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How Much Can the Internet help GM?

1. Analyze GM using the competitive forces and value chain models.

Porter's competitive forces model

Porter's value chain model

2. Evaluate the current business strategy of GM in response to its competitive environment. What is the role of Internet technology in that strategy? How successful is that strategy?

The current business strategy of GM in response to its competitive environment is based on the belief that by intensively weaving Internet technology into all of its business processes, GM could become a smarter, leaner, faster company, more in tune with customers. This technology would help GM reduce from 24 to 12 months the time to design, engineer, and manufacture a new vehicle, cutting up to 10% of the cost of making a vehicle by eliminating supply chain inefficiencies. Internet technology could be the catalyst for GM to reconstruct its entire value chain, transforming itself into a customer-focused business that provide many different electronic services to consumers, as well as cars.

Two decades of restructuring and reorganization have brought about deep changes in GM, paring down the waste and overbloated bureaucracy. The company has slashed the time required to produce a car from 48 to 18 months, eliminating $1 billion in engineering costs. It has also developed new online sales channels and sources of revenue. GM is becoming highly skilled in selling over the Internet.

3. Evaluate each of GM's e-commerce and e-business initiatives described in this case. How much value can they bring the company?

Selling Vehicles Online

GM does not actually sell vehicles directly online but provides Web sites with a range of services for both customers and dealers.

GMBuyPower.com, established in March 1999, is a Web site where visitors can browse for GM cars; search by color, options, and availability; and find a dealer in their area that stocks the car they want. The site indicates the cars those dealers have in inventory. Dealers involved in the BuyPower selling program are trained to work with customers who have done online car buying research and must surf every auto Web site that he customers could potentially have visited before landing at GM. This approach is proving highly successful. Since September 2001, GMBuyPower has generated more than 2000 leads to dealers per day and over 20% of those leads convert into auto purchases.

The GM Owner Center, launched in January 2002, stores maintenance records and manuals for current GM owners and also provides service reminders and tools for estimating vehicle value.

DealerWorld is a Web portal featuring applications such as vehicle number identification (VIN) lookup, which helps dealers determine which incentives a buyer qualifies for on a specific period.

GMAC SmartAuction is a Web site where GM dealers can bid for leased vehicles that were returned to dealers and are now owned by GM's finance arm General Motors Acceptance Corporation (GMAC). This system is faster than live auctions and reduces the chances that autos will be damaged while being transported to a physical auction site.

Building Vehicles to Order

In order to link factories to suppliers via cyberspace and reduce procurement and inventory costs, GM and other major auto manufacturers have established Covisint, a massive Net marketplace. GM believes Covisint could cut the cost of producing each vehicle by perhaps $1,000 as well as reduce the time from receiving a car order on-line to delivery from about 45 days to 10 days. Covisint is linked to GM's own private industrial network, called GMSupplyPower. This extranet gives suppliers access to the latest information on production scheduling, inventory, and the quality of their parts.

Build-to-order would greatly reduce finished vehicle inventory costs as well as generate other production cost savings, potentially saving GM $20 billion per year.

Online Services

Another information age venture GM has established is its wholly owned subsidiary, OnStar. It is a telematics system with onboard navigation, Internet, safety, and communication capabilities accessed through three buttons on the vehicle dashboard. A global positioning system (GPS) keeps the system constantly informed as to the location of the vehicle on the road. OnStar provides such services as emergency roadside assistance, stolen-vehicle tracking, and concierge support such as making dinner reservations.

OnStar Personal Calling enables drivers to make and receive hands-free calls with voice-activated phones. The OnStar Virtual Advisor service allows users to retrieve personal data on the Web, including e-mail, news, stock quotes, and traffic and road-condition reports within a given radius of the driver's location. Whether the hardware is standard or an option, any user of OnStar will pay an annual subscription ranging from $17-70 per month, depending on the service taken.

With OnStar, GM cars can become a platform that generates a continuous stream of high-margin revenues from drivers downloading and paying by the minute for Internet, data, and telecommunications services. With 70% of wireless telephone logged in vehicles, GM could eventually become the largest reseller of cellular minutes in the United States. GM has licensed OnStar to Honda and Toyota, and it will also be providing them such services as roadside assistance as well.

OnStar has nearly 2 million subscribers but it is not yet profitable. Customers are balking at the monthly subscription fees and nearly half of OnStar subscribers don't renew their subscriptions after the first year. Since OnStar subsidizes some of the cost of its hardware installed in GM cars, getting customers to renew is critical.

Internal Uses

One of GM's most