Value Propositions for General Motors Essay

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Direction of the Business

During the economic downturn of the global economic crisis (2008-2010), General Motors (GM) was adversely impacted by a failure to downsize its operations and focus on core products. As Yip and Hult (2012) note, GM marketed too many models around the world at time when a consolidation strategy was needed. Toyota, for example, succeeded in focusing on core models and even though it sold fewer units it was not hit as hard by the economic downturn. GM on the other hand “fragmented its development funds” and as a result the company “in its effort to increase global efficiencies in cost and design, continues to struggle in its proliferation efforts” (Yip, Hult, 2012, p. 18).

Core strategy. The core strategy of GM at this point is to reduce costs and maximize profitability—the aim being to achieve “9- to 10-percent margins on an EBIT-adjusted basis by early next decade” (GM, 2014). It is approaching this objective through a number of channels. One method is to reduce “less profitable rental car sales in favor of retail sales” (Burden, 2016). Another is to lead in product and technology. A third is to grow the Cadillac brand. A fourth is to continue to pursue growth in China. A fifth is to continue to develop and grow GM Financial (GM, 2014).

Strategic advantage. The strategic advantage of GM is found in the underlining of each of the core strategy approaches. It is GM’s aim to “improve relationships with suppliers, derive more global volume from fewer vehicle architectures and lower enterprise costs for material and logistics” and “to deliver significantly better variable margins on upcoming high-volume product launches, including the Opel/Vauxhall Corsa and Astra in Europe, and the Chevrolet Cruze and Malibu in North America” (GM, 2014).

Comparative advantage. The company’s comparative advantage is focused on capitalizing on location bases throughout the world—in Europe, China, South America and North America.

Internationalization Strategy. The decision criteria for selecting a market to enter are based on the company’s ability to establish joint ventures, develop a brand that appeals to regional consumers, and establish a cost structure that allows for consistent profitability.

Global Strategy

The global strategy has been to unify the strategic approaches of the regions of GM’s international business under the guiding principle of adapting the overall brand to meet the needs of unique consumers in individual markets (Pfanner, 2008). It is marketing entry-level cars in Eastern Europe, trucks in the Middle East, and Cadillacs to wealthy classes in both Central and Eastern Europe and wherever else wealth impresses with demand.

GM established itself as a world player in the 1920s, when it first entered China (Nelson, 2011), and it contributed to the war effort throughout the 1940s via its bases in Canada and the UK. GM entered the European market but GM Europe fell into bankruptcy in 2009, following the economic crisis and numerous brands were sold, including Saab. Since 2009, focus on achieving profitability in Europe has been a key feature of its global strategy. However, GM retained possession of Opel, the German carmaker, and through the establishment of General Motors Ventures in 2010, a venture capital subsidiary, GM has focused on identifying and creating new technologies that will make competitive headway in the automotive industry (Ventures, 2017).

Customer Focus

Customers Served

GM serves a wide range of consumers throughout the world, with markets in North and South America, the Middle East, Europe and Asia. Its clientele have region tastes that create a need for individualized models which may appeal to certain cultural perceptions of what an automobile should be. North American consumers embrace all GM brands—Buick, Cadillac, GMC, as well as GM crossover products—the Chevy Equinox, Chevy Trax, Buick Encore, and GMC Acadia (the crossover products are increasing in popularity in the U.S.). GM has pulled brands from European countries but still sells the Chevy Camaro and the C7 Corvette as specialty products.

China is still GM’s largest national market and following a decades’ long absence from the market, GM is back with Shanghai GM, a joint venture partnership with Shanghai Automotive Industry Corp. The Buick Century, GL8 minivan, Chevy Cruze, and commercial trucks are all sold in China—the three big brands being Buick, Chevrolet and Cadillac.

In the Middle East, the GMC brand is growing as it appeals to the need of consumers there for a more rugged all-terrain vehicle, even as Cadillac sales for the luxury market draw huge demand; while in Europe, GM’s Opel has gained traction amid weakening demand in the sector as a whole. And in Australia, GM’s Holden has continued to show solid sales across the country (GM Global Sales, 2017).

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Critical Customers

China is GM’s most critical customer because it is the company’s largest market. Buick is the biggest seller in the nation, with 550,000 models sold in 2011 (Nelson, 2012), compared to 177,633 in America (Cain, 2012). GM must maintain a strong relationship with its JV partner in Shanghai so as to build on its Asian success and keep the moment rolling in a positive direction.

Within the overall global strategy, GM’s strategy in China as in every other region where it operates is to take its base American models and adapt them to meet the needs of the regional consumer. This is what it has done in China with its Buick Century, as Nelson (2012) notes.

As the global strategy is essentially adaptive, GM’s approach to the critical Chinese consumer exemplifies its overall aim—to meet the needs of regional consumers by tailoring products to meet the market demand. For example, in 1998, more than 600 alterations were made to the Buick Century when it was delivered to Chinese markets: these alterations were made to accommodate regulatory and design requirements as well as cultural tastes and needs. In 1998, most owners were not drivers and sat in the back seat—so the Century’s second row seats were given far more leg room than their American versions. Today, Chinese consumers more commonly drive their own cars, so this alteration is not as pronounced any longer—but it serves as an illustration of the strategy that GM takes in providing each region with its own version or variation of a model. Clinics are run so as to give the firm a better sense of what consumers desire; a GM product is chosen as a “donor platform” and meetings with regulators and partners in the region are held in order to develop the product to fit the region (Nelson, 2012).

Supplier Relations

Core Suppliers

GM operates a supply chain of more than 18,000 suppliers all over the world (Hebert, 2015). Its strategy with respect to its suppliers is demonstrated in the firm’s Strategic Supplier Engagement (SSE) program. This program enables GM to develop and improve supplier relationships, through transparency and communication. 85% of GM’s automotive value comes from parts that are assembled prior to arrival at GM facilities—which means that GM is responsible for obtaining 85% of its supplies from outside-the-house production plants. The firm’s ability to maintain a global supply chain is a testament to its strength and endurance on the world’s stage.

Global sourcing is commonplace in the automotive industry, and typically several countries take part in the supply chain process when bringing a final product to market. Global air cargo and the Internet have both helped in this type of supply chain arrangement, and companies “that provide end-to-end logistics services and delivery anywhere in the world” are those most in demand. GM takes as much advantage of this network as any other competitor in the sector.

Internal Pressures

GM has had to rely on Opel, its German division, to address some of its globalization issues. This is not an ideal situation since there is an attendant “high cost of retooling, currency volatility, and local design differences” that delay the process of providing world cars for GM’s regions around the world (Yip, Hult, 2012, p. 18). However, with arrival of Jose Ignacio Lopez, who led procurement efforts at GM, traditional supplier relationships were transformed and suppliers were obligated to go through “rigorous rounds of bidding” while offering “increase supplier efficiencies and lower prices” (Yip, Hult, 2012, p. 121). This has helped GM to alleviate some of its internal pressures considerably.

External Pressures

External pressures are less of an issue as “the Internet enhances global sourcing efficiencies” and “subsidiary requirements can be managed efficiently” and also coordinated through tech-based networks (Yip, Hult, 2012, p. 45). In fact, GM has partner with its competitors Ford and Chrysler to develop the Automotive Exchange Network (ANX), which connects suppliers via automated interactions. The network allows tech- and service-quality standards to be set by the industry’s major players and is indicative of the type of collaboration that can be accomplished when competitors work together to eliminate unnecessary supply chain obstacles.

External supply chain issues are becoming….....

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