GM Tries to Sharpen Its Car Images, Business, College Term Papers.com


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GM Tries to Sharpen Its Car Images

GM Tries to Sharpen Its Car Images A. Environment…………………………………………… 4 B. Industry………………………………………………… 4 C. Firm…………………………………………………….. 5 D. Marketing Strategy……………………………………. 6 IV. Problems Found in Situation Analysis A. Statement of Problems………………………………... 7 V. Strategic Alternatives for Solving Problems A. Description of Strategic Alternative 1……………….. 7 B. Description of Strategic Alternative 2……………….. 7 C. Description of Strategic Alternative 3……………….. 8 D. Description of Strategic Alternative 4……………….. 8 VI. Selection of Strategic Alternative and Implementation A. Statement of Selected Strategy………………………. 9 B. Justification for Selection of Strategy……………….. 9 C. Description of Implementation of Strategy…………. 9 VII. Summary and Conclusion…………………………………... 10 General Motors, the world’s largest vehicle manufacturer took the industry leadership from Ford Motors Company in 1931. With its customer oriented objective and significant marketing programs, GM protected its position since then. Starting from 1990, GM became industry’s biggest money looser in the U.S. market by tracking out of the road it always had been and forgetting how it became and protected its leadership for over 60 years. Top management moved slowly by taking important decisions, lost control over the divisions and did not stop the production of the dogs on time. GM also lost touch with its customers and dealerships, so, the well-respected brand name became a dog itself in consumers’ minds. After assigning a new CEO and top management team, GM tried to recover as soon as possible. To mend the broken brand, a new marketing manager, a brand guy himself was needed. Ron Zarella was transferred from Bausch & Lomb to change the image of GM products. Zarella took long and short-term decisions successfully and ended the arguments inside of the company. He changed marketing structure by creating brand manager positions to work with the services such as design team, public relations, customer satisfaction, sales, service and distribution. Five-Phase Vehicle Development Process was created, engineers and marketing groups from different brands combined to work with each other. As results of these innovations, GM was able to design new cars shorter; although still not shorter than its competitors, market its products more successfully and gained consumer confidence back again. Fast technological changes and increasing affordability changed consumer expectations in 90’s. Big, heavy cars had still market share but the cars which are smaller and have low gas mileage were stars for the Generation Y. Power doors, power windows, power steering and air conditioning became standards for all consumers which were found in luxury cars or offered as an extra in 70’s and 80’s. Starting from 1990; especially following the Gulf War, The U.S. economy started recovering after recessing in 80’s. The federal budget deficit was getting smaller, long-term interest rates were lower and U.S. businesses had equal cost of capital compared to their foreign competitors. Oil prices started dropping after Gulf War and reached its lowest price in 1994. These were surely good signs for auto industry. General Motors is in vehicle manufacturing, designing, building and marketing cars and trucks business. Chrysler Motor Corporation, one of GM’s major competitors created Chrysler for fulfilling market’s luxury car demand, Dodge is offered as a middle-priced car as well as trucks, Plymouth for the market’s low budget or entry level segment and the DeSoto as a step-up from the Dodge. Ford, after losing its big market share and technological advantage, has always been a serious competitor for GM. Ford created Lincoln as a prestigious name, Mercury as a middle-priced offering. Besides the big three, Japanese auto-makers such as Honda, Toyota and Mazda had some nifty vehicles of their own. Japanese share of the U. S. car market continued to grow and became 27% in 1991. Also, foreign car share of the U.S. car market went up from 30% to 34% from 1990-1994. (Source: Motor Vehicle Outlook, FTA Revenue Estimating Conference, Minneapolis, Minnesota, September 2001) Before entering into the auto industry, a company needs to invest huge amount of money, so, domestic potential of new entrants is low for this industry. Korean car producers can be described as foreign new entrants. GM has about 30,000 suppliers all around the world. GM Worldwide Purchasing is operating in the four man regions of the world: Asia Pacific, Europe, Latin America and North America. Annual purchases of GM are about $86 billion in goods and services in support of approximately 8.6 million vehicles produced in 30 countries around the world. Since GM has so many numbers of suppliers, we can say that the power of the suppliers is not a real threat for the company. Some of the factors affecting the auto sales are disposable income, vehicle prices, interest rates and affordability. Disposable income and interest rates were low in mid 90s’, so the buyers were willing to buy new vehicles. The auto industry is highly competitive market and sales depend on strong commercial campaigns, the power of the buyers is so strong on the company. Starting from 1920s, GM’s major objective is “A car for every purpose, a car for every pocketbook”. By applying this objective, GM has been the world's automotive sales leader since 1931. GM set industry sales records in the United States - its largest market - for total trucks and for sport utility vehicles. After the new management team was installed in 1993, they decided to change the organizational structure of the company by the suggestion of new marketing manager Ron Zarella. As a part of this, the company created GM North American Operations as a major new company and the new product development structure called “The Aurora” or “G-car”. Aurora’s general mission was “to have a clear market-driven focus, retain the uniqueness of its products and take advantage of North American Operations-wide economies of scale facilitated by the use of common parts, processes, and systems throughout the operations”. Zarella also decided to use the brand management system after long internal study and discussions. Basically, the idea of the brand management system was that the brand managers worked with a brand product development manager and a vehicle line engineer under whom the brand was being developed. Their task was to lead 10-member brand management teams such as customer satisfaction, public relations, sales, service and distribution. The goal of this system was to bring the marketers and product designers closer, define distinct images for each brand and model, engineer those cars to meet customer needs and then effectively market the cars and trucks to the target customer. By this system, GM’s decision making platform was flattened, the time for designing the cars were shortened and the production costs decreased. As we can understand from their objective, GM is sensitive to the needs of its customers. However, this is not always true for its internal structure. According to a survey that was done to the GM personnel, top management does not support encouragement for the generation of new ideas and taking risks. Poor channels of communication between managers and employees are another factor that affects company’s organizational culture. (Source: www.fastcompany.com, Insider Trade Section) As it was mentioned earlier, GM’s marketing objective is “A car for every purpose, a car for every pocketbook”. During the years 1990-1992, still being the industry leader, GM had severe deficit loosing $29 billion. Its market share for 1992-1994 dropped from 33.9 to 32.9 and this downward trend also continued in 1995. After a new management team was installed in 1993, GM cut the costs drastically and closed twenty-one facilities and plants. 74,000 employees were laid off or retired early and $22.3 billion paid to creditors to clear the financial image of the company and earn good credit ratings. For the U.S. market GM designed 6 car divisions to fit the needs of every customer. Chevrolet is for people who have low or mid-income, providing reliability and dependability. Pontiac‘s sporty-styled cars serve for youthfulness and high spirits. Saturn is designed for foreign car buyers which will stand for a focus on a pleasurable shopping, buying and ownership experience. Oldsmobile is for customers who want to step up from Saturn and have a bigger, average-priced car. It is aimed to compete against import cars like Audi, Acura, entry-level Infiniti and Lexus ES300. Buick’s large, sophisticated, comfortable and well-powered cars are targeted for baby boomers. Cadillac will continue to be GM’s highly technological luxury cars competing against world’s premium cars such as Mercedes, BMW and Lexus. As being the industry leader, GM has the advantage of high brand loyalty from its customers. Even though the quality level had decreased in the last few years, its products still have remarkably good image in consumers’ minds in the U.S. market. However, it is obvious that GM has big problems in its product, price and distribution. These will be mentioned in the next section. IV. Problems found in Situation Analysis GM is selling specialty products in a horizontal market so it must have a complete product differentiation in its products. Price ranges came closer compared to GM’s traditional way of doing business and similar parts were used in similar cars under different brand names. The assembly plants were planned and managed poorly so, quality standards did not match in the cars which were produced in different plants. The problems in distribution channels caused long delays for the delivery of the products. Another big problem for GM was its poor marketing decisions and loosing touch with the consumer. The dealerships or “company’s hands” were not supported, salespeople did not train well enough to inform the customers and finish the sale. These factors dropped the sales and gave the company bad image in consumers’ minds. As the profits matter, not only the labor cost per vehicle was still higher but the average time to design the new model was longer compared to competitors. These factors affected the profits decrease. V. Strategic Alternatives for Solving Problems A. Description of Strategic Alternative 1 GM should emphasize in increasing sales by more promotion, changing products’ characteristics, match or lower the price to its competitors, offer more promotion. The objective is to maximize total revenue and market share. B. Description of Strategic Alternative 2 GM should invest on its plants to standardize the quality of its cars, benchmark the Japanese auto makers’ engineering system, completely differentiate its products by using different parts in different cars and set a new pricing strategy to support these. The benefits of this alternative will be to fix the broken brand name, gain consumer confidence again and decrease the production costs. However, by this solution the company’s engineering structure should be renewed, new investments will be reflected to the prices and short term profits will be low. C. Description of Strategic Alternative 3 One of the problems that GM faces is the delays on distribution. To overcome this problem, GM may emphasize a hub system like UPS has. New lands replacing the strategic locations may be purchased so that the cars on hand can be distributed more effectively. This alternative can help to patch the production insufficiency and deliver the product faster. However, the cost of the lands, administrative and security expenses of the hubs are disadvantage. D. Description of Strategic Alternative 4 Depending on market share and profit figures, the company needs new marketing strategy by re-organizing its organizational structure. This can be done by company’s new brand management system with brand new managers. Marketing and engineering departments should work together; marketing managers should have an active task during the designing process of the products. To maximize the profits, the company should cut the costs wherever they could, improve its organizational culture, and create excitement in customers and employees. The company is also stuck in the past achievements. To mend this, GM should find a way to respect its past while embracing its future. Company’s brand slogan may be changed and re-expressed more effectively to the target customers. VI. Selection of Strategic Alternative and Implementation In today’s world, companies consider profit maximization most important compared to other factors. Therefore, GM should follow alternative 3. B. Justification for Selection of Strategy In 1990-1994, GM lost its market share from 33.9 down to 32.9 and lost $29 billion. Although there were quality problems, the products were still able to compete against both domestic and foreign competitors. Eventually, marketing, product design and specification problems are significantly more important than engineering, distribution and labor costs problems. C. Description of Implementation Strategy Before re-structuring its marketing strategy, GM has to cut the costs by closing the plants and facilities which are not functioning properly. Some of the workers should be laid off and bargain with suppliers hardly. Although this downsizing movements may make the employees nervous and panicked, it will make them understand that the sleeping giant wants to wake up and return back to the glory days again. It will also give them work excitement as long as they are made sure that top management wants to achieve the objectives and targets. At this point, strict, formal and hierarchical organizational culture should be changed, employee participation and creativity should be encouraged. After cutting the costs and giving the first impulse to the inside of the organization, new marketing team, marketing strategy and structure should be carefully designed. Marketing team and engineering should work together as one body and help each other as possible as they can and the time for designing products should be shortened. For brand management positions, not only insiders but also outsiders should be installed to get new and fresh ideas. The teams containing brand managers and engineers from different divisions should be made up to share ideas and experience to solve the quality, production and distribution problems of every division. Consumer confidence can be gained back by changing products’ characteristics, smart pricing strategies by concentrating cost administration or cost management, training salespeople and dealerships in consumer friendly way, offering flexible financing solutions with promotions and, teach the consumer the benefits of the product. GM can be successful in its profit-maximization and “A car for every purpose, a car for every pocketbook” objective by using these solutions. The company will have better operation, production design will be faster, employee participation and motivation will be high, customer oriented approach will be applied and protect its industry leader position against its competitors Bibliography:

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