Fiat and General Motors: comparative analysis

Fiat & GM

Analyzing the world car industry, it can be mentioned that almost all the industry global players have tried to share efforts, investments and risks, taking the opportunities offered by "partnering" - acquisition, mergers and different form of alliances. There are also disadvantages, as the process of making decision is more complicated in an alliance, involving interests of different partners.

Porter's Five Forces Model has identified five forces in order to determine the long-run profitability of a market or a market segment: suppliers, buyers, entry/exit barriers, substitutes, rivalry. Considering the automobile industry in the world, it must be first mentioned that it has passed through a process of globalization with a lot of alliances that have led to the fortification of the small car producers and extension of the big producers in most removed parts of the world. This means a standardization of the products considering the quality factor (most of producers tend to improve their quality) and also a more accurate adjustment to the clients' demands. It must be pointed out that the supplier concentration has diminished, involving numerous suppliers in this industry once the penetration of the big car producers in the emerging markets from the Latin America and Asia or in the East European market. The consequence of this tendency is the reduction of production costs as the workforce in these parts of the world is less expensive and also the transportations cost has decreased (as suppliers are closer to the car producers).

Analyzing the "buyer" factor, it can be observed a tendency of increasing the number of consumers, if it is taken into account only the Eastern European market that has opened in the last decades. This has led to products differences through adjusting the automobiles to the price-quality force that exists in that part of the world. A lot of big car producers have emerged on this market educating the consumers with the brand identity but also borrowing some national substitutes in order to produce less expensive.

The entry barriers" are also an important factor because on the moment on penetrating a lot of strengths and weakness are analyzed: cost advantages (cheap workforce costs in the emerging markets), access to input (a lot of bankruptcy factories in the Eastern Europe have been acquired by the big auto producers and transformed in productive and efficient car producers), government and other binding policy (again the example of the Eastern Europe, where the state has offered less constrain fiscal policy to the car producers that have taken over the national producers in order to modernize them).

In the moment of analyzing the substitute element, it is worth to point out the balance that the car producers must find when deciding to create a new product, switching costs in order to obtain a certain price and quality. It is hard to believe that a considerable number of buyers tend to find an alternative to the car considering its practical advantages.

Rivalry is a constant presence in the car industry that led to a lot of acquisitions and alliances in order to increase the share on the market and the capacity to extend the lines of products. It may be mentioned only the rivalry among the American car producers, West European producers and Asian producers, the buyers taking all the advantages from this tight competition on the market.

General Motors is the world largest automobile producers (12.6% of the world market), whereas Fiat Auto is the world's sixth- largest automobile producer (with 5% of the global market). Through this alliance, the two companies hope to distribute their products on the markets of each other: GM intends to consolidate its position on the European market, competing with the European and Asian producers, whereas Fiat tends to market its luxury marques, Alfa Romeo and Lancia in the United States, where the competition includes almost all the important car producers in the world. Cutting cost is the main objective of this alliance.

4. One of the tangible resources may be the extension of the market for the two companies, as GM may increase its selling on the European market through the Fiat market and the Fiat car can be distributed in the Latin America, where GM has an important position. Considering that GM has acquired 20% of the Fiat Company, it can be mentioned the financial advantages gained by the Italian company, considering its decrease in the last years. As intangible resource, it may be mentioned that Fiat has increased its reputation on the market, on the basis of this alliance with GM. The possibility to reduce the cost and consequently to better compete on the market remains the most important intangible resource of the alliance.

The Value chain activities are the inbound logistics (receiving and warehousing the raw materials, and their distribution to the manufacturing), the operations (the processes of transforming inputs into finished products and services), outbound logistics (the warehousing and distribution of finished goods), marketing and sales (the identification of the customers needs and generation of sales) and service (the support of customers after the products and services are sold to them). Although, the two partners have initially thought in terms of common platforms in order to standardize the performance, in the final, they have decided to pursue only a "common architecture" which it means a differentiation on vehicles for the satisfaction of the need to customize brands. The two allies work on all vehicle segments, seeking the highest possible unification on all architecture, but developing specific solutions for the individual brands in order to obtain the desired performance in each brand, in accordance with the strategy of the GM-Fiat alliance that states: the two car producers are allied in costs but strong competitors in the marketplace. It can be concluded in this way that the operations, marketing & sale and the service remain the individual preoccupation of each company that will tend to use its competitive advantages to enhance their selling and profits.

Considering the purchasing function, it must be outlined that Fiat and GM have rationalized the purchasing activities through the establishment of a company named GM-Fiat Worldwide Purchasing B.V. The company's objective is to supply the manufacturing and assembly plants directly managed by Fiat Auto (plants in South Africa, Morocco, Egypt, India and China) and by General Motors in Europe and Latin America. This means that the inbound and outbound logistics tend to involve the both car producers, adopting some common strategies. In this sense, it can be outlined that the Fiat - GM alliance has its main competencies in the activities related to the inbound and outbound logistics.

6. It cannot be stated that the Fiat - GM alliance has a competitive advantage in the world auto industry in comparison with other mergers and acquisitions that have produced on this market. The possibility to benefit from the partner's market share and to reduce certain costs is among the classical advantages that are taken into consideration when one decides to form an alliance.