Factors affecting the Automotive Industry (PEST Analysis)

1. Political
Laws and government regulations have affected this industry since the 1960s. Almost all of the
regulations come from consumers increasing concerns for the environment and the concern for
safer automobiles

6. Global
General Motors, Ford Motor Company, Daimler Chrysler, BMW, Volkswagen, Volvo, Toyota,
Mazda, and Nissan Motor Company come together to create a new trade association created the
Alliance of Automobile Manufacturers. The organization was to replace the American Automobile
Manufactures Association that only consisted of American manufacturers, the goals of the
associations were to work together on public policy matters of common interest to provide credible
industry information and data, and seek consistent global regulatory standards

2.economical
The automobile industry has a huge impact on every country’s economy. According to various
studies this industry is the major user of computer chips, textiles, aluminum, copper, steel, iron,
lead, plastics, vinyl, and rubber. The study also showed that for every autoworker there are seven
other jobs created in other industries. These industries include anything from the aluminums to
lead to vinyl.

3. Sociocultural
Today’s society judges people on the type of car you drive. Society does not like to admit to this
but it is very true. Manufactures know this happens and targets their markets by these thoughts.
Anyone who drives a nice vehicle is thought to be wealthy. No one wants to be seen driving an
unattractive piece of junk because of what other people will think of him or her. Consumers also
just feel better when they are driving a nice or new car, if makes them feel better about
themselves.
4. Technology
The internet has affected just about every industry in the world and has also had a huge impact on
the automobile industry. A study was conducted by J.D. Power and Associates in 2002 and
involved more 27,000 new vehicle buyers. The study showed that 60% of the buyers referred to
the internet before making their purchases and out of that 60%, 88% went to the auto websites
before going and taking a test drive. Business-to-business marketplaces have given the industry
many opportunities because of the internet, such as more efficiency and lower cost.
5. Demographics
For many years now, the baby boomers generation has been the main target market for just about
every product. As their generation is getting ready to retire and spend less money, the automakers
are looking at the younger generations. Right now, the focus is starting to turn towards the baby
boomers children (Generation X) who are in their mid 20’s and 30’s. According to Analysts, five
years from now Gen X will account for at least 30% of vehicle sales.

SWOT Analysis
Strengths
1. Large Market Share
Although GM's market share in the US has dropped it is still very much competitive at 26 percent.
They also have an increasing share in the Chinese market. With the right decisions there is no
reason for GM to not become the automotive leader it once was.
2. Global Experience
As explained above even with GM's recent decline they still have the market share and the
experience to bounce back. They have been a worldwide company for nearly a century now and
have established themselves as the global leader for most of them. If you recall I mentioned above
that a current opportunity for GM is to expand globally and as we can see they already have the
experience to do so. It is just a matter of the correct planning and proper implementation of those
plans that will decided whether or not GM's goals are achieved.

General Motor’s Strategic Analysis

3. Variety of Brand Names
GM as I mentioned has been the automotive leader for the majority of the last century. A large
reason for that is the wide variety of quality brand names that appeal to all target markets. The
current GM brands include: Chevrolet, GMC, Cadillac, Buick, Pontiac, Saturn, Hummer, Saab,
Daewoo, Opel, and Holden.
4. GMAC Customer Financing Program
Since its establishment in 1919 it has proven to be GM's most reliable source of revenue.
5. OnStar Satellite Technology
Developed in 1996 OnStar currently has over 3 million subscribers and is standard on all GM
vehicles. This technology allows the vehicles to be tracked in the event of an emergency or theft. It
also allows the driver and or passengers the ability to communicate with OnStar personnel at the
click of a button.
Weaknesses
1. Behind on Alternative Energy Movement
This is GM's biggest weakness. The alternative energy/hybrid trend has begun to take place in the
automotive industry and GM has been one step behind the competition in terms of alternative
energy vehicles. This has led to many problems including loss of market share and a decrease in
company profit. In order for any automotive company to be successful from this point forward they
must be Hybrid friendly and fuel efficient.
2. Poor Organizational Structure
As we can see in exhibit 1 of the case GM's organizational structure seems to be too vertically
integrated. This causes a lack of communication between employees from top to bottom and may
have played a part in GM falling behind on the alternative energy movement.
3. Stagnant Profitability
Looking at GM's profit we see that they are certainly struggling with respect to the size of their
company. Their profit margin was about 1.5% and the ROE has dramatically decreased over the
recent years dropping to 10% in 2004. This is a situation that shareholders will not be pleased
with.
4. Overly Dependent on US market
GM has become too dependent on the US market and must take advantage of the opportunity to
expand globally. The competition is becoming too strong to focus on just one country.
5. Overly Dependent on General Motors Acceptance Corporation (GMAC) Financing
GM has become too dependent on its financing program. Granted it is a great strength for GM,
however they once again cannot rely solely on financing in order to turn profit, especially if they
want to compete with Honda and Toyota who are rapidly growing.
6. Poor Credit Status
GM's credit status has like everything else has been steadily declining. Their current ratio is just
barely above 1 and their acid test is even lower. Although, I don't see them getting denied based
on their credit at this point, the seriousness of the matter is certainly apparent.
Opportunities
1. Alternative Energy Movement
Amrita School of Business
General Motor’s Strategic Analysis
It is obvious that GM was behind its competition with regards to the research and development of
hybrid vehicles. However hybrid technology is still very much new giving GM the opportunity to
once again become the automotive industry's leader in innovation and technology.
2. Continuing to Expand Globally.
Recently GM saw an increase in the Chinese automotive market, which proves their needs to be
more emphasis put on foreign markets. If GM can infiltrate these markets and successfully grow
along with their continuing focus on the US market they will be headed in a positive direction.
3. Low Interest Rates
With the right marketing strategy the low interest rates have the potential to generate an immediate
increase in sales.
4. Develop New Vehicle Styles and Models
This is an opportunity that will never be satisfied, meaning that GM should always be attempting to
develop the automotive world's most popular vehicles, and as we know, what is in today will be out
tomorrow.
Threats
1. Rising Fuel Prices
With GM being a large producer in both trucks and SUV's, sales have drastically decreased due to
the lack of fuel efficiency. The rise in fuel prices has played a significant role in creating the
opportunity for development of both hybrid and more fuel efficient vehicles. As you will find with
most threats, an equal opportunity will usually emerge as is the case here with GM's opportunity
mentioned above.
2. Growth of Competitors
GM no longer has the luxury of being the known leader in the automotive industry and faces the
reality that they are in serious trouble. As I mentioned earlier Toyota took the first step in the
direction of hybrid technology and has since drastically grown and become the questionable
automotive frontrunner to start the 21st century.
3. Pension Payouts.
Part of this threat is their own doing and the other is simply unavoidable. GM is responsible for
providing generous pension benefits to its employees, which at the time seemed like a great idea,
however they are now experiencing problems as more and more people begin to collect.
4. Increased Health Care Costs
GM, like many large companies with quality employee health care benefits, is experiencing a large
financial hit that only gets worse as time continues.
5. Rising Supply Costs, i.e. Steel
Once again this threat affects the entire automotive industry and forces each company to cut
manufacturing and production costs as much as possible, without taking away from the quality of
the product.

Suggested Strategies
Below is a list of possible strategies General Motors could use to redirect profits and be able to
maintain survival for the future.
1. Market Development
2. Market Penetration
3. Product Development
4. Restructuring
5. Retrenchment
6. Liquidation
Implementations:
Recommended strategies for General Motors would start with product development then market
development, liquidation, and restructuring. Reasons for product development being at the top of
priorities is that GM has to create a type of Hybrid vehicle that will allow it to keep up with the pace
of the competitive environment, but must be a product that stands out from the crowd at the same
time. Prime example of their idea for a Hybrid SUV, it fits the GM profile with maintaining the SUV
portion, but allows the firm to stay with trend patterns.
GM must also re-evaluate the market they are trying to approach, because for so long they have
continued with a tradition outlook for automobiles, but now that times are changing their original
target market is not looking for what they once were. General Motors needs to take a step back
and take look at how they want to position themselves and towards what market since what they
have been doing is no longer in favor for the company. An example of what GM could possibly do
is produce a futuristic vehicle, which has been heard in rumors from Toyota about their next plan of
action. If General Motors could provide a "futuristic" vehicle before Toyota has the chance to hit
the market with theirs GM would be a step ahead of the competition. Liquidation is important to
GM because their assets are a lot higher than revenues, and if GM could turn assets into cash
then their would be more readily available funds and then GM would not have to depend some
much on their U.S. sales, which only include 2/3 of that market and their financing tactic wouldn't
be as much of a risk. Liquidation would clearly help out the financial parts of the organization.
Last but not least is restructuring, which General Motors most desperately needs to review
possibilities. The company has taken a large hit in recent years and needs to find a way back to
the top. This is only going to be achieved if something drastic is changed. Restructuring the
product development pace would be a start as well as cutting back on employees because the
company is growing in size but not in profit, which causes a red flag for GM. The company needs
to be re- evaluated in many ways, but GM has been strong for many years that it is very possible
for the company to come above these issues.
Evaluation:
The biggest thing for General Motors is to develop a Hybrid vehicle that will maintain the pace of
the competition for the firm as well as one that will stand out from the crowd to make the product
Amrita School of Business
Suggested Strategies
Below is a list of possible strategies General Motors could use to redirect profits and be able to
maintain survival for the future.
1. Market Development
2. Market Penetration
3. Product Development
4. Restructuring
5. Retrenchment
6. Liquidation
Implementations:
Recommended strategies for General Motors would start with product development then market
development, liquidation, and restructuring. Reasons for product development being at the top of
priorities is that GM has to create a type of Hybrid vehicle that will allow it to keep up with the pace
of the competitive environment, but must be a product that stands out from the crowd at the same
time. Prime example of their idea for a Hybrid SUV, it fits the GM profile with maintaining the SUV
portion, but allows the firm to stay with trend patterns.
GM must also re-evaluate the market they are trying to approach, because for so long they have
continued with a tradition outlook for automobiles, but now that times are changing their original
target market is not looking for what they once were. General Motors needs to take a step back
and take look at how they want to position themselves and towards what market since what they
have been doing is no longer in favor for the company. An example of what GM could possibly do
is produce a futuristic vehicle, which has been heard in rumors from Toyota about their next plan of
action. If General Motors could provide a "futuristic" vehicle before Toyota has the chance to hit
the market with theirs GM would be a step ahead of the competition. Liquidation is important to
GM because their assets are a lot higher than revenues, and if GM could turn assets into cash
then their would be more readily available funds and then GM would not have to depend some
much on their U.S. sales, which only include 2/3 of that market and their financing tactic wouldn't
be as much of a risk. Liquidation would clearly help out the financial parts of the organization.
Last but not least is restructuring, which General Motors most desperately needs to review
possibilities. The company has taken a large hit in recent years and needs to find a way back to
the top. This is only going to be achieved if something drastic is changed. Restructuring the
product development pace would be a start as well as cutting back on employees because the
company is growing in size but not in profit, which causes a red flag for GM. The company needs
to be re- evaluated in many ways, but GM has been strong for many years that it is very possible
for the company to come above these issues.
Evaluation:
The biggest thing for General Motors is to develop a Hybrid vehicle that will maintain the pace of
the competition for the firm as well as one that will stand out from the crowd to make the product
Amrita School of Business