November 29, 2010
COMPREHENSIVE CASE ANALYSIS OF GENERAL MOTORS
Recently there have been doubts concerning the survival of General Motors. These doubts stem in part from the firm’s unawareness of the automotive industry’s external business environment. This includes the consumer’s view of current events and economic trends. There are also key issues such as the emergence of technology that are related to the automobile industry that are covered by trade publications.[i] Doubts also stem from problems associated with G.M.’s internal business environment. These problems likely arose from the firm following the wrong generic strategy. For many years G.M.’s position of dominance was built by designing cars for different customers by separate divisions. This gave them an extensive brand lineup which it used as its primary weapon in beating back both foreign and domestic rivals.[ii] However, in the 1980s Japanese & Korean automobile manufacturers posed a significant problem to G.M. by their successful entry into the industry which eroded their profits. It was at this time that consumers threatened G.M.’s market share by forcing down prices when these foreign automakers successfully introduced their brands into the U.S. market.[iii] Automobile manufacturing has not been an attractive industry for G.M. in recent years. For a long time G.M. executives had decided to carry many different brands which required them to offer over 60 different models of cars and trucks. There were high productions costs associated with manufacturing and testing these automobiles & these costs were passed onto the consumer. One analyst has suggested that G.M. should have begun planning cutting back on its car divisions in the 1980s, but instead it actually added more brands. When G.M.’s market share began to decline, it became difficult to continue to design and market cars under several brands.[iv] This left G.M. open to the threat of new entrants in the automobile industry. Another way automobile manufacturing has not been an attractive industry for G.M. in recent years is its loss in profitability. In 2005 it announced a $10.6 billion loss, the first in 12 years. In 2006 its net losses decreased to $1.978 million. In 2007 they increased to $38.732 million & in 2008 they decreased to $30.86 million.[v] These fluctuations may be due to Wagoner trying to deal with G.M.’s problems as production capacity is balanced with profitability. There are emerging trends that are changing the entire automobile industry such as globalization;[vi] however, G.M. has been late in jumping on this bandwagon. Another trend is shorter product development cycles which give automobile manufacturers a shorter time to market.[vii] This gave Japanese automobile manufacturers a low entry barrier into the automobile industry in the 1980s. There are also shifting roles & responsibilities away from original equipment manufacturers to integrators/suppliers.[viii] This may have been another trend that G.M. was not sufficiently aware of causing it to lose market share. By looking at product line positions on strategic group maps, G.M. offers the same breadth of product line at an equivalent price as some of its closest rivals including Toyota, Honda, & Nissan. All of these firms compete at both the lower and higher ends of the market along with G.M.[ix] Yet production costs per unit were significantly higher at G.M. compared to these other automobile manufacturing firms that didn’t carry as many different brands. It was difficult for G.M. to achieve economies of scale because it had to spread these high costs of production over the number of automobiles it produced.[x] Consequently, this left G.M. open to the threat of new entrants in the automobile industry. Since Wagoner took over the firm in 2000, he has tried to implement and carry out a series of restructuring plans. The...