General Motors, known as GM, is a world leading vehicle manufacturing company based in the USA. The company is involved in the development, designing, manufacture and marketing of automotive products on a global scale (Pelfrey, 2006). The company remains a force to reckon with in the present day auto industry. Although the company has adapted some strategic measures to take advantage of the increasing demand for cars in the world, the company still faces stiff competition from other renowned car manufacturing companies (Pelfrey, 2006). Consequently, GM continues to operate under stiff conditions, despite the potential avenues of growth and success. Since the global recession, the company has instituted a mechanism of springing back to its former shining position. However, the company still has a long distance to cover in terms of its marketing strategies and enhancement of its production lines. Just this year alone, the company appears to have a tough problem having recalled more than 30 million vehicles. Due to this, the value of the company’s shares has dropped. However, increasing sales have helped in sustaining and supporting the company. However, this is very unsustainable in the long run. In 2014, the company realized that high sales were unsustainable, and the company went ahead and issued “stop-sell” orders on some of its automobiles, which is tarnishing the company’s’ image (Forbes, 2014). Thus, this report will attempt to evaluate both the competitive and internal environments that stand a chance of determining the current and future positions of GM. The report will evaluate the current business environment to determine the forces currently affecting the company. The report will also use such evaluation models as Porter’s Five Forces of competitive analysis to evaluate General Motors` situation. As a renowned global auto company, GM stands a chance of regaining its lost glory, but at the same time there is a threat that it can be outdone by other world class car manufacturers.
Issues Relating to GM and the Automobile Industry
Currently, GM is facing what can be described as the most challenging period in its history of over 100 years. Although the company has registered an increase of sales and profits, the key issues remain unresolved. General Motors has adapted strategies that are not only unsustainable, but what many analysts describe as “hurting”. The company has adopted discounting programs to entice customers – a practice that the company has been trying to reduce for a long time. Although the company`s management has acknowledged there has been an increase in the budgetary allocation for incentives, this issue is still unresolved (Forbes, 2014). A performing company can be assessed by its ability to retain the current management, but for GM, since Wagoner was kicked out of GM, the company has been headed by three different individuals. Under each of these leaders, GM continued to make drastic and long overdue charges in all aspects of its operations. The worst situation was when it was pushed into bankruptcy. Wagoner made several attempts to revive the company by, for example, eliminating dozens of plants and many jobs and discarding hundreds of dealers. In spite of the CEO’s efforts, GM continued to announce losses of up to $30.9 billion dollars in 2008 (Forbes, 2014). The company has failed to post a profit from 2004 and losses accumulated to over $82 billion in 2009. In 2009 the Obama administration demanded Wagoner`s resignation and he was replaced as CEO by Frederick A. Henderson. Although the company has denied claims of going back to its old habits, GM is still engaging in dealership and high incentive programs which are very unsustainable (Forbes, 2014). While GM was lucky to have been bailed out by the Obama administration, analysts warned that the company might be headed for another bailout. Investors in GM have witnessed significant drops by approximately a third since the beginning of this year, but increased sales have eased this pain. Although, the company can move out of its current problem by recalling its cars, the investors are under a lot of pressure. The recent recall of 57, 182 vehicles brought the total of 30 million units and 74 recalls. The affected vehicles include Pontiac G8s model, Chevrolet, Caprice, and Cadillac CTS-V.
The auto industry in the recent past has become very competitive with companies continuing to produce technologically advanced cars (Forbes, 2014). In the automotive industry a recall has the potential of affecting a company’s reputation as consumers may associate recalls with faulty products. The automobile industry has many challenges because of the volatility of markets and constantly increasing costs of developing new or modern technologies. As a result, the dynamics in the car manufacturing industry calls for a firm’s flexibility. Adaptation of sustainable transformation strategies is indispensable for a company seeking to be competitive in the future. For GM, the issue of sustainability in capturing new markets, coming up with new technology and attracting new clients seems a dream so near yet so far. General Motors has continued to recall some of its units and vehicles. Nonetheless, recall is a common phenomenon in the automobile industry and, as a result, GM`s recalls have been overshadowed by other companies’ recalls such as those of Toyota. This has significantly aided GM because investors are forced to focus on a relatively positive side of General Motors. Issues pertaining to GM are not very much different from those of the industry. However, a successful company is that which is able to counter industry challenges and which always has a competitive edge (Forbes, 2014).
Having analyzed the strengths, weaknesses, opportunities and threats of GM, is possible to conceptualize its position in the market. As identified above, General Motors operates in a very competitive environment. However, the company has several strengths.
GM Has a Large Market Share
In spite of its recent drops in the share value back home in America, GM is still a competitive company controlling approximately 17.5% of the automobile industry (Gustin et al. 2006). In addition, the company’s is significant not just in America, but its presence is increasing in other regions such China. The USA and China are the world leading automotive markets and GM`s presence in these markets is a great strength. The company’s presence is also felt in Africa and should the company adopt stringent measures to ensure sustainability in its sales and reduce the recalls, GM stands a chance of becoming world market leader (Gustin et al. 2006).
GM Has In-Depth International Market Knowledge
As a former leading global car manufacturer, GM has extensive international market knowledge. The company has been operating for more than 90 years, and this makes it easy for the company to achieve its goals and become a global leader.
A Wide Range of Brands or Products
The company has over 120 outlets globally, and customers can visit its showrooms to choose from a wide range of products. GM offers vehicles such as Chevrolet, Saturn, Holden, Buick, GMC, Cadillac and Pontiac (Gustin et al. 2006). This is one of the company`s strengths because the company does not rely on a single product. What is more important is that each of its products is established and entrenched in the market.
Robust Technology Abilities or Capabilities
As a company that has been in the industry for many years, GM has demonstrated designing and car development capabilities. In 2012, the company dedicated approximately $7.4 billion for technology research and development (Forbes, 2014. The company has endeavored in coming up with modern products and services, improving the present cars` performance such as controlling vehicle emissions, developing fuel economy vehicles and enhanced safety of passengers and drivers. For example, the GM’s Buick is provided with offer collision alerts, rear vision camera, lane departure alert, and side blind zone alerts (Dunne, 2011). The fact that GM and NASA engineers worked together on the Robonaut 2 is enough to suggest that that the company has what it takes to produce world-class vehicles.
Customer Satisfaction and Loyalty
Despite the recent decline in share value, GM continues to register high sales. Buick and Cadillac have been ranked 2nd and 3rd in terms of consumer satisfaction respectively.
Although the company has registered increased sales after the Great Recession, the company used unsustainable strategies to boost its sales. GM used a large proportion of its resources as incentives to entice customers. This is a weakness for a company that is aiming at regaining a solid global reputation. In the Fortune 500 list, GM was ranked 5th in terms of revenue but 20th in terms of profitability. Operating loss was $30, 362 million in 2012, and $5, 656 in 2011. In addition, the company reported a 14% decrease in net profit (Forbes, 2014). The company has recalled more than 30 M cars due to ignition and air bag problems at a cost of $2.5 billion.
Over-reliance on American Market
Until recently when the company started focusing on the Chinese market, it has heavily relied on the American market. Relying on one market can be daunting for a company should such a market fail to meet set objectives or goals. Over-reliance on the American market led to the fact that the company declared bankruptcy in 2009.
Underfunded Pension Obligation
Nothing can motivate employees more than knowing they are on a reliable pension plan. In an attempt to keep the employees motivated, GM offers pension plans but the company has had a budgetary deficit. For example, in 2012 pension plans were underfunded by $14 billion, in 2011 by $14.2 billion, and approximately by $9 billion in the recent past.
Focus On Modern Vehicle Technology
General Motors has continued to focus on delivering new cars and trucks with embedded 4G LTE (Long-term evolution), and this is a great development in the automotive industry. The company aims at attracting young and technology loving clients. Several studies have indicated that approximately two-thirds of new cars` buyers possess a smart phone, and 82 % of them will determine the car they buy (Farber, 2002). In addition, many Americans spend at least 2.5 hours on their smart phones or tablets. To capture this upcoming marketing trend, GM has collaborated with AT&T to introduce cars or vehicles with 4G LTE mobile broadband and wireless connection.
Increasing Expansion into the Chinese Market
Expansion into the Chinese market is very compatible with the current GM growth strategy. The Chinese market has been indicated as the fastest growing in terms of the volume of cars sold (Farber, 2002). Armed with the multi-brand strategy, GM has launched the Buick and Chevrolet brands in the Chinese market. Analysts indicate that by 2020, China may hit 30 million units per year, and this is a great opportunity for GM. GM plans to upgrade or introduce ten more products in the Chinese market by 2016 (Bunkley, 2011).
Increased Competition and Declining Market Share
The automotive industry is very competitive, and GM has felt it in recent years. GM`s global market share decreased to 11.5% by the end of 2012 as compared to 19.9% in 2011. The increasing vehicle or unit recalls in recent years has negatively influenced public perception of the company. The company faced a reduction in sales volume, which is a clear indication of the intensified competitive environment in the US market. Other companies operating in the industry are coming up with modern technology such as hybrid car technology (Bunkley, 2011). Companies operating in the industry are adapting aggressive pricing strategies. Companies are competing in terms of price, reliability, fuel economy, safety and quality. GM has decided to implement customer incentive strategies to compel consumer spending, and this is proving to be unsustainable.
Stringent Government Laws and Regulations
GM does not operate in a free environment and is subject to laws and regulations such as vehicle emissions and onboard diagnostic systems requirements. Any problems identified in the OBD have the potential to increase warranty costs and increase chances of cars or vehicles being recalled. In the current global environmental condition, governments all over the world require the car manufactures to produce environment-friendly cars. In the US the government has imposed stringent emission control measures. Thus, GM must comply with such measures and get all the necessary certificates to continue its operations (Bunkley, 2011). CARB has proposed the implementation of more stringent measures by 2015. For any company that will violate the new standard, its certification may be censored, and GM is not an exception.
Weak European Market
The current staggering position of the European market is negatively affecting GM. The demand for GM services and products in Europe is cyclical, and this might adversely affect the company.
Environmental Factors Facing the Company/Industry
The automotive industry is considered to be one of the main industries in the world and it affects every economy. It touches environmental, political and social aspects of every economy hence the companies have to operate in a very controlled environment. The macro-environment involves a larger set of forces, including political/legal, technological, economic, demographic, socio-cultural, and global forces. When these factors operate, they create non-controllable elements (Vargas et al 2010).
The political factors may influence the company’s sales either directly or indirectly. Since the 1960s the government has passed many regulations and laws to control vehicle emissions. General Motors has outlets in more than 120 countries (Crumm, 2010). As a result, the company is always under pressure and many different governments require it to operate according to terms of car safety (airbags, anti-braking systems and seatbelts) and to produce environmentally-friendly products. In the wake of environmental conservation, different governments in Europe, Canada and the USA are certifying car manufactures in terms of production of environmentally-friendly vehicles. GM has to follow stringent laws and regulations and avoid production of unsafe and fuel guzzling vehicles. Another political factor is taxation. Some countries have instituted higher taxes for foreign products. As a result, the dominance of GM in foreign markets is curtailed.
GM has undergone some strenuous economic periods such as the 2008 economic recession. As a result, customers and suppliers have to change their spending habits. In addition, the recession resulted to unemployment among many people meaning that their income was impaired. GM is a consumer of metals, computer chips, textile and plastic produced by other companies and it is constantly evaluating its expenditure (Crumm, 2010). Customers are also not quick in spending their money. Customers are always looking for cheap but quality products which GM cannot be said to be offering. Government initiatives such as the Fiscal Policy Institute made many car manufacturers increase their selling prices making many customers unable to afford luxury cars or vehicles. Unforeseen inflation and deflation remain pertinent issues to GM. All these factors have affected GM`s products in different ways (Farber, 2002).
As a global firm, GM is affected directly and indirectly by global issues. One of these factors is increasing fuel charges. A large percentage of GM`s cars can be considered as margin vehicles or fuel guzzlers. These cars are not very efficient in terms of fuel consumption. As a result of the increasing fuel charges, customers are going for more fuel efficient vehicles. Many analysts have suggested that fuel charges are politically determined. Another global issue affecting GM and the entire automobile industry is the increased concerns of global warming. The calls by international environmental organizations and government agencies have increased for automobile industries to produce environment-friendly vehicles in terms of emission and fuel consumption (Crumm, 2010). Finally, GM together with other established firms such as BMW, Volkswagen, Toyota and Nissan formed the Alliance of Automobile Manufactures. Through this association, GM undertakes to provide reliable data or information and seek global regulatory consistency.
Many companies around the world make their products fit the requirements of the so-called generation Y. This idea has been developed as a result of the realization that the aging and financially stable older population is not absorbing modern technology at a fast rate. As a result, many automobile manufacturers try to address the needs of the younger population and GM has not been left behind. The company is working together with such companies as AT & T to incorporate wireless and broadband technologies in its cars such as Buick and Cadillac (Forbes, 2014). In this way, the company aims at targeting the younger generation.
A person`s social class nowadays seems to be judged by a car he or she is driving. However, the society is silent regarding this, but automobile manufacturers don’t take it for granted. Manufactures thus embark on the production of cars that meet these social needs. GM has come up with such high profile cars as Buick, GMC and Cadillac. “Big” cars are thus associated with wealthy people. GM has been operating for more than 100 years, and this is an element that consumers treat with utmost faith. They perceive GM products as being reliable. It is highly anticipated that the current and future generations will be always concerned about their social status and how the society judges them. Therefore, GM, on the other hand, has a role of fulfilling this insatiable need (Crumm, 2010).
In the automobile industry, technology is a significant force affecting many companies. Technology appears to develop every day, and for a long time it has been a dominating factor in determining modern and old cars. GM has adapted and incorporated modern technology in its products such as Buick. The cars are furnished with wireless technology that can synchronize music with phones or tablets. Buick has a capability of warning the driver of an impending head-on collision and lane departure. In essence, technology has impacted the automotive industry by ensuring that vehicles become safer and user-friendly. GM has also adapted technology to enhance the delivery of services and products to its clients through modern and computerized distribution channels (Forbes, 2014). General Motors has also embraced technological advancement to reduce costs. The company has been able to make improved products using fiberglass and plastic, and this has proved to be very economical. Finally, the presence of the internet has enabled the company reach its customers at a global level. Customers can check the company’s products online before visiting the showrooms.
Porter’s Five Model of Industry Competition
Porter’s Five Forces can help evaluate different competitive forces affecting the company. Taking into consideration that automobile manufacturers operate in a multi-billion industry, there are different multinational companies that are highly competitive embracing all form of strategies to remain a step ahead of their rivals. It is for this reason that GM has learned that it cannot rely on internal activities only to remain competitive.
Threat of New Entrants
General Motors is operating in an industry that has a high entry barrier. Therefore, the threat of new entrants is low. Venturing into the automobile industry is an enterprise that many entrepreneurs are not willing to take. High investment capital is required to start a vehicle manufacturing firm. In addition, today most major multinational companies are enjoying economies of scale and this is a huge hindrance for new entrants. It may take years or even decades for any entrant willing to venture into the industry to gain reputation or competitive edge (Crumm, 2010). Clients in this industry are always looking for reliable, safe and durable products – something that a new entrant cannot offer. Thus, it will be very difficult to create a brand image.
Threat of Buyers
The bargaining power of customers can be considered high for GM. Customers are not in a position to negotiate prices to the extent of denying GM a profit, however, they can refuse to buy its products. Individuals, governments and commercial companies are primary consumers of GM products; they may opt to walk away in case they are not comfortable with the price. Consumers may decide to get the same products from different dealers or a completely new dealer. The bargaining power of buyers is thus high in the sense that they can influence prices at different dealership levels, but not over manufactures. Dealers form another group of buyers, and they buy products through special funding. In case dealers are not happy with the proposals offered by GM, they may switch to other manufacturers, and GM will be left with excess production or supply. Therefore, the threat of buyers is significantly high because all companies rely on buyers. Customers have a possibility to window shop, conduct an online survey and decide to buy from any manufacturer they want.
Threat of Suppliers
The threat of suppliers in the automobile industry is alleviated by the presence of several potential suppliers. Therefore, the threat of suppliers is low. However, switching costs in the industry are high because it involves establishment of new designs and specifications. This makes the threat of suppliers very low. Just like many other vehicle manufacturers, GM requires inputs such as spare parts, raw material and other services related to car manufacturing. Production of these parts can have a significant impact on the company’s productivity or profitability (Crumm, 2010). GM depends on several suppliers, but their threat is moderate because GM has the largest market share in the US. Suppliers cannot operate without their automaker partners because they cannot produce complete cars. In addition, materials used to manufacture cars are commoditized (steel, glass, oil, aluminum and paint). The most vital suppliers for GM include steel suppliers; they are based in China where production costs are low. As a moderate threat to GM, suppliers can dictate availability and dates of supplies. They can also set prices to fit their profitability requirements.
Threat of Rivalry
Since the early 1970s, rivalry in the automobile industry has intensified. Intense rivalry among different manufacturers began in the early 1900s when competitors started coming up with new vehicle concepts and designs (Forbes, 2014). Therefore, threat from rivals is high. Different manufacturers offer enticing offers to their clients to ensure customer loyalty. Companies have taken advantage of their ability to sell a high volume of vehicles, but GM has continued to have a competitive edge. However, GM`s rivals such as Chrysler, Nissan, Ford and Toyota pose a great challenge to the company. A breaking point for GM was its bankruptcy in 2009. Rival companies are always trying to find an advantageous edge to take a strategic position in the market. For example, Ford was negatively impacted by its tire scandal. Some companies aim at cost leadership, design, and technological uniqueness. Currently, the automobile industry can be described to be in the maturity phase, and the likelihood of future rivalry is high. Chances of any of the competitors in the automobile industry falling out of the market are very minimal because of the huge investment in the industry. Therefore, stiff competition will continue to define the industry.
Threat of Substitutes
The threat of substitutes for GM services and products is very high. With escalating fuel prices, many people find it economical to use public transport. Several studies have showed that the majority of urban car owners at times prefer public transport to offset fuel costs. If this trend continues (and chances are high that it will continue) GM may be forced to invest heavily in cars that do not consume much fuel. The threat of substitutes have already affected GM market share; it has reduced in the recent past (Forbes, 2014). In addition to public transport being a convenient substitute for many consumers, other car manufacturers are offering different benefits to their client and many customers may be swayed. For example, a company like Ford is investing heavily in the development of fuel efficient cars. However, GM has endeavored to deliver the first ever battery powered car.
Since the global recession and GM bankruptcy in 2009, the company has been on a rough road trying to regain its lost glory. As a global automobile firm with more than 100 years of history, GM operated under different environments some of which led to adverse decisions made by the company`s management. Although the company has registered a recent drop in its market share back home in America, the key issues remain unresolved. In spite of the management reporting abandonment of its old bad habits regarding customer attraction, the company is still using incentives and dealership programs to boost sales. Many analysts have described these attempts as unrealistic and unsustainable. The company has witnessed a recall of over 30 million vehicles, and this has adversely affected its profits. Although recall is a normal procedure in the automobile industry, it made the company`s share value drop significantly. The company has a chance of becoming the market leader because it still has several strengths and opportunities that surpass the weaknesses and threats. Just like other companies operating in the industry, GM is adversely affected by various external environments. GM should make a comprehensive evaluation of the current situation and adapt strategies that will make it a world leading automaker.