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General Motors Company Analysis

Group 2 Ryan White Brittany Thomason Mitchell Stack Cory Gregory Jacob Western Heather McMahon Scott DeVore. General Motors Company Analysis. Introduction. GM Once Profitable , Now Near Bankruptcy… GM Present Strategy & Current Performance SWOT Analysis

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General Motors Company Analysis

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  1. Group 2 Ryan White Brittany Thomason Mitchell Stack Cory Gregory Jacob Western Heather McMahon Scott DeVore General Motors Company Analysis

  2. Introduction • GM Once Profitable , Now Near Bankruptcy… • GM Present Strategy & Current Performance • SWOT Analysis • GM’s Relative Competitive Strength • GM’s Relative Cost Position • GM’s Issue’s & Problems • Identify & Evaluate GM’s Options • Form a Strategy

  3. 1. GM Present Strategy & Current PerformanceTimeline & Headlines • 2005 - Plummeting Auto Sales began in 2005 • 2006 - Fortune Magazine 1st to Mention GM was headed for bankruptcy • Nov 08 – CEO Rick Wagoner flew a private jet to Washington to ask to bailout (lots of criticism) • Dec 08 – Bush Admin gave GM $17.9 Billion in government loans • Feb 09 – GM asked for an additional $16.6 Billion (or run out of Money)

  4. 1. GM Present Strategy & Current PerformanceTimeline & Headlines • March 16, 2009 – GM stated they had a plan for out of court reconstruction • March 29, 2009 – CEO Rick Wagoner resigned because of pressure from Obama’s Administration (trying to make a clear signal that GM was making a big change) • March 29, 2009 – Wagoner was replaced by Vice Chairman COO Fritz Henderson (Note: Henderson will get $1.3 Million unlike Wagoner’s $1)

  5. 1. GM Present Strategy & Current PerformanceTimeline & Headlines • March 30, 2009 – Government Released plans to provide working capital over the next 60 days so GM can restructure (If not successful, they will file Chapter 11-bankruptcy)

  6. 1. GM Present Strategy & Current PerformanceCurrent Strategy • GM will restructure during the 60 days allowed by the government: • Profitability Sustainability • a Healthy Balance Sheet • a More Aggressive Operating Structure • Technology Leadership • This will make GM Stable & Competitive in Mkt

  7. 1. GM Present Strategy & Current PerformanceCurrent Strategy • “When GM shut down for 54 days during a 1998 labor action, it knocked a full percentage point off the U.S. economic growth rate that quarter. So what's bad for General Motors is still, undeniably, bad for America.” • So… We want GM to be successful with their current strategy to reconstruct!

  8. 1. GM Present Strategy & Current PerformanceCurrent Performance • Current Performance is the weakest in 27 years • Under a New CEO who gets paid larger salary • Only a SHORT 60 days to restructure!

  9. 1. GM Present Strategy & Current PerformanceCurrent Performance : Financial • GM shares @ $2.70 • Down 89% from 52 wk high of $24.24 (April 30, 2008)

  10. 1. GM Present Strategy & Current PerformanceCurrent Performance : Human Resources • 2008 - Cut 15,000 Jobs • 2009 – Will cut 5,000 White Collar Employees in the 1st round of layoffs to reconstruct • They hope they will be more profitable @ lower sales levels with less employees!

  11. 1. GM Present Strategy & Current PerformanceCurrent Performance : Accounting • Current Ratio on April 11, 2009: 0.55 • Can only pay $0.55 on every $1 of debt owed • Auditors (Deloitte) issued a “going-concern warning” • Not sure there is enough $ or resources to stay afloat

  12. 1. GM Present Strategy & Current PerformanceCurrent Performance : Accounting: Financial Statements • 2007 – Operating Income was -$1.97 Billion • 2008 – Operating Income was -$24.62 Billion • Even with Government Aid, GM is still not able to turn itself around!

  13. 1. GM Present Strategy & Current PerformanceCurrent Performance : Marketing • Shrinking Market Share of 23.4% • Increasing Market Share = Increasing Financial Performance • Bankruptcy: • allows for a new product lineup without debt issues • Market share would increase • Financial Performance would increase!

  14. 1. GM Present Strategy & Current PerformanceConclusion • The fate of the company relies on how well they restructure over the next 60 days! • GM’s Current State: • Huge Operating Losses • Shrinking Market Share • Small Current Ratio • Huge Layoff Rates • Falling Stock Prices • Not only will the accountants be issuing a “going-concern” for GM but they will be faced with bankruptcy and possible closing down all together. • Their current performance is very poor and is in dire need of reconstruction which is exactly the stage they are at currently.

  15. GM SWOT Analysis

  16. GM Strengths Asia, Latin America, Middle East, Africa Markets • 2007 GM increase its sales in Asian market from 1.3 million to 1.4 million sold, increasing revenue from 11.2 billion in 06 to 15.6 billion in 07.

  17. GM Strengths cont. Large scale operations • Approx. 228 locations in US, 36 states, 151 cities • 22 locations in Canada along with 50 other countries • Approx. 6776 US dealerships, 729 Canada, 330 Mexico, and 14,050 outlets around the world. Strong Brand Portfolio • Brands like Chevrolet, GMC and Cadillac are known worldwide

  18. Weaknesses Recalls • 2007 in China 7,057 Buick recalls for brakes. • December 2007 313,000 fluid leak from power steering. • 276,000 in US • 38,000 rest of the world Declining Financial Performance • In 2007 revenues declined 11.9% • 2007 net loss 39 billion compared to 2006 net loss of 1.9 billion.

  19. Weaknesses cont. Declining Market Share • Big 3 all have declining market share from direct competition with Japanese. • US market share in 2006 – 53.9% • US market share in 2007 – 51.7% • New passenger car registrations remained flat from 2006 to 2007.

  20. Opportunities New Emerging Markets • China and India - These two countries are expected to drive global demand for automobiles by 2010 due to their exponential population growths and increased wealth within the countries. Increasing demand for hybrid vehicles • 2013 estimates demand for 2 million units within US • Within 2009 23% of consumers will be in the market for a hybrid vehicle.

  21. Threats Weakening US economy • According to the International Monetary Fund World Economy outlook, the IMF projects that the U.S. GDP growth will slow to 1.5% in 08, down from 2.2% in 07. • Lack of consumer funding - A four-year, $20,000 loan at 7% costs the buyer about $880 more than the same loan at 5%.

  22. Threats cont. Increasing prices for raw materials • Worldwide the prices of raw aluminum increased $3,000 per ton by the end of March 2008 which was an increase of 1.8% over 07 prices. • Cold steel also had an increase of $530 a ton in March 07 to $805 a ton in March 08 • Hot Steel prices increased from $508 a ton in February 07 to $663 a ton in February 08. Bankruptcy

  23. GM’s Competitive Strengths • 100,000 mile / 5yr Power train Warranty • This extended coverage protects their consumers in the event of problems with major drive-line components, including the engine, transmission, transfer case, and axles. The warranty also provides 5 years of full roadside protection. Not only does it protect the initial purchaser, but any and all future owners. • The closest warranty the competition offers is Hyundai, Kia, and Mitsubishi’s 100,000mile/10yr. None of which are transferable, provide roadside assistance to their customers for the full duration of the warranty, or provide courtesy transportation in the event of any vehicle repairs.

  24. GM’s Competitive Strengths • OnStar • All General Motors vehicles are now equipped with OnStar capabilities. OnStar is an optional service that can alert emergency responders in the event of a crash, provide navigational assistance, remote satellite unlock vehicle doors, or use GPS locators in case it were stolen. To date, General Motors is the only company to employ this feature.

  25. GM’s Competitive Strengths • “GM Continuous Safety: Protection before, during, and after a crash.” • Before • StabiliTrak: Using sensors, StabiliTrak detects the difference between the steering wheel angle and the direction you're actually turning in low-traction conditions like ice, snow, gravel, wet pavement, and uneven road surfaces. • What it does is it applies quick, precise force to the appropriate brakes to help the driver control the vehicle's direction to help keep it on course. Preventing lock-up helps you maintain steering control during hard braking conditions. No other company employs this technology.

  26. GM’s Competitive Strengths • During • Dual-Depth Air Bag: The dual-depth passenger-side frontal air bag customizes restraint levels by deploying in different sizes and at different pressures, depending on seat position, safety belt usage, and crash severity. • They also use Safety Cage structures that are designed to absorb and channel crash energy in order to help preserve occupant space in a crash, as well as Crush Zones at the front and rear are designed to collapse on impact, allowing them to absorb energy and keep the safety cage intact.

  27. GM’s Competitive Strengths • After • OnStar • In a crash, built-in crash sensors around the vehicle automatically send an alert to OnStar. An Advisor is immediately connected into the vehicle to see if passengers are okay. Even if passengers are unable to respond, the Advisor knows the vehicles exact location through Global Positioning Satellite technology and requests emergency help be sent right away - no matter how remote the location. • The Advisor can also relay critical crash information to emergency responders such as the severity and type of crash so responders are better equipped to treat passengers at the scene.

  28. GM’s Competitive Strengths • The Chevy Volt is the first car powered by electricity that can travel up to 40 miles before using a drop of gasoline. This car runs by using GM’s Voltec Electric Propulsion System. This consists of an electric drive train that can run on various sources of energy. It consists of a 53 kW direct engine-mounted generator and non-turbo variant 4-cylinder 1.4L engine that allows the car to keep driving when the electric battery needs to be recharged. • The system is recharged using a standard 110-volt home electric outlet. During long drives you can drive approximately 40 miles before the system kicks over to regular gasoline fuel or E85 thus giving you an average 50 mpg efficiency. • 78% of commuters drive less than 40 miles per day allowing them to drive to and from work exclusively using electricity.

  29. GM’s Competitive Strengths • General Motors is heavily invested in flex-fuel, E-Flex, bio-fuel, battery, hydrogen fuel cell, and hybrid propulsion solutions. • GM is the leader in E85 FlexFuel vehicles with 18 different models and over 3 million vehicles already on the road in the U.S. • E85 ethanol, a blend of 85% ethanol and 15% gasoline, is a mostly renewable fuel that can be made from biodegradable wastes and several plants, such as switch grass, willow, and corn. • With the employment of this technology General Motors is well on their way to meeting their goal of having half of annual vehicle production be E85 or bio-diesel capable by 2012.

  30. According to www.gminsidenews.com, • “Reports are correct that, if bankruptcy is filed, General Motors will seek a “363” deal in court. • Such a deal has the company split into two portions; • one comprised of the “good” assets (let’s call it GoodGM for ease) • and one filled with the “bad” assets (call it BadGM). GM’s Relative Cost Position

  31. What GM might do • During the proceedings, • BadGM would be given over to the holders of GM’s debt to be liquidated to raise money to pay off former GM’s debt. • Note that GM has approximately $29 Billion in debt; • $7 Billion of which is secured by Saturn assets (including Spring Hill, TN plant). • The government’s $13.4 Billion loan to GM is also considered secured debt, with a vast amount of assets up as collateral.

  32. What Will Happen • GoodGM would reemerge fairly quickly from the bankruptcy process (if everything goes to plan). • The U.S. government would release GM, GoodGMand BadGM of the $13.4 Billion in debt, • but as a trade-off take a 100% ownership in GoodGM upon reemergence. • Shortly after the new company emerges from bankruptcy: • the U.S. government (currently the owner of GoodGM) would issue an initial public offering (IPO) • it would become a public company much like the current General Motors • though the current GM stock would be canceled in bankruptcy • Most of the money raised from the investment of the new company would likely go to the • VEBA (Voluntary Employees' Beneficiary Association) fund for the UAW (United Auto Workers).”

  33. Good Vs. Bad GM • When or if the dividing of the GoodGM and BadGM takes place certain assets and liabilities: • such as retiree health care and nearly $28 billion in bond debt • could stay in bankruptcy for an extended period • be liquidated or haggled over by creditors. • This could create a huge uproar if not managed in the proper manner.

  34. What to do about Bondholders • There is talk about GM planning to unveil a new offer to bondholders than it proposed originally. • In the new offer there would be as little as 20 percent of GM's equity, versus the previous offer of 8 cents on the dollar • 16 cents of new debt • and up to 90 percent of GM's equity • This development makes us think that a bankruptcy is more likely

  35. In Regards to the United Auto Workers • Expecting there to be stricter terms for the UAW as well • GM had reportedly proposed last month that the UAW would accept: • $10 billion in preferred stock, this would have a 9 percent interest rate • $10 billion in cash received over the next 20 years, considered to be payments towards a union run retiree health care trust • GM has a tough road ahead of them

  36. GM’s Issues & Problems that Need to be Addressed • HUMMER • High price of the truck • Low MPGs • Low sales

  37. Saturn • Was a unique car company. • Turn into a Chevy with different badges. • “As of February 17, 2009 that Saturn will remain in operation through the end of the planned lifecycle for all Saturn products (2010-11). In the interim, should Saturn retailers as a group or other investors present a plan that would allow a spin off or sale of Saturn Distribution Corporation, GM would be open to any such possibilities.” CEO Rick Wagoner.

  38. Volt • The volt is a new kind of car for GM, it is a hybrid car that you can plug in and charge the batteries. With the batteries charge the car can drive for 40 miles without using any fuel. • Price too high • Can see the savings

  39. Can see the savings • For example the Chevrolet Tahoe has a hybrid option and the sticker price for that truck is over $51,000 and the non hybrid starts at $37,000.That’s 7,000 gallons of fuel (at $2 per gallon) you will have to save to cover the added cost of the hybrid model. If you get 20 miles per gallon of gasoline you have to drive 140,000 miles to use up the 7,000 gallons of gasoline.

  40. Hydrogen Cars • Very expensive • No where to refuel the car. • Spent over a billion dollars so far.

  41. UAW • GM is reportedly pays their employees on average $28 an hour that’s $58,240 yearly with no overtime, and doesn’t include health care and retirement. To put that into prospective a business college graduate can make on average $47,000 a year. That is over $11,000 less than an assembler on the assembly line at GM, and those jobs don’t need a college degree.

  42. Health Care • Another problem that GM faces is that their cost of the current and retired employees. They spent about 5.4 billion dollars on health care. 30 out 50 states did not pay over 5 billion dollars in Medicare costs to compare the dollars. They have setup a fund to pay for the health care cost and as of February15, 2009 they owed that fund 20.4

  43. Key Issues and Options • Bankruptcy • GM might be forced to file Chapter 11 bankruptcy • This is due to increasing government pressure to fix the problem • Have 60 days in which to complete the changes required to fix General Motors

  44. Bankruptcy • On April 15, 2009, a bondholders meeting was held to decide if the new proposed bonds would go through • Fate of GM rides on the success of the bonds being passed • If accepted an out of court restructure plan may still be available • If rejected, the filing of Chapter 11 will follow shortly • Bondholders have refused proposed bonds 3 times in the last year

  45. Government Control • If GM is unsuccessful in the restructuring of the company then the government will seize control temporarily • Allows for total focus on fixing the major problems • Some dislike the idea • Argue that the innovative processes and operational procedures will be inhibited • May not be a bad thing if this occurs • Government promises to uphold all of the good things that stood GM in front of the competiton • Warranties

  46. Government Cont’d • Government Auto Task Force suggested new programs to instill customer confidence again • Total Confidence Program • the consumer can judge whether or not you buy a GM car or truck solely on its merits • GM has said that it is going to work on being there for the customer more

  47. Brand Focusing • GM has stated that they are going to cut down on its affiliated brands • Focusing on 4 core brands • GM has already cut Saturn, Saab, and Hummer car companies • GM calls this theory Dealer Network Restructuring

  48. Cut Down Costs • The biggest expense cut GM is talking about deals with the UAW. • Wish to cut benefit costs • Reduce wages slightly • Reduce retired worker benefits • Must sacrifice as a group in order to rebuild GM back to a major power in the auto industry • By doing this GM can maintain its safety features in the factories • Major draw for employees

  49. Steps to Sustaining Competitive Advantage • Go back to innovative thinking • GM is one of the leaders in Hydrogen Fuel Cell Technology • However has made no effort to put in its cars or trucks • Cost GM over 2 billion dollars • Look for new blue oceans • Get the jobs done that need to get done by implementing good to great thinking

  50. What Should GM Do? • Given GM’s financial standings and the inability for the UAW and GM to redo out-of-date contracts, there is only one viable, long term option for GM…

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