Management Final Project

7/31/2019 Management Final Project

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MANAGEMENT FINAL PROJECT

GENERAL MOTORS

Background



General Motors Corporation has been in business for 100 years. GM develops,

produces and markets cars, trucks and parts worldwide. GM has produced

nearly 450 million vehicles globally, and operates in virtually every country in

the world. GM also provides automotive financing services through General

Motors Financial Company.

While over the years GM has enjoyed rapidly growing sales and revenues

outside the United States, the US remains GM’s largest single market. But due

to the recent economic downturn, US auto sales across all manufacturers and

specifically as it relates to GM, foreign and domestic have declined by more

than 30% which is the largest decline in 50 years. The Auto industry today

remains one of America’s top employers with 1 out of 10 American individuals

working in the industry and while the drop in auto sales has affected GM’s

bottom-line, it has also affected the livelihood of the people GM employ as

well. These major economic shifts demand a fundamental change in the way

GM does business.

Internal Issues

The recent economic conditions have shown that at GM the status quo is no

longer enough to remain America’s top automobile brand. The recent crisis

has forced GM to look into the future of the automobile industry and

contemplate what place GM will have in the evolving automobile market.

GM’s mission “is to be a multinational corporation engaged in socially

responsible operations worldwide. GM is dedicated to provide products andservices of such quality that our customers will receive superior value while

their employees and business partners will share in the success and the

stockholders will receive a sustained superior return on their investment.”

GM’s vision “is to be the world leader in transportation products and related

services.” “We will earn our customers’ enthusiasm through continuous

improvement driven by integrity, teamwork and innovation of GM people.”

GM’s vision is also a streamlined brand that represents quality and fuel

efficiency through innovative design with utmost respect for quality.

GM must also appeal to the modern day environmentally friendly and

economical American citizen in order to regain the trust and confidence GM

once enjoyed. It is through the rebuilding and strengthening of GM’s core

business that they can successfully expand not only domestically but

multinationally, and share their vision of the new and improved GM to

Americans and the entire world.



Organizational Structure

GM's organizational structure is shown below. Daniel Akerson is the Chairman

of the Board and he has direct control of the company CEO since 2011. Thomas Stephens is Vice Chairman of the Board and Global Chief TechnologyOfficer (2011) and Stephen Girsky is also Vice Chairman of the Board. Thereare eleven (11) vice presidents and nine (9) Independent Directors. Theirportfolio responsibilities are specified below.

Daniel Ammann Chief Financial Officer, Senior Vice President2011

Michael Millikin Senior Vice President, General Counsel2011

Mary Barra Senior Vice President, Global Product Development2011

Nicholas Cyprus Vice President, Chief Accounting Officer2009

Terry Kline Vice President, Chief Information Officer2009

Joel Ewanick Vice President, Global Chief Marketing Officer

2011

Jaime Ardila Vice President & President – South America2010

Selim Bingol Vice President – Global Communications2010

Timothy Lee Vice President & President – InternationalOperations 2009

David Reilly Vice President & President – Europe2009

Mark Reuss Vice President & President – North America2009

Patricia Russo Independent Lead Director2010



David Bonderman Independent Director2009

Erroll Davis Independent Director2009

E. Neville Isdell Independent Director2009

Robert Krebs Independent Director2009

Philip Laskawny Independent Director

2009

Kathryn Marinello Independent Director

2009

Carol Stephenson Independent Director

2009

Finance

GM's consolidated financial statements for the past three years are shown

below. It is important to note that GM's Total Revenue has been steadily

declining for the years 2007 – 2009 but is showing signs of increase in 2010.

Gross Profits was positive in 2007 but showed a decline in 2008 and 2009 and

again showed increase in 2010.

GM Consolidated Income Statement 2007 – 2010 (in $

millions)

2010 2009 2008 2007



GM Consolidated Balance Statement 2007 – 2010 (in $millions)

2010 2009 2008 2007

Competitors

GM's top competitors are Ford Motor Company, Toyota Motor Corporation and

Chrysler Group LLC. Honda is also a strong rival of GM. A summary of financialcomparison is shown below. With the recent downturn of the auto industry in the USwith companies such as GM and Chrysler filing for bankruptcy, GM is now usingstimulus money from the government to restructure the company. Along with that,GM and other auto companies are developing electric cars as a means of gainingmarket share in hopes that it will boost the bottom line and jumpstart GM’s plan toremain the number one automaker in the world. A synopsis of each of GM’scompetitor is shown below.

Ford Motor Company primarily develops, manufactures, distributes, and services

vehicles and parts worldwide. It operates in two sectors, Automotive and Financial

Services. The Automotive sector offers vehicles primarily under the Ford and Lincolnbrand names. This sector markets cars, trucks, and parts through retail dealers in

North America, and through distributors and dealers outside of North America. It also

sells cars and trucks to dealers for sale to fleet customers, including daily rental car

companies, commercial fleet customers, leasing companies, and governments. The

Financial Services sector offers various automotive financing products to and through

automotive dealers. It offers retail financing, which includes retail installment

contracts for new and used vehicles; direct financing leases; wholesale financing



products that comprise loans to dealers to finance the purchase of vehicle inventory;

loans to dealers to finance working capital, purchase real estate dealership, and/or

make improvements to dealership facilities; and other financing products, as well as

provides insurance services. Ford Motor Company was founded in 1903 and is based

in Dearborn, Michigan.

Toyota Motor Corporation designs, manufactures, assembles, and sells passenger

cars, minivans, and commercial vehicles. It offers conventional engine vehicles, mini-

vehicles, passenger vehicles, commercial vehicles, and auto parts under Toyota brand

name; mid-size cars under the Camry, luxury cars under the Lexus and Crown brands;

sports cars under the Scion tC and Lexus brands; sport-utility vehicles under the

Sequoia, 4Runner, RAV4, Highlander, FJ Cruiser, and Land Cruiser brands; pickup

trucks under the Tacoma and Tundra brands. The company also provides hybrid cars

under Prius and Crown brands. In addition, Toyota offers a range of financial services

comprising retail financing, retail leasing, wholesale financing, and insurance; and

credit cards and housing loans. The company was founded in 1933 and isheadquartered in Toyota City, Japan.

Chrysler hopes its crisis remains in its rearview mirror. The company has engineered

an automotive resurrection by choosing a back-to-basics alliance with Fiat. Chrysler

continues to manufacture its Chrysler brands, as well as Dodge, Jeep, and Ram

vehicles; it will also produce smaller Chrysler-brand cars based on Fiat design and

technology. Chrysler's trademarked MOPAR (Motor Parts) division, with its 30%

industry market share, carries almost 300,000 parts, options, and accessories for

vehicle customization; it is expanding to incorporate Fiat parts. Chrysler sold its GEM

(Global Electric Motor Cars) to Polaris in mid-2011. The company was founded byWalter Chrysler on June 6, 1925

GM Direct Competitor Comparison

GMChrysl

erFord Toyota Industry

Market Cap: 46.79B N/A 53.02B 132.12B 17.05B

Employees: 205,000 516,231 164,000 317,716 96.04KQtrly Rev Growth (yoy): 15.00% N/A 4.90% -12.10% 7.70%

Revenue (ttm): 140.31B 41.95B1 130.50B 235.24B 64.07B

Gross Margin (ttm): 12.66% N/A 16.01% 12.52% 20.02%

EBITDA (ttm): 12.34B N/A 14.72B 20.36B 9.05B

Operating Margin (ttm): 4.24% N/A 7.18% 2.47% 4.21%

Net Income (ttm): 6.95B -652.00M1 7.03B 5.06B N/A

http://www.hoovers.com/company/Chrysler_Group_LLC/rfyyci-1.html

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

http://finance.yahoo.com/q?s=GM

http://finance.yahoo.com/q?s=F

http://finance.yahoo.com/q?s=TM

http://finance.yahoo.com/q/in?s=GM

http://www.hoovers.com/company/Chrysler_Group_LLC/rfyyci-1.html

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

http://finance.yahoo.com/q?s=GM

http://finance.yahoo.com/q?s=F

http://finance.yahoo.com/q?s=TM

http://finance.yahoo.com/q/in?s=GM



EPS (ttm): 4.18 N/A 1.77 3.22 3.22

P/E (ttm): 7.47 N/A 7.89 26.14 7.97

PEG (5 yr expected): 0.68 N/A 0.83 1.07 0.83

P/S (ttm): 0.33 N/A 0.41 0.56 0.52

External Environment

General Motors is an omnipresent company in the United States, a companyso essential to the overall health of the U.S economy that it spawned thephrase “as GM goes, so goes the nation”. Long known for the manufacturing of cars, trucks and automobiles, General Motors has also engaged in finance andinsurance. However, most recently the global recession has had a devastatingimpact on its, cash flows, financial condition and operations. To survive, thecompany has had to accept a government bailout plan and its employees the

United Autoworkers of America, has also made concessions. A swot analysis of GM is listed below.

STRENGTHS

• Branding - GM has produced a stable of automobiles such as Chevrolet,Pontiac Cadillac and Buick which have become household names in theU.S. As such, the General Motors Brand is well rooted not only inAmerica but throughout the world.

• Worldwide Presence – GM’s international presence is well known withfactories in Poland, Russia, South Africa Ecuador, Egypt, Germany,

Argentina, Australia, Belgium, Brazil, China, Colombia, South Korea,Spain, Sweden, and Thailand. GM is even in Viet Nam, and in addition, italso has assembly, manufacturing, distribution, office and warehousingoperations in 55 other countries.

WEAKNESSES

• Diminishing Dealer Network – During the bankruptcy, GM’s hascompiled a list of more than 1,000 dealerships market for closure. GMalso announced that it will not renew its franchise agreements withnearly one quarter of its U.S. dealerships. As of December 31, 2008, GMhad 715 dealerships in Canada, as recent as May of 2009 plans calledfor an anywhere from 40 to 200 closures.



• Insufficient Liquidity - GM has experienced a reduction in liquidity to$14 billion in FY2008 from $27.3 billion in 2007. Losses are attributed tolower sales volumes and a reduction in working capital. Research anddevelopment, as well as relationships with suppliers are negativelyaffected by the reduced liquidity.

•

Inadequate Performance among Some Business Segments - In2008 the GME segment accounted to 21.8% of the total revenues and itsrevenues decreased 8.8% to $32,440 million. Other business segmentsexperiencing declines include GMNA which fell 23.9% to $82,938 million,and GMAP which stood at $12,477 million for FY 2008, a decline of 15%.

• Low Debt Ratings - Four independent credit rating agencies assessGMs debt ratings and ability to pay interest, dividends and principal onsecurities. Moodys Investor Service, Fitch Ratings DBRS and Standard &Poors evaluate GM. As of 2008, all four had downgraded theirassessment ratings for GM.

OPPORTUNITIES

• Growth Potential in India and China - There are positive projects forGM business in China and India. In China the market for new cars is inthe midst of a 14% growth rate projected to reach over $97 billion in2008. Meanwhile in India, the market for new cars grew by 15.5% in2008 to a dollar value of $28 billion. A sign that India will play an evenbigger is the projected increase to 2.5 million units by the end of 2013.

• Increased Global Truck Market - Steady growth rates are projected inthe next few years. The market's volume is expected to rise to 21.5million units by the end of 2013. The light commercial vehicles segment

was the market’s largest in 2008, generating total volumes of 9.8 millionunits, equivalent to 58.1% of overall value.

• Rising Demand for Hybrid Vehicles - General Motors produces sixhybrid models in the US including the Saturn Vue and Aura Hybrids,Chevrolet Malibu and Tahoe Hybrids, GMC Yukon Hybrid as well as aCadillac Escalade Hybrid. The company is also investing in hybrid andplug-in vehicles, for both cars and trucks. It is anticipated that GM willproduce up to nine hybrid models following the introduction of theChevrolet Silverado Hybrid and GMC Sierra Hybrid. International demandfor light hybrid electric vehicles (HEVs) is expected to increase. It isexpected to rise to 800,000 units in 2009 and estimated to reach 4.5

million units in 2013. Therefore, a positive outlook for light hybridelectric vehicles and plug-in vehicles market would boost the demandfor GM’s products.

THREATS



• The Continuing Global Recession - Dire predictions for the globaleconomy were realized in 2009 and stalled economic growth continuedinto 2010. The economic decline reduced consumer demand for less fuelefficient vehicles, including full size pick-up trucks and sport utilityvehicles, which had been GM’s most profitable products. In addition, the

economic climate has resulted in tighter credit markets making it harderfor consumers to finance automobile purchases.• Weakness in Global Automobile Industry - Consumer Requirements

for commercial vehicles declined in the NAFTA region, Western Europeand Japan. The Western European automobile markets suffered as wellparticularly the volume markets of Spain down 28.1%, Italy down 13.4%and the UK down 11.3%. Germany declined 1.8%) and France 0.7% alsoexperienced downward trend in the second half of 2008. In total, 8.4%fewer automobiles were sold in Western Europe. The Japanese carmarket also declined, with a drop in sales of nearly 4% in 2008.

• Intense competition - GMs financial status makes it vulnerable to

fierce competition from fits such as AB Volvo, Daimler, Fiat GroupAutomobiles, Ford Motor, Honda Motor, Hyundai Motor, Isuzu Motors,Mazda Motor, Nissan Motor, Toyota Motor and Volkswagen. Many haveresponded to the crises by adding vehicle enhancements, providingsubsidized financing or leasing programs in order to sell more vehicles. They are also offering option package discounts, other marketingincentives and are reducing vehicle prices in certain markets. Theseactions are expected to have a negative effect on GM’s vehicle pricing,market share and operating results particularly on the low end of themarket.

GM Strategic Plan

GM’s strategic plan will focus on five (5) areas; Brand Re-structuring, Fuel

Efficiency, Cost Cutting, Emerging Markets and Marketing and Promotions

Brand Re-Structuring

Over the next five years GM will be focusing on restructuring of their brandwhile focusing on their core business. Chevrolet, Cadillac and Buick will remainat the core of GM’s business plan. Other brands such as Saab, Saturn andHummer will either be sold or closed. The decision to sell Saab, Saturn and

Hummer was based on sales statistics that are lagging in the domesticmarket. Saab and Saturn sales lag behind throughout the board andintroducing new models and re-branding of these franchises this late in thegame would only push GM’s breakeven point further rather than having apositive impact on the bottom line. Hummer doesn't fit with GM's strategy of fuel efficiency and sustainability but only promotes a lifestyle of excess thatdoesn't promote the green initiative. Although the brand is still profitabletoday its viability for the future is in question.



The youth demographic is increasing rapidly; over 3 Billion People will bebetween 15 and 44 in 2020. This statistic emphasizes the need to recognizethe needs of today’s youth and cater that need through vehicles with optionsand features that appeal to that market. Pontiac will fill this market niche and

will cater to the increasing youth demographic offering entry to mid levelvehicles Such as the G5, G6, Grand Prix and Grand Am. This will effectivelyreduce the number of SKU's thereby reducing manufacturing and overheadcosts. With this brand restructuring, there will also be a significant number of GM dealer closings to further reflect cost cutting initiatives. See chart below.

Plan

2000 2004 2008 2013TotalNameplates 51 63 48 40

GM Dealer

Count 8138 7497 6450 4500

Fuel Efficiency

Scientific research on the effects of global warming and green technology haspushed industries across the board, including GM to become more sustainableand environmentally friendly in their practices. This new environmentalinitiative isn't only forcing industry to evolve but the consumer as well. This isreflected throughout the automobile industry with new product lines that offerfuel efficient choices to consumers including electric, hybrid and FLEX fueled

automobiles. Coupled with the average price of oil spiking over recent yearsfuel efficiency and environmentally conscious automobiles have been toppriority for consumers. Many foreign brands have been industry leaders in fuelefficiency and GM has been forced to play catch up. But over the past fiveyears GM have more than doubled their models that can average 30mpg ormore. And in the next five years GM plan to increase their fuel efficiencycapabilities through our Flex-Fueled cars. According to GM’s projections about50% of the GM cars on the road will be Flex-Fueled. The table below showsGM’s plan to increase fuel efficiency through 2013.

Plan

2000 2004 2008 2013Car Fleet Average(MPG) 27.7 29 31.6 38

Truck Fleet Average(MPG) 21 21.8 24.6 28

Models >30 mpg 8 8 20 25

Flex-Fuel (% of US 2% 6% 17% 50%



Sales)

Hybrid Models 0 2 6 18

Car/CrossoverNameplates 61% 52% 65% 75%

Cost Cutting

Through the reduction of GM brands and models GM can gain significant costsavings. With the sale of these brands will bring about many dealershipclosings that will be another cost reduction opportunity. But this is not enoughto offset the lack liquidity and self sufficiency that General Motors currently

faces. There needs to a reduction in salary expense at GM as well. To do so,GM executives will be asked to take pay cuts. Upper level executive pay in thetens of millions of dollars plus stock options and bonuses will be a thing of thepast. A more modest compensation model will to be adopted. A maximumsalary cap of $500,000 plus incentives will be implemented with theopportunity for increases based on key performance indicators.

Emerging Markets

Emerging markets such as China, India and Eastern Europe are increasingtheir buying power per capita therefore increasing their demand for

automobiles. The Indian government supports a comprehensive system thatwill rapidly increase growth in the industry with the creation of the AutomotiveMission Plan (AMP) and the Automotive Testing and R&D infrastructure project(NATRIP). Meanwhile the Chinese government is loosening financingrestrictions in the automotive industry and allowing automotive dealers tocreate their own financing structures. These rapidly expanding countries present an opportunity for GM to expandtheir global brand and become the center of these new markets. In order tocapitalize on this global effort GM will establish manufacturing facilities whichwill not only create jobs in these countries but also establish favorablerelationships with their governments.

Marketing and Promotion

GM must re-establish itself as America's brand. Commercials andadvertisements in the US must promote this sentiment while also emphasizingthe developments in sustainability and fuel efficiency. Throughout thismarketing effort GM should be forthcoming with the American people about itsplans for change perhaps even sharing specific strategies in restructuring and



expanding its business. In our current economic condition the taxpayers arebearing much of the financial burden and a reassuring effort on the part of GMmay go a long way in regaining its market share and consumer trust in theUnited States.

Conclusion

The General Motors strategy is to position itself in emerging markets so that

the company will grow simultaneously with the economy. GM is still trying

hard to restructure its finances in North America and therefore needs to invest

in emerging markets in order to keep up with the rest of the other

automakers. GM is also needs to stretch its manufacturing capacity to produce

products that will cater to buyers in different markets.

With GMs bankruptcy complete in July 2009, the new GM is smaller and leaner.Brands like Saturn, Hummer and Pontiac were shutdown or sold. Hourly labor

costs were cut by more than two-thirds from $16 billion in 2005 to $5 billion in

2010.

Based on GM’s new strategy, the automaker is proving that it can be profitable

at a lower sales volume which resulted in profit-sharing checks in 2011

averaging $4,300 for its 4500 union workers.

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Management Final Project