General Motors Europe operations and strategy

General Motors Europe

As of 2008, the economic agents are under tremendous pressure. A financial crisis commenced within the United States' real estate sector to quickly expand to other industries as well. The automobile industry was severely affected; probably it was the most affected industry after real estate for the simple reason that automobiles represent the second largest acquisition of an average family, after the house. Given this situation, vehicle manufacturers implemented a wide series of strategic decisions in order to respond to the emergent challenges. Most of these strategic actions revolved around cost cutting endeavors, such as the closing down of manufacturing plants or staff downsizing, but also the request of governmental loans. General Motors subscribes to this pattern of responses to the internationalized financial crisis. This report revolves around its trouble with the European subsidiary and the analyses conducted are valid for that period, namely late 2008 through today.

2. General Motors

Before actually lunching an analysis of the company and its decision regarding the European subsidiary, it is necessary to become familiarized with the organization. General Motors was established in 1908, to have been incorporated eight years afterwards. It operated within an estimated 140 countries, but only 35 countries hosted actual manufacturing plants. Its official headquarters are located in Detroit, United States, but the company employs more than 200,000 individuals worldwide. General Motors manufactures and distributes the following nine brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Opel, Vauxhall and Wulling (Official Website of the General Motors Company, 2009).

In 2008, it was met with tremendous financial challenges and filed for protection under the law of bankruptcy. With the support of the United States Government however, now the company's greatest shareholder, GM managed to overcome the situation and emerged from the bankruptcy file; the resulting organization is generically called the General Motors Company. Major processes of reorganization are currently underway.

3. Analysis of the Internal and External Environments

As it has been mentioned so far, General Motors began to feel the pressures of the internationalized economic crisis as early as 2008. However, it was only this year that they considered renouncing their operations within the Old Continent. The analysis of the internal and external environments will help better understand their decision.

3.1. The External Environment

The basic means of conducting an analysis of the external environment is that of constructing a PESTEL table of the elements which characterize the political, economic, socio-cultural, technological, ecological and legal environments. Given the current context however, the features of the external environment were those generally characteristics to the emerged financial crisis. As people began to lose their jobs, the automobile purchasing decisions were put on hold. This materialized in a significantly reduced demand for automobiles not only within the United States, but also in other markets. Then, in the faces of the new challenges, competition intensified at a national level as more and more automobile manufacturers would diversify their offering with the intent of attracting customers. Basically, what they did was to open financial services subsidiaries that would present prospective customers with more effective financial solutions when purchasing a vehicle. These loan offers would generally be calculated below the interest rate promoted by banks and they implemented more flexible terms and conditions, meaning that they stood increased chances of appealing to buyers. Manufacturers and providers would also struggle to present their prospective customers with the most attractive promotional offers and a variety of discounts. All this translates into an increased competition among national providers, such as Ford Motor Company or Daimler-Chrysler.

But there was also the competition raised by foreign manufacturers, generally Japanese automakers such as Toyota or Mazda. The success of these players within not only the American, but also the international market, was pegged to changes of an economic and socio-cultural nature. In a context in which the soaring prices of oil were pressuring the world, consumers felt the growing need for smaller size vehicles that integrated fuel efficient engines. Additionally, this demand was also fueled by the growing concerns of environmental instability.

An analysis of the competitive environment through Porter's five forces will reveal that the threat of new entrants is medium to strong, generally due to foreign competitors; the threat of suppliers is low; the power of buyers is also low; the power of substitute products is medium and the overall competitive rivalry is increased (Investopedia, 2009).

3.2. The Internal Environment

General Motor's internal environment before the decision relative to the operations in Europe was characterized by instability and fear. The staff members feared the loss of their jobs and these feelings seemed easily understandable in the given external context. A specific feature that was characteristic for the internal environment at GM was the company's reduced ability to compete with the Japanese manufacturers. Similar to Ford Motor, GM had invested large sums of money into developing large and luxurious vehicles, but as the crisis unfolded and the needs of the population changed, it was not able to change its direction and serve the new needs of the customer base.

In terms of actual results for 2009, these were significantly poorer comparative to 2008 and 2007. Sales in 2009 registered a 17% reduction comparative to the previous year. Revenues in 2008 decreased to $148,979 million, comparative to $179,984 in 2007. Relative to 2009, only the revenues for the first quarter are available, but the figures are not encouraging -- at the end of March 2009, revenues registered $22,431 million, nearly half of the value registered at the same time of 2008. Most of the company's financial rations indicate values inferior to the industry averages, pointing once more to the internal difficulties faced by GM (Reuters, 2009).

3.3. SWOT Analysis

In order to better understand the situation which surrounded General Motors in its pre-decision hours, it is best to organize the elements onto four categories -- internal strengths, internal weaknesses, external opportunities and external threats.

Internal Strengths

GM is a strong company, which has created a powerful reputation within international conscience; its more than a century old existence has consolidated this strength

The company was able to emerge from its bankruptcy file and has the ability to reorganize itself in a means that it gets through the internationalized economic crisis

Internal Weaknesses

Reduced ability to fight international competition, namely the Japanese manufacturers

Due to the large size of the entity, General Motors is generally unable to rapidly and efficiently implement change; this means that in situations of crisis, it is rigid and not easily adaptable

Major financial downsides in terms of various highlights, such as sales, revenues or financial ratios

Eternal Opportunities

The government of the United States of America recognized the growing threat of the financial crunch and will most likely step in to save the American automobile industry; this opportunity in fact materialized in the last month of 2008, as confirmations came that GM would received funds under the federal plan Troubled Asset Relief Program (TARP)

External Threats

Both the national and international environments manifest intensifying levels of competition; competition has always been present and even fierce within the automobile industry, but is now becoming ruthless as companies no longer fight just for customers, but for their very survival

The needs of the customers are changing as a results of the modifications which impact the global environment, such as the soaring oil prices or the growing concerns over the health of the natural environment (generally pegged to the threats of pollution and global warming); these changes imply the immediate necessity for change in order for General Motors to survive

The previous two threats give raise to the increased competition coming from manufacturers of eco-friendly vehicles, such as Toyota, with their already reputable Prius

The European Union had implemented a series of regulation which increased the taxes paid by importers of foreign cars, or which forced automakers to obey new environmental protection laws (Best Auto Review, 2007); the decisions significantly reduced the revenues of GM in Europe

3.4. Strategic Issues

Based on the results of the analyses conducted, it becomes clear that General Motors faced severe strategic issues as 2009 unfolded. The most important challenge to which they had to strategically answer was the internationalized economic crisis. They were also faced with the necessity to answer to the challenges posed by the intensifying competition within the United States and outside it, by both national as well as foreign manufacturers who were striving to maintain their competitive position. Finally, they had to develop and implement strategies that would help them respond to the changing needs of the customers. Before making other decisions however, it was imperative for the company to set the strategic course of action for the future of their European subsidies -- German Opel and British Vauxhall.

4. Available Alternatives

In establishing the alternatives available to the General Motors Company, the managerial team had to decide if it should treat Opel and Vauxhall as separate and independent subsidies or whether they should include them in the same category of European subsidiary and implement the same decision for both of them. The second decision was implemented and the same treatment would be applied to both Opel and Vauxhall. The first alternative would not have been extremely viable for the simple reason that both German and British manufacturers are subjected to the same environmental features and this means that there is no logic reason as to why they should be treated separately; they both fall under regulations of the European Community, they both pose risks of financial losses and they both could revive and support the company's overcoming of the crisis.

Having made the decision of how to treat the two companies in relationship to each other, a question is now being posed relative to what the Detroit headquarters should decide in terms of the future of Opel and Vauxhall as integrant parties of General Motors. On the one hand, the parent organization considered selling the two subsidiaries and as such renouncing most of its operations within the European arena; on the other hand, they considered not selling the subsidiaries, but continuing to invest in them and maintaining them as integrant parties of GM. The following lines detail the two alternatives.

4.1. Selling Opel and Vauxhall

The alternative of selling Opel and Vauxhall was made in early 2009, as the financial crisis was beginning to take a toll on General Motors. Internal analyses pointed out to the fact that Opel was a far too large organization, employing over 55,000, and expanding over too much factory space. Despite these features, it contributed only limitedly to the Group's annual revenues.

After months of discussions, the board at GM decided to sell the British and German subsidiaries to Magna, a Canadian manufacturer of car parts. The loan would be offered by a Russian bank, Sberbank, making as such the Canadian-Russian consortium the majority owner of Opel and Vauxhall. They would possess 55% of the interest; 35% would remain with General Motors and 10% would go to the staff members. The proposition to sell the two subsidiaries to Magna was well received by German chancellor Angela Merkel, who praised the initiative for its ability to save jobs; Magna promised that it would not close any Opel organization on German territory (Wilx, 2009).

4.2. Keeping Opel and Vauxhall

It took half of a year for General Motors to make the decision to sell Opel and Vauxhall; yet, before a materialization of this decision could be observable, the board focused more intensely on their second alternative -- that of keeping the German and British subsidiaries. Such a course of action would undoubtedly increase the pressure for the American owner, which would not manage to reduce the threat of the crisis. Additionally, they would be forced to invest their own resources to revive the company and it would as such be uncertain if the company would be profitable by 2010, as estimated by Magna's takeover (Stoll, Fuhrmas and Walker, 2009). It would also have a negative impact onto Germany, as the measure would require Opel to reduce 30% of its costs, meaning that it would have to let go an estimated 10,000 employees (Yahoo News, 2009).

Despite these threats and limitations, the company would be able to retain its strong reputation, and even enhance it by proving its abilities in times of financial hardship. It could also strive and convince the German and British governments to offer it subsidies and bridge loans in order to move passed the crisis. And when Opel and Vauxhall regain their pre-crisis strength, GM will be the sole beneficiary and the sole controller. Given this situation, it is most advisable for General Motors to not take the easy way out through selling the two subsidiaries, but to keep them and strive to revive them.

On the 4th of November 2009, less than two months after the deal with Magna had been declared, the General Motors officials announced that the agreement was off and that they would not sell the two German and British subsidiaries. This recent decision was based on improving business conditions for the organization, but also the hope that the German and British governments and communities would support the company (Wards Auto, 2009).

5. Stakeholder Strategies

Due to the difficulty in making the final decision, as well as the large number and complexity of the parameters involved, it is possible for the board at General Motors to once again change their ruling. This possibility arises as the organizational leader focus on ultimate goals and benefits, as promoted by the principles of strategic management. Whichever the ultimate course of action however, fact remains that various categories of stakeholders would be impacted by the future endeavors, and that the organization would have to implement various strategies.

Considering that General Motors sticks to the decision of not selling Opel and Vauxhall, they would have to implement several strategies in order to deal with the issues of the stakeholders, such as some of the following:

Downsizing strategies will have to be developed and implemented in order to reduce operational costs; the strategy will significantly reduce the on the job satisfaction of the remaining staff members, and will also reduce the reputation of the organization within the German community

For the same purpose of cost reduction, the managerial team at General Motors would also have to renegotiate its contracts with the purveyors in order to convince them to offer the necessary commodities at lower retail prices

The governmental institutions will also be approached with requests for financial support; GM will try to convince the British and German authorities to implement plans similar to the American TARP and support the automobile manufacturer through these times of financial difficulties