Introduction

This paper seeks to assess the strategic position of General Motors in the US market

as at 2006 and to identify the key success factors that can be seen to be important in

this industry at the end of 2005.

The paper further seeks to consider the strategic logic of Renault-Nissan’s offer for an

alliance with General Motors and concludes by arguing why, in the author’s view, the

alliance should not go ahead.

The author proposes to do this with the use of appropriate tools and frameworks for

analysis.

Strategic Position

1. SWOT Analysis:

The author commenced with the use of a SWOT analysis (refer to Appendix 1) and

endeavours to highlight the salient features therein.

It is noted that despite losing market share over the years, (49.5% in 1955 and 26% in

2006); General Motors are still the biggest car producer and retailer in the US. The

biggest factor contributing to this is negative consumer perception; their cars are

perceived as unreliable despite efforts to improve them coupled with good reviews;

foreign cars are perceived to be more reliable. It has many brands which can ideally

satisfy different market segments but the brands could also be seen to be too diverse

for the size and location of market they have. Unfortunately their market is

geographically unbalanced being mainly concentrated in the Midwest.

The other major obstacle they face is the huge legacy costs in terms of retiree

healthcare and benefits, these were arrangements entered into by previous

management which were designed to appease the union in the face of the company’s

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inability to give wage increases. They were an acceptable compromise at the time as

they satisfied the unions’ quest for worker’s security and had no visible impact on the

company’s bottom line at that time. The union is very strong and antagonistic and the

company attempts to perform a very delicate balancing act as the threat of strike

action is very real and potentially damaging. There are other financial arrangements

like JOBS banks where staff who are idle or doing volunteer work are paid and the

Delphi separation agreement which saw General Motors agreeing to be liable to the

post-retirement benefits of the staff of Delphi. Despite the 1999 split between General

Motors and Delphi, they maintained close relations with Delphi being its biggest auto

parts supplier. All these arrangements while being good public relations because they

portray the company as paternalistic and having a ‘human face’ make no business

sense and are a drain on its scarce financial resources.

The fact that General Motors is a global company means that it can spread out its R

and D costs across its overseas operations. Its size ensures that if managed well, it

could benefit from economies of scale; however this has not been the case because of

a lack of trust and cohesiveness between its various units and their heads. This has led

to them failing to utilise potential synergies. This was addressed by General Motors

chairman and CEO, Rick Wagoner, by centralising all product development under the

control of the renowned Bob Lutz in 2005.

The existence of infrastructure and dealer networks is an advantage that General

Motors has. The company was set up to structurally support a 30% market share; as

this is not so their infrastructure and dealer networks are not fully utilised and

therefore cost them money to maintain with no corresponding revenue generation in

respect of the infrastructure, and half empty factories and show rooms are negative

publicity in respect of their dealer networks.

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2. PESTEL Analysis:

The author did a further analysis by looking at external factors by means of the

PESTEL framework (see Appendix 2).

The major issues under the Political heading were seen to be the dealer franchise laws

and the rise in world prices of fuel. The former makes it very difficult for General

Motors to cut out unprofitable brands whilst the latter contributes to the lack of sales

of General Motors cars which are not fuel-efficient. On the Economic front, the

Delphi separation agreement which saw General Motors agreeing to be liable to

Delphi’s post-retirement benefits in the event of Delphi failing to provide them and

the legacy retiree healthcare and pensions were identified. This was coupled with the

poor credit rating of both General Motors and General Motors Accepting Corporation

(GMAC by association with GM) and the strong competition notably from Toyota.

Hostile relations with the trade union and negative market perception was flagged up

yet again under the Social-cultural heading as were product design with more fuel

efficiency under the Technological issues. This will have the dual effect of reducing

customers’ running expenses in light of the world increase in fuel costs already

identified under the Economic sphere as well as cut carbon emissions and be more

‘green’ as identified under the Environmental category. Development of lean

production techniques was further identified under technological factors; these would

assist in their goal of keeping costs down.

Lastly, the ‘Give – back agreement’ between management and the union was

identified under Legal factors. This followed an independent examination of the

company books by a person chosen by the union; it would appear that the results of

this led them to believe that the company was truly in financial dire straits and

management had not been exaggerating. The agreement entailed them ‘giving back’

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some of the retiree health benefits as well as the actives giving up some cost of living

increases in the amount of $15 billion.

3. Product Life Cycle:

(Please see Appendix 3). As products markets develop and grow, they change in

character and their competitive environment changes with them; in short, product

markets have a life cycle, which comprises:

1. Introduction

2. Growth

3. Maturity

4. Decline

This is the common trend although the author acknowledges that not all markets go

through all the stages in that order as some markets go back and forth between the

growth and maturity stages depending on technological improvements.

The author contends that the US automotive market is a market in maturity; this is

because in the author’s view, it has the requisite characteristics: the market is

saturated with American families having 2 or 3 cars each, there is definite over

capacity and less product differentiation. Competitive advantage is the driver for

success in this market.

4. Porter’s 5 Forces of competitive advantage:

Porter, M.E (1979) explains that competition in an industry is rooted in its underlying

economics and competitive forces exist that go well beyond the established

combatants in a particular industry. It is thus the relative strength or weakness of these

forces that shape the competitive environment and determine its’ attractiveness or

profitability. He postulates that there are five of these forces namely industry rivalry,

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supplier power, buyer power, new entrants and threat of subsidies; all these are inter-

linked and a change in one affects all the others.

In the case of General Motors, the state of its’ 5 forces’ analysis clearly shows that it

is in a highly competitive environment because there are major factors affecting it in

each of the 5 forces’ categories (see Appendix 4).

5. Value Chain Analysis:

A value chain is a depiction of what a firm does, how it does it, the resources it uses

and where it adds value. The value chain is designed to show the linkages is the

system and the more fluid the system the less distinctiveness will exist. It is split

between primary activities and support activities. Porter, as quoted in de Wit and

Meyer, (2004, pg. 241) defines primary activities as ‘the activities involved in the

physical creation of the product and its sale and transfer to the buyer as well as its

after sales assistance’.

Support activities are therefore those that as their name implies support the primary

ones e.g. human resources, I.T, procurement etc.

In terms of General Motors primary activities in the value chain, (refer to Appendix

5), it is clear that its inbound logistics have been until recently decentralised under

regional head. Its distribution is spread out across the various dealer networks and

there is a lot of excess infrastructure capacity and lost synergies due to a lack of trust

and cohesiveness within the group. There is no clearly defined marketing and sales

strategy apart from issuing of price incentives.

The support activities do not give the required support; e.g. the infrastructure is under

utilised because it was set up for a bigger market than it is currently servicing. The

labour force is too big, the union too strong and antagonistic and the Human Resource

policy too paternalistic. The product design is wanting and the whole process would

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benefit from the introduction of lean manufacturing techniques to make it more

efficient and cut costs. The fact that it has one major supplier, Delphi renders it

vulnerable in case of supply / logistic problems at Delphi.

6. Mckinsey 7 S Framework

This is another valuable framework for determining where a company is in terms of

its’ strategy and structure.

In their work at McKinsey and co, Waterman et al. came up with a framework dubbed

‘the McKinsey seven S framework, the central idea being that ‘organisational

effectiveness stems from the interaction of several factors – some not especially

obvious and some under analysed’, see Exhibit 4. This was a revolutionary idea and

contrasted greatly with the previous myopic view that concentrated merely on

structure. It looked at the organisation from a holistic view point and recognised that

because the organisation was multi faceted, to be effective, both the understanding of

the issues and the proposed solutions had to be multi faceted.

The salient points on the framework are:

The interconnectedness of the variables show that each aspect affects all the

others therefore when one changes, they all change and:

The shape of the organisation which has no start and end point and no

obvious or implied hierarchy.

1. Structure – how the organisation is set up and how its functions are carried out

2. Strategy – de Wit and Meyer (2004, p.50) define strategy as ‘a course of action for

achieving an organisations purpose’. Thus strategy is about the long term goals

and aspirations of the organisation and the operations of the organisation are

structured to fit this strategy. The organisation must define its service concept and

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make sure that its operating strategy is in line with the service concept; it is the

tool that actually makes the service concept a reality.

3. Systems – Waterman et al. (1980) define systems as ‘all the procedures, formal

and informal that make the organization go, day by day and year by year.

4. Style - or organisational culture is how the organisation does things; every

organisation has its own culture. It is intangible and unwritten but exists

nevertheless.

5. Skills –‘refer to corporate strengths or competencies’ (Little and Marandi, 2003,

p88).

6. Shared values (super ordinate goals) – ‘the overreaching goals, beliefs, and values

of the organisation’, (Little and Marandi, 2003, p88) like the organisational

culture; they too are intangible and unwritten but exist nevertheless.

7. Staff –being the people who work in the organisation and the policies under which

they work. Staff are arguably the most important part of the organisation because

they are the ones actually carrying out the organisations’ strategy and dealing with

the customers; staff are therefore ‘the face’ of the organisation. Their presentation

and their attitudes are therefore the impression the public has of the organisation.

7. Key Success Factors

Mazzucato, M. (2002, pg. 101) defines key success factors as ‘the potential for

competitive advantage within an industry in terms of the factors that determine a

firm’s ability to survive and prosper’. To put it simply, ‘what does a firm need to be

good at in order to survive and be better than the competition?’

In light of what has been discussed earlier, the author has identified General Motors

key success factors as:

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1. Research and Development -product design

2. Efficiency – reducing production costs

3. Marketing

4. Product differentiation

Strategic Logic of Renault – Nissan’s offer of an alliance with General Motors

The author will attempt to analyse the strategic logic of Renault-Nissan’s offer of an

alliance with General Motors by means of the general fit framework developed by

Douma et al (2003) (see Appendix 6).

Douma et al (2003, pg. 581) postulate that ‘alliance success depends on an effective

and efficient alignment (in other words fit) between the partners involved’. They

approach fit from a dynamic as opposed to static perspective and emphasis their view

that strategic fit is an important prerequisite for an alliance to succeed.

In view of that, the author will undertake the analysis based on the Drivers for

strategic fit presented by Douma et al (2003, pg.583). This will be the specific

questions with the necessary answers elaborated, see Appendix 7 for the summary.

Drivers for strategic fit:

1. Do the alliance partners have a shared strategic vision on developments in the

alliance environment?

It is the author’s view that the alliance partners do have a shared vision on

developments in the alliance environment.

Renault – Nissan want to grow in the U.S market because they are doing well in both

the Japanese and European markets. General Motors wants to grow in the US market

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and take back some of its’ historical market share, they are doing well in the overseas

market but are losing market share steadily in the US. The two prospective alliance

partners are both focused on the possibility of growing the US market because it is the

biggest market and if handled well, the proposed alliance would guarantee

dominance.

2. Are the partners’ alliance and corporate strategies compatible?

It is the author’s view that the compatibility of the partners’ alliance and corporate

strategies are limited; while they are both striving for growth and dominance in their

own markets, some differences exist. General Motors is looking for ways to divest

itself of some brands or at least not develop nay new ones while Renault-Nissan on

the other hand is actively planning for new products and new technologies.

3. Is the alliance of strategic importance to all partners?

The author believes that the alliance is of strategic importance to all partners because

of the issues discussed in point1 above i.e. they both want to grow the US market.

4. Are the partners mutually dependant for achieving their objectives

(complementary balance)?

It is the author’s position that in the event of the alliance going ahead, the partners

would be mutually dependant on each other and would have the necessary

complementary balance: General Motors would be bringing to the table their

American heritage and culture, knowledge of the American public and its’ market, the

network of dealerships and other infrastructure it already has in place. Renault-Nissan

on the other hand would be bringing their financial resources, the knowledge and

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experience of their chairman and their lean production techniques to the table with

them. These differing resources and offerings would complement one another.

5. Do the joint activities have added value for the clients and partners?

It is the author’s contention that the joint activities have overall mixed added value for

the clients and partners: For the clients the joint activities will have added value

because the greater competition in the market this will generate will ensure greater

efficiency and better pricing plans and other incentives for the clients. In order to gain

or maintain market share the partners will have to work hard on their competitive

advantage which can only result in added benefits to their clients.

Nissan Renault will not see much value apart from the cash savings on combined

purchases. They are already benefiting from scale economies because of their size and

collaboration. General Motors on the other hand will benefit from an immediate cash

injection and naturally from combined purchases.

The two partners will not enjoy savings from shared components and engineering

platforms in the short term and joint production and factory rationalisation is a long

term savings.

6. Will the alliance be accepted by the market (buyers, competitors, government)?

The author is of the view that the alliance will not be accepted by the market because

the two prospective partners seem to struggling internally within their own ranks:

Renault-Nissan shareholders are sceptical about the wisdom of Carlos Ghosn, their

chairman, taking on more responsibility as he is thinly stretched already. Furthermore,

the French government, who are 15% owners, are also wary as is the union

representing Renault workers because of the alliance’s potential to take away jobs

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from Europe as well as the fact that they feel their internal problems need to be

resolved before new ones are taken on.

General Motors are also split internally with Kirk Kerkorian, an investor who sits on

the board and owns 10% stake in the company calling on the alliance to take place

whilst the union are sceptical and the General Motors board has left it up to the

company’s management.

Conclusion:

Based on the results of the analysis, it is the author’s position that the alliance should

not take place as there is insufficient strategic fit. Whilst alliances can succeed with

out complete initial fit, it is the authors’ contention that in this instance the areas

where there is no fit are too significant to be ignored.

.

WORD COUNT 2, 890 WORDS (EXCLUDING APPENDICES AND

BIBLIOGRAPHY)

Appendix 1:

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SWOT Analysis

Strengths:

1. 26% market share – biggest in the U.S

2. American company3. Has improved quality of cars over

the years4. Has a ‘human face’ and is

paternalistic, it looks after its workers i.e. retiree health benefits/pensions, JOBS banks, Delphi employees etc

5. Has many brands so can satisfy different market segments

6. Global spread means it can spread out its R and D costs

7. Its size ensures it benefits from economies of scale

Weaknesses:

1. Has steadily lost dominance over the years; U.S market share drastically reduced (49.5% in 1955)

2. Public perceives foreign cars as better and are not interested in merely buying American

3. Public has long memories of General Motors cars being unreliable

4. Financial drain on company, not good business sense

5. Brands too diverse for size of market

6. No internal trust or cohesiveness7. Legacy costs – retiree health

benefits / pensions8. U.S market share unevenly

distributed, concentrated in the Midwest

9. Hostile relations with trade union

Opportunities

1. Further improve on quality e.g. reduce fuel consumption

2. Aggressive marketing campaigns to change public perception

3. Proposed merger with Renault – Nissan

4. Possible compromise with trade union

5. Existence of infrastructure and dealer networks

6. It’s financial subsidiary GMAC which is a cash cow

7. Outsource production to Asia / South America

8. Cut annual dividend9. Introduction of Lean production

techniques

Threats

1. Negative publicity affects share price and market perception

2. Bankruptcy3. Selling a share of its cash earner

GMAC4. US market not widespread

enough; concentrated in the Mid-west

5. American market saturated; 2 to 3 cars per family, not necessarily going to consider another car as a priority

6. Strike action - trade union UAW very strong and influential

7. Merger offers few potential benefits for Nissan-Renault

8. Dealer franchise laws9. Takeover – U.S market highly

attractive

Appendix 2:

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PESTEL Analysis

A summary of the findings of the PESTEL analysis are contained in Appendix 2 below, graded 1-3 with 1 being of the highest importance.

PESTEL Analysis Summary

Critical Issues Importance

1. Political Dealer franchise laws which make it difficult to cut brands

Globalisation and free trade World fuel prices

1

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2. Economic Car rental agreements which were reselling the vehicles cheaper than General Motors residual value

Delphi separation agreement which saw General Motors agreeing to be liable to Delphi’s post-retirement benefits in the event of Delphi failing to provide them

Credit rating of both General Motors and G MAC

Legacy costs – retiree healthcare and pensions

US automotive industry in maturity Global car alliances e.g. Renault – Nissan Strength of competition, notably Toyota

2

1

11

231

3. Social-cultural Hostile relations with the trade union Market perception of foreign cars being

more reliable

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4. Technological Product design: - more aesthetic designs - more fuel efficient to reduce customers’ running expenses

Development of lean production techniques

21

1

5. Environmental Product design: more fuel efficient to reduce carbon emissions and be more environmentally friendly

2

6. Legal Dealer franchise laws which make it difficult to cut brands

‘Give – back’ agreement with union to be arbitrated by a judge

WTO agreements

1

1

2

Appendix 3:

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Product Lifecycle

Source: http://en.wikipedia.org

Appendix 4:

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Supplier Power 1. Intimate relationship with Delphi

Potential entrants 1. Product differentiation - low2. High capital requirements / start up costs3. European car makers have historically struggled to succeed in US Market

Buyer Power 1. Low switching costs 2. Saturated market; average families have 2-3 cars each 3. Buyer propensity to substitute – preference for foreign cars 4. Negative market perception of GM cars’ reliability

Threat of substitutes1. Availability of substitutes2. Low switching costs3. Price performance negligible

Industry Rivalry1. Competitors near equal size2. High product homogeneity3. Industry profitability - high

Porter’s 5 Forces of competitive advantage

Source: de Wit and Meyer, (2004), pg. 251

Appendix 6:

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The McKinsey seven S framework

Appendix 7:

16

Douma’s Generic Fit Model

Source: Douma et al (2000) pg. 582

Appendix 8:

Degree of Strategic Fit for General Motors / Renault-Nissan Alliance:

Criteria for strategic fit Limited Mixed Good

1. Shared vision 2. Compatibility 3. Strategic importance 4. Complementary balance 5. Added value 6. Market acceptance

Bibliography

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Connick, A (2007) Notes on McKinsey 7S Framework adapted from MB467 assignment

De Wit, B. and Meyer, R. (2004). Strategy: Process, Content, Context (3rd ed.) North Yorkshire: Thomson Learning

Douma, M., Bilderbeek, J., Idenburg, P.J, and Looise, J.K (2000) Strategic Alliances Managing the Dynamics of Fit, Long Range Planning, Vol. 33, pp 579-598

Fortune (2006) The Tragedy of General Motors, (Issue 3), February 27, pp 30-45.

Taylor, A. (2006) U.S automakers struggle through another summer [online], Fortune, February. Available from

http://money.cnn.com/2006/06/30/news/companies/pluggedin.fortune/index.htm [Accessed 07/07/2006]http://en.wikipedia.org

http://en.wikipedia.org/wiki/Product_Life_Cycle_Management

Johnson, G., Scholes, K., and Whittington, R. (2005) Exploring Corporate Strategy Text and Cases (7th ed.) Harlow: Prentice Hall

Little, E., and Marandi, E. (2003) Relationship Marketing, Derby: Thomson Learning

Mazzucato, M. (2002) Strategy for Business – A Reader, London: Sage PublicationsPorter, M.E (1979) How competitive forces shape strategy, Harvard Business Review (Mar-Apr), pp137-145

Renault Corporate Communications (2006) Renault pursues growth outside Europe in the first half of 2006

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