prided on is becoming the foremost reason of its undoing. GM spends an annual $5.6 billion in annual health-care costs and pays a salary bill of 8.7 billion USD. Heavy manufacturing cost notwithstanding GM cannot shutdown 80 percent of its capacity whether they make money or not. Until the present decade the USP of GM has been to manufacture large cars, SUV and trucks that have higher safety factor. But with the spiralling fuel prices now touching $3.5 per gallon, the customer is fighting the hole in the pocket. Another growing concern that settles in favour of the lean and mean Japanese cars is the increasing air pollution and increasing interest of the Governments to curb it. A 2007 Chevrolet Suburban generates up to 11.4 tons a year in greenhouse gases under average driving conditions, according to the U.S. Department of Energy. Similar amounts of emissions are released from other SUVs built here: the Chevy Tahoe, the GMC Yukon and Yukon XL. By comparison, the bestselling car in the country, the Toyota Camry, generates up to 7.2 tons - or 37% less. Walter McManus, a fuel-economy analyst who, from 1989 to 1999, worked for GM, says that the company lost considerable amount of customers to more fuel efficient cars of Japanese make in the wake of increasing fuel prices. The customers prefer easy to run cheaper Japanese cars especially the Toyota. The Toyota is increasingly using merger components and transferring the money saved to research and development. The company has 1600 $ cost per vehicle as retiree benefits and pension benefits. The automakers health care bill this year is expected to jump to $5.6 billion. Despite the cost-cutting moves, Morgan Stanley analyst Stephen Girsky concluded in a report that “relative to its current market share, this company has significant issues in terms of too many employees (salaried and hourly), plants, vehicle models and dealers.” Heavy manufacturing cost notwithstanding, GM cannot shutdown 80 percent of its capacity whether they make money or not due to past agreements. The creation of various brands and cars and vehicles in so many different shapes and sizes is actually taking a toll on the competitive edge of General Motors. Whereas the number of different types of vehicles available is 86, the number of vehicles Toyota makes is just 26. This gives Toyota the advantage of more focussed approach on manufacture, reliability, quality and sales of this vehicle than GM. Competitive Advantage General Motors has been world’s leading auto manufacturer for 75 years. For generations people have used, with satisfaction, GM products. GM enjoys brand loyalty like no other auto manufacturer. Except for Japanese and the Ford Motors Company all other manufactures have undergone major mergers and acquisitions to face the marketing prowess of GM. Although GM too has made acquisitions in the past but it has retained the pre-eminence of its brand. The manufacturing facilities in 33 countries and a dealership network in 192 countries gives GM a superior edge over its competitors. The GM certified used car project has been a success in GMNA due to the brand presence and brand loyalty of GM in North America. “GM Certified Used Vehicles, the industrys top-selling certified brand, continues to set the pace for the category, with sales through April up more than 4 percent,” said Mark LaNeve, vice president, GM North American Sales, Service and Marketing. Target Markets To regain its loss in North America General Motors is offering zero percent or money back offers in some its mini truck market. With rising fuel costs, GM has to understand that future lies in making ‘lean and mean’ cars that are small and fuel efficient. GM has to further pitch its products towards the potential Asian markets especially India and China. In China, the Chevorlet Spark is doing extremely well. Since the North American customer is also looking for smaller and sub-compact cars, GM can introduce Spark, Matiz and their variants in home market. These cars that are made in India and China will be cheaper than those manufactured in US. The certified used cars can also be sold in third world car markets of Asia, Africa and Latin America. Impact of Competitive Advantage Due to the competitive advantage of GM, its Japanese Competitors find it hard to dismantle the brand loyalty of GM amongst the customers. There are generations of customers who have known no other brand except General Motors. Due to its global manufacturing utilities, GM manufactures and markets its product according to local needs. The large number of manufacturing plants and a trained workforce gives General Motors a lot of scope to innovate and create products according to the changing needs of the customers, environmental concerns and fuel availability. A GM vehicle is on the average used by a customer for four years. All other vehicles are used for a lesser period. The brand loyalty and utility time of GM products is higher than any of its competitors. GM hopes to turnaround matters in the local markets by introducing smaller cars and downsizing, Future Plans The future plans of GM are manifold. Its immediate goal is to position some of it’s smaller and fuel efficient cars in the North American markets. The Chevorlet Matiz is also selling well in Asia and Europe. Along with this GM will also try to regain its lost market share in North America. Besides, GM has started downsizing its workforce and to shutdown some of its plants to cut costs. GM also plans to decrease the number of its brands and focus on three to four brands. In coming years, it intends to introduce interchangeability of parts to cut down on manufacturing and repair costs. Restructuring of European unit to save 600$ million dollars is on the cards. General Motors is constantly innovating to provide more fuel efficient internal combustion engines. By 2008, GM hopes to provide Active Fuel Management system in 2 million vehicles. Active Fuel Management system provides superior power with more fuel efficiency. GM is increasingly introducing Hybrid technology on the more fuel guzzling vehicles. The hybrid vehicles use electricity and conventional fuels to reduce the running cost and save on petroleum products. Saturn VUE Green Line Hybrid, Saturn Aura Green Line Hybrid, and Yukon Hybrid are three GMC hybrid vehicles already on road. Besides, GM has ambitious plans to use Hydrogen based fuel cell technology in its vehicles. The fuel cell technology that is already in trial stages will completely reduce the dependence on conventional fuels and will rely on replenishable sources of energy like air and water. When the hydrogen based vehicle Hy-wire hits the market for years, General Motors will hold monopoly over its manufacture and supply. Suggestions General Motors should limit its brands to a maximum of four. In the four brands, GM should focus on creating more small cars like Matiz and Spark to ward off Japanese threat. Luxury sedans (Cadillac) should be positioned in the market at competitive prices, to counter the influence of DaimlerChrysler and Ford. Mid-sized cars and their various models should be done away with. The money saved from closing these products should be put in to Research and Development to further increase the fuel efficiency. Experimentation into alternative fuel vehicles should be done in top gear and GM should manufacture commercially viable alternative fuel vehicles as soon as possible. GM should be vertically partitioned into two units of SUV/Commercial Vehicles and Passenger Cars. This can be done by moving manufacturing facilities and assembly line production of each unit to a particular location. Such a fragmentation will cut down on labour costs. General Motors should review its agreements with employees union regarding pension and health benefits. GM needs to be reminded of historic words of its former Chairman Alfred P. Sloan that the companies that resist change cannot stay in business. GM has to shake of its heaviness to become slick and smart and produce efficient vehicles under limited brands. References < http://www.gmeurope.com/> < http://money.cnn.com/2007/05/08/autos/bc.gm.pickups.reut/index.htm> Read More