Strategic Plan for General Motors Term Paper

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[. . .] VI. Financial

A. Revenue: General Motors vehicle segment has been showing a continuous loss over the decades. Compared to Toyota and Honda, the U.S. sedan market share has decreased from 75% to 49.5%. In this segment, GM's sales fell from $2,535 million to 2272 million, which is a decrease of 11%. The U.S. sedan industry on the other hand has decreased by a mere 4%. The decrease in sales has decreased profitability also. Financial statements announced by the company for the year 2001 indicate revenue income of $401 a drop from $4,452 million. Rapid selling in the market due to financial instability decreased EPS from $6.80 to $1.78. Although GM holds a 26.9% market share in the sedan segment, it is two notches down from its previous year of 28.6% [GM's Official web site: www.gm.com, www.biz.yahoo.com].

B. Profitability

The company's low profitability is the result of slow economic growth in the country after the catastrophic event of September 11. Operational wise, the company is also experiencing the after effect of its previous marketing strategy. Debt to equity ratio indicates 8.56. This high ratio of debt is due to the loans it gave to consumers under the credit sale campaign.

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Similarly, the economic downturn in the banking industry has decreased credit line. A company of such a low credit standing lose creditability. Although the sedan market indicates a steady rise in sales by Toyota and Honda of approximately 1% each, American motor companies are indicating losses. This could only signify that the American motoring companies are losing consumer confidence. More and more people are relying on Japanese made cars. The company is optimistic about changing its approach to marketing campaigns but like previous years, experts are skeptic the viability of yearly statements by GM.

Market Share -- Pie Chart

Source: Business Week Online

C. PE Ratio

Term Paper on Strategic Plan for General Motors Assignment

D. Due to the highly volatile nature of its industry with beta at 1.17, price earning ratio is also high at 13.98. Any investment endeavor cannot depend on the price earning ration for back up because the share price dependent on speculators.

VII. Corporate Strategic Objectives

A. Increased Market Share: Currently the company has 26.9% of the sedan market share. Last year it has 28.65. It was expected that GM would increase its market share in the year to come but unless there is a solid plan, this objective cannot be achieved [Kiley, 2001]. Hence, the researcher proposes an increase of 2.5% increase annually for the next 5 years for GM.

B. Below cost leadership: As discussed above GM have the technology, the market base and loyal consumers. But over the decade it remains stagnant in terms of innovation and anticipating consumer needs. It needs to improve quality product with the current lines of Regal/Buick, Impala, Pontiac and Century/Buick. Toyota and Dodge, its main competitors are preferred by customers because of its line production lead time. GM too needs to increase its lead time so that it will be able to meet customer demands. Another objective is to revert to its old strategy of creaming off existing market share. It needs to better its product so that it would top the Camry and Intrepid designed for a niche market instead of the general family car.

C. Increase Revenues: The sharp fall in revenue in this segment have contributed to the overall fall in revenue of the company. Although each year the trucks division increases its sales with better designs and models, the sedan division is in neglected resulting in losses. It needs to boost up revenue at least 5% annually for the next 5 years. This is the only way it can improve its financial standing. It needs to take risks in developing new product line to increase awareness among consumers. The company's financial reserve should be used for this purpose.

D. Reduce debt: GM followed DaimlerChrysler model of earning consumer loyalty by giving credit to its consumers. That is the reason why most of its resources are tied up. What it needs to do is decrease the credit facilities for consumers or at least only facilitate to those consumers who have a good record of credit standing. Once the receivables are returned, the company can use that to reduce debt. Credit standing is important for the future marketing strategy and investment viability. GM needs to clear its debts so that external investors feel safe to invest in it.

The future of the company should achieve the following revenue pattern:

Revenue Chart

Source: GM Financial statements

VIII. Corporate Strategy

A. Diversification

Toyota, Dodge and Ford, each year introduce a newer version of the old model. What they are basically doing is regenerate old market. GM too must adopt this tactic. In the previous section, the researcher proposed the company to increase its market share. This could be done by either diversifying its mid size sedan models or it could introduce a whole new line in this category. Given the existence of Buick, Chevrolet and Pontiac, GM does not need a new line of product. Toyota and Ford rely on their current brand to create market share. GM too must rely on its older brand to create consumer loyalty. Through this it can then expand to a higher level of market share. This way, it can create growth for its brand.

If the company follows the trend in the industry by creating relationships with its customers then it would be able to anticipate future demands. It need to find out what kind of cars, models, designs, features, looks, quality and for what price consumers are willing to pay for an all-American car. Having established the foundation of customer service it can now redesign its existing models, improve its quality and improve lead time to serve the customers, hence increasing sales.

B. Growth

GM at the moment require growth rate then decline rate. In the last few years, the company has only seen decrease in sales and profitability. There were two factors responsible for this: increased in debt/equity ratio and the competitiveness of the market. The first step it needs to do is reduce debt to increase its equity. This is the only way it can improve its creditability among venture capitalists. Once achieved, it can venture into improvement strategy where it will require fund for introducing new line of products.

C. Retrenchment

At the moment, the company does not need to retrench its people. What it needs is to improve skill pool. Training employees to improve production downtime, increase first time through as well as increase innovations is important. Employees at GM are still following the traditional management style where it needs to increase profits on one singular market and their idea of expanding market is to create new lines. This is not necessary. To change their way of thinking requires initiative from the management. Management need to forecast the organizational mission and vision and incorporate them with those of the individuals.

D. Divestment-All or In Part

GM's have two main divisions. Cars and trucks. While the trucks division with its new SUVs and family trucks are doing quite well financially, the cars division is lagging. One of the problems that are existent in GM is that it creates new lines instead of remodeling old ones to increase product life cycle. For this reason it has many lines that do not have significant market share to be the top seller. It needs to divest in part production of product line that incur loss, and has no scope of expansion. The researcher does not see any divestment of one total line of product. What GM needs to divest is section of production area that incur bottleneck.

IX. Strategic Choice and Implementation

A. Product Development

Given the above discussion and scenario, the researcher proposes the company to direct strategic development. This means that it needs to vie the niche market within the existent market segment. If the American market decrease in sales each year in the sedan segment and the Japanese car manufacturers has increased sales, it means that the American car manufacturers are slowly being driven out. GM needs to market aggressively against this through product development. It needs to improve and make its product comparable to the Japanese. Consumers are essentially impartial on origin of manufacturers as long as they are good in quality, features, durability and looks. GM needs to improve products to increase market share. With its existent product line it will continue to face losses.

B. Innovation

GM has the technology. It has the infrastructure and it has the ready made consumers for its product. What it needs to do now is to innovate on its existing product. Take for instance Toyota designs its Camry to suit both the young and the old. For this reason it has been able to encompass a large market share. GM too needs to redesign its product… [END OF PREVIEW] . . . READ MORE

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