Strategic Management and Leadership of General Motors - Case Study Example

Strategic Management and Leadership: Analysis of General Motors Introduction General Motors, established in 1908, is now one of the largest automobile manufacturing companies in the world. It carries out its business in 140 nations across the globe and employs around 240000 people. The General Motors among the leading automakers is considered as the second largest multinational in manufacturing automobiles in the global scenario. They have manufacturing units in 35 countries who manufacture four wheelers around the world. The popular brand names of the four wheelers manufactured by General Motors are Hummer, Chevrolet, GM Daewoo, Cadillac, Holden, Pontiac, Saab, Saturn, Vauxhall, etc. GM, along with strategic partners manufactures automobiles and trucks in thirty four nations, and trade and service these vehicles through its numerous brands.  Its biggest national market is United States. China, Brazil, the United Kingdom, Canada, Russia and Germany are the other nations which follow America in this context.  GM’s OnStar ancillary is one of the leading industries in vehicle safety, security and information facilities. On 10th July 2009, General Motors Company obtained functions from General Motors Corporation. The General Motor Corporation established its place in the automobile manufacturing industry with the manufacturing of luxurious cars, which are classy at the same time superior from the other rival manufacturers of automobiles. Due to their high brand name and reputation in the market, the cost prices of cars from General Motors are generally very high and sometimes unreachable for general customers. (Global Operations, n.d.; General Motors, n.d) The General Motors Corporation held the first place as an automobile manufacturing company with respect to its sales for around 77 years until; Toyota took its place in the year 2008. The downfall of the company from the number one position is due to its negligence in terms of designing new innovative cars. There was lack of creative innovations in terms of designs as they only have done some slight or minor changes in the designs to satisfy the customers. Some are of the view that the downfall is due to the poor strategic management of the company. The company faced difficulties in coping up with the internal and external pressures, like the accessibility of loans for the customers, the pressure from the Government and Labor Unions, crisis of oil, other competitive technologies such as electric cars, etc. (Global Operations, n.d.; General Motors, n.d) These difficulties clearly suggested that the company needs to re-strategize its operations. For that the company had conducted various analyses to determine the exact strategy for the further operations. To verify the exact reason of the company to withdraw its operations from Europe we need to project various analyses of General Motors. For that, we start with the five forces of Michael Porter. Porter’s five force Analysis The Porter’s analysis deals with five forces namely, threat of new entries, threat of substitute products and services, bargaining power of the supplier, bargaining power of the buyer and rivalry among existing competitors. So we discuss the effects of these five forces in the context of General Motors. (Porter, 1980; Porter, 2008) Threat of new entries In any industry, the existing players always feel the threat of new companies entering the market and sharing their profits. The automobile industry is similar in that context and the existing leading firms always face the threat of sharing their sales with the new comers in the industry. Since, the automobile industry is a capital intensive industry, only huge brands can enter the industry which generates more threat to the existing players as the new company might use innovative and unique technology in their production to out run the established firms in the business. It is not very easy for any existing firm to switch over to new technology as their manufacturing plants are well established and their labors are habituated to that type of technological operations. There are also restrictive laws for the franchises which prevents them from direct selling of their product to the customers. Thus, from an overall prospect it can be said that the threat of new entrants is high in case of General Motors. Threat of substitute products and services There are lots of substitute products in case of four wheelers and the automobile industry. There are various means of transportation available that comprises of the main substitute products of the automobiles. There are also some services of transportation which can be also considered as substitutes to the automobile industry. For example, Airplane is substitute product but it is not quite affordable to common mass as it is expensive and huge in structure. Then there is motorcycles and bicycles which are affordable but do not match up with the class of four wheelers and hence they are not much attractive. There are also transport services like, trains, buses and taxis but they are not very flexible like owning a car. Thus, from an overall prospect it can be said that the threat of substitute product and services is low in case of General Motors. Bargaining power of supplier The bargaining power of the supplier in case of the automobile manufacturing industry is dependent on the volume of suppliers which if large then constitutes less power. General Motors has a formal supplier diversity program and it works with above ‘200 certified minority and female-owned companies’ (Supplier Diversity, 2010). At present it possesses leadership to mentor above 30 Tier 1 suppliers from diversified backgrounds. This process helps in selecting suppliers owned by females and structuring business plans along with identifying strategies to improve and bring about fresh business opportunities. Hence, due to the large volume company can negotiate in terms of raw material prices and can reduce the cost. But in case of its labor cost, the bargaining power of the supplier is very high as the labor union is very strong who supply labor to General Motors. Bargaining power of the buyer In case of the automobile industry in US, the Government had imposed some restrictive laws which prevent the firms from selling their products directly to the customers. Hence, General Motors had to sell their products to the dealers instead of customers which make the dealers, the buyers of General Motors. There are huge numbers of dealers in US for General Motors who are supported by the State franchise laws and that gives them the necessary power to bargain with a huge company like General Motors. This huge number of dealers puts immense pressure on the companies’ cost of running with them and this is a point of concern for the company. Thus, due to the back up of laws the buyers of General Motors also have high bargaining power. Rivalry among existing competitors In case of automobile industry, there are few leading companies who comprise the bulk of the total sales volume and hence, they have immense level of competition among them. The main leading firms except General Motors are, Chrysler, Ford, Nissan, Toyota, Honda, etc. These are the rivals of General Motors in the industry who have extensive competition among them. In 2008, Toyota had beaten General Motors to become the number one automobile company in terms of its sales. The rivalries among the firms are generally based on the designing and innovation of new products with respect to the size and enabled features in a car. There is also competition in making more fuel efficient cars which is the need of the day. Since, there are few firms in the industry the rivalry becomes more prominent and strong. So, it is quite clear that General Motors is facing huge competition from its other rivals in the automobile industry. (Saporito, 2008; Miller, 1988) PEST Analysis The porter’s five force analysis is not the only analysis based on which, we can verify the reason behind its withdrawal of operations from Europe. Hence, we analyse General Motors in terms of PEST. (PEST Analysis, n.d; Gillespie, n.d) The political scenario is quite prominent and effecting in case of the automobile industry in US. With the imposition of restrictive franchise laws it is quite difficult for General Motors to upraise their sales. The government is committing towards reduction in carbon emissions from vehicles which is directly affecting the production of General Motors. The hybrid electric vehicles are emerging with Governmental back up, being a direct threat to the fuel oriented vehicles of General Motors. With the changing outlook of US Government, General Motors also had to convert its structure of production to operate within the restrictive guidelines of the Government. The company had to start innovating small, low priced cars which will be much more fuel efficient than the present cars of General Motors. There should be reduction in carbon emissions in the newly produced cars as per the Governmental regulations. (Bonney, Clark, Collins and Fearne, 2007, pp. 395-399) The economic scenario of US is also not very stable with the recent financial crisis and is surely affecting the automobile industry from its core. The recent financial crisis in US followed by the fierce recession had affected almost all the productivity sectors. The crisis led to financial instability in every household and that reflected in the buying trend of cars in US. Due to the recession, there were job losses in almost every sector which reflected in the reduction of disposable income of every American. Hence, the sales volume of cars in America declined at a sharp rate. The luxurious cars of General Motors almost became impossible to buy with such minimal disposable income. There was also rise in the prices of fuels like petrol and diesel which caused decline in sales of cars. With the increasing oil price it became quite difficult for the general public of US to maintain running cost of the car. (Szczesny, 2009) From the society’s point of view in US, the automobile industry needed to give more fuel efficient cars which can be easily maintained by common mass in this financial crisis situation. There is also concern over the size of the cars in society which should be small so that they can be affordable and would not take much space in case of parking. The increasing population of US, the lack of parking space and heavy traffic is also showing sign of saturation in car sales. Hence, from socio-economic scenario, the common mass of US is opting for small, fuel efficient cars with affordable prices. (Edmunds, 2009) In case of technological up gradation, there are lots of innovative ideas that are being implemented to give new light to production of cars in US. With the imposition of restrictive laws and commitments by the Government on reducing carbon emission, there are new hybrid cars coming in the automobile market. These cars run with electrical energy from batteries and are warmly welcomed as they do not emit any harmful carbonic gas and the use of battery for operation is less expensive to that of fuel. With the technological development in communication, the cost of business operations also got reduced. So, these are the results from PEST analysis of General Motors with respect to the automobile industry of US. For further analysis of General Motors and its strategies we will expose the company to the SWOT analysis. SWOT Analysis Now, General Motors may be analyzed with respect to its strength, weakness, opportunity and threat for the final conclusion of our analysis. The SWOT analysis will be done on General Motors with respect to the automobile industry of US. (SWOT Analysis, n.d) One may first look at the strengths that General Motors possesses owing to its prolonged business period. The main strength of General Motors is its strong brand reputation which is the result of its prolonged business period. The growing business of General Motors in the countries of Asia Pacific and Latin America can also be considered as growing strengths of the company. The already established business in America with the large scale of production happening every year shows that General Motors had strong and powerful operational network in US. From an overall point of view it is clear that the strength of General Motor hugely lies within the boundary of US at present. There are also certain weaknesses possessed by General Motors over the period of time. The main weakness in case of a huge brand like General Motors is its decline in shares which is the sign of poor performance of the company. There are also certain issues involved in the poor performance like the lack of commitment in innovating new designer cars, making cars with high cost which are unaffordable to general public, selling cars under the restrictive Governmental laws, etc. These lack of commitment and poor performance of General Motors also results in product recalls which further pressurize the performance of the company. These factors are enforcing so much pressure that the company is facing decline even in its financial performance which lead to its loss to Toyota in the number one position of the automobile sales ratings in the year 2008. There are not only weaknesses that General Motors is facing; they are also facing some opportunities that can be helpful to improve their performance so that they can maintain a sustainable growth rate in the future and win back the number one position from Toyota. The opportunity that General Motor can capitalize on is the rise in the market demand for the hybrid electrical vehicles. If they start to make quality hybrid electrical vehicles then that will be a very good line of action to prosper and regain its previous position in the automobile market. There is also scope and opportunity for the company to grow in the emerging markets of Asia and Latin America. If they are able to grab those markets with affordable and fuel efficient cars then that will be very useful in boosting its sales volume. There is also opportunity for the company to capitalize on making cars that can run with minimal carbon emissions. This type of car will be warmly welcomed in the market both by the consumers as well as the Government which is focusing on controlling excessive air pollution. The General Motor Corporation is also facing some threats at present regarding its performance in US. There is always an internal pressure from the labor unions that we have already discussed but there are also external threats that the company had to face and at present it is having a tough time combating the recession and the tightening up of credit in the market. The fall in demand for cars in US is also a threat for the company as it had a strong market in US and its major share of sales comes from this market. The company is also facing threat from the constant rise in prices of the raw materials which the company uses in making the cars. Thus, it is becoming tough for a company like General Motors to regain its previous position at the present scenario. (Thomas, n.d; Strumph, 2009) General Motors decision to withdraw from Europe Recently, there is lot of buzz owing to General Motor’s decision to withdraw its few operational units from Europe. According to sources, the company had decided to withdraw 3 factories out of 10 factories of Opel and Vauxhall from Europe. It is becoming very difficult from the companies point of view to arrange the necessary funds to back up its business in Europe owing to the present financial crisis which had firmly hit the sales volume of the company. As earlier discussed the labor union is very strong in General Motors and the labors in Opel are demanding the company to quit its operations from Opel. They are demanding for a change in the management in Opel and threatening the authorities of resuming work only after the full or partial change in the management. With the present scenario it can be easily seen that the company is showing lack of confidence in running the business in Europe. It is not sure if it can pull off the position in Europe owing to the tremendous pressure exerted by the labor unions. (Rijkhoek. and Frey, 2009; Ottley, June 2009; Wilkinson and McDonald, 2009) It is already clear from the above analysis of General Motors that the company is facing some serious trouble in case of running its business in this global crisis situation and from the labor unions. The crisis of credit is also generating pressure in case of raising funds to operate the business of General Motors. The company is planning to withdraw from Europe in case of 3 factories out of which 2 are of Vauxhall and 1 is of Opel. There was also a threat of legal consequences that might land General Motors into trouble. The Sberbank of Russia can file legal charges on General Motors for its failure of dealings with them. General Motors also withdrew its business from Koenigsegg Group AB in the month of November, 2009. (Iacocca, 2009), Conclusion From the above analysis of General Motors it can be concluded that the decision of the company of withdrawing its business from Europe is the need of the day. For a huge corporation like General Motors it is not easy to run a problematic factory in light of this present financial crisis. The opportunities of growth for General Motors lied in the Asia Pacific and Latin American countries so, it is better to expand the business in those regions than making efforts of expansion in the European countries. The sale prospects as earlier discussed in the above analysis is better in those countries than that of the countries in Europe. Hence, for a company the decision of winding up weak or problematic factories in Europe is correct. The company needs to battle the recent financial crisis which is also hurting its raising of funds due to the unavailability of credit in the financial sector. Due to limited fund, it is not possible for General Motors to meet the demands of the labor unions in Europe and hence they have rightly decided to withdraw its business from there. (General Motors, 2009; Time, n.d) References 1. 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General Motors, available at: http://www.gm.com/corporate/dealers/diversity/index.jsp (accessed on January 10, 2010) Read More