The United States has been experiencing a weak economy, which has dramatically affected sales within the automotive industry. The industry as a whole has been struggling, but the U.S. companies have had the worst results. Also, the desired product mix has recently changed to more fuel efficient vehicles instead of large SUV’s and trucks (S&P, 2008, p.1). The following analysis will discuss in detail the external environment of the auto industry and then transition to examining the internal environment of the U.S. firm, General Motors. GM is a large and well known domestic auto manufacturer that was the leader in U.S. auto sales for many years and at one time possessed a 47.4% market share. However, GM is now more renown for their financial struggles and decreasing market share that is currently around 22%. GM does have internal strengths such as brand recognition and production efficiency, but their central problem that needs addressed is the negative perception that consumers have about GM. Through this analysis we will look more closely at the source of their problem, develop strategic alternatives, and state our recommendation for GM along with an implementation plan.
Analysis of the Auto Industry’s External Environment
All industries throughout the world are affected by the external environment, which is why it is important for firms to understand its effects and be prepared to respond to its fluctuations. Some of the main auto manufacturers are General Motors, Ford, Chrysler, Toyota, Honda, and Nissan. In order for these firms to work towards progress and to stay competitive they need to accurately understand their industry as a whole. The external environment essentially consists of three areas, which are the general, industry, and competitor environments. The general environment cannot be controlled by the industry but it must be understood because external factors can produce opportunities or threats. There are six influential segments of the general environment which are: Economic, Political/Legal, Ecological, Demographic, Sociocultural, and Technological segments. The industry environment consists of five factors that directly influence the firm, which are the threat of new entrants, power of suppliers, power of buyers, threat of product substitutes, and the rivalry among competitors. However, in the industry environment the firms are able to influence the factors favorably in order to become more profitable (Hitt, Ireland, & Hoskisson, p. 38-39). Finally, competitors are the last section of the external environment, where firms study their competitors and their responses. The following analysis on the external environment of the automotive industry will be categorized by the six segments of the general environment with details on applying the five-force model within the industry. The first general segment that will be discussed is the economic factors that affect the automotive industry.
More than ever before, the automotive industry as a whole is in trouble. However, the auto industry is not alone. Everything from the War in Iraq to the sub-prime crisis has been blamed on our economy’s current recession. At General Motors, their stock fell below $9 a share and they suspended their dividend for the first time since the Great Depression, which sent tremors through Wall Street. It was also announced that GM planned to increase liquidity by $15 billion through cutbacks, which includes a 20 percent reduction in payroll for salaried workers, along with layoffs and possible closures of many plants (New York Times). The situation isn’t much better at Ford either, as their stock price has dropped almost 20 percent YTD. In recent second quarter earnings, Ford took an $8.7 billion loss. Considering how big the automotive industry is in our country, things need to turn around fast in order for our economy to get back on track and...