Answer To: iMPLAMENTATION STRATEGY GENERAL MOTORS IMPLEMENTATION STRATEGY Columbia College: BUSI 595 Strategic...
Abhishek answered on Apr 22 2021
GM Financial Strategy
Student
Word Count
Financial Strategy of GM
GM Financial Strategy
18
As per the data published in 2019 one among the top world’s largest automobile manufacturing company, General Motors Corporation was founded in 1908 by William C. Durant as a holding company for Buick. At the beginning of the 20th century, before foraying into the automobile manufacturing, Durant had become a leader in horse-drawn vehicles market. During the following years, through acquisitions the company quickly expanded purchasing “more than 20 companies including Oldsmobile, Cadillac, and Pontiac.” Today, it operates in more than 200 geographies and sells cars and trucks under various brand names like Buick Cadillac, Chevrolet, GMC, Opel, Holden, HUMMER, Pontiac, Saab, Saturn, and Vauxhal.
Initially, it produced custom-made automobile targetting the well to do in the society that was out of reach for ordinary people. During the 1920's, due to competition from its main competitor Ford Motor Company, that manufactured low cost automobiles and were leaders of that market segment; management lead by Alfred P. Sloan changed their marketing approach.
The company suffered financial difficulties during global financial crisis of 2008 and had to seek billions of dollars in government aid to stay afloat. The global financial crisis uncovered an enduring organization that had been dropping its employees and managers in many thousands.
There have been many theories doing the rounds as to why this happened, but the most significant causes were:-
· GM did not foresee market needs and produced cars that people weren't willing to buy
· GM being bulky was too slow to innovate
· GM was unable to adjust to changing markets due to beauracracy
· GM had a dealer base too large to handle
· GM had taken many uninformed decisions like selling off formerly profitable financing business GMAC
· GM stopped making profits
Although, all the aforesaid mentioned points hold true the most prominent reason for the precarious siutuation of GM was inability to make profits. It had stopped making profits since 2005, the reason being sales and fixed costs.
The basic principle of finance states that reducing losses is the purpose of business if not making profit. When business is in troubled waters, it is necessary and intelligent to cut costs to survive. As most of the costs of GM were fixed costs, they had trouble cutting them down even when the sales were slow. In other words, even though their sales were falling i.e. amounting to losses, a lot of their costs remained pretty much on the same level or were constant. The cut down on costs is achieved through layoffs, reduction in material purchases, by cutting down on production and so on.
There were tremendous fixed costs that owed to Union Contracts. That means even when a plant had shut shop, the workers did not necessarily lost their jobs. Workers were adequately compensated by company pension and legacy health care which were fixed costs to the company. So many costs stayed fairly constant though sales went down. And GM was profusely bleeding money that led to losses.
On November 7, 2008, GM signaled caution about its critical monetary situation and revealed that without making conclusive move or receiving significant assistance, it would come up short on finances. After having failed to testify for an additional aid at a National Congressional hearing, GM along with Chrysler was offered $13.4 billion in bridge loan in the last weeks of 2008. GM was to receive a sum of $9.4 billion, marginally the greater part of the $18 billion that the organization expected to fight off Chapter 11 bankruptcy. Even after consuming its cash reserves amounting to $19.2 billion for the 2008 fiscal year, GM recorded a loss of $30.9 billion.
President Obama’s auto industry task force was made aware of the urgency of its financial situation. As per the Obama administration’s bailout strategy CEO Richard Wagoner was compelled to step down. However, the President refused to provide the bleeding company any further monetary aid. On June 1, 2009 GM filed for Chapter 11 bankruptcy reporting $82.3 billion in assets and $172.8 billion in debt i.e. a deficit of $90.5 billion. Chairman Kent Kresa supported the decision by foreseeing that, “[a] court-supervised process and transfer of assets will enable a new GM to emerge as a stronger, healthier, more focused and nimbler company with a determination not to just survive but to excel.”
After the bankruptcy, GM took several significant actions to revive itself including shedding some of its burden. Also, the damage caused due to its decades of mismanagement and union intransigence had weighed down heavily upon it. It sold the underperforming brands like Hummer, Pontiac, Saturn, and Saab, eliminated its U.S. dealerships by 40 percent, reducing its total to only 3,600 in comparison to 6000 it held previously; it reduced U.S. plants to 34 as compared to 47, a reduction by 28 percent; it laid off its employees thus cutting its U.S. employees base to 68,500 from 91,000 or by 25 percent; and, in particular, the insolvency procedures Assisted GM to shed a debt of $79 billion. In the words of company’s Car design Campion, Bob Lutz, “The company has the potential of regaining its past glory,”
Periods of modern globalized world having competition and resources scarcity requires organizations to adopt strategic management policies strongly. It involves determining an organization's statement of mission, vision, values, goals, objectives, commitment, roles and responsibilities. It also requires analysis of the pathways or roadmap that needs to be followed by any organization to attain competitiveness.
Mission
“General motor is a multinational corporation engaged in socially responsible operation, worldwide. It is dedicated to provide product and services of such quality that our customer will receive superior value while our employee and business partner will share in our success and our share holder will receive a sustained superior return on their investment”.
Vision
“General motor’s vision is to be the world leader in transportation products and related services. We aim to earn our customer’s enthusiasm through continuous improvement driven by the integrity, teamwork and innovation of general motor people”
Values
“GM has six core values which employees are to use in conducting daily business practices (General Motors, 2008c). These core values consist of
· Continuous improvement
· Customer enthusiasm
· Innovation
· Teamwork
· Individual respect
· Responsibility”
Goals
GM remains committed to the following goals:
· “Move faster and take risks to achieve sustained success, not just short-term results
· Lead in advanced technologies and quality in creating the world’s best vehicles
· Give employees more responsibility and authority and then hold them accountable
· Create positive, lasting relations with customers,...