General Motors' decision to withdraw from European operations in 2009

¶ … General Motors' Decision to withdraw from it's European operations

Analysis of General Motors' Decision to Withdraw from its European Operations

Introduction to the Situation

2009 has been a difficult year for most players within the business sector. The harsh times did not spare even the former number one automobile manufacturer General Motors. The economic difficulties initially took a toll on the real estate industry, but soon also impacted the automobiles, as these represents the second largest and most important acquisition of the American family.

General Motors was founded in 1908 in Flint, Michigan by William Durant. Throughout its century long existence, the company has been presented with numerous challenges, but has managed to successfully overcome them and emerge as an even stronger and more capable economic agent. 2009 was however the year that raised the most difficult challenges, and General Motors was forced to accept the support of the United States Government, which rescued the company under the Troubled Asset Relief Program; today, the majority of the company is state-owned, with a small share even belonging to the Canadian government (The Toronto Star, 2009). 2009 was also the year in which General Motors was joggling the idea of withdrawing its operations from the European arena.

2. Analysis of the Internal and External Environments

In order to better understand the circumstances of the decision relative to the withdrawal from Europe, it is necessary to get a wider comprehension of the internal and external situations of General Motors in the eve of the final decision.

2.1. The Internal Environment

Resources

General Motors possesses numerous resources, both tangible and intangible, all combined and used to add more value to the organization. In terms of material resources, such as commodities, the company purchases them from various global regions; they also have automobile components manufactured in various global regions, and then assembled within the United States manufacturing facilities. The company has also outsourced a large part of its IT operations -- intangible resources -- and has managed as such to save billions (Network World, 2004).

The financial resources used by the company would generically be those generated in the form of profits, which would then be reinvested. In 2009 however, the company was forced to file for bankruptcy. The U.S. And Canadian governments rescued the company by pouring the necessary financial resources. Under TARP, General Motors received $13.4 billion; the company executives stated that, in a worst case scenario, the organization would require total loans of a maximum $18 billion. He money would not however be used to resolve short-term liquidity matters, but to achieve long-term stability (Gutierrez, 2008).

Another category of resources is presented by the staff members, who represent tangible resources through their very ability to perform the operational and administrative tasks, but also an intangible asset through their skills and knowledge. GM strives to create a pleasant and dynamic working environment in which all employees are valued and satisfied.

Core Competencies

What has to be noted is that, in these times of incremental forces of globalization and market liberalization, most automobile makers have similar access to the same resources. So creating core competencies can be a highly challenging task. Despite this status quo however, GM has managed to place itself as a long standing and trustworthy car maker, that places the needs and wants of their customer base at the very core of the business operations. Two other important core competencies are given by the company's created scale economy, and by its strong international presence, which offers it access to both resources as well as markets.

Product Portfolio

Throughout its existence, General Motors has presented its customers with over 30 brands of products. In 2009, the remaining brands were Buick, Cadillac, Chevrolet, GMC, Hummer, Vauxhall, Opel, Holden, Daewoo, Pontiac, Saab and Saturn. In terms of automobile types, these are also various, referring primarily to sedans, crossovers, sports utility vehicles, pick-up trucks, coupes, sports cars and convertible cars, hatchbacks or wagons, and finally, vans (Website of General Motors, 2010).

Financial Analysis

The information on the company's financials is relatively scarce. Additionally, since 2009 is only a few days behind us, the financial data has yet to be centralized, processed and released to the public. The analysis of the first three quarters however reveals a strengthening company. At a global level, the sales revenues increased from 22.4 billion in the first quarter, to $28.0 billion in the third quarter (Website of General Motors, 2010).

Value Chain Analysis

The value chain at General Motors was a highly complex one, integrated at all business levels. It strived to generate the desired financial results in a process that satisfied customers' and employees' needs, and created more value to the shareholders. Despite these efforts nonetheless, several shortages occurred in the company's value chain, leading them to the impossibility of successfully overcoming the crisis. Some of their mistakes included their decision to diversify their business operations by lending money, when they should have stuck to manufacturing and selling cars, and their failure to perceive and address the real threat posed by the competition (Value Chain Group, 2010).

Organizational Culture

As the economic crisis began to make its presence felt even more, and as the company was registering decreasing sales also due to its inability to fight off the Japanese car makers penetrating the American automobile market with their small size and fuel efficient vehicles, General Motors strived to implement an organizational culture in which innovation is considered a core value and an impending necessity -- it as such became obvious that innovation would be implemented as a business model.

Organizational Structure

Similar to the financial data, input on the organizational structure is fairly limited. It is nevertheless known that the company is structured based on its brands, in the meaning that almost each brand has its own organizational division. Other structures refer to the financial services divisions, the international operations divisions, the social responsibility division or the research and development division.

Internal Strengths

The company has a century long existence, in which time they have gained valuable expertise and are able to deal with any challenge that the economy might bring

Despite the pitfalls, the company remains the largest vendors of automobiles within the United States

They can easily rely on the strong business relations they have created along their existence

Internal Weaknesses

The diversification strategy they implemented failed to retrieve the desired results, further reducing the company's financial stability

The company's strategies had not been tailored to fit the needs of the modern day society

Their automobiles were uncompetitive and lacked innovation (Value Chain Group)

Despite the fact that the large size of General Motors could be perceived as a plus, it in fact represents a weaknesses due to the fact that it makes the company rigid

External Opportunities

Numerous technological developments are being made on daily basis, and these could be integrated to support the innovation processes at General Motors

The forces of globalization continue to be strong, meaning that the company could generate money by selling its products onto new markets, and could save money by outsourcing part of its operations to more cost effective regions

External Threats

As the company's managers themselves recognize, the current economic conditions are the toughest ones GM has encountered since the Great Depression of 1929 -- 1933

There is intensifying competition from foreign automobile makers, especially from China and Japan

The demand from consumers has significantly decreased, and their needs are continually changing

Key Strategic Issues

Given the context identified above, several strategic issues were raised. Three of the most important ones are succinctly revealed below:

(a) The declining demand for the company's vehicles -- this issue led to the necessity for more financial resources, which eventually materialized in the acceptance of aid under TARP

(b) The growing competition placed by international manufacturers -- this situation raised an impending necessity to reorganize the company in a means that it better addresses the needs and wants of customers

(c) The fact that the consumers were turning to foreign cars translated in the inability of GM to understand and serve the needs of its customer base

5. Strategic Options

As the gravity of the situation was intensifying, the managerial team at General Motors found itself in a position in which they had to identify several strategic courses of action, and select the most adequate one. Some of their alternatives would have included slashing down the car prices, implementing a process of cultural change or restructuring the entity.

Reducing prices would have had the benefit of attracting more customers, but it is unlikely that the sales generated would have been able to make a positive difference. The strategy would have been integrated in the Ansoff matrix under the entries of existing products, sold onto existing markets (Tutor2u). It would have been a penetration strategy, but its prospects could not have been positive. It would have however been advisable to offer promotional sales to the vehicles in stock in order to reduce inventories. This means that while the feasibility of this option would have been increased, its long-term sustainability and acceptability were low.

Reshaping the organizational culture at General Motors would have been a positive solution, a necessary solution even, as it would have created a new mentality, focused better on innovation, on customer satisfaction and on attention to the changes impacting the micro and macro environments. The downside would be however that this strategic option would only be able to generate positive outcomes in the long-term. It is of course advisable for any entity to think on the long-term and consolidate itself, but when presented with a crisis situation, like 2009 was, they should focus on immediate solutions. This means that the solution was feasible and sustainable, but not acceptable in the given conditions.

In this light of events then, the strategy selected was that of restructuring the organization. This was the best solution given the respective circumstances and it scored the highest levels of sustainability, feasibility and acceptability. It virtually saw the sale of some of the General Motors brands. Hummer was for instance sold to Sichuan Tengzhong Heavy Industrial Machinery for $250 million and 3,000 jobs were saved in the process (Times Online, 2009). Three brads were eliminated altogether -- Saab, Saturn and Pontiac (Krebs, 2009). Discussions were also commenced for the sale of European subsidiaries Opel (Germany) and Vauxhall (United Kingdom). After months of negotiations, the General Motors executives decided to keep the two European subsidiaries. This final decision was also supported by the fact that the German government offered the company a state loan to restructure the GM subsidiary (Opel Facts and Fiction).

6. Implementation Issues

The final decision to "kill the sale agreement with Magna" (Ward's Auto, 2009), the prospective buyer for Opel and Vauxhall, has given birth to several issues. On the one hand, there was the necessity to deal with Magna, in the meaning that the two organizations -- GM and magna, had been doing this negotiation "dance" for months, and the American automobile retailer had been looking to get the most out of the sale. The flexibility of Magna was however been insufficient, and now GM risked losing a strong prospective business partner.

Another issue refers to the fact that, despite improving economic conditions, the main argument in keeping the European subsidiaries, the crisis has not yet passed, meaning that its danger must still be overcome. In order to still implement the restructuring strategy, the GM executives have decided to run Opel and Vauxhall no longer as two separate entities, but as a single organization (Opel Facts and Fiction).

Relative to the human resource, the staff members would generically be expected to forward a high degree of resistance to change. This is given by several reasons, such as a fear of the unknown or a lack of desire to learn new things. Whichever the case however, the actual resistance on the part of the Opel and Vauxhall employees was in this case limited. The explanation would be best given by the less fortunate alternative of selling the subsidiaries to Canadian ownership, which would have implied even more changes.

Another issue belongs to a more political field and sees that, since the German government offered Opel financial subsidies in order to continue operating, the company will have to present its plans to the federal authority. This virtually means that the executives lose part of their control in the company, control which is transferred to the German government.

All in all, the decision to keep Opel and Vauxhall has managed to maintain the sense of a strong and powerful General Motors, but it has not helped solve the problem. The final results prove that just like the entire parent company and its other subsidiaries, Opel and Vauxhall would continue to be met with challenging situations. They will as such be forced to develop new strategic sets of action through which to introduce innovation and better serve the needs of the consumer base.

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