Automotive Industry: General Motors

General motors

Introduction

Since, from the industrial revolution the automotive industry has been playing an important role in the growth of economies throughout the world. In the 21st century, greater challenges were face by the industry. During this time, the industry undergoes fundamental changes.

GM is one of the largest automotive corporations operating in over 70 countries with a presence in more than 200 countries, they have more than 260 major subsidiaries, and they have 395,000 employees working with them in worldwide that translate in to global opportunities that span the planet. On 1908, General motors’ was founded since then 1931 it has been the global automotive sales leader. Its founder was William c. Durant, James whiting promoted his automobile in 1904. In the present time, GM is having its manufacturing operations in 32 countries and their vehicles are selling in more than 190 countries.

General Motors, is also involved in telecommunication, Aerospace, financial and insurance service, Defence, locomotives, automotive systems and Heavy Duty Automotive Transmissions.

Here are some of the popular brands of GM such as Buick, Cadillac, Chevrolet, GMC, HUMMER, Opel and some more.

The vision of Generals Motors is to be the world leader in transportation products and related services. In addition, to earn customers’ enthusiasm through continuous improvement driven by integrity, teamwork and the innovation of GM people.

The General Motors’ company officially became general motors’ corporation on October 13, 1916.

During the Second World War, for helping the allies to victory GM manufacture trucks, tanks, aircrafts and a variety of other military supplies. GM became a dominant force, in the post-war period, a position it would maintain for decades. The post -second war was the golden period for the GM, with a variety of innovations that continually boosted sales.

During the 1950s, Chevrolet and Pontiac introduces V8 engine. The CHEV small block V8, it has become one of the longest-lived engine designs in automotive history.

By the year 2015, GM is deciding to launch near about nine Hybrid models for sale in the U.S.

The Automobile industry has to cope with many unpredictable changes over the next coming years and they can only survived by appropriate strategic planning and implementing them in most suitable way.

Analysing the micro economic factors in GM

General Motor is an American multinational corporation and is one of the world’s largest automobile companies. According to the NADA, GM total revenue in 2006 was 207.349 billion and in 2008, 182.347 billion and currently employs 284,000 people and their average sales per dealership is 31.9 billion.

Key macroeconomic factors that affect GM and the automobile industry are as following

  1. Gross domestic products (GDP),
  2. Automobile manufacturers policies and prices,
  3. Weather peaks
  4. Recessions, and
  5. Telecommunications and technology

Gross domestic product

Thegross domestic product(GDP) orgross domestic income(GDI) is a basic measure of a country’s overall economic output. It is the market value of all final goods and services made within the borders of a country in a year.

The automobile manufacturing industry is one of the largest industries within the U.S., and is a vital engine for the U.S. economy contributing greatly to employment and productivity. Reports indicate that motor vehicle production represents over 5 % of the U.S. private sector GDP.The U.S. is the world’s largest producer and consumer of motor vehicles with production reaching 12.2 million units in 2002.The U.S. automotive industry continues to experience on-going organizational and technological change, and have taken steps to increase its global presence by expanding global alliances and seeking greater collaboration with other U.S. automakers.

The Big Three U.S. automakers makeup approximately 76 % of U.S. passenger vehicle production, while Japanese automakers, Toyota, Honda, Nissan, Mitsubishi, Subaru, Isuzu represents 18 %, and European automakers, BMW and Mercedes (division of Daimler-Chrysler) make up nearly 2 %.

If they stay off the job to the end of the month, then automotive output, instead of adding 0.1% to third quarter GDP, will subtract 0.2%. If automakers stick to their previously planned reduction in assemblies for the fourth quarter, that quarter’s GDP will be reduced by 0.5% (at an annual rate). If the UAW stays out through the first week of October, that drag becomes 0.8%. If they’re out for all of October, that drag becomes 1.7%. If UAW members at Ford and Chrysler also walk out and stay out through all of October, fourth quarter GDP would probably shrink. (Economists currently project GDP to grow 2.2% in the current quarter and 1.9% in the fourth, according to a survey by WSJ.com.)

According to a Reuters report over 3-thousand U.S. car dealerships could fail this fall and into 2009. All this because of weak sales and customers unable to get the credit they need. However, on a local level one car dealer says things are different.

Gross domestic product includes all goods and services produced by either citizen-supplied or foreign-supplied resources employed within the country. The automobile manufacturing industry is one of the largest industries within the U.S. and is a vital engine for the U.S. economy contributing greatly to employment and productivity. Reports indicate that motor vehicle production represents over 5% of the U.S. private sector GDP. Automotive dealerships like GM are required to make profits in order to support their operations.

Automobile manufacturer’s policies and prices

The policies and pricing strategy help automobile dealers to create the operating environment for their business. From the 2008 to 2010 we have seen a lot of fluctuation in policies and price due to global financial downturn. The crises have mostly affected the American automobile manufacturing industry.

Energy crises from 2003 have lead to the higher price for the automotive fuels discouraging customers to buy sport utility vehicle (SUV) and pickup trucks, which have low fuel economy. As SUV and pickup trucks was the main focus of big American automobile companies like General Motors which have few fuel efficient models to offer to customs due to which sales began to slide and with the beginning of 2008 situation had turned critical as thecredit crunchplaced pressure on the prices ofraw materials. Most of the American turned to Japanese car more fuel-efficient creating competition and prices war making huge loss for the GM.

GMs most of the production line had SUVs and large pickup truck which were more profitable than smaller cars, they would have 15% to 20% profit margin on SUVs and pickup trucks , compared to 3% or less on small fuel efficient cars. Gasoline price rose above $4 per gallon in 2008 most of the Americans stop buying big vehicles that collapse the sales and profitability of the GM.Robert Samuelsonhas advocated a more consistent energy policy, arguing, “Wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences — to and from SUVs.

In 2008, financial crisis was playing its role stock prices were fallowing down and people were less interested in buying new cars, GM shares fell below 1946 levels creating a panic situation for all the major car manufactures. There was a ray of hope when oil prices fall to $33.87 per barrel on December 19, 2008, but that could help them recover as financial crisis continues even after that.

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The graph below is showing gasoline prices from January/ 03/ 2003 to November/03/ 2008.

We can see how it was steadily going upwards from Jan 2008 when it was $ 28 per barrel until it reached $135 per barrel on July 2008 then going steeply down to$33.87 per barrel on December 2008. Oil prices has a invertible effect on the car sales if oil price is cheaper then sales of big cars will go up and if oil gets expensive sales of cars goes down, though there are also other factors responsible for that but oil prices is definitely one of the major factor.

Polices

Pension and Health Care Issues

A report issued on behalf of the GM stated that an average cost of per car would increase by $1200 per vehicle because of their aging work forces, increase number of retirees and old age benefits and healthcare. This will indirectly affect the sales and prices of the vehicles.

Currency Exchange Rates

Exchange rate highly affects the automobile industry as many automobile suppliers are from china or any other country. GM have complained to Automotive Trade Policy Council that exchange market intervention by Japanese monetary authorities has frequently prevented market forces from appreciating the yen and thus make difficult for GM to compete against

Imports from Japan.

Fuel Economy and Emission Standards

U.S government has develop higher fuel economy standards and emission standard for carbon dioxide and other green house gases that has highly effected the GM as it mostly produces SUV and other light trucks as it needs to change the design and to introduces new technology which is more clean and reliable.

Broader Issues of Automotive Trade Policy

As most of the foreign government has trade restrictions and polices that prevent the GM to enter in those country effecting its growth and expansition.GM with the help of the U.S government they are being trying to be active in WTO aimed in removing trade restrictions and policies. Such countries are Brazil, India, Indonesia and the Philippines as they have discriminatory policies so that they are able to promote domestic vehicle and develop national automotive development strategies.

Weather peaks

The highest selling seasons for automobile dealers are spring and summer. During the spring and summer, the optimism index rises 141% from the downfall incurred during the fall and winter months

Recessions

From the begin of the 2008 automobile industry was hit hard by the credit crunch specifically U.S market. There was a panic situation people were losing jobs, stocks were going down and customers would not prefer to buy cars on credit or loans even if would buy car that would be more of fuel efficient rather than the GM pickup trucks.

According to the John Fleming, president and chief executive of Ford Europe “Sales are going down and markets are softening.” Means that they are not able to control the market and they cannot predict where it will lead them.

SWOT ANALYSIS OF THE GENERAL MOTOR

SWOT analysis will help to analysis market positioning and identifying the internal and external factors that are favourable and unfavourable for the GM to achieving its objective.

Strengths

  1. Large market share
  2. The market share of GM in the US is plummeting, rather than shrink; it has expected that global car industry will grow radically in the end. Sales growth is expected to come from Middle East, Russia, China and India. While in US and Europe, manufacturing is currently strong. After what happen with the GM, China gave them a good market.

    The year of 2009 was very successful in China for GM.

  3. Plant and equipment
  4. The GM has its plants almost all over the world; some of them are US, China, India, Russia, Europe and so many. The US plant was the one of the largest vehicle seller in the world until 2008. They adapt change according to the market and situation, they uses some latest technologies to give the people what they want. One of the technologies that they are using now days for their plants is “3D laser scanning”, it can commonly seen in construction sites, GM use it to reduce the development plant layout and design. 3D laser helps them to scan the whole facility, from the roof trusses down to the plant floor. It gives us a complete 3D image, which can be viewed by the automakers throughout the world. According to Bill Campbell, “they have scanned an average of 2million ft.2 per facility”. The most recent projects was in Oshawa, Ontario, Canada.

    They also believes that using of layout data derived from 3D scanning reduced travel cost and less time wasted.

  5. Innovative
  6. According to the BCG- business week 2008 survey, GM was ranked in top 20 Innovations Company in the world.

    Onstar satellite technology, was developed in 1996 it have 3 million subscribers and is standard on all GM vehicles. This is the technology, which helps us while in emergency and theft.

Weakness

  1. Behind on Alternative Energy Movement
  2. This is GM’s one of the biggest weakness. Because, in the market GM was one-step behind from the competition of alternative energy/hybrid vehicles. This create many problems for GM, includes loss of market share and the companies profit was affected by this also.

  3. Organisational structure
  4. In GM, there was a lack of information between employees from top to bottom, and this was one of the causes of falling behind of the alternative energy movement. There was a communication problem between the employees and employer.

  5. Stagnant profitability
  6. As we know GM is struggling now a days to get back in to the position where the GM was. The ROE has significantly decreased over the recent years it is now 10% and the margin of the company is 1.5%. This is also one of the falling point of GM , because the shareholders was thinking about their shares so they were not pleased with this situation.

  7. US market dependent
  8. GM became too dependent on US market. This was one of the causes of the failure. GM has been ignoring the competition in 1960’s GM controlled half of the North American vehicle market and the latest figure shows it’s only now 19%.

  9. Poor credit
  10. The US auto industry is in a big slump. GM bank account is shrinking by $1 billion a month. The issue is can general motor will be their where it was. Since from 1992, the market share has fallen from 34% that year to 19%. The company wasted around $2 billion on an investment of Fiat and many billions on the Delphi. The management also wrecked GMAC its car loan subsidiary, by lending money to people who could not pay it back.

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Opportunity

Globally expanding

GM is the strong company with high quality production and has a range of new exciting products, which they can represent internationally. They need to inflate into the new markets and expand internationally. Many new countries have started free trade policies GM needs to explore these countries such as India and china, as its been assumed that within coming years Asia will be the biggest market for the car industries. Along the way, they need to continue to focus on there on home market.

Available Governmental support

GM has an immense support from the government. U.S government has supportive and encouraging polices for the American companies .GM can use government policies support to promote its growth outside the American continent.

Development of the new models

GM had worlds one of the first R&D centre .They have scientific skills and expertise to develop new technological vehicle which are more fuel efficient and uses green technology.

It is necessary for them to develop hybrid cars to protect them from enormous competition from japans car industry .the new government regulations tough and against high consumption cars which is the expertise of GM so they need to change the table round and change weakness into opportunity.

They have the resources as well as technical skills all they need is the motivation and ability to do it.

Threats

Competition from foreign markets

The slow death of GM, in the 1970 it had nearly 60% of automobile market and foreign share was only 10% that time in the US. Now the foreign brands dominate the GM market in the US and the GM shares little more than 20%.

Reasons for GM’s decline:

GM major cost disadvantages was their production sites, which were in the U.S making their labour costly, then there competitor. Then strike threat came from sites around the country. They were threatened walkouts at plants in Parma, OH; Mansfield, OH; Grand Rapids, MI; Kansas City, KS; Flint MI and Arlington. Due to which they agreed to the demands of United Auto Workers (UAW) union that lead to increase in costs leaving GM to suffer higher loses.0

Financial slowdown

From the year 2003 it has been a difficult times for GM firstly increased prices of the oil made it difficult for them to increase their sale and it decrease their profit margin, and years after they were hit by recession in 2008 that tumbled there whole industrial structure. The reason they were not able to cope up with the recession was there high cost of operation and over expansion that lead to disintegration leaving higher losses than ever.

Secondly, high competition from japans companies made it difficult for the GM survival.

GM and organisational development

Organisational development is a soft methodology intended for use in complex situations to provide intervention strategy for the change management. GM has developed organisational strategy so that they have the ability to deal with organisational problems, cultural diversity, stability and political bargaining. Methodology for the OD was to develop unified system for the employees. However, one of the reasons it was introduce as employees of GM are quite inflexible and they could not cope with such pressure from the change.

Change is never easy, especially in a vast, global organization like GM, which has been struggling with a change agenda for years and they have to change as shares are going down as last year it weathered an 18% dip in its U.S. market. GM finally understands that keeping its leadership position in the worldwide auto business demands deep-seated change.

GM wants to develop the change management so that they are able to-

  • Create a care work place in professional practice environment that promotes a high quality service, equality of opportunity, and political and public accountability.
  • Making best use of money, people and other resources for and with the users of services to achieve the agreed objectives;
  • Supporting best qualities direct and public services;
  • Given clear messages to everybody about everything we do

GM needs to diagnose the issue by theOrganisational Design Wheel that they are able to build momentum for change. Organisational tool gives us insight that for any organisational success its focus should be Mission and vision, which need to be align with organisation, process, people and direction setting and it should be backed up by the its organisational structure ,strategy,leadership,processes,culture and performances. This is the kind of the structure, which GM needs to develops but to reach here they need to go through a lot change management.

For the development of the OD and change management, GM needs to Connect OD initiatives to strategic business models and Use the action research process to diagnose opportunities for improving the organisation. Define critical success factors and target specific interventions for hard-hitting, bottom-line OD. Articulate their role as an internal OD consultant. Leave with practical tools and advice that are immediately applicable to the company’s OD initiatives.

Organisational Analysis and Design

The design of an organisation can affect everything as for the GM has gone through over expansion creating disintegration in controlling the organisation effectively. They will need to change the structure from the top to bottom so that they are able to develop proper workflow that will lead to ultimate success at the bottom line. GM needs to develop a change management program that targets GM employees that will help them to learn the dynamics, processes, and challenges inherent in analysing and designing an organisation to achieve business results. These applications of a systematic approach for guiding an organisational design effort, from problem identification, and planning the transformation, will ensure these efforts are align with the organisation’s mission and values.

Organisational Culture and Change

In today’s worlds, Organisations today experience change in faster cycles than ever before. This is due to the mergers and acquisitions, turnaround situations, and organisational restructuring place pressure on strategy and performance. General motor has over expanded through merger and acquisition making them difficult to restructure their organisation. If they want to be able to deliver positive business results they need to competent internal change agents and access them, test their reliability. During the change management employees are most affected by it so GM needs to change in most appropriate way so that they are able to adopt it. According to the Bennis in his early work “Organizational Development: nature, origins & prospects” defines OD as: “a response to change, a complex educational strategy intended to change the beliefs, attitudes, values and structure of organizations so that they can better adapt to new technologies, markets and challenges”.

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According to the change, curve employees go through five stages shock and denial, anger, depression and detachment, dialogue and bargaining and acceptances.

Shock and denial- when organisation implements change management in the company employees at first avoid and as well, as get confused with it.

Anger – with the new regulation and rules make employees frustrated and irritated against the change, which for any organisation is difficult, and they need to overcome from it very quickly.

Depression and dialogue are interrelated stage, which lead to the acceptances.

Acceptances is when employees are able to understand and explore new system how is it more efficient and beneficial for employees and organisation.

Best Practices in Succession Management

Succession management is a critical determinant of marketplace longevity for organisations. To develop best practices that will help to sustain competitive edge. For the GM employees and HR managers have to develop skills of succession management such as-

  • Select options for assessing the core talent pool, and identifying and supporting high potentials
  • Set up and execute effective succession planning review meetings
  • Integrate succession management within the broader human resource system
  • Utilise techniques for knowledge transfer of critical intellectual property
  • Implement new models for both technical and management succession planning
  • Drill down into succession management beyond the top management layer

Design and Implement Leadership Development Systems

When it comes to developing the leaders within an organisation, the stakes are high and the potential payoff is enormous. How to create a rationale for developing leaders in the organisation

  • Identifying the leadership capabilities required in the near future, and assess talent gaps
  • Determine the most efficient and effective means of developing the talent to meet the organisation’s needs
  • Incorporate action learning into leadership development initiatives
  • Understand how to create a system that aligns the organisational leadership programs with elements of strategy, culture, and business initiatives

Model for Change Management

There are numerous well-organized models that can help in change management in the organisation and for the GM will be The McKinsey 7S Framework. Some of the approaches have been around for many years. For example, many organizations undertake strategic planning. The implementation of strategic planning, when done in a systematic, cyclical and explicit approach, is strategic management. Strategic management is also one model for ensuring the success of change efforts.

The McKinsey 7S Framework

There are many models for the analysis of the organisations position and its objects some of them will analysis internal factors, others will analysis external ones, some of them combines these perspectives, and others look for congruence between various aspects of the organization. At the end it comes down to which factors that will affect the organisation.

Tom Peters and Robert Waterman developed the McKinsey 7S framework in the early 1980s while working at the McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful.

The 7S model has a ability to be used in variety of situations where an alignment perspective is useful. It will help the company to develop better strategic planning process.

It is used to analysis four basic things-

  • Improve the performance of a company.
  • Examine the likely effects of future changes within a company.
  • Align departments and processes during a merger or acquisition.
  • Determine how best to implement a proposed strategy.

The McKinsey 7S model involves seven either interdependent factors, which are categorized as “hard”, or “soft” elements:

“Hard” elements are easier to identify and it directly influences management. These processes are strategy statements; organization charts and reporting lines; and formal processes and IT systems.

On the other hand, soft elements are much more difficult to describe, as they are less tangible and more influenced by culture of the organisation. However, these soft elements are as important as the hard elements if the organization is going to be successful.

Figure 1 below the model is representing in a way that change in one element will create a change in other .in this way it shows how these are linked other.

If these new model is added in the GM organisational structure it will give them the stability they need to regain their number one marketing position.

Each element represent an organisational structure and it is very important to understand how it will affect the organisation as a whole.

  • Strategy:the plan devised to maintain and build competitive advantage over the competition.
  • Structure:the way the organization is structured and who reports to whom.
  • Systems:the daily activities and procedures that staff members engage in to get the job done.
  • Shared Values:called “super ordinate goals” when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic.
  • Style:the style of leadership adopted.
  • Staff:the employees and their general capabilities.
  • Skills:the actual skills and competencies of the employees working for the company.

This model will help and analysis GM performances.

The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change.

Whatever the type of change – restructuring, new processes, organizational merger, new systems, change of leadership, and so on – the model can be used to understand how the organizational elements are interrelated, and so ensure that the wider impact of changes made in one area is taken into consideration.

You can use the 7S model to help analyze the current situation (Point A), a proposed future situation (Point B) and to identify gaps and inconsistencies between them. It’s then a question of adjusting and tuning the elements of the 7S model to ensure that your organization works effectively and well once you reach the desired endpoint.

Sounds simple? Well, of course not: Changing your organization probably will not be simple at all! Whole books and methodologies are dedicated to analyzing organizational strategy, improving performance and managing change. The 7S model is a good framework to help you ask the right questions – but it won’t give you all the answers. For that you’ll need to bring together the right knowledge, skills and experience.

When it comes to asking the right questions, we’ve developed a Mind Tools checklist and a matrix to keep track of how the seven elements align with each other. Supplement these with your own questions, based on your organization’s specific circumstances and accumulated wisdom.

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