Remote Environment Analysis
General Motors Corporation (GM) has been a leader in the automobile industry but has been losing market share to foreign competitors. The current issues with the economy, high fuel costs, and the environment have presented GM with several challenges. These challenges provide exciting opportunities for the company to develop and produce more alternative fueled vehicles. In order for GM to succeed several issues will need to be addressed before the company can proved customers with vehicles desired. Luckily, GM’s existing global presence, knowledge, and expertise in alternative fueled vehicles will enable the company to move forward towards success.
Ecological Factor
Consumers today are putting new focus on the environment with the “going green” craze. Pearce and Robinson state, “The most prominent factor in the remote environment is often the reciprocal relationship between business and the ecology. Specific concerns include global warming, loss of habitat and biodiversity, as well as air, water, and land pollution” (p. 85). Causing harm to the environment can damage a company’s public image and greatly impact sales. To be eco-friendly, automobile industries are developing alternative fuel vehicles, such as electric and hybrid.
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The ecological factor is relevant to GM as the company’s quickness in developing and marketing alternative fuel vehicles either could negatively or positively affect sales. If GM becomes an industry leader in hybrid vehicles, the company could gain significant market share and increase revenues. GM is dedicated to improving vehicle fuel economy and climate change solutions. The company vows to continue aggressively pursuing advanced technologies that provide more energy efficient products to its customers. The automobile giant is well on its way to being an industry leader in hybrids, by making a commitment to release one new hybrid every three months (General Motors Corporation, 2008a), which can possibly aid GM to reposition itself for future success.
Economic Factor
Economic factors have affected many industries, especially the housing and automobile markets, which have taken the major hit of the economic downfall. With the economic hardship, managers must consider the general availability of credit, the level of disposable income, and the customer’s tendency to spend (Pearce & Robinson, 2005). Consumers seem to have lost confidence in the economy because of the fear of losing their jobs and inflation, and have begun to put off purchasing large ticket items. Companies are continuing to downsize due to the lack of production. However, as people lose their jobs, they lose their ability to purchase goods. An article in BusinessWeek (2008) stated, “While Wall Street economists were forecasting that the U.S. economy would post a modest number of job losses in May, they didn’t expect an upward spike in the unemployment rate” (para. 1). The report points out the unemployment rate jumped from 5.0% to 5.5% in April, which was above the 5.1% expected, the biggest rise since February 1986 (BusinessWeek, 2008).
For GM and other automobile manufacturers, the economic downfall is a serious issue for the company’s survival and ability to make a profit. With the falling economy and rising fuel prices, consumers are looking for smaller vehicles that cost less and have much better gas mileage than the expensive, gas-guzzling sport utility vehicles (SUV’s) or larger sedans (Reuters, 2008). With the many articles and reports broadcast by the media, it is obvious the poor economic trend has had a major impact on GM and the entire automobile industry. The economic downturn has forced plants to shutdown, employee layoffs, downsizing, and additional cash back offers or other incentives on vehicles, which have further reduced the already low profit margins. Now, GM has a better understanding of the current economic crisis and is focusing its attention on vehicles that are less expensive and more fuel-efficient. The release of its new Chevy Malibu mid-size sedan has provided the manufacturer with increased sales in an attempt to make up for the declining SUV market (Valdes-Dapena, 2008). With consumers turning away from the large SUV’s, GM is doing a strategic review of the Hummer brand, which has shown a 40% decrease in sales so far this year (Valdes-Dapena, 2008).
Technological Forces
The foundation of GM’s success is the company’s commitment to innovation and technology. In order to benefit its customers and the world, GM has crossed the boundaries of science and engineering as seen with its successful technological partnerships. In January 2008, GM announced a partnership with Coskata Inc., a biology-based renewable energy company for economies dependent on oil. GM is using the company’s breakthrough technology to make ethanol from almost any renewable source, such as garbage, old tires, and plant waste affordably and efficiently (General Motors Corporation, 2008b). Coskata’s process produces ethanol for less than $1 a gallon, about half the cost of producing gasoline. This breakthrough will mean more viability of biofuels and the ability to reduce dependence on petroleum (General Motors Corporation, 2008b).
The process used by Coskata addresses the issues most often raised about grain-based ethanol production. The company’s process was analyzed by Argonne National Laboratory, which found that for every unit of energy used up to 7.7 times that amount of energy is generated, CO2 emissions were reduced by up to 84% compared to a well-to-wheel analysis of gasoline. This is because Coskata’s process can produce make a gallon of ethanol using less than one gallon of water compared to three gallons or more for other processes (General Motors Corporation, 2008b). This technology can be used almost anywhere in the world. For GM, this could lead to joint efforts in markets such as China, where there is a growing demand for energy (General Motors Corporation, 2008b).
In May 2008, GM announced a strategic relationship with Mascoma Corp., a leader in advanced low-carbon biofuels technology. The partnership was to develop an ethanol product to help address increasing energy demand (General Motors Corporation, 2008c). GM’s president stated (2008c), “Demonstrating the viability of sustainable non-grain based ethanol is critical to developing the infrastructure to support the flex-fuel vehicle market” (para. 3).
Currently, GM is the auto industry leader in offering vehicles that run on regular gasoline or a blend of 85% ethanol and 15% gasoline, known as E85 or any of the above combination. As a result, there are more than 7 million flex-fuel vehicles on the roads globally, which 3 million are GM cars and trucks (General Motors Corporation, 2008c). GM has made a commitment that by 2012 half of its productions will be flex-fuel capable. Currently, the company sells 11 E85-capable models and will increase that to more than 15 models for the 2009 model year (General Motors Corporation, 2008b).
Competitive Analysis
According to Pearce and Robinson (2005), competition is the fight for market share. In any industry, competition is rooted in its underlying economics and competitive forces in a particular industry. Customers, suppliers, potential entrants, and substitute products are all competitors that may be more or less prominent or active depending on the industry.
The automotive industry is highly competitive continues to become more competitive as other countries continue to grow and emerge into the automotive market. GM and the other domestic automobile manufacturers have consistently lost market share to foreign competition. GM is in a constant battle with existing foreign companies like Toyota, Honda, and Nissan along with the domestic auto companies, Ford and Chrysler (General Motors Corporation, 2008e). In the future, GM will need to identify ways of changing its threats and weaknesses into strengths and opportunities. As the demand and price for oil increases consumers will continue to look for alternative fueled vehicles. GM will need to focus on emerging markets that will continue to drive revenues and market share. Emerging markets like China, India, and Russia provide significant market opportunities (Valdes-Dapena, 2008).
Strategic Opportunities
Scanning General Motors Corporation’s (GM) internal and external environment identified multiple opportunities for the various trends and threats the company may face in the years to come. GM and the automobile industry as a whole are facing challenges during this time of economic distress, rising fuel costs, as well as social and political environmental concerns and issues. In order to overcome these potential threats, GM should consider producing a wide range of alternative fueled vehicles. With the development of the emerging markets, the demand of oil products will increase. Combine this issue with social and political concerns regarding the environment and going green, and the state regulations regarding emissions, will create a potential huge customer demand for these alternative vehicles (General Motors Corporation, 2008a).
Potential opportunities identified for GM are related to the future demand of the alternative vehicles and increased global market share potential from emerging markets. GM must first turn its current internal weaknesses into strengths to achieve the external opportunities. GM’s internal weaknesses are the large legacy costs in equipment, facilities, and retirees, that all need addressing in order to compete with companies like Toyota. Due to these significant legacy costs, GM has an extra $1,500 per vehicle to incorporate into the price of their vehicles (Valdes-Dapena, 2008). Another weakness for GM is that because they are so large it takes much longer to roll out new vehicles and in addition, the company has too many similar vehicles in its various brands, which need to be reduced. Therefore, GM must reduce structural and operational costs by eliminating product redundancy.
Although GM is weak in some areas, the company is positioned to take advantage of the identified strategic opportunities. The company already has a global presence and is working diligently to expand in the emerging markets as with its alternative fueled vehicles. The European and Asian markets are more receptive to the smaller vehicles that GM will need to begin to produce (Valdes-Dapena, 2008). By developing and producing alternative vehicles, GM can begin to eliminate brands that are not selling and use the savings to invest in the development and production of alternative vehicles.
Strengths and Weaknesses in Operating Environment
GM’s many strengths include its global market expansion into the emerging markets, its wide range of automotive products, global infrastructure, and being the industry leader in market share (General Motors Corporation, 2008d). The company’s weaknesses stem from being such a large organization, with large overhead costs, slow development to market strategy, and too many similar products (Yahoo Finance, 2008). The opportunities available to GM include the development of alternative fueled vehicles, the ability to take advantage of the weak domestic competition, and the new emerging global markets. The threats that GM is faced competition from foreign manufacturers, the sluggish U. S. economy, the government regulations on fuel emission, and the rising fuel costs. So, the question is how can GM use its strengths to the company’s advantage? How can the company address its many weaknesses and threats in order to exploit take advantage of the available opportunities?
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GM needs to use its current global presence and infrastructure to increase production of alternative fueled vehicles. The company will need to be an innovator in product and market development while engaging in strategic alliances to defend against a threats and internal weakness. By leading the industry in alternative fuel options, GM can better fight rising gas prices and government mandated environmental regulations.
Strategic Long-term Objectives
GM’s new vision to become the world leader in quality, innovative, and cost efficient products by producing more alternative fueled vehicles will provide some additional opportunities. In order to accomplish this new vision, GM will have to create some long-term objectives. According to Pearce and Robinson (2005), one can decide a good or bad objective by using seven criteria, which determines if the objective is flexible, measurable over time, motivating, suitable, understandable, and achievable. Using this guideline, GM’s strategic long-term objectives will be as follows:
- By 2013, reduce development and marketing costs for gas-fueled vehicles by a minimum of 40-45% in order to increase development and marketing of alternative fueled vehicles by 40-45%.
- Over the next five years, increase production of alternative vehicles by 20% each year. This will aid in the goal of increasing production of alternative fueled vehicles by 40-45% by 2014.
- Be the industry leader in alternative vehicles and redevelop its image of being environmentally friendly.
Mission and Vision Statements
The mission/vision of GM is “to be the world leader in transportation products and related services” (General Motors Corporation, 2008e). Through continuous improvements driven by teamwork, integrity, and innovation, the company has earned its customers’ trust and enthusiasm. With all the competition and the advancement of hybrid and alternative fueled vehicles, GM should look to being a leader of innovation. With this in mind, the mission statement could read GM will become the world leader in quality, innovative, and cost efficient products. The mission is for GM to become the auto industry leader in sales and market share in the global market.
Conclusion
The automobile industry is going through a major transformation due to the rising oil costs and the need to become more concerned about the environment. With this in mind, it seems alternative fueled vehicles will be the driving force in the industry. In order for GM to succeed, the company must continue to look at its threats and weaknesses as new strengths and opportunities. GM must development and implement a strategic plan that will place GM in the best position to deal with the trends and forces within the auto industry. Although there are various issues at hand, tremendous opportunities are available.
References
BusinessWeek. (2008). Jobless rate jumps in May. Retrieved July 15, 2008, from http://www.businessweek.com
General Motors Corporation. (2008a). Corporate responsibility: Environmental commitment. Retrieved July 14, 2008, from www.gm.com
General Motors Corporation. (2008b). Investor news releases: GM, Coskata partner in breakthrough ethanol technology. Retrieved July 17, 2008, from www.gm.com
General Motors Corporation. (2008c). Investor news releases: GM and Mascoma enter into biofuels relationship. Retrieved July 16, 2008, from www.gm.com
General Motors Corporation. (2008d). About GM: Company profile. Retrieved July 10, 2008, from http://www.gm.com
General Motors Corporation. (2008e). Sustainability and GM: Vision and Strategy. Retrieved July 10, 2008, from http://www.gm.com
Pearce, J. & Robinson, R. (2005). Strategic management: Formulation, implementation, and control (9th ed.).[University of Phoenix Custom Edition e-Text]. New York: McGraw-Hill. Retrieved July 10, 2008, from University of Phoenix, rEsource, MBA/580- Strategies for Competitive Advantage Web site.
Reuters. (2008). Moody’s may cut GM, Chrysler on falling SUV demand. Retrieved July 15, 2008, from http://www.reuters.com
Valdes-Dapena, P. (2008). GM’s struggling brands: Room for hope. Retrieved July 15, 2008, from http://money.cnn.com
Yahoo Finance. (2008). GM reassures dealers only Hummer brand is for sale. Reuters. Retrieved July 10, 2008, from http://biz.yahoo.com
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