General Motors Policy Report

Table of Contents
1.0 Executive Summary    4
2.0 GM’s Vision and Mission Statements    5
2.1 Vision Statement    5
2.2 Mission Statement    5
3.0 Company Background    6
3.1 Company History    6
4.0 GM’s SWOT Analysis    7
4.1 Strengths    7
4.1.1 Large Share of the market    7
4.1.2 Global Experience    7
4.1.3 Many brand names and business lines    8
4.1.4 Customer Financing Program    8
4.1.5 Inclusion of the “On Star Satellite Technology”    8
4.2 Weaknesses    8
4.2.1 Backward in the production of hybrid vehicles    8
4.2.2 Stagnant Profits    9
4.2.3 Over-dependant on the US market    9
4.2.4 Unfavorable Credit Status    9
4.3 Opportunities    9
4.3.1 The Developing Hybrid technology    9
4.3.2 Continued Expansion    10
4.3.3 Interest rates that is low    10
4.3.4 Redesigning Vehicles    10
4.4 Threats    10
4.4.1 Rising prices of fuels    10
4.4.2 Competitive Rivals    10
4.4.3 Huge Pension Payments    11
4.4.4 Increased healthcare/legacy costs    11
4.4.5 The rising costs of raw materials    11
5.0 A Closer Look at GM    12
5.1 GM’s system of global alliances    12
5.2 GM’s key historical dates    12
5.3 General Motors in Saudi Arabia    15
5.4 Factors facilitating growth and expansion of GM    16
5.4.1 The global reach of GM parts and accessories    16
5.4.2 The Launch of the “GM Difference”    16
5.4.3 Social Traditions that promote purchase of expensive brands    16
5.4.4 Diversification of its Brands and Business Lines/Partnerships    17
5.4.5 The implementation of technology at GM    17
5.4.6 Competent Management team    17
5.4.7 Military contracts of World War II    18
6.0 Problem statement and objective    18
7.0 Historical background/Contributing Factors    19
7.1 A general background of the problem    19
7.2 Automotive Energy Crisis at General Motors    20
8.1 Energy Policies that was uncertain caused shifts in demand    23
8.2 Global financial meltdown of 2000s/Credit Crunch    25
8.3 Legacy Costs/ Healthcare Costs    25
8.4 Strict Government Regulations    26
8.5 The “high standards” set by its competitors    27
8.5.1 DamilerChrisler    27
8.5.2 Ford Motors    27
8.5.3 Honda Motors    27
8.5.3 Toyota Motors    28
8.6Lackluster and Sub-standard cars    29
8.7 Global Slowdown and media spotlight.    30
9.0 Challenges, issues and prospects    30
9.1 Implementing successful technology    30
9.2 Cost recovery challenges    30
9.3 Increasing Consumer Demands as well as Regulatory Pressures    31
9.4 Inadequate data    31
9.5 GM’s foreign expatriate sales force experience tough times    31
9.6 International Recalls reduce GM sales    32
9.7 The rapidly increasing energy prices    32
9.8 Challenge of creating an efficient management structure    32
10.0 Discussion of the related literature    33
10.1 How GM has tried to address the crisis    33
10.2 Key Questions Arising from GM’s suggested and adopted strategy    34
11.0 Proposed Solution    34
11.1 Other alternative solutions    35
11.1.1 Expediting transfer or adoption of technology    35
11.1.2 Negotiating the harsh regulations    35
11.1.5 Development and Implementation of an Outsourcing Concept    36
12.0 Implementation of each alternative    36
13.0 Implications for future use    37
14.0 Conclusion and recommendation    38
15.0 Works Cited    40

1.0 Executive Summary

This policy report provides comprehensive factual information on the  rapidly declining global sales at General Motors in its Saudi Arabian market as well as its other global markets. In studying the situation, the report starts by providing a background overview of the company.
The company’s mission and vision statements succeed the background information followed by GM’s SWOT analysis. The analysis of the SWOTs has been comprehensive researched to enable the users of the report to gather background knowledge on the whole report.
The report proceeds to look at GM’s system of global alliances, which was one of its key business inventions. Company’s key dates are then highlighted in brief followed by the statement of the problem. The GM’s declining global sales has been identified as the study problem. The increasing energy prices have been highlighted as the major historical factor that led to the emergence and growth of the problem at GM. Other contributing factors have been highlighted though in brief. Subsequent objectives are then listed in question forms.
A comprehensive look into the major historical factors that caused the reduction in GM’s global automotive sales succeeds the objectives. In analyzing the factors, prominence is given to uncertain energy policies, the increased legacy/healthcare costs, strict government regulations, luck star and substandard vehicles, the global slowdown and increased media spotlight and scrutiny.
The current challenges, issues and prospects facing General Motors were then identified and studied further. Amongst the identified challenges were technology, cost recovery, rising fuel prices, inadequate data and the recalling of GM brands.
In discussing related literature, the group discussed the GM’s dealership reduction strategy of addressing the crisis. The arguments for and against this strategy succeed its study.
The study of the current strategies and the production of hybrid brands are proposed by the group as ideal strategies upon which GM can adopt to address the current crisis. Other valuable alternatives are then highlighted in brief followed by their implementation techniques.
In concluding, the report looks at the adverse impacts that the rising energy prices have had on GM and the automotive industry in general. Finally the report recommends the creation of hybrid brands that will not only answer to the current energy crisis, but also to the changing climatic conditions.

2.0 GM’s Vision and Mission Statements

The General Motors homepage provides the following as its mission and vision statements:

2.1 Vision Statement

GM aims to be a world leader in terms of transportation and/or related services. In achieving this, the company intents to earn enthusisam for its customers. This will be implemented by regular improvements based on team work, innovation and GM peoples teamwork.

2.2 Mission Statement

GM will greatly strengthen by improving revenue, market share, people , costeffctiveness and responsiveness through implementing common global metrics and practicing best sharing.

3.0 Company Background

3.1 Company History

The General Motors Corporation came in existence in 1908.The founder of the corporation was William Durant (Davies 31). The company’s world headquarter have been stationed at the Renaissance Centre in Detroit, USA. Durant combined the smaller motoring units of Buick, Oldsmobile, Oakland and later Cadillac to form the giant GM Group.
From 1908 to 1920, the company accounted for a 10% percent of the USA car sales market. From 1920 onwards, the firm expanded greatly and grew to become the largest manufacturer of cars and trucks all over the world. However, the company’s market dominance experienced a setback when the US government introduced federal safety regulations and control of tail pipe emissions (31). These regulations impacted negatively on the company’s marketing strategy. As a result of the poor marketing strategy, competitive challenges arose leading to the company losing its market leadership to Japan’s Toyota Motors. Currently, the company remains the world’s second largest car manufacturer based on yearly sales.
GM employs approximately 300,000 staffs in the 35 countries it has established an active presence worldwide. The company’s major brands include Chevrolet, Pontiac, Buick, Cadillac, Saturn, Hummer, and Saab mainly in USA. The companies known international brands include Opel, Vauxhall and Holden.
Graph 1 showing GM’s top selling brands (Adopted from Niedermeyer Edward, 2010).

4.0 GM’s SWOT Analysis

4.1 Strengths

4.1.1 Large Share of the market

Although General Motors has lost substantial market share to its rivals, the comapany still retains an active presence on the automotive share market. The company presently controls 26% of the US automotive market share and a 32% in the Saudi Kingdom. With advanced plans of restructing in place, GM stands to regain its previously undisputed leadership role in terms of market share.

4.1.2 Global Experience

For close to a century, GM has spread its leadership presence across various countries of the World. This has enabled the company to establish a global experience that will continue to be one of its strengths in retaining back its lost market share.

4.1.3 Many brand names and business lines

GM has expanded its manufacturing section to incororate a variety of brand names under which it operates. Presently the company’s renowed brand names include amongst others Cadillac, Pontiac, Saturn, Saab, Hummer, Daewoo, Holden, Opel and Chevrolet. The quality of these brands have made them to become popular across the world.
GM has also signed agreements to own shares with other automotive manufacturers for instance, with Isuzu Motors Limited.  With the company working hard to retain its learship role, more brands are likely to be added to the existing list.

4.1.4 Customer Financing Program

From its inception, General Motors has established  General Motors Acceptance Corporation (GMAC) that has proven to be its major and reliable revenue source.

4.1.5 Inclusion of the “On Star Satellite Technology”

GM developed the on star satellite technology that allows its customers to track stolen or crashed vehicles. The feature has been widely accepted across the globe and as at present, it has 5 million subscribing customers. This unique technology allows the user of the car to communicate with the on star personnel in their counties at clicks of buttons.

4.2 Weaknesses

4.2.1 Backward in the production of hybrid vehicles

This has been GM’s main undoing. The company failed to make early realizations on the need for the changing energy trends. As a result, the company lost its greater share of the market to its rivals who studied the emerging energy trends at an earlier stage and produced cars that consumed fuel efficiently.

4.2.2 Stagnant Profits

In 2000s the company has had stagnant profits as a result of the struggles encountered in managing its expanded network. Profit margins have rotated around 1.5% while their rate of returns had dropped to 10% in the year of 2004. This situation has hold back some potential investors from joining the company. Likewise, the company has lost some investors scared by its current and unstable profitability trends.

4.2.3 Over-dependant on the US market

Though the company boasts of an active presence in 34 countries, it should be noted that GM has concentrated majorly in widening its homeland US markets. The company has therefore found it hard to spread its risks when encountered with major challenges for instance, the increased legacy costs in the US which unfavored the auto industry and the energy crisis which was heavily felt in the country. On the other hand, GM’s rivals have concentrated on establishing active presences across countries of the world. As such, these companies are able to spread their risks. Toyota, for instance, has been known to invest in countries with favourable auto regulations and as such it avoided establishing its RAV 4 plant in USA and opted for Ontario, Canada. In doing so, Toyota was avoiding the increased legacy costs in the USA which would have made its operations difficult in the country.

4.2.4 Unfavorable Credit Status

The company’s credit status has steadily declined of recent. The company has had weakening current and acid test ratios leading to it being declared bankrupt in the year 2008.

4.3 Opportunities

4.3.1 The Developing Hybrid technology

Though General Motors has been backward in carrying out research to innovate hybrid cars, it should be noted that the hybrid technology is still in its raw stages and as such the company still retains the opportunity of implementing innovative technology to retain its leadership status.

4.3.2 Continued Expansion

General Motors has continued to widen its automotive market. Of recent, the company has increased its market presence in the United Arab Emirates countries. Successful infiltration accompanied by focus on US markets will ensure that GM retains its previous leadership  role.

4.3.3 Interest rates that is low

Of recent, the company has adopted a marketing strategy that allows clients to purchase GM cars at low interest rates. This has the potential of generating immediate increase in GM car sales.

4.3.4 Redesigning Vehicles

General Motors has invested heavily in research and development to answer to the shifting market trends of hybrid cars. This is based on the notion that what exists today will be worn out tomorrow.

4.4 Threats

4.4.1 Rising prices of fuels

General Motors has had a bias in production of sports utility vehicles and trucks. These brands are known for not being fuel efficient. The rising fuel prices have forced consumers to shift their demands to fuel efficient vehicles thus acting as a big threat to the survival of General Motors.

4.4.2 Competitive Rivals

General Motors is no longer the world number one automaker thanks to the great competition posed by its main rival, Toyota. The Japanese automaker has been widely praised by experts for foreseeing the energy crisis and taking early control measures by producing hybrid models that consume less fuel. As such, it ate into GM’s previously expanded markets to become the World’s leader in the automotive industry. Ford and Honda have also topped up as other key challengers to General Motors’ success.

4.4.3 Huge Pension Payments

General Motors has also contributed in opening the path for its own downfall by offering huge pensions to its staffs. Though initially viewed as a motivating idea, the expanded global expatriates have proved a problem to service their huge pensions.

4.4.4 Increased healthcare/legacy costs

Some governments have proposed and implemented unfavorable auto policies. The US government, for instance, has been widely blamed by manufacturers for raising the legacy costs to unfavorable levels. The US Government also requires companies to effect legacy payments in a backward trend meaning that for each GM worker, say having 8 descendants, GM has to pay the healthcare costs for 9 persons. This has proved to be an expensive scheme for automotive industries, General Motors not exempted.

4.4.5 The rising costs of raw materials

The rising costs of steel have forced General Motors to carry revise its production processes. This is in order for the company to reduce on the production and manufacturing costs without tempering with the quality of its vehicles. This has proved a daunting task for GM to effect and as such, quality of some brands has been tempered with though in small quantities.

5.0 A Closer Look at GM

    5.1 GM’s system of global alliances

According to the General Motors homepage, the company has established a system of global alliances and as such, it hold major stakes in Isuzu Motors Ltd, Fuji heavy Industries Ltd, Suzuki Motor Corporation, Fiat Auto, and Daewoo. The company has also established the General Motors Acceptance Corporation (GMAC) to provide financial and insurance services to its customers and dealers.
General Motors has established a proactive presence in North America, South America, Europe, Africa and Asia. The company’s largest market is in China followed by United States, Brazil, United Kingdom, Germany, Canada and then in that order.

5.2 GM’s key historical dates

Table 1 showing GM’s Key Dates (adopted from Reuters, 2009)

Date(s) Activities
1908 GM founded in Flint, Michigan.
1919 GM creates captive finance arm, GMAC
1929 GM buys 80 percent stake in European Adam Opel AG.
1937 After a bitter strike, GM recognizes the United Auto Workers (UAW) as the bargaining representative for its hourly workers
1971 GM buys 34.2 percent of Isuzu Motors Ltd. GM raises stake to 49 percent in 1998 and later sells it.
1981 GM buys about 5 percent of Suzuki Motor Corp. It raises the stake to 20 percent in 2000, and later sells all but 3 percent.
Also, GM and Toyota Motor Corp form a joint venture, known as NUMMI, to build cars in Fremont, California.
1986 GM acquires British sports car maker Lotus. It sold Lotus in 1993.
1990 GM buys a 50-percent stake in Sweden’s Saab and purchases the remaining half a decade later.
Also, GM launches a new brand Saturn
1999 GM buys 20 percent of Subaru-maker Fuji Heavy Industries Ltd. GM later sells the entire stake. 1999 – GM spins off parts maker Delphi Corp. Delphi’s U.S. operations enter Chapter 11 reorganization in 2005, where they remain.
2000 GM decides to kill the Oldsmobile brand.
Also, GM buys 20 pct of Italy’s automaker Fiat for $2.4 billion in GM stock. The deal includes a “put” option that gives Fiat SpA the right to force GM to buy the remainder of the Italian automaker.
2002 GM signs deal to buy most of Daewoo Motor Co.
2005 GM pays $2 billion to Fiat to cancel “put” option under its deal and buy its way out of the alliance.
2007 GM signs deal with the UAW, which includes shifting GM’s retiree health care liabilities to an independent trust.
June 2008 GM puts Hummer brand on review, ahead of a possible sale.
July 2008 GM announces plans to cut costs by $10 billion and raise $5 billion through borrowing and asset sales.
September 2008 GM and Chrysler hold talks to combine companies. GM sets aside talks in November to focus on preserving cash.
November 2008 GM warns its liquidity will fall short of the minimum needed to run its business by the first half of 2009.
December 2, 2008 GM seeks U.S. government aid of up to $18 billion.
December 19, 2008 GM and Chrysler granted $17.4 billion in government loans.
January 21, 2009 Toyota Motor Corp surpasses GM as the world’s largest automaker for the first time.
February 5, 2009 GM announces plan to slash its global salaried workforce by about 10,000, or 14 percent and cut the pay of most remaining white-collar U.S. workers.
February 17, 2009 GM raises U.S. funding request to a total of $30 billion, announces plans to cut global workforce by 47,000 and close five U.S. plants by 2012.
February 26, 2009 GM posts 2008 loss of $30.9 billion.
March 5, 2009 GM’s auditors raise “substantial doubt” about its ability to survive outside bankruptcy.
March 30, 2009 GM Chief Executive Rick Wagoner ousted by U.S. government, replaced by Chief Operating Officer Fritz Henderson. Company also given 60 days to develop new restructuring plan.
April 17, 2009 GM says readying detailed plans for bankruptcy filing as it races to complete a business plan under federal oversight.
April 22, 2009 GM says unlikely to make a $1 billion debt payment due June 1.
April 27, 2009 GM offers final plan to reorganize outside bankruptcy by slashing bond debt, cutting over 21,000 more U.S. jobs and emerging as a nationalized automaker. GM warns it would file for bankruptcy if an offer to exchange bonds for company equity failed to cut $27 billion in debt by about 90 percent of bondholders.
May 5, 2009 GM details plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the UAW.
May 7, 2009 GM posts a first-quarter net loss of $6 billion and a cash burn of $10.2 billion.
May 15, 2009 GM announces plans to drop 1,100 of its smaller, less-profitable dealerships.
May 21, 2009 GM announces a new cost-saving labor agreement with the UAW, under which UAW-aligned healthcare trust will receive half of the $20 billion debt GM owes the fund in the form of stock and new debt, instead of cash.
May 27, 2009 GM’s offer to exchange $27 billion in bond debt for a 10 percent stake in a reorganized company fails.
May 28, 2009 GM and the U.S. Treasury make new equity exchange offer under which bondholders would be offered 10 percent of a reorganized company and given warrants to purchase another 15 percent.
June 1, 2009 GM files for Chapter 11 bankruptcy protection at the U.S. Bankruptcy Court in the Southern District of New York

5.3 General Motors in Saudi Arabia

The exact year of General Motors entry in the United Arab Emirates was not exactly documented.  According to the General Motors homepage, GM became the first automaker manufacturer to set up a regional office in the United Arab Emirates when it set up its headquarters in Dubai at the Dubai World Trade Centre in the early 1990’s. Before then, its UAE operations used to be controlled from Cairo. From Cairo it was moved to Alexandra followed by Beirut in the 1950’s.

5.4 Factors facilitating growth and expansion of GM

5.4.1 The global reach of GM parts and accessories

General Motors has established customer care and after sales departments at strategic places all over the world. As such, genuine GM parts have been availed to all its customers who own varying brands. In addition, the company’s power train department has been widely praised for marketing the company’s engines and transmissions all over the world.

    5.4.2 The Launch of the “GM Difference”

The launch of the innovative approach to quality, dubbed “The GM Difference” to the various GM dealers has helped the company to satisfy customer preferences. The company initially launched the campaign in Bahrain-in July 2006 and as at present; it boasts of all its United Arab Emirates’ dealers having adopted the campaign. This campaign was adopted by the company based on the fact that in current time, the buying of a motor vehicle extended beyond a normal transaction to incorporate a complete “sales experience”

    5.4.3 Social Traditions that promote purchase of expensive brands

Some traditions are symbolized by the purchase of GM’s high class brands due their high quality. Example of such tradition is present in the United States where a new Presidential era is always accompanied with a renovated luxurious Cadillac Presidential Limousine from General Motors. From GM’s homepage we are informed that the company has built limousines and special vehicles for presidents, diplomats, ambassadors, celebrities and foreign dignitaries since the early 20th century, an iconic aspect of the brand that continues to present (GM media).

    5.4.4 Diversification of its Brands and Business Lines/Partnerships

General Motors has expanded its brands to include Chevrolet, Pontiac, Buick, Cadillac, Saturn, Hummer, Saab Opel, Vauxhall and Holden. In addition to their own brands, the company has gone ahead to purchase shares in other automakers for instance, it retains stakes in Fuji Heavy Industries, Isuzu Motors Limited, Suzuki Motor Corporation, Fiat Auto and Daewoo Auto and Technology. Moreover, the company has established major business presences in the name of General Motors Acceptance Corporation and its subsidiaries-which provide financial and insurance services to General Motors Customers and dealers all over the World.

    5.4.5 The implementation of technology at GM

General Motors Research Laboratories (GMR) created a unique program that transfers the innovations generated at the plant’s major labs to key GM corporate locations worldwide (American Association of State Highway and Transportation Research Board 24). This technology has helped to move critical technical expertise from research to the distantly located units. As such, the company has reduced its direct and operational costs thus increasing profits and operating revenue in turn (24).

    5.4.6 Competent Management team

Since its invention, General Motors has employed competent persons in its managerial units. These officials have made it possible for the company to make right decisions at the right time. As a result of this, the company has been able to navigate itself from tricky and unfavorable operating environments.
The company’s founder, William Durant set the pace for efficient and effective management when he successfully made key decisions that improved the company’s growth. For instance, while still a director at Buick Motor Company, a subsidiary that merged with Cadillac and Oakland to form GM, Durant navigated from the market instability of 1903 to 1908 when he believed that the only way for car auto manufacturers to realize profits was to do away with the duplication of products by different auto firms. It is from this reasoning that he formed General Motors Corporation by joining Oldsmobile and Buick in 1903 followed by Cadillac and Oakland in 1909 (General Motors Homepage).

    5.4.7 Military contracts of World War II

General Motors top management in Germany had developed close relationships with the ruling Nazi regime. Moreover, in USA, the company’s management was given leadership roles at World War II Defense Committees. As a result of the close ties described above, GM was given sole rights to manufacture every conceivable product that were to be used in the war. This led to the company incorporating other products in its line of operations. Products manufactured included amongst others naval ships, fighting planes, guns canons, bombers, cannons and project tiles. By the end of the war, the company had accumulated $ 12.3 billion in defense contracts alone. The company was also awarded tax reduction and write off as an appreciation for its products and services.

6.0 Problem statement and objective

This policy report seeks to study the severe global sales decline being experienced at General Motors in its Saudi Arabian market as well as its other global markets. The report will also  propose solutions for addressing the declining sales. In carrying the study, the following sub-questions will form part of this discussion.

  • What were the major factors contributing to the development of this situation at General Motors?
  • How has the problem affected operations at GM.?
  • Which methods has GM adopted in trying to address this situation?
  • What are other additional challenges that face GM?
  • What will be the alternative ways of addressing this problem?

7.0 Historical background/Contributing Factors

7.1 A general background of the problem

    The motor industry’s infamous crisis of 2008-2010 formed part of the bigger global financial crisis of the 2000s (Carmohn 2). The crisis occurred when the automotive industry failed to withstand the substantial increases in the prices of the fuels especially in the year 2008. This was closely associated to the 2003-2008 energy crisis which discouraged purchases of high fuel consuming automotives; the Sports Utility Vehicles (SUVS), pickup trucks forming a big category of these classes of vehicles due to their high consumption of fuel. The crisis has been majorly felt in European and Asian markets.
The rapid rise in the prices of fuel led to the automobile industries facing interrelated cost pressures both from the increased costs of manufacturing materials in one way and the decreased demand for fuel guzzlers in the other (Carmohn 2). Re-evaluation of peoples’ spending habits meant that the automotive manufacturers who concentrated on manufacturing of powerful but poor fuel economizing vehicles had to incur great losses as a result of the drop-down in sales. This was so because as the effects of the economic crisis begun to melt, families had to prioritize their needs first; with basic needs of food, clothing and shelter being given top priority. Though purchasing of family cars has remained a priority for some families, it should be noted that urgent consideration id nowadays given to vehicles that are efficient in economizing on fuel.

    7.2 Automotive Energy Crisis at General Motors

General Motors was one of the automotive industries greatly affected by the automotive energy crisis (the company announced an operating loss of $ 2billion in Feb 2008). The company experienced stiff completion from other renowned auto makers, Toyota amongst them. GM’s preferred product line emphasized on the creation of quality but highly consuming SUVs and trucks and as such, as the demand for efficient fuel consumers began to increase, the company completely failed in keeping up the shifting market demand for hybrid cars. This led to a major drop in its sales making the firm to incur massive losses for the subsequent years starting 2008.

Photo 1 showing a Chevrolet trailblazer, one of GM’s fuel guzzlers.
To date, the company remains way behind in answering to the increasing market demands. This has exacerbated the financial turmoil situation currently facing the company to the extent that even the US government’s rescue measures of donating billions of bailouts haven’t bored any fruit (Carmohn 2). On June 1 2009, the company was declared bankrupt when it failed to service the huge billion owed to financial institutions by it. Nanto opines that GM was the second largest industrial bankruptcy in history by asset value after WorldCom in 2002 (83). The company had assets totaling $82 billion and $172 billion in liabilities (83) at the time of going into liquidation.
Graph 2 showing GM’s ten underperforming brands (Adopted from Niedermeyer Edward, 2010).

Balance sheet showing GM’s Quarterly Results (Data adapted from NASDAQ Stock Exchange, 2011)

Balance Sheet    (USD)
Annual | Quarterly
Cash & Equivalents 11.4B 36.6B 28.2B 28.8B 23.4B
Short Term Investments 132M 134M 4.76B 6.01B 5.55B
Accounts Receivable 7.57B 7.52B 8.66B 8.72B 16.9B
Inventories 11.6B 10.1B 11.5B 13.0B 12.1B
Pre-paid Expenses 0 0 0 0 0
Deferred Tax Assets 2.59B 1.78B 1.68B 2.07B 1.80B
Other Current Assets 3.43B 3.12B 3.01B 2.94B 2.57B
Total Current Assets 36.8B 59.2B 57.8B 61.6B 62.3B
Property, Plant & Equipment 38.0B 18.7B 18.1B 19.1B 19.2B
Goodwill & Intangibles 242M 45.2B 43.0B 43.0B 43.7B
Other Long-term Assets 7.18B 12.6B 13.0B 13.5B 13.4B
Total Long-Term Assets 45.5B 77.0B 74.1B 75.7B 76.6B
Total Assets 82.3B 136B 132B 137B 139B
Accounts Payable 18.3B 18.7B 20.8B 22.1B 21.5B
Accrued Expenses 0 0 0 0 0
Short Term Debt 25.6B 10.2B 5.52B 5.62B 1.62B
Other Current Liabilities 0 1.20B 0 0 625M
Total Current Liabilities 80.8B 52.4B 50.3B 52.6B 47.2B
Long Term Debt 28.8B 5.56B 2.64B 2.94B 3.01B
Capital Lease Obligations 0 0 0 0 0
Deferred Income Tax 16.2B 13.3B 13.4B 13.3B 13.0B
Other Long-term Liabilities 47.0B 36.1B 34.6B 37.7B 38.5B
Total Long-term Liabilities 92.0B 54.9B 50.7B 54.0B 54.6B
Minority Interest 622M 708M 886M 971M 979M
Total Liabilities 173B 115B 109B 114B 103B
Preferred Stock 0 0 0 0 10.4B
Common Par 1.02B 15.0M 5.00M 15.0M 15.0M
Additional Paid-In Capital 16.5B 24.0B 24.1B 24.0B 24.3B
Retained Earnings -76.7B -4.39B -2.19B -236M 266M
Treasury Stock 0 0 0 0 0
Other Equity -31.9B 1.59B 1.15B -1.07B 1.25B
Total Shareholder’s Equity -91.1B 21.2B 23.0B 22.7B 36.2B

8.0 Main players who contributed to the problem

8.1 Energy Policies that was uncertain caused shifts in demand

Lack of proper energy policies to regulate oil prices around the world constituted the primary cause of the automotive energy crisis. Webster concludes that the dramatic rise in the cost of energy constituted the first shot in the problem since it impacted negative on GM’s profitability. GM like Ford and Chrysler had specialized in the creation of Sports Utility Vehicles and Trucks. These vehicles had commandeered great markets around the World. In the USA, for instance, they commandeered a market of 50%. The shifting demand as a result of the rising energy meant that the existing harsh economy could comfortably accommodate families that had smaller, cheaper and fuel efficient cars. Webster notes that this created a backlog of unwanted trucks at GM hence leading to great losses in revenue.
Chart 1 below shows the plummeting crude oil prices (Adopted from Mongbay, figures from World Bank Commodity Price Data, 2011)

Chart 2 below depicts the existing relationship between the World Oil Supply and the Price (Adopted from International Energy Agency (IEA), 2011).

8.2 Global financial meltdown of 2000s/Credit Crunch

The financial meltdown of the 2000s brought limitations on car loans. This affected the operations at auto industries. This was so because, for the automotive industry to flourish under the existing automotive energy crisis, it greatly needed to borrow huge loans from banks to provide the needed cash for running its operations.  The squeeze in credit also made it impossible for General Motors Dealers and clients to access loans from banks. As such, they were not able to top their savings to comfortable purchase the vehicles. This reduced GM’s car sales to a great length.

8.3 Legacy Costs/ Healthcare Costs

Webster defines legacy costs as costs associated with providing healthcare and pensions to scores of retired workers. Labor agreements have forced car companies into adopting legacy costs for all manufactured cars. General Motors has been no exception towards the same.
The spread of automotive industries across major cities of the World led to the increase of the legacy costs. Hendricks in assessing the impacts of the legacy costs on various automakers found out that GM faced the largest legacy costs; at a high of $ 1,500 per car (7). The calculation of the legacy costs in the company’s homeland, USA, have further contributed in increasing the legacy costs. The costs include A GM worker in the country plus his descendants (who may number approximately 10). A high number of descendants in USA have accelerated the disparity in legacy costs between US firms and its foreign competitors. In supporting the unequal level playing ground between US firms and other foreign firms, Hendricks pinpoints that Toyota passed up a hundreds of millions of dollars in subsidies when it declined to set up a new plant in the US to manufacture its RAV 4 mini SUV for North american Market. Instead, the company preferred Ontario in Canada specifically because Canadian workers had a subsidized health care system that reflected in their employment costs (they were relatively cheap to hire as compared to their US counterparts) (7). Zeese notes that as result of the hiked legacy costs and their backward calculation, General Motors has been forced to spend $ 5 billion annually in US alone on its healthcare scheme. This huge figure is a calculation for 1.2 million persons-of whom 150,000 work for the company in the United States (the difference constitutes the number of descendants). This makes it hard for GM to successfully implement a viable economic model across the world.

    8.4 Strict Government Regulations

General Motors has been facing unfavorable regulations to its manufacturing plants and dealer locations. A practical case is the Corporate Average Fuel Economy (CAFE) restrictions as highlighted by Hutchinson. He notes that the CAFÉ standards introduced in their first round mandated average fuel economy ratings for majority vehicles (including the SUVs) manufactured throughout the world. This would specifically benefit the manufacturers of both large and small engine size cars. The manufacturers of large engine size cars could not discover the underlying “bomb” and as such GM’s continued the production of its SUV’s in high numbers.
However, the reviewed CAFÉ standards of 2007 contained tighter restrictions and were to be effected by all vehicle brands including the SUV’s. GM’s SUV’s, which were manufactured based on the truck chassis, could not meet the stated restrictions. This rendered GM’s already manufactured product range to become obsolete, further worsening its previous situation.
In addition to the CAFÉ restrictions, the proposed and drafted ‘Cap-and-Trade” regulations are likely to impact negatively on General Motors operations. The cap and trade regulations require companies to reduce on the rate at which they emit carbon into the atmosphere.

    8.5 The “high standards” set by its competitors

Other than the environmental restrictions, General Motors has faced stiff completion from Local and international renowned automaker companies. Below is a critical assessment of GM’s major rivals both in US and across the World.

8.5.1 DamilerChrisler

DamilerChrysler is the second manufacturer in terms of total revenues. It has set high standards for its umbrella that covers amongst others Dodge, Mercedes Benz, Chrysler and the Jeep. These brands have become popular throughout the whole World.

8.5.2 Ford Motors

This is a distinguished global company that operates two major business lines: Automotive and Financial lines. The company has created stiff completion since it focuses on reducing its operating costs while increasing its margins. It has also adopted the use of technology in its engineering department thus becoming a leading innovator in the motor industry.

8.5.3 Honda Motors

Honda has successfully redeemed its previous “bad” image as a complete Japanese motorcycle manufacturer to become a distinguished automobile manufacturer throughout the world. The Company has been awarded heavily for producing quality cars that satisfy consumer demands. The company has majored in producing reliable and friendly consuming cars. They have also stuck to carrying out innovative research and as such have greatly eaten into General Motors previously expansive markets.

8.5.3 Toyota Motors

Toyota Motors has currently emerged as the World’s undisputed number one auto manufacturer and seller. This was achieved in 2008-2009 when the company’s sales surpassed GM’s by way far (The Company had amassed a market capitalization totaling $ 236 billion, 13 times greater than its rival GM, which had attained $ 18 billion). However the operating revenues were closer (Toyota has $200 billion while its rival posted operating revenues of $ 173 billion).The company has distinguished itself with production of hybrid cars: cars that power their batteries in half mode and cars that consist of engines that burn fuels halfway.
The auto market pendulum swung in Toyota’s favor when its sports utility brands of Lexus, Mark II and Camry were greatly accepted in Saudi Arabia and USA; two countries where GM had a profound presence. Toyota has also been greatly praised for winning and retaining its customers through its unpublished “high quality service and appreciation strategy.”  In Saudi Arabia, statistics have shown that 70-75% of Lexus customers have been repeat buyers proving the fact that the company’s adopted strategy has helped it to maintain a strong and a loyal base. To follow in Toyotas cause, GM has recently adopted the “GM Difference” to help the company retain its clients.
The following chart 3 depicts the existing sales battle between Toyota and GM for 12 years (Adopted from LS2).

Toyota has also contributed in General Motors woes by tapping its best brains. For instance, Shimokawa alludes to this when he opines that the most notable and highly respected marketing strategist who topped up as the inventor of automobile marketing techniques, Shotaro Kamiya, who had worked with GM since 1920, had been coerced in joining Toyota Motors (83). At the time of his resignation, he served Japan’s General Motors branch as the sales manager (83). Mr. Kamiya went on to establish an expansive Toyota sales network for its trucks thereby rivaling his former employers, General Motors (84).

    8.6Lackluster and Sub-standard cars

    Webster notes that in 1990’s; GM’s rivals, Toyota included, had focused much in refining their production techniques and as a result had produced cars of higher quality.  As a result of the shift in quality, there was an exodus of customers from GM to these companies. Though GM has narrowed the quality gap in recent times, Webber notes that the earlier perceptions still trail the modern realities. The current declines in GM sales therefore trace some of their roots to this notion.

8.7 Global Slowdown and media spotlight.

General Motors has kept on experiencing declining sales in all countries that it owns a presence as a result of the economic recession being experienced all over the world. General Motors, being a major automotive maker, had attracted a lot of media attention. The increased media scrutiny has also impacted negatively in rebuilding GM’s previously weakened image by publishing critical literatures.

9.0 Challenges, issues and prospects

9.1 Implementing successful technology

GM has woken up to the fact that ‘technology creates demand’ strategy does not produce the desired results (Gottschalk and Kalmbach 119). Instead it generates value. In answering to this challenge, the two authors state that GM has been forced to:

  • Recognize key trends, technology drivers and changes in customers’ value systems at an early stage (120),
  • Identify key customer opinions (120),
  • Aim for leadership within the chosen technology segment (120).
  • Manage the technology development process stringently with regard to the selected segment (120).

9.2 Cost recovery challenges

Changes being experienced in the value chain coupled with stiff competition, has led GM to initiate investment in economies of scale. The company has also been forced to outsource most of its core activities, for instance technology, to reduce on its costs.

9.3 Increasing Consumer Demands as well as Regulatory Pressures

GM has continued to experience pressures as a result of the ever increasing consumer demands. As oil prices keep on changing, consumers shift their preferences hence creating pressure on GM’s innovative approaches. Likewise, strict regulatory pressures by governments have made it hard for GM to carry out its operations. The company has had to strain in trying to implement the increased legacy costs by the US government.

9.4 Inadequate data

Countries such as the United Arab Emirates and Dubai in particular, have extensive areas each with varying car demands. According to The Executive Magazine Special Report, GM faces great challenges in identifying and answering to the needs of the spread population. The Executive Issue remarks that, “everything is so mixed, you have any age buying an Audi; you have 18 year olds buying an A8 and a 55-year old.” GM managing director and president for Middle East, Mr. Terry Johnson affirmed to this challenge when he opined that without accurate data they were less accurate in targeting growth segments and trends.

9.5 GM’s foreign expatriate sales force experience tough times

Muhlbacher and others note that most foreign employees’ experience “culture shock” in their new working environments. The three scholars support their argument by giving a real time life experience of the culture shock USA experts experienced when undertaking foreign assignments in Saudi Arabia and Japan. According to them, General Motors found that spouses of expatriates had five times greater difficulties in getting accustomed to their new cultural environments than their partners. The expatriates’ family members have to get accustomed to the new living conditions, government requirements, schools, religions and other social systems. This has impacted negatively on the performance of these expatriates since the spouses’ well-being is directly proportional to the success of their husbands’ international appointments.

9.6 International Recalls reduce GM sales

In trying to meet Corporate Average Fuel Economy (CAFE) and the shifting demand to hybrid cars, General Motors engineers have encountered challenges in meeting standards of some car parts. As a result, some of their cars develop mechanical problems when released on the market. For example, The Los Angeles Times highlights that in the year 2009, the company had to recall an approximated 243,000 sports utility vehicles to inspect and address their safety belts whose buckles had become damaged in a such way that the passengers using these cars thought that they were latched in when they were not. The models affected for recall included Chevrolet Traverse, GMC Acadia, Saturn Outlook and Buick Enclave. Majority of these models had been sold locally at USA while few had been exported with the intention of selling them in the Kingdom of Saudi Arabia, Canada, China and Mexico.
The discoveries on the damaged seat belts were made when clients returned these cars for the mandatory warranty checks. The automaker had noted that as a result of these damaged seat belts, passenger safety stood comprised if the cars became involved in crashes.

9.7 The rapidly increasing energy prices

Since the year 2000, General Motors has been greatly challenged by the rapidly increasing crude oil prices. This has proved a difficult challenge since it has been the root cause of the shift in demand. The increasing prices have shifted demand to hybrid cars rendering most of GM’s SUV’s to be irrelevant on the market.

9.8 Challenge of creating an efficient management structure

GM was created by a merger of sub-companies amongst them Cadillac, Chevrolet, Buick and Pontiac. In its initial stages, the company’s management was divided in line organizations which comprised 30 manufacturing sections. These divisions operated independently. However as time wore on, controversies arose when top managers wanted to control operations in different sections by emphasizing that GM as an auto company needed to work together as well as independently.  They argued that the corporation was more than a holding company and as such each top manager had to know the happenings in each section (Witzel 475). These wrangles have come to commonly be associated with GM to date (475).

10.0 Discussion of the related literature

10.1 How GM has tried to address the crisis

According to the Office of the Special Inspectorate general for the Troubled Asset Relief Program (SIGTARP) report, GM was required to submit its restructuring plan to the Auto Team in Feb 2011. This was in pursuant to its loan agreements with the US Treasury which placed this condition for it to receive additional relief funds.
The SIGTARP report found out that GM’s restructuring plan explicitly spelled out its plan to reduce its expanded dealership network gradually, by approximately 300 dealers per year over the succeeding 5 years. This plan was out rightly rejected by the Treasury’s Auto Team on condition that it was a slow way of recovering from the current crisis. The team instead proposed a faster pace of closing the dealerships and as such, GM accepted to implement an accelerated pace of 1454 dealerships as of October 2010. The Auto Team’s suggestion of rapidly reducing the dealership networks across the globe was based on the precinct that fewer dealerships would make GM to have little internecine completion and as such will fetch the company more profits. These accrued profits will in return be invested more in the remaining facilities and staff.

10.2 Key Questions Arising from GM’s suggested and adopted strategy

The quick pace of reducing dealership networks has elicited more questions than responses. In arriving at this strategy, the Auto team experts had encountered disagreements along their way. The SIGTARP highlights that disagreements arose over where, and how quickly, the cuts should have been made. Also, some experts had questioned why the strategy was arrived at by comparing the large US market with smaller foreign countries. The strategy chosen was mainly used in foreign countries that had smaller markets and GM active presence in the expanded US market had no connection to this link. The report notes that one expert at the meeting had opined that closing dealerships in environments already disrupted by the recession could have resulted in an even greater crisis for GM sales.
The Auto Team in defending this strategy had argued that the few dealerships would be able to employ more staff and utilize more on its available resources. However, a counteracting question arises from this view in that thousands of jobs were already going to be lost from the closed dealerships. Whether the adopted strategy was an ideal one remains to be seen at a future date.

11.0 Proposed Solution

    In our group discussion, we disagree with the solution of reducing dealership operations strategy adopted by GM. Instead we propose two things; strengthening of the existing dealerships (a strategy commonly referred to as shoring up). The strengthening will involve investing more in research and development units to facilitate the production of hybrid cars. The group members in rejecting the adopted strategy cited that it was useful to strengthen ones existing divisions rather than adopting the costly or the negative prone method of closing the current divisions. Also, in reducing the existing divisions, the company will not be addressing the root cause of the problem; the rising energy prices that have caused the shifts in demand to efficient hybrid cars. The shoring up will therefore help the company to design brands whose consumptions volumes will be low hence being friendly to the financially drained consumers.
International Labor Organization (ILO) avers that in dealing with the existing auto crisis, auto manufactures need to improve competitiveness of their products on the international market through investing in the production quality hybrid models (22).  It goes ahead to state that, “one needs to first distinguish the nature of the main problems facing the industry before finding solutions through changes in enterprise strategy.” General Motors should go the same way.

11.1 Other alternative solutions

11.1.1 Expediting transfer or adoption of technology

In strengthening its research and development division, GM should computerize all its operations to form technology basis that will be solid. This will be of great importance to the company since technology directly influences the competitive advantage of firms.

11.1.2 Negotiating the harsh regulations

Before adapting and/or complying with the rules of various governments, GM should try to enforce dialogue to ensure that its interests are also addressed in the regulations. The increased legacy costs caused great financial drain to the company hence contributing to it being declared bankrupt in the year 2008.
11.1.3 Development of its Manpower Capabilities
The Company should train regularly its manpower function to equip it with the necessary skills to achieve the production of hybrid cars. This will be of great use since quality of industrial manpower is viewed as an important factor in the excelling of the auto industry.
11.1.4 Improving its management units 
    GM should improve its management units since proper management leads to the success of any firm. The company should ensure that all the dealerships have a leader who reports to the overall CEO. This will help the firm to avoid the existing wrangles that occur when managers of different divisions wants to control operations in divisions to which their job descriptions do not subscribe to.

11.1.5 Development and Implementation of an Outsourcing Concept

General Motors should outsource some of its tasks to reduce on its operational costs. Also, when procuring their raw materials, the company should select on local sellers who offer competitive prices. These will help the firm reduce on its losses and instead competed effectively on foreign and local markets.
GM should also outsource a reputable firm to provide accurate data on customer’s preferences in the shifting market.

12.0 Implementation of each alternative

In improving the competitiveness of its products, General Motors should adopt flexible mechanisms to improve on its management, production, design, marketing as well as its other aspects of industrial business. This will be of great help in keeping up with the ever changing technological innovations and developments on the international market.
In providing accurate data to GM research and development units, The Executive Magazine suggested that a way out of this situation could be governments in the region supporting manufacturers associations where traffic police data and registrations were made available. GM can even independently try to organize itself and invite third parties to publish this vital data. For instance, Mercedes pointed out that, “we have introduced the Middle East Automotive Council, which is an exchange of data on a very general level, but not all manufacturers are part of it.”
In widening its global market, GM should display more faith and aggressively target emerging markets on the global front especially the Middle East. As noted earlier, the company had over depended on its US markets and as such, it found it difficult to spread the risks of the rising energy and legacy costs. Countries of the Middle East for instance, Qatar and Saudi Arabia boast of the strongest economies in addition to having initiated enticing cities’ development plans. As such, GM stands to gain if it shores up its operations in these regions.
In shoring up its research and development units, General Motors’ Advanced Technician Training Program for Graduates (ATTPG) should train its staff at repeat intervals to improve on their quality service. This will make them to be at par with the dynamic automotive technology. The graduates should also be trained to enhance their technical capabilities. The company can also sign collaboration agreement with techno-scientific institutions and universities where the company has active presences for provision of competent graduates. This can also contribute heavily in the strengthening of the company’s manpower functions.
To improve its management units, the company should clearly study its operational units and come up with structured plans. The plans should be incorporated amongst its policies. Each worker should have his/her role clearly defined to avoid duplication of roles. This will help in maintaining unity and improving relations which in turn improves the general performance of the company.

13.0 Implications for future use

The following deductions stand to occur in future as GM addresses the current problem of reduced global sales.
The company is likely to experience shrinkage in its revenues if it goes ahead to implement its dealership reduction strategy. The strategy will lead to production of fewer brands, existence of fewer dealers. Less dealership will imply that more jobs will be lost.
General Motors like any auto fir will continue to experience the challenge of rising production costs. This will instead mean that the current cost recovery crisis facing General Motors will continue to intensify over time. For instance in the current times, the costs associated with the introduction and production of a new vehicle model stands at a high of USD 1 billion. The rapidly rising production costs will mean that GM is likely to embrace production of its vehicles on large scale modes through the use of platform approach sharing. This will help in to spread its operation costs and reduce its risks of failure.
The adoption of economies of scale by GM will link its underlying platforms plus its shared modules/components. Though this will be intended to spread costs amongst the models, it should be noted that its other implication consist of increasing the risks associated with failures of major components. The company should therefore be prepared to hand such risks in future.
In outsourcing its functions, GM stands to increase on its revenues since it is likely to reduce on its operational costs. However, the company stands to expose its secrets to its competitors who may take advantage of the unfaithful companies to access GM’s private and confidential information.

14.0 Conclusion and recommendation

The rapid spread of the effects of the rising energy prices across the globe has proved the saying that the modern world is a global village. General Motors, like any other automotive manufacturer has been greatly affected by the rising energy costs. The rising energy costs forced the market share to shift its demand to hybrid cars thus limiting market for the giant automaker which had primarily invested in the production of sports utility vehicles and trucks. This drastically reduced the company’s sales creating an unfavorable quick ratio. This meant that, for a close to a century, regarded as an undisputed global automotive maker, GM was declared bankrupt in 2008, denting the company’s once illustrious and glowing image. To further add an insult on its already diminishing image, the company’s huge assets made it to go into history books as the second largest company (in terms of assets) in the world to be declared bankrupt (No 1 was WorldCom in 2002).
Despite the setback, the company has adopted an elaborate plan that seeks to retrieve itself from the current crisis. In doing so, GM management should take courage from the fact that in the current days, successful companies will always respond fast to changing global markets, products and/or communication channels. Meta-Data management and taxonomy constitute some of the critical and important success factors for market agility.
Though previous sections had outlined how the US Government forced the company into adopting the rapid dealership reduction strategy as the efficient method of addressing the current crisis globally, it is vital to note that the company should also incorporate mechanisms of addressing climate change issues since they will be intrinsically linked to the success of the auto industry in future.

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