General Motors - 2005
Course Instructor: Prof Dr Ali Askari
Date: October 29th, 2010
Group # 5
Niveen Qadri (29)
Muzna Ahmed (28)
Maryam Khan (21)
I. EXECUTIVE SUMMARY
• Mission: General Motors is committed to be a leader in providing transportation products and services of such quality that its customers will receive superior value, its employees and business partners will share their success and their shareholders will receive a sustained return on their investment.
• From 1908 to 1976, it had grown rapidly. But today its market share has fallen and together with challenges posed by economic conditions, in the form of rising healthcare costs and fuel costs and stiff completion GM is facing a tough time in sustaining its profits. GM is deriving its 100% profits from financing cars and not from the sales of vehicles. Internal reasons that account for this decline are the failure of the company to adapt to the changes in the environment such as the consumer preferences and technology, lack of differentiation applied to products and lack of effective cost leadership strategies to efficiently manage costs.
• What should GM do about its junk-bond status?
Because of the high risk of the bonds issued and low credibility of the company, this strategy is not sustainable and is a weak method of covering pension costs. I suggest the company increase the employees’ participation in covering the plan in the form of selling bonds directly to employees in the form of employee-stock-ownership-programs.
• Why has GM lost much of its competitiveness?
GM has failed to adapt to the fast changes in the automotive industry relating to technological advancements and consumer preferences. As a result, its product and positioning strategies have led its products to become obsolete. Also, its strategy has been more reactive in terms of tapping opportunities in new markets and differentiating its products.
• To what degree is GM positioned to take advantage of new technologies (e.g. hybrid vehicles)?
GM will find it hard to take advantage of launching hybrid cars as it would not be able to recover the heavy costs of productions through charging high costs, as previously it has positioned itself as a supplier of cheaper cars through consistent discount offerings, such as employee discounts.
• How do GM and its U.S. competitors compare to their foreign competitors in terms of sales and profits in the automotive and credit sectors?
GM and ford seem to be benefiting more from their credit/financing divisions rather than from their automotive divisions in contrast with Honda, Toyota and Hyundai, whose vehicle divisions account more towards their overall profitability. For Honda 80% of its revenues come from automotive division, for Toyota, the situation is the same. The three foreign companies are benefiting from high sales in China and other Asian markets and also through investing heavily in new technologies such as fuel efficient cars.
• What generic strategy should GM emphasize (e.g. differentiation versus low cost)?
I would suggest both. Short term strategy could be cost reductions, in the form of demolishing the long term generous pension plans and replacing them with average level plans that other companies are offering. In the long term, the strategy has to be towards differentiation of the products and more investment in R&D to enhance the product performance and attributes and to not allow any cars in future to become obsolete.
• What should GM do about its pension and healthcare obligations?
GM would have to negotiate with the employee unions to go conservative with the pension and healthcare obligations. GM would have to be clearer with them regarding its financial position. It would have to suggest employee stock ownership scheme and the alternative option of downsizing of employees if...