Reasons Behind GM's Restructuring

1 Introduction

Background

General Motors Company is known to be an American multinational corporation with headquarters anchored in Detroit. For decades, it has been involved in designing, manufacturing, distributing as well as marketing vehicle parts while selling financial services at the same time. The company is also known for manufacturing vehicles across 37 countries with core brands including GMC, Cadillac, Chevrolet, and Buick. However, its recent announcements on restructuring the global business seemingly shocked the world after stating that it would shut some of the facilities and still slash the staff in North America. Across the revelations, the company argued that the transformation was meant to reinvest the money while fostering technological improvement that powers the growth of General Motors. Based on this preamble, the report will establish reasons as to why major restructuring were needed by GM as far as the global business is put into consideration. The report will also establish facts on what is GM, why it needs restructuring, why the company closed down 7 plants and cut down 15% of the salaried jobs, why GM wants to invest, who are the competitors and the need for the new market the company is targeting.

1.1 What is GM?

GM is the short form of General Motors, which a multinational company is based in America as mentioned before. The company was formed in 16th September 1908 in Flint under the control of William C. Durant. At the start of the 20th century, the US market had fewer automobiles with figures weighing behind the 8000 mark. Durant became the leading manufacturer of what are known as horse-drawn vehicles (Singh et al. 2017). Today, Global Motors is among the largest automakers in the world based on the global sales. In the year 2010, the company realized sales that amounted to 8.39 million cars and trucks, a figure that was higher than 6.5 million realized in the previous year.

1.2 Why the restructure?

The company declared a shutdown of 7 facilities and a cut off 15% of the salaried jobs across the global business. The intent of such changes revolved around saving on costs while fostering reinvestment. The move was characterized by essential steps towards century-old GM transformation (LeClair 2018). GM is gradually reinvesting money into technology that is believed the power the future of the company, compared to the prior focus that only narrowed down to cars. The company’s new motto states “Zero Crashes, Zero Emissions, and Zero Congestion”, which is an evident signal of a shift to electric vehicles that support self-driving (Adriaanse 2017). Notably, restructuring is all about and cars the people want at the moment. This came along changes in the market where consumers shun the sedans in favour of the hatchbacks and SUVs. The company made it clear that the new plan would enable it to save more than $6 billion before the end of 2020. The slimmed production would also enable the company to easily share technology across the vehicles while reducing the time as well as workers needed to build the actions (Singh et al. 2017).

1.3 Clarification of the Report Aim

The report aims at establishing reasons as to why General Motors Company is doing major restructuring in its global business. Notable changes that define the restructuring include a 15% cut off salaried jobs and a close down of 7 plants while investing in technology as one way of powering the future. Alongside the aim and the purpose of the report, the discussion will focus on exploring the market and the competitors the company will face in its new venture, the structure of the new market and forces that will make the company grow. In an effort to realize the new changes and findings, the report relies on frameworks and models, which include Porters five forces, PESTEL, VRIO analysis, as well as value chain analysis.

2. Clarification of the Theoretical Context

In an effort to realize the essence of the transition the company is about to witness, it still has to interact with the internal and external business environment. The report finds the need to evaluate the business environment GM has or will interact with. A number of strategic management tools will be put in use and these include the following.

2.1 PESTEL Analysis

Marketers in analysing as well as monitoring the macro-environmental factors believed to influence the organization commonly use a framework tool. The result or outcome of the analysis would yield the threats as well as the weaknesses. PESTEL starts for the political, economic, social, technological, environmental, and legal factors associated to GM (Moritz et al. 2015). Notably, the political factors include the tax policy, markets, the labour law and the foreign trade policy identified in the global market and has an impact on the performance of GM. Economic factors are not limited to the exchange rates, economic growth, disposable income and interest rates that affect the business. Social factors include the beliefs, values, norms, habits and attitude of the people that influence the consumer behaviour (Charter and Polonsky 2017). Technological factors look beyond ideas and innovations while environmental factors focus on sustainability, pollution and environmental laws. Lastly, legal factors look at consumer rights and laws, safety, health and equal opportunities controlled by rules and regulations.

Porter’s five forces is largely a framework involved in analysing competition in the market. It draws three forces from what is referred to as the horizontal competition. The three include threat of new entrants, threat of the established rivals and threat of substitutes. On the other hand, the framework draws the remaining two forces from what is referred as the vertical competition. The two forces include bargaining power of consumers and the bargaining power of the suppliers in the market. While using this tool, the report focus on other modern cars that would have surpassed the mission of GM, the technological forces that encourage other firms to foster similar venture and long term rivals in the global market.

2.2 Porter’s Five Forces

Porter’s five forces is largely a framework involved in analysing competition in the market. It draws three forces from what is referred to as the horizontal competition. The three include threat of new entrants, threat of the established rivals and threat of substitutes. On the other hand, the framework draws the remaining two forces from what is referred as the vertical competition. The two forces include bargaining power of consumers and the bargaining power of the suppliers in the market. While using this tool, the report focus on other modern cars that would have surpassed the mission of GM, the technological forces that encourage other firms to foster similar venture and long term rivals in the global market.

2.3 VRIO Analysis

VRIO Analysis, sometimes referred to as the VRIO framework, is an analytical tool or technique that seeks the brilliant evaluation of the competitive advantage and resources linked to the company. The acronym reflects different dimensions included in the evaluation and they comprise of the Value, Rareness, Imitability and Organization. The tool is said to have been developed by J.B Barney to insist on evaluation of the micro-environment while drawing attention on the material resources, financial resources, human resources and the non-material resources.

2.4 Value Chain Analysis

Value Chain Analysis is regarded as a process through which a firm or company identifies the primary as well as the support activities that can add value to the end outcome or the final product. This means that a firm would engage most of its internal activities as one way of transforming the inputs into the outputs. For GM, the strategic tool is applied to analyse internal activities while identifying the most valuable ones and the ones that can be enhanced to yield competitive advantage.

3. Evaluation and Analysis

3.1 The External Business Environment

Evaluating and analysing the external environment helps one to take note of the surrounding factors and conditions that stretch from the local to the global environment. External environment for GM constitutes the outside factors that have an influence or an impact on the functions or operations of the business. In this context, the section will share the PESTEL analysis and Porter’s five forces linked to General Motors.

3.1.1 PESTEL Analysis

3.1.1.1 Government Policy and environment friendliness - Political, Environment

Transformations in GM can be framed around political and environmental concerns. The global automobile industry is said to be enormous and a multi-billion industry that has rival brands in the marketplace. The industry has shown the effort to grow in terms of marketing and sales. Global markets such as the United States and Asian market appreciate the fact the growth of the automotive industry has been as a result of the growing market (Charter and Polonsky 2017). However, changes in the market forces show that governments are taking part in subsidizing low emission vehicles. The European Union and the United States market show that demand for environment friendly vehicles is growing on daily basis (Alizadeh et al. 2016). Manufacturers are receiving support from government to influence low environmental impact, which can be the same reason extended to GM, a company that is also taking part in the change. Currently, pollution control systems have attracted the attention of manufacturers who are gradually embracing electric cars, which work in line with GM’s new mission and strategy of ensuring zero emission (Charter and Polonsky 2017). However, export and import laws are still a headache o the automakers while ferrying materials across the nations.

3.1.1.2 Economic Crisis and conditions in the global market - Economic

While GM operates in over 37 countries, its performance absolutely depends on the performance of different economies across the world. Generally, the automobile industry was hit hard by the economic crisis of 2008-2009 (Alizadeh et al. 2016). The crisis is said to have altered the spending patterns in the market as the sales of cars drooped. The demand for the luxurious cars fell drastically as a result of the poor economic conditions. However, the automobile players enjoyed substantial sales in the developed regions in the world with market dynamics changing the patterns of the market. In the UK and US market, the crisis created perceptions of strict expenditures with only a handful of consumers leading luxurious life (Izogo and Ogba 2015). Therefore, expensive cars could not fetch market in every region of the world due to economic downturns that has lowered the purchasing powers of consumers. Since the dawn of the 21st century, vehicle manufacturers aim at flooding the market with low cost cars with hopes of tapping into a larger customer segment.

3.1.1.3 Culture, Lifestyle and technology – Socio-cultural, Technological

The global market for automobiles is currently influenced by the cultural trends, modernism and people’s preferences. Vehicle manufactures are forced to come up with new ideas and to be constantly innovative while trying to appeal to the preferences in the market. While the US and the UK market would prefer luxurious cars like the SUV, as detected across the aging segment, the same may not be the case for the young generation that has little to spend on luxurious cars. Popular brands are therefore reinventing models that can meet the most dominating taste across the young generation, which contributes to almost 40% of the world population (Alon et al. 2016). Major players such as Ford, Hyundai and Toyota are keeping an eye on the social trends in the global market as they foster research and development. GM has also noted that differentiation can be the potential platform for innovation while identifying gaps in the market. With recent research, low emission as well as fuel efficient cars can suit a variety of lifestyles among the young and the old and the rich and poor among others (Ziolkowska and Ziolkowski 2015).

3.1.1.4 Law efficiency, profitability and emissions – Legal, Environmental

Laws the regard the rates of emissions and pollution are growing stricter over the recent years. Vehicles or car brands to be exported have to pass emission tests with product safety laws having an equal impact on the movement of cars to the international or global markets. In a competitive global market, such players like General Motors are compelled to comply with the laws, which include tax and environmental laws among others (Reinhardt et al. 2017). In the 21st century, being environmental friendly or eco-friendly is a key determinant for the progress, performance and growth of the vehicle manufacturers. Governments around the world are forcing manufacturers to adopt greener strategies by supplying electricity, which is a key pillar for production of the electric cars (Alon et al. 2016). Solar energy and other sources of energy have been introduced in the market for the purposes of changing modes of production as manufacturers continue embracing new technologies.

3.1.2 Porter’s Five Forces

Michael Porter used the five forces to gauge the intensities behind the forces attached to competition among other external factors. In relation to the market position of GM, the five forces apply to the assessment of the competitive force produced by Honda, Toyota, Ford and Chrysler among other players. The analysis is as follows:

3.1.2.1 Threat of Entry

Attractive due to high barriers to entry

The requirement of establishing the auto component demands strong financial backing. This comes along staging the manufacturing process, which is only possible through installation of heavy machinery. In addition, the global nature, capital, management and technological requirement have always forced most of the domestic industries to seek help from the foreign multinational companies (Grant 2016). Again, building a brand as well as product differentiation becomes expensive due to the increasing number of the price components. Due to such factors, the dominating players only managed to manufacture the following units in the year 2010.

Unattractive due to low barriers

Deregulations in the global market have removed barriers, which have allowed the movement of the auto component manufacturers. Both the major as well as domestic giants are investing more in production lines. Key examples include the Crosslink International Wheels, Motor Industries Co Ltd, GKN Driveline, Wheel s Electronic SDN and Fiat. In addition, the automobile industry is growing big, which gives companies loopholes of having a market share (Porter and Heppelmann 2014). Across the element of new entrants, the market is growing big and new players can only find it easier if they establish a new product.

3.1.2.2 Bargaining power of the suppliers

Attractive due to low bargaining powers

Presence of few suppliers of specific product and lack of substitutes in the market would, at some point, make the product expensive. With such conditions in place, suppliers would be in a position to have their bargain. However, bigger OEMs like Hyundai and Ford are able to win better deals in terms of orders (Rothaermel 2016). On the other hand, the absence of local suppliers largely facilitates the bargaining advantage for the western firms like GM among others.

Unattractive

Most of the local suppliers in the global market have little power because of lack of networks of suppliers. Most of the suppliers still rely on the automakers to solicit the products. At some point, the automakers would decide to change their suppliers. Generally, suppliers have low power in the market and have a rare bargain.

3.1.2.3 Bargaining power of Buyers

Attractive due to low bargaining power

The demand in the global market, especially the Asian, European and the American market, is relatively high. This makes it possible for the automakers to slow down the product cycles as well as reduce costs involved in the manufacturing process (Bohnsack et al. 2015). This compels buyers to lobby against the monopoly players in the industry.

Unattractive due to high bargaining powers

Competitions in different product segments boost the buyer’s position in the market. Conclusively, buyers have high bargaining powers due to an increase in the automakers in the global market, auto component manufacturers, and production lines.

3.1.2.4 Threat of substitutes

The global automobile industry and the automobile market is said to experience low threat of substitutes. This is supported by the fact that there is a shift that favours the knowledge economy and the presence of the online modalities seems to reduce the demand for alternative cars Hobdari, B., (Gammeltoft and Meyer 2017). The domestic US opportunities, for example, lean towards the hybrid transport options, which seem to segment the market to low cost vehicles. As a result, consumers place their preferences on some brands for hybrid car option, which is both fuel efficient and exhibits low emissions.

3.1.2.5 Competitive Rivalry

Competitive rivalry in the automobile global market is said to be more intense with time. More multinational companies are exploring different global markets as a result of various factors. First, deregulation has opened up the boundaries, which means that more players can make entry into a single market thereby exploding competition (Bohnsack et al. 2015). Secondly, firms such as GM, are fostering capacity utilization which is critical where margins are seen to be low.

3.2 Evaluation and Analysis

3.2.1 Internal Business Environment

Internal business environment focuses on the internal factors such as the corporate culture, management, employee behaviour and organizational structure among others. The internal environment analysis gives room for the report to establish the capacity of GM to invest in technology, and whether the change is necessary for the growth of the company. In this case, the report focuses on the VRIO analysis and value chain analysis of General Motors.

3.2.2 VRIO Analysis

VRIO framework looks at the value, rarity, imitability, and organization of the company under consideration while determining the strength and the weaknesses. On the question of value, GM creates value through a great deal of the experience. They equally use the abilities and resources in generating car segments. Therefore, value is the strength of the company (Kauerhof 2017). On the question of rarity, the response is yes. The manufacturing process and the in-time inventory adopted by the company enables it to lower the costs as well as enhance efficiency of the process. While competitors would strive to replicate or recreate the same path of success, the art would end being expensive for others who rarely understand the technique (Praem 2015). On the question of imitability, the answer is yes based on the fact that the car industry is extremely expensive, which makes it hard to copy or acquire the resources at the same time. On the question of organization, GM’s policies as well as procedures help in supporting the exploiting the rare resources (Frynas and Mellahi 2015). A collective map of the VRIO analysis for GM is as shown.

3.2.3 Value chain analysis

3.2.3.1 Support activities

These include the necessary infrastructure, which makes it possible for the primary activities to be conducted. For GM, support activities include

Human Resource Management

General Motors fosters talent development and growth across the world in any field. The company solicits employees having right skills and plans on how retain same skills. The company employed over 180000 employees. This means that it has the man power that can impact the anticipated transition. The company offers best salaries, which are part of the motivating tools that allow employees to focus on the company goals (Ravindran and Warsing 2016).

3.2.3.2 Firm Infrastructure

General Motors has adopted one of the cost-efficient firm infrastructures with less managerial layers. Smaller management teams are engaged in leading decision making process. With a collaborative structure, the company enjoys from less supervision with more time spend on monitoring (Marodin et al. 2016). It is of note that GM’s organizational structure gives room creativity and productivity. This means that both managerial and leadership skills are integrated to address the company’s objectives.

3.2.3.3 Technology development

The EV segment is currently the new area of focus as the company gets a taste of the new technologies. Notably, the capacity of GM to embrace latest technology has helped the company in creating better and newer products (Simchi-Levi et al. 2015). This is accompanied by heavy investments in research as well as development.

Primary Activities

These include marketing, creation of the product, delivery and maintenance. For GM, the following is applicable.

3.2.3.4 Inbound Logistics

GM maintains good relationship with the suppliers. This has allowed the company to enjoy a disruption free production. In addition, the in-house capabilities have enabled GM to work on the electric vehicles as well as the EV components (Ravindran and Warsing 2016).

3.2.3.5 Outbound Logistics

Planning, management and network design are the key issues given attention by the logistics managers at GM. Most of the trade-off decisions are developed based in the GM market, the product and customers. The management consults an array of options before resolving to more direct routes, shorter movements and better space utilization.

Conclusion

The report conducted discussion on why GM is restructuring its global business. The report focused more on the internal and external environment analysis, which confirmed a number of reasons as to why the restructuring process was necessary. Some of the reasons include laws on carbon emissions, support from the government, a new wave in the industry, a better alternative and availability of resources that can impact the manufacturing process. Therefore, the restructuring of the global business is justifiable and reasonable.

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