General Motors Pestle, Swot and Porters Five Forces Analysis 2018
Incorporated in 2009, General Motors manufactures and sells cars, automobile parts and provides automobile finance solutions which include retail loans and lease lending. The company operates in several segments which include G.M North America, international operations, South America and GM financial company (Reuters 2018).General Motors manufactures and markets brands like Cadillac, Chevrolet and GMC among others in and outside North America as well as in its various subsidiaries like in Asia (Reuters 2018).The company is the US market leader with market shares of 17.16% followed by Toyota Motor Corporation with 14.44 and Ford Motors company 13.86%(Statista 2018).The company’s revenue declined from$149million in 2016 to $145 million in 2017 while its profit margin increased from 8.05% to 8.15% in 2017(Orbis 2017).
2.0 Pestle Analysis of General Motors 2018
2.1 Political environment
2.1.1 The Federal government is promoting the EVS market
The US government has proposed incentives to promote the sale of Electric Vehicles through improving its tax credits for purchasing EVS between $2500 and $7500 per vehicle, investment in R&D and competitive programs in order to encourage investments in the infrastructure of EVS (IEA n.a). This will encourage and expand the market of electric driven vehicles which will in turn benefit companies like GM which are already manufacturing EVS.
2.1.2 Donald Trump’s steel tariffs
Donald Trump imposed tariffs of up to 25% on imported steel and 10% on aluminium (The Wall Street Journal 2018). Trump’s tariffs on steel and aluminium will mean a rise in prices for the consumers and a squeeze on industries like car manufacturers that rely heavily on metals (Tankersley 2018). This will greatly affect the margins of auto manufacturers like GM.
2.2.3 China’s plan to lower import tariffs
China’s plan to lower its import Tariffs on imported cars in an effort to open China’s market to foreign goods and services will be a great opportunity for car manufacturers like General Motors who have subsidiaries in China mostly since China is already GM’s largest retail market (English.Gov.).
2.2 Economic environment
2.2.1 Growing US economy
The growing US economy is of great advantage to automobile manufacturers like GM. US GDP growth is expected to rise by 2.5% in 2018 with unemployment rate expected to drop by 3.9% in the same period while US manufacturing is expected to increase with a production growth of 2.8 % (Amadeo 2018). With this growing economy US population will become richer thus having more disposable income to spend. This economy will also boost the growth of automobile companies like GM.
2.2.2 The deteriorating US car market
The deteriorating US market mostly due to the pressure to invest in EVS and self-driven cars. This has led to a decline in US annual car sales, falling from 17.6m to 17.2m in 2017 and expected to fall further (Campbell and Waldmeir 2018).This will greatly affect companies like General Motors due to the pricing pressure from US and China which are the company’s largest markets(Campbell and Waldmeir 2018).
2.2.3 The weak US dollar
The weak US dollar has made it easier for companies like GM to sell their products abroad which has helped improve their profit margin (Gillespie2017). A weak dollar has made US exports more competitive in the global market which has improved the margins of domestic companies like GM thus an opportunity for growth and expansion.
2.3 Social-cultural environment
According to Mintel (2017), the millennial generation is the biggest opportunity for US car manufacturers. Millennials are the largest consumer generation in the US compared to other generations and they are reaching the life stage often associated with car purchases, promotion at work, marriage and having children (Mintel 2017).
2.4 Technological environment
2.4.1 Internet of Things
The development of Intelligent and connected cars will be a major global trend that auto manufacturers should watch out for. The global connected car market was forecast to be $72.89 billion in 2017 and expected to reach $219.21 billion by 2025 (Global News Wire 2018). These intelligent cars will be able to react to dynamic changing situations such as a vehicle automatically collecting information on its sensors, processing it and issuing instructions for action depending on the situation; these cars are also able to connect with each other with a system to help cars understand traffic and help control it (Yan 2017).Companies like General Motors and Volvo among others are already embedding their cars with internet connected solutions (Global News Wire 2018).
2.5 Legal environment
2.5.1 The Federal government policies and regulations
According to the policies US government will promote the sale of Electric Vehicles through improving its tax credits for purchasing EVS between $2500 and $7500 per vehicle, investment in R&D and competitive programs in order to encourage investments in the infrastructure of EVS (IEA n.a).This will encourage and expand the market of electric driven vehicles which will in turn benefit companies like GM which are already manufacturing EVS.
2.5.2 The Washington clean car law
According to the Washington Clean Car Law, cars, light duty trucks, and passenger vans manufactured after January 2009 must meet strict clean air conditions in order to be registered, leased, licensed and sold in Washington in an effort to reduce air pollution (WA.gov na). In 2017, auto manufacturers like General Motors, Ford and Fiat Chrysler were sued by the US government for alleged diesel emission evasion by cheating emission tests (Debord 2017).
2.5 Environmental issues
In response to the government’s call to replace all petrol and diesel cars with Hybrids and EVS in order to reduce emissions, General Motors has set goals in its aspirations to become a zero-waste company (Business Green 2018).The company has set up more than 142 manufacturing and non-manufacturing sites around the world which send out zero emissions to landfill in their daily operations (Business Green 2018). The company is also manufacturing EVs and Hybrids as its way of reducing emissions.
3.0 General Motors SWOT Analysis 2018
- GM’s leadership position in the world’s largest and fast growing automobile markets like China and USA is one of its greatest strengths. Through its subsidiaries and joint ventures, GM has been able to keep on top of the automobile market which has helped grow its revenues and create a strong brand name as well(General Motors 2018).
- General Motor’s sales in China are a big strength. The company has benefited from the strong sales in China which has been the company’s largest retail market for the last 6 years (GM 2018).The company with its joint ventures have been able to sell more than 4 million cars in 2017 which was up by 4.4% from the previous year making China GM’s largest market over taking US for the first time (GM 2018).The company benefited from the all-time high sales from Cadillac, Buick and Baojun Brands in China(GM 2018).
- GM’s enhanced product mix is also a big strength. The company’s was able to add 18 new and improved models in China in 2017. GM’s range of brands has boosted its performance in all segments mostly with luxury vehicles and SUVs (GM 2018).This helped accelerate the company sales by 37% in 2017.
- Strong brand awareness. Buick’s sales were able to exceed 1.18million mostly because of the company’s brand awareness strategy. GM’S product launches which include GL6 MPV and Exelle GX Wagon which futures the company’s new Ecotec 1.0T and 1.3T Turbo engines helped strengthen the market of Buick making it the market leader in passenger car market in China (GM 2018).
- The closure of the underperforming Gunsan plant in Korea. GM’s plan to close its Gunsan plant in Korea will cost it at least $850 million, $375 million in employee related expenses and $475 million in non-cash asset impairments (Panait 2018).This will affect the company’s margins.
- Declining company’s revenues. The company experienced a fall in it’s operating revenue from $149million in 2016 to $145 million in 2017 due to the deteriorating US market. The company also experienced a net loss down to $3.9 billion in 2017 as a result of the new tax laws and losses from the European business which it sold in 2016(Naughton 2018).
- The growing US economy.
- China’s plan to lower import Tariffs.
- The Federal government policies and regulations that promote the US market of EVS are a great opportunity for the company to sell its EVs.
- The weaker US dollar has made it easier for companies like GM to sell their products abroad (Gillespie2017).A weaker dollar has made US exports more competitive in the global market which has improved the margins of domestic companies like GM.
- The deteriorating US car sales due to the pressure from the government to invest in Electric driven Vehicles and Hybrids(Campbell and waldmeir 2018).This has seen to a drop in the company’s revenue from $149million in 2016 to $145 million in 2017(Orbis 2017).
Donald policy to impose 25% tariffs on imported steel and aluminum is a big threat to the company as this will mean a rise in price for consumers and a squeeze on car industries like GM that rely on steel((Tankersley 2018).
The Washington Clean Car Laws are a threat to auto makers like GM.
4.0 General Motors Porters Five Forces Analysis
4.1 Threat of entry/ barriers to entry
According to Johnson et al (2008), threat of entry on any industry depends on the extent to which there are barriers to entry. Without barriers to entry, profitability i n any industry will fall to its competitive level (Grant 2016). It should however be noted that barriers to entry are not permanent and can only deter some potential firms and not all especially those that are very determined to enter (Grant 2016). Barriers to entry include; economies of scale, high capital requirements, product differentiation and unit cost advantage, retaliation, access to distribution channels and government legislation.
In the case of GM, the barriers to entry are high mainly because incumbents in the market have already reached a high scale of production which would be expensive for new entrants to match. The high investment requirements to enter the industry are also a big barrier for new entrants to enter the market especially in Trump’s era where he has imposed 25% tariffs on imported steel and 10% on Aluminium, which are major requirements for car manufacturers (The Wall Street Journal 2018). Nevertheless, it should be noted that effectiveness of barriers to entry depend on resources and capabilities that incumbents possess and that barriers effective against new entrants may not apply when it comes to established firms that are trying to diversify (Grant 2016).
4.2 Threat of substitutes
Substitutes increase price elasticity and reduce demand for a particular product as consumers opt for the alternative to the extent that this product can become obsolete (Johnson et al 2008). Forms of substitution include; product for product substitution, substitution of need by a new product or service and generic substitution (Johnson et al 2008).
In the case of General Motors, the substitutes include bicycles, trains, scooters, e-bikes, velo-mobiles, little vehicles and unicycles among others. According to Schineider (2018), little vehicles and scooters have the ability to disrupt the use of private cars and ride hail use since they are considered environment friendly, affordable and more efficient. However, the report further states that e-scooters and little cars may be cheaper than cars but ‘can still be taken down by the fact that they are not really at home either on the streets or sidewalks’ thus making the threat of substitute low (Schineider 2018).
4.3 Bargaining power of buyers
According to Johnson et al (2008), buyers can have so much buying power over a firm that they can leave it with slim or no profits. Grunt (2016) has however noted that the ability of buyers to drive down the prices they pay depends on two factors which include; their price sensitivity and their bargaining power relative to the firms within the industry.
Being in a mature market, the US automobile industry operates in a highly competitive market which has made the switching cost from one seller to another very low thus giving the buyer high bargaining power. This has lowered GM’s profitability and revenue alongside the whole industry. GM’s revenue declined from $149million in 2016 to $145 million in 2017 due to the growing competitive market (Orbis 2017).
4.4 Bargaining power of suppliers
According to Grunt (2016), determinants of relative power between firms and supplies are highly dependent on the ease with which the firm in the industry can switch form one supplier to another and the relative bargaining power of each party. He further states that suppliers of complex, technically sophisticated components have the power to exert considerable bargaining power.
In the case of General Motors, the suppliers bargaining power is high. The high competition in the US market has made suppliers prospects brighter due to the fact that the current market trends predict stronger automobile production growth which will even outpace sales growth. According to McGee (2017), even a midst the declining market, use of shared or even autonomous cars, they will still need breaks, windows, doors and tires , plus a host of new semiconductors, electronic gadgets and safety features that make up the 30,000 parts that go into a typical car. McGee further states that suppliers have become more important in the supply chain more than ever thus giving them a higher bargaining power (2017).
4.5 Competitive rivalry
The major determinants of the overall state of competition and level of profitability in an industry are rivalry among the firms within the industry. In some industries, firms compete so aggressively in that the extent of prices are pushed below the normal cost levels which results in industry wide losses (Grant 2016).
The US automobile industry operates in a hyper competitive market which has undermined profitability in the industry. The high competition in the market has also resulted in pilling up of unsold new cars because of the declining sales. GM’s revenue has fallen from $149million in 2016 to $145 million in 2017 (Orbis 2017) while its market shares have also been declining through the years from 25.59% in 2005 to 17.6% in 2017.
In conclusion, the environmental analysis has revealed a number of trends and shifts that could impact General Motors and other competitors. One of the major trends is the federal government policies and regulations that promote the US market of EVs. This will be a great opportunity for GM and competitors to sell their EVS and Hybrids. USA’s growing economy is another positive trend as companies like GE will be able to sell more due to the strong GDP and reduced unemployment; consumers will also have disposable income to spend on items like cars. However, Trump’s proposed policy of imposing 25% tariffs on steel and aluminium imports is a trend GM should watch out for as this will mean a rise in prices of steel and a squeeze on the company’s margins.
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