SWOT Analysis on the Domestic Operations of GM

Strengths

The largest market share is apparently a prominent strength of GM. The company has been holding the largest market share in U.S. automobile market for decades. This can translate to the trustworthiness and brand recognition that the company has in U.S. customers.

Wide range of products is also an advantage. Currently, GM is offering a variety of products under the brand names of Chevrolet, GMC, Cadillac, Buick, Pontiac, Saturn, Hummer, Saab, Daewoo, Opel, and Holden. The wide range of products can translate to high brand awareness and perception.

Weakness

One of the weaknesses of GM must be the decline in market share. In spite of holding well its 1^st position, GM’s market share has kept declining since 1984. As such, the gap between GM and its competitor especially Ford and Toyota has been significant reduced. This may result in losing its position as the largest automaker.

Quality problem is another weakness of GM. Some mass recalls of more than more than 1.5 million vehicles and the Government investigation of over 6 million vehicles of the company for quality and safety reasons in 2010 make it difficult for the company to improve the brand image.

Opportunities

The recovery of the U.S. automobile industry must be great opportunity of GM. After years of decline, the statistics in 2010 indicate that the U.S. automobile industry is recovering. As the leading manufacturer in the industry, this can be translated to opportunity for GM’s sales growth.

Environmental concerns also offer other opportunity to the company. The event that GM’s Chevrolet Volt, a hybrid car of GM, is named North America Car of the Year would be an indicator of the company’s innovation that help the company improve its brand perception in coming years.

Threats

Intensive competition from overseas automakers would be the outstanding threat to GM’s position. Detroit Three used to dominate the U.S. automobile market. However, majority of the market is now shared by seven biggest automakers including Detroit Three and four overseas manufacturers. The presence of overseas automakers in top seven signals increasingly fierce competition and predictable threats to GM’s position.

High cost of healthcare is another noteworthy threat to GM. It is known that cost of healthcare for each vehicle produced at GM is much higher than that at its competitors. Unless the company implements appropriate reform, this practice will undermine GM when facing price competitions.

Porter’s Five Forces of Competition in the U.S. Automobile Industry

Customers

The bargaining power of customers in U.S. automobile market is strong because the market is very competitive and customers have a lot of information. Although U.S. vehicle buyers are pretty loyal when they come to automobile brand, they are willing to consider shifting their brand preference due to quality and fuel economy issues. In this relation, automakers have a weak supplier bargaining power over their customers.

Suppliers

It is understandable that the bargaining power of suppliers is weak in the U.S. automobile industry. Despite of considerable decline due to the global recession, automotive part industry in the U.S. is very competitive because of the presence of European and Asian suppliers. As of 2010, there are about 5,000 U.S. based suppliers and nearly 1,000 foreign suppliers in the country. Thanks to the pressure that foreign suppliers exert on domestic suppliers, competitive price is offered and U.S. automakers can take advantage to reduce costs and provide customers with vehicles at better price to compete with foreign automakers. In this situation, automakers have a strong buyer bargaining power over their part suppliers.

Current competitors

The intensity of rivalry of competition in the U.S. automobile market is strong as many automakers from all continents are now present. The market is now shared by about 20 automakers. Detroit Three (GM, Ford, Chrysler) and four foreign companies include Toyota, Nissan, Honda and Hyundai is dominating the market with 83.4% market share. The market tends to be fragmented since Detroit Tree automakers no longer dominate the market.

New entrants

The barriers for new entrants are moderate. As a result of high priced fuel and economic concerns, car buyers are more price-sensitive and quite open to overseas carmakers. However, the price and fuel economy are not a stable factors to form the barriers as U.S. automakers are improving their drawbacks. Moreover, recent recalls by Toyota and Nissan are changing people view over overseas automobile brands. Hence, the barriers to new entrants is getting firmer.

Substitute products

There are few substitute products to automobile in the U.S. market. In metro areas and crowded cities, public transportation services such as buses, trams and trains are available. Nevertheless, due to the drawbacks of these services including time control and unreliability, the pressure they may exert on automobile market are insignificant.

Obstacles to the Implementation of High-level Strategies and Resolutions

All businesses have their own strategies which may base on cost leadership, differentiation or focus. However, implementing a strategy is not always successful because there are some obstacles during its operation. Poor internal communication, pressure from short-term results and uncertainty of external factors are among the top obstacles that hinder the implementation of high level strategy.

Poor internal communication is the number one obstacle to the successful implementation. If the communication in an organization is not effective, various ways of understanding the strategy, poor collaboration and varnished feedbacks will restrain or even damage the implementation of the strategy. For example, if a company’s strategy is speed-based, unnecessarily strict accounting processes imposed by accounting department will lower the speed of supply purchases and thus increase time for the product to be distributed.

Another obstacle is the pressure from short-term results. Because high-level strategy often needs to be executed in a long term to help the organization achieved its long-term objectives, it usually requires some tradeoffs in a short term. Therefore, the emphasis on short-term will easily result in the failure of the strategy. For instance, if a company wants to cut costs to improve sales to keep up with its competitors in the current year while its strategy is differentiation-based, this tactics will damage the strategy.

A strategy is often developed upon analyses on internal and external factors. In addition, an organization is always more or less dependent on external factors that it does not have full control. As a result, the uncertainty of external factors is noteworthy obstacle to the implementation of its strategy. For example, the increase of gasoline price and the growth of environmental concerns have barred Chrysler from its differentiation based on powerful minivan.

Amongst the obstacles, the uncertainty of external factors is almost uncontrollable. However, by clearly understanding of the real reasons that cause the poor communication and pressure from short-term results, companies will be able to resolving them, limit the uncertainty of external factors and implement their strategy effectively.

Poor communication may be caused by some reasons. Problems in empowerment system, too many levels in organizational structure and the presence of conservativeness are the top causes of poor communication. An inappropriate empowerment system may make some individuals or subunits more powerful than others. Thus, less powerful peoples or subunits will not be able to communicate openly with the more powerful ones. Poor collaboration and poor quality of feedbacks will follow. Too many levels in the organization also cause poor communication by distorting the message from one level to another. Meanwhile, the experienced people and powerful ones will become conservative, protect their position, reject criticisms and deform feedbacks. As such, to establish effective communication, the organization must develop an optimum empower system, get the structure flatter and employ continued training to minimize the conservativeness. Effective communication also improves the responsiveness of the company to the changes of external factors.

Companies sometimes stray from its strategy to pursue its short-term results which pressure different departments in various forms. Sales department always pressured by sales volume. Financial department is pressured by profit and related measures such as EPS, ROI…. Marketing department is pushed by brand awareness and customer satisfaction. If one department is over-pressured by its short-term performance measures, the focus on these measures will harm the company’s strategy. To deal with this obstacle, the management must institutionalize the corporate strategy and puts all tactic maneuvers in line with it. Especially, the compensation and reward systems of the company must be aligned to support the strategy instead of evaluating individuals and departments based on their short-term performance measures.

Undoubtedly, though planning a strategy is tough enough, implementing it is much tougher because many obstacles will present. By identifying the root causes that the obstacles derive from and employing appropriate resolutions to eliminate them, companies will be able to implement their strategies effectively.