General Motors

General Motors has definitely seen better days; not until the issue of deferred tax assets surfaced, the firm has been always the forefront of the automobile trading along with Ford Motors and Chrysler. However, it seems that the “Big Three” are experiencing difficult times hampered by contract buyouts and apparent deferred tax assets. Sure the firm generated revenues on an international scale, yet it failed to deliver the much-anticipated profit margins on its primary market – North America.

GM has declared that retirement incentives and the issue of deferred tax assets are the main culprits for the losses of the firm. Citing that operation costs should be reduced in order to generate revenues and increase profit margins. Furthermore, the firm has insinuated that productivity in terms of revenues and sales are to surface by hiring new employees and offering them low wages in order to get back on track by 2011 (Popely, 2008). It should be noted that Ford and Chrysler share similar sentiments as well towards the notion of generating revenues while reducing operation costs.

These three American automobile manufacturers are all on the same book. With import brands like Toyota, Honda, and BMW to name a few, competition is as stiff as usual; with loyal clients and purists jumping ship in terms of their car preferences. A notion that suggests that the competition in the American automobile industry knows no bounds and customers are proof of this; Research agencies such as CNW have declared that clients always place a premium on the material used on automobiles, and not the brand itself.

With this in mind, clients and car enthusiasts are more meticulous than ever in purchasing cars. Toyota, an import brand from Japan, has shown improvement in its profit margins in recent years. The Japanese car manufacturer has been improving on an annual basis; thanks to its charismatic marketing campaign that involves hiring high-end celebrities as endorsers of their automobiles. Obviously, this is the portion of brand marketing where the Big Three including GM has been passive.

Can anyone recall who GM, Ford, or Chrysler has hired in order to endorse their product in a very distinct manner? This is where new marketing strategies come into play. GM and Ford has embraced B2C strategies in order to uplift its image, as well to renew the client enthusiasm for its products. American automobile firms have established online websites in order to augment the information on their products; and entice clients as well as potential market segments (Popely, 2008). Devising a New Marketing Strategy for General Motors

General Motors have relied on car exhibits in order to showcase their products. New models of cars like The Hummer and the Corvette are hard to miss on car shows. However, clients are not always at these car shows in order to see new automobiles that GM offers. Proof of this is the decline in sales of the Corvette, which the firm partially ignores and has resumed the production of the high-end automobile. With the Corvette being a “discretionary” vehicle, GM is very confident on how the Corvette will fare on its financial performance (Cetawayo, 2008).

This paper presents an analysis of the case study by Danielle Cadieux of the Richard Ivey School of Bussiness, The University of Western Ontario. The case is about the GM’s venture in the automobile industry of China. It starts with an analysis of the conditions in China at the time GM ventured into the Chinese market, highlights the key points that attracted GM to invest heavily in the country, and also mentions the problems faced by GM during the course of its stay in the country. In the past few years China has seen key changes on the economic and social front.

Thjis has led to the government coming up with new policies one of which is the automobile related policy and another relates to the currency exchange policy. The case highlights these issues which are analyzed in this paper. There has been a radical shift outlook of the government, currency and financial aspects, and also the socio-economic conditions prevalent within the country which necessitates a shift in strategy for GM in the country. The paper would present a detailed analysis of the situation and based on this would propose some strategic recommendations for GM.

This would be followed by a detailed plan of action which GM could follow to take advantage of the existing situation in China. Main Issue in the case study Chinese government had embarked upon a new automobile policy which was specifically meant to take more control over the Foreign Direct Investment FDI in this sector. The policy served to encourage the domestic automobile manufacturers who were in the danger of seeing a total collapse against their foreign competitors.

The key points of the policy is to restrict the foreign ownership in China to 50 percent which was unexpected given its agreement with WTO, a very tight policy on the joint ownership which had proved to be very successful for GM, a required minimum investment size making it more difficult for other foreign companies to invest in China in addition to a non-transferable automobile manufacture license policy which would make it more difficult existing foreign non-automobile companies to enter in this segment, an increase in taxes forcing the foreign companies to localize their production further, and also taxing the R&D expenses.

In addition to this here is also the Chinese government stance on its currency policy which is making new foreign investors uneasy. All these issues have a direct impact on the GM’s automobile venture in China and necessitate a change in its present strategy. The paper would analyze these issues and present the positive and negative impacts of the situation to come up with a recommended strategy and plan of action with GM could follow regarding its investment in the country.

CEO Richard Wagoner’s believes that now is the best to re-establish the image of the automobile pioneer from car mass-producer to the leading e-business firm. The consumer-connect strategy of the firm has enable it to be “consumercentric” rather than being “dealercentric”, which suggests that the firm is adamant regarding the improvement of its customer relations department and marketing campaigns through the use of an integrated business strategy through the use of e-commerce practices.

With the proliferation of click and mortar businesses, Ford has purchased personal computers for each its employee in order to connect more to its clients and entice more potential target markets. In accordance with this, GM has launched its own websites in order to address the inquiries of its clients. However, the “Dell model” approach that GM used backfired when it collaborated with other industry giants such as Chrysler and Ford in order to create a single portal intended to bolster the integrated supplier trading environment.

The portal was to function as host and moderator to all transactions of the automobile firms. Wagoner’s B2B strategies went all in vain when stock fell a whopping 7%, only after the B2B program was launched. GM’s CEO was indeed optimistic yet ambitious as his vision for the company is to generate revenues whenever a client merely presses a button to complete a transaction and own one of Ford’s signature automobiles. Upon ordering, General Motors Online will then transmit the information to the dealer that will deliver the product to the client.

This order-to-delivery manner of automobile purchasing will generate a standard flow of consumer preference data to GM suppliers who will culminate the car deal. The integrated strategy of GM has yet to be proven effective, as consumers want a more comprehensive basis on purchasing a car online. Furthermore, service quality may vary due to the benchmarking of each dealer.

Conclusion

However, such impending catastrophe can be prevented through use of conventional B2B practices, which will not hamper simple business processes that firms engage in.

The diversity that B2C practices will diminish if firms will rely on building apt digital relationships and transactions among its trade partners and the entirety of the B2B marketplace. It is daunting yet effective task if initiated in an appropriate manner. Value chains are made firm through the simpler method of business information integration. Arguably, the primary goal of organizations and firms it the proliferation and implementation of business process integration.

In order to realize such, firms must apply reliable and secured integration infrastructure needed for mission-critical commerce applications. With this in tow, firms will surpass the complexity of the trading environment that the digital marketplace generates. One company that is applying such method through the use of online applications is General Motors Company, which recently launched GM. com to further reach out to its clients and potential segment markets.

References

1. Popely, R. (2008). GM posts huge loss, will offer buyouts; 100% of 74,000 workers eligible Chicago Tribune. Retrieved February 14, 2008, from Proquest Database.
2. Cetawayo, A. (2008). Corvette sales on decline, but plant remains at full speed McClatchy – Tribune Business News. Retrieved February 14, 2008, from Proquest Database. Anonymous, (2008). 620-hp
3. Corvette Clouds 2020 Vision Wards Auto World. 44, (1). Retrieved February 14, 2008, from Proquest Database.
4. Box, T. (2003). Fantastic Plastic Corvette Is Still a Hot Car at 50. Knight Ridder Tribune Business News. Retrieved February 14, 2008, from Proquest Database.

General Motors and its Impact on Economy

            The present year has been marked with financial crisis and recession. The economic downturn that has bombarded the nation has also caused much suffering to those who have lost jobs, profits, and a life of comfort. The impact of recession is not only experienced in the country but also in other parts of the globe. The closing of various companies has left millions of people unemployed. The increasing rate of unemployment has created a loss on the profit on the part of business owners.

Notably, recession has affected every sector in the society and did not spare even the car industry. Recently, the economic environment has gone murky because one of the companies in the ever-growing and stable automobile industry has declared itself bankrupt. General Motors (GM), country’s greatest manufacturer of car, filed for bankruptcy a few days ago due to its growing debt and loss in profit (Tullo 8). As a result, the government has also stepped into the situation to aid the company because of its impending effect on the U.S. economy.

The bankruptcy of General Motors has become a big issue in the world of business because it reflects the significance of the impact of recession on the financial status of well-established businesses such as General Motors. Apart from that, General Motors has maintained constant stability for several decades. However, despite its stability over the years, it was placed on the brink of dissolution. This shows that the bankruptcy of General Motors poses a considerable threat to the economy of the country.

Historically, General Motors Corp. was founded in 1908 by William C. Durant, an entrepreneur from Flint, Michigan (“General Motors Corporation”). Durant believes that manufacturing only one model of car is vulnerable to bankruptcy; hence, he formed the General Motors Corp. and acquired more than two dozens of companies manufacturing cars which include Buick and Olds Motor Vehicle Company (“General Motors Corporation”). The following years, Oakland Motor Car, later named as Pontiac, and Cadillac Automobile Company merged with General Motors (“General Motors Corporation”). In 1910, Durant established the Chevrolet Motor Company to compete with Ford Motor Company’s Model T (“General Motors Corporation”). This was followed by the acquisition of Dayton Engineering Laboratories Company (Delco), a car parts manufacturer (“General Motors Corporation”).

General Motors went through several managements which include William Durant, Pierre S. du Pont, Pierre S. du Pont Jr., and Alfred P. Sloan (“General Motors Corporation”). General Motors continued to acquire several car manufacturers like Vauxhall Motors, Opel AG of Germany, and Yellow Cab (“General Motors Corporation”). The continuous growth of General Motors paved the way for making itself as one of the world’s largest car manufacturers (“About GM”). It is noteworthy that in 2008, it has recorded a sale of 8.35 million cars and trucks sold globally under various brands such as Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Opel, Pontiac, Saab, Saturn, Vauxhall, and Wuling (“About GM”).

This year, General Motors has filed bankruptcy as a consequence of recession. Various car companies such as Chrysler have also filed bankruptcy a few months ago. However, before General Motors was dissolved, President Obama had committed to financially back up General Motors by lending $30 billion to the firm apart from the $19.4 billion that the government had previously given (Isidore). The government of Canada has also extended its financial support. After bankruptcy, General Motors will now be under new management.

Primarily, the bankruptcy of General Motors has had an immense impact on the country’s economy as observed from the government’s initiative to lend its financial reserves to save the company. The act of the government was triggered by the fact that leaving General Motors behind would cause heavier financial loss and economic stress. Notably, General Motors was the largest private employer in the country because it was able to employ 618,365 individuals in 1979 (McKee). However, due to its financial situation, more and more GM employees have lost their jobs. Apart from that, several companies dependent on car industry have also begun to shut down. With the continuing struggle of General Motors in the industry, more jobs are threatened to be lost and the unemployment rate may reach its toll. In order to avoid such a situation, the government has stepped into the picture.

General Motors, from its inception, has already created an impact on the country’s economy. With the creation of General Motors, more jobs were also generated. In addition to this, the government revenue has also increased. Notably, General Motors does not only support its employees but also thousands of employees indirectly working for them. General Motors does not work alone and cars are not completed by the company alone. In the manufacturing of cars, there are various parts exported from other countries and manufactured by other companies. These manufacturers of car parts are dependent also upon the need of car manufacturers. Thus, when General Motors filed for bankruptcy, many companies were also affected, one of which is Visteon, a major car parts maker, which also filed for bankruptcy (Trumbull). There were also 40 other firms which have sought bankruptcy protection this year (McKee).

Aside from the manufacturers of car parts, various sectors such as car dealers, car insurance, shipping, and other industries will also be affected. In the chemical industry, cars are also essential to its existence (Tullo 8). Some of the chemicals used are nylon resins under the hood of polyurethane foam seat cushion and sulfuric acid used in steel processing (Tullo 8). With the lowering demand of cars, the production of these chemicals also decreases. The impact of the possible collapse of General Motors has also been felt by the dealership, design shop, and advertising companies (Trumbull). These companies are employing thousands of employees. With the bankruptcy of General Motors and other car companies, these industries depending on them will also suffer. The decrease in car demands also affects other car companies that are employing thousands of employees. With this scenario, not only will the public be greatly affected but also the economy. The shutting down of various companies will lessen the revenue of the government. Moreover, the increasing rate of unemployment will force the government to use its financial reserve to create temporary jobs for the displaced and retrenched workers. Subsequently, the unemployment will also be detrimental to other industries because demands on various goods and services will go down. Hence, with the bankruptcy of General Motors, various industries and employees will also suffer.

Despite the effort of the government in saving General Motors, the reorganization of the company will certainly affect the nation’s economy. According to the company, they are planning to phase out or sell some of its cars such as Hammer, Pontiac, Saab, and Saturn as a strategy to save the firm from complete downfall (Trumbull). Aside from that, the company also plans to cut 20,000 of its jobs (Trumbull). The National Automobile Dealers Association further declared that 58,300 jobs will be lost from 1,100 dealerships industries (McKee). With these possible situations, the whole industry and dependent industries will surely be shaken financially.

Additionally, the bankruptcy of General Motors will also affect the society, especially the foundations and charitable institutions it has continually supported. Various people are depending upon the support of the company especially during disasters and calamity. For example, in 2005, it had recorded an amount of $61 million given to charitable institutions through cash and in-kind donations and participation in charitable activities (“About GM”). Also, during the Hurricane Katrina, General Motors was among the companies that immediately responded to those in need of help (“About GM”).

On the contrary, many economists say that the bankruptcy issue on General Motors will not greatly impact the county’s economy. According to Mark Zandi, “Bankruptcy is irrelevant in terms of the economic consequences of what’s happening to GM” (“Analysts Weigh Economic”). In the history of General Motors, it had experienced financial downturns, but it was able to survive even without the government behind it. This time, the bankruptcy will not really impact the company because the government is willing to save the company and is partnering with the Treasury in the continuance of its business. Hence, the bankruptcy will not totally impact the country’s economy.

To sum up, since its establishment in 1908, General Motors has continued to grow by acquiring other car companies having different models. The company is the main producer of the luxurious and well-known cars such as Hummer, Pontiac, Buick, Cadillac, and Chevrolet among others. The company also reigned to be the largest manufacturer of car in the country. It has also been considered as the firm with the highest hiring rate among the private companies. The company has been essential to the progress of the country and the improvement of its employees’ lives. It has also been a partner of the government in sending help to those in need through its commitment to charitable works. More importantly, the company has been indispensable in numerous industries in the country.

However, a few days ago, the company filed for bankruptcy. The present situation of General Motors poses a great threat to the country’s economy. Since the beginning of recession, General Motors and other car industries have already been experiencing huge financial problems. The car demand has greatly affected the company. Consequently, the country’s economy has also been affected because millions of jobs were lost and the unemployment rate continues to increase. Many industries dependent upon the company and the car industry have also been affected. In fact, several firms have also filed for bankruptcy. Many were also left jobless. With the consequences of the recession and crisis being experienced by General Motors, it is deemed clear that it has greatly affected the country’s economy.

Works Cited

“About GM.” General Motors Company. 2009. 14 July 2009. <http://www.gm.com/corporate/about/>.

“Analysts Weigh Economic Impact of GM Bankruptcy Filing.” Public Broadcasting Service. 3 June 2009. 14 July 2009. <http://www.pbs.org/newshour/bb/business/jan-june09/gmanalysis_06-03.html>.

“General Motors Corporation.” Microsoft Encarta Online Encyclopedia. 2009. 14 July 2009. <http://encarta.msn.com/encyclopedia_761588123_2/General_Motors_Corporation.html#howtocite>.

Isidore, Chris. “GM to head into bankruptcy.” CNNMoney.com. 1 June 2009. 14 July 2009. <http://money.cnn.com/2009/05/31/news/companies/gm_bankruptcy_looms/>.

McKee, Michael. “GM’s Long Decline May Make Bankruptcy ‘Irrelevant’ to Economy.” Bloomberg.com. 1 June 2009. 14 July 2009 <http://www.bloomberg.com/apps/news?pid=20601103&sid=a262TsJduTzs>.

Trumbull, Mark. “GM bankruptcy: How will it impact the US?” The Christian Science Monitor. 31 May 2009. 14 July 2009. <http://features.csmonitor.com/economyrebuild/2009/05/31/gm-bankruptcy-how-will-it-impact-the-us/>.

Tullo, Alexander H. “Action of GM’s Bankruptcy.” Chemical and Engineering News. 8 June 2008: 8. 14 July 2009. <http://pubs.acs.org/cen/news/87/i23/8723notw2.html>.

Introduction

     This paper seeks to conduct a Current Analysis of General Motors.  General Motors will be introduced as to the nature of its business and with the discussion of the automotive industry.  I will first analyze and discuss a description of the company and products and how they stand in relation to others in the industry. I will also discuss General Motor’s competitive advantages or disadvantages.  A basic ratio analysis of General Motors will be compared with industry standards and an explanation of the reasons for those ratios that deviate from industry standards will be made. Such ratio analysis will be supported with a summary of GM ratios as against industry standards and calculations.  The paper will also include recent or current market place information that could influence the company and the price of its stock in the future.  A technical analysis will be prepared together with a provision for references to price changes that are not related to fundamentals of GM’s business. Included is the fulfillment for the to look for  any patterns in the price change of the stock over the past 2 years.

      The last part of the paper will require me to give my opinion as to whether this stock should be bought, held, or sold, based on the analysis of the ratios and market place information.

Analysis and discussion

GM’s Nature of Business

      The company is primarily engaged in automotive production and marketing and financing and insurance operations.  Having its home-base and largest operating facilities in Northern America, it is engaged in the design, manufacture, and sale of vehicles worldwide.  General Motors’s operations in finance and insurance pertains mainly to General Motors Acceptance Corporation (GMAC), its wholly owned subsidiary, which provide a broad range of financial services, that are not limited to automotive finance and mortgage products and services (General Motors Corporation, 2006).

Automotive Industry

         The past five years saw the global automotive industry experiencing consistent year-to-year increases, growing approximately 13% from 2001 to 2005.  Much of this growth is attributable to the continued development of emerging markets such as China.

       The automotive industry still continues to exist.  (General Motors Corporation, 2006)

Said that in 2005, global industry vehicle sales to retail and fleet customers were 64.7 million units, representing a 3.7% increase over 2004.  The company expects industry sales to be between 65.5 million and 66 million units in 2006.  Its worldwide vehicle sales for 2005 were 9.2 million units exhibiting and increase as against to 9.0 million units in 2004.

       It has a global market share of 14.2% for 2005, declining 2004 global market share of 14.4%. Given the increase in 2005 as compare to 2004, would explain may not have performed very badly in 2005 rather the explanation of the company that losses came from expenses related to payment and recognition of liability for its employees, who are based in North America.  Hence it is not surprising when the company reported that in 2005, the company saw its posted market share gains in three of its four automotive regions, with the exception of GM North America (GMNA) where GM’s market share declined.  (General Motors Corporation, 2006)

       To further the claim that it sold better in 2005 compared to 2004 in terms of United States vehicles, sales totaled 17.5 million units, which slightly increase from the 2004 level of 17.3 million units.  This slight increase was however felt in terms of reduced market share the United States 25.9% for 2005, as compared to 27.2% in 2004 the decrease was blamed by the company in sales of full-size utilities, mid-sized utilities and mid-sized cars (General Motors Corporation, 2006)

A description of the company and products.  How they stand in relation to others in the industry.  What are General Motor’s competitive advantages or disadvantages?  This description should be brief; about 2 to 3 pages.

      Wikipedia (2006) describes General Motors Corporation, (GM), as the world’s largest automaker after is birth in 1908.  It presently pays the salary of about 326,999 people around the world.  Including global headquarters in Michigan, its makes its cars and trucks in 33 countries.  In 2005, GM sold 9.17 million GM cars and trucks were sold globally under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Oldsmobile (now defunct), Opel, Pontiac, Saab, Saturn and Vauxhall.  GM operates a finance company, GMAC Financial Services, which offers automotive, residential and commercial financing and insurance.  GM’s Constar subsidiary is a provider of vehicle safety, security and information services.

Competition none yet?

     Top 15 Motor Vehicle Manufacturers 2005 showed under Car and Light Commercial Vehicle Production showed General Motors to be the top as shown in Appendix B, besting even Toyota and Honda of Japan.

    GM’s competitive advantage as against competitors might include lower cost than competitors as could taken from the economies of scale due to big production. However this was further eroded by eroded by the high cost of employee benefits it had to pay for its bloated number of employees as a result of the ever changing technology.

A basic ratio analysis of General Motors compared with industry standards.  Explain the reasons for those ratios that deviate from industry standards.  A summary is needed of GM ratios vs. industry standards and calculations.  See Appendix A.

         General Motors’ Return of negative 62.85 is below industry average of 7.9.  This means the company is earning less that its competitors in 2005.  However previous to 2005, the company has reflected profits.  It net profit margin because of the loss is still way below industry average 1.77

      The decline in company’s performance is explained by the company as follow:

General Motors Corporation (2006) said that the company’s consolidated net sales and revenues fell to $192.6 billion in 2005 from $193.5 billion in 2004.  It incurred a consolidated net loss in 2005 of $10.6 billion, compared to net income of $2.8 billion in 2004.  The decline in income was very notice despite increase in sales in units and in dollars.  The company explained that the unfavorable results were driven primarily by losses at GM North America (GMNA).  It further explained that company’s results of operations in 2005 were most significantly affected by the following trends and significant events:

      The first is the GMNA market share and product mix – The company admitted that e industry-wide North American vehicle sales had only a slight growth, but Gina’s vehicle production declined by a higher rate in 2005 to 4.9 million units because of GM’s efforts to reduce high dealer inventory levels and because of decreased by 1.2 percentage points in market share.  This was triggered further by the result unfavorable product mix, whereby GM only made fewer sales of greater margin large trucks and large cars.  It blamed the combination of instability of consumer demand and the expected introduction of new truck models to replace products at the end of their lifecycles. (General Motors Corporation, 2006)

      The Second is the Delphi Chapter 11 proceedings – During the last quarter of 2005, Gm had to recognize a charge of $5.5 billion ($3.6 billion after tax) as an estimate of contingent exposures relating to the Chapter 11 filing of Delphi Corporation (Delphi).  This estimate included benefit guarantees for certain former GM U.S. employees who transferred to Delphi in relation the 1999 spin-off from GM. GM estimated range of these contingent exposures to be between $5.5 billion and $12 billion. ((General Motors Corporation, 2006)

       Debt to equity ratio of 3.9 is below industry average of 1.66.  This means that the company is riskier than the average.  This means that as an alternative investment among investors, it is less preferable than the average but it is still better compared to Ford Motors Co., a fellow American Car Company.

     The dismal result of operation in 2005 cannot de denied to have affected the right debt to equity ratio to GM making is higher above the industry standards.

      Despite the below average above its stock price to book value is 1.54 same industry standard of 1.54, which means that the company still commands a good stock price.

      In terms of market capitalization the same with none of the manufacturers above were able to reach the industry standard, but General Motors wins over Ford Motors but still way below the Japanese car manufacturers which exceeded more than a 100 billion US dollars.

Recent or current market place information that could influence the company and the price of its stock in the future.

    General Motors Corporation (2006) said that company’s loss, most of which related to its North American operations, clearly demonstrates the need for significant changes in GM’s business model.  It blamed a large part of these losses arise from GM’s huge legacy cost burden and the difficulty of adjusting structural costs in line with falling revenue.  The company defined legacy costs are primarily related to the cost of benefits provided to retired employees and their dependents, and costs associated with employees and their dependents of businesses divested by GM and structural costs are those costs that do not vary with production and include all costs other than material, freight, and policy and warranty costs.  Said structural costs include, among other things, the cost of unionized employees.  There are in a sense fixed cost which cannot be changed.

     It would not be surprising if the company finds ways of eliminating these fixed cost and the chosen strategy which a recent news that could bring up prices include the plan to retrenched a big number of it employees.

     There is a news that GM, Delphi, US autoworkers’ union agreement to massive job-cutting program. The news story dated March 23, 2006 reported that the United Auto Workers (UAW) union has concluded a deal with General Motors and its former parts company Delphi Corporation that paves the way for a major contraction in the US auto industry and the permanent elimination of tens of thousands of jobs. This “Special Attrition Program” provides retirement incentives and buyouts aimed removing old people with high benefits due long term work stay in the company (White, 2006) (Paraphrasing made).

      The deal would reduce 30,000 jobs across North America by the end of 2008, including 25,000 of its 105,000 US hourly workers. It was predicted that as a result of the of the reduction or  downsizing GM will be reduced to a much smaller operation, and claim to be the world’s largest automaker (White, 2006) (Paraphrasing made)

       It is making as top priority to return its North American operations to profitability and positive cash flow as soon as possible and with this intention GM has been   systematically and aggressively implementing its four-point turnaround plan for GMNA’s business.  Elements of the are as follows:

• Product Excellence – continue to raise the bar in the execution of great cars and trucks
• Revitalize Sales and Marketing Strategy – offer customers the best value in the industry
• Accelerate Cost Reductions and Quality Improvements – improve GM’s cost position and reduce our breakeven point in response to an intensely competitive environment
• Address Health Care Burden – reduce legacy cost disadvantages (General Motors Corporation, 2006)

    General Motors Corporation (2006) said that to have been focusing on restructuring its operations, and has already taken a number of steps to improve its performance in a more competitive global environment.  It added that a key driver of these efforts is the globalization of our principal business functions, including more aggressive engineering, product development, manufacturing and purchasing. Further it said, “In addition, we backed up our commitment to great cars and trucks by raising our related capital expenditures in 2005, and we intend to maintain this commitment going forward.  We are endeavoring to revitalize our sales and marketing strategy to more clearly focus customer recognition on our brands, aligns our distribution channels, and refocuses our marketing efforts on the quality of our cars and trucks and the value they offer in price, features and performance.”

A technical analysis is needed.  Refer to price changes that are not related to fundamentals of GM’s business.  Look for any patterns in the price change of the stock over the past 2 years.

      Information from the New York Stock Exchange (NYSE) show that lowest stock price recorded by for General Motors was 18 USD per share but from that time until to day price have been slightly on the increasing trend indicating that the worst may have been over and it is now taking off for recovery to before 2005 profit levels.  (Please Appendix C, excel file, worksheet: NYSE)

Give your opinion as to whether this stock should be bought, held, or sold, based on the analysis of the ratios and market place information.

      If one is the stockholder of a corporation, the decision to buy, hold or sell a stock is done by using common sense.  One will buy a stock because one expects that price go up and after that you will earn. Put it simply, one must have a profit objective.  If one is present stockholder of any corporation, his choice to sell or hold.  One will hold if one expects prices will go up but one will sell now if one expects that prices to fall.  Again the motivation is still profit or a winning proposition.  The bottom line therefore is the idea of profit maximization which is an inherent assumption in financial management.  In the same manner a stock holder or a would-be stockholder of General Motors will decide along the same line.  Now what would be the basis of one’s information for expectation?  The general rule is the historical information will or predicts some thing about the future of the company.  Hence, one’s decision will be based on out evaluation of out forecast based on historical information.  In case of GM, although it has exhibited losses in 2005, it die not mean that the company is losing hope.  If  one looks a the  ratio or price of stock over it book value it is within the industry standard and its prices have continued to go up to now since  lowest price in the New York Stock Exchange has sink to about 18 USD per share in December, 2005.

      As per analysis the company has competitive advantage over its competitors.  Under the five competing forces model, the industry has a very high barrier to entry because of the presence of switching cost.

Conclusion:

       Based on information and the corresponding analysis we have done, we found that the stocks of General Motors will continue to go up.  We have found that the cause the losses for the company in 2005 included the increase of benefits to its employees.  With the decision of the Company to retrench employees, as condition for the investors to improve the performance of General Motors, the future looks encouraging for investors.

       Hence any stockholder of the corporation could hold selling their stocks because prices are expected to go up in the near future.  For the would be investors, while the stocks of the corporation sells low, one should be encourage to buy share because of the expected rebound of the company.

Bibliography:

1. General Motors Corporation (2006),  Company Website, {www document} URL ;http://www.gm.com/company/investor_information/docs/fin_data/gm05ar/content/financials/mda_gm/mda_gm_01.html, Accessed September 19,2006
2. New York Stock Exchange (2006), Statistics , {www document} URL http://www.nyse.com/about/listed/lcddata.html?ticker=gm;fq=D;ezd=1Y;index=5, Accessed September 19,2006
3. Wikipedia (2006) , General Motors Corporation , {www document} URL Accessed September 19,2006
   White (2006),
4. GM, Delphi, US autoworkers’ union agree to massive job-cutting program, {www document} URL http://www.wsws.org/articles/2006/mar2006/gemo-m23.shtml;, Accessed September 19,2006
5. Yahoo (2006), industry statistics, {www document} URL http://biz.yahoo.com/p/330conameu.html, Accessed September 19,2006

Introduction

            Large business and industrial corporations distinguish the period from the end of the 19th century extending to contemporary times, from earlier periods of history. Never has business had such a pre-eminent and influential role in society. Money-lending, which was once the sole preserve of people who took to such a vocation, is now a legitimate way of supplementing income for people from all streams of life: there were no stock exchanges before the first quarter of the 20th century.

            Current geo-politics is also different from any other period in history because never has a single country exerted such power and influence over the entire globe: it follows that U.S. corporations are watched with special care, both by the advocates of free enterprise, and by former opponents as well. Every action by a large, ostensibly professionally managed company of American origin has significant potential impact, both domestically and all over the world: most of these entities have operations in most countries anyway.

            It is in this context that this document is set, covering the business situation of General Motors (GM), with special reference to Corporate Governance. The company has conducted business for over 100 years, delivers more than 9 million automobiles per annum, employees over 250 thousand people, and has yearly revenues of over $200 billion (Form 10 K, General Motors Corporation, 2007).

            This document takes stock of the current business situation of GM, reviews concepts of Corporate Governance, and applies them to the case of this company. The document contains suggestions for the future of GM, with the particular aim of giving expression to the aspirations of minority share holders.

The GM Business Situation

            The company has made a loss of over $2 billion in the last accounting period for which detailed accounts are in the public domain (Form 10 K, General Motors Corporation, 2007). The management has put together a plan to return to profitability in the future, which requires very significant changes in operations, structures, and systems. The management admits that this turn-around plan faces difficult hurdles and major risks. Prospects for all categories of stake holders are poor, compared to other opportunities available in the market place.

            The company has invaluable resources, assets with high future potential, and it is in a line of business for which sustained demand is assured. People will always want new models of automobiles, and only companies such as GM have the capabilities to meet future energy, emission, safety, and design norms. Already, demand from emerging countries, even for lower range revenue lines such as Chevrolet, is encouraging (Form 10 K, General Motors Corporation, 2007); similar surges can be expected from other countries, such as the ones in Africa, in due course.

            Stakeholders are faced with a quandary with respect to GM: a continuation of past management ineffectiveness could add to their opportunity and even capital losses, while exiting share ownership and other forms of association with the behemoth at this juncture, could mean lost opportunities in the foreseeable future. Which way will the crew that runs GM take the company?

            They certainly look after their own stakes very well! The company’s pension plans are more generous than even the requirements of revised legislation (Form 10 K, General Motors Corporation, 2007). Health care costs have spiraled out of control, and for a company which makes losses, represents a kind of welfare state!

            Shop floor employees have jumped on to the bandwagon; unions make outlandish demands and are recalcitrant about even the most reasonable of suggestions to achieve the kinds of productivity which foreign competitors routinely enjoy.

            GM has followed haphazard horizontal and vertical integration practices with disastrous results, akin to the handiwork of its Human Resources Management function. Delphi, a major supplier of ancillaries, has applied for bankruptcy (Form 10 K, General Motors Corporation, 2007). Incredibly, GM has accepted liabilities related to payment of wages to Delphi employees! There is a similar situation with respect to GMAC Financial Services, in which GM has held 40% equity until recently.

            The company is subject to significant risks of litigation (Form 10 K, General Motors Corporation, 2007); many class action suits in progress. The costs of defending the company, and the potential costs of meeting possible awards against the company, are staggering, leading to questions about the provisions which have been made.

            The doubts about the adequacy of provisions in the statutory books of account, as mentioned above, stem from the fact that authoritative financial agencies have drastically downgraded the company’s credit ratings (Form 10 K, General Motors Corporation, 2007). Further, regulators have started inquiries and proceedings against the company related to its questionable and now infamous accounting practices. The management has admitted that its internal controls in these respects have been poor (Form 10 K, General Motors Corporation, 2007).

            There are serious lacunae in other functional areas as well. The prices, at which products at the higher reaches of the price curve are sold, are not maintainable (Form 10 K, General Motors Corporation, 2007). The company is unsure of regaining ground in some of the most profitable segments in which it has done business in the past. Further, pay offs from investments in new technology are uncertain (Form 10 K, General Motors Corporation, 2007) in the official opinion of the management.

            Overall, the company is still to recover from poor strategies and principles followed by past management teams, and the modest steps it has announced towards recovery, seem to be insufficient to return the financial statements to their peak states of health of the past.

            It is apparent that honest and well-meaning executives will not suffice to help GM realize its full potential again. There is a need for a skilled and highly capable Board of Directors, not for show piece reasons, but to exert effective stewardship of the legitimate interests of all categories of stake holders. Corporate Governance of the highest quality is a clear prescription for GM.

Relevant Concepts of Corporate Governance

            Corporate Governance is new in the lexicon of Business Management. It can mean anything from a symbolic attendance at perfunctory committee meetings by senior citizens and nominees of majority stake holders, to a total subversion of executive authority, effectively taking over the reigns of management altogether. Where in this spectrum, can GM find a fit?

            A major change in business ethics during the past 2 decades has been the introduction of controls on all forms of abuse of employee rights (Cory, 2001). Discrimination, harassment, and insecurity have been some of the unpleasant ghosts of the past, which do not concern us as much in the current times.

            Quality is a second axis along which business ethics have improved considerably of late (Cory, 2001). This may not be due to Corporate Governance per se, as much as because of competitive pressures and consumer awareness. Companies such as GM, at any rate, are not able to pass on sub-standard products and services: this can be a concern of Corporate Governance in some third world cases, but it does not apply to this case.

            The environment is another area which has occupied some Corporate Governance resources of late (Cory, 2001) but again, the automobile industry as a whole has a fair record in terms of improving safety, emission, and related norms. Though GM is not able to find buyers in sufficient numbers to buy its automobiles (Form 10 K, General Motors Corporation, 2007) there can be no denying that the executive structure has produced safer, better looking, feature-rich, efficient, and less polluting models than populated roads a decade ago. Therefore, the environment is not such a prime focus of Corporate Governance at GM as it might be in a chemical company.

            Rights of minority shareholders is the most pressing Corporate Governance concern at GM. This aspect has been ignored in most Corporate Governance circles (Cory, 2001). We have seen that GM employees take great care of their own pay-checks and privileges. Suppliers, and new enterprises set up with GM shareholder funds, all have a ball as well! Large financial bodies have warned their cronies by downgrading the company’s credit rating. Who will cry for the small shareholder?

            The rights of minority shareholders have not received the same attention everywhere: countries such as France and Israel have ignored this aspect, whereas it receives high attention from all stake holders in the United States. Corporations which operate globally need uniform standards (Cory, 2001). This is an issue at GM as it expands business in emerging countries. Some countries do not prohibit insider trading. Majority shareholders use inside information to buy and sell shares and make large sums of money, whereas minorities who do not move quickly in tandem, are the losers (Cory, 2001)

            Lawyers paid by majority interests in corporations, and the media dependant of advertising and sponsorship from the same type of vested interests, effectively prevent any form of real legal recourse for minority shareholders (Cory, 2001). Boards of Directors may also fail in governance matters because they are appointed by majority interests.

            The nexus between executives and majority shareholders who appoint and pay them is at the heart of the problems of minority shareholders (Cory, 2001); executives may also receive company shares at such advantageous terms that they lose their objectivity and impartiality in the process. However, we do not know if this has occurred at GM.

Specific Corporate Governance Problems at GM

            Governance issues have dogged GM almost since its formative years at the start of the 20th century (Minow, and Monks, 2004). It has pulled through on support from DuPont in the past, and because of the war effort, but has historically suffered at the hands of mercurial executive leadership, often confused with majority ownership. It has a tradition of resisting financial control even from those who have resourced it.

            Leadership issues have always dogged GM (Minow, and Monks, 2004). CEOs who have succeeded the founder over the past decades, have wielded unchecked powers, taking suicidal decisions which have crippled the company. This has had a domino effect on lower echelons of management, with everyone in the company selectively guarding their patches of turf.

            Boards of Directors have failed miserably in their professional responsibilities, lending their votes in almost slavish manner, and behaving more like party functionaries in politics, than as independent professionals with moral duties.

Resolution Routes

Companies are the last vestiges of dictatorial regimes. Hence, change has to be driven by CEOs (Cory, 2001). GM is fortunate because there are now clear top management statements in public, on the need to restore public confidence through diligence in daily operations (Corporate Governance Documents, 2007). This may be because of the effects of the Sarbanes-Oxley legislation (Minow, and Monks, 2004). However, it is reassuring that GM now makes a sincere effort to restore order. Comprehensive Corporate Governance guidelines are now available (Corporate Governance Documents, 2007). Management committees with transparent functioning and true independence can improve matters (Cory, 2001)

            There are additional measures which the GM Board may wish to consider in order that the return to honest, transparent, and professional functioning, occurs sooner. It can implement the European Union guidelines, where it has substantial business, for independent audit and reporting on governance issues (Crowther, 2004). This will make its operations more transparent, and the executives more accountable. The company may also extend the system to environmental issues, for which the European Union guidelines were first issued.

            Directors should be empowered further, with remuneration to attract the best in the business. Each Director should be fully committed to the purpose of GM, and should be fully accountable for the roles they play in real life.

            The present CEO is also Chairperson of the Board of Directors (Corporate Governance Documents, 2007). It would be better if these 2 positions were to be separated as an additional safeguard against the torts of the past. This step will also help to restore confidence in the legitimacy of the corporation (Crowther, 2004).

Conclusions

            Governance is related to business ethics; the latter in turn is affected by trends in society and in geo-politics as well. Corporate USA is swept along with waves of pressure for transparency and accountability on all fronts (Cory, 2001). The kinds of decisions which have been taken by GM in the past 20 years may still be acceptable or at least ignored in other countries, but entities listed on the New York Stock Exchange no longer have this kind of laxity. The practices of companies such as GM have global impacts, because such management and directorial teams are treated as models by smaller and domestic enterprises all over the globe. Though country cultures play roles, corporate governance is moving towards uniformity (Minow, and Monks, 2004); there are also pressures from global investors for better standards and more transparency. Small shareholders of companies such as GM will soon be from other countries as well, and it is additionally ill-advised to abuse their interests.

            The protection of minority shareholders is not on account of altruism. It is because they will withdraw from the stock market if their interests are abused by the majority, causing another Great Depression (Cory, 2001). Retail activities at stock exchanges have more influence on macro-economics than is generally recognized. No one can gain, at least in domestic terms, if there is an irreversible failure at GM. Effective Corporate Governance is in the broad national interest, apart from questions of ethics.

References

Cory J, 2001, Business Ethics: The Ethical Revolution of Minority Shareholders, Springer

Crowther, D, 2004, Perspectives on Corporate Social Responsibility, Ashgate Publishing Limited

Minow, N, and Monks, R, 2004, Corporate Governance, Blackwell Publishing

Corporate Governance Documents, 2007, General Motors company web site, accessed May 2007 from: http://www.gm.com/company/investor_information/corp_gov/

Form 10 K, General Motors Corporation, 2007, New York Stock Exchange web site, accessed May 2007 from: http://secfilings.nyse.com/files.php?symbol=GM&page=2&extras=0

In considering the assessment of the marketing strategy employed by Corvette, the factors that need to be taken into account are the automobile market segmentation, Corvette’s target market along with the brand’s positioning, and the company’s orientation towards new technology. Considering the segmentation of the automobiles market, ‘GM has designed specific models for different income and age groups. In fact it sells models for segments with varied combinations of age and income’.

Thus, GM practices segmented marketing, where the Corvette targets the elite requiring high-performance and the competitive sports industry. Furthermore, American Le Mans Series President and CEO, Scott Atherton has been quoted as saying that competing in the racing series, “confirms GM’s recognition of the importance racing has to the Corvette brand. Without question the Corvette Racing program is the best example of GM racing what it sells in the most relevant way possible.

There is a direct link from the Corvette race car and the Corvette for sale in the showroom that no other form of racing can match. ” (Corvette Racing back for more in 2009, 2008). With regards to the positioning of the brand, Corvette is considered to be the gold standard in GM cars. The latest 2009 Chevrolet Corvette ZR1 with a 620-horsepower engine is worth $100,000 is positioned as a powerful car meant for those with a need for thrilling rides.

Proposed Marketing Strategy for Corvette Considering the marketing strategy employed GM for Corvette, the technological orientation and the financial position of GM, it can be advised that GM continue to make the Corvette as sales figures show that it has taken market share from competitors indicating that customers are purchasing the car albeit at a lower rate due to the economic turndown and are replacing other cars with the Corvette.

With regards to a strategy to reverse the trend of negative Corvette sales in the future, Corvette needs to take a 360 degrees approach in its marketing communications along with some tactics that the Company can employ in the short run as well as the long run to ensure profitability and viability respectively. In the short run, the pricing policy of the care should be revised in tune with the economic scenario, along with the marketing communications strategy that speaks of the revised price, as well as an environment friendly and technologically advanced machine.

The pricing policy of the Corvette, per se, should be revised downward taking in view the cost-cutting measures and the fall in demand. The communication strategy should indicate to consumers that “we are interested in your benefit and as a result of our cost cuts we are able to transfer some of the advantage to you. ” Further, with regards to the communication strategy, Corvette is seen as a gas-guzzler which is high-performance but uneconomical and low quality compared to the foreign brands.

Thus the marketing strategy should indicate that the new technological advancements have made the Corvette compliant to EPA laws and that the company is constantly innovating to achieve a higher standard and serve consumers better. In the long term; however, GM should pull back its endorsement of the Corvette and gradually make it stand alone as a brand rather than General Motors’ brand which it is currently perceived as. The reasons for this are that GM is a local company and given that local companies have an image of low quality among the consumers, it also tarnishes the Corvette’s image.

Secondly, GM manufactures many brands for various segments of which all are endorsed strongly by GM. Thus, if one brand doesn’t perform well, or if customers are dissatisfied with one brand, it translates into negative goodwill for the entire company and all the brands, including Corvette, which might not even be serving the same market. Given these pointers, GM should be able to continue producing Corvette profitably and serve the needs of its consumers well.