978-1259278211 Case 32 Solution Manual Part 1

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Teaching Note: Case 32 – General Motors

Case Objectives

1. To examine how external and internal forces affect competitive strategy.

2. To investigate the choices of business, corporate-level and international strategies in a

highly turbulent industry.

See the table below to determine where to use this case:

NOTE: although this case is primarily indicated for chapter 3 internal analysis and chapter 5

Chapter Use Key Concepts Additional Reading and/or

Exercises

1: Strategy Concept Strategic management

2: External

Industry competition five forces;

NOTE financial info, web links

3: Internal Analysis Value-chain analysis; resource-based

5: Business Level

Strategy

Competitive strategy; generic strategies

6: Corporate-Level

Diversification; synergy; core

7: International

International strategies: multidomestic

Case Synopsis

In January 2015, CEO Mary T. Barra stated her intention to continue with the commitment to

build the best cars GM had ever produced. General Motors had finally begun to rebound from a

In 2013 GM had finally emerged from the government control mandated due to its 2009

bankruptcy, only to be faced with the gravest safety crisis in the company’s history. Barra had

acknowledged the lack of responsibility and accountability that lead to 42 deaths due to defective

Ex-CEO Richard Wagoner, originally hired in 2000 to start major restructuring, had been fired in

2009. Wagoner had carried out three major restructurings, eliminated dozens of plants and tens of

Although Henderson had initiated steps to negotiate with bondholders and the union for

concessions in an attempt to reduce GM’s bloated cost structure and had restructured senior

In addition to cost problems, worldwide, GM had been hampered by its multiple divisions,

multiple nameplates or brands, each doing its own design and marketing. To cut costs, GM began

to share designs and parts across divisions, leading to some loss of distinctiveness between the

Since cutting down its brands, GM had been able to reinvent Chevrolet as a global mass-market

brand. Its new small, fuel-efficient cars had been successful, with 60 percent of Chevy sales

GM was also attempting to address its product development process bottlenecks by pushing

designers and engineers to work together to address inefficiencies and listen to customers, while

reducing the number of executives overseeing a vehicle program. These new approaches were

In January 2014, GM was finally able to move past its bankruptcy as government-appointed

Ackerson was replaced by Barra, who had worked her way up within the firm and became the

first woman to ever run a big automobile company. She had been a rank-and-file engineer, a

CASE UPDATE

A source for continual updates on the General Motors story is this New York Times site:

http://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?

inline=nyt-org

Also see the interactive time line of GM’s “Road from Prosperity to Crisis” at

http://www.nytimes.com/interactive/2009/05/31/business/20090531_GM_TIMELINE.html?

ref=generalmotorscorporation&_r=0

Teaching Plan

The General Motors case can be used to discuss the challenges faced by a firm trying to compete

in an industry that’s undergoing substantial change. This is an easy case to use to establish the

effect of external environmental forces on an industry and an individual competitor, mostly

because the U.S. automobile industry had been in such turmoil since 2009. Many students will be

aware of the issues here. Therefore, this case can be assigned early in the course to demonstrate

the key concepts of strategic analysis.

Instructors may also wish to assign the companion case of Ford Motor Company, to follow

through on concepts of strategic formulation and implementation in the auto industry.

Before engaging in discussion, you might want to test student’s basic knowledge regarding the

case and the major concepts. Here are some multiple choice questions to use. (This will get the

student’s attention – they can’t answer these if they haven’t read the case!)

Which of the following statements is most true?

a. General Motors was one of the only firms that had NOT needed a government bailout

after the 2007-2008 economic downturn.

b. General Motors had to sell its Saab brand.

c. GM’s Cadillac brand was one of its best-selling vehicles in 2014.

d. In China, GM was gaining ground against Ford.

ANSWER: b. GM had not managed to post a profit since 2004, running up cumulative losses of

over $82 billion between 2005 and 2009. Having had to turn to the U.S. government for loans in

order to survive, GM finally agreed to cut out four of its brands— Pontiac, Saturn, Saab, and

The current CEO of General Motors is a woman.

a. Yes

b. No

ANSWER: a. Mary T. Barra, the CEO of General Motors, is the first woman to

Summary of Discussion Questions

Here is a list of the suggested discussion questions. You can decide which questions to assign,

and also which additional readings or exercises to include to augment each discussion. Refer

1. What are key forces in the general and industry environments that affect the U.S. auto

industry, and General Motors?

2. What internal resources and assets does General Motors have to help counter the external

forces?

3. What competitive strategy does General Motors use, and how might it position itself for

future growth?

Discussion Questions and Responses

Prior to answering the specific case questions, the instructor might want to position the

discussion by reviewing what strategic management really is:

Referencing Chapter 1: Strategic Management

Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter

1, Exhibit 01: Strategic management consists of the analyses, decisions, and actions an

organization undertakes in order to create and sustain competitive advantages:

●strategy directs the organization toward overall goals and objectives;

●includes multiple stakeholders in decision making;

Leaders face a large number of complex challenges. Leaders must be proactive, anticipate

change and continually refine changes to their strategies. This requires a certain level of

During strategic analysis, the leader does “advance work” to anticipate unforeseen

environmental developments, identify unanticipated resource constraints, assess changes in his or

In strategy implementation, depending on the type of organization structure, the leader might

include key individuals in a discussion around selecting which strategies might be best to

implement at which level within the organization. The leader must ensure proper strategic

The basic question strategic management tries to answer is: How can we create competitive

advantages in the marketplace that are not only unique and valuable but also difficult for

competitors to copy or substitute?

1. What are key forces in the general and industry environments that affect the U.S. auto

industry, and General Motors?

Referencing Chapter 2: Analyzing the External Environment of the Firm

Organizational leaders must become aware of factors in the overall environment that might affect

their ability to create a competitive advantage. So how do managers become environmentally

Environmental scanning involves surveillance of a firm’s external environment to predict

environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint

Environmental monitoring is a firm’s analysis of the external environment that tracks the

evolution of environmental trends, sequences of events, or streams of activities. Leaders need to

What factors or trends might be most important to General Motors? To assess how the external

environment might affect GM’s strategy, it’s necessary to take a look at the factors in the general

Political-Legal: government intervention meant some firms lost flexibility, control; all needed to

Economic: the auto business was cyclical and demand for cars was strongly impacted by boom

Demographic: automakers needed to attract younger, more affluent buyers to high status vehicles

Sociocultural: first the SUV was a status symbol; then going green (hybrid/electric) became the

Technological: the electric/hybrid option was dependent on new technological developments.

Based on the general environmental forces, the industry was under pressure, but there were also

opportunities. Things were changing quickly, especially customer tastes, yet the auto industry’s

It’s also necessary to assess the segments of the external competitive environment that include

competitors, customers, and suppliers, substitutes and new entrants. Porter’s five forces model

allows strategists to anticipate where the industry might be most vulnerable. See Exhibit 2.7.

General Motors, like other automakers, was confronting two key threats:

●One was from the increased levels of rivalry.

●The second was the growing power of buyers such as corporate and government fleet

Clearly, there were a few large and equally balanced firms that were pitched in a battle for a

greater share of the global market. Slower industry growth was resulting in an increase in this

The other key threat was coming from the growing power of buyers. Most buyers (dealers, fleet

operators) were clearly beginning to see more viable choices in terms of the firms from which

they could buy. Although there is some difference between the major brands, customers do not

Rivalry

Very High

Buyers’

Power

Med-High

Suppliers’

Power

Low

Suggested: A few large

and equally balanced

competitors fighting for

global market share; slow

Suggested: Consumers do

not have much price

negotiating power, but do

Suggested: Low – do not

have much power, except

Suggested: No real

substitute for personal

automobile

Based on the external environmental factor analysis, the U.S. auto industry has many challenges

There was always the possibility for overcapacity and rivals were trying to attract customers

away from each other through price-cuts and incentives. That was the dangerous trend in this

Product differentiation was susceptible to quick imitation in this industry, and in the absence of

switching costs it was difficult to retain customers. Also, companies had high exit barriers as

NOTE – ADDITIONAL WEB LINKS TO FINANCIAL INFORMATION, EMBEDDED

VIDEO:

Since January of 2005, General Motors has reached out to the world through a blog:

http://fastlane.gmblogs.com/

After browsing to read the varied entries by GM engineers, and other VP’s, what does the focus

of recent posts tell you about GM’s response to various external environmental conditions

(global car design, reorganization, labor troubles, pollution & gas consumption issues, for

instance)?

An interactive time line of GM’s “Road from Prosperity to Crisis” can be viewed at

http://www.nytimes.com/interactive/2009/05/31/business/20090531_GM_TIMELINE.html?

ref=generalmotorscorporation&_r=0

View GM’s current financial picture compared to competitors at:

http://finance.yahoo.com/q?s=GM&ql=0

An analyst’s report from 2013 opines that although GM appears to have made “phenomenal

improvements over the past several years”, it’s still at the mercy of global demand, and “industry

trends” can still be “more powerful than strong management teams”:

http://www.fool.com/investing/general/2013/08/29/is-general-motors-a-better-investment-than-

its-pee.aspx

Does this tell the whole story? Now that GM has emerged from bankruptcy and Chrysler is

privately held and aligned with Fiat, investors have fewer options for investing in the traditional

U.S. auto market. See the following article from June 2009 that opined GM was “dead”:

http://www.fool.com/investing/general/2009/06/01/the-death-of-general-motors.aspx