The automobile industry value chain analysis

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Section 2: Following on from your analysis in Question 1, discuss the competitive postion of General Motors Europe (GME) at the time of the case.

Threat of Entry

The automobile industry is facing the mature stage, although the high barriers to entry considering the huge amount of capital required for companies to manufacture and design their cars and the very low switching costs consumers face when changing cars;however it doesn't mean there are no new entrants to Europe for instance Asian automaker as Toyota Nissan and others to be actively present in the market.

Threat of Rivalry

There is a very high threat of rivalry within the industry, as automaker should always be updated with new technologies, innovation and come out with new models and design. Moreover for GME the exit barrier is relatively high due to investments made throughout the past decades. With the emergence of Asian carmakers in Europe there had been a diversification considering models and prices, in other words it is a diversity of rivals.

Threat of Substitutes

Substitutes within the industry are more or less depending on consumers and their preference of commuting and travelling, it incorporates cycles, buses, underground and also could be planes and just walking. Consumers aren't offended by taking public transports within the most European countries, also traffic jam in some places are reason for not using a car, which decrease the switching cost., plus the high price of gas play a major role.

Threat of Suppliers

As automakers manufacture their cars so the threat is considerably low, as there are a big number of suppliers GME can choose from, which make suppliers give more discounts, also cars elements are more or less standardised. Most of the time car companies attach with one supplier and there is no forward integration as suppliers are small comparing the automaker and in contrary GME can integrate backwardly the supplier or in some cases they create an alliance to reduce the costs.

Threat of Buyers

Except big companies buying lots of cars, solobuyers represent an insignificant threat but at the same time its bargaining power is high as the customer has plenty of different brands, models and prices to choose from. The large number of consumers are facing as said before low switching costs and the loyalty brand isn't very high which means that GME has to attract and retain consumers by incentives for example due to price sensitivity, as consumers are looking for the best deals concerning quality/price.

Value chain analysis:

Primary Activities: The Primary activities for GME are the followings: Product Designing, Resources purchase, Production, Marketing and Distribution and finally Customer Service.

Product Designing is becoming of the key features within the industry. As nowadays cars are almost standardised, so with the right tools GME cars have already an image of strength and power. GME is at the same trying to offer cars that are not only powerful but also less fuel consuming.

Resource purchase: the purchase of the right material is very important, as seen in Porter's Five Forces, suppliers have very low power on GME in other words the organisation can almost select its preferable price over the supplier.

Production: GME was the largest manufacture of cars in Europe; the production reached its peak in the early 1990's. However, its methods have showed an inadequacy, as they have been producing more than the demand.

GME's Marketing & Distribution efforts haven't done an efficient job of pleasing the public. This could be by displaying cars in showrooms, announcement ...etc. in order to get automobiles GME uses trucks and trains to deliver them to dealers.

Customer Service & Support: generally supporting the customers after a sale. GME has an 800 number so if customer needs help or have an enquiry they can call for free.

Support Activities sustain the daily operations of GME but are not directly implicated in the manufacturing process of GME vehicles. These activities include Human Resources, communications and Consumer crediting.

Section 3: Assess the performance improving options taken or proposed by GME at the time of the case.

General Motors Electric knew that it could only improve from within (internally) as Macro economic factors like exchange rate, inflation rate etc are beyond their reach.

All successful businesses have mainly two aims;

  • cut costs
  • increase sales

In GM's case increased sales was not an accessible option, so therefore the company had to focus on performance improving options, here below is what GM proposed at the time of the case.

  • GM reduced it's workforce by 20% in an attempt to boost productivity and reduce costs by $600 million
  • Use competitive pricing and offer additional services
  • GME formed a strategic alliance with Fiat SPA in 2001 a restructuring plan called "Project Olympia" was produced to again reduce costs and decrease production capacity by 15%
  • Closing down Luton plant to again reduce costs
  • Moving production to cheaper areas in this case a German plant was closed down and manufacturing transferred to Poland
  • Integration of operations
  • Abandon cost incurring practices like using different parts and wiring for different cars

Strategically GME have achieved both some success and failure in its operations to improve the situation in Europe, for example the reduction of employees and closures of unproductive plants are fully justified as the business can't continue to record huge losses year on year, in fact these decisions should have been made faster reflecting GM poor management structure unable to make quick decisions in a ever changing market. GM was also correct to cut out the practice off using different parts and wiring for different cars as this reduces overheads as any loss making business must cut costs at every opportunity. However there are also strategic failures GM implemented for example a strategic alliance with an Asian manufacturer would have been more beneficial then with Fiat as this alliance could have given GM access to superior management and technology resources, in return GM could have offered some concessions to the US market. Another example of poor strategic decision making is the use of competitive pricing which a loss making business should never implement as good marketing could over time allow for premium prices. GM should have offered extended warranties as this actually costs the company very little in real terms, in the USA GM offer warranties for 100,000 miles over 5 years perhaps this could be implemented in its European business model.

General thoughts on how GM can improve their European performance

  1. Change management team in Europe
  2. Form strategic alliance with Japanese manufacturer with superior manufacturing techniques
  3. Focus on the lucrative segment of the European market
  4. Reduce investment in the EU, until the economic situation improves (short-term vs. long-term )
  5. Change EU business model e.g. produce smaller cars which are now popular
  6. Offer additional features to their cars
  7. Used money saved and invest more in R&D
  8. Launch long term strategy to recapture market share

Conclusion

General Motors is the largest automaker in the world and has been an industry leader for 77 years yet it finds its European operations in all kinds of trouble. Huge financial losses, a dissatisfied customer base, competitors with superior management and production techniques to name a few. All of these problems are due to GM having a poor corporate strategy plan, GM become reactive rather then proactive and in strategy you can never rest on your laurels, the company missed clear trends within the market such as a demand for smaller cars, cars with less CO2 emissions, cars with additional features etc. This case is a good example of strategy as it shouldn't be done; strategy requires successful firms to seek feedback from their customers, for firms to have clear and set goals at all time and how to get there, strategy requires firms to ever excel and always be ambitious to seek new and rewarding risks. The main findings of the report suggest that GM didn't have the right business model or structure to cope with sudden change this is slightly understandable due to GM size and decision making tends to be slower amongst large companies due to the amount of management layers, but one would expect a company with manufacturing facilities in 35 countries and sales in 200 countries to at least get the basic rights. GM was guilty of not paying enough attention to the Macro environment were political changes were gearing towards reducing CO2 emissions, GM also underestimated the threat from Asian car companies and as a result quickly lost market share and sales.

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