Impact of Financial Losses for GM Auto Manufacturers - Assignment Example

MEMO May 31, 2006 Impact of Financial Losses for GM Auto Manufacturers Between 2005 and 2006 General Motors (GM) currently might be the No. 1 car maker in the world, but its U.S. market is on a downward spiral. In addition, it has been losing market share to Asian and European markets. In that respect, it is not alone. Chrysler and Ford, the other two top U.S. automakers, are having their problems as well. With gasoline prices at an all-time high, auto manufacturers are hard-pressed to curb their losses. Over the past ten years GM has lost almost half its value, and the past year has been especially dismal for the company. How does the company plan to rally. Are they being realistic in their efforts to meet foreign competition Are they actually looking at the areas that need further attention, or are they looking for short-term incentives as a means of increasing their market share Exactly what are the main issues that must be addressed before GM can begin to recoup its losses A House of Cards In 2005, GM North America reported a loss of $1.6 billion in the third quarter, compared with a loss of $88 million in 2004. In the last quarter of 2005, GM had to revise its losses by a further $2 billion (Krolicki, 2006), the reason said to be charges related to factory job losses and Delphi Corporation's bankruptcy. Unfortunately, the company can be compared at present to a house of cards, easy to topple. Toyota, on the other hand is growing by leaps and bounds and is expected to take over the number one spot in auto sales within the next few years. The chart below is based on an NPR study by Diane Geng (2005) and indicates some of the more telling statistics regarding competition between these companies: By the Numbers General Motors Toyota Best selling vehicle In U.S. Chevrolet Silverado 680,768 sold in 2004 Toyota Camry 426,990 sold in 2004 U.S. sales in 2005 4,454,386 down 4.3% from 2004 2,260,296 up 10.1% from 2004 Profitability per vehicle Losses $2,331 per vehicle Makes $1,488 per vehicle Worldwide sales in 2005 9.2 million 8.2 million Global market share In 2005 14.2% down from 14.6% in 2002 12% up from 10.6% in 2002 Are Short-Term Incentives Enough The above chart indicates a serious concern that Toyota will soon surpass GM. Unfortunately, the company does not seem to be focused on global issues, and its efforts have been limited to quick fixes. The recent agreement with United Auto Workers union to cut health care costs, perhaps by $3 billion a year, offers an immediate boost. However, this savings is expected to be achieved by higher co-pay for doctor's visits and prescription drugs. The company also announced its intention to eliminate 25,000 jobs. Where is the incentive for employees to increase output How much emphasis does the company place on employee satisfaction The most recent effort is a promotional incentive for anyone who buys a new SUV in California or Florida. With gas prices at present well over $3 a gallon, the offer for a redeemable card with gas at $1.99 a gallon for one year if the customer signs up for On-Star, free for a year and then $16.95 a month (Durbin, 2006) is an immediate benefit. But will this incentive improve the way customers see the GM brand The major marketing push has been for trucks, especially popular over the past few years, and SUVs. The company's promotional incentive will help sell the SUVs that are no longer as popular as they were, but then what Future Issues to be Addressed at General Motors Because of the present interest in fuel consumption, commentary on the current economy as it relates to automobile design and manufacture is being updated every day. Some of the online publications that offer a running commentary are Business Day, MarketWatch, YEALD and NPR, as well as books and journal articles as noted in references. Certain areas must be explored if GM wants to stay ahead of the market. Because of the serious issues facing the company, a study directed at upper management, as well as public relations and research & development, addressing the following, would be feasible and highly recommended. Only by looking beyond short-term solutions and studying the global marketplace can General Motors regain its edge. China is a huge market that is only beginning to be tapped. Toyota sees its potential and is launching its made-in-China Camry. Even though GM is still number one in the foreign market, its standing will soon be threatened by manufacturers who are looking ahead to future demands. Brand visibility is a major area of concern with GM autos. The high standards that give Asian and European cars the edge have been established over the years; they are simply better made than the cars in American companies. Isn't it time for GM to focus on quality, even if it is only in one make of car, to improve brand visibility GM needs to create a mid-sized, fuel efficient, low-priced car to compete with Asian and European markets. Perhaps focusing on a hybrid would do it. Finally, it's time for GM to look at the individual rather than the whole market. Whether employees or customers, it is a given fact that satisfied people are far more productive. With layoffs and increased health costs for employees, what is their incentive to give their all to the company Also, customers care about quality and price. Reputation becomes paramount in today's competitive marketplace. When determining what needs to be done to improve market share, look to the individual. In the global society, partnership can offer benefits that a focus on competition will not. What if GM considered merging with Toyota or BMW, thereby combining the best of both brands Rolls-Royce plc began working with General Electric to offset competition in the airline engine market, and it worked very well. References Dussauge, P., Garrette, B., & Mitchell, W. (2004). Asymmetric performance: the market share impact of scale and link alliances in the global auto industry. Strategic Management Journal, Vol. 25, Issue 7, pp. 701-711. Durbin, Dee-Ann. (2006, May 24). GM will cap gas prices for buyers in California, Florida. AOL Money & Finance. Retrieved May 30, 2006, from http://articles.news.aol.com/business/article.adpid=20060523171409990005&cid=403 Freeman, Richard. (2005, August 5). U.S. Auto Supplier Sector Is in the Worst Shape Ever. Executive Intelligence Review. Retrieved May 29, 2006, from http://www.larouchepub.com/other/2005/site_packages/strategic_bankruptcy/3231auto_suppliers.html Gallagher, Kelly Sims. (2006, May). China Shifts Gears: Automakers, Oil, Pollution, and Development. Cambridge, Mass.: MIT Press. Geng, Diane. (2005, December 19). GM vs. Toyota: By the Numbers. NPR. Retrieved May 30, 2006, from http://www.npr.org/news/specials/gmvstoyota/ Hamilton, James. (2005, August 18). GM losses and other economic news. [online] Retrieved May 30, 2006, from http://www.econbrowser.com/archives/2005/10/gm_losses_and_o.html Krolicki, Kevin. (16 March, 2006). GM raises 2005 loss by $2 billion. Reuters. Retrieved May 30, 2006, from http://www.mindfully.org/Industry/2006/GM-$2B-Loss16mar06.htm Kurtenbach, Elaine. (2006, May 22). Toyota plans to overtake GM on the road to China. Business Day. Retrieved May 30, 2006, from http://www.businessday.co.za/articles/companies.aspxID=BD4A203667 Langlois, Shawn. (2006, May 28). Where GM stock stops, nobody knows. MarketWatch. Retrieved May 31, 2006, from http://netscape5.marketwatch.com/News/Story/Story.aspxguid=%7BE58E8FED-3D48-4565-AD47-848CECC655CD%7D&siteid=netscape&dist=netscapeclick Maynard, Michelle. (2003). The End of Detroit: How the Big Three Lost Their Grip on the American Car Market. New York: Random House. Ottink, Frank. (2004, June 12). What can GM, Ford and Chrysler do to stop the ongoing decrease in market share YEALD. Retrieved May 30, 2006, from http://www.yeald.com/Yeald/a/33081/what_can_gm__ford_and_chrysler_do_to_stop_the_ongoing_decrease_in_market_share.html Veloso, F. & Fuchs, E. (2004). The future of the Asian auto industry: regional integration, alternative designs, and Chinese leadership. International Journal of Vehicle Design, Vol. 35, No 1/2, pp. 111-136. Vlasic, Bill. (2005, August 18). Can UAW deal spur turnaround The Detroit News. Retrieved May 30, 2006, from http://www.detnews.com/2005/autosinsider/0510/18/A01-352720.htm Read More