GM used the following basic strategies: design, build, sell, and reinvest (General Motor’s Business Strategy). The company’s design strategy constitutes the use of the idea of fewer brands but higher quality. GM quality concept ensures producing compelling vehicles with better technologies. GM is focusing on its core brands and leveraging global resources. The company is using a strategy to optimize its global footprint in order to improve best-in-segment vehicle. The company's sell strategy is to offer the best to the customer. It includes offering higher residual value, lower incentive, and appropriate pricing. The key strategy is reinvesting company’s cash and profit in vehicle and technology development. Many successful companies in today’s competitive environment are using the company’s financial strength to ensure economic future. GM spent $8.12 billion and $7.37 billion in research and development respectively in 2011 and 2012 (GENERAL MOTORS COMPANY).
GM’s vision is to make more than $ 10 billion a year. GM is planning to reach the performance of best in peers in this industry: Hyundai Motor Co., and BMW AG. Both of these companies made 10 % return on sales. The table 1 displays GM’s several financial parameters of 2011 and 2012. Data is obtained from Forbes website (GENERAL MOTORS COMPANY).
Year Revenue EBIDTA Gross EBITDA/ Gross profit/ Net
Profit Revenue Revenue Income
2011 150.276 B 14.456 B 26.649 B 9.6 % 17.73 % 9.19 B
2012 152.256 B 35.732 B 49.763 B 23.46 % 32.68 % 6.136 B
Table 1. GM Income statement information
Based on last two years income statement analysis, next 5-year forecast review and comments made by CFO Daniel Amman, we believe the company’s vision is achievable. Mr. Amman admitted that though GM is trying to reach industry’s best-in-peers parameters, the company is aware of the gaps. The company’s global scope is to achieve the financial goal by generating savings
GM’s two smart goals
Daniel Amman, the GM CFO acknowledged that company’s broad scope should be generating savings. Mr. Amman mentioned that GM in this regard has set up two goals: cutting cost and reducing the incentive on some models. GM would apply what Ford and Volkswagen had long been practicing. By the middle of the decade, Ford is going to use only five common platforms to deliver 75 percent of sales. GM is going to use the same automobile platform reduction principle. In 2010, GM had 30 platforms. By 2014, the company is going to reduce it to 24, and 14 by 2008. This approach will generate enormous savings of GM engineering budget. Mathew Norton, in GM business strategy, described that company’s vision is streamlined brand that presents quality and fuel efficiency through innovative design with the utmost respect for quality (General Motor’s Business Strategy). GM for years practiced propping up its market share by selling at any cost as many cars as possible. In order to make a quick start of sales, in 2011, GM executives offered significant incentives on Chevrolet trucks, Cadillac, and GMC sport-utility vehicles. This approach helped to increase sales by 20 %, but investors were disappointed with the reduction of soft profit from this action. GM North American chief, Mark Reuss recognized that the company could not continue doing this. GM executives realized profitability is more valuable than market share, which can be achieved without providing plump incentive; GM opted to cut incentive. The case study indicates that these goals are attainable, and the company is working to attain these goals.
How GM is using planning / Control cycle
Planning control is a closed loop cycle that checks and corrects deviations between the plan and execution. In this cycle, a company has two options for corrections of performance: (1) by correcting deviations from planned route, or (2) by improving the existed plan. At the beginning of 2011, GM made the plan for a quick start of car sales by offering hefty incentive on popular models like Chevrolet trucks, GMC-sport-utility vehicles, and Cadillac. This plan paid off; sales jumped 20 %. This plan, however, reduced soft profit in North America that disappointed investors. GM made corrections of this plan in the next year by applying 4 (b) options of the planning/control cycle. GM sales fall 6 %. This indicates lower revenue and lower profitability than planned. To maintain planned ratio of EBITDA/Revenue, the company applied 4(a) options by reducing global workforce from 263,000 to 208,000; closing 15 plants in the US; by shedding four of its eight brands and trimming model lines of cars and trucks from 86 to 49.
GM, one of the renowned automobile manufacturers is facing enormous challenge. This challenge consists of two aspects: could the company change its long established tradition; could the company overcome the current global competition? A catchall planning and control could help GM to meet these challenges. Even though, GM started with the old concept of capitalizing market share, soon realized mistakes. GM moved away from market capitalizing to profitability. Profitability is closely tied with revenue and expenses. Cutting expenses became a vital plan along with the production of goods that meets consumers’ emotional and economic needs. GM plans to cut significant expenses through substantial reduction of automobile platform. GM is planning to meet customers’ need through streamlined, fuel-efficient and environment friendly automobile. The company’s principle objective is to focus on profits and margin. This case study made me understand planning is a complex, tedious and challenging job. Nevertheless, without planning and control a company cannot obtain benefit.