Answer the following three questions with supporting evidence from the text:
- What factors have enabled the company to stay strong in the past?
- What are some of the important issues confronting this company and what external developments and internal actions might have caused these issues?
- If you were taking over as CEO at the end of the case, what courses of action would you pursue to address these issues? Explain how you would implement these, how they would address each issue, and what potential risks may exist.
GENERAL MOTORS IN 2017' On February 14. 2017. Mary T. Barra. the CEO of General Motors, oated the possibility that the company could exit the large but troubled European market by selling its chroni- cally unprotable Opel unit to the French maker of Peugeot and Citroen cars. The sale would free the firm from persis- tent losses in Europe and fulll pledges by Barra to improve overall prot margins and increase returns to shareholders. Shedding Opel would reduce GM's volume by 10 percent and knock the leading U.S. automaker out of the chase to be the top seller globally. a spot it had owned until recently. Under Barra. the rm had been dismantling unprotable operations, which included abandoning Russia and certain Asian markets. Industry analysts expected that Barra. who had worked for GM her entire career. would let the rm relapse into the arrogance. complacency. and denial that plunged it into bankruptcy in 2009. Soon after she assumed the helm of GM in January 2014, Barra had to deal with a devastating ignition switch aw that was tied to 139 deaths and that eventually resulted in $2.1 billion in nes. lawsuit settle- ments, and recall costs. Barra has managed to avoid any sig- nicant eect on the f'u'm's reputation from the bankruptcy and the safety issues. Over the past three years, GM has shown considerable growth in its net income. although its stock has been stuck below the IPO price of $33 per share of2010 (see Exhibits 1 to 3). Barra has been preparing GM to be a formidable player in the future. She has pushed the rm to be more involved in new developments. such as electric vehicles. ride sharing. and driveriess cars. When the rm launched its first hybrid car. the Volt. in 2010, it was signicantly lagging behind all other competitors in terms of investing into emerging tech- nologies. Nevertheless. Barra claims that it was an impor- tant first step in acknowledging where GM needed to go. Since then. GM has launched the new all-electric Bolt. which promises an almost 240-mile range between charges for a price of $30.000 after federal tax credits. It has moved quickly to beat Tesla's new budget-priced Model 3 to market. In January 2016. GM announced a $500 million investment in Lyft. the country's second largest ride-share service. It has subsequently worked with Lyft to develop a program which allows Lyft drivers in seven big cities to rent GM cars at a discount. The rm * Case prepared by Jamal Shamsie. Michigan State Universily. will] [he assistance ofProfessorAlan B. Eisner. Pace University. Material has been drawn from published sources to be used for purposes ofclass discussion. Copyright 20\" Jamal Shamsie and Alan B. Eisner. C120 CASE13::GENERALMDTORSIH 201') has acquired Cruise Automation which has built a com- plex array of software and hardware that uses articial intelligence to pilot a car. By making these moves, GM is constructing a portfolio of assets that are dedicated to disrupting its own core busi- ness from within. Barra is keenly aware that GM's 223.000 employees will have to behave differently for its future plans to succeed. She must replace a culture of blame and bureau- cracy with one driven by accountability and speed. \"in this area of rapid transformation. you have to have a culture that's agile.\" she said. \"We still have a lot of work to do."I Moving through Bankruptcy GM has fallen from its dominant position when it held almost 50 percent of the U.S. market for automobiles. A succession of CEOs over the years failed to halt its decline in spite of their resolve to turn things around. When Richard Wagoner took over in 2000. he carried out three major restructurings. eliminating dozens of plants. tens of thousands of jobs. and jettisoning hundreds of dealers. In spite of these efforts. GM announced a loss of $30.9 billion dollars for 2008, amount- ing to a staggering $50 a share. The firm had not managed to post a profit since 2004. running up cumulative losses of over $82 billion between 2005 and 2009. Wagoner eventually began to run short of funds and turned to the U.S. govern- ment for loans in order to survive. The Obama administra- tion demanded his resignation for its support. Wagoner was replaced on an interim basis by Frederick A. Henderson. who had been president and chief operat- ing ofcer of the rm since 2008. Under Henderson. the rm was asked to negotiate with bondholders and the union for further concessions in order to reduce its bloated cost structure. Unable to reach any agreement. the firm announced in late July 2009 that it must seek Chapter 11 bankruptcy protection. Under the terms of the bankruptcy protection. GM was able to wipe out a big chunk of its debt, reducing it from over $46 billion before the ling to around $1? billion afterward, saving about $1 billion a year in interest payments. The U.S. government agreed to invest another $30 billion into the firm, in addition to the $20 bil- lion it had already contributed. in exchange for 61 percent of stock in the new GM. Shortly alter the bankruptcy ling. changes were made to the board of directors and there was a shake-up of the ranks of GM's senior management. The new board was determined to address problems that had been laid bare by the task force that had been assigned by the government to investigate GM in early 2009. They were particularly EXHIBIT 1 Consolidated Income Statements (in millions of dollars) Years Ended December 31, 2016 2015 2014 Net sales and revenue Automotive $ 156,849 $ 145,922 $ 151,092 GM Financial 9,531 6,434 4,837 Total net sales and revenue 166,380 152,356 155,929 Costs and expenses Automotive cost of sales 136,333 128,321 138,082 GM Financial interest, operating and other expenses 8,792 4,039 Automotive selling, general and administrative expense 11,710 13,405 12, 158 Goodwill impairment charges 120 Total costs and expenses 156,835 147,459 154,399 Operating income 9,545 4,897 1,530 Automotive interest expense 572 443 403 Interest income and other non-operating income, net 429 621 823 Gain on extinguishment of debt 449 202 Equity income 2,282 2, 194 2,094 Income before income taxes 11,684 7,718 4,246 Income tax expense (benefit) 2,416 (1,897) 228 Net income 9,268 9,615 4,018 Source: GM 10-K Report. December 31, 2016 December 31, 2015 EXHIBIT 2 Consolidated Balance ASSETS Sheets (in millions of Current Assets dollars) Cash and cash equivalents $ $ 15,238 Marketable securities 11,841 8,163 Accounts and notes receivable (net of allowance of $303 and $327) 9,638 8,337 GM Financial receivables, net 22,065 18,051 Inventories 13,788 13,764 Equipment on operating leases, net 1,896 2,783 Other current assets 4,015 Total current assets 76,203 69,408 continued CASE 18 :: GENERAL MOTORS IN 2017 C121EXHIBIT 2 December 31, 2016 December 31, 2015 continued Non-current Assets GM Financial receivables, net 20,724 18,500 Equity in net assets of nonconsolidated affiliates 8,996 9,201 Property, net 35,820 31,229 Goodwill and intangible assets, net 6,259 5,947 GM Financial equipment on operating leases, net 34,526 20, 172 Deferred income taxes 35,092 36,860 Other assets 4.070 3,021 Total non-current assets 145,487 124,930 Total Assets $ 221,690 $ 194,338 LIABILITIES AND EQUITY Current Liabilities Accounts payable (principally trade) $ 26,961 $ 24,062 Short-term debt and current portion of long-term debt Automotive 1,167 817 GM Financial 27,861 18,745 Accrued liabilities 29, 192 27,593 Total current liabilities 85, 181 71,217 Non-current Liabilities Long-term debt Automotive 9,585 7,948 GM Financial 46,015 35,601 Postretirement benefits other than pensions 5,803 5,685 Pensions 17,951 20,911 Other liabilities 13,080 12,653 Total non-current liabilities 92,434 82,798 Total Liabilities 177,615 154,015 Commitments and contingencies Equity Common stock, $0.01 par value 15 15 Additional paid-in capital 26,983 27,607 Retained earnings 26, 168 20,285 Accumulated other comprehensive loss (9,330) 8,036) Total stockholders' equity 43,836 39,871 Noncontrolling interests 239 452 Total Equity 44,075 40,323 Total Liabilities and Equity $ 221,690 $ 194,338 Source: GM 10-K report. C122 CASE 18 :: GENERAL MOTORS IN 2017EXHIBIT 3 Market Shares Years Ended December 31, 2016 2015 2014 Market Market Market Industry GM Share Industry GM Share Industry GM Share North America United States 17,882 3,043 17.0% 17,854 3,082 17.3% 16,859 2,935 17.4% Other 3,989 587 14.7% 3,650 531 14.5% 3,375 478 14.2% Total North America 21,871 3,630 16.6% 21,504 3,613 16.8% 20,234 3,413 16.9% Europe United Kingdom 3, 121 289 9.39 3,063 312 10.2% 2,845 305 10.7% Germany 3,709 260 7.0% 3.540 244 6.9% 3,357 237 7.1% Other 13,379 658 4.9% 12,704 620 1.9% 12,503 719 5.7% Total Europe(a) 20,209 1,207 6.0% 19,307 1, 176 5.1% 18,705 1,261 5.7% Asia/Pacific, Middle East, and Africa China(b) 28,270 3,914 13.8% 25,050 3,730 14.9% 24,035 3,540 14.7% Other 18,905 673 3.6% 19,527 795 4.1% 19,722 840 4.3% Total Asia/Pacific, Middle East, and Africa 47, 175 4,587 9.7% 44,577 4,525 10.2% 43,757 4,380 10.0% South America Brazil 2,048 346 16.9% 2,568 388 15.1% 3,498 579 16.6% Other 1,623 238 14.6% 1,616 257 15.9% 1,815 299 16.5% Total South America 3,671 584 15.9% 4, 184 645 15.4% 5,313 878 16.5% Total Worldwide 92,926 10.008 10.8% 89,572 9.959 11.1% 88.009 9.932 11.3% United States Cars 6.895 890 12.9% 7,483 931 12.4% 7,617 1,085 14.2% Trucks 5,464 1,325 24.2% 5, 181 1,274 24.6% 4,754 1,113 23.4% Crossovers 5,523 828 15.0% 5,190 877 16.9% 4,488 737 16.4% Total United States 17,882 3,043 17.0% 17,854 3,082 17.3% 16,859 2,935 17.4% China(b) SGMS 1,806 1,711 1,710 SGMW and FAW-GM 2,108 2,019 1,830 Total China 28,270 3,914 13.8% 25,050 3,730 14.9% 24,035 3,540 14.7% (a) Our Europe sales include Opel and Vauxhall sales of 1,159, 1,113 and 1,078, and market share of 5.7%, 5.8% and 5.8% in the years ending December 31, 2016, 2015 and 2014. (b) Our China sales include the Automotive China JVs SAIC General Motors Sales Co., Lid. (SGMS), SAIC GM Wuling Automobile Co., Ltd. (SGMW) and FAW-GM Light Duty Commercial Vehicle Co., Lid. (FAW-GM). Wholesale volumes were used for Industry, GM and Market Share. Our retail sales in China were 3,871, 3,613 and 3,435 in the years ended December 31, 2016, 2015 and 2014. In 2017, we will begin using vehicle registrations data as the basis for calculating industry volume and market share in China on a prospective basis. Source: GM 10-K report. CASE 18 :: GENERAL MOTORS IN 2017 C123astonished by the emphasis on past glories and the com- mitment to the status quo they had found to be quite wide- spread among the rm's management ranks. \"Those values were driven from the top on down,\" said Rob Kleinbaum. a former GM executive and consultant. \"And anybody inside who protested that attitude was buried.\"2 Over the following year, GM was led by two different board members. Edward E. Whitacre, .Ir.. ran the rm for about a year before being replaced by Dan Ackerson. Ackerson had been appointed by the U.S. government as a board member during GM's bankruptcy. A nononsense former navy ofcer. Ackerson began to address the various problems that continued to plague the rm. There was a strong consensus among the executives that the company was beginning to change its approach to its business. Shortly alter he took over, Ackerson wrote in an internal memo: \"Our results show that we are changing the com- pany so we never go down that path again.\" In January 2014. GM was finally able to move past the bankruptcy. The government-appointed Ackerson was replaced by Barra. who had worked her way up within the rm. and became the rst woman to ever run a big auto- mobile company. She had been a rank-andfile engineer. a plant manager. the head of corporate human resources and most recently. the senior executive overseeing all of GM's global product development. Barra's appointment came on the heels of the sale of the last shares that the U.S- govern- ment held in the firm, finally making it free of its bank- ruptcy obligations. \"This is truly the next chapter in GM's recovery and turnaround history.\" Barra told employees upon her appointment. \"And I am proud to be a part of it."4 Focusing on Fewer Brands One of the issues that GM had wrestled with for years was the number of brands of vehicles that it offered. For years. the rm had built its position of dominance by offering cars that were designed for different customers by separate divi- sions. Each of these divisions came to represent a distinct nameplate or brand. Its extensive brand lineup had long been GM's primary weapon in beating back both domestic and foreign rivals. But as the firm's market share began to decline. it became difcult to design and market cars under several brands. In order to cut costs, GM began to share designs and parts across divisions. leading to some loss of distinctiveness among the different brands. Analysts had been questioning for many years GM's decision to stick with as many as eight U.S. brands. with the recent addition of Hummer. The decision to carry so mzmy brands placed considerable strain on GM's efforts to revamp its product line on a regular basis. The rm agreed to cut out four of its brands. Pontiac, Saturn, Saab. and Hummer, when it was forced to turn to the U.S. government for inding to stay afloat. A. Andrew Shapiro, an analyst. believes that GM should have started to think seriously about cutting back on its car divisions during the 19805. \"There are always short- term reasons for not doing something,\" commented Shapiro.5 C124 CASE t8 :: GENEALHOTORSIH 2011 Since it has cut down on its brands, GM has been working on revamping its remaining lineup of cars. The firm has been able to successfully reinvent Chevrolet as a global mass-market brand. with over 60 percent of its sales now coming from outside the U.S. Recent sales have been driven by the new Cruze and the plug-in hybrid-Volt. The Volt family of vehicles now ranks as one of the world's lead- ing hybrids. GM is expecting to build upon this success with the new Bolt all-electric subcompact car. which can run for almost 230 miles on a single charge. An executive explained the motivation behind pushing to develop cars that move away from a reliance on fuel: \"We wanted to prove we could do it.\"6 GM has also been focusing on strengthening its more upscale brands such as Buick and Cadillac. Buick, the old- est active automobile brand in the U.S.. caters to a shrink- ing population of people over 65. Over the last couple of years, the rm has worked on updating the brand by sticking to its image of \"refined luxury\" but moving away from being regarded as a living room on wheels. GM has tried to accomplish this by adding new models such as the Casada and the Envision designed to attract a younger, performance-oriented customer. In spite of these efforts. China has become the major market for Buick. which contributes as much as 80 percent of its sales. Buick is no longer offered in most other markets other than the U.S., Canada, and Mexico (see Exhibits 4 to 6). Fmally. GM has separated its Cadillac luxury brand from the others and relocated its headquarters to the trendy Sol-Io area of New York City. The firm hired Johan de Nysschen away from Audi to manage the brand. De Nysschen pushed for the change. as he believed that the marketing and sales departments will be more in touch with their target customers in super-fashionable SoHo rather than in Detroit. GM earmarked roughly $12 million for developing new Cadillac models in order to compete with the elite class of top-level luxury cars. \"It's going to take tre- mendous time and money,\" said Uwe Ellinghaus, Cadillac's energetic chief marketing ofcer. \"There's a lot of cultural inertia behind Cadillac. and there's a huge amount of com- petition coming from a German auto industry that's getting even more aggressive\"? Revamping Product Development GM is trying to get all of the functional areas to work together more closely throughout the product development process. In the past. even if a bold design made it off the drawing board. it had little chance of surviving as it was handed over to marketing, then passed to engineering. and nally sent to manufacturing. In a concentrated effort to wean the GM culture away from a focus on engineering processes. the rm is pushing for designers to get more involved with the development process and for engineers to find ways to stick with the original car design. Another problem that has plagued GM's product devel opment process has been the lack of standardization of
