General Motors Strategy in the Global Economic Crisis

For several past decades, the automotive industry became one of the most attractive industries in the world although in 2008 this industry has been attacked by the global crisis. In 2007, a total of 71.9 million new automobiles were sold: 22.9 million sold in Europe, 21.4 million in Asia-Pasific, 19.4 million in US and Canada, 4.4 million in Latin America, 2.4 million in the Middle East, and 1.4 million in Africa. The market in America and Japan which are the main manufacturer of automobiles were stagnan, while those in Latin America and Asia grew strongly especially in the Russia, India, China and Brazil .
These three account for roughly a little over half of the production of cars and light trucks in the industry. What has currently started to happen in the recent years is that the Big Three are starting to lose market share to other rivals within the industry. In 2006 the Big Three accounted for 41.5% of light vehicle sales when compared to the top three foreign companies which accounted for 36.6% (Toyota, Honda, & Nissan). Overall the Big Three account for 54.9% of the U.S. market in 2006. This was down from 58.2% in 2005, 60.1% 2004 and 61.8% in 2003 . The total production of 2007 is shown below :

From the data we knew that until year 2007, General Motor still holding the best manufacturer in the world, but the data should be changed due to the global crisis from the year 2008-2009.
•Company Profile
General Motors (GM) was established by William C. Durrant in Detroit, Michigan on September 27, 1908. During Durant’s leadership, GM made many acquisitions such as in 1909 GM acquired Cadillac, Elmore and Oackland (or now we know this brand as Pontiac). A few years later, GM started its Chevrolet’s business unit. GM was formerly the global sales leader in automotive industry for 77 consecutive calendar years (1931-2007). It manufactures cars and trucks in 34 countries and employs 244,500 people around the world. Besides, GM served customers in 140 countries. In 2008, 8.35 million GM cars and trucks were sold globally under the following brands: Buick, Cadillac, GMC, GM, Daewoo, Holden, Hummer, Opel, Pontiac, Saab, Saturn, Vauxhall, and Wuling . GM has business units for its finance which is General Motors Acceptance Corportion (GMAC).
Actually, GM has faced some problems of growth during the Durant’s period but fortunately it could survive in the early of 1980s. It still could maintain its growth until the late 1990’s, but the declining of sales in the 2000’s decade can’t deny by GM. The data of each business units of GM shown below:

•Automotive Industry Crisis 2008-2009
In year 2008, the situation became more critical because of global financial criris and problems of credit placed pressure on the prices of raw materials. The crisis primarily felt in the United States’ automobile manufacturing industry and by extension, Canada, but other automobile manufacturers, particularly those in Europe and Japan also suffering from the crisis. People linked this crisis with oil crisis during 2003-2008, which causes customers to turn away from large SUV and pick up to the smaller cars. Unfortunately, the big three manufacturers in US (GM, Ford and Chrysler) has biggest sales in this segment. The declining of sales made the big three use the strategy by lowering the production for year 2008.
The declining data of automotive production in North America shown below:
Sumber: Ward’s Auto Bank, 2009

•Curious Problems for GM
In the year 2007, GM started to face serious problem. Toyota, the largest Japanese car manufacturer surpassed GM to be the number one in the world in sales. In that year, GM faced the declining of global sales for its some brands. The global sales data are shown below.

Although there is still growth for the global sales, but in the US and North America which are the biggest market for GM, the declining is significantly increasing. Actually, the declining of GM sales started in 2002.
Year US sales Change
2001 4,904,015
2002 4,858,705 -0.9%
2003 4,756,403 -2.1%
2004 4,707,416 -1.0%
2005 4,517,730 -4.0%
2006 4,124,645 -8.7%
2007 3,866,620 -6.3%
2008 2,980,688 -22.9%
Source: http://en.wikipedia.org/wiki/General_motors
From the table above, we can see that declining of GM increase year by year and the peak decline was in 2008 (about 22.9%). In 2008, GM sales data was 8.35 million vehicles compared with Toyota (8.54 million) . The latest data (March 2009) showed that GM sales in this month was 156,380 or was down 45.6% compared sales data in March 2008 .
Since the declining of sales were happened, that makes the financial data of GM were getting worse. Since 2004, GM can’t generate net income and the stock’s price was down too. This is the financial data of GM since 2004.
Income in Millions of Dollars
Source: Quote Media (2009)
•GM in Action
The first step of GM to face the crisis was reduces its employees. Then, this company tried to get fund from the Government of US. The fund scenario is:
Source: GM plan 2009-2014, presented to the US Government
This scenario will be take because GM is sure that the GDP forecast of US will be up from -1.0% in 2009 to the 2.4% in 2012.
Besides, GM also reforms the compensation system with no bonus in 2008 and 2009, reduce the CEO and COO salary by 30% and reduce the total compensation for board of director by approximately 50% in 2009. With this scenario, GM hopes that it can reduce the cost and increase the profit of the company.
•GM’s Plan
For facing the crisis, there are several plans that took and will take by GM , it knew as GM December 2nd plan:
 GM’s Plan details a return to sustainable profitability in 24 months
o Demonstrates GM‘s viability under conservative economic assumptions
o Expands and accelerates the Plan submitted on December 2
o Lowers the Company‘s breakeven to a U.S. market of 11.5-12.0M units annually
 GM is comprehensively transforming its business, globally
o Brands, nameplates and dealer networks streamlined and focused
o Productivity and flexibility gains enabling more facility consolidations
o Shared global vehicle architectures creating substantial cost savings
o Unprofitable foreign operations addressed
 GM’s Plan emphasizes the Company’s continued focus on great products
o Fewer, better vehicles in U.S. supporting Chevrolet, Cadillac, Buick and GMC
o Renewed commitment to lead in fuel efficiency, hybrids, advanced propulsion
o All major U.S. introductions in 2009-2014 are high-mileage cars and crossovers
 GM’s Plan calls for considerable sacrifice from all stakeholders
o Bondholders and other debtors
o Hourly and salaried employees, executives and retirees
o Dealers and suppliers
o Shareholders
 GM’s Plan addresses the requirements of the loan agreement with the United States Department of the Treasury
o Competitive product mix and cost structure
o Compliance with Federal fuel efficiency and emissions requirements
o Domestic manufacturer of advanced technology vehicles
o Rationalization of costs, capitalization and capacity
o Major progress made with the UAW and hourly employees; considerable progress made with bondholders; additional work under way to achieve term sheet requirements and savings targets
o Positive net present value (NPV)
o Repayment of Federal loans
 Reflecting further deterioration in economic, industry and credit markets since December 2, GM’s Plan details need for additional Federal funding
o Restructuring actions accelerated to mitigate this need
o Partial repayment of Federal funding still slated to begin in 2012
 General Motors is vital to a robust U.S. economy, and a revitalized GM will greatly advance America’s technology leadership and energy independence
o Highly focused on a U.S. supply base and U.S. R&D, design and engineering
o Directly and indirectly supports 1.3 million U.S. jobs
o Committed to investing in advanced technologies and high-tech, green jobs
o A sound investment for U.S. taxpayers that will be repaid fully
Key elements of the December 2nd Plan included:
• A dramatic shift in the Company‘s U.S. product portfolio, with 22 of 24 new vehicle launches in 2009-2012 being fuel-efficient cars and crossovers;
• Full compliance with the 2007 Energy Independence and Security Act, and extensive investment in a wide array of advanced propulsion technologies;
• Reduction in brands, nameplates and dealerships to focus available resources and growth strategies on the Company‘s profitable operations;
• Full labor cost competitiveness with foreign manufacturers in the U.S. by no later than 2012;
• Further manufacturing and structural cost reductions through increased productivity and employment reductions; and
• Balance sheet restructuring and supplementing liquidity via temporary Federal assistance.
In 2009, GM forecast that the total US volume will be 2.7 million units and the cash position will be $16.2 billion. GM also predict that its market share will decline from 22.1% in 2008 to 19.7%% in 2014.
Problem Statement
During the crisis era like this, are the strategies from GE can save them from the bankruptcy?
Analysis
Analysis will use the concept on Thomson, et al. “Crafting and Executing Strategy” book and Porter’s Competitive Strategy.
First, we can analyze with Porter’s five forces analysis. With this analysis we can see about the industry attractiveness.
 Bargaining power of supplier
The bargaining power of supplier is strong. Why? Because the automotive industry is really depend on the supply of raw materials such as iron, spareparts, and labors. Since the company can’t produce all of it independent then we can conclude that the bargaining power of supplier is strong.
 Bargaining power of buyer
Although the individual consumers only have little impact to overall sales but we must see about the declining sales causes by global economic crisis. The crisis made people more aware about the prices than the quality. Many people like the cheap products with many embedded elements such as services and gimmicks. Therefore, consumers have many choices of products from many companies. Then we can conclude that the bargaining power of buyer is strong.
 Threat from the complementary products
The complementary products of car are the other form of transportation vehicles especially motorcycles and public transport. But, since the car using is a part of lifestyle, we can see that the demand of car still high and didn’t get big impact by the complementary products. Thus, the threat of the complementary product is moderate.
 Rivalry between new competitors
In this industry, there are many competitors. In US there are two main competitors (two of big three members), Japanese company (Toyota, Honda and Nissan) and Europeran competitors (Volkswagen, Mercedes Benz and BMW) and one of the most growing company (Tata Motor India). All of these manufacturers try to “kill” each other with their strategy including made cars in same segment and us the offensive strategy. So with this situation, the rivalry among the existing competitor is strong.
 Threat of new entry
Since there are many manufacturer in this industry and there is impact of global economic crisis. Now, the manufacturers try to press down the prices and the profit of each company was down. The industry is not promising in the long term. Besides, to enter the automotive industry, company needs much money and capital both physical capital and human capital (of course only big companies can do it and in crisis era like this year, it could be an impossible move to enter this industry). Thus I can conclude that the threat of new entrant was weak.
Here summarize of the five forces analysis:
Five Forces Analysis
Bargaining Position of Suppliers Strong
Bargaining Position of Buyers Strong
Threat of Complementary Products Moderate
Rivalry Among Existing Competitors Strong
Threat of New Entrants Weak

From this analysis we can say that the industry is not attractive, and it can be a good and bad signal for GM. Good signal because it means that in this crisis situation there is almost no opportunity for the new companies to enter the industry. Thus the competition is happened only to the existing competitors. The main problem is how to maintain the sales and profit, if company can do this then it can survive in this industry. If company can’t, then it could be dumped from the competition. So the company needs different and unique strategy such as different marketing strategy. Bad signal because it means that the industry was less profitable and have stagnan growth for the future and it should be a consideration for GM to formulate new strategy.
The second analysis to formulate strategies for GM is using the SWOT analysis. In SWOT analysis, company should take its point of view to see the condition of the industry and competitors. Before that, we have to define the generic strategy of GM and the result is broad differentiation because GM has many business units in many geographical areas although they are still in one industry which is automotive industry.
 Strengths
There are several strengths of General Motors:
 One of the biggest automotive manufacturer in the world
Although GM has been replaced by Toyota as the biggest automotive manufacturer in the world, the market share of this company is still big especially in US and Canada. Besides, GM has significant growth in China with the opening of GM factory. So this fact can be defined as the strength of GM.
 Many Brand Names
Like in the beginning of the case, we already knew that GM has many business units that operated in the same industry which is automotive industry. The brands like Cadillac, GM, Daewoo, Holden, Hummer and Opel are well known in the world. With this kind of brand, GM can push its sales and distribution wider, then the cost of distribution can reduce because it has different distribution channel and factory over the world. Besides, GM also operated its brands in different geography area. Such as Holden in Australia and Pasific although it still operated its global brands such as GM and Daewoo.
 Long time and global experience
GM was founded in 1908, so this year GM has been operated for over a century. With this fact, we can see that GM has so many experiences. From a company that operated in local area into global company that rules the market for over 77 years. Besides, with differentiation GM has global area of market and distribution and since that happen we can coclude that GM has good experience in global level
 Weaknesses
The weaknesses of GM are:
 Its dependency with the government and GMAC
As we know, the big three are have dependent relation with US government which is represented by The Fed. Funding from The Fed through the GMAC is one of main financial source for these companies. This situation is getting worse in crisis era. The big three are more depend on the fund. The Fed already gives the fund but actually didn’t give good impact to these company and they are facing of bankruptcy.
 Careless about the energy saving and environment
Truck and SUV are the most profitable product for GM and we know that these kinds of vehicles need much gasoline and not so environmentally friendly. Now, people are more care about the environment. The global warming becomes the “hot” topic. Many companies give big attention to this issue, including the competitor of GM especially Toyota. Toyota has already launched its Prius product. Prius is hybrid car which is need less gasoline and change it with battery power, the fact is the sales of Prius has grew year by year. So we can see that the main products of GM are already didn’t have prospect growth for the future.
 Declining profit
The declining profit becomes a weakness for GM because it is already happened since 2002, but GM can’t formulate good strategy for increasing the sales and growth. Ironically, the declining of the sales made GM has been replaced Toyota as the biggest manufacturer after ruled for 77 consecutive years.
 Too many business units (brands) in the same industry
All of the business units of the GM are in the same industry which is automotive industry. GM didn’t split the segment clearly for example the low segment or middle segment. GM tries to focus on the geographical coverage of its distribution such as Daewoo in Korea and Holden in Australia and Pacific. Besides, with too many business units make the control system is not good enough, such as for the production control and reporting to the management. In other words, I can say that the system of GM is too vertical.
 Too dependent with the US market
Although GM is a global company, but the fact is GM’s biggest sales was come from US and North America market. Since the impact of global crisis is getting worse in US then it’s being normal if the sales and profit of GM is declining too.
 Opportunities
 New potential market
Although there is declining of sales of GM, but we have to realize that the biggest declining of GM’s sales is come from the US market. Since the market of China and India are still have good growth and opportunity, then GM can expand or move its factory and distribution base in these emerging markets.
 Opportunities of new model and new concept
Since environment and green campaign become more important, GM could make new model of cars with hybrid technology because the market for this segment is still grow.
 Threat
 The fluctuation of economic
Since the global crisis, the economic can’t predict well. The currencies, stock’s prices, the demand of the customers are fluctuating. Since that, the company should make a better prediction such as about the cost structure and profit predicition.
 Growth of the competitors
The competitors of GM such as Toyota and Tata Group have better growth despite of the crisis. Nowadays, Toyota become market leader but in the future it should be possible for Tata to be the number one if the old manufacturer like GM didn’t care about the external change.
 The rising of gasoline prices
Since 2008, the prices of fuels and gasolines are fluctuating. It already reached the highest price which was about $160 per barrel and reached the lowest price as $40 per barrel. This fluctuation can impact the overall GM sales because it can affect the demand of the customers.
 The significant growth of overall cost
With many existed and retired employees. GM faces the problem which is the increasing of the cost including the salary, compensation, bonus and the pension fund.
With these kinds of analyses we can see that there are strengths that should be enhanced by GM and some weaknesses that should be fixed by GM. From the SWOT analysis, we could find the core competence of GM. From the strength in my opinion, the competitive advantage that could become the core competence of GM is its experience for over a century. With this fact, GM should have experience when it tried to reach the number one position and when it maintained this position for over 77 years.
Strategic Group Map







Geographic Coverage
The analysis show that GM faces many competitors that close one to another, this situation make the competition between them are strong and intense. GM should see all of the companies can replace its place not only try to chase Toyota. Beside, it show that the industry is not attractive because of too many players.
Then the next analysis is with key success factors: in the automotive industry there are three key success factors that can make a company win the competition. There are technology-related, manufacturing-related and marketing-related key success factors. The technology-related is about innovation and makes a new product for continuous improvement because in this factor the main element is research and development; manufacturing-related in this industry is about efficiency especially in this global crisis; and the marketing-related is about how to use the right marketing strategy that people like. For GM, this company has lacked of these three categories, innovation didn’t work well and have been surpassed by Toyota, the efficiency is not going well too because it has many business units in same industry and the marketing is not have a significant impact to the sales since people now are much care about the environment and GM careless about that, including in its marketing.
Although GM is using broad differentiation strategy but the fact is it just separate or diversify the brand just from the geographical perspective. If we want to use the value chain analysis and strategic fit to see if each business unit related one another or that, I can guarantee that each business unit is related because they can use same supplier and technology that standardized so it can support the efficiency of the company. Thus, if we want to use nine-cell analysis, the main problem is about the sales and growth of each business units. In GM there are some brands that still have good growth such as Chevrolet, Opel and Wuling. These three brands still have good growth and good number of sales. Then I can say these three brands as the cash cows. Other brands like Hummer, Pontiac and Saab are in the declining sales and negative growth, then I can say that these brands as cash hogs. For the industry, the automotive industry is a mature industry and then GM should formulate the right strategies.
• Reccomendations
There are several recommendations that could be formulated for GM:
o Vision and Mission
GM’s vision is to be the world leader in transportation products and related services. GM will earn our customers’ enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people. GM’s mission is Drive improvements in market share, revenue, brands, people, responsiveness, and cost effectiveness through the implementation of global common metrics and best practice sharing.
GM has good vision and mission, since GM now become number two so GM should back to its vision and mission, such as the integrity, teamwork and innovation which are not implemented well by GM especially in innovation. About the cost effectiveness, GM has too many business units and this is made this company is less effective, and then it needs better strategies which are explained below.
o Reengineering
GM is already in its worst era ever, the problem can’t be solved just by adding fund from the government. GM should use the reengineering strategy which is break down the system and use the radical improvement. First, GM should use open system which means to reduce the vertical system. With this system GM can control the business units in many countries.
o Use the innovation process
GM’s core competence is on its experiences on automotive industry for more than a century. Actually, for some decades GM has been the most innovation automotive company in the world such as introduction of self starter engine, car concept and mobile satellite system for car. But since 2000’s decade, the innovation in GM has been stopped. The other company like Toyota already made hybrid car and used environmentally friendly engine and that have not been implemented by GM. GM should be considerate to increase the innovation level of the company in order to make a new model or concept of a car that is different from the competitor (unique). Hopefully, it can increase the sales.
o Increase the research and development cost
From the income statement we can see that the research and development cost are zero and the biggest cost is for general and administration expense. Since GM has cut the compensation for the management, GM should considerate to increase the R and D cost to make new concept of car that environmentally friendly.
o Divest some business units
GM should operate and increase its operation in global level but it should be focused on some brands that have good prospect in the future. Because it is important for reduce cost. Some brands or business units that already become cash hogs and didn’t have good growth such as Hummer, Pontiac and Saab could be divested or spinned-off.
o Use the environmentally friendly system and reduce the SUV and trucks
In order to push it sales, GM should make hybrid car and technology that environmentally friendly to fight the global warming and enter new potential market. SUV and trucks should reduce because the fact is the market is getting worse.
o Try to use external funds not only from government
GM can use its global coverage and experience to get the fund, because the fact, funding from government is not enough and add the dependency of GM to the government. Fund from private company can be used.
o Cooperation with the competitors
The crisis is not only happened to GM, other company including Toyota is getting the impact of the crisis, and thus GM can cooperate with them to formulate right strategy to save the industry. This cooperation is based on win-win solution to make benefit for each of them.
o Critics to the plan
There is point of the plan that showed GM should focused in US because GM is a part of American culture. I think it’s kind of strategy from GM to get bigger fund because this plan was submitted to US government. Since GM is multinational company, act globally must be implemented by GM.
o Bankruptcy is not the choice
GM can do many sacrifies but bankruptcy is not a choice because the impact of its bankruptcy is bigger than restructuring this company to become thinner and more flexible.