College Papers

General Cadillac and Oakland (later became Pontiac) and

General Motors (GM),
formerly General Motors Corporation is an American corporation founded in 1908
in Detroit, Michigan, USA by William C.Durant. (The Editors of Encyclopedia
Britannica). General Motors was taking
a leader’s position in world’s market of motor-vehicle manufacturers for many
years in 20th and 21st centuries (The
Editors of Encyclopedia Britannica). The company operates in 6
continents and the number of employees overcomes 180 thousands people (General
Motors, 2016). The General Motors has 6
different vehicle brands: Chevrolet (middle class’ cars, affordable passenger
cars and trucks), Buick (luxury cars), GMC (higher class, innovative
crossovers, USA market mostly), Cadillac (luxury cars), Holden (affordable
brand, most sell in Australia), Wuling (affordable small cars and minivans,
mostly for Chinese market), Baojun (youngest brand for Chinese market,
affordable) and Jiefang (all types of trucks – from early-entry to high-end
models) (General Motors, 2016 ) .

The following paper will
discuss two main events that General Motors undertook between the launch of the
company (1908) and 2017 to become a global car-manufacturer, keep a position of
a leader and recover after crysis and failure. Each case will be analysed and
PEST will be done for each of them.

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1.   General
Motors appears and becomes global (1908 – 1918)

History of General Motors
started by Durant’s investment into Buick cars in 1903 and after, within few
years, Durant took a leadership of several more companies like Oldsmobile, Cadillac and Oakland
(later became Pontiac) and General
Motors appeared on the market (1908) (MyAutoWorld.com, 2010). In 1909 Willims C.Durant started to work together with Louis Chevrolet
and in 1911 Chevrolet company was incorporated. Same year (1911) General Motors
Truck Company (later became GMC) was organized. In 1918 Mr. Durant bought an
operating assets of Chevrolet company. At that time (in 1914) one of the GM’s
brands, Cadillac, became a first manufacturer in the USA (MyAutoWorld.com,
2010).

The idea of Durant was to
make the largest company that will produce not only “one kind of vehicle to one
kind of customer” (The
History 1, 2014), he wanted to sell all
kinds of cars to all kinds of customers – from the utilitarian to the
luxurious. An interesting fact was that Durant didn’t want to have only one
name but wanted to build a holding company (General Motors) that would lead
it’s individual parts with their own names (6 brands now). This idea was the
reason of actions taken by Durant and in first few years of a company, General
Motors Corporation combined 30 companies (11 automakers, some supplier
companies and an electric company) (The
History 1, 2014).

“In the first years of 20th
century, however, that industry was a mess” (The History 1, 2014).

1.1. Political Factors

In the beginning of 20th
century the car boom was coming. It was “a game for rich” in the beginning, but
government of USA was cheering the idea of cars being affordable for everyone
and didn’t strongly regulate an automotive industry. In 1887 the Congress of US
created the Interstate Commerce Commission, that made railroad regulations very
complicated (Saferoutestoschools.com, 2013) At times when GM’s brands were becoming the
leaders on the market, in 1916, Congress helped automotive industry through the
Federal Aid Road Act and the Federal Highway Act later in 1921 (road building
projects) (Saferoutestoschools.com, 2013). These acts gave
people to understand that the railway will not be the only affordable way for
people to travel to a long distance and car manufacturers were able to use this
fact in their marketing programs and say that the future is in the cars. The
Depression-era Works Administration gave fundings to roads which exceeded
fundings given to rail by 10 times (K.
Alvord, 2000).

Car manufacturers wanted to
be sure that railway’s times was gone for good and nothing held them to combine
and create a National City Lines (NCL). General Motors was one of several
companies, leading NCL organization (K.
Alvord, 2000). As in the early 1900s one
of the main sources for transport was electricity, manufacturers used NCL to
systematically buy trolley lines, disassemble and replace them with buses
(General Motor’s diesels mostly)( Taken
for a Ride, YouTube.com, 2014). To show that it wasn’t hard to start a car-manufacturing in US in
early 1900s is enough to say that there were 253 car manufacturers in 1908 (and
Durant united 30 of them after launching the company in 1908) (P.Scaruffi,
2013).

1.2. Economic Factors

Many Americans wanted to
have a car, but the economic reality restricted ownership to wealthy and
middle-class families. Still, traffic jams became a common thing closer to
1912. Economy was experiencing recovery and new car-manufacturing factories
were helping to fight the unemploynment level (J. Roodvoets, 2014). When GM was
actively becoming global car-producer and operating the most actively, the
World War (WWI) took a place (Jul 28th 1914 – Nov 11th 1918). After
WWI America experienced an economic boom. As war didn’t damage America and it’s
society, demand on American goods grew and it led to a rapid growth of idustry.
Economy was growing fast (BBC 1,
2011 ). GM had a chance to use this customers’ demand and produce and sell more
cars to people. Just in two years after WWI the America’s Gross National
Product (GDP) grew from $78 billion to $103 billion. There was more job to do
as automotive industry was developing, so it led to
more people wanted for being employed. For car manufacturers there were plenty
of chances to work more and harder and produce more as demand was only
increasing day by day (jobs were paid better, that led to people having more
money so they could afford having a car). Henry Ford (Ford was the main competitor of GM at that moment and the only big
company denied to be a part/brand of GM) developed an assembly line that gave
automotive industry a “fresh breath” and ability to produce more cars than ever
before (BBC 1, 2011) and provide
customers with goods they want.

General Motors with its
position to produce not only one kind of vehicle, but all the different kinds
(as opposed to Ford) and with having few different brands producing different
cars (from simplest ones to luxury ones), had an opportunity to seize the
market. While Ford was producing and
promoting only one model manufactured on assembly line in factory, GM was able
to produce at least one kind of vehicles on every assembly line of each brand’s
factory. That gave a chance to satisfy every customer’s needs and wants.

Rise of demand for American
goods’ abroad was giving GM understanding that company might go abroad and
become global.

1.3. Social Factors

The automobile
industry made a revolution in society. Car became a need of every one. Society
was optimistic and could afford more than ever. Salaries went higher, vacations
for middle class appeared, people felt free and believed that in America
everything is possible. A half-million of immigrants came to USA in 1900s
seeking for a better life (Genealogy.com,
20**) and about a million of them were arriving annually (global emigration).

For General
Motors Corporation that meant not only growth of consumers’ number but also
more employment force arriving and these employees required lower salaries
(cost-savings for GM).

Facts that
people felt free and as vacations for middle class appeared were a sign for GM
that there will be more customers willing to go for a holiday somewhere by car.

1.4. Technological Factors

The 20th
century was the time of technological developing and innovations. Creation of
radio broadcasting and its popularity gave an idea to put radio inside the cars
(and it took more than 20 years to have a success in it).

The appearance
of Henry Ford’s assembly line became global and car- manufacturing became
easier and faster. Other American manufacturers adopted mass production
techniques, this put them step ahead of other European producers.

Progress of
petroleum gave a chance to develop engines (The
History 2, 2014).

1.5. Globalization processes and its
impact on GM becoming global

Globalization
led to growth of demand for American goods including cars. Global recession
after WWI and growth of customers’ queries and needs created a new niche for GM
and gave a possibility to be a global international company. Global immigration
gave GM new working force asking for lower salaries.

Lower the PEST
analysis’ table summarizes the chapter.

Table 1.1. PEST
of General Motors in early 1900s (created by author)

Factor

Explanation

Political

·         
Complicated
railroad regulations
·         
Federal Aid Road Act
·         
Fundings to roads 10
times higher than fundings to rails (Alvord, 2000)
·         
National City Lines
(Alvord, 2000)

Economic

·         
Configuration
and development of distribution channels, including abroad (T. Gale, 2008)
·         
Economic
recovery (J. Roodvoets, 2014)
·         
Fast-growing
economy after WWI (BBC 1, 2011).
·         
Gross National Product
(GDP) grew from $78 billion to $103 billion (BBC 1, 2011)

Social

·         
Annual
immigration growth
·         
Car – the
need of every one

Technological

·         
The first
gasoline-powered car was made in Japan in 1907 (T. Gale, 2008)
·         
Assembly
line by Henry Ford (BBC 1, 2011)Progress of
Petroleum (The History 2, 2014)

 

2. General Motors failed and recovers
around the world in 2009

In 2007 car
sales revenue worldwide began to fall. It was a premise of the crisis coming (D.D.
Butler, M.C. Colley, T.S. Fuller, 2013). Then the world’s economic crisis came in 2008 and even though it
seemed company is getting wealthier before, now it seemed, business will fall
for good. By the summer of 2008 the market seemed to become more stabilized, but
for GM nothing changed. Just two month after celebrating its 100th
birthday, General Motors had a bleak prognosis that they might not survive even
one more year. (B.Vlasic, 2008). The US market share of “Big Three” (GM, Ford,
Chrysler) declined to 53% (2008) in comparison to 70% in 1998 (W. Overton,
2013). In November 2008″The Big Three” asked the government of USA for a
financial support, $50 million to pay healthcare bills and avoid bankruptcy
during the crisis in automotive industry and economical world’s crisis in whole
(B. Vlasic, 2008). In January 2009 GM started to reduce the workforce; by this
20% of operating expenses were cut. On June 2nd of 2009 General
Motors declared itself bankrupt.

As General
Motors was one of the biggest companies in US and its bankruptcy would lead to
millions people worldwide loss of job, new US president, Barack Obama, decided
to give them a chance. Government owned 60% of GM’s assets but didn’t take a
leadership over the company. Government required taking tough actions and
making full restructuration of the company and gave extra $30 million for its
realization (A. Clark,
2009).
Restructuration started from that day (June 2nd of 2009). General
Motors emerged from bankruptcy after 40 days and promised to pay back the $50
billion of public loans in advance of a deadline in 2015 (A. Clark, 2009)
(looking forward now, company paid back the loans in full in 2010).

3. GM pulls back from European market, 2017

«Chevrolet would no longer have a “mainstream presence”
in the region, largely thanks to “the difficult economic situation”», –
General Motors’ representative, 2013 (BBC 2, 2013).

 In 2014 the leadership of the
company took a woman, Mary Barra. She started to cut the costs and re-evaluate
financial situation of the company.

In the end of 2015 General Motors announced that
company would withdraw the Chevrolet
brand from European market in order to focus on more promising brand Opel (GM bought 80% of Opel in 1929 and increased till 100% in
1931) (Daily News, 2013). «We
have growing confidence in the Opel and Vauxhall brands in Europe. We are
focusing our resources in mainstream Europe»,
said Stephen J.Girsky, the vice chairman at GM, during meeting with journalists
in December 2013 (Daily News, 2013).
At that moment, in 2013, Chevrolet
showed 17% drop of sales and Opel
only 3%, so company decided to rise sales by taking away one of co-competing
brands out from market. A Frankfurt-based analyst at Bankhaus Matzler, Juergen
Pieper, said that Opel might not
benefit, he said «… we need to keep a sense of proportion: Chevrolet has
never been very successful in Europe and there’s no guarantee Opel will
automatically get its market share.» (Automotive News, 2013). It was correct, in GM annual reports it can be seen
that Chevrolet mostly was
successfully operating in Asian market (China). Seems like German analyst was
right, in first quarter of 2017 GM decided to sell Opel and leave the European market, company doesn’t have money
anymore for it’s European brands. GM was far away from European competitors (Volkswagen and Toyota) in a race for the name of “world’s largest automaker”.
Investments in new models and engines, factories’ renovations and wages paid to
almost 40 thousands of employees – all these activities finally has generated
nothing but losses since 1999 (Reuters, 2017) “The giant” decides to stay in
sustainable and gainful situation on Asian market and be “less global but more
profitable in an auto industry” (J. White, 2017). Chinese market now is the
biggest in the world of automotive industry and as China grows, GM will need to
invest more to “feed the market”.

3.1. Political Factors

Last few years politics in the world is though – new
rules, restriction, taxes and others. On February 3rd, 2017, during
the forum of business leaders in White House Mary Barra said that “European
operations would have broken even year before if not for the Brexit vote and
corresponding economic fallout” (S. Overly, 2017). Many analytics say that the
European marketplace is not expected to grow and automakers will have to turn
to Chinese and Indian markets and look for potential there.

In Europe politics became more uncertain. In Germany,
which has been a “beacon” in the Eurozone for many years, talks about forming a
new government failed (A. Bouzanis, 2017). Structural reforms should be done.
The political situation in Spain remains turbulent cause of relationships
between central government and Catalan regional authorities. Euro area
countries are waiting and beware of how Brexit will affect them, what will be
an impact on their economies (A. Bouzanis, 2017). Europe is in ignorance.

Under World Trade Organization rules, after Brexit car
manufacturers will face tariffs of 10% on vehicles and 4.5% on engines and
other car parts made in United Kingdom (UK) (P. Campbell, 2017). More than half
of cars made in UK are sold in Europe and these new tariffs and taxes will
affect manufacturers a lot.

Eurasia Group states “China is the biggest risk of the year” (J. Rogers, 2018). The
president of the Eurasia Group, Ian Bremmer, said “the global business environment will have to adapt to a whole new set
of rules, standards and practices pushed by China” and after added “… For most of West, China is not an
appealing substitute. But for most everybody else, it is a plausible
alternative …” (S. Tani, 2018). Automotive
industry’s participants are not exclusion and it seems it is right time and
right decision to direct GM’s remaining resources to Asian market.

3.2. Economic Factors

While Europe is trying to predict the future and
create some forecasts about what will happen after Brexit, China is growing. In
Europe long-term rates becomes higher and this is related to automotive
industry, as many cars are leased.

GDP value of China represents 18% of the world economy
and in 2016 reached $11199.15 billion that was an all time peak (average GDP of
China till 2016 was $1790.50 billion) (European Commission, 2017). Development
of Asian market makes that marketplace attractive for GM and other automakers
for being a main place of business activities.

Demography is also rising; population of China is 1.4
billion people and multiplies, but there are forecasts that after 2020 it will
start to decline (S. Babones, 2017). Still, population will be about 1 billion
people; this is a big number of potential car-buyers and workers for business.

3.3. Social Factors

China accentuates on education, the literacy rate of
China is over 90% (UNICEF, 2013); that means society (potential buyers and
employees) is literate.

Chinese families are urged to have only one child;
this has an impact on population’s satisfactory level. Many decisions made due
to situation and habits of family (including to buy a car or not and if yes –
what kind of).

All political activities have an impact on people.
Europeans don’t know, what will be their future and this is why they have an
uncertainty in buying new cars.

3.4. Technological Factors

Technologies are not standing on one place. European
competitors (BMW, Audi, Mercedes-Benz
etc.) are developing new technological services like Bluetooth connectivity,
connection with smartphones, voice control, back-up cameras, night vision,
self-parking etc. (C. Thompson, 2017). GM with its Opel has never been one of the leaders in technologies and only
could follow their competitors. It is hard to compete in age of technologies
(European IT specialists are leaders) and it is hard to satisfy high-demanding
customer.

 

3.5. GM leaves European market, PEST

Table
3.1. PEST of General Motors in 2017 (created by author)

Factor

Explanation

Political

·         
Brexit and
its impact on business area
·         
Political
situation in Spain
·         
New
government creations’ fail in Germany
·         
Facing new tariffs (P.
Campbell, 2017)
·         
China becoming a world power (S. Tani, 2018)
·         
China as an alternative for business (S. Tani, 2018)

Economic

·         
Fuel price
fluctuation
·         
Growth of
China (GDP rise)
·         
Skilled
labor (literate nation)
·         
Rise of
export
·         
Long-term
rates in Europe increase
·         
GDP of China
= 18% of world GDP
·         
GDP of China
is on peak
·         
High demography
rate in China

Social

·         
High demands
of customers
·         
Social
status dependence of people (“social-network generation”)
·         
Population’s
uncertainty in Europe (due to political factors)

Technological

·         
Development
of China
·         
Highly
developed competitors in Europe

4. Changes over 100 years

Between the
entrance of General Motors and its escape from European market in 2017 100
years have passed. It is obvious that the world has changed, the industry had
been developed and many changes in socium have happened.

Market became
more independent but still is affected by politics. 100 years ago it was easy
enough to enter to an automotive market and build a big company, as this was
the beginning, the birth of automotive world. Now industry is highly affected
by economics and politics. It can be seen on Table3.1 in this essay – social
and technological factors did not have as big impact as political and economic
factors. These factors made a giant corporation General Motors, that from the
very beginning wanted to be the biggest in the world and be the most global,
leave an European market step by step, first in 2013 when GM pulled out the Chevrolet brand from Europe and later in
2017 sell last brand operating in Europe (Opel).

In the middle
of 1900s there was a high demand on American goods and it was easy to enter the
European marketplace for General Motors, but in second half of 1990s situation
changed. As it can be seen on GM example, maybe it was easy to enter the market
but that doesn’t mean that it was easy to compete on it.

When automotive
industry and economies in common faced crisis in 2008, it was hard to stand up
and operate successfully as usual. After significant entry of GM to the world
when company became global in first few years of operations (mostly by buying
different brands) board of “the giant” faced problems. “Bad management” that
company was realizing for many years finally led to crisis and company almost
bankrupted, only government of USA helped them to “stay on a road”. Still,
company is leaving the European market.

People have
changed; society is having stronger impact than before. In the beginning of the
GM history car-manufacturer were producing what they wanted and were able to
produce and people wanted to have what is offered. Now people want more and now
business is not dictating the rules anymore, customer is the main person of the
market. People are highly demanding and if seller can’t satisfy customer’s
needs, he won’t be able to operate successfully.

Technologies
are been developed very fast and significantly. It was hardly imaginable that
car will have a radio inside, all people wanted from car was a bit of comfort
(seats) and movement (cars took place of horse). Now customer is asking for
more and more annually. If few years ago (about 5) consumer was happy to have a
USB-port so he is able to plug in USB-flash and listen to own music, today only
Bluetooth connection can fully satisfy customer’s needs.

 

References

1.        
A. Bouzanis (2017) Economic
Snapshot for the Euro Area, Focus Economics newspaper, 22 Nov 2017 Online
Available at: https://www.focus-economics.com/regions/euro-area
(Accessed on Dec 28th 2018)

2.        
A. Clark (2009), General
Motors declares bankruptcy – the biggest manufacturing collapse in US history,
The Guardian, 2 Jun’09 Online Available at: https://www.theguardian.com/business/2009/jul/10/general-motors-bankruptcy-new-gm
(Accessed on Jan 4th 2018)