Strategic Management Final Project

8/4/2019 Strategic Management Final Project

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Carl Johnson MGMT 659 SPRING 2011 Page 1

STRATEGIC MANAGEMENT FINAL PROJECT

GENERAL MOTORS

MGMT 659

SPRING 2011

Dr. Norman Irish


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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 GMs 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 Americas top employers with 1 out of 10 American individuals working in

the industry and while the drop in auto sales has affected GMs 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 Americas 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.

GMs missionis to be a multinational corporation engaged in socially responsible operations

worldwide. GM is dedicated to provide products and services of such quality that our customerswill 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.

GMs 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. GMs 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 rebuildingand strengthening of GMs 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.


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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 Technology Officer (2011) and Stephen Girsky is also Vice Chairman of

the Board. There are eleven (11) vice presidents and nine (9) Independent Directors. Theirportfolio responsibilities are specified below.

Daniel Ammann Chief Financial Officer, Senior Vice President 2011

Michael Millikin Senior Vice President, General Counsel 2011

Mary Barra Senior Vice President, Global Product Development 2011

Nicholas Cyprus Vice President, Chief Accounting Officer 2009

Terry Kline Vice President, Chief Information Officer 2009

Joel Ewanick Vice President, Global Chief Marketing Officer 2011

Jaime Ardila Vice President & President South America 2010

Selim Bingol Vice President Global Communications 2010

Timothy Lee Vice President & President International Operations 2009

David Reilly Vice President & President Europe 2009

Mark Reuss Vice President & President North America 2009

Patricia Russo Independent Lead Director 2010

David Bonderman Independent Director 2009

Erroll Davis Independent Director 2009

E. Neville Isdell Independent Director 2009

Robert Krebs Independent Director 2009

Philip Laskawny Independent Director 2009

Kathryn Marinello Independent Director 2009

Carol Stephenson Independent Director 2009


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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

Total Revenue 135,592.00 104,589.00 148,979.00 179,984.00

Gross Profit 16,479.00 -8,079.00 -1,525.00 12,021.00

Operating Income 5,280.00 105,943.00 -21,187.00 -4,309.00

Income Before Tax 5,737.00 102,493.00 -29,471.00 -6,346.00

Income After Tax 5,065.00 104,659.00 -31,237.00 -43,209.00

Net Income Before Extra. Items 6,172.00 104,821.00 -30,943.00 -43,091.00

Net Income 6,172.00 104,821.00 -30,943.00 -38,542.00

GM Consolidated Balance Statement 2007 2010 (in $ millions)

2010 2009 2008 2007

Assets

Total Current Assets 53,053.00 59,247.00 44,267.00 0

Total Assets 138,898.00 136,295.00 91,039.00 0

Liabilities and Shareholders' Equity

Total Current Liabilities 47,157.00 52,435.00 75,608.00 0

Total Liabilities 102,718.00 108,048.00 176,599.00 0

Total Equity 36,180.00 28,247.00 -85,560.00 0

Total Liabilities & Shareholders Equity 138,898.00 136,295.00 91,039.00 0


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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 financial comparison is shown below. With the recent

downturn of the auto industry in the US with companies such as GM and Chrysler filing for bankruptcy,

GM is now using stimulus money from the government to restructure the company. Along with that, GMand other auto companies are developing electric cars as a means of gaining market share in hopes that

it will boost the bottom line and jumpstart GMs plan to remain the number one automaker in the

world. A synopsis of each of GMs competitor 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 Lincoln brand 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 is headquartered 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 its30% 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 by Walter Chrysler on June 6, 1925
http://www.hoovers.com/company/Chrysler_Group_LLC/rfyyci-1.htmlhttp://en.wikipedia.org/wiki/Walter_Chryslerhttp://en.wikipedia.org/wiki/Walter_Chryslerhttp://www.hoovers.com/company/Chrysler_Group_LLC/rfyyci-1.html


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GM Direct Competitor Comparison

GM Chrysler Ford Toyota Industry

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

Employees: 205,000 516,231 164,000 317,716 96.04K

Qtrly 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

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 company so essential to the

overall health ofthe U.S economy that it spawned the phrase as GM goes, so goes the nation.

Long known for the manufacturing of cars, trucks and automobiles, General Motors has also

engaged in finance and insurance. However, most recently the global recession has had a

devastating impact on its, cash flows, financial condition and operations. To survive, the

company 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 the U.S. As such, the General Motors

Brand is well rooted not only in America but throughout the world.

Worldwide Presence GMs international presence is well known with factories 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, it also has assembly, manufacturing, distribution, office and

warehousing operations in 55 other countries.
http://finance.yahoo.com/q?s=GMhttp://finance.yahoo.com/q?s=Fhttp://finance.yahoo.com/q?s=TMhttp://finance.yahoo.com/q/in?s=GMhttp://finance.yahoo.com/q/in?s=GMhttp://finance.yahoo.com/q?s=TMhttp://finance.yahoo.com/q?s=Fhttp://finance.yahoo.com/q?s=GM


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WEAKNESSES

Diminishing Dealer Network During the bankruptcy, GMs has compiled a list of more

than 1,000 dealerships market for closure. GM also announced that it will not renew its

franchise agreements with nearly one quarter of its U.S. dealerships. As of December

31, 2008, GM had 715 dealerships in Canada, as recent as May of 2009 plans called foran 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 to lower sales volumes and a

reduction in working capital. Research and development, as well as relationships with

suppliers are negatively affected by the reduced liquidity.

Inadequate Performance among Some Business Segments - In 2008 the GME segment

accounted to 21.8% of the total revenues and its revenues decreased 8.8% to $32,440

million. Other business segments experiencing 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 assess GMs debt ratings and

ability to pay interest, dividends and principal on securities. Moodys Investor Service,

Fitch Ratings DBRS and Standard & Poors evaluate GM. As of 2008, all four had

downgraded their assessment ratings for GM.

OPPORTUNITIES

Growth Potential in India and China - There are positive projects for GM business in

China and India. In China the market for new cars is in the midst of a 14% growth rate

projected to reach over $97 billion in 2008. Meanwhile in India, the market for new cars

grew by 15.5% in 2008 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 in the next few

years. The market's volume is expected to rise to 21.5 million units by the end of 2013.

The light commercial vehicles segment was the markets largest in 2008, generating

total volumes of 9.8 million units, equivalent to 58.1% of overall value.

Rising Demand for Hybrid Vehicles - General Motors produces six hybrid models in the

US including the Saturn Vue and Aura Hybrids, Chevrolet Malibu and Tahoe Hybrids,

GMC Yukon Hybrid as well as a Cadillac Escalade Hybrid. The company is also investing

in hybrid and plug-in vehicles, for both cars and trucks. It is anticipated that GM will

produce up to nine hybrid models following the introduction of the Chevrolet Silverado

Hybrid and GMC Sierra Hybrid. International demand for light hybrid electric vehicles

(HEVs) is expected to increase. It is expected to rise to 800,000 units in 2009 and

estimated to reach 4.5 million units in 2013. Therefore, a positive outlook for light

hybrid electric vehicles and plug-in vehicles market would boost the demand for GMs

products.


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THREATS

The Continuing Global Recession - Dire predictions for the global economy were

realized in 2009 and stalled economic growth continued into 2010. The economic

decline reduced consumer demand for less fuel efficient vehicles, including full size pick-

up trucks and sport utility vehicles, which had been GMs most profitable products. Inaddition, the economic climate has resulted in tighter credit markets making it harder

for consumers to finance automobile purchases.

Weakness in Global Automobile Industry - Consumer Requirements for commercial

vehicles declined in the NAFTA region, Western Europe and Japan. The Western

European automobile markets suffered as well particularly 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% also experienced downward trend in the second half of 2008. In total, 8.4%

fewer automobiles were sold in Western Europe. The Japanese car market 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 Group Automobiles, Ford Motor, Honda Motor,

Hyundai Motor, Isuzu Motors, Mazda Motor, Nissan Motor, Toyota Motor and

Volkswagen. Many have responded to the crises by adding vehicle enhancements,

providing subsidized financing or leasing programs in order to sell more vehicles. They

are also offering option package discounts, other marketing incentives and are reducing

vehicle prices in certain markets. These actions are expected to have a negative effect

on GMs vehicle pricing, market share and operating results particularly on the low end

of the market.

GM Strategic Plan

GMs 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 brand while focusing on

their core business. Chevrolet, Cadillac and Buick will remain at the core ofGMs business plan.

Other brands such as Saab, Saturn and Hummer will either be sold or closed. The decision to

sell Saab, Saturn and Hummer was based on sales statistics that are lagging in the domestic

market. Saab and Saturn sales lag behind throughout the board and introducing new modelsand re-branding of these franchises this late in the game would only push GMs breakeven

point further rather than having a positive 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 that

doesn't promote the green initiative. Although the brand is still profitable today its viability for

the future is in question.


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The youth demographic is increasing rapidly; over 3 Billion People will be between 15 and 44 in

2020. This statistic emphasizes the need to recognize the needs of todays youth and cater that

need through vehicles with options and features that appeal to that market. Pontiac will fill this

market niche and will cater to the increasing youth demographic offering entry to mid level

vehicles Such as the G5, G6, Grand Prix and Grand Am. This will effectively reduce the number

of SKU's thereby reducing manufacturing and overhead costs. 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 2013

Total Nameplates 51 63 48 40

GM Dealer Count 8138 7497 6450 4500

Fuel Efficiency

Scientific research on the effects of global warming and green technology has pushed industries

across the board, including GM to become more sustainable and environmentally friendly in

their practices. This new environmental initiative isn't only forcing industry to evolve but the

consumer as well. This is reflected throughout the automobile industry with new product lines

that offer fuel efficient choices to consumers including electric, hybrid and FLEX fueled

automobiles. Coupled with the average price of oil spiking over recent years fuel efficiency and

environmentally conscious automobiles have been top priority for consumers. Many foreign

brands have been industry leaders in fuel efficiency and GM has been forced to play catch up.

But over the past five years GM have more than doubled their models that can average 30mpg

or more. And in the next five years GM plan to increase their fuel efficiency capabilities throughour Flex-Fueled cars. According to GMs projections about 50% of the GM cars on the road will

be Flex-Fueled. The table below shows GMs plan to increase fuel efficiency through 2013.

Plan

2000 2004 2008 2013

Car 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 Sales) 2% 6% 17% 50%

Hybrid Models 0 2 6 18Car/Crossover Nameplates 61% 52% 65% 75%


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Cost Cutting

Through the reduction of GM brands and models GM can gain significant cost savings. With the

sale of these brands will bring about many dealership closings that will be another cost

reduction opportunity. But this is not enough to offset the lack liquidity and self sufficiency that

General Motors currently faces. There needs to a reduction in salary expense at GM as well. Todo so, GM executives will be asked to take pay cuts. Upper level executive pay in the tens of

millions of dollars plus stock options and bonuses will be a thing of the past. A more modest

compensation model will to be adopted. A maximum salary cap of $500,000 plus incentives will

be implemented with the opportunity for increases based on key performance indicators.

Emerging Markets

Emerging markets such as China, India and Eastern Europe are increasing their buying power

per capita therefore increasing their demand for automobiles. The Indian government supports

a comprehensive system that will rapidly increase growth in the industry with the creation of

the Automotive Mission Plan (AMP) and the Automotive Testing and R&D infrastructure project(NATRIP). Meanwhile the Chinese government is loosening financing restrictions in the

automotive industry and allowing automotive dealers to create their own financing structures.

These rapidly expanding countries present an opportunity for GM to expand their global brand

and become the center of these new markets. In order to capitalize on this global effort GM will

establish manufacturing facilities which will not only create jobs in these countries but also

establish favorable relationships with their governments.

Marketing and Promotion

GM must re-establish itself as America's brand. Commercials and advertisements in the USmust promote this sentiment while also emphasizing the developments in sustainability and

fuel efficiency. Throughout this marketing effort GM should be forthcoming with the American

people about its plans for change perhaps even sharing specific strategies in restructuring and

expanding its business. In our current economic condition the taxpayers are bearing much of

the financial burden and a reassuring effort on the part of GM may go a long way in regaining

its market share and consumer trust in the United 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.


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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 GMs 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.

References

1. SWOT Analysis General Motors

http://www.marketingteacher.com/swot/general-motors-swot.html

2. http://www.zacks.com/research/report.php?type=industry

3. http://investing.businessweek.com/research/stocks/people/board.asp?ticker

4. General Motors

http://topics.nytimes.com/top/news/business/companies/general_motors_corp

oration

5. General Motors Growth Strategy

http://streetdirectory.com/travel_guide/51055/cars/general_motors_growth

6. http://www.reuters.com/finance/stock/companyOfficers?symbol=GM&WTmodL

OC

7. General Motors Business Strategy

myweb.wit.edu/nortonm/coursework/GM_Business_Plan.pdf
http://www.marketingteacher.com/swot/general-motors-swot.htmlhttp://www.zacks.com/research/report.php?type=industryhttp://investing.businessweek.com/research/stocks/people/board.asp?tickerhttp://topics.nytimes.com/top/news/business/companies/general_motors_corporationhttp://topics.nytimes.com/top/news/business/companies/general_motors_corporationhttp://streetdirectory.com/travel_guide/51055/cars/general_motors_growthhttp://www.reuters.com/finance/stock/companyOfficers?symbol=GM&WTmodLOChttp://www.reuters.com/finance/stock/companyOfficers?symbol=GM&WTmodLOChttp://www.reuters.com/finance/stock/companyOfficers?symbol=GM&WTmodLOChttp://www.reuters.com/finance/stock/companyOfficers?symbol=GM&WTmodLOChttp://myweb.wit.edu/nortonm/coursework/GM_Business_Plan.pdfhttp://myweb.wit.edu/nortonm/coursework/GM_Business_Plan.pdfhttp://www.reuters.com/finance/stock/companyOfficers?symbol=GM&WTmodLOChttp://www.reuters.com/finance/stock/companyOfficers?symbol=GM&WTmodLOChttp://streetdirectory.com/travel_guide/51055/cars/general_motors_growthhttp://topics.nytimes.com/top/news/business/companies/general_motors_corporationhttp://topics.nytimes.com/top/news/business/companies/general_motors_corporationhttp://investing.businessweek.com/research/stocks/people/board.asp?tickerhttp://www.zacks.com/research/report.php?type=industryhttp://www.marketingteacher.com/swot/general-motors-swot.html

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Strategic Management Final Project