Factors affecting GM: Chevrolet India (SLEPT Analysis)

• POLITICAL
Legislation
o Environment
o Company Cars
o Competition
Taxes and Duty
Subsidies

• ECONOMIC
– Excess Capacity
– Economies Of Scale
– Diversification
– Mergers and strategic alliances

• POLITICAL
– Legislation
o Environment
o Company Cars
o Competition
Taxes and Duty
– Subsidies

• SOCIAL
– Environment
– Car Culture
– Fashions and taste
– Redundancies

• TECHNOLOGICAL
– E-Commerce
– Safety
– Plant efficiency
– Gizmos
SWOT Analysis
Strengths

1. Large Market Share

Although GM's market share in the US has dropped it is still very much competitive at 26
percent. They also have an increasing share in the Chinese market. With the right decisions there
is no reason for GM to not become the automotive leader it once was.

2. Global Experience
As explained above even with GM's recent decline they still have the market share and the
experience to bounce back. They have been a worldwide company for nearly a century now and
have established themselves as the global leader for most of them. If you recall I mentioned
above that a current opportunity for GM is to expand globally and as we can see they already
have the experience to do so. It is just a matter of the correct planning and proper implementation
of those plans that will decided whether or not GM's goals are achieved.

3. Variety of Brand Names

GM as I mentioned has been the automotive leader for the majority of the last century. A large
reason for that is the wide variety of quality brand names that appeal to all target markets. The
current GM brands include: Chevrolet, GMC, Cadillac, Buick, Pontiac, Saturn, Hummer, Saab,
Daewoo, Opel, and Holden.

4. GMAC Customer Financing Program

Since its establishment in 1919 it has proven to be GM's most reliable source of revenue.

5. OnStar Satellite Technology

Developed in 1996 OnStar currently has over 3 million subscribers and is standard on all GM
vehicles. This technology allows the vehicles to be tracked in the event of an emergency or theft.
It also allows the driver and or passengers the ability to communicate with OnStar personnel at
the click of a button.

Weaknesses

1. Behind on Alternative Energy Movement

This is GM's biggest weakness. The alternative energy/hybrid trend has begun to take place in
the automotive industry and GM has been one step behind the competition in terms of alternative
energy vehicles. This has led to many problems including loss of market share and a decrease in
company profit. In order for any automotive company to be successful from this point forward
they must be Hybrid friendly and fuel efficient.

2. Poor Organizational Structure

As we can see in exhibit 1 of the case GM's organizational structure seems to be too vertically
integrated. This causes a lack of communication between employees from top to bottom and may
have played a part in GM falling behind on the alternative energy movement.
3. Stagnant Profitability
Looking at GM's profit we see that they are certainly struggling with respect to the size of their
company. Their profit margin was about 1.5% and the ROE has dramatically decreased over the
recent years dropping to 10% in 2004. This is a situation that shareholders will not be pleased
with.

4. Overly Dependent on US market

GM has become too dependent on the US market and must take advantage of the opportunity to
expand globally. The competition is becoming too strong to focus on just one country.

5. Overly Dependent on General Motors Acceptance Corporation (GMAC) Financing

GM has become too dependent on its financing program. Granted it is a great strength for GM,
however they once again cannot rely solely on financing in order to turn profit, especially if they
want to compete with Honda and Toyota who are rapidly growing.

6. Poor Credit Status

GM's credit status has like everything else has been steadily declining. Their current ratio is just
barely above 1 and their acid test is even lower. Although, I don't see them getting denied based
on their credit at this point, the seriousness of the matter is certainly apparent.

Opportunities

1. Alternative Energy Movement

It is obvious that GM was behind its competition with regards to the research and development
of hybrid vehicles. However hybrid technology is still very much new giving GM the
opportunity to once again become the automotive industry's leader in innovation and technology.

2. Continuing to Expand Globally.

Recently GM saw an increase in the Chinese automotive market, which proves their needs to be
more emphasis put on foreign markets. If GM can infiltrate these markets and successfully grow
along with their continuing focus on the US market they will be headed in a positive direction.

3. Low Interest Rates

With the right marketing strategy the low interest rates have the potential to generate an
immediate increase in sales.

4. Develop New Vehicle Styles and Models

This is an opportunity that will never be satisfied, meaning that GM should always be attempting
to develop the automotive world's most popular vehicles, and as we know, what is in today will
be out tomorrow.
Threats

1. Rising Fuel Prices

With GM being a large producer in both trucks and SUV's, sales have drastically decreased due
to the lack of fuel efficiency. The rise in fuel prices has played a significant role in creating the
opportunity for development of both hybrid and more fuel efficient vehicles. As you will find
with most threats, an equal opportunity will usually emerge as is the case here with GM's
opportunity mentioned above.

2. Growth of Competitors
GM no longer has the luxury of being the known leader in the automotive industry and faces the
reality that they are in serious trouble. As I mentioned earlier Toyota took the first step in the
direction of hybrid technology and has since drastically grown and become the questionable
automotive frontrunner to start the 21st century.

3. Pension Payouts.
Part of this threat is their own doing and the other is simply unavoidable. GM is responsible for
providing generous pension benefits to its employees, which at the time seemed like a great idea,
however they are now experiencing problems as more and more people begin to collect.

4. Increased Health Care Costs

GM, like many large companies with quality employee health care benefits, is experiencing a
large financial hit that only gets worse as time continues.

5. Rising Supply Costs, i.e. Steel

Once again this threat affects the entire automotive industry and forces each company to cut
manufacturing and production costs as much as possible, without taking away from the quality of
the product.

Porter’s Five-Forces Analysis

The competitive structure of an industry is another important component of identifying factors
that are a threat to diminish profitability. One of the most efficient ways to assess competitive
issues is to consider Michael Porter's five-force analysis. Porter (1980, 1985) has highlighted five
such factors: (1) rivalry between existing competitors, (2) threat of entry by new competitors, (3)
price pressure from substitute or complementary products, (4) bargaining power of buyers, and
(5) bargaining power of suppliers.

1. Rivalry between existing competitors

With the rise of foreign competitors like Toyota, Honda and Nissan in the 1970's and 80's,
rivalry in the American auto industry has become much more intense. Firms compete on both
price and non-price dimensions. The price competition erodes profits by drawing down price-
cost margins while non-price competition (e.g., new car rebates and interest free loans) drives up
fixed cost (new product development) and marginal cost (adding product features). One of the
other reasons there is such high rivalry is that there is a lack of differentiation opportunities. All
the companies make cars, trucks or SUVs. The competitors are compared to one another
constantly. In recent years there has been significant market share variation, another indication of
rivalry and its very strong threat to profits.

2. Threat of entry by new competitors

The presence of new firms in an industry may force prices down and put pressure on profits.
There are, however, barriers to entry that tend to protect established firms. One would expect the
production of automobiles to require significant economies of scale, an important barrier to
entry. The new entrant would have to achieve substantial market share to reach minimum
efficient scale, and if it does not, it may be at a significant cost disadvantage. While the evidence
suggests that economies of scale in the auto industry are substantial, there are also indications
that large size may not be as important as commonly assumed. Nevertheless, entry would
represent a large capital investment to any new firm and the body of research still indicates that
economies of scale represent a substantial barrier to entry. Consequently, entry is currently a
weak threat to profitability.

3. Price pressure from substitute or complementary products

While five-forces do not directly consider demand, it does consider two factors that influences
demand ― substitutes and complements. Although new cars generally are slightly price elastic,
suggesting few real substitutes (e.g., bus and rapid transit), the demand for a particular model is
highly sensitive to price because of the availability of close substitutes for a given model. A
change in the price of a complementary product (e.g., gasoline, batteries, and tires) could have a
significant impact on the demand for automobiles. The rising price of gas, an important
complementary product, is likely to affect some firms more than others depending upon the
vehicle composition. Recent rising fuel prices are likely to have a greater impact on the big three
(GM, Ford Motor and Daimler-Chrysler) whose most profitable models are energy inefficient
pick-up trucks and sports utility vehicles. On balance, the overall impact on "industry"
profitability from substitutes and complements is weak to moderate.

4. Bargaining Power of Buyers

Buyer power refers to the ability of individual customers to negotiate prices that extract profit
from the seller. Individual consumers have some influence over price within a given dealership,
but little power over manufacturers. Customers can easily, and with little cost, switch to other
auto dealers. Furthermore, customers now have access to market information (prices and costs)
from the Internet that enhances their negotiating power. But when you have many individual
customers, each representing a small proportion of total sales, they will have little bargaining
power with manufacturers and therefore pose a weak threat to industry profit.

5. Bargaining Power of Suppliers

Auto manufacturers require inputs-labor, parts, raw materials and services. The cost of these
inputs can have a significant effect on profitability. Whether the strength of suppliers is weak,
moderate or strong depends on how much bargaining power they can exert. The auto
manufacturers have large supplier networks that appear to exert little bargaining power.
Nevertheless, the United Auto Workers (UAW), the only supplier of labor, has historically
exerted a great deal of leverage over the benefits and wages provided by the big three. Because
of this historical dominance by the UAW and the uncertain results of their current negotiations
with the big three, one has to characterize supplier power, at least in this segment of the
American market, as a strong threat to profits.