Introduction This paper seeks to assess the strategic position of General Motors in the US market as at 2006 and to identify

the key success factors that can be seen to be important in this industry at the end of 2005. The paper further seeks to consider the strategic logic of Renault-Nissans offer for an alliance with General Motors and concludes by arguing why, in the authors view, the alliance should not go ahead. The author proposes to do this with the use of appropriate tools and frameworks for analysis.

Strategic Position 1. SWOT Analysis: The author commenced with the use of a SWOT analysis (refer to Appendix 1) and endeavours to highlight the salient features therein. It is noted that despite losing market share over the years, (49.5% in 1955 and 26% in 2006); General Motors are still the biggest car producer and retailer in the US. The biggest factor contributing to this is negative consumer perception; their cars are perceived as unreliable despite efforts to improve them coupled with good reviews; foreign cars are perceived to be more reliable. It has many brands which can ideally satisfy different market segments but the brands could also be seen to be too diverse for the size and location of market they have. Unfortunately their market is geographically unbalanced being mainly concentrated in the Midwest. The other major obstacle they face is the huge legacy costs in terms of retiree healthcare and benefits, these were arrangements entered into by previous management which were designed to appease the union in the face of the companys

inability to give wage increases. They were an acceptable compromise at the time as they satisfied the unions quest for workers security and had no visible impact on the companys bottom line at that time. The union is very strong and antagonistic and the company attempts to perform a very delicate balancing act as the threat of strike action is very real and potentially damaging. There are other financial arrangements like JOBS banks where staff who are idle or doing volunteer work are paid and the Delphi separation agreement which saw General Motors agreeing to be liable to the post-retirement benefits of the staff of Delphi. Despite the 1999 split between General Motors and Delphi, they maintained close relations with Delphi being its biggest auto parts supplier. All these arrangements while being good public relations because they portray the company as paternalistic and having a human face make no business sense and are a drain on its scarce financial resources. The fact that General Motors is a global company means that it can spread out its R and D costs across its overseas operations. Its size ensures that if managed well, it could benefit from economies of scale; however this has not been the case because of a lack of trust and cohesiveness between its various units and their heads. This has led to them failing to utilise potential synergies. This was addressed by General Motors chairman and CEO, Rick Wagoner, by centralising all product development under the control of the renowned Bob Lutz in 2005. The existence of infrastructure and dealer networks is an advantage that General Motors has. The company was set up to structurally support a 30% market share; as this is not so their infrastructure and dealer networks are not fully utilised and therefore cost them money to maintain with no corresponding revenue generation in respect of the infrastructure, and half empty factories and show rooms are negative publicity in respect of their dealer networks.

2. PESTEL Analysis: The author did a further analysis by looking at external factors by means of the PESTEL framework (see Appendix 2). The major issues under the Political heading were seen to be the dealer franchise laws and the rise in world prices of fuel. The former makes it very difficult for General Motors to cut out unprofitable brands whilst the latter contributes to the lack of sales of General Motors cars which are not fuel-efficient. On the Economic front, the Delphi separation agreement which saw General Motors agreeing to be liable to Delphis post-retirement benefits in the event of Delphi failing to provide them and the legacy retiree healthcare and pensions were identified. This was coupled with the poor credit rating of both General Motors and General Motors Accepting Corporation (GMAC by association with GM) and the strong competition notably from Toyota. Hostile relations with the trade union and negative market perception was flagged up yet again under the Social-cultural heading as were product design with more fuel efficiency under the Technological issues. This will have the dual effect of reducing customers running expenses in light of the world increase in fuel costs already identified under the Economic sphere as well as cut carbon emissions and be more green as identified under the Environmental category. Development of lean production techniques was further identified under technological factors; these would assist in their goal of keeping costs down. Lastly, the Give back agreement between management and the union was identified under Legal factors. This followed an independent examination of the company books by a person chosen by the union; it would appear that the results of this led them to believe that the company was truly in financial dire straits and management had not been exaggerating. The agreement entailed them giving back

some of the retiree health benefits as well as the actives giving up some cost of living increases in the amount of $15 billion. 3. Product Life Cycle: (Please see Appendix 3). As products markets develop and grow, they change in character and their competitive environment changes with them; in short, product markets have a life cycle, which comprises: 1. Introduction 2. Growth 3. Maturity 4. Decline This is the common trend although the author acknowledges that not all markets go through all the stages in that order as some markets go back and forth between the growth and maturity stages depending on technological improvements. The author contends that the US automotive market is a market in maturity; this is because in the authors view, it has the requisite characteristics: the market is saturated with American families having 2 or 3 cars each, there is definite over capacity and less product differentiation. Competitive advantage is the driver for success in this market. 4. Porters 5 Forces of competitive advantage: Porter, M.E (1979) explains that competition in an industry is rooted in its underlying economics and competitive forces exist that go well beyond the established combatants in a particular industry. It is thus the relative strength or weakness of these forces that shape the competitive environment and determine its attractiveness or profitability. He postulates that there are five of these forces namely industry rivalry,

supplier power, buyer power, new entrants and threat of subsidies; all these are interlinked and a change in one affects all the others. In the case of General Motors, the state of its 5 forces analysis clearly shows that it is in a highly competitive environment because there are major factors affecting it in each of the 5 forces categories (see Appendix 4). 5. Value Chain Analysis: A value chain is a depiction of what a firm does, how it does it, the resources it uses and where it adds value. The value chain is designed to show the linkages is the system and the more fluid the system the less distinctiveness will exist. It is split between primary activities and support activities. Porter, as quoted in de Wit and Meyer, (2004, pg. 241) defines primary activities as the activities involved in the physical creation of the product and its sale and transfer to the buyer as well as its after sales assistance. Support activities are therefore those that as their name implies support the primary ones e.g. human resources, I.T, procurement etc. In terms of General Motors primary activities in the value chain, (refer to Appendix 5), it is clear that its inbound logistics have been until recently decentralised under regional head. Its distribution is spread out across the various dealer networks and there is a lot of excess infrastructure capacity and lost synergies due to a lack of trust and cohesiveness within the group. There is no clearly defined marketing and sales strategy apart from issuing of price incentives. The support activities do not give the required support; e.g. the infrastructure is under utilised because it was set up for a bigger market than it is currently servicing. The labour force is too big, the union too strong and antagonistic and the Human Resource policy too paternalistic. The product design is wanting and the whole process would

benefit from the introduction of lean manufacturing techniques to make it more efficient and cut costs. The fact that it has one major supplier, Delphi renders it vulnerable in case of supply / logistic problems at Delphi. 6. Mckinsey 7 S Framework This is another valuable framework for determining where a company is in terms of its strategy and structure. In their work at McKinsey and co, Waterman et al. came up with a framework dubbed the McKinsey seven S framework, the central idea being that organisational effectiveness stems from the interaction of several factors some not especially obvious and some under analysed, see Exhibit 4. This was a revolutionary idea and contrasted greatly with the previous myopic view that concentrated merely on structure. It looked at the organisation from a holistic view point and recognised that because the organisation was multi faceted, to be effective, both the understanding of the issues and the proposed solutions had to be multi faceted. The salient points on the framework are:
y

The interconnectedness of the variables show that each aspect affects all the others therefore when one changes, they all change and:

The shape of the organisation which has no start and end point and no obvious or implied hierarchy.

1. Structure how the organisation is set up and how its functions are carried out 2. Strategy de Wit and Meyer (2004, p.50) define strategy as a course of action for achieving an organisations purpose. Thus strategy is about the long term goals and aspirations of the organisation and the operations of the organisation are structured to fit this strategy. The organisation must define its service concept and

make sure that its operating strategy is in line with the service concept; it is the tool that actually makes the service concept a reality. 3. Systems Waterman et al. (1980) define systems as all the procedures, formal and informal that make the organization go, day by day and year by year. 4. Style - or organisational culture is how the organisation does things; every organisation has its own culture. It is intangible and unwritten but exists nevertheless. 5. Skills refer to corporate strengths or competencies (Little and Marandi, 2003, p88). 6. Shared values (super ordinate goals) the overreaching goals, beliefs, and values of the organisation, (Little and Marandi, 2003, p88) like the organisational culture; they too are intangible and unwritten but exist nevertheless. 7. Staff being the people who work in the organisation and the policies under which they work. Staff are arguably the most important part of the organisation because they are the ones actually carrying out the organisations strategy and dealing with the customers; staff are therefore the face of the organisation. Their presentation and their attitudes are therefore the impression the public has of the organisation.

7. Key Success Factors Mazzucato, M. (2002, pg. 101) defines key success factors as the potential for competitive advantage within an industry in terms of the factors that determine a firms ability to survive and prosper. To put it simply, what does a firm need to be good at in order to survive and be better than the competition? In light of what has been discussed earlier, the author has identified General Motors key success factors as:

1. Research and Development -product design 2. Efficiency reducing production costs 3. Marketing 4. Product differentiation

Strategic Logic of Renault Nissans offer of an alliance with General Motors The author will attempt to analyse the strategic logic of Renault-Nissans offer of an alliance with General Motors by means of the general fit framework developed by Douma et al (2003) (see Appendix 6). Douma et al (2003, pg. 581) postulate that alliance success depends on an effective and efficient alignment (in other words fit) between the partners involved. They approach fit from a dynamic as opposed to static perspective and emphasis their view that strategic fit is an important prerequisite for an alliance to succeed. In view of that, the author will undertake the analysis based on the Drivers for strategic fit presented by Douma et al (2003, pg.583). This will be the specific questions with the necessary answers elaborated, see Appendix 7 for the summary.

Drivers for strategic fit:

1. Do the alliance partners have a shared strategic vision on developments in the alliance environment? It is the authors view that the alliance partners do have a shared vision on developments in the alliance environment. Renault Nissan want to grow in the U.S market because they are doing well in both the Japanese and European markets. General Motors wants to grow in the US market

and take back some of its historical market share, they are doing well in the overseas market but are losing market share steadily in the US. The two prospective alliance partners are both focused on the possibility of growing the US market because it is the biggest market and if handled well, the proposed alliance would guarantee dominance.

2. Are the partners alliance and corporate strategies compatible? It is the authors view that the compatibility of the partners alliance and corporate strategies are limited; while they are both striving for growth and dominance in their own markets, some differences exist. General Motors is looking for ways to divest itself of some brands or at least not develop nay new ones while Renault-Nissan on the other hand is actively planning for new products and new technologies.

3. Is the alliance of strategic importance to all partners? The author believes that the alliance is of strategic importance to all partners because of the issues discussed in point1 above i.e. they both want to grow the US market.

4. Are the partners mutually dependant for achieving their objectives (complementary balance)? It is the authors position that in the event of the alliance going ahead, the partners would be mutually dependant on each other and would have the necessary complementary balance: General Motors would be bringing to the table their American heritage and culture, knowledge of the American public and its market, the network of dealerships and other infrastructure it already has in place. Renault-Nissan on the other hand would be bringing their financial resources, the knowledge and

experience of their chairman and their lean production techniques to the table with them. These differing resources and offerings would complement one another.

5. Do the joint activities have added value for the clients and partners? It is the authors contention that the joint activities have overall mixed added value for the clients and partners: For the clients the joint activities will have added value because the greater competition in the market this will generate will ensure greater efficiency and better pricing plans and other incentives for the clients. In order to gain or maintain market share the partners will have to work hard on their competitive advantage which can only result in added benefits to their clients. Nissan Renault will not see much value apart from the cash savings on combined purchases. They are already benefiting from scale economies because of their size and collaboration. General Motors on the other hand will benefit from an immediate cash injection and naturally from combined purchases. The two partners will not enjoy savings from shared components and engineering platforms in the short term and joint production and factory rationalisation is a long term savings.

6. Will the alliance be accepted by the market (buyers, competitors, government)? The author is of the view that the alliance will not be accepted by the market because the two prospective partners seem to struggling internally within their own ranks: Renault-Nissan shareholders are sceptical about the wisdom of Carlos Ghosn, their chairman, taking on more responsibility as he is thinly stretched already. Furthermore, the French government, who are 15% owners, are also wary as is the union representing Renault workers because of the alliances potential to take away jobs

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from Europe as well as the fact that they feel their internal problems need to be resolved before new ones are taken on. General Motors are also split internally with Kirk Kerkorian, an investor who sits on the board and owns 10% stake in the company calling on the alliance to take place whilst the union are sceptical and the General Motors board has left it up to the companys management.

Conclusion: Based on the results of the analysis, it is the authors position that the alliance should not take place as there is insufficient strategic fit. Whilst alliances can succeed with out complete initial fit, it is the authors contention that in this instance the areas where there is no fit are too significant to be ignored. .

WORD COUNT 2, 890 WORDS (EXCLUDING APPENDICES AND BIBLIOGRAPHY)

Appendix 1:

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SWOT Analysis Strengths: 1. 26% market share biggest in the U.S 2. American company 3. Has improved quality of cars over the years 4. Has a human face and is paternalistic, it looks after its workers i.e. retiree health benefits/pensions, JOBS banks, Delphi employees etc 5. Has many brands so can satisfy different market segments 6. Global spread means it can spread out its R and D costs 7. Its size ensures it benefits from economies of scale Weaknesses: 1. Has steadily lost dominance over the years; U.S market share drastically reduced (49.5% in 1955) 2. Public perceives foreign cars as better and are not interested in merely buying American 3. Public has long memories of General Motors cars being unreliable 4. Financial drain on company, not good business sense 5. Brands too diverse for size of market 6. No internal trust or cohesiveness 7. Legacy costs retiree health benefits / pensions 8. U.S market share unevenly distributed, concentrated in the Midwest 9. Hostile relations with trade union Threats 1. Negative publicity affects share price and market perception 2. Bankruptcy 3. Selling a share of its cash earner GMAC 4. US market not widespread enough; concentrated in the Midwest 5. American market saturated; 2 to 3 cars per family, not necessarily going to consider another car as a priority 6. Strike action - trade union UAW very strong and influential 7. Merger offers few potential benefits for Nissan-Renault 8. Dealer franchise laws 9. Takeover U.S market highly attractive

Opportunities 1. Further improve on quality e.g. reduce fuel consumption 2. Aggressive marketing campaigns to change public perception 3. Proposed merger with Renault Nissan 4. Possible compromise with trade union 5. Existence of infrastructure and dealer networks 6. Its financial subsidiary GMAC which is a cash cow 7. Outsource production to Asia / South America 8. Cut annual dividend 9. Introduction of Lean production techniques

Appendix 2:

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PESTEL Analysis A summary of the findings of the PESTEL analysis are contained in Appendix 2 below, graded 1-3 with 1 being of the highest importance. PESTEL Analysis Summary 1. Political Critical Issues Importance

    

2. Economic

     3. Social-cultural   

Dealer franchise laws which make it difficult to cut brands Globalisation and free trade World fuel prices Car rental agreements which were reselling the vehicles cheaper than General Motors residual value Delphi separation agreement which saw General Motors agreeing to be liable to Delphis post-retirement benefits in the event of Delphi failing to provide them Credit rating of both General Motors and G MAC Legacy costs retiree healthcare and pensions US automotive industry in maturity Global car alliances e.g. Renault Nissan Strength of competition, notably Toyota Hostile relations with the trade union Market perception of foreign cars being more reliable Product design: - more aesthetic designs - more fuel efficient to reduce customers running expenses Development of lean production techniques Product design: more fuel efficient to reduce carbon emissions and be more environmentally friendly Dealer franchise laws which make it difficult to cut brands Give back agreement with union to be arbitrated by a judge WTO agreements

1 2 1 2

1 1 2 3 1

1 1

4. Technological

2 1 1 2

 5. Environmental    

6. Legal

1 1 2

Appendix 3:

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Product Li cycl

Source: http://en.wi ipedi .org

Appendi 4:

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Porters 5 Forces of competitive advantage

Potential entrants 1. Product differentiation - low 2. High capital requirements / start up costs 3. European car makers have historically struggled to succeed in US Market Buyer Power 1. Low switching costs 2. Saturated market; average families have 2 -3 cars each 3. Buyer propensity to substitute preference for foreign cars 4. Negative market perception of GM cars reliability

Supplier Power 1. Intimate relationship with Delphi

Industry Rivalry 1. Competitors near equal size 2. High product homogeneity 3. Industry profitability high

Threat of substitutes 1. Availability of substitutes 2. Low switching costs 3. Price performance negligible

Source: de Wit and Meyer, (2004), pg. 251

Appendix 6:

15

The McKinsey seven S framework

Appendix 7:

16

Doumas Generic Fit Model

uman it

Source: Douma et al (2000) pg. 582

Appendix 8: Degree of Strategic Fit for General Motors / Renault-Nissan Alliance:

Criteria for strategic fit

Limited

1. Shared vision 2. Compatibility 3. Strategic importance 4. Complementary balance 5. Added value 6. Market acceptance

    

Bibliography

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perational it

Mixed

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Connick, A (2007) Notes on McKinsey 7S Framework adapted from MB467 assignment De Wit, B. and Meyer, R. (2004). Strategy: Process, Content, Context (3rd ed.) North Yorkshire: Thomson Learning Douma, M., Bilderbeek, J., Idenburg, P.J, and Looise, J.K (2000) Strategic Alliances Managing the Dynamics of Fit, Long Range Planning, Vol. 33, pp 579-598 Fortune (2006) The Tragedy of General Motors, (Issue 3), February 27, pp 30-45. Taylor, A. (2006) U.S automakers struggle through another summer [online], Fortune, February. Available from http://money.cnn.com/2006/06/30/news/companies/pluggedin.fortune/index.htm [Accessed 07/07/2006] http://en.wikipedia.org http://en.wikipedia.org/wiki/Product_Life_Cycle_Management Johnson, G., Scholes, K., and Whittington, R. (2005) Exploring Corporate Strategy Text and Cases (7th ed.) Harlow: Prentice Hall Little, E., and Marandi, E. (2003) Relationship Marketing, Derby: Thomson Learning Mazzucato, M. (2002) Strategy for Business A Reader, London: Sage Publications Porter, M.E (1979) How competitive forces shape strategy, Harvard Business Review (Mar-Apr), pp137-145 Renault Corporate Communications (2006) Renault pursues growth outside Europe in the first half of 2006

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