Does General Motors Still Hold the Cutting Edge?
Ashok is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
General Motors (NYSE: GM) or, GM as we commonly know, has had a turbulent journey before it reached the top and recorded worldwide sales of 9.03 million units in 2011 surpassing 8.16 million by Volkswagen and 7.9 million by Toyota. This data is not enough for us to call GM as the Czar of the automotive industry. Let us do a SWOT analysis to understand where exactly GM stands as of date:
Global Presence is one of the key strength of GM with sales in over 120 countries worldwide. They operate either through direct subsidiaries or through joint ventures. By having such a global presence, General Motors is able to integrate its operation so that each manufacturer can concentrate on its own competency.
Capitalizing on its “Chevrolet” brand has helped them recover from the disaster suffered in 2008-2009. The brand value generated by this brand which means a “friend” or a “Companion” has been one of its major strengths.
Customer Satisfaction is one of the key success factors in the automotive industry. General Motors scores pretty high in this slot as indicated by the American Customer Satisfaction Index. They stand at the second highest position with a consistent data year on year.
Lackluster IT department is one of the major concerns for GM these days. “GM's outsourced IT model was expensive, inefficient, and outmoded,” CEO Daniel Akerson said on a third-quarter earnings call with the investors. They recently announced the hiring of some 1500+ college graduates. This rampage is primarily to revolutionize the company’s IT processes.
Lack of innovation is another concern for GM. A company with outsourced IT department generally faces this problem of innovation. This is the reason the current CEO is building different innovation centers across the globe in order to compete and stay up to date with the emerging trends.
The financial health of the company had deteriorated to such an extent that they had to take a government bail out in 2009. They have recovered fairly since the bailout but still are finding hard to gain back the investor confidence, as we can see from the share price movement.
The growing South American and Asia Pacific region has been lucrative for all the automobile manufacturers. General Motors already has the global presence and a strong joint venture distribution in China which should help them gain a comprehensive market share if they can adjust according to the demand of these countries.
There is a slow transition of the automobile industry from gasoline vehicles to plug-in hybrid vehicles. General Motors with its Chevrolet Volt is the market leader, where they have already sold 33,000 units globally. If they can continue to improve on the existing model and innovate new vehicles to meet the demand of an eco-friendly environment they should continue with the dominance in this segment.
Competitors: The biggest threat for any organization is how strong its competitors are. General Motors has a few competitors worth mentioning individually:
Ford Motors Company (NYSE: F) might not be holding the number one position in terms of sales, but it scores better than General Motors on various other measures which should be a concern to the top management of General Motors. Ford has a higher operating margin around 12 percent as compared to General Motor’s 8 percent in the North American region. Ford has stronger financial credentials than General Motors overall. Also Ford’s takes a small edge over General Motors in the Customer Satisfaction Index as highlighted in the chart above.
Toyota Motor Corp (NYSE: TM) had taken a lead over General Motors in 2008 but lost its way after the Japanese Tsunami hit. They have recovered well and managed to take a lead over General Motors in the first quarter of 2012 with a sales figure of 2.49 million vehicles, compared to 2.28 million for General Motors. Toyota is recognized for its operational efficiency along with a comfort design which has helped them take an edge over its peer in the tough US automobile market.
The increasing raw material prices and the declining demand for the light weight vehicles are also the major concerns for General Motors. The European Market also has a major share in GM's overall sales and the declining economic situation should be a real worry factor.
Overall General Motors has recovered fairly well from the financial crisis in 2009 in terms of sales figure and market share. But they still hold some weak spots, which if harnessed by its competitors properly, could lead to its downfall. They need to focus on how to conquer their weakness, harness the oppurtunities, overcome the threats and use their strength to continue their dominance over the automotive industry.
ashokkp has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!