This paper examines General Motors' strategic response to the 2008–2009 global financial crisis, with particular focus on its European operations — German brand Opel and British brand Vauxhall. Through analyses of the external and internal environments, a SWOT assessment, and a review of available strategic alternatives, the paper evaluates GM's decision-making process surrounding its European subsidiaries. It explores two primary options — selling Opel and Vauxhall to a Canadian-Russian consortium led by Magna, or retaining them under GM ownership — and discusses the stakeholder implications of each course of action. Ultimately, the paper recommends retention of the subsidiaries and reflects on GM's actual November 2009 decision to keep them.
The paper demonstrates strategic case analysis: using environmental scanning tools (PESTEL, Porter's Five Forces, SWOT) to diagnose a firm's situation and then systematically evaluating discrete strategic alternatives against that diagnosis. This progression — from environmental context to internal assessment to alternatives to recommendation — is a foundational technique in business strategy coursework.
The paper opens with macroeconomic context before introducing the firm, then moves through external and internal analyses, integrates findings into a SWOT, and identifies key strategic issues. The middle section presents the two core alternatives (sell vs. retain), each examined for costs and benefits. The stakeholder strategies section addresses implementation implications for each scenario. A brief conclusion synthesizes the argument and references GM's actual decision.
As of 2008, economic actors were under tremendous pressure. A financial crisis that commenced within the United States' real estate sector quickly expanded to other industries as well. The automobile industry was severely affected — probably the most affected industry after real estate, for the simple reason that automobiles represent the second largest purchase for an average family, after a home. Given this situation, vehicle manufacturers implemented a wide range of strategic decisions in order to respond to the emerging challenges. Most of these strategic actions revolved around cost-cutting endeavors, such as closing manufacturing plants or downsizing staff, but also included requests for governmental loans. General Motors subscribes to this pattern of responses to the internationalized financial crisis. This report focuses on its challenges with the European subsidiary; the analyses conducted are valid for the period from late 2008 through the time of writing.
Before launching an analysis of the company and its decisions regarding the European subsidiary, it is necessary to become familiar with the organization. General Motors was established in 1908 and incorporated eight years later. It operated in an estimated 140 countries, though only 35 of those hosted actual manufacturing plants. Its official headquarters are located in Detroit, United States, and 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 Wuling (Official Website of the General Motors Company, 2009).
In 2008, the company was met with tremendous financial challenges and filed for protection under bankruptcy law. With the support of the United States Government — which became the company's greatest shareholder — GM managed to overcome the situation and emerged from bankruptcy. The resulting organization is generally referred to as the General Motors Company. Major processes of reorganization were subsequently underway.
As noted above, General Motors began to feel the pressures of the internationalized economic crisis as early as 2008. However, it was only in 2009 that the company seriously considered relinquishing its operations within Europe. The analysis of both internal and external environments helps to better understand that decision.
The standard means of analyzing the external environment involves constructing a PESTEL framework covering the political, economic, socio-cultural, technological, ecological, and legal environments. In the context of the financial crisis, the external environment was characterized by broadly deteriorating conditions. As people began to lose their jobs, automobile purchasing decisions were put on hold. This materialized in significantly reduced demand for vehicles not only within the United States but also in other markets. In the face of these new challenges, competition intensified as more and more automobile manufacturers diversified their offerings in an attempt to attract customers. Specifically, many opened financial services subsidiaries that presented prospective customers with more attractive financial solutions when purchasing a vehicle. These loan offers were generally calculated below bank interest rates and included more flexible terms and conditions, standing a greater chance of appealing to buyers. Manufacturers also competed to present the most attractive promotional offers and discounts. All of this translated into intensified competition among domestic providers such as Ford Motor Company and Daimler-Chrysler.
There was also increased competition from foreign manufacturers, particularly Japanese automakers such as Toyota and Mazda. The success of these players in both the American and international markets was linked to shifts of an economic and socio-cultural nature. In a context where soaring oil prices were pressuring consumers worldwide, buyers felt a growing need for smaller vehicles with fuel-efficient engines. This demand was further fueled by growing concerns about environmental instability.
An analysis of the competitive environment through Porter's Five Forces reveals that the threat of new entrants is medium to strong, largely due to foreign competitors; the bargaining power of suppliers is low; the bargaining power of buyers is also low; the threat of substitute products is medium; and overall competitive rivalry is high (Investopedia, 2009).
General Motors' internal environment prior to the decision regarding European operations was characterized by instability and uncertainty. Staff members feared for their jobs — a sentiment easily understood given the external context. A specific feature of GM's internal environment was the company's reduced ability to compete with Japanese manufacturers. Similar to Ford Motor Company, GM had invested large sums of money in developing large, luxurious vehicles. As the crisis unfolded and consumer needs changed, the company found itself unable to quickly pivot and serve the new demands of its customer base.
In terms of actual financial results, performance in 2009 was significantly weaker than in 2008 and 2007. Sales in 2009 registered a 17% decline compared to the previous year. Revenues in 2008 decreased to $148,979 million, compared to $179,984 million in 2007. For 2009, only first-quarter figures were available, and these were not encouraging — at the end of March 2009, revenues registered $22,431 million, nearly half the value recorded in the same period of 2008. Most of the company's financial ratios fell below industry averages, further reflecting the internal difficulties faced by GM (Reuters, 2009).
In order to better understand the situation surrounding General Motors in the lead-up to its strategic decision, the key elements can be organized into four categories: internal strengths, internal weaknesses, external opportunities, and external threats.
Internal Strengths
GM is a well-established company that has built a powerful reputation in international markets; its more than a century of existence has consolidated this strength. The company demonstrated its resilience by emerging from its bankruptcy filing and has shown the capacity to reorganize itself to weather the internationalized economic crisis.
Internal Weaknesses
GM faces a reduced ability to compete against international rivals, particularly Japanese manufacturers. Due to its large organizational size, General Motors is generally unable to implement change rapidly and efficiently, making it relatively rigid and less adaptable in times of crisis. The company also faced major financial difficulties in terms of sales, revenues, and financial ratios.
External Opportunities
The United States Government recognized the growing threat posed by the financial crisis and stepped in to support the American automobile industry. This opportunity materialized in late 2008, when it was confirmed that GM would receive funds under the federal Troubled Asset Relief Program (TARP).
External Threats
Both national and international environments exhibited intensifying levels of competition. Competition had always been fierce within the automobile industry, but was now becoming ruthless as companies were no longer merely competing for customers — they were fighting for their very survival. The needs of customers were also changing as a result of developments in the global environment, such as soaring oil prices and growing concerns over environmental health related to pollution and climate change. These changes demanded an immediate strategic response from General Motors. The previous two threats gave rise to intensified competition from manufacturers of eco-friendly vehicles, such as Toyota with its well-established Prius. Additionally, the European Union had implemented a series of regulations increasing taxes on imported foreign vehicles and requiring automakers to comply with new environmental protection laws (Best Auto Review, 2007), significantly reducing GM's revenues in Europe.
Based on the results of these analyses, it is clear that General Motors faced severe strategic challenges as 2009 unfolded. The most pressing was the internationalized economic crisis itself. The company was also compelled to respond to intensifying competition both within the United States and abroad, from domestic manufacturers as well as foreign rivals striving to maintain their competitive positions. Finally, GM needed to develop and implement strategies to address the rapidly changing needs of its customer base. Before addressing these broader challenges, however, it was imperative that the company determine a strategic course of action for the future of its European subsidiaries — German Opel and British Vauxhall.
You’re 48% through this paper. Sign up to read the remaining 3 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.