Contents

Introduction

This report will carry out an analysis of General Motors with reference to its current
strategy. In order to do so the author will use a series of frameworks in the report.
Porter’s five force theory and PEST analysis will be used to conduct an external
analysis while the financial position, culture and structure will be used to conduct an
internal analysis.
In the latter part of the report a SWOT analysis will be conducted to assess the
strengths, weaknesses, opportunities and threats faced by GM. This report will also
analyse the possible choices of strategies GM had and will look into the
implementation issues GM would face following its decision to withdraw from the
European market and the subsequent reversal of that decision.

Background of General Motors

General Motors was founded in 1908 as a holding company of Buick, and was
controlled by William Durant. He then purchased Cadillac, Oldsmobile and several
other companies in 1909. Having lost control over GM in 1910 he then went on to
start Chevrolet, through which he secretly gained control over GM once again, only
to lose it shortly after.
GM went on to become very successful during the post war era, and continued to
dominate the automobile industry. For most of the 20 th century it held the title of the
largest automaker, until it was recently surpassed by Toyota (company info).
Task A

Q1
Internal Analysis

Structure
General Motors operates a multi-divisional structure. This model consists of
independent divisions, each representing a separate profit centre. In the case of GM,
these divisions consist of different automakers such as Cadillac, Chevrolet, Pontiac,
Buick etc. Each automaker is operated separately and has its own hierarchy. In
simpler terms each of these brands are semi-independent products whose corporate
strategy is overseen by the headquarters. The competition between these divisions
and the lack of centralization has proved to be very costly to GM over the years
(Michelle Powers 2009).

Organizational Culture
General Motors operates a strict bureaucratic culture (New York Times). The top
management makes all the decisions with little involvement from the lower level
employees. This would have lead to the dissatisfaction of employees (Schein E.
1997)
Also it can be seen that GM lifers dominate the top management. Out of 12
executives 9 of them have been with organization for more than 20 years (GM
culture).
GM’s employees cover almost 6 continents, 192 countries and 23 time zones.
Therefore as of recently GM had made it a priority to build a culture and business
environment based on the inclusion, mutual respect, responsibility and
understanding of their employees. To initiate this mission GM has introduced a
company-wide programme called “I am GM”, which would highlight the value of each
employee (GM website).
Core competence
Innovation is without a doubt a core competence of General Motors. GM has been
using innovation in service and technology since as early as 1908. In 1911 it came
up with a self starter engine which revolutionized the automotive industry.
In 1996 GM introduced a satellite system called OnStar, which could track vehicles if
stolen. It also enables users to communicate with OnStar personnel. It now has over
2.5 million subscribers.
GM has also come up with night vision on Cadillac’s five years ago and it has a high
demand even today.
As of recently GM is investing on more eco-friendly vehicles such as the Chevrolet
Cruze, and hybrid vehicles such as Chevrolet Volt. GM is also looking at pioneering
fuel efficient vehicles (GM core competence).

Financial position
By analysing the financial statements of GM (appendix 2) it can be seen that the
revenue of GM has been decreasing since 2006. Also the net loss before tax has
increased by a significant amount as well. The profit margin has also been
decreasing since the last couple of years.
GM seems to have a very high gearing. Liabilities were amounting nearly twice the
amount of shareholders funds.
The total assets of GM also shows a huge decrease. The assets have decreased by
almost one third the amount in the previous year.
GM was performing well in the stock market in the previous decade until the early
2000’s when the American government increased the interest rate, causing a blow to
the share prices. The September 11, 2001 attack on the World Trade Centre also
contributed to this decrease in share price, which has been on a decline since then
for the past 7 years.

Value chain
External analysis

PEST analysis

Political
The economic downturn has caused governments to increase regulations and tighter
policies. Most of these regulations are the result of increasing concerns for the
environment and safety standards. Also the US Government recently bailed out
General Motors by purchasing a 60% stake. Although the Government will not take
any part in the management, GM would still have to report back to its largest
shareholder.

Economic
Due to the recent economic recession the value of money has decreased,
consequently reducing the spending power of consumers. Therefore a decrease in
demand for high value products such as vehicles can be seen. Also due to the credit
crisis the American financial system was frozen (CNN), resulting in banks freezing all
money lending facilities regardless of the credit ratings. Therefore potential
customers will find it hard to get loans to purchase vehicles.

Socio-cultural
The modern society judges people by the vehicle they drive. Driving an expensive
new car is an indication of wealth and social status. Therefore manufacturers tend to
make use of this social perception and take advantage by catering and marketing to
different social classes or different income level groups.
Also, since recently more consumers are concerned about the environment and the
concept “going green”. This has paved way to a new emerging market, where
manufacturers concentrate on producing environmental friendly vehicles such as
hybrid vehicles.

Technological

The introduction of internet has affected the industry in a positive way. More
consumers prefer looking for vehicles over the internet before purchasing. Also the
internet proves to be a very effective marketing scheme.
A sharp increase in demand for hybrid vehicles can be seen. These technologically
advanced vehicles which run on electricity of other forms of eco-friendly gases are
preferred by more consumers.
Porters five force theory
Q2

SWOT Analysis

In order to assess the strengths, weaknesses, threats and opportunities GM faces a

SWOT analysis has been conducted.
“A SWOT analysis summarises the key issues from the business environment and
the strategic capability...” (text book page 102).

Strengths

Although GM has lost most of its market share recently, it remains to be one of their
main strengths. They are still very competitive with about 20% market share in the
USA. Also GM has a growing market in China, making it the second biggest
automaker in China (NY times).
The OnStar satellite technology which comes standard in all GM vehicles is another
advantage GM has. This technology enables easy tracking of the vehicle in case it is
stolen.
In production GM has economies of scale, making it possible to produce at a lower
cost than competitors. Their global network of suppliers is another added advantage
over their competitors.

Weaknesses

The bureaucratic organizational structure is GM’s main weakness. The structure is

vertically integrated causing lack of communication and slow feedback between the
top management and employees.
GM has always been a step behind competitors when it comes to alternative fuel
vehicles. With the trend now moving towards hybrid and eco-friendly vehicles, GM is
yet to come up with a competitive vehicle. Furthermore in a time of high oil prices
most consumers prefer Japanese and Korean fuel efficient vehicles to GM’s gas
guzzling trucks and SUV’s. Also the constant labour union problems and high
healthcare expenditure proves to be another weakness of GM (healthcare).
Opportunities

As mentioned earlier, there is an increased demand for low cost, fuel efficient
vehicles which are eco-friendly. This creates an opportunity for GM to enter a new
and growing segment of the market. GM has already made plans to unveil its first
hybrid vehicle, Chevy Volt, and have unveiled the US version of the fuel efficient
sedan, the 2011 Chevrolet Cruze (GM website).
Recently GM was able to increase their market share in China, enabling them to
become the second biggest automaker (NY times). This shows the potential for
investing in growing markets.
At present, many potential consumers are more interested in the attractiveness and
features on the vehicle. This taste in vehicles tends to change very frequently. By
knowing what consumers want and producing accordingly, GM has a chance of
regaining most of its lost glory.

Threats

A major threat facing GM is the rising fuel prices. Since most of GM’s vehicles are
not fuel efficient, they tend to lose demand at times like these. The increasing
healthcare expenditure can also be categorized as a threat. GM is responsible for
providing healthcare insurance for more people than any other company in the USA.
Therefore this raising expense is a burden to compete with other rivals (Washington
Post).

The past decade saw Toyota claim the title of the largest automaker overtaking GM.
This growth of competitors is also a major threat to GM. They also face stiff
competition from Ford, and other Japanese and Korean companies.
Strategic issues faced by General Motors

One of the main strategic issues faced by General Motors is their bureaucratic
structure (bureaucracy 2). This was one of the reasons for the mismanagement
which led to their downfall. Due to the vertical integration communication is a big
mess, causing delays.
GM also has its hands full with labour union problems. The United Automobile
Workers Union is partly to blame for GM’s downfall. If not for the Union GM would
probably have a less cost per unit, similar to Japanese companies. Furthermore the
high cost of pension and healthcare is due to the Union’s involvement (labour union).
The weak financial position GM finds itself is another major strategic issue. As
mentioned earlier in the financial analysis, GM has a high gearing ratio. This
situation is magnified further by the pension obligations amounting to $16 billion
(labour union).
Q3

General Motors had a number of options to choose from to rebuild its lost glory. In
order to evaluate the potentially suitable options that were available, the Ansoff
Matrix framework can be used ( Richard lynch). The Ansoff Matrix (Appendix 3)
examines the several options that were available to General Motors.

Market Penetration

One of the potentially available choices as identified by the Ansoff Matrix is the
market penetration strategy. This involves increasing the existing market share in the
current market to achieve higher growth (Phil stone- eBook). GM would be able to
attract more customers by making improvements in existing vehicles and selling at
competitive prices. Further enhancements on vehicles such as fuel efficient engines,
and the latest in satellite navigation technology would be highly in demand by
potential customers. Furthermore GM could use this strategy to retain existing
customers as it is much cheaper. As mentioned by Lynch R. (2003) companies like
Toyota and BMW make great efforts to retain existing customers when they change
cars.
This strategy also considers Withdrawal in order to downsize the company thereby
increasing the competitive advantage. This was the option GM has chosen. GM has
recently announced plans to phase out the Pontiac brand by the end of 2010. The
decision of eliminating the Pontiac brand was made so that GM will be able to
concentrate better on its main brands Chevrolet, Cadillac, Buick and GMC (market
penetration). GM has also unveiled plans of more job cuts by the end of 2014
proving their intention of downsizing further.

Market development

Another option as identified in the Ansoff Matrix is the Market development strategy.
This strategy considers marketing existing products into new markets (Phil Stone).
This has proved to be a successful strategy in the past. GM had invested in China a
few years back, and it is now the second largest automaker in China. This shows the
potential of investing in a new market (opportunity China).
This strategy also involves re-evaluating the market, and positioning themselves
better. The approach GM is following at the moment seems to be failing miserably.
The target market has changed its attitude towards GM recently. They no longer look
at GM as a manufacturer of Traditional American vehicles. Therefore it is essential
that GM select a specific target audience to whom they could cater to more
effectively. For example GM might want to target the senior population, who still look
for that traditional look in a vehicle for their vintage muscle vehicles, and the young
generation for the more attractive sports vehicles.
Product Development

Product development is another possible option identified in the Ansoff Matrix. This
strategy considers significant new product development in an existing market (Phil
stone). This is a fairly suitable option for GM to regain its lost glory if they could come
up with a new product. Since the majority of potential customers are more interested
in hybrid and other eco-friendly vehicles, quite a lot of vehicle manufacturing giants
have invested heavily in the production of alternative fuel vehicles. This would
ideally set the stage for GM to manufacture a hybrid model and capture the market
before competitors.
This strategy would also enable GM to consider other needs of potential customers
and come up with a completely unique product that would stand out from
competitors. This is exactly what GM would want in a position they are in now, a
product that would be more appealing than other competitors.

Diversification

The final choice of available options the Ansoff Matrix identifies is Diversification.
This involves moving away from the current products and markets, and entering new
areas. This would involve a higher degree of risk, but if done properly, would
generate higher benefits (lynch)
Under this strategy GM would have two choices. Either move into related markets, or
into unrelated markets. By moving into related markets, GM would be manufacturing
products which is related to vehicles. Possible goods and services GM could
diversify into are forward integrated, such as distribution and transport. By
eliminating the middlemen in between distributing and selling, GM might be able to
increase their already thin profit margins. GM could also diversify into unrelated
markets where there is no relation with the core business. GM currently operates an
effective financial service providing loan facilities to customers. GM could also make
partnerships with other companies outside the automobile industry in a similar way to
Italian automobile maker Lamborghini who made a deal with computer giants ASUS
to design laptops (lambo laptops).

Recommendation

Out of the above strategies the most suitable, feasible and acceptable would be
product development. This is because, as mentioned earlier GM has an opportunity
to come up with a hybrid vehicle before competitors. Since GM has the necessary
technological capacity to make that happen, it is only logical to go for it.
Q4

General Motors are likely to come across several implementation issues following its
decision to withdraw from its European operations and the subsequent reversal of
that decision. The Mandelow Matrix can be used to identify some of these issues
relating to GM’s key stakeholders.
The Mendelow Matrix, also known as the Power/ Interest matrix (appendix 3)
classifies stakeholders in relation to the power they hold, and the level of interest
they would show in supporting or opposing a particular decision (text book, 6 th
edition).
GM would probably not encounter any serious issues from stakeholders in segments
A, B and C as shown in Appendix 3. The only segment GM would want to pay close
attention to is segment D, to which the most powerful stakeholders such as the
Labour Union, Governments, and Equity holders belong to.
A major issue that GM faces during the implementation is the strict opposition by the
United States government and the General Motors workers on the decision to sell off
its European operations to Magna. The reason for this opposition is because the
partner of Magna is a Russian auto manufacturer, and selling an American icon such
as GM to a Russian controlling party is not something the stakeholders would want
to see happen. Therefore key Stakeholders in the likes of the US government and
GM employees have made their intentions clear by not supporting this decision
(issue 2).
One of the main implementation issues GM has come across following their decision
to re-structure the German subsidiary Opel themselves rather than selling it off, is
the stiff opposition from the German politicians, employee unions and German
citizens. The German government actually backed GM in their bid to sell off Opel,
and now this sudden turn in events has angered many German key stakeholders. A
majority of Opel workers were seen protesting against this decision by GM in
Ruesselsheim, Germany, the future home of GM Europe. This anger towards GM is
mainly due to the inevitable layoffs when downsizing Opel. This is a major issue, and
if GM is to be successful once again, this matter will have to be sorted out very soon
in the near future (issue 1).
Another key implementation issue that GM has to deal with because of their decision
to sell off their European arm Opel, and the reversal of that decision is the problems
caused by trade unions. GM was already facing enough problems from the Unions,
due to their plans of re-structuring, predicting inevitable job losses. It is purely
because of this that German government has pledged billions of euros to Magna in
return for protecting the jobs at Opel factories. The reversal of this decision has only
managed to fuel the anger of the labour Unions further. It is estimated that the
factories in Europe run at a 30% over capacity, and therefore job cuts will be
inevitable. Labour Unions have already given warnings about labour strikes in the
future if a reasonable conclusion is not drawn. Therefore GM will have to come up
with a solution in the near future, or else their success in Europe will be in jeopardy
(issue 3).