General Motors Company’s Strategies and Policies

Introduction

Current Situation

The General Motors Company (GM) is currently on the recovery path in terms of its financial performance, following a poor performance that was caused by the global economic crisis in the USA. The federal government’s decision to advance a loan to the firm proved to be a critical decision after the firm’s management attempted to implement several other measures, including laying off its staff, to cut down the costs. However, GM remains as one of the biggest vehicle manufacturers in the world, with a fully recovered global economy set to restore the firm back to optimal profitability. Strategically, GM has focused on the global market by dividing its operations into four automotive segments that include the GM North America (GMNA) for its Latin American market, GM Europe (GME), as well as GM South America (GMSA) and GM International Operations (GMIO) (General Motors par. 1). This paper explores the company by analyzing its inception and performance history, the business strategy, and the policy adopted over the years.

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History of the Company

Current performance

GM faced the negative effects of the recessionary pressures that followed the major sales decline of automobiles across the globe in the late 2000s. The federal government issued loans to the firm to help bridge its huge deficits. GM also undertook a new restructuring effort that saw it only focus on its core brands of Cadillac, Buick, GMC, as well as Chevrolet. Other non-performing automobile brands were either discontinued, such as the Pontiac and Oldsmobile, or sold off to other investors. The Hummer was among them. The GM’s restructuring later established the General Motors Venture, which is a new firm that develops new technologies for adoption in both the automotive, as well as the transportation sectors.

Ratio analysis

Liquidity ratios of the GM indicate an unpredictable cash ratio trend between 2010 and 2013, with the respective percentage figures standing at 59%, 62%, 52%, and 48% in 2010, 2011, 2012, and 2013 respectively (Nasdaq par 1). The quick ratio percentages, however, have displayed a steady trend over this same period, standing at 87%, 95%, 102%, and 108% from 2010 to 2013. In terms of the profitability ratios, the gross margins dwindled from 13% in 2011 to settle at a single-digit score of 7% in 2014, before improving in 2013 to settle at 12% (Nasdaq par. 1). The operating margins shot up in 2012 to register a 20% score, compared to 4% in both 2010 and 2011, and 3% in 2013. Equally, the profit margins for GM remained unstable between 2010 and 2013, standing at 5% in 2010, before improving slightly to record a 6% margin score in 2011. However, performance in 2012 lost 2 more points to stand at 4%, before dropping further to 3% in 2013 (Nasdaq par. 1).

Competitor comparison

Daimler AG is one of GM’s biggest competitors in the global automobile market. The firm boasts of well-established brand names under its operation, including Mercedes Benz, Dodge, and the Jeep. The company is renowned in the market for its great innovations, which are attributed to its huge research and development budget allocation. These strong aspects of the firm have seen it expand its market share significantly over the years. Daimler AG is presently ranked as the second largest auto manufacturer after GM in terms of annual sales.

Another significant competitor of the GM Company is the Ford Motor Company, which has now captured the US market extensively. The firm has its operations grouped into two divisions. One of the divisions focuses on automotive operations, while the other targets financial services. The major business strength for the Ford Motor Company emanates from its elaborate cutting cost strategies that have seen it benefit from increased margins compared to its competitors. Additionally, the ambitious market expansion plans by the firm have seen it venture into the lucrative Chinese market, which portends a stronger revenue performance going forward.

Japan’s giant manufacturer Toyota Motor Corporation equally emerges as one of the biggest competitors of the GM. The greatest power that spurs Toyota’s performance in the market is its three major brands, Toyota, Scion, as well as the Lexus, all of which operate under the same umbrella. This has ensured that Toyota reaches a wider global market because of its wide array of vehicles. Moreover, Toyota is synonymous with the Total Quality Management (TQM) concept that has ensured lean operations of the company. Its elaborate innovative culture and huge investments in the manufacture of eco-friendly cars have been strategic in sustaining the brand’s strong market performance for years.

Industry Comparison

According to Statista (par. 1), General Motors had the highest global market share of motor vehicle sales in 2013, with a total sale of 9.72 million units sold. The Volkswagen brand had the second highest market share in terms of sales, having sold 9.51 million units. Toyota took the third spot with 9.03 million units sold, while Ford emerged fourth with 6.33 million units sold.

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Mission

GM’s mission statement highlights the firm’s focus on engaging in responsible social operations across the globe. It highlights its dedication to offer high quality products that give value to the customers, while equally ensuring success to its shareholders, as well as the employees (General Motors par. 1).

Objectives

GM’s business operations are anchored on five significant objectives, which include safety products that meet high quality standards, highly innovative performance, and the delivery of long-term investment value. Additionally, GM seeks to create a positive difference, especially in the lives of its customers and shareholders, while also seeking to create lifelong customers that would sustain its business operations in the future (General Motors par. 1).

Strategic posture

Industry rivalry

Rising foreign competition in the global automobile industry, especially posed by Toyota and Honda, has intensified the extent of rivalry among the industry players. Competition has focused more on the aspect of price and other incentives, such as the advancing of interest-free loans to buyers. Additionally, market share variations have remained significant over the years, which is a pointer to the rivalry experienced by the players.

New entry threats

Significant entry barriers that shield the established manufacturers from facing competition pressures characterize the automobile manufacturing industry. Investing in this industry is expensive, requiring firms to raise huge capital outlays that are not easily achievable for the new entrants. Moreover, car manufactures depend heavily on the economies of scale advantage to achieve their anticipated profits, which in itself calls for huge expenditures in material acquisition and other related costs.

Threat of substitution

Cars can be substituted with other existent forms of transport, such as buses and rapid transit, which offer the same services. However, buyers are interested in other features, such as the model and quality, which may not be applicable in the case of buses and rapid transit. In essence, car manufacturers face a mild threat of substitution that does not necessarily pose a great danger to their market.

Buyers bargaining power

Buyers of automobiles enjoy some degree of bargaining power that would influence manufacturers to lower the prices. No significant switching costs exist in the industry. This leaves buyers with the liberty of moving to other brands charging fairer prices. However, the bargaining power of the customers is curtailed to some extent by the fact that a significant proportion of the market is comprised of individual car buyers with relatively smaller sales proportion.

Supplier bargaining power

The manufacture of automobiles is quite demanding, as raw materials, parts, and input laborers are necessary. However, the industry comprises of a significantly large network of suppliers, thereby weakening the overall bargaining power. Additionally, the well-established manufacturers, such as Toyota and GM, rely on their built capacities to self-supply themselves, which excuses them further from relying on suppliers.

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From the analysis of the external environmental factors, opportunities in this industry can be listed as increased demand for new styles of car models, the growing demand for cars running on alternative energy sources, and the expanding car market economy. However, threats in the industry also abound, which include the competitive offerings presented by foreign brand manufacturers and the ever-rising costs of raw materials. Additionally, rising fuel prices also discourage buyers from purchasing cars.

Corporate strategy

GM has inculcated a strong sense of team commitment amongst its employees, where the common culture entails mutual respect, inclusion, and greater responsibility towards varied experiences (General Motors par. 1). The firm considers its large team of employees as being crucial in sustaining its success. The corporate strategy also borders on building and maintaining a strong brand by offering a wide range of automobiles in over 120 countries spread across the globe. The idea of the firm’s strong brand name is to achieve an emotional connection with the customers all over the world.

Another important aspect of the firm’s corporate strategy is its research and development area that focuses on advanced materials design, improved manufacturing technology, automotive clean-tech, and the design of connected vehicles that incorporate entertainment and information, among other value added technologies. GM plans extensively for its operations research and has established numerous R&D labs to assure it of great innovative results on all fronts (General Motors par. 1).

Directional strategy

GM incorporates both intelligence and perseverance of its people, mainly employees, to steer its growth in business (Olson and Hans 103). It has created a highly skilled reservoir of its human resource to capture the creativity and sustain its innovation target in business operations. As Houghton (328) avers, this great investment in its human resources’ skills, coupled with the extensive R&D infrastructure and expenditure, forms part of the firm’s directional strategy as it pursues growth and development.

Portfolio analysis

GM’s largest business portfolio is the automobile manufacturing that is involved in all car-manufacturing operations. Several car brands produced by this portfolio include Chevrolet, the Buick, Cadillac, and GMC. Other than car manufacturing, GM has equally established a division called the GM Ventures, which involves steel manufacturing, battery-electric bus, as well as solar power company investments. These companies are subsidiaries of the GM and play the supplier role in some instances (Powers and Steward 426).

Parenting strategy

GM pursues market consolidation as part of its parenting strategy (Wheelen and Hunger 204), where it has mainly divested or discontinued the production of many of its previous car brands to focus all attention on mainly the Chevrolet, Cadillac, and the Buick brands (Phongpetra and Johri 24). The manufacturer relies on this strategy as a means of avoiding overlapping products. Apart from the consolidation strategy, GM also considers the global expansion strategy as critical to its global expansion focus, as it targets the emerging economies of mainly India and China. The high market potential in these countries would ensure that GM accrues significant revenues from its sales to enhance its competitive capabilities.

Business strategy

GM has invested in the expansion of its engineering organization as a means of developing its electric vehicle and all other related hybrid technologies, including batteries. This targets the increasing market demand for ecological vehicles, as awareness of environmental degradation decreases (Dietrich and Krafft 665). The company has restructured its operations through the abolishment of its decentralized structure that saw it operate up to eleven engineering centers in the US alone. In the present, GM has integrated all these into a single global product development organization (Dietrich and Krafft 670).

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Functional Strategies

In terms of its marketing function, GM’s strategy pursues the segmentation approach, which targets different customer groups, rather than considering the market to be one whole (Wheelen and Hunger 236). The firm designs cars of varying costs, as well as models, which target the market in terms of occupation, age, and family characteristics. The US market product portfolio has been targeting the manufacture of more fuel-efficient vehicles to influence growth in sales. In terms of its R&D functional strategy, GM has been focusing on working together with expertise and professional firms to increase its innovation results. The human resource department (HR), on the other hand, has been pursuing a skill enhancement strategy that targets to retrain the employees to increase their skill capability (Phongpetra and Johri 17).

Policies

GM’s greatest performance policy has been focused on the alignment of the firm’s numerous operations to streamline its operations (Oxelheim and Wihlborg 73). The alignment policy has since seen GM focus on only four of its leading car brands, while binding together other less-effective brands. GM has also formed GMAC as a financial service division targeted at offering both automotive, as well as commercial financing. GMAC finances critical aspects of the GM’s business, such as supporting leasing arrangements for local dealerships.

Conclusion

General Motors Company (GM) operations over the years since its formation in 1908 have sustained its global leadership as the leading car manufacturer across the world. The firm competes with other well-established global manufacturers of automobiles, including Toyota Motor Corporation and Ford Motors, among others. The firm boasts of a strong brand in the market and a range of brand names under its operations, including Chevrolet, Cadillac, and Buick. GM’s business strategy revolves around its strong innovation, with the firm’s focus being on setting significant budgets for its research and development activities. The firm equally pursues a consolidated market approach that has seen it only focus on its core brands, while divesting and discontinuing other less lucrative brands.

Works Cited

Dietrich, Michael, and Jackie Krafft. “Firm Development as an Integrated Process: With Evidence from the General Motors-Fisher Body Case.” Journal of Evolutionary Economics 21.4 (2011): 665-686. Print.

General Motors. Company. 2014. Web.

Houghton, Jeffery D. “What is Good for General Motors: The Contributions and Influence of Alfred P. Sloan, Jr.” Journal of Management History 19.3 (2013): 328-44. Print.

Nasdaq. GM Company Financials. 2014. Web.

Olson, Erik L., and Mathias Thj Hans. “How Bureaucrats and Bean Counters Strangled General Motors by Killing its Brands.” The Journal of Product and Brand Management 19.2 (2010): 103-113. Print.

Oxelheim, Lars, and Clas Wihlborg. “Corporate Distress and Restructuring with Macroeconomic Fluctuations: The Cases of GM and Ford.” Journal of Applied Finance 22.1 (2012): 70-87. Print.

Phongpetra, Vichak, and Lalit M. Johri. “Impact of Business Strategies of Automobile Manufacturers in Thailand.” International Journal of Emerging Markets 6.1 (2011): 17-37. Print.

Powers, Thomas L., and Jocelyn L. Steward. “Alfred P. Sloan’s 1921 Repositioning Strategy.” Journal of Historical Research in Marketing 2.4 (2010): 426-442. Print.

Statista. Leading Motor Vehicle Manufacturers Worldwide in 2013, Based on Global Sales (In Million Units). 2014. Web.

Wheelen, L. Thomas, and David J. Hunger. Strategic Management and Business Policy: Toward Global Sustainability. 13th ed. Boston: Pearson, 2012. Print.

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