General Motors (GM) Strategic Analysis

Strategic Analysis of General Motors (GM)

General Motors was incorporated in Delaware in 2009.  It is a global company that makes and sells cars, trucks, crossovers and automobile parts in various parts of the world. Apart from the automotive products, the brand provides automotive financing services through GM financing company. Its automotive business is divided into four business segments: GMNA (GM North America), GME(GM Europe), GM International Operations (GMIO) and GM South America (GMSA). In North America, the brands that cater to the needs of the customers include Buick, Cadillac, Chevrolet and GMC. The GM brands selling outside North America include the Buick, Cadillac, Chevrolet, GMC, Holden, Opel, and Vauxhall. Apart from these, GM has equity ownership stakes in regional Joint ventures in Asia involving Buick, Cadillac, Baojun, Chevrolet, Jiefang and Wuling brands. GM sells to the customers directly through its network of dealers and apart from that it also sells to the corporate customers, commercial fleet customers, leasing companies, rental car companies and governments.  The global wholesale vehicles sales of GM in 2016 touched 6.25 Millions rising from 5.9 Millions in 2015. However, these wholesale vehicle sales exclude the vehicle sales by the joint ventures. the market share of GM in US touched 17% in 2016 whereas that in entire North America touched 16.6%. There was a small decline of .3% and .2% in market share in both regions.  China is also an important market for GM. However, its market share in China fell from 14.9% to 13.8%. In US, GM has the highest market share in trucks segment of all the vehicle categories it sells in at 24.2%. The brand also makes large investments in research and development for bringing new technologies including electrical vehicles and autonomous technology. In 2015, GM’s focus was mainly on managing the ignition switch fiasco. While the recalls are expected to continue to trouble GM, it is still rare for GM to undergo a reputation damage. Now, GM has shifted its focus towards higher passenger safety and convenience. Due to good financial performance, it has enough money at its disposal to invest in electrical vehicles and other new technologies.

An External Analysis of the Automotive Industry:

The situation of the global automotive industry has grown stronger than it was some years ago during the recession. Since the recession has passed, sales and profits in the US automotive industry have recovered faster. In the Chinese market too, the automotive industry has seen stronger growth since the recession. Industry reports show that  the sales and profits of the automotive brands would have doubled by the year 2020. Various new trends are shaping the growth of the automotive industry in this decade. The industry is going through a swift transition and its future will be shaped by electrical vehicles and autonomous driving. In future the focus will have shifted entirely to the customers and electrical driving and autonomous driving will have become most important.

According to a report published by the Euler Holmes Economic Research, the automotive market is on its course to have crossed the threshold of 100 million units by 2019. Even in 2019, it is expected that the global sales of automotives will be higher than 98 million units. In China and Russia, the current growth rate is expected to continue and faster recovery is expected in Russia and Brazil. Since the automotive industry is undergoing fast transition, it will be major challenge before the brands to manage this transition. Automotive brands will need to continuously invest in new technologies and models including all forms of vehicle from low cost to premium and electrical vehicles to remain competitive. However, the growth of the industry is also being challenged by legal and regulatory factors. Emission requirements have continuously grown and they are leading to higher production costs for the brands. Simultaneously, the demand for vehicles has also kept growing and is expected to keep growing in the future. The profitability of automotive brands is expected to grow higher because of the rising demand for premium cars and SUVs. As per GM’s annual report the demand for vehicles in US including cars, trucks, and crossovers was around 17.9 million units in 2016. Two years ago this figure stood at 16.9 million units. 

SWOT Analysis of General Motors 2017

 

Chairman & CEO: Mary T Barra

Competitors: Ford, Toyota, Fiat Chrysler

 

Strengths:

• A strong brand image

The first major strength of GM is its brand image and in some corners of the world, the brands that GM owns are more popular than GM itself.  Chevrolet and Cadillac have a very strong image in several parts of the world. Hollywood has also popularise these brands in most corners of the world.  While these brands deliver  great performance, their popularity is also because of their better performance and reliability. Overall, the popularity of GM is very high globally.

• Global presence

GM vehicles are present and popular globally. While US is its core market, the brand’s presence in Asian and European countries has also grown better.  Its release of new electrical vehicles will help it penetrate the global market deeper.

 

• Strong Product portfolio

General Motors has a strong product portfolio of four well known brands. Some of the most iconic cars plying the US roads have been made by GM. Its product portfolio has continued to grow larger and stronger with new product releases every year. Its new product pipeline always seems to remain fresh. GM is there virtually in every vehicle segment with some of its power packed monsters. From Corvetto and Camaro to pickups like Silverado and Sierra, it has a top grade product line and a deep reach in the US automotive market. One of the newest releases from GM is Chevy Volt which is a plugin hybrid. It also proves GM’s commitment to environment friendly technology. Below is a list of the brands from GM some of which are partnerships between GM and Chinese vehicle manufacturers.

•   Baojun
  Buick
  Cadillac
  Chevrolet
  GMC
  Holden
  Jiefang
  OnStar
  Opel
  Vauxhall
  Wuling  [GM brands]
• Vehicles loaded with safety and comfort features

Another important strength of GM are the unique features its cars come loaded with. There are several features to provide the customers with higher convenience and comfort. They include Apple CarPlay, Android Auto, OnStar, SiriusXM radio and 4G LTE wireless. Apart from it, since the ignition switch recalls, GM has deepened its focus on product safety.

 

• Investing in car sharing and other new areas including automated technology.

It has partnered with Lyft to invest in car sharing and making the sharing experience better for both drivers and customers. In its annual report GM notes, “Maven offers access to highly personalized, on-demand mobility services. Customers use a mobile app to search for and reserve a vehicle by location or car type and unlock the vehicle with their smartphone. The app also enables remote vehicle functions like starting and heating or cooling. And customers can bring their digital lives into the vehicle through Apple CarPlay, Android Auto, OnStar, SiriusXM radio and 4G LTE wireless. Think of it as an ownership-like experience with the convenience of car-sharing”. (Maven is the personal mobility brand launched by GM).

 

• Improving financial performance

General Motors’ financial performance has grown stronger and improved in the post-recession years. The slight fall in performance in 2015 as compared to 2014 was because of the dollar exchange rates. Still, there was an improvement in net income. Its profit in 2015 reached $9.7 billion. Much of the credit for GM’s improved profits is being given to the soaring economic conditions that boosted the global vehicle industry. The brand’s performance in China has also remained really strong where GM and its joint ventures enjoyed a 7% growth in sales from 2015 to 2016.

 

• Low prices of fuel leading to growth in demand in US.

The health of the US auto industry has grown better because of the lower gas prices. It has also led to a growth in demand for the pickup trucks and SUVs adding to the profits of GM. Low prices of fuel have always proved favorable for the vehicle brands.

 

• Growing demand and presence in Asian markets.

In the Asian market, GM’s presence has grown stronger. Its joint ventures in China have proved particularly profitable. The joint venture delivered 3,870,587 vehicles in 2016 which marked a 7.1% increase compared to 2015.  It introduced 13 new models in 2016 in China and plans to introduce upto 60 models by 2020. In the Indian markets too, the popularity of the Chevrolet models has risen and particularly that of the small cars like Beat.

 

• Acquisition of Cruise

Taking another step in the direction of automated driving the brand has acquired automated driving start up named Cruise. Automated driving is a major priority for GM and it is pushing aggressively in this direction to bring such case earlier than the other brands. Its strategic investment in Lyft is also being touted as a move to augment the profits from automated driving. However, that’s a thing of future. In the meantime, its acquisition of Cruise has settled the debate on how aggressive and serious GM is regarding its autonomous driving plans.

 

Weaknesses:

• Product recalls

Apart from the recalls due to faulty ignition switches the brand has also made a number of other recalls because of issues like faulty airbags. The ignition switches were found to be faulty in several of its models. In 2014, GM was forced to recall around 2.6 million vehicles because of their faulty ignition switches. These faulty switches were tied to 124 deaths and 275 injuries. That was a major shock for the brand.

 

• Losses due to dollar exchange rates internationally.

The dollar exchange rates are another major cause of worry for GM globally. The dollar has grown stronger since the recession and has resulted in a loss of profits for GM. From Europe to the Asian markets, the brand had to bear a loss of profits because of the stronger dollar. Moreover, the increased strength of dollar has also led to increased dependence of the brand on the American markets.

 

• Dependence on US markets

The dependence of the brand on US markets is high which contributes to a large part of its revenue and profits. This dependence has risen since the global economic turmoil.

 

Opportunities:

 

• Growing demand for fuel efficient and electrical vehicles

Increased demand for the fuel efficient vehicles presents a major opportunity before GM. The motor giant has brought its hybrid to the market and has focused on fuel efficiency and environment friendliness in its other models too. Several of the newly released models from the house of GM are more fuel efficient. Its Chevy Cruze, Chevy Malibu and Cadillac CT-6 are more fuel efficient versions. Increased focus on performance and environment friendliness will also mean higher popularity and sales for GM. However, it added Chevy Volt to its kitty, a plug-in hybrid that delivers better performance than the previous generation Volt.

 

• Growing opportunities in Asian markets

In Asian markets, both the brand’s image and demand are growing. In India there is a rich market for small, fuel efficient and environment friendly cars. Even in China, partnerships with the local brands have brought good results. Sales are expected to increased further in the Chinese market. GM’s Baojun in China, produces cars and SUVs whose prices are well below the other foreign owned brands.  In the commercial vehicle segment GM has partnered with FAW in China to produce Jiefang Light duty trucks. The partnership between GM and Chinese brands has worked well which shows in the sales performance of the brand. GM’s China sales with its joint ventures grew 7.1 percent in 2016 from 2015 to reach 3,870,587 vehicles.

 

• Automated driving

GM has invested in automated driving and is getting closer to bringing automated vehicles in the market. There could be big opportunities hidden in automated driving. However, it also depends on how open-mindedly law approaches automated vehicle technology. Still, automated driving like the other new technologies  could be the game  changer.

 

• Partnerships with other brands in global markets.

In China, the brand’s partnership with local brands has been fruitful. Even in US, its partnership with Lyft has been successful. Globally, the brand can enter into strategic partnerships with other brands including Taxi brands to expand its ambit of services.

 

Threats:

 

• Rising competition in automotive industry

The competition in the auto industry has continued to rise which can be a threat for GM. It fell from its position of number 1 during the recession. It also lost some of its brands like Hummer and Saab. Toyota has moved ahead of GM to the number 1 position. Moreover, the analysts believe that sales in the US auto industry might have peaked and the result would be that GM would not be able to expand its market further. General Motors is expecting the market to grow and yet, the predictions of the analysts might come true. In that case, the brands’ sales are going to be hurt.

 

• Rising exchange rates of US dollar

The rise in exchange rates of dollar globally has resulted in a loss of profits. The dollar has continued to strengthen since the recession and the result has been that the international brands like GM have been forced to bear the losses. Even if these international brands are not running in losses,  their profits are being affected.

 

• Increased costs of manufacturing and raw materials.

The costs of labor, technology and raw materials have increased. While the brand has been able to manage its costs of production well and some of the risk also gets mitigated by the increased profits, the rising costs still mean higher pressure.

 

• Threatened brand image due to product recalls.

The faulty ignition switches due to which GM had to recall more than 2.6 million vehicles globally is a threat for brand image. The faulty switches had been tied to 124 deaths and 275 injuries. Since the ignition switch fiasco, GM has focused more on product quality and safety. Still, the brand had to recall some models now and then for safety concerns. These recalls can dent its image and affect its sales.

 

Five Forces Analysis of General Motors:

Bargaining power of suppliers:

The bargaining power of the suppliers of GM is low because of their small size. While its suppliers are not very strong financially they are scattered globally. there are more factors too that  limit the bargaining power of GM’s suppliers including brand image and financial strength. GM selects only the suppliers who re driven by quality and can match its quality standards. It has also set sustainability standards that it suppliers are required to follow. In this way, the overall bargaining power of GM suppliers is low.

Bargaining power of customers:

The bargaining power of customers in the 21st century has grown higher for several reasons. The entire focus has shifted to the customers and that has led to higher bargaining power for customers. The 21st century customer is well informed and has all the information needed to make a purchasing decision.  Moreover, there are so many brands fighting for market share and same customer base. All these factors have led to a price race and higher bargaining power for customers. To win customexrloyalty brands have to focus more on product quality and after sales service. They also have to spend more on marketing.

Threat of new entrants:

The threat of new entrants in the automotive industry is absolutely insignificant. The barriers to entry as well as the barriers to exit both are higher. There is a huge investment in marketing as well as infrastructure and skilled human resources. Apart from it, the legal compliance related costs and other costs are also making these barriers grow. Since a new brand would have to spend billions just to enter the market and it is not easy to build trust and customer loyalty, new brands hesitate from entering the market.

Threat of Substitutes:

The threat of substitute products for GM is moderate. It is mainly the products by the rival brands that  act as substitutes for GM products. However, ,there are the other public modes of transportation which also act as substitutes. There are several other brands too selling modern, luxury and stylish vehicles. However, some factors that moderate the threat from substitutes include the popularity of GM vehicles, its brand image and the level of trust it has managed to create among its customers. the overall threat from substitute products gets to be moderate for GM.

Intensity of competitive rivalry among the existing players:

The intensity of competitive rivalry among the existing players in hotel automotive industry is very high. A large number of brands are competing for market share and customer base in the market. All these brand invest heavily in modern technologies, innovation as well as marketing of their products and brand. The competition between the brands has continued to intensify as all of them are getting aggressive about business growth and acquiring market share.

PESTEL Analysis of General Motors:

Political:

Political factors have become highly important in the 21st century. Increased oversight and government regulation has led to increased pressure on international businesses. Moreover, the political environment of a nation directly corresponds with the economic environment of the country. Stable political environment also leads to better economic activity and higher employment. A politically table environment also means less disruptions and better business. Otherwise political instability can also lead to supply chain and sales disruption. Strong trade relationships are also good for international businesses since they help with conducting business peacefully in other nations. GM operates in several nations and therefore its business is directly affected by the changing political climate of these countries.

Economic:

Economic factors have also grown highly important in the context of international business. the world economy has been through recession just some years ago. GM itself was on the verge of bankruptcy and needed being bailed out by government support. During recession or times of low economic activity, the level employment falls leading to low income and lower expenditure by customers. This in turn leads to lower sales and profits for international businesses like GM. When the economic activity is high, the level of economic activity and employment grows leading to higher disposable income and faster growth for brands. In this way, economic factors affect businesses including gM directly. Low economic activity or economic fluctuations can affect businesses by affecting their income.

Social:

Social factors have kept growing in importance in the context of international business. Society and cultural factors both affect businesses several ways. People’s taste and preferences change with changing social trends leading to fluctuations in sales of specific products. In most corners of the world, the demand for SUVs and luxury cars has increased. Moreover sociocultural factors affect the marketing and sales strategist of brands too. Demographic changes in the world population have also led to changing demand and sales patterns. Millennial generation wants stylish and technological advanced vehicles that provide higher level of safety and convenience.

Technological:

The technological factors are now more important than ever in the context of automotive industry. GM also sounds a large amount on research and development. In 2016, its expense on research and development was 8.1 Billion dollars and this expenditure has kept rising from year to year. Automotive brands including GM are in a race for superior technology since it attracts customers in larger numbers. They are investing more unmaking their vehicles technologically advanced and safer. AI and autonomous driving are now the main focus of these automotive brands. Moreover advanced technology has grown more important in terms of production and supply chain too.

Environmental:

All around the world, governments have become more cautious about environmental impact of the automotive businesses. This is why brands are focusing more on minimising their carbon footprint. They are bringing more hybrids and electrical cars to the market. It is not just because of the rising popularity of cars with low emissions but also because governments are now encouraging brands that bring environment friendly cars. GM notes in its annual report “We are investing in multiple technologies offering increasing levels of vehicle electrification including eAssist, plug-in hybrid, full hybrid, extended range and battery electric vehicles. We currently offer six models in the U.S. featuring some form of electrification and continue to develop plug-in hybrid electric vehicle technology and extended range electric vehicles such as the Chevrolet Volt. In 2016 we began production and sales of the Chevrolet Bolt EV, which provides an EPA-rated 238 miles of range on a full charge”  (GM Annual Report 2016).

Legal:

Legal compliance is now a bigger burden for automotive  brands like GM than ever. Compliance issues are driving costs manufacturing costs upwards for the automotive brands.  From environmental owls to labor laws and quality related laws, there are so many laws that vary across the various corners of the world. Brands have to remain cautious regarding compliance otherwise they risk losing billions in the form of fines as happened in the case of Volkswagen just a  few years ago.

General Motors Value Chain Analysis:

Primary activities:

Inbound logistics:

GM relies on a  global supply chain for raw materials and vehicle components.  It has a large nap global supply chain from where it sources raw materials which are shipped to its production facilities.

Operations:

GM has its manufacturing facilities around the world. Its manufacturing, distribution, warehousing, assembly and office facilities are located all around the world in 61 countries. Outside US it has manufacturing and assembly facilities in Argentina, Australia, Brazil, Canada, China, Colombia, Ecuador, Egypt, Germany, Kenya, Mexico, Poland, South Africa, South Korea, Spain, Thailand and the U.K.

Outbound logistics:

GM has  large distributions channel and dealer network. Its vehicles are shipped to the dealers from its manufacturing facilities and warehouses for selling to the customers. Apart from that it sells to its corporate customers and fleet customers or governments directly.

Marketing & Sales:

the brand also spends on marketing of its vehicles and brand. Its advertising and promotions expenditures for the year 2016 equalled 5.3 Billion dollars.

support Activities:

Technology:

GM invests a lot in new technologies and has excellent manufacturing and distribution facilities. In 2016, the brand spent 8.1 Billion dollars on research and advertising.

HRM :

GM also focuses on managing its HR innovatively. As of December 31 2016, it had 135000 hourly employees and 90000 salaried employees.

Procurement:

The procurement team of General Motors procures raw materials from its suppliers located around the world.

Firm Infrastructure:

The firm has managed a large infrastructure that includes its manufacturing, distribution and warehousing facilities as well as offices around the world in 61 countries.

Financial Analysis:

the net sales and revenue of General Motors have kept increasing over the past five years. In 2016, its net sales and revenue touched 166.4 Billion rising from 152.4 Billion in 2015. the increase in net sales and revenue was drive primarily by growing sales in North America and across GM Financial. However, the net income of the brand fell from 9.6 Billion in 2015 to 9.3 Billion in 2016 due to the ignition recall fiasco. EBIT adjusted grew to 12.5 Billion in 2016 from 10.8 Billions previous year. 

Suggestions:

– The market is transitioning fast and GM must focus on innovation to keep up with the fast changing trends and demand patterns.

– The demand for electrical vehicles has kept rising and GM must focus on bringing more electrical vehicles and hybrids so as to gain  leadership position in this area.

– the Asia pacific market share among the fastest growing and most profitable markets in the world and GM must focus the choice f the customers enthuse markets.

– Apart from everything it must invest in the latest technologies like AI and autonomous driving.

– Digitisation of the supply chain is also very important in the light of increasing competition and to reduce the manufacturing costs.

GM has improved its performance financially in the years since its bail out by the Federal government. The company has decided to move further with its plans related to Automated driving. In the last few years it has released several cars that rule the customers’ hearts. It has invested in strategic partnerships that could mean a better future for the brand. In China also its partnership with the local brands has been successful. Another partnership that is working in favor of General Motors is that with Lyft.

Overall, the brand is in a very good position and poised for further global growth. It must invest in new partnerships in Europe and Asia to grow its brand presence. In Asia, particularly India and China the demand for small and fuel efficient vehicles has kept growing and will bring additional profits for the brand. It can bring more fuel efficient and electrical models to these markets to grow its revenue.

Sources:

[NYtimes]  [Fortune 500]  [US News] [GM 2015 annual report]