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Formulating Turnaround Strategies for GM in the U.S. Auto Market

EXECUTIVE SUMMARY In general, market-share statistics indicate the competitiveness of different companies in the same industry. From 2003 to 2005, GM's market share in the U.S. continuously declined while Toyota's U.S. market share steadily increased. As a matter of fact, GM lost $10.6 billion in 2005 and is currently facing some serious challenges. This paper provides a concise report of the challenges that GM faces today, and offers practical recommendations to GM to help solve its problems and improve its competitiveness. Keywords: GM, Toyota, Competition, U.S. Auto Market, Turnaround Strategy, Corporate Reputation INTRODUCTION General Motors Corporation (GM), the world's largest auto manufacturer and America's third largest company (McGirt, 2006), currently faces tough challenges. Founded in 1908 and headquartered in Detroit, Michigan, the company is primarily in the business of designing, manufacturing and marketing passenger cars and light trucks. As of mid-2006, it has 335,000 full-time employees in the world. GM lost $10.6 billion in 2005 while its chief Japanese rival Toyota Motor Corporation, the world's second largest auto manufacturer, posted its fourth year of record profit and sixth year of record sales (Bozzo, 2006). Fortune magazine's editorat-large Carol Loomis (2006) reported: "In recent months both Moody's and Standard & Poor's have made increasingly grim statements, bald in their talk of bankruptcy and laden with doubts that GM can turn around its reeling North American auto operations, now reduced to an embarrassing market share of 26%. . . . Its product mix in the U.S., heavily weighted toward trucks, pickups, and SUVs, is on the wrong side of gas prices. . . . It is inextricably entangled in the bankruptcy of its biggest supplier, Delphi. In that imbroglio, as in countless others, it is up against a formidable and sometimes militant union . . . The company is even under investigation by the SEC for accounting sins, as yet unrevealed." Since 2005, the debate over the fate of GM has become a hot topic. The objectives of this paper are twofold: (1) to provide a concise report of the challenges that GM faces today; and (2) to offer some actionable recommendations to GM to help solve its problems and improve its competitiveness. GM'S CHALLENGES During the past three years, GM continued to lose market share and Toyota continued to gain market share in the United States. Table 1 shows the market shares of American, Japanese, European and Korean auto brands in the U.S. for 2003, 2004 and 2005. From 2003 to 2005, American and European auto brands lost market shares to Japanese and Korean brands. In 2005, Japanese, European and Korean auto brands controlled 32.2, 6.6 and 4.3 percent of the U.S. auto market, respectively. Presented in Table 2 is the 2003-2005 sales statistics of the major auto makers doing business in the U.S. During this three-year period, BMW, DaimlerChrysler, Honda, Hyundai, Nissan and Toyota had continual sales increases in the American auto market, but Ford, GM and Volkswagen experienced sales decreases. The more competitive auto makers simply took customers away from the less competitive auto makers in the U.S. auto market. According to Fortune magazine's listing of "America's Most Admired Companies 2006" in the motor vehicles industry, Toyota ranks No. 1 and GM ranks No. 9 (please see Table 3). The industry ranking scores in Table 4 indicate that Toyota is a much stronger company than GM in terms of innovation, employee talent, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment, and quality of products/services. Allan Sloan (2006), News-week's Wall Street editor, thinks that it is hard for GM to compete with Toyota. Why? This is because GM has a significantly higher production cost but a substantially lower pricing power. While GM is heavily burdened by "legacy costs" for pensions and health care, Toyota is not. …