General Motors Case

EXECUTIVE SUMMARY

General Motors is primarily engaged in automotive production and marketing and financing and insurance operations. GM designs, manufactures, and markets vehicles worldwide, have its largest operating presence in North America. The core competence of General Motors is innovation. This is the driving force behind its $190 above turnover. General Motors has been utilizing innovation in service ad technology to secure itself a dominant position in the automobile industry, since 1908.

The main problems faced by General motors are declining U.S. automobile market share, high pension costs, rising fuel prices, lack of differentiated products, inability to generate revenues from its core activity (manufacture of cars), over dependence on its financing division and its

inefficient use of assets. General Motors can adopt several strategies and tactics to overcome internal weaknesses and external threats. Some of these are:

1. Introducing self managed creative work teams to improve and speed- up product development of new technologies in emerging markets such as China and Europe.

2. Reduce dependence on GMC and focus resources on core products i.e. cars and SUVs to generate revenues.

3. Cut costs by dropping unsuccessful product lines and introducing cars that accommodate the needs of the car-buying public.

4. Shift major operations to lucrative European and Asian markets in order to avoid high operating costs, including the high healthcare costs imposed by UAW

5. Reduce threat of lower priced products by introducing a flexible product line and trimming the inefficient ones.

The changes that are needed to make General Motors more competitive are to change the organizational structure with the Chairman and CEO positions segregated and the elimination of vice chairman positions. GM should redirect development and marketing costs from gas fueled vehicles to alternative vehicles at a minimum of 50% of overall cost. General Motors should offer a wider range of fuel-efficient mini-cars as there is likely to be an upward trend for these due to the occurrence of traffic congestion worldwide.

The company should gain market share in the European and the Asian markets, which are quite promising. General Motors should change public opinion and overall image of company to be perceived as an environmentally friendly, and an auto industry leader in alternative vehicles.

INTRODUCTION

General Motors is primarily engaged in automotive production and marketing and financing and insurance operations. GM designs, manufactures, and markets vehicles worldwide, having its largest operating presence in North America. GM’s finance and insurance operations primarily relate to General Motors Acceptance Corporation (GMAC), a wholly owned subsidiary of GM, which provides a broad range of financial services, including automotive finance and mortgage products and services.

CORE COMPETENCE

The core competence of General Motors is innovation. This is the driving force behind its $190 above turnover. General Motors has been utilizing innovation in service ad technology to secure itself a dominant position in the automobile industry, since 1908. In 1911, it conceptualized, engineered and commercialized the self-starter engine for the first time. Then in 1926, its product Cadillac was the pioneer in devising a nationwide service strategy. In 1996 General Motors introduced OnStar satellite technology which allows equipped vehicles to be tracked in case of an emergency or theft and allows the passengers to communicate with OnStar personnel. Other new car concepts include minicars such as Chevy Aveo.

However in the case of hybrid vehicles, General Motors was unable to keep up to the pace of the market demand.

PROBLEMS FACING GENERAL MOTORS

There are a number of problems facing the company.

1. The share of the U.S. automobile market held by General Motors in 1976 was 47% but this has now declined to 26%. This weakens the company even further as it relies heavily on its sales to this region. More than two thirds of the company sales are made in the U.S.

2. General Motors pension fund obligations and health care obligations appear to threaten the future of the company. Majority of General Motors’ U.S. employees are members of the United Auto Worker (UAW) Union, which ensures health insurance for its members by entering into contractual agreements with employers. The United Auto Workers’ officers and GM’s senior managers decided decades ago to agree to high pension and health benefits in exchange for reduced increases in wages. Health care benefits are tax-free income for workers. Even retired workers are covered. It seemed like a low-risk deal for GM. Nobody thought about the price effects on health care of Medicare.

The health care market (15% of the U.S. GDP), like all markets, is a giant auction. If bidders get their hands on more money, they will bid up prices. All over America, workers are bidding health care prices. So are retirees.

General Motors is therefore required to incur heavy expenditure on health insurance for its U.S. employees. Healthcare costs have increased by double digit in the past decade and now represent approximately $1,500 of the cost of each vehicle produced, there is more health care than steel in a GM vehicle’s price tag .This is one of the main reasons it lost $1 billion in the first quarter of 2005. Then there are GM’s retirees: Health care for retirees and their families вЂ" there are 2.6 of them for every active worker вЂ" is 69 percent of GM’s health costs. For a minicar like Chevy Aveo this is 15% of its sales value ($1,500/$9,995= 15%).

In conclusion as medical costs are rising this will have an adverse effect on the profitability of GM i.e. as medical costs в†' the profitability of GM в†".

3. Costs of various heads have risen dramatically. These include raw material costs, fuel, healthcare and pension costs. These have worsened the profitability situation of General Motors. So much so that the company was able to translate its sales to net income only by 1.45% in the year 2004 (Net income/Sales= $2.8 billion/$193 billion=1.45%).

4. The company does not offer competitive, differentiated products anymore. Its most profitable products such as SUVs and trucks