General Motors: Strategic Management and Path from Crisis to Recovery

Globalization of economic life, liberalization of doing business and development of regional economic systems are creating new conditions for international entrepreneurial activity in the world market. Strategic management as a management function applying to long-term objectives and actions helps companies gain a competitive advantage in the global market conditions. The formulation of a strategy (modus operandi) and its clear instruments are the core of governance and an important sign of good management. They mean the development and implementation of actions leading to an increasing level of long-term company performance in terms of competition. Strategic management in the context of globalization is an integral part of the company’s anti-crisis policy, which can be confirmed by the example of General Motors.

Background of the Company

General Motors is the largest US car company, which has been the largest producer of cars in the world for 77 years starting from1930 to 2007. Brothers Maurice and Max Grabowski began operations in 1900. They made a truck for sale, which was equipped with a horizontal single-cylinder engine. In 1908, William C. Durant organizes a company called General Motors. Subsequently, the company absorbed not only the company Motor Vehicle but also all the other small car producers that were present in Michigan at that time. General Motors produced the first truck in 1909. In 1916 the company General Motors Corporation was formed. In 1918, Chevrolet entered into a joint venture with the corporation. In 1920, the Canadian McLaughlin Motor Car Company merged with GM, becoming the companys subsidiary known as General Motors of Canada Limited.

The growth of the automotive sector of the US industry was truly overwhelming. For example, in the mid-twentieth-century American car companies released about eight million vehicles, while in Germany the entire number was 306,000; in the Soviet Union it was 362,000; and Japan produced only 62,000 cars. In the early 1940s, GM was one of the largest companies in the sphere of production of machinery in the world. However, at the beginning of the third millennium, operating in the conditions of globalization, the company was forced to declare bankruptcy, which resulted in a severe crisis and no less difficult recovery. Therefore, the study of strategic management issues in that situation and analysis of the factors leading to the company bankruptcy is relevant and urgent.

Characteristics of the Business

General Motors develops, manufactures and sells passenger cars and commercial vehicles, diesel engines, railroad locomotives as well as related parts and accessories. General Motors cars are sold under such global brands as Buick, Cadillac, Chevrolet, GMC, Holden, Isuzu, Oldsmobile, Opel, Pontiac, Saab, Saturn and Vauxhall. The main production facilities are located in the United States and Canada. In addition, General Motors owns enterprises for the production or assembly of cars in Argentina, Australia, Belgium, Brazil, Britain, Germany, Spain, China, Mexico, Poland, Portugal and Thailand. Division of financial and insurance services to General Motors offers vehicles for leasing, credit dealers, providing insurance and mortgage services, etc. GM Electronics Divisions offers a wide range of satellite and wireless communication services. The services provided by the company include the DirecTV satellite television, the number of subscribers of which exceeded 9 million people, and satellite Internet access. The main competitors in the market of passenger cars and trucks remain companies such as Ford Motor, DaimlerChrysler, Toyota, Nissan Motor, Honda Motor, Mazda Motor, Mitsubishi Motors, Volkswagen, Hyundai Motor, BMW, Volvo and Kia Motors.

The Investigation of the Customer

The customer of the General Motors can be segmented geographically. North America (GM North America) includes the sale (the development and production) of car brands such as Buick, Cadillac, Chevrolet and GMC in North America. In 2015, wholesale car sales in this region amounted to 3,558 thousand vehicles, accounting for 60.5% of all sold wholesale company cars. End users of GM vehicles that were sold in North America have spent $3.082 million, the share of the national market is 17.3%, in the regional market and 16.8% in the United States. The company estimates that it is the leader in the region. The revenue of that division amounted to $106.6 billion in 2015.

The second client is the geographical Europe (GM Europe). In 2015, 1,127 thousand GM vehicles were sold in Europe. The most significant presence of the company is in the UK (312 thousand cars, a market share of 10.2%), Germany (244 thousand and 6.9%, respectively) and Russia (68 thousand or 4.2%). The company is the seventh largest car producer in the region. The revenue of this division amounted to $18.7 billion in 2015.

International Operations (GM International Operations) includes activities in the Asia-Pacific region, the Middle East and Africa. Here, the company sold 4,525 thousand vehicles (market share of 10.3%, the second place) in 2015, 3,794 thousand of which were sold in China (market share of 14.9%, the first place on the company’s own estimates). The main brands are Buick, Chevrolet, Cadillac as well as local the local brands Baojun and Wuling. It is the largest region by volume of retail sales to end users, but almost all cars are produced at joint ventures with Chinese companies, and they are not counted in the volume of GM wholesale sales. In general, General Motors has produced and sold 588,000 wholesale vehicles in the region, or 10% of total wholesale sales. The revenue of this division amounted to $12.6 billion in 2015.

South America (GM South America) is another consumer of the company products. Thus, in Brazil, the market share was 15.1%, and in the whole region, it amounted to 15.4%. The company estimates that it is the leader in the region. The revenue of this division in 2015 amounted to $7.8 billion. Currently, the customers of General Motors buy such car brands as. Buick, Cadillac, Chevrolet, GMC, Holden, Opel and Vauxhall. Earlier the following cars also were sold: Oldsmobile, Pontiac, Hummer, Saturn, Asuna, Acadian, Alpheon and Geo. GM cooperates closely with a number of companies, sharing the market and making joint development of vehicles and engines. Among such companies there are Fiat Auto of Italy (brands Fiat, Alfa Romeo, Lancia, Ferrari and Maserati), Fuji Heavy Industries Ltd. (Subaru), Isuzu Motors Ltd. (Design for GM commercial vehicles and diesel engines, the brand Isuzu), Suzuki Motor Corp. of Japan (Suzuki).

Analysis of the Customer Value

The customer value of General Motors based on the benefits received by the buyer from acquisition of the company products compared to the costs spent on their purchase. Customer satisfaction is evaluated according to whether the basic characteristics of a car match with customers expectations. Thus, the company concludes that if all cars meet the expectations of the buyer, he/she is satisfied, and vice versa. To attract the buyer, the seller must fully implement the expected properties of the goods.

Buyers’ preferences and values differ depending on the region and age. The average age of GM car buyers is 27 years. At the same time, people older and younger than this age group have certain characteristics. Thus, older people have an average purchasing value of practical machines, which are subcompact, economical, and convenient for city parking. For a generation younger than the average buyers age, the appearance of the machine, its status, performance, speed and environmental concerns are key indicators of consumer values. However, for all age groups, the car must fully meet all published specifications. Only in this case, the consumer gets satisfaction from purchasing and using them. Therefore, customer satisfaction depends on the companys understanding of compliance. Qualitative properties of a vehicle must reflect the state of the machine and reflect the price-quality ratio. High-quality machines at affordable prices meet all the needs of the consumer, which results in his satisfaction. The main reasons for buying cars include convenience of transportation, replacement of an old car with a new one (25%) and possibility to work (15%). In addition, the majority of respondents younger than the average age want to gain recognition in the eyes of other people through purchasing a car. Moreover, buying a car on credit does not mean that the car loses its status. Customers who buy a car that is not affordable to them due to the level of their income, buy a car for status. The car is a way of self-expression, a kind of buying consumption for clients younger than middle age. However, the trend to buy a car for status is weakening. Thus, the most important values for the company’s customers include price, comfort, vehicle performance characteristics (understanding of these characteristics) and status.

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Analysis of the Value Proposition of GM

For decades, General Motors introduces the principles and tools to satisfy consumer demand. This process involves three steps: defining value for the consumer, building this value and ensuring continuity of the stream of building. The basis of the ideology lies in transformation of material or information into vehicles that allow meeting the customer needs. General Motors is an example of a large corporation of another type. Many thousands of its staff work on a common goal, and this goal is not making a profit. The mission of General Motors is to create value for the customer, the society and the economy.

Value proposition development has always been a top priority for GM, but after the crisis, it has acquired a completely new format. Using data analysis, the company realized that consumer preferences vary depending on the region of residence. Analysts of GM presented the results of research to the leadership of regional offices. As a result, they decided to make the company more decentralized and scale it up globally. This step helped to improve management and product.

General Motors offers smart cars and smart technology, which increase value proposition: they can be in any price range, comfortable and high quality. The principle is that every detail of the car is equipped with special sensors that capture all the features of the parts, sending indexes to the database. The collected information is used in two ways: the company’s employees receive valuable information on how to operate each part of the car, how to improve the model, some problems that may arise from the driver on the road, and what parts wear out faster than others. These data serve as a visual aid for subsequent development, inventions and modernization. Moreover, the driver monitors the vehicle in real time. Thus, seeing an alarm signal, the car owner can improve the situation at once.

In addition, the management of the company comphrehensible. They made a revolution in the field of non-waste production. After counting the amount of hazardous waste and exhaust gases, the company hired a specialist. His task was to figure out how to deal with the problem of environmental pollution. The companys garbage processing was not profitable from the very beginning. In 2005, each ton of the recycled waste accounted for about $10 investments. After that, re-use of waste became profitable due to optimization waste storage system. Thus, the automaker decided to hire special managers who monitored the process of waste generation at each plant. The obtained information from the electronic support system of waste generated materials ranging from procurement to sales was a key to success in the field of waste-free production. Thus, at the moment, the customer value and value proposition of the company match, thus ensuring further success. However, the international business environment of the company should be analyzed.

SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) of General Motors

Table 1. SWOT analysis on the company

Strategic Management Issues facing the Company in a Path of Going International

On June 1, 2009, GM started bankruptcy proceedings – an appropriate lawsuit was filed in the federal court of the Southern District of New York. After bankruptcy, the procedure group was divided into two companies, the first of which includes the most unprofitable divisions, and the second comprised the most profitable brands, Chevrolet and Cadillac. During bankruptcy, the proceedings have been closed 40% of all dealerships in the US. Moreover, many people lost their jobs. Strategic management issues include:

1. Bankruptcy should have been declared earlier. The probability of bankruptcy of General Motors acquired quite clear outlines after the fall of the auto market in the autumn of 2005. Thus, the first signal was voiced even at the International Auto Show in Detroit in 2005, when the Executive Officer Rick Wagoner recognized the possibility of declaring bankruptcy, which was supposed to help with the reduction of the Fund pay, debt burden and an enormous number of dealers. However, after that Wagoner was categorically against bankruptcy. Declaring bankruptcy in 2005, when the company was stronger and economy capable of compensate the loss of jobs, would be the best solution.
2. The company failed sales promotion. After the terrorist attacks of 2001, GM offered 0% interest rate on loans for its buyers. Then the company offering discounts raised prices on cars in parallel. As a result, GM’s management realized that buyers were frightened by the cost, which was much higher than competitive. In addition, emphasis was made on advertising favorable terms of transaction, and the value of the car was not explained.
3. Folding the release program of electric car EV1. It was a mistake to send dozens of favorite car for scrap. Currently, the company is trying to restore its leading role in this segment of the market.
4. Loss of control over GMAC. Over the years, General Motors was the “Bank” which then began to produce cars. Year after year, the financial department of GMAC received more income than the parent company. However, in 2006, experiencing a crisis with cash, GM sold 51% of GMAC. It was a huge mistake. GMAC was a financial pillar of General Motors, and the company lost its flexibility after selling it.
5. Irrational deal with Fiat.
6. Inadequate response to the boom in the truck market. GM was often criticized for too many SUVs; thus, the company overlooked a boom in the market of light trucks and high profits, focusing on the launch of the Ford Explorer SUV in 1990.

Competitive Advantages of GM in a Path of Going International

Globalization process provided GM with an opportunity to gain competitive advant1ages, such as lower costs and product differentiation. Low costs reflected the company’s ability to develop, manufacture and sell comparable vehicles at a lower cost than competitors. Selling cars for lower (or nearly equal) prices, the company received a larger profit. Differentiation included a competitive advantage in the creation of the unique qualities of the new car (smart technology), its specific consumer characteristics and after-sales service. With product differentiation, the firm received profits from the sale of every car greater than the competitors did. GM successfully competes on the local and international markets on the basis of competitive advantages specific to the firm.

Currently, the main competitive advantages of GM are the possession of its own technology and production administration for strategic price management. These advantages resulted in improved competitiveness of the corporation . Competitive advantages were laid during the development of corporate strategy, taking into account all the benefits of today’s global market. The company revised its approach to staff hiring by involving international human resources, received support of the state, developed an anti-crisis plan and strengthened goodwill. All these changes made possible:

• investments in new projects (described intelligent technology with different sensors);
• mergers and acquisitions (small competitors in geographic areas);
• implementation of strategic agreements (for example, on the Russian and Asian markets);
• benefits from economies of scale (a new strategy for corporate discounts and further reduced prices).

Due to globalization and scaling, the companys competitive advantages enabled diversification, specialization, benefits of deregulation through the implementation of major investment in any markets, attracting a variety of funds, reduction of production costs through the issuance of standardized products and economies of scale, the use of closer business ties with other enterprises and banks to build enterprise networks. Today, although the company has a negative income growth rate (-2.3%), due to globalization the optimized cost allows profit growth of 145.3%, which, in turn, allows to reduce the price for a number of models compared with competitors.

The Role of Going Global to Resolve Issues of the Company

Evolution of GM competitive strategies in the context of globalization included a path from identity to a simple integration and complex integration. However, the role of going global in terms of solving the problem of the company was conflicting. In the past, the functions between the parent company and subsidiaries were strictly separated. Foreign affiliates usually perform based on a so-called stand-alone strategy, when a branch almost duplicates the entire value chain of the parent company (in addition to technology and finance). A combination of economies of scale with the organization of the supply chain to lower costs throughout the world has led to the application of the strategy of easy integration, when branches performed a limited range of activities to deliver specific components of the parent GM, where they had a competitive advantage in production.

This strategy gave rise to new forms of cross-border relations (for example, subcontracting), greater exchange of information and technology between the parent company and its subsidiaries. Under the influence of liberalization of international trade and competition tightening, GM began to reorganize its asset management methods. The company transformed its geographically dispersed offices and fragmented production system into the production and marketing network, integrated globally or regionally. Volume functions carried out across borders increased considerably, which helped to overcome the crisis. The company introduced new features in the process of international economic integration.

After emergency staff redundancy, plant closures and the fight against the trade union leadership, General Motors built an exit strategy from the crisis. In the context of globalization and scaling, the company’s management has developed a program of strategic management, which included the price reduction program. That price reduction program worked on the basis of experience, economies of scale due to lower unit costs, increasing the volume of production, optimization of production relations, audits and recruiting international workforce. They contributed to the reduction of costs widely. Integration of distribution networks and delivery systems and optimization of time were elements of the firms pricing strategy that allowed optimizing costs. Thanks to promotion of corporate discount for all the company increased sales in the US in twofold two months after the crisis. That advertising campaign was held from June to August 2006. It offered a car at a low price as for corporate employees to any customer. The campaign was approved by the customers. As a result, the sales of passenger cars increased by 47% in June and by 55% in July. GM’s market share rose from 25.5% in May to 32.4% in July, outweighing its competitors, Ford and Daimler Chrysler. After that, a new period of risky restructuring of the entire marketing strategy in North America followed. In 2006, GM introduced a key element in reducing the price of the daily sales strategy. Instead of shocking discounts, the company established a steady decline in prices for some models. The new program broke stereotypes about all previous marketing policy, trying to keep the prices at a high level and then fold them into an average of $4,000 per vehicle. The company reduced the prices for 46 models of cars.

Conclusion

Similar to many companies that experience a financial crisis, the company General Motors passed way from bankruptcy to success, having a number of problems with administration, prices, competitors, management and customers. General Motors considered quite typical ways of solving the problems: reduction of the staff, sale of individual plants and sale of rights to the production of some car brands.

GM managers based mainly on the strategic crisis management development and new investments rather than on costs reduction. That management summed up the company’s competitive advantages in the context of globalization, including price reduction programs due to diversification and costs optimization, the effect of scale, reorganization of production, etc. Apart from that, the company introduced production of big data technology, smart technology, an environmental approach and lowered prices. GM approached the issue from the perspective of strategic management in crisis, which helped to overcome the crisis and almost return the market position. This confirms the advanced thesis.

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