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Introduction

GM has suffered several decades of poor decisions that has led to its current $85 billion dollar loss of

profit from 2005 through 2009. From unpopular cars to an excessive medical benefit plan for current

and retired employees, GM faces a strategic issue of having a cost structure that is among the highest in

the automotive industry. It has developed a strategy throughout its 100 years of business that is unique

from its competitors, utilizing as many as eight divisions to produce approximately 60 models of vehicles

in its product portfolio. With this unique strategy comes unique challenges, as developing competitive

advantages in the automotive industry becomes increasingly difficult to execute using traditional

methods. The integration of all global divisions is becoming a key to success in the industry, and is a

work in progress for GM. Despite the challenges GM faces, CEO Rick Wagoner is optimistic its recent

proposal to the Treasury Department for a $30 billion loan to restructure the company will once again

place it in a profitable situation.

GM has a history of making long term decisions without considering the long term consequences, which

are now quickly emerging as strategic issues that must be addressed and solved. The first of these

strategic issues is restructuring the product strategy that has been a unique factor of GM in the past. At

one time GM owned eight divisions that were marketed towards different segments of the population.

These divisions included Chevrolet, Hummer, Cadillac, Buick, Pontiac, Saab, and others. Historically,

these divisions have meant to be differentiated from its counterparts in such factors as sportiness

(Pontiac), fuel efficiency and economy (Saturn), luxury (Cadillac), and so on. The challenge that this

strategy has caused is a lack of the ability to create economies of scale. Because the divisions and many

of the models within the divisions are so differentiated, virtually none of the parts, frames, or chassises

are interchangeable. This substantially contributes to the high cost structure of GM.

Another problem that the eight divisions of GM creates is the need for constant improvement and push

for newer models and technology. Due to the negative profits, GM has little, if any, money to put in to

the R&D of new models. Many of the models will stay the same for up to ten years. With the increase of

customer preference in the economy and fuel efficiency of vehicles, GM will need to find creative and

efficient ways to catch up to and surpass the automobile manufacturers that have been focusing on

these areas for years.

Environmental Analysis

A major issue that is holding GM back from a profitable position is there past management decisions

with the Unified Automotive Workers union. In the 1970s GM management had to make expensive

agreements with its union workers to a halt a costly strike. This agreement led to a very generous

benefit and medical package for current and retired employees. GM is in the process of negotiations

with the union to find mutually beneficial terms for a restructuring of the medical plan. The

restructuring of the medical plan could potentially save GM billions of dollars a year, and if done

correctly, keep GM in high regards with its employees. Maintaining a high reputation will definitely be

pivotal in the coming years since GMs plan to cut costs weighs heavily onto the lives of its employees

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with several plant closures and thousands of layoffs.

With a recent proposal to the Department of Treasury for a $30 billion loan, GM hopes that help can

jumpstart the implementation of a new strategic plan which will turn GMs performance around. The

government loan will add some restrictions and conditions on GM, the terms include a competitive

product mix and cost structure, compliance with Federal fuel efficiency and emissions requirements,

must emerge as domestic manufacturer of advanced technology vehicles, a complete rationalization of

costs, capitalization and capacity, major progress made with the UAW and hourly employees, and

repayment of government loans.[1] The terms and conditions are a basic lay out of the strategic plan

GM will attempt to implement.

The entire automotive industry has felt the affects of the national economic downturn, some

manufacturers more than others. In recent years Ford has emerged as one of the top manufacturers

despite facing problems of their own. Toyota has also managed to weather the economic storm, enough

to recently be declared as the worlds largest automotive manufacturer. All of the top competitors have

managed the changing consumer needs in various ways, with alternative energy sources, fuel efficiency,

economy, and safety being at the forefront. It has also been essential to the leading companies to

achieve cohesiveness and integration in all of the global divisions.

Since the housing bubble and the subprime mortgage prices, credit availability has decreased

dramatically. This has obvious connections with the consumers preferences and willingness to buy in the

automotive sector. Along with the credit crunch is the increase in the price of gasoline. In the wake of

Hurricane Katrina and the war in Iraq, prices at the gas pump have increased buy 57% since 2002.[2] The

key to overcoming these obstacles is the ability to give the consumer what the consumer wants. By

doing this, as well as keeping cost low and sales relatively high, and manufacturer can expect profitable

returns. As of now, GM has a falling reputation as rivals climb to the top, however it is not necessarily

depleted. GM has had over a century in the automotive business and has once been the world leader in

its industry. Properly analyzing GMs internal position, and some of the external factors which can create

opportunities and threats is the first step in changing the direction of GM.

Internal and External Analysis

To help identify some of the strengths, weaknesses, opportunities and threats that GM should either

utilize or avoid, it is best to use a SWOT analysis for an overview of these issues. The presented table

depicts a simplified view of the issues that affect GM. Although the table is in a simplified form, it is a

key tool to develop a strategy that that can optimize GMs position.

GM SWOT ANALYSIS

Internal Strengths Internal Weaknesses

Strong brand image High fuel consumption image

Strong R&D department Bad financial situation

Diversity of products Weak cohesiveness of global division

New management strategy Shaky employee relations

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External Opportunities External Threats

New green technologies Domestic and foreign competition

Government help Credit crunch

Increasing oil prices

Internal Strengths

In GMs 100 plus years in the automotive industry, it has built a strong image in the eyes of consumers.

It has only recently lost some credibility in the market. If GM can renew faith in the consumers now, it

will be a major strength in the restructuring development. The diversity of GMs products is a huge

potential strength if executed correctly. As stated above, this strength has also produced some uniques

challenges that need to be honed down to secure it as a strength. When Rick Wagoner took over GM as

chairman and CEO, he brought a new set of values, ideas, and techniques that GM needs to lead its

restructuring.

Internal Weaknesses

The first weakness that GM must address is its historical lack of competitiveness in the fuel efficiency of

its vehicles. In the past GM has not concerned itself with the fuel efficiency of its cars, especially

considering its relative success in the SUV and large pick up truck segments of the market. The emerging

preference of consumers for smaller, more fuel efficient cars, has led to a weakness that GM must

address. Another weakness that GM is trying to correct is its weak financial position. GM has lost over

$85 billion in the last four years which makes it very difficult to implement any positive changes to

increase its position in the market. Part of the loss of profits come from its problems integrating all of its

global divisions. By achieving global integration GM can take advantage of economies of scale. The last,

but definitely not least, of GMs weaknesses comes from its relations with the UAW. GM has had to

make some unpopular decisions regarding its labor union and has suffered financially because of it.

External Threats

Some of GMs rivals have had relative success during the worldwide economic downturn. Toyota has

taken the lead as the top manufacturer, with Ford close behind. Companies such as Hyundai, Kia, and

Honda are rallying up the totem poll quickly. These companies have traditionally focused on small, fuel

efficient, and durable cars, much similar to the demand of consumers and necessity caused by rising oil

prices. Another outside force which is so significant that it has been a driving force in the economic

downturn, is the credit crunch caused by the subprime mortgage loan fiasco. This one element has

effectively made consumers wary of making large purchases, such as for automobiles.

External Opportunities

The need for green technology is becoming a necessity for all industries, not just the automotive

industry. But not all industries have an opportunity to take advantage of green technology as much as

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the automotive industry. A recurring theme of this presentation is the demand of the consumer,

economy and fuel efficiency, is on the top of the list. By employing green technologies, GM is answering

demands from multiple stakeholders. However, the biggest opportunity that is presented to GM is the

proposed loan from the U.S. Government. To supplement GMs negative cash flow, a $30 billion loan,

has the capability of giving GM the helping hand they need to implement the ultimate restructuring

strategy.

Strategies

To address GMs key strategic issue of bringing profits back into the positive numbers, GM will have to

make some major changes in its usual course of business. GM has multiple options of how to achieve

this goal. The first, and probably least popular option, is for it to declare bankruptcy. While this strategy

will have its drawbacks, it also has potential to bring GM back into a profitable situation by relieving a

large amount of debt . Another direction GM could attempt, is to consolidate all of its divisions and

operations into a single brand. This would cut costs and allow GM to focus on its core strategy in a more

efficient and affordable manner. The most desirable strategy for GM to implement is to rely on the loan

from the Department of Treasury. The loan of $30 billion dollars will allow GM to totally restructure the

past strategy and develop more cost efficient, consumer pleasing, and profit growing strategy.

Implementation of Strategy

The Treasury Department loan consists of a detailed restructuring plan from GM. In a detailed 117 page

proposal, GM lays out a specific plan of how it will meet the restrictions and requirements laid out by

the Treasury Department. The loan s requirements of GMs plan consists of:

1) GMs Plan details a return to sustainable profitability in 24 months

2) GM is comprehensively transforming its business, globally

3) GMs Plan emphasizes the Companys continued focus on great products

4) GM will greatly advance Americas technology leadership and energy independence[3]

The first element of the plan addresses the issue of GM returning to sustainable profits in a 2 year span.

This projection is based on conservative assumptions of the U.S. economy. The details of how this

sustainable profitability will be achieved through the following elements. The base of this plan is in the

transformation of GMs global business to cut costs. The plan is to streamline a majority of its brands,

nameplates, and dealers. This will effectively cut costs and simplify GMs operations. In addition to the

streamlining of its distribution channels, GM will also increase productivity in order to consolidate more

of it plants. This will not only be implemented in the U.S. but in all global markets as well, unprofitable

foreign operations will be addressed. GM will also use shared global vehicle architectures to create

substantial cost savings. It will be able to efficiently integrate the cars because GM will operate under a

new production motto Fewer, better vehicles in the U.S. under the Chevrolet, Cadillac, Buick and GMC

divisions. The fewer in the motto is in regards to the number of models in GMs portfolio. Better

refers to the use of green technology for the development of hybrid, fuel efficient, and advanced

propulsion systems. The simple motto addresses several of the weaknesses and opportunities that

present themselves to GM.

The restructuring plan that will be regulated by this government loan is the right move to address all of

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the issues that GM face. The plan takes into account all the internal strengths and weaknesses of GM

and takes advantage of the opportunities and considers the threats and accounts for them. By

effectively implementing this plan GM could be on track within 2 years.

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[1] http://www.financialstability.gov/docs/AIPF/GMRestructuringPlan/pdf

[2] http://www.cnn.com/risingpricesatthepump/articles

[3] http://www.financialstability.gov/docs/AIFP/GMRestructuringPlan.pdf