General Motors Corporation mainly referred to as GM is the second largest automobile manufacturer in the world after Toyota. The main area of specialty for the company’s expansion, marketing as well as production of trucks, cars and car parts and its primary operations are situated in Europe and North America (Pelfrey 53). The company employs more than 325,000 people worldwide. The budget of GM is said to be bigger than that the output of some countries such as Pakistan and New Zealand. The research on this company is of great significance as its operations affect millions of consumers in the world. Any economic impact in this company affects the economies of the many countries that GM operates in (Daft & Marcic 22).
The company has been in an economic crisis which if not well addressed, could lead the company into a state of bankruptcy. For instance, in 2008, the company reported a 30% decrease in the level of profits which was partially accredited to the hastily increasing gas prices. This resulted into a massive decrease in the volume of sales and thus the company found itself struggling to make profits and stay afloat. The downfall of the economy has also caused the company to lose customers due to reduced purchasing power. The company has ended up turning to the government to seek financial aid in order to finance its operations. As a result of the current financial crises that the company is facing, it has resolved to lay off about 47,000 employees in the move to reduce the total operating costs.
This study will therefore, be aimed at looking at operations of the company in the past 100 years and how the financial crisis faced by the company has affected its operations. This will then be coupled with ascertaining the best ways of addressing those problems to facilitate recovery of the company (Fukuyama & Birdsall 119).
Data on GM Case Study
GM is the biggest automobile maker on an international front. Like most companies in the auto mobile industry General Motors has its strengths, weaknesses, opportunities, and threats (SWOT). GM was founded in 1908 and has stood as the global industry automobile retail principal since 1931(Fukuyama & Birdsall 96). GM’s vehicles are sold to over 200 countries around the globe, and GM employs slightly over 325,000 people, having a presence in manufacturing businesses in 32 states.
All automotive operations globally are united into a sole firm, the General Motors Automotive Operations. This encompasses General Motors North America (GENERAL MOTORSNA), General Motors Europe (GENERAL MOTORSE), General Motors Latin America/Africa/Mid-East (GENERAL MOTORSLAAM), and General Motors Asia Pacific (GENERAL MOTORSAP). General Motors is well known for its trucks as well as sport utility vehicle (SUV) sales. The company made immense sales of Pickups unlike other producers for a long time in 12 years time period (Fukuyama & Birdsall 113). It has more fuel-proficient cars and trucks (30+mpg) unlike other producers.
Market share statistics from the 2004 annual report are as follows:
GENERAL MOTORSAP 5.2% up (China is GENERAL MOTORSs second largest market at 9.3%)
GENERAL MOTORSLAAM 17.4% up (GENERAL MOTORS is #1 in Brazil, Doubled its share in Argentina & Venezuela)
GENERAL MOTORSE 9.5% up (Some loss in Europe due to erratic exchange rates)
GENERAL MOTORSNA 26.7% down .7% US Trucks 29.0% down 1%
Total Global 14.5% down 1%
Source: http://www.gm.com/
Sales of trucks represent 60% of General Motors total United States Vehicle sales which went up by 1%. GM expects 30% of its sales to come from new production lines. GM current products that fall into the Problem Child group of the BCG Matrix are foreign brands like Holden, Vauxhall, and Opel, and full-size trucks and sport utility cars due to high fuel consumption (Nanto 103). The vehicles in the Star class include hybrid vehicles such as the 2006 Chevy truck, and smaller SUVs and crossover vehicles like the present Pontiac Vibe.
The financial crisis of GM started in 2005 when it declared that it had made a loss of $1.1 billion in the quarter of that financial year. This was due to increased medical expenses coupled with poor sales that affected the performance of the global largest automobile company (Pelfrey 63). GM has featured as a symbol of United States of America industrial might. The giant is now facing problems that affected other big firms like airlines and steel.
Three decades before most vehicles that Americans bought in each year were manufactured by GM. It is now estimated that those statistics have dropped slightly beyond a quarter. While in the past poor performance in General Motor’s business was affected by intense complications in the U.S. automobile sales, the present difficulties arise in the high sales period of five years in auto sales record. The auto market industry is changing rapidly.
For instance, Boeing has been surpassed by Europe’s Airbus to be the best commercial airplane manufacturer. The International Business Machines had difficulties building a strong baseline in the era of PCs before disposing off the business to a Chinese company (Cable 47). The market dynamics have been changing pretty quicker than firms.
GM has resisted venturing in gas-electric hybrid automobiles, for example, as Toyota’s Prius is a favorite in the market. GM chief executive ignores the dynamics in the auto market and affirms sales will increase. “In many ways, General Motors is struggling with the entire panoply of complications encountered by American businesses,” Morici said. This means that costs related with, labor, management, health care, pensions, far outweigh those of international rival automobile companies. General Motors’s loss of $1.1 billion ($1.95 per share) was a huge fall from the $1.21 billion ($2.12) in earnings the firm presented for the corresponding quarter during the last financial year earlier. In 2005 the loss included one-time expenses linked to the reformation in Europe and programs of job attrition, but regardless of these the firm lost $839 million.
Auto mobile industries dominate a huge distribution from resources, requirement distributors to retail goods, impacting on the United States economy (Cable 49). GM’s problems have resulted from mismanagement of the supply chain. This kind of business scenario has been observed in where few old stalwarts cannot keep up with more efficient and competitive rivals. Airlines have higher turnovers on subsidized fees because of volumes, company car in Asian markets make huge returns on automobiles that end users viewed having benefits, as observed by George Hoffer, a prominent economist and automobile industry specialist at Virginia Commonwealth University in Richmond (Taylor & Weerapana 332).
In what George Hoffer viewed as an exceptional turnaround for General Motors the brands sold do not create loyalty from consumers; General Motors discontinued domination as it developed other cars during the year 2005. The Chevrolet Cavalier for instance, became the Cobalt, the Venture was the Uplander, the Pontiac Grand Am was the G6, and the Buick Regal became the Lacrosse just a complete rebrand. Japanese automobile companies introduce new models into markets, they keep the old names, so they can get the virtues of the product and the consumers know where it fits. Consumers on their own volition are not in a position if G6 is appropriate not even to mention what an Uplander is.
Driving Sales of new products is disappointing especially for GM, and the North American marketplace where GM once controlled is shrank (Conrad 66). This was plainly observed in the first-quarter loss results of 2005. Earnings reduced to $45.77 billion, from $47.83 billion during the corresponding financial results of the previous year. This was partly because GM was reducing production to help manage costs. GM had indicated that its productivity would be poorer than anticipated, and the financial results coincided with it. This made prime credit-rating firms hint that they could fall General Motors bonds one notch to junk status later in the year (2005).
In 2008 General Motors went to Washington for loan assistance from the federal government. GM was on the verge of collapse due to the collapse of car sales around the world. This was as a result of the financial losses that was stemming from the banking sector. GM, being one of the giant automakers, was not expected to have fallen quite as quickly as it did because the company had been the industry leader in terms of sales for more than a decade (Cable 62). GM faced a liquidity crisis because it was running low in terms of cash, with only an estimated $16.2 million in reserves and cash outflows of $6.9 million. The company was required to file for bankruptcy protection under Chapter 11 if the Federal government did not offer loans.
GM executives were given a platform to relay their sentiments concerning the financial situation of their automotive industry before members of Congress and the press. During this devastating economic situation, the executives were expected to raise any concerns about the potential economic implications that would affect them in case they become bankrupt. The setbacks that GM faced resulted from declines sales and lack of available credit in a country where more than 90 % of all new cars are bought with financing. In addition, the oil prices reached an all time high in 2008 making the price per barrel to be way above $100. Most of the gas stations in America were retailing gas at $4 per gallon causing consumers to reduce sharply the use of cars. Americans shifted to more fuel-efficient automobiles and this was not a product associated with General Motors.
In 2008 General Motors was experiencing a shift in demand to the expanding economies of Brazil, Russia, India, and China. These markets were seen as the new emerging markets that would be a new source of generating sales revenues. In China these saw General Motors sales grow from 2 million cars in 2001 to nearly 8.9 million in 2007 because the Chinese government forces foreign car companies to form joint ventures with the local car manufactures (Pelfrey 38). Although this foreign countries are not immune to the growing turmoil in the developed nation’s economies it is believed that General Motors be able come out of its liquidity crisis.
There has been a growing trend in the industry because of the demand of hybrids and this is expected to continue. This has been brought about by the high oil prices due to the economic downturn and this is not expected to charge in the long-run. More Americans are now aware of the benefits of having a fuel efficient vehicle during this tough economic times and this has created a demand over the last decade with sales of hybrid gas-electric vehicles in the United States increasing. General Motors has not been able to capture this market but it predicts it will make great strides in the sales of hybrid gas-electric vehicles. This will be good news for General Motors because it will maintain its long-term market share and potential profit. Due to the anticipated increases in fuel prices and growing concern over environmental matters the sales of hybrid gas-electric vehicles is expected to grow (Pelfrey 42). There is a strong indication for that in a few years time there will be a strong entry into the alternative fuel market because of the high fuel costs which will eventually create room for grown in General Motors in the long run.
There has been some progress in the alternative fuel market because in 2008 Opel Insignia won car of the year in Europe. This has been a major mile stone for General Motors because the new vehicles were reviewed to be of high quality and at the same time they set good standard for the company. The sales shoot up because of these award winning cars even in the face of the difficult recession. General Motors is also building a large fleet of fuel-efficient automobiles with more than 30 mpg on the highway. This is important to General Motors’ strategy in meeting the projected growth in future and at the same time dealing with the demand of fuel efficiency hybrids like Chevy Volt.
Findings and Discussion
An analysis of the operations of GM, the financial crisis that it experienced and related issues enables one to be acquainted with information needed to resolve the problems at hand. For instance, the financial crises faced by the company made consumers to lose confidence. There was no available credit and there was uncertainty in the economy. This led to lower levels of consumption and increased levels of unemployment and uncertainties in the outcomes of the presidential elections (Howard 48). GM’s long-term restructuring strategy was put on hold due to the global financial collapse of 2008. Most of the experts in GM viewed this as a successful game plan that would gear the company on an upward level but the resulting loss of sales placed the company in a crisis situation.
General Motors felt the sales slump affected the whole industry as they heavily depend on sales and the availability of credit for customers. In 2008 the sale fell by 24% and this meant that the companies were under pressure to conserve cash by cutting production costs. Unfortunately, General Motors, had yet to develop a healthy balance sheet, and this brought the company into a liquidity crisis that forced it to seek government backing or face potential bankruptcy. There was a drop in auto dealerships and this meant that any reduction in dealerships would create unemployment. Many companies in the US were reluctant to enter into new contracts because of the credit crunch and instead chose to retain their old stock that otherwise would have been dealt with (Taylor & Weerapana 324).
GM’s of turning to the government for funding is seen by many analysts as misappropriations of tax payers money since the company does not seem to have concrete plans to get itself out the financial crisis it is facing (Daft & Marcic 28). The company is basing its payback plan on the assumption that by 2014, many Americans will increase their rate of car buying to about 18.4 million annually. This figure will be 500, 000 more than the sales made in 2000 when the sales of the company were very high. Considering the current economic condition faced by the country, such projects are not likely to be attained any soon. The total sales in the year 2014 might not even exceed 13 million and this may make the repayment of funds obtained from the government difficult.
The share of the company is likely to drop from 21% to about 19.1% by the year 2014. However the company will have to do what it takes to prevent the share from falling below 19.1%. So with the numerous problems facing the company which have threatened to render the company bankrupt, the big question remains what measures the company ought to take to ensure that they are able to regain financial stability (Cable 66).
Conclusion and Recommendations
This research is of great benefit to the General Motors Company as its findings can be used in implementing policies to enhance increased productivity of the company. GM is a global company that has branches in many countries as it capitalizes in the large volume sales of its vehicles that have been on great demand for many years. The methods of data collection used in the final study are precise as the questions in the questionnaires are straight forward. In an attempt to improve on the quality of this research, most of the questions in the questionnaires are open ended to give the responders a chance to raise their opinions. Some of the research questions that are presented in a multiple choice format assist the researcher in data analysis as their answers are either affirmative or negative (Cable 75).
It is noticeable that the problems faced by GM were related to mismanagement and the economic crises of 2008. The operations of the company ought to be restructured so as to set in place new policies that aim at customer satisfaction and efficacy to organizational operations. This assertion implies that customer needs in terms of affordability of the automobile machines, lower fuel consumption and proper branding ought to be put in place (Nanto 103). Additional marketing and promotion strategies should also be used so as to widen the market share of the company. This will enable it to regain its competitive advantage, maximize sales and eventual increase its profit margins. There is also a need to diversify its investment structure so as to attract many customers and expand its market domination on the global front. With these strategies, GM’s 100 years market domination legacy can be acquired and still dominate for 100 more years (Pelfrey 59).
Works Cited
General Motors Corporate Website: http://www.gm.com/
Bergman, Manfred. Advances in mixed methods research: theories and applications. Boston: SAGE Publication, 2008.
Cable, Vincent. The storm: the world economic crisis and what it means. Melbourne: Routledge, 2009.
Conrad, Bud. Profiting from the world’s economic crisis; finding investment opportunities. New York: John Wiley and Sons, 2009.
Daft, Richard & Marcic, Dorothy. Understanding management. New York: Cengage Learning, 2010.
Fukuyama, Francis & Birdsall, Nancy. New Ideas on Development after the Financial Crisis. New Delhi: JHU Press, 2011.
Howard, Davies. The Financial Crisis. New York: Polity, 2010.
Nanto, Dick. Global financial crisis: Analysis and Policy Implications. Boston: DIANE Publishing, 2010.
Pelfrey, William. Billy, Alfred and General Motors: a legendary company. New York: AMACOM Division, 2006.
Taylor, John & Weerapana, Akila. Principles of economics: Global Financial Crisis. Boston: Cengage Learning, 2009.
Appendix
Sample Research Questionnaire
Was GM affected by the global financial crisis in any way?
- Yes (b) No
If yes, how did it affect the daily operations of the company?
Generally how would you rank the impact of the global financial crisis in GM?
- Positive (b) Negative (c) Moderate
Were there any employees who had their jobs terminated due to the financial crisis?
- Yes (b) No
Will government funding contribute in alleviating the financial crisis at GM?
- Not really (b) It will help a big deal (c) It will depend on the amount of financial input
What do you consider to be the top most five solutions for the problems created by the financial crisis in GM?
How were the overall sales at GM affected by the crisis?
- They decreased (b) No change (c) They were moderately affected
Has the management contributed in any way towards this financial crisis?
What ahs the management done so far to save the economic situation at GM?
How can GM avoid such financial crisis in future?
