Case Study

Big decisions on the horizon for GM

“I can't answer that question.”

Vice Chairman Robert Lutz [When asked “Will GM North America be profitable by the end of this year?” in an interview on May 8th 2006 by Automotive News Editor Dave Guilford and Staff Reporter Jamie LaReau]

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GM Introduction Rick Wagoner, CEO of General Motors, just delivered the message that GM had a $10.5 billion net loss for 2005 at GM’s annual meeting. This message was from a company that had the 3rd largest revenue in the US at $192.6 billion. Wagoner knows that his job and legacy will be measured by the company’s performance over the next eighteen months and success can only be found by attaining long-term profitability for GM’s North American Operations. The auto industry as a whole faces numerous challenges, including increased steel costs, increased gas prices and changing customer demand. GM’s challenges are ever mounting as well. GM faces high fixed costs, as GM is second only to the US government in health care spending. The company provides above average benefits for more than a million Americans at an annual cost of more than $5.6 billion; $1,500 of every GM car sold goes to pay for those benefits. 1 High fixed costs lead to lower capital investment, leaving GM with outdated GM also suffers from shrinking market share

technology and higher manufacturing costs. 2

(Exhibit 1) and most expect Toyota to pass GM in the next two years as the world’s largest automobile manufacturer. 3 This is compounded by the fact that revenue per vehicle is

decreasing, as GM sold 200,000 more vehicles in 2005, while total revenue decreased by almost one billion dollars. GM also faces an identity crisis, which is creating diminished equity. “GM has a number of brands and they are not clearly differentiated in consumers’ minds, as opposed to companies like Toyota or Nissan who support maybe three brands that are clearly differentiated. Consumers understand the difference between...