General Motors Was Taken Over

General Motors was taken over by the United States government in the spring of 2009 after filing the second-largest bankruptcy in the history of the United States. The bankruptcy was characterized at the time as an "unprecedented opportunity to reverse decades of decline." As part of the bankruptcy, GM was set to close 17 factories and lay off 20,000 workers in a move to reduce capacity, which would match the company's slumping sales (King & Terlep, 2009). Since that time, General Motors has embarked on an ambitious strategy to revitalize itself. This strategy will be analyzed from an external perspective, and this analysis will lead to recommendations for GM going forward.

Background & Strategy

There are differences between the stated strategy and the actual strategy. GM for years had been a dominant player in the American -- and by extension the global -- automotive industry. Years of slumping sales, however, had left the company with very little sense of strategy. By 2005, the company was so out of control that its executives did not even have a sense of what its financial position would be at the end of the year. It was predicted amidst this chaos that GM would need to become a company reborn, with "fewer brands, fewer models and reduced legacy costs" (Welch & Beucke, 2005). At the time, the company disputed this prognosis, and believed that it could recover market share.

According to an interview with then head of product development Bob Lutz, the company began producing better cars at this time. Lutz was in charge of improving GM's product, and began to introduce new designs. This did not improve the company's fortunes, something that Lutz attributes to bad marketing. Customers were still only compelled to purchase a GM vehicle by discounts and rebates -- the customer perception was that the vehicles simply were not good enough (Bloomberg, 2009). Thus, GM was essentially operating a cost leadership strategy, but without the low prices and with vehicles of a lower quality that those of other cost leaders. By 2009, the firm was bankrupt.

With the government takeover of GM came many changes. A new executive team was sworn in and was given full mandate to set a new course for GM. His take on the company's strategy was that it should make better vehicles and expend more money marketing those vehicles. He especially felt that improvements needed to be made with respect to detailing quality and features (Bloomberg, 2009). The company also wanted to focus emphasis on streamlining production, reducing costs, and improving sales internationally. The bankruptcy and subsequent restructuring eliminated some of the competitive cost disadvantages by lowering legacy costs, which prior to the restructuring amounted to $2,000 per car, costs that were passed along to consumers (Hill, 2010). This equated to a labor cost of over $70 per hour, compared with under $48 at competitors (Krolicki & Bailey, 2007). The restructuring brought GM's labor cost per hour down to $62, which is still high but represents an improvement (AP, 2009).

The company does not currently issue a mission or vision statement. This reflects in part the fact that the company is currently undergoing a significant restructuring. On one hand, the expectation would be that the company would only restructure with a clear vision for its future. On the other hand, it is reasonable that GM does not know, precisely, what its future entails. All of the elements of the company -- brands, markets, ways of doing things, corporate culture -- should all be on the table for evaluation, given the state the company has found itself in. Indeed, some of the company's recent strategic actions indicate that to a certain extent, the lack of vision or mission is allowing the company to make some bold decisions about its future. Whether the lack of clarity will hinder the long-term recovery of GM or whether it will remove constraints to that recovery remains to be seen.

Current Strategy

There are a number of different areas of strategy that GM is following at present. As indicated by then-Vice Chairman of Global Product Development Lutz (2009), the company is shifting focus away from a failed cost leadership strategy and attempting to improve its value proposition by balancing out the quality of its vehicles with its pricing. Beyond this generic strategy, GM has undertaken a number of tactical initiatives in recent years that hint at its broad strategic vision.

Marketing was highlighted by Lutz as a key area of focus for the company. There are a few different tactics that GM has implemented in order to streamline its marketing efforts and make them more effective. It has reduced the number of brands that it carries, most recently killing off the long-lived Pontiac brand (Bunkely, 2010). This was part of the prescription for the company back in 2005, but was not implemented at the time. By reducing the number of brands (and consequently models) the company allows more marketing dollars per capita to the other brands and models.

GM's marketing strategy has also been modernized. The company has implemented a social media strategy in an attempt to produce different messages and reach different audiences that the firm's conventional marketing campaigns. Those conventional campaigns still form the bulk of GM marketing, but the firm is attempting to modernize its promotional strategy in an attempt to keep up with the rest of the industry (Borges, 2010). This strategy involves increasing transparency of communications and building better relationships with customers, in particular the large installed base of GM users. The impacts of this strategy will not be known for some time, however, and GM still relies heavily on traditional media advertising and messages.

Beyond marketing strategy, General Motors has shifted its focus on developing new markets. China is currently the company's largest market (GM.com, 2010). The China business is based on a series of joint ventures with local firms and was therefore unaffected by the bankruptcy proceedings, which helped the company maintain momentum in China. As that country emerged very quickly from the economic downturn, sales have increased significantly. GM sales in China were up 34% in the first nine months of 2009, for example, and the company has a 13.4% share of the Chinese market (Stoll, 2009). The company is also focused on expanding operations in India, also through joint ventures such as one with SACI Motor Corp, and sees promise in dealer expansion in India into rural areas (Anant, 2010). The company plans to enter a number of Asian markets with Wuling vans made in China (Stoll, 2009). GM's near-term growth strategy in the U.S. may be more well-known, but it is China that is the leading engine of global growth for the company.

Another element of GM's current strategy is to lower costs. Aside from the cost savings in average labor cost per hour that was garnered in the process of offloading some legacy costs onto the UAW and CAW during the company's bankruptcy, General Motors has also begun outsourcing as a means of achieving cost savings. As noted, a significant amount of production is now in China, and their Chinese facilities will produce for other Asian markets as well. A significant amount of savings is being derived from it multisourcing. GM is using its considerable bargaining power with suppliers in order to extract contracts that offer cost reductions and service improvements simultaneously. The company remains optimistic about the ability of its multisourcing strategy to achieve these objectives, although there is little evidence thus far of long-term, sustainable success (Mitchell, 2006).

Another area of focus for GM is with respect to its finance unit. Finance units at automotive companies began as an adjunct to the automotive sales units, providing credit for buyers. Many such financial companies have grown substantially beyond that original role and contribute to their firm's bottom line directly. General Motors acquired General Motors Financial Co earlier in 2010 in an attempt to bring all elements of the company under one roof again. GM Finance recorded $51.3 million in net income for the third quarter of 2010, more than doubling its totals from the previous year. GM Financial is expected to help GM in implementing its new strategy by returning to its original role of using financing alternatives to promote auto sales (Trudell & Welch, 2010).

SWOT

The new General Motors must rebuild its business around its strengths, shore up its weaknesses, and correctly identify the opportunities and threats in the marketplace. Among the company's strengths are its distribution network, its market share in the world's major auto markets, its bargaining power and its brand recognition. As formerly the world's number one automaker, General Motors has a strong distribution network that can brings its products to market around the world. This allows GM to introduce new products more easily, and to shift focus to different international markets as need be. The strong distribution network also provides opportunities to build out distribution channels in new markets, as the company has considerable experience in doing so around the world.

GM's market share is a source of strength because it provides the company with considerable muscle and brand recognition. That is leads the Chinese market and is a major player in the U.S. market provides it with opportunities for economies of scale, and to introduce new products. The company's size gives is considerable bargaining power with suppliers. This in turn allows it some degree of cost control, especially now that legacy costs have been reduced. In addition, GM has a high degree of brand recognition. While its reputation is not always good, the names are well-known to consumers around the world.

GM's reputation does need to be considered a weakness. The company's reputation for quality is lower than that of competitors, which makes it difficult to shift towards any strategy other than cost leadership. GM is at present unsure of its vision. While the case was made above why this is not necessarily bad, it is definitely unorthodox. For the company to embark on any sort of long-term strategy, vision and mission must be defined to guide the formulation and implementation of that strategy. In addition, the company has an overcomplicated organizational structure. This inhibits its ability to implement company-wide initiatives, because some elements of the company are far removed from head office. Consistency in market, human resources strategy and it platform implementation are going to be particularly difficult, given the present size and complexity of General Motors.

Automobiles are still big business, and this means that there is considerable opportunity for a company that is well-positioned and ready to take advantage. One such opportunity is in global markets. Much of the growth in the automobile industry at present is in international markets. Emerging markets in particular are characterized by a large number of first-time car buyers. This creates substantial opportunity for GM. At present, they are taking advantage of this opportunity in China and are moving towards taking advantage in India as well. There is considerable opportunity in a broad range of other markets as well, some of which are probably underserved. There are substantial first mover advantages to be won should GM choose to pursue some of these markets.

Another opportunity comes with improving domestic market share. While the U.S. market is subject to intense competition and flatlining sales, General Motors remains a predominantly American company and one that for most of its history was the leader in U.S. auto sales. The company still has considerable brand power and a solid distribution network in the U.S. The slump in sales can be largely attributed to a mismatch between price and quality, a function of both being unfavorable. This means that GM can improve domestic sales by lowering prices and improving the quality of its vehicles. This may be a loose strategy, but the underlying point is that there is opportunity for GM to improve its domestic business and increase domestic market share, and that doing so would be of significant benefit to the company.

The final opportunity is in eco-friendly cars. With peak oil past, the prices for petroleum are likely to being a long-term upward trajectory. While this is unlikely to have a significant impact in the short-term, over the long-term this represents a significant market opportunity. There are some incentives in a few countries for the development of high-efficiency or alternative fuel cars, and although growth is currently slow, many industry observers feel that when the market begins to demand these vehicles, automakers will want to be ready or lose first mover advantages to their competitors. With GM's size and reach, it has the potential to be a game-changer with respect to fuel-friendly vehicles, should is so desire.

There are also a number of threats in the external environment. The first is competition. One of the reasons underlying GM's decline in the domestic market is the entrance of dozens of new competitors. Many of these were able to outperform GM, and ultimately stole market share from the company. The domestic North American market and the European market remain intensely competitive, and emerging markets are becoming increasingly competitive. GM can expect more competition to enter China and India, both from local sources and major global automakers. Many such makers -- from the U.S., Europe and Japan -- are facing mature home markets and are therefore competing with each other to seek out and capture sources of growth. As long as emerging markets are growing, this competition will only be moderately intense, but if growth stagnates, automakers will see the level of competitive intensity rise.

As Bob Lutz (2009) noted, the economy is critical to recovering sales in the U.S. market. Sales in the Chinese market recovered because the Chinese economy recovered quickly from the slowdown. Sales recoveries in the U.S. will require a similar recovery in the American economy. The outlook for such a recovery is poor at present. The same can be said of most other major markets, to varying degrees. The economic climate has an impact on overall automobile demand, of which GM has a significant share. GM could conceivably build market share and still see a reduction in its sales and revenues, should the market contract further. In particular, consumers often delays purchases, wait for sales, purchase used cars or otherwise take steps to reduce their new automobile spending. There is little GM can do about this risk other than diversify geographically, a move it has already made.

Lastly, the corporate culture at GM is a threat. The inertia and stale thinking that characterized GM's culture culminated in a management team that could not even proffer an estimate with respect to the company's financial standing at year end, back in 2005. Ultimately, the company today is comprised largely of individuals who were with the company during the years when GM fell apart. While there is a serious intent among company management and employees to change their ways, this represents a considerable challenge. Should GM be unable to make a wholesale shift in the corporate culture, the same bad habits that ruined the company could re-emerge and threaten to bring the company down once again.

Recommendations & Conclusion

General Motors posted its first profit in three years in Q3 2010, earning $2.16 billion on $34.1 billion in revenue. The company still faces a terrible economic climate, with new car sales 30% below pre-recession levels. Yet, the company has streamlined its cost structure, largely with respect to legacy costs, and has been able to sell vehicles for higher prices than it previously had. This is testament to improvements in marketing and in product quality and design. GM believes it is on track to return to 17 million in annual sales, close to its record high (Trudell & Welch, 2010, 2). The company's results and upbeat message indicate that it believes its strategy is working. However encouraging short-term results may be, they do not necessarily indicate a long-term trend to success. There are still a number of steps that GM needs to implement in order to restore itself to prior status as the world's pre-eminent automaker.

The first is to develop a clear sense of mission and vision for the company. Vision is particularly important. At this point, the bankruptcy was 18 months ago, which should be enough time for the new management team to understand its environment and capabilities. As such, the company should now have a clear vision of where it wants to be in the future, and how it intends to get there. GM should clarify that vision, and develop a mission from that. The reason this is important is precisely because of how complex the company is. GM sprawls across over 100 countries and dozens of units and brands. A vision and mission can help to unite all of these disparate components, allowing them to work together towards common objectives. Without this, individual units may succeed, but that success may not be broad-based and those successful units may otherwise not contribute much useful to the company.