Saturday, June 27, 2020
General Motors External - Free Essay Example
Executive Summary 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 (SP, 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. Economic Factors 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 out of the recession mode. Therefore, what suggests that the economy as a whole is in a recession? First, the well-known troubles in the housing market have obviously threatened the health of the economy over the past several months. Until now, it was hoped that the fallout from the declines in home prices would be contained, first to the sub-prime market, then to broader real estate-backed assets, and finally the hope was that the damage could be restricted to just the financial sector. Unfortunately, each of these barriers have been breached and combined with a broader unraveling of credit markets and a credit crunch. So, we have seen continued spillovers into other areas of the economy, including the automobile industry (New York Times). Not too long ago, the auto industry had room for small, independent manufacturers such as Saab, Jaguar and Volvo. But since the mid to late 1980’s the industry’s big players have been buying up their smaller rivals (Forbes. com). The economic downturn, rising oil prices, and the cost of developing new technologies have made it much harder for new entrants to come into the industry. Therefore, new entrants do not pose a threat to the existing competitors of the automotive industry due to the economy and the large capital requirements needed in order to be successful. For example, at General Motors alone the company must raise an estimated minimum of $15 billion in new capital to stay competitive within the industry (New York Times). The new capital requirements will mostly be used to perform research and development. This includes research on mechanically sound vehicles that supply both performance and good gas mileage. Now, as we look to the automotive suppliers it is obvious that they are facing many challenges due to the lagging economy and inflation. Billions of dollars are being poured into product differentiation and development however; the industry’s sales, productivity, and volume are still down domestically. It is forecasted that domestic players will lose significant market share to foreign auto companies in 2008 because foreign cars are providing better quality and gas mileage (New York Times). Also, high gas prices combined with the weak United States’ dollar are making it expensive than ever to export to America. Even though companies such as Toyota and Honda are planning on increasing production and opening U. S. generated plants in the future, this is not helping them short-term. Despite Honda’s sales boom in America, they are still experiencing losses with their stock down 1. 9 percent YTD (Yahoo Finance). On the other hand, the power of consumers’ is currently very high. Trucks are practically rejected at auto lots, and it seems like every company has created more customer-friendly deals than ever. At Chrysler and Dodge, they are offering a guaranteed price of $2. 99 per gallon of gas for three years. It is the company’s hope that customers will buy into this offer, and by the time the deal is over, Chrysler and Dodge will be able to produce more fuel efficient vehicles to compete with the international players. Another example is at Hyundai where they are offering a 10 year/ 100,000 miles warranty on all of their vehicles. Saturn is offering that same 100,000 mile deal for 6 years. If a potential buyer has good credit, a low-to-nothing interest rate is easier than ever to get as companies are willing to do almost anything to sell their lagging vehicles. As Warren Buffet might say, â€Å"everywhere where there is a weakness, there is an opportunity (Forbes. com). †The next force to analyze in the industry are product substitutes As gas prices have increased in excess of $4 per gallon, customers are looking for ways to save money and still get to where they need to go. In many areas of the country, motorcycle dealerships are reporting sales increases of as much as 20 percent to 30 percent now than over a year ago. Along with sales, availability is also increasing. â€Å"The number of new motorcycle endorsements in Washington has more than doubled since 2002, from 1,411 in May 2002, to 3,090 in May 2008†, according to Steve Stewart, motorcycle safety manager for the Washington State Department of Licensing (Kitapsun). Scooters are another substitute. Americans are scooting more and more according to SmartMoney. â€Å"These days’ scooter engines are powerful enough to approach those of small Harleys†¦Ã‚ Annual sales have jumped past 130,000. While that may be the average number of SUVs sold in any given month, it’s triple the number of scooter sales in 2000. This increase is due to the great gas mileage of the vehicles, which average around 70 miles per gallon. Honda, which is a big player in both the automotive and the motorcycle industry, offers their Silver Wing model for about $8000. Other companies that offer cheaper scooter alternatives are Buddy Italia, Vespa, and Yamaha, with most models having engines that are powerful enough to cruise down any highway. As the auto industry continues to struggle, the competition for market share is becoming more intense than ever, because most companies are merely looking to survive. â€Å"The rivalry is so intense that both General Motors and Ford have experienced significantly lower earnings due to price cuts, which in turn, have led to their debt ratings being lowered below investment grade or to ‘junk’ levels†(Hitt, Ireland, Hoskisson). The Automotive Index Fund is on the Dow Jones’ Top 10 worst performing indexes, down 22. 37 percent YTD. As of July, every major automotive manufacturer is down from their 52-week high (Yahoo Finance): †¢ Honda                   -1% †¢ Porsche                 -6% †¢ Nissan                   -7% †¢ BMW                    -9% †¢ General Motors   -17% †¢ Ford                       -20% †¢ Volkswagen         -22% †¢ Toyota              -26% Next, the Demographic segment of the external environment will be discussed. Demographic Factors Demographics in the automobile industry are very essential in determining what cars to make and who to sell them to. Before a car is put onto the market there are many studies that are taken to see what market the car will sell to, whether it is based on income, age, ethnicity, or gender. All of the studies are very important in determining whether the car is worth making and putting onto the market. The buying power of a certain demographic may be a key factor in determining whether to pursue that part of the market or not (Ezine Articles, 2008). For example, the baby boomers demographic are older American consumers that make up a large part of the U. S. population, who are still buying products into their old age. A product that may be specifically marketed to the boomers would be the full sized sedan vehicle, which is a very popular choice of the baby boomers within the automotive market (Ford Motor Co. , 2008). A product marketed more towards the younger unmarried consumer with a lower to mid income level, would be a foreign sports car or a domestic light pickup truck. Essentially, every car on the market was initially meant to target certain consumers. Competition for Demographics The pursuit to corner certain demographics of the market can be very competitive. There has always been a battle in the full sized truck market to acquire a majority market share. Within the luxury automobile industry, companies such as BMW, Mercedes, and Lexus pursue the business of higher income consumers. There will always be competition for any market within the automotive industry that is sought after. It is very valuable to understand the demographics of the industry in order to be appealing for the consumer you are targeting. Now we will discuss the sociocultural segment of the general environment which, looks at how the beliefs, values, opinions, and lifestyles of people affect an industry (Hitt, Ireland, Hoskisson, p. 47). Sociocultural Factors Consumers obviously have a powerful impact on what types of vehicles will be demanded for the firms in the auto industry to produce. Several sociocultural trends that we see affecting the automotive industry are consumers concerns over their individual status and image, fuel-efficient vehicles, and environmental concerns. Each of these trends will be explained in more detail and how certain factors are linked to the industry and competitor environments. The first sociocultural trend that strongly affects the auto industry is that consumers attach individual status to the type of vehicle someone owns. People tend to make judgments about an individual’s success or personality through observing the type of vehicle they drive. For example, someone’s coworkers will probably never see the type of house they live in or where they do their shopping, but everyone will see the style and brand of car that they drive. Therefore, owning a certain type of vehicle can provide a sense of higher status, power, and self-esteem (Barth, 2007). Besides coming across as financially successful, a recent trend shows that many consumers are seeking to make a statement by driving a certain type of vehicle. The popular Toyota Prius is a full hybrid vehicle that has been a successful model with consumers. In 2007, a survey was performed by CNW Marketing Research that asked customers their top reasons for purchasing a Toyota Prius. Most would expect that the number one reason would be fuel cost savings however, 57% of the customers surveyed said they enjoyed that the ownership of a full hybrid Prius â€Å"made a statement about me†(Jacobs, 2007). The customers said they desired to make the statement loud and clear that they were driving a hybrid and they felt this desired image was instantly recognized by owning a Prius versus a converted model. The sociocultural trend of status and image being tied to the type of vehicle someone drives can also be linked to the fifth force of the industry environment, which is the intensity of rivalry among competitors. Toyota took a competitive action in creating and producing the Prius much sooner than most of the automotive manufacturers. The Prius is also reasonably affordable at a base price of roughly $23,500 with an estimated payback period of 4 years (â€Å"Which Hybrids Make Financial Sense? †2007). Also, Toyota claims that 48 and 45 miles per gallon can be achieved respectively in the city and on the highway. Therefore, the ratings that Toyota has been able to achieve are considered a weapon that they’ve used against their competitors within the automotive industry. This leads to the second and third sociocultural trends that have arose in the automotive industry, which is people’s desire to save money on gasoline and preserve the environment through driving fuel efficient vehicles. The image and status that is perceived by an individual owning a certain brand of vehicle is still a very strong factor, which was just discussed. However, with the ever increasing fuel prices many consumers are beginning to see a need for small fuel efficient vehicles and the increased awareness about environmental protection has caused some people to reconsider what they drive. But, the demand over the last several years has been significantly different than what we currently see. Sport Utility Vehicles, trucks, and minivans have typically had higher sales than cars, but now we see a dramatic shift in the industry towards smaller fuel-efficient vehicles (SP, 2008, p. 1). Firms within the auto industry are required to comply with the corporate average fuel economy (CAFE), which was established by the U. S. Congress in 1975. CAFE essentially requires American auto manufacturers to produce a fleet of vehicles which will achieve the determined average miles per gallon. The regulation is designed to save Americans money and to reduce global warming pollution. However, for thirty years the CAFE standards did not change at all. Auto manufacturers were determined to keep the standards low, but in 2007 the Congress passed the energy bill to increase the standard to 35 mpg by year 2020 (Union of Concerned Scientists, 2008). As we look at some of the problems with the domestic auto manufacturers such as General Motors, Ford, and Chrysler, we can see that they are overstocked with trucks and SUV’s. Additionally, most of them are only prepared to produce these types of vehicles. Again, the current sociocultural trend is a strong demand for fuel efficient vehicles not heavy vehicles with low gas mileage. Therefore, we have concluded that the American auto manufacturers did not successfully examine their external environment. They were too focused on the short-term profits of selling trucks and SUV’s and missed out on the time they could have utilized to research and develop fuel efficient vehicles that would satisfy the current demand and quickly approaching higher CAFE standards. Overall, these trends reveal that consumers have the ability to influence the automotive industry and firms must pay close attention to trends and always look to the future. The next general environment segments are the political, legal, and ecological factors that will have an impact on the automotive industry. Political/Legal Factors The United States automotive industry is affected by political factors, which includes a variety of issues such as national policy, currency exchange rates, automaker objectives, and local preferences. The energy bill, which was discussed earlier, was passed by Congress in order to make a way for a brighter and more secure energy future. Their hope is to have more reliable, affordable, and clean sources of energy that will power America forward. It will help put the U. S. in a position to reduce their dependence on foreign sources of energy and reliance on imported energy. The Bill established a new Renewable Fuel Standard that requires the annual use of 7. 5 billion gallons of ethanol and biodiesel in the nations fuel supply by 2012. It extends the existing tax credit for production of electricity from renewable resources, such as wind, biomass, and landfill gas, and creates for the first time a tax credit for residential solar energy systems. It will also authorize full funding for the Presidents Hydrogen Fuel Initiative. Lastly, it will create Federal risk insurance and extend the Price-Anderson Act to mitigate the potential cost of unforeseen delays and encourage investment in a new generation of safer, more reliable, and more proliferation-resistant nuclear power plants (whitehouse. ov, Bush). Ecological Factors Relationships among human beings and other living things like air, soil, and water have become huge factors. The government has many regulations on the automotive industry which requires them to comply with certain standards. Automakers tend to dislike the government’s regulations because they typically have repercussions on the vehicles performance. For example in order to improve the fuel eco nomy, you have to make the vehicle lighter, which could lower the safety level of some models. In order to reduce pollution it requires emission equipment which makes the care heavier and in turn hurts the amount of miles per gallon a vehicle can achieve (SP, 2008 p. 1-19). Evidence of global warming grows due to record global temperatures. Global warming occurs due to the pollution created by vehicles that is directly related to the amount of fuel they burn. The average U. S. vehicle is heavier and less fuel-efficient than it was 20 years ago. Last month an association of 10 major U. S. ompanies including General Electric, Dupont and Alcoa formed a high-profile coalition with environmental groups to make cuts in carbon dioxide emissions. The automakers were not present and in the past decade they have fought off nearly every government attempt to reduce the fuel consumption of cars and trucks (SP, 2008 p. 1-19). The chief executives of America’s four largest car companies Ford, DaimlerChrysler, Toyota North America, and General Motors (GM) acknowledged they intend to c hange their ways. In an attempt to find alternative fuel, the automotive industry has researched and developed hybrid vehicles. The benefit of the hybrid vehicles would be cleaner emission and lower operating costs. The final segment of the external environment relates to the impact of technology on the automotive industry, which is explained next. Technology and the Industry Environment New technology is a powerful factor of the external environment that significantly affects the automotive industry. The market is currently flooded and new entrants would require billions of dollars in order to design and produce vehicles, which we explained earlier in our analysis. However, improvements in technology for safety features have also been a factor in causing the entry into the industry to become more challenging. For example, Honda vehicles come with over twenty standard safety features, which poses a threat for new entrants because they have to produce vehicles that can hold up to many proven years of esteemed safety test results (Honda. com, 2008). A recent trend reveals that Americans and Europeans are demanding increased safety technology to be implemented into vehicles (SP, 2008, p. 16). Established companies are adding features such as side-curtain airbags and anti-lock brakes without charging the consumer, which makes entry by new companies nearly impossible. A similar example outside of the auto industry is Wal*mart, which offers their products for lower prices thus, making it very difficult for other retailers to compete or even survive. Growing technology has also added to the threat of substitute products found in different industries. Earlier, we discussed the increased sales of motorcycles and scooters as a substitute for traditional cars and trucks. But, there are also more efficient mass transit vehicles being created which will lower consumer costs and make their use easier. Colorado for example, is greatly expanding their rail systems, and is in the works of a proposal that will create a 24-hour urban hub for buses, light rail, and passenger rails will converge. Projects like these can greatly decrease the need for personal vehicles. The value and ease of switching are great since most public transit is low cost and provides for similar use as a personal vehicle. Even in other cities, mass transit has become more popular with rising gas prices and insurance rates. Technology has also set up strong rivalries among the companies in the automotive industry. A current rivalry is that with hybrid vehicles. The largest market share is currently held by the Toyota Prius, which based on information from www. electricdrive. org, leads hybrid sales by almost three times. These vehicles are very efficient, using a gas engine only when the pedal is pressed hard or at higher speeds, then charging the batteries of the electric engine by the energy of stopping. Fuel-cell vehicles such as the Honda FCX clarity are beginning to hit the market as lease vehicles, using hydrogen fuel, which uses no gas and gives off no harmful emissions. Other variations of non-gas vehicles include the Saturn Vue, Chevrolet Tahoe, Honda Civic, Nissan Altima, and Lexus 400h. There are also all-electric vehicles, such as the highly anticipated Chevrolet Volt, which is powered by Lithium Ion batteries which can run the vehicle for 40 miles on one 12-volt charge. With all these variations in a similar product, competition has become more fierce and concentrated. Additionally, as consumers and governments push for more safety features, automakers have to stay ahead of the competition. Companies such as Honda and Nissan add more features standard, while offering a plethora of additional safety features. Globally, other countries such as China and Europe are finding more and more value in safety, pushing each company to top the other with safety (SP, 2008, p. 16-18 ). Overall, technology innovations need to be closely scanned and monitored in order to stay competitive within the automotive industry. In summary, the external environment can have huge implications on the success of an industry. Therefore, firms should strive to gather information and understand the external environment in order to respond to changes that are outside of their own direct control, favorably influence industry forces to improve profitability, and understand their competitors. Scanning the external environment for trends and permanent changes is vital for the long-term success of a firm, especially within a volatile and competitive industry like automotives. Now, we will look to analyze the internal environment of General Motors, which is a specific organization within the auto industry. Internal SWOT Analysis General Motors Now, we will look to analyze the internal environment of General Motors, which is a specific organization within the auto industry. Understanding the internal environment of a firm involves performing a SWOT analysis and determining what a firm can do by defining their unique resources, capabilities, and core competencies that enable them to achieve a sustainable competitive advantage (Hitt, Ireland, Hoskisson p. 74-75). General Motors (GM) is a United States corporation and the largest auto manufacturer in the world. GM was founded in 1908 and has been a global leader in sales for many years (gm. com, 2008). However, GM has recently had more of a reputation for struggling financially due to reasons such as the economic condition of the U. S. , the cost of paying their retirees, and difficulties in sustaining any competitive advantages. Therefore, it is important to accurately perform a SWOT analysis and understand which resources and capabilities will lead to developing core competencies for GM (Hitt, Ireland, Hoskisson p. 74-75). First we will discuss in detail the internal strengths of General Motors. General Motor’s Internal Strengths One of GM’s prominent strengths is found in the use of their technological resources. For example, OnStar allows for immediate assistance if a driver is lost or needs emergency assistance after an accident. OnStar is only offered on 17 GM vehicles, and is currently included for one year with a new car purchase (OnStar. com, 2008). By marketing this product for their vehicles in various magazines, websites, and over television broadcasts, GM has been able to turn this resource into a capability. Considering the growing importance of vehicle safety, the OnStar system gives consumers the peace of mind that they will have immediate assistance in an emergency. Due to successful marketing, many consumers are beginning to associate OnStar with GM vehicles. Through this, GM has established a core competency in terms of state-of-the-art safety technology. No company has been able to replicate this feature, and the cost to create a substitute would be very high. Considering OnStar has had 27 million interactions with customers since inception, consumers already look to this organization when considering safety for a new vehicle. GM has been using the feature for many years and already has suppliers established. A new company would have to overcome many barriers to even begin to compete with the rapport that OnStar has created. Another strength that GM has developed is their brand name. With a company that has been around for a century, it is uncommon for consumers to not recognize their name. This intangible resource provides for many sales, due to brand loyalty and recognition. With strong brand names such as Buick, Cadillac, Chevrolet, GMC, Pontiac, and Saab, General Motors is known in many spectrums from high-end luxury, sports cars, trucks, affordable cars, and SUV’s. GM has been the most dominant car manufacturer for 70 years, and is now only second to Toyota (NyTimes. com, 2008). By using their brand as a core competency, GM is able to grow in new markets with more ease than other firms. GM has been growing immensely in the Asian market, where sales have climbed over four percent in just two years (SP, 2008). If GM uses their pre-established personality as a powerhouse, they could continue to establish their brand name globally, which could lead to a competitive advantage in new markets, such as Asia. Innovation is another strength that GM possesses. For the past decade, GM has been at the forefront of innovation and design (GM. com, 2008). One such innovation is the Opel Flextreme concept, which uses a combination of an electric and diesel engine, which emits very little emissions. GM is a large company that has used innovation in order to progress them into the future. They are constantly looking into new innovations such as cutting emissions, decreasing costs, and increasing safety, which distinguishes them competitively. Their innovation in Information Technologies enables them to work with their suppliers better (Eweek. com, 2008). GM chose in 2006 to outsource its entire IT department. They have used multiple outsourced companies, which has allowed for lower costs and increased productivity. As stated by the CIO, Ralph Szygenda, the suppliers work so well with GM that many Fortune 20 companies have come to GM in order to learn how to establish such a strong and efficient relationship with their own suppliers. In summary, as we have already discussed, GM has been in operation for almost 100 years, which provides them with the intangible resource of reputation and the tangible resource of capital. GM’s reputation will be difficult for new competitors to imitate because consumers tend to place more trust in an organization that has been in existence for a long time. Also, despite GM’s tragic losses, they still possess a significant amount of capital that allows them to pursue innovation, which we determined to be one of their strengths. However, to the contrary, their brand name could easily become permanently marred to some consumers if GM does not begin to turn around some of their weaknesses’, which will be overviewed next. General Motor’s Internal Weaknesses’ The external environmental analysis revealed that the auto industry as a whole has been struggling. However, General Motors at times seems to be the front runner in the headlines for financial losses, poor consumer ratings, high pension costs, large production levels, and bad decision making. Their poor condition is also indicated by a low stock price of $10. 3 per share, which is down $27. 33 per share in the second quarter. Therefore, GM has several weaknesses’ that need change. First, GM consists of eight different brand names, which some consider too many and causes GM to lack core competencies. But, many individuals are unaware of how expensive it can be to get rid of a brand name. For example, when GM decided to end the Old smobile brand in 2000, it cost a total of $3 billion to buy out dealers, close plants, and litigation fees due to suits from Oldsmobile dealers (WSJ. com, July 2008). So, GM’s CEO, Rick Wagoner is hesitant to end any of the brand names due to large financial losses they would experience, even though several of the brands lose money annually (WSJ. com, July 2008). We think that GM should consider the positive long-term effect of eliminating at least one more brand that loses the most money in order to scale down their focus. A second weakness is seen in the consumer reports and their perception of certain brands. The top categories were safety and quality, which brand names such as Toyota, Volvo, Honda, and Lexus ranked the highest in consumer perception (ConsumerReports. rg, Jan. 2008). Therefore, they need to do more than just match their competitors in areas such as safety and quality, but instead pursue innovation in order to provide consumers with a unique option that would persuade them to consider GM. The rising costs and retiree buyout packages are also taking its toll on the company. According to Yahoo Finance, GM took $9. 1 billion one-time charges, including $3. 3 billion for the buyouts of 19,000 U. S. hourly employees. Other retirement and buyouts are expected because GM has announced a 300,000 vehicle production cut. Also, more one-time cost cuts are expected, as cash and car incentives are currently being offered to GM employees. For example, GM workers with less than three years on the assembly line are eligible for a $37,500 cash buyout and a $35,000 car voucher. Trades with less than three years on the job are eligible for $45,000 cash buyout and a $35,000 car voucher. Long-term assembly-line workers who are close to retirement are eligible for $100,000 in cash and trades are eligible for $120,000. Also, both buyout packages come with $35,000 car vouchers (News Durham Region). Eventually, these costs will be eliminate, which will help GM but for now it is definitely considered a weakness. It has been reported that â€Å"new workers at GM will, earn a total of $25. 65 an hour in wages and benefits, as opposed to $73 an hour in total compensation to current workers†, in an agreement with the United Auto Workers (WSJ New Durham Region). Another problem GM faces is the fact that they are over stocked due to high levels of production. Because of this many of GM’s automobiles sit on lots depreciating in value (Evolvingexcellence. com). GM does produce close to the same number of automobiles as Toyota with roughly the same rate of efficiency per car. They also produce each car at only six minutes slower then Toyota (Evolvingexcellence. com). So, GM is right up with the top producers at manufacturing their automobiles, but they need to work on gaining their market share back before they can continue to operate at such high levels of production. The final weakness to discuss is interrelated with an opportunity for GM, which is their new electric car that has not hit the market yet, called the Chevy Volt. The opportunity lies in the fact that GM will potentially introduce the first mass-produced commercially sold electric car powered by a lithium ion battery with only assistance from a small gasoline powered engine (gm. com, 2008). GM is working hard to release the Volt by the middle of 2010 in an attempt to have the first plug-in electric car to hit the market as a mass-produced vehicle. The Volt makes many enticing claims such as getting 50 mpg when the car needs to make use of the gasoline in order to recharge the battery for longer distance traveling. GM and even politicians such as, Sen. John McCain are endorsing and depending on the Chevy Volt to save the United States from such a strong dependence on foreign oil supply (Hybridcars. com, July 2008). However, a rather large downside to the Volt is the expensive price tag, which is estimated to be anywhere from $35,000 to $48,000. Many analysts feel that this will not go over well with the general public because it is a lot of money to invest in an extremely innovative car. Also, GM openly recognizes that their typical business process of designing and testing a new vehicle to put on the market has been rushed in order to release the Volt by 2010. Therefore, the costs were underestimated and GM will more than likely not see a profit on the already pricy Volt unless economies of scale occurs due to the hopes of an accurate forecast of the Volt being a hit in the market (Atlantic. com, July 2008). GM is definitely taking a lot of risk by pushing such an innovative car into the market that could come back with a lot of recalls, poor results on reliability, and worst of all, severely damage the reputation of GM. Overall, time will tell if the risky release of the Chevy Volt will become a success or a failure for GM. Now we will move on in our analysis to discuss the opportunities that are available for GM. Opportunities for General Motors The first opportunity we see for GM is their innovation of smart materials. GM has decided to make vehicles more efficient in there performance by adding different features to their structures. GM has come up with a shape memory activated system that has on-demand control of the airflow into the engine compartment. This results in improved aerodynamics, drag reduction, and rapid warm-up during cold starts. Another material that they are researching is the grab handle that uses shape memory to move into position. This basically allows the material to change its shape, strength, and/or stiffness when heat, stress, a magnetic field or electrical voltages are introduced. This causes the material to remember its original shape and transform back to it, which opens possibilities for movable vehicle features (www. gm. com). GM’s executive director of Research and Development, Alan Taub, also hinted at the possibility of vehicles that can self-heal in the event of damage, or could be designed to change color or appearance at the touch of a button. Therefore, if they continue to perform research in smart materials they could be prepared to enter the market at the right time with this product and gain a competitive edge. Another opportunity for GM is their research in trying to develop technology that would resolve many consumer desires and transportation challenges. Technologies ranging from electronics, controls and software to wireless capabilities and digital mapping could ultimately change how people drive and use their vehicles, said Larry Burns, GM vice president of RD and Strategic Planning. Basically, GM is trying to accommodate consumers by developing a driverless vehicle that would essentially chauffer them safely to their destination. GM has partnered with Carnegie Mellon University to house the Collaborative Research Lab (CRL). The lab will operate as an extension of GMs Global Research Development network. GM has a large Research and Development team, which gives them the opportunity to focus and improve their future ideas. GM has begun to create innovative vehicles such as, more fuel- efficient gasoline engines, bio-fuels, and hybrids. Some of the concept cars are the Precept, which is a diesel hybrid that can get up to 80 mpg, the Autonomy which is a hy-wire and sequel fuel cell wire vehicle, and the Volt which was mentioned earlier and it has a flexible electricity drive system that allows the vehicle to run on electricity, E85, bio-diesel, or gasoline (Burns). As we discussed earlier, GM is betting on the Volt to strengthen its position in alternative fuel vehicles. They also have considered the Volt to be an extended range electric vehicle rather than a hybrid because of its all electric motor that powers the vehicle at all times. Even if successful GM will still not likely to be the only automaker with an electric vehicle in their line-up (S). Reader response has clearly been quite negative in reaction towards the high cost of the Volt. Another response is that GM is good at producing hype, and yet has failed to follow through before. So, GM will have to triumph over its negative images and development a vehicle that will increase image perception, produce profit, and meet consumer needs and wants. Finally, in 2003, GM partnered with Shell Hydrogen, a division of Shell Oil to develop a real life show of hydrogen fuel cells and fueling infrastructure technology in the D. C. area. The show featured the nation’s first hydrogen pump at a Shell retail gas station to support a GM fleet of fuel cell vehicles (api. org). This is an opportunity for the future because it gives GM the ability to obtain a competitive advantage despite the rising oil prices. However, it is important to have good timing when entering the market with a new product or service. If consumers are not ready to switch to hydrogen fuel cell vehicles, then it would be a mistake to introduce them to soon. Finally, we will analyze the external threats that General Motors faces as an automaker. Threats for General Motors There are several threats in the external environment that General Motors should be aware of. The current costs for a consumer to own and maintain an automobile are steadily increasing. Therefore, alternative sources of travel are beginning to be taken more seriously and could eventually become strong substitutes that would threaten all automakers in the U. S. The amount of public transit riders has been increasing, which is due to their cost savings. The â€Å"Monthly Transit Savings Report†from the American Public Transportation Association, reported that a person can save an average of $672 dollars per month based on today’s gas price of $3. 909 (Masstransitmag. com). The amount of money a consumer saves increases even more when they are a resident in a large city. Below, are the top three cities where individuals have the highest savings through using public transportation. For perspective, we have also listed the savings for the city of Cleveland (Masstransitmag. com). Rank |City |Monthly Savings |Annual Savings | |1 |Honolulu |$725 |$8,703 | |2 |San Francisco |$722 |$8,667 | |3 |Las Vegas |$703 |$8,441 | |15 |Cleveland |$672 |$8,509 | The variable portion of the cost listed includes the cost of gas, maintenance and tires. The fixed portion of the cost includes insurance, license registration, depreciation and finance charges (Masstransitmag. com). The comparison also uses the average mileage of a mid-size vehicle at 23. 4 miles per gallon and today’s price for self-serve regular unleaded gasoline at $3. 909 per gallon. The analysis also assumes that a person will drive an average of 15,000 miles per year (Masstransitmag. com). Consumers have many different lifestyles and transportation needs, but if mass transit was made more accessible then this substitute could become very enticing for consumers due to the financial savings. Therefore, public mass transit is a threat that General Motors must plan for and carefully watch. Another threat to General Motors is the motorcycle industry, which is also benefiting from the current price of gas just like the mass transit sector. According to the Department of Motor Vehicles, the number of motorcycle registrations in Virginia alone has jumped from 59,925 in 1994 to 151,914 in 2006 (WTOP News). Also, scooters have been becoming more popular due to their high gas mileage, which could affect automobile sales. Though scooters cannot be operated on the highway, they are great for local commuters and for those who live in a city. They can also be driven fairly long distances and some models are capable of achieving upwards of 100 miles per gallon. The final threat that will be covered is more of a future threat but nonetheless it should be considered. Recently, there has been an effort put forth to start making cities that are more economical for walking and bike riding (City of Golden, 2008). In Golden, Colorado a plan is being put into action by seeking to create an infrastructure for the city that is built around walking. The city is working together on the Capital Improvement Plan (2009-2018), by discussing affective ways to set up their city (City of Golden, 2008). This movement for an eco-compact city is also being seen globally throughout many countries in Europe. Also, 88 communities will enter into a competition to see which one can develop the most economically compact city. The city will consist of all of the things regular cities have but they will create it in an efficient way with a system of public transportation including a tramway and a metro (A Vision of Europe, 2008). These different options of travel will be a great way to reduce pollution, use less fuel, and consumers will save money. However, if the different trends such as public transportation and walking begin to significantly catch on, then General Motors could be impacted negatively (A Vision of Europe, 2008). Therefore, we think that General Motors should continue on the path of developing fuel efficient vehicles and seek to create an attractive product to deter consumers from eliminating their use of personal vehicles. Overall, GM does exhibit some resources and capabilities that could develop core competencies for the firm. But, management must be able to bundle these resources and utilize them in order to create a sustainable competitive advantage. GM has a lot of issues to address and monitor in order to build back up their reputation and trust among the consumers. In the following section we will discuss their main problem, possible alternatives, our recommendation, and implementation plan for GM. Strategic Alternatives As we just discussed, GM does possess several strengths such as their brand name, frontrunners in innovation, efficient production processes, and good relationships with their suppliers. However, their internal weaknesses are overpowering and management must develop strategic alternatives in order to solve these problems and increase their market share. As a result of our analysis, we strongly believe that the source of GM’s problems is that consumers have a very negative perception of the company as a whole. This topic was discussed in detail earlier, but many consumers view GM’s quality, safety, and design of vehicles to be poor and their tragic financial condition has consistently been in the headlines, which only adds to the negative perception. Therefore, we will now propose our alternatives to solve several of GM’s evident problems that stem from a poor brand reputation. The first alternative for GM is to clearly state whether they are seeking to be a cost or differentiated leader in the industry. Through our analysis, we have decided that GM is leaning towards being a differentiated leader, especially with the upcoming release of the Chevy Volt in 2010. However, over that past few years GM has been viewed as boring with minimal changes to their vehicle designs and features. We think that an alternative would be for GM to create a strong position as a differentiated leader in order to help re-distinguish their name by creating value for specific target customer groups. Successful innovation that meets the unique needs of their customers could be the key for revamping their image and gaining back market share. As we mentioned earlier, the Chevy Volt is an electric car that will possibly be the first of its kind to be mass produced. This is definitely a product that will differentiate GM from its competitors, but there are several weaknesses’ that must be overcome before its release. To review, there is currently an estimated sticker price that could climb as high as $43,000 due to the advanced technology of the Volt. It has already been rumored that GM will still experience a loss, even though the price of the Volt is very high. Therefore, in order for GM to become successful as a differentiated leader with the Volt, they should consider lowering the price. The goal would not be to achieve cost leadership, but the current estimate for the Volt has too high of a premium and the consumer would probably consider the investment to be too risky. In turn, GM would experience even larger financial losses, due to the altogether failure of the Volt and their reputation could potentially be destroyed and very difficult to repair. Therefore, since it is too late to turn back, it might be in GM’s best interest to risk taking an even larger lost in an attempt to market the Volt successfully and then eventually the cost per car would drop due to economies of scale. Then GM would be known for their success in producing the first stylish electric car to be put out on the market and they could potentially turn a profit and sustain a competitive advantage. This could then lead to developing a product line of electric cars for GM to sell. GM also has future opportunities as a successful differentiated leader through their innovation in smart materials and the hydrogen fuel cell vehicles, which were explained within our SWOT analysis. These are products that could further their differentiated leadership because they are unique, innovative, and an advancement in technology. These areas would both need continued research and development along with determining when the market would be ready for such extreme advancements. Therefore, the alternative as a whole would be for GM to turn around the boring perception consumers have of their vehicles and instead promote product development through innovation and technology advancement. The second alternative for GM would be to downscope some of their brand names. As we mentioned earlier in our analysis, GM consists of eight different brand names. We think that this is harmful to their profitability because they lack focused strategies and are instead seeking to reach every consumer in the market. Instead we think GM should reestablish target customers and devote all of their efforts into meeting their needs and desires. Currently, GM has several similar styled vehicles with simply a different name badge, which does not impress or attract consumers. Therefore, this strategy would involve divesting themselves from some of their brand names in order to become more focused, which would involve the risk of loosing more money. The cost to eliminate a brand name is very expensive, but if GM wants to change their image and perception they are oing to have to take a few risks. The process will be slow because it would probably not be wise to eliminate several brand names at once. The GMC line has been losing sales due to the similar models made under Chevrolet, wh ich tend to be lower in price (gm. com, 2008). Therefore, in this alternative we suggest eliminating the GMC line first. In turn, the hope would be for GM to become more focused on existing vehicles that are selling well and be able to clearly determine their target customer groups and meet their needs successfully. Evaluation of Alternatives Evaluation Criteria To successfully assess the three alternatives that we have determined for GM, there must be an established set of criteria to compare each one to. Therefore, each alternative will be evaluated by the ease of its implementation, the overall cost of the alternative, and the short-term and long-term affects of implementing each of the alternatives into GM’s strategic plans. Evaluation method We will perform a pro’s versus con’s analysis of the by examining the criteria against the alternatives. Presentation and Discussion of Results The first alternative was for GM to seek product development and to become a strong differentiated leader in the industry in order to restore their perception with consumers. This alternative would be a long process and would not solve problems overnight. GM would need to determine their target customers and begin extensive research and product development revolving around those customer’s unique needs in quality, safety, innovation, fuel efficiency, and design. The upcoming release of the Chevy Volt will also require developing marketing plans that will reach their targeted customers for this product in order to start off their differentiated strategy well. Recent surveys revealed that consumers still place a priority on status and prestige when purchasing a vehicle whether they want to admit it or not. Therefore, the Volt should be advertised in a way to show off its unique design, new technology, and stress that the consumer would be viewed as wise in making this investment. This leads to our second piece of criteria, which was the overall cost of the alternative. The costs would be very high for this alternative. First, their would be a lot of labor involved with the research and development processes and marketing costs would be very expensive since GM would be seeking to make a huge statement in an attempt to re-establish their reputation. Secondly, GM will incur significant losses on the Volt until it is becomes highly desirable, due to the high costs it takes to produce the vehicle. Our final piece of criteria for this alternative is to examine the short and long-term effects of implementing this strategy. Obviously the short-term effects will be very risky for GM because the costs could become too high for them to afford. However, if they are able to make it through and successfully differentiate their company through innovation, this will be a competitive advantage that will be sustainable for a longer period of time and also solve their main problem of negative consumer perception. The other alternative is for GM to downscope their product lines and potentially begin this process with the GMC line. The implementation of this alternative would be difficult, which is mostly due to the high costs that are associated with eliminating a brand name. As we mentioned in the SWOT analysis, it cost GM $3 billion to end the Oldsmobile brand in 2000. Therefore, the concern is if GM would be able to take another high loss when they are already in a financial struggle with decreasing stock prices. The short-term cost affects of this alternative could be devastating due to their current position. However, GM should eventually decrease the number of brands they offer, but it is probably too risky to take this approach in the short-term. Eliminating a brand right now may only worsen consumer perception because GM hasn’t made a comeback yet in sales or development. Therefore, in the long-run this alternative is probably necessary, but it might need to be delayed until GM can gain market share through alternatives that will generate sales and add value to their customers Recommendations The alternative that we feel is the best solution for GM’s main problem of negative consumer perception is to become a differentiated leader in the automotive industry. We feel that this is the only way that they will be able to sustain a competitive advantage, gain market share, and turn around the company. Innovation is critical in gaining a competitive edge within the automotive industry. Therefore, GM should focus their strategies on successfully marketing the Chevy Volt and transforming some of their current product lines with innovation and technology that meets the needs of their target customer groups. In the short-term, this recommendation appears risky due to the high costs of producing the Volt, however we feel that this is the best strategy for them to pursue because it is geared towards producing sales, creating a competitive advantage, and establishing a focus for GM. Therefore, if GM is going to risk taking on more losses it should at least be in an attempt to reestablish their name and sustain a competitive advantage. This is why we do not think that GM should be focused on eliminating any of their brand names in the immediate future. We think that GM should eliminate several brands in the distant future as a long-term plan after they are more financially stable, but currently we do not think that this would solve their main issue of having a negative consumer perception. It may only make consumers perception of GM worse by putting their name in the headlines again and the high costs to eliminate a brand could very well be too difficult for them to handle, especially when they are anticipating initial losses from the Volt. Therefore, GM needs to achieve more than simply matching their competitors in areas such as quality, safety, and design, but instead they should pursue innovation in order to provide consumers with a unique option that would persuade them to reconsider GM as a reputable company. Implementation Plan In order for the recommendation to be implemented successfully, changes in their business strategies should occur immediately. GM should begin a marketing campaign that addresses their problem of a negative perception with consumers. They should market their strength with their OnStar program to promote vehicle safety, market their hybrid vehicles, and begin an intense marketing campaign for the Chevy Volt by focusing on its innovation, unique design, and its prestige. There is a threat of other competitors beating them to the market with innovative products. Therefore, it is very important that GM begins a marketing campaign that focuses on their differentiated strategy immediately. We also, feel that they shouldn’t necessarily stop producing some of their well-known trucks and cars, but instead continue pursuing the development of more fuel efficient vehicles that meet the CAFE standards, have unique design, and innovative technology such as the smart materials that were discussed earlier. If GM can successfully market the Volt, withstand its initial costs, and continue developing innovative vehicles ahead of their competitors, then they could potentially restore their brand perception and sustain a competitive advantage within the automotive industry.
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