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Table of Contents
Executive Summary ...........................................................................................................................2 The Strategic Issue Facing GM: Avoiding Bankruptcy .................................................................3 Gross Domestic product..................................................................................................................3 Inflation Rate...................................................................................................................................3 Unemployment Rate........................................................................................................................4 The Auto Industry Today...................................................................................................................4 Threat of Rivalry.............................................................................................................................4 Threat of suppliers..........................................................................................................................5 Threat of Substitutes.......................................................................................................................5 Threat of Buyers..............................................................................................................................6 Threat of Entry................................................................................................................................6 Weakness of Internal Cost Structures .............................................................................................6

Executive Summary
General Motors (GM) is one of the big three auto makers of the world (GM, Ford, and Chrysler) and has historically been the largest and most successful. They have built some of the most famous and classic vehicles on the road which have portrayed messages of both modesty and display of class for a market of consumers who range from working class to music superstar; as Alfred P. Sloan, CEO of the 1920s put it, GM makes a car for every purse and purpose. In recent years however, GM has taken an unexpected turn for the worse due to the changing economic climate that is affecting the world. Many economists argue that the US has been pushed into a recession that had started with the housing crisis of 2008. From this crisis stemmed a major banking crisis that has lead to financial institutions implementing tighter lending guidelines for business and personal consumers. This has greatly affected GM since the company,

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along with many other auto making companies, rely so heavily on short term returns to fund such a complicated value chain and large portfolio of brands. Of the auto making companies facing the turmoil of falling sales and crashing returns, GM has no doubt been hit the hardest and is facing complete bankruptcy. The fact that GM has such a large portfolio is working directly against their success because of the fact that they are spread completely too thin; by being unable to focus on the core products vital to the companys success, GM is forced to spread money it does not have around to failing brands which are only driving the company further into debt. Even with initial governmental funding, GM is still unable to find a remedy for its failing success. GM has historically built brands around the assumption that they will be consumed whether or not they are built around consumer tastes. This lack of versatility and inability to explore long term consumer consumption has created a number of threats with which the company is now faced. Rising gas prices has shifted the majority of consumer tastes to energy and fuel efficient options which GM has not sufficiently adopted, rather just the opposite since they focus more on their pick up and SUV products which are extremely wasteful and fuel inefficient. In light of this, GM is losing business to competitors who have extensively explored and who have begun to master the production of fuel efficient vehicles. President Obama is unwilling to serve the option of governmental aid to GM without a serious and foreseeable restructuring; lending money without this strict restructuring plan is seen as undeserved and wasteful. GM is faced with mass downsizing to more efficiently designate funds which will help bring the company up from what is now a major failure. Although many options and tactical decisions have been discussed, GM has until June 1st to present a clearly defined and finite decision for restructuring.

Company History
General Motors was founded in 1908 originally as a holding company for Buick. The firm slowly began to take over Buick and bought out other model lines such as Pontiac, Cadillac, and Oldsmobile. With help from these many different car lines, GM managed to dominate the US auto market throughout the 20th century and was unrivaled in market share by any other company (GM Corporate Information). GMs market share peaked in the 1960s where they held 48.3% of the

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overall US market share. This total began to decline in the 1970s and continued to present day, due to greater international competition, mainly coming from the Japanese companies of Toyota and Honda. These companies provided a new style and design of a car. They strayed from the traditional American muscle cars, which were bulky and had poor gas mileage, to sleeker designs with better quality and efficiency (General Motors Corporation NYT).

A Snapshot of General Motors Today

The General Motors Company today is in a state of complete turmoil, surviving on Federal loans until it either restructure[s] its debt or face[s] bankruptcy reorganization come the first of June (Detroit Free Press). According to Yahoo! Finance, the company most recently traded its stock at an abysmal $1.09 on May 15, 2009, the lowest of the major players traded publically, trailing behind Ford Motor Companys $5.49. (See Graph A for GM-F 3M Stock Prices)

GMs failure has been a long time in the making. In an advertisement issued by the company in December of 2008 which was published in AutoNews, the corporation admitted to its poor choices over the years: neglecting quality, creating unrealistic compensation plans, overlooking changing consumer tastes, and focusing its product lines too heavily on trucks and SUVs, to name a few (Stoll). And while the ad continues on to say that GM is changing its ways, producing a hearty lineup of cars, crossovers and hybrids, its reaction may be too little, too late. What had changed for GM since its almost half-century ago all-time-high market share was its lack of innovation over the years. Until the 1960s, innovation was part of G.M.s DNA, said John Casesa, a veteran industry analyst with the Casesa Shapiro Group. Now, its a matter of trying to play catch-up (GM Corp). The problem that GM faces is, not only is the company slow to pick up on consumer trends, it often fails to adapt to these demands all together. With gas

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guzzlers like the Hummer and 12 MPG Cadillac Escalade in its lineup, neglecting the production of hybrids and fuel efficient cars leaves GM hard pressed to see increases in its market share (Sanger). GMs path of poor choices has led the company to where it stands today: overhauling the entire company and praying for survival.

The Strategic Issue Facing GM: Avoiding Bankruptcy

With GMs recent talks of restructuring, downsizing, and the possibility of bankruptcy looming around the corner, the days of being on top in the auto world are beginning to sound like a myth of the past. In GMs 100 year history, the company has gone from being an automotive powerhouse, grabbing up more than half of the US auto market in the 1960s, to now hanging on by the mercy of the US and Canadian governments, begging for financing and hoping to avoid filing for bankruptcy (GM Corp). As it stands now, GMs main concern is simply staying afloat. The company is facing questions like how many plants to close, how many jobs to cut, and what brands to do away with from the portfolio (Sanger). The question that remains to be seen, however, is whether or not the company can pull itself out of the mess in time to satisfy President Obamas June 1st restructuring deadline and dodge a Chapter 11 filing. GMs dismal future outlook is deeply embedded in the current economy.

The Economy Today

History of the recession The current economic crisis in the United States has been debated time and again. While some economists argue that the US recently entered into a recession, other economists state that the US has been in a recession and that it initially started with the housing crisis of 2008. The National Bureau of Economic Research declared that the current 2008 2009 recession officially began December 2007. Their analysis was based on a number of factors, which includes the dramatic decline in layoffs, a sharp decline in consumer spending, a credit crisis that has not been

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alleviated by the massive government rescue plan, and increasing foreclosures that continue to put downward pressure on home values in communities. Agreed by most economists, the prominent reason for the 2008 - 2009 recession stems from the United States housing bubble and the subprime mortgage crisis which led to the banking crisis. Subprime loans are loans that are given by financial institutions to borrowers who do not meet the standard financial requirements to qualify for and obtain mortgage loans under normal underwriting standards. Unfortunately this large scale, irresponsible lending produced the subprime mortgage crisis. This crisis was initiated by the Federal Reserves decision to lower interest rates following the bursting of the dot-com bubble and the governments decision to relax regulations on underwriting standards in an attempt to increase home ownership, particularly among minorities and the less affluent (Liebowitz, 2008, p. 34). To profit from the lowering of underwriting standards, financial institutions jumped at the chance to give mortgage loans to borrowers without an appropriate background check to verify that the borrowers could financially afford the mortgage payments. In fact, to expand markets and profits, financial institutions aggressively marketed a host of mortgage and consumer credit products to non-traditional homeowners (Beitel, 2008, p. 31). Financial institutions were offering borrowers an adjustable rate mortgage (ARM) instead of a traditional 30-years conventional mortgage. Some borrowers were given the option of interest-only ARMs for a stated period of time (i.e. a seven year interest only ARM). After the seven years, borrowers had to pay the principle and interest on the loan. The problem with this contract was that many borrowers incomes did not increase in proportion with the increase in their mortgage payment. This meant that unfortunately some borrowers were forced to default on their loans. Due to these foreseeable conditions and the loan default of so many borrowers, massive foreclosures have occurred in the United Stated and serve as the chief

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contributor to the current 2008 2009 recession. This has led to financial institutions implementing tighter lending guidelines for business and personal consumers. Since certain industries such as the auto industry rely heavily on short term and long term borrowing, these tightened guidelines have negatively affected the auto industry.

Economic Climate
Stimulus Package The $787 billion American Recovery and Reinvestment Act was approved by Congress and signed by the President in February of 2009; the purpose of this physical stimulus package is an attempt to revive the United States 2008 2009 recessional economy from the exponential increase in job loss, falling GPD, and unstable capital market. The package contains provisions for short term and long term goals. Some of the short term goals include standardizing the economy, creating and saving jobs, reducing taxes and spending money on programs and projects. The long term implications include creating innovative approaches to the infrastructure, rejuvenating the healthcare, education and energy sectors, and to make a positive impact on the economy as a whole (PWC, 2009). The stimulus package provides tax benefits for individuals as well as the business sector. The stimulus money is broken down as various sectors; there is a $3.7 billion home buyer credit funds set an aside to help generate home purchase. Under the home buyer credit plan, first time home buyers will be eligible to obtain a nonrefundable $8,000 tax credit as long as they stay in their home for more than three years. To help stimulate the auto industry, $2.5 billion will be used to make sales tax paid on new car purchases tax deductible; new car buyers will be able to deduct sales or excise taxes, an above the line deduction (USA TODAY 2009). The package covers numerous other spending credits to help stimulate the environment. The million dollar question for

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most is when we will begin to see the results of the $787 billion package. Opinion varies to this question, some analysts predicts fourth quarter of 2009, other say 2010. Gross Domestic product The United States current Gross Domestic Product (GDP) growth rate is (6.29), lower than the forecasted GDP of 4.7% (Financial Forecast Center 2009). According to the Bureau of Economic Analysis the decrease in GPD was due to the decline in exports, private inventory investments, equipment and software, nonresidential structures and residential fixed investments. The private inventories investment declined in the first quarter over $137 billion. Consumer spending was up 2.2% as consumer responded to the lower prices of goods and services (Wachovia Economic Group, 2009). Inflation Rate According to the Bureau of Labor Statistics, Americas inflation rate has had relatively steady changes until 2009. In 2007 the inflation rate was 2.8%, a slight decrease from previous year; but in 2008, it increased to 3.8%, which decreased the purchasing power of the US dollar. As of March of 2009 the US inflation rate is (-0.45), this deflation rate indicates a dramatic decrease in the prices of goods and services due to our current domestic as well as global recession. Unemployment Rate The US unemployment rate has been dramatically increasing since December of 2007. According to the Bureau of Labor Statistics, in April of 2009 there were (-539,000) jobs lost; less than what was forecasted. The unemployment rate has risen from 8.5 to 8.9 percent. Since the beginning of the recession the US economy has lost 5.7 million jobs, bringing the unemployment total to 13.7 million.

The Auto Industry Today

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The US auto industry as a whole is an extremely competitive market place. Each automotive company is fighting for the largest market share of the worlds number one automotive market. The USs own Big 3, which includes GM, Ford, and Chrysler (GM Blue / Ford Yellow / Chrysler Black) have been losing the fight to keep a dominant hold over the domestic auto market. Prior to 1985, the Big 3 controlled a vast majority of the US market share, approximately around 80%, but since then they have seen their share decline to below 43%. As shown in the chart listed to the left (Chart 1), the main competitors come from Japan and Europe, more specifically the companies of Honda and Toyota (Honda - Green / Toyota - Red). These importers are gaining market share because they seem to produce more dependable and more efficient cars. Consumer Report listed the top 3 most reliable cars in these 6 separate categories which include, Family cars, Large cars, Small cars, Minivans, Small SUVs and Midsized SUVs. Of the 18 cars listed, 14 were Japanese engineered, and of those 14 cars, 12 were made by: Toyota, Honda, or Nissan. Overall Japanese firms account for 78% of the most reliable automobiles while the US automakers account for only 22%. However, in the past few years with the housing bubble bursting and the economic contraction that followed, auto sales as a whole have been declining rapidly, due heavily to credit markets freezing and the steep drop in consumer spending. This tightening up of American money has greatly impacted the major players in the US automotive market, causing a dramatic decrease in sales from the year before. GM sales are down 33.1% from April 2008, Fords are down 31.3%, Chrysler 48.1%, Toyota 41.9%, and Honda is down 25.3%. This drop in overall sales is staggering for the 5 largest market share leaders in the US, and it is having a more devastating effect on the American car companies than the international firms. (Sales figures - Wall Street Journal)

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The US automotive market as a whole can be considered a mature industry structure. Single-company and industry growth have been slowing, due to the economic contraction as well as the lack of large new markets. International competition has been growing since the 1970s and the international firms have become major players in the industry. These new international competitors have eaten away at the dominant market share that the Big 3 once held. Toyota and Honda have been taking advantage of this mature industry structure and have been creating new lines, such as the fuel-efficient hybrid models. The hybrid model cars were introduced in 2001, which was the perfect time for this new technology to be unveiled. Gas prices across the US were spiking and the cost of fuel became a major concern for the American consumer (Chart 2). The combination of low pricing and fuel efficiency began to drive US automotive buyers toward the international companies and away from the old tradition of owning and driving large SUVs. The Big 3 lagged behind the international companies when creating fuel-efficient cars and did not release one until 2004. The Big 3 are working on refining their products, however they are still lagging behind the international firms. For years the consensus has been that Japanese automakers build quality cars while the US automakers build unreliable cars that will break down quickly. Over the past few years, the Big 3 have begun to increase the dependability of their cars, which is shown by higher rankings from Consumer Reports Magazine.

GMs Strategy
General Motors strategy from the beginning was to be a product differentiator, and with the Detroit based company (until recent restructuring) spread over 13 brands worldwide, GM has a highly diversified product mix (GM Vehicles). The companys slew of brands was no accident, for, as GMs CEO of the 1920s Alfred P. Sloan put it, GM makes a car for every purse and purpose. The companys strategy proved to be successful for most of the 20th century, as it was Page | 10

the largest car maker in the world from 1931 up until 2008 (GM Corp.). And with 13 brands, countless car models, plants in 34 countries and sales to 140 countries, its no wonder the giant reigned supreme for so long (About GM)(Bensinger). GMs strategy of just a year ago Bill Vlasic of The New York Times explains, was waging a spirited battle with Toyota for the title of worlds largest automaker (Vlasic). This strategy, which brought the company great success for a major part of its existence, is no longer working for the Detroit automaker. With increased foreign competition, the disregard for changing consumer trends, and a portfolio spread too thinly, GMs vision to be the worlds largest car producer is no longer a viable goal. The main problem in GMs decisions over the years was its overly extensive lineup. With such a large and diverse portfolio, GM couldnt give each brand the attention it needed. As New York Times writer Micheline Maynard explains: The more brands a carmaker has, the more it must spread money around to develop vehicles and market them. As a result, every brand suffers, said A. Andrew Shapiro, a managing partner with the Casesa Shapiro Group. No particular brand or brands can achieve the share of voice that they need (Maynard). Historically, GM had used its brands as a competitive advantage over Ford, the company whose opening lineup featured a monochromatic mix of all black vehicles. And in part, this was GMs solution to a lot of its competitors advances. Rather than fix what wasnt working, GM simply added more brands. To compete with foreign entrants Toyota and Honda in the 90s, GM introduced Saturn, a decision which cost them $5 billion. But according to BusinessWeek, upon building its Saturn brand, GM consequently put Oldsmobile on the back burner (Welch). And as priorities shifted again, rather than nurture its new Saturn brand which may have had a fighting chance, GM started focusing on its other lines instead, waiting five years before adding new cars to Saturns mix (Maynard). Its game of favorites lasted for years: invest in Oldsmobile, disregard Saturn; build up Cadillac and Buick, forget about Pontiac and Saab (Welch).

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The companys strategy to juggle its brands clearly proved to be an unsuccessful means of portfolio management. Whether the company would have changed its ways if it werent for the insistence of the Obama administration is hard to say. Regardless, the company appears to be moving in the right direction. GMs North American Vice President Mark LaNeve explains that over time, the strategy is to focus [GMs] resources on the core brandsIt's clear that we can't afford the kind of product and marketing investment that eight brands need. (Welch)." Understanding the threats that affect General Motors provides a clearer picture of the companys failed strategy.

Threats Affecting GM
Threat of Rivalry The threat of rivalry on the industry level is intense and highly competitive. General Motors is a member of the Big Three (GM, Ford and Chrysler) and is one of the top four automakers when including Toyota. These four industry leaders are estimated to make up 62.4% of the market in 2009 (IBIS World, pg. 9). And being that the market shares of these leading automakers are nearly equal (as shown below), the fight for market share is fierce.

*IBIS World Car & Automobile Manufacturing in the US, page 24

Competition is also high amongst GMs diverse portfolio of brands. With GM parenting eight unique US companiesof which only four will survive the new restructuring of the company the firm faces eight different sets of competitors: one set for each brand (Roy). The degree of competitiveness varies for each brand and depends on the type of product being offered. Direct competition for each brand from rival products aimed at the same target market poses a greater threat than indirect competition from products aimed at a different target market. Therefore

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focusing on direct competitors can allow General Motors to better protect against the threat of rivals. The companies under the GM umbrella need not only worry about domestic competition but also about foreign competitors in the home market in addition to the rivals of their foreign interests. For this reason, it is clear that one of the biggest threats to General Motors is the threat of rivalry. When compared to Japanese automakers, GM has higher costs of production, partially due to greater labor costs (IBISWorld Car & Auto, pg. 25). High costs of production threaten GM because it becomes more difficult to offer competitive prices. Additionally, the brand image associated with the GM family (and the other American brands, for that matter) is not one that embodies the highest quality products on the market. The confidence in the brand is also fading as the danger of potential bankruptcy looms in GMs future. This can definitely sway consumers to purchase from rival firms, as well. Furthermore, GMs lack of innovation in employing new technologies, such as hybrid technology, or adapting to market trends can make rivals seem more appealing. The threat of rivals presents the greatest challenge that the GM brands have to face. There are a number of reasons behind this fact, only some of which are listed above. Competing firms attack from every angle and will take every opportunity that arises in hopes of becoming the market share leader. However, GMs product differentiation strategy does offer some protection from the threat of rivals in that it develops specialized market niches. This helps to mitigate the threats from rivals because GM aims to offer brands that are significantly different from competitive products so that no other company competes directly. This strategy is only successful when enough resources are devoted to each brand.

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Threat of suppliers The supply chain in the automotive industry weaves a tangled web of intricate relationships among suppliers and producers. In the three-tiered supply system used by General Motors and many other automotive companies, the direct suppliers, or first-tier suppliers, distribute products straight to GM. These first-tier suppliers rely on the second-tier suppliers for their parts for production and the second-tier, in turn, relies on supplies from the third tier for necessary parts for production (Beene). This complex relationship among the different suppliers and the automotive firms indicates a heavy reliance on each link of the value chain. These relationships often lead to smoother operations, as goods travel up the value chain to reach the final production facilities to be made into finished products. During times of economic struggles like those being faced today, however, this interdependency can spell disaster for a number of firms in the supply chain. All three tiers of suppliers suffered a severe blow when Chrysler recently filed for Chapter 11 Bankruptcy and GM announced that it would be halting production at 13 plants in the U.S. between May and July (Krisher). With this extreme drop in the production of new vehicles, many suppliers have lost a major source of sales and now face bankruptcy themselves. The stressful conditions within the economy already caused automotive suppliers revenues and bottom-lines to decrease, but this lowered demand for auto parts has proven to be too much to handle as many firms began working below their break-even point. A noteworthy reason that suppliers are so hurt by the decrease in orders from auto companies is because this increases their cost of capital. Suppliers use the projected orders from automotive companies as collateral to receive the necessary capital to continue production (Gopwani). With so few orders being received, these already struggling auto supply firms are being forced into bankruptcy. Although the

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government recently provided direct automotive suppliers with $5 billion in aid, second- and thirdtier suppliers are still struggling to survive while hoping for the payments to trickle down the line (Beene). So what does this mean for GM? It means that despite its efforts to reduce costs and inventory by temporarily halting production, GM may not be able to finally resume production in the future because of the devastating effects that decreased production will have on its supply chain. Additionally, many of the tight-knit relationships between General Motors and its suppliers will be harmed in the process which could lead to higher supply costs. With fewer suppliers available after the shakeout, suppliers will have more bargaining power over the auto companies, also leading to higher costs for supplies. Overall, the biggest threat of suppliers comes from the interconnectedness of not only General Motors and the three tiers of suppliers, but also among other automotive firms in the industry.

Economic Threats Within the last few years, GMs poor performance has manifested as a result of a global economic downturn. In light of high gas prices and the recession heard around the world, GM was greatly affected by money conscious consumers moving towards smaller, more fuel-efficient cars. As a Washington Post article reiterates from just one year ago: Pickup sales have been falling for months because of the slowdown in housing construction. The trend away from SUVs began several years ago as baby boomers aged and roomy but more fuel-efficient crossover vehicles gave consumers more choice. But automakers said gas prices are accelerating the trend (Durban). According to The New York Times, in April of last year, one out of every five cars purchased was either a compact or subcompact car, compared to only one in eight when SUVs were in high Page | 15

demand ten years ago (Vlasic). And for a company like GM whose lineup is dominated by larger vehicles, the fall in sales of SUVs and pickups severely impacted the companys bottom line, with a sales drop of 27% in the summer of 2008 when gas prices were largely inflated (Bensinger). In the following year, the trend of lost sales continued with 379,000 fewer GM vehicles on the road (Marr). The companys new plan for success needs to keep up with the changing times and its competitors abilities to satisfy changing demand. With companies like Toyota producing smaller, more fuel efficient vehicles, GM needs to be doing the same to remain an active player (Marr). Threat of Substitutes Rising fuel prices and decreasing purchasing power causes commuters to reconsider their transportation options. Although automobiles still tend to be the preferred method of transportation in many areas, the threat of substitutes is increasing due to the current economic environment (California Green Solutions). Substitutes for standard automobiles include bicycles, walking, public transportation such as bus and train services, and even energy-efficient vehicles including hybrid and electric automobiles. The Green Movement is another reason behind the recent shift towards substitutes for cars and trucks. A number of conditions have contributed to a higher threat of substitutes for the automotive industry and General Motors, in particular. Increased fuel prices and insufficient fuel-mileage are a major source of consumer discontent with automobiles as they have led to higher operating costs associated with the vehicles. Even with the gas prices falling in 2008 and 2009, car and truck purchases, especially, have continued to decrease whereas public transportation usage is at 5 year high high (IBISWorld Public Transportation).

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Public Transportation Revenue Rate

Public Transportation Revenue Growth

Furthermore, as consumers disposable income decreases, they become less likely to make discretionary purchases. With less money and wavering confidence in the market, people are more hesitant to drop large sums of money on automobiles when there are so many other transportation options available including public transportation, carpooling, cycling and walking. Additionally, in todays world of increased awareness of global warming and its causes, the Green Movement is not just a hippy philosophy anymore. More and more people are doing their part to reduce their carbon footprint and this includes decreasing the amount of emissions contributed from automobiles. For this reason, Earth-conscious and budget-savvy consumers are looking to hybrid and electric vehicles and other greener transportation methods. Fuel-inefficient cars and trucks seem particularly unattractive to modern consumers who are now exploring new technological options like hybrids or the tried-and-true means of transport such as cycling and walking. The threat of substitutes can be seen as both a challenge and an opportunity for General Motors. Public transportation, cycling and walking provide a growing threat of substitutes. While automakers are unlikely to begin competing in these markets, the hybrid market is primed for growth. General Motors can reduce the threat of substitutes from hybrid and electric cars by further penetrating this market while it is still relatively young.

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Threat of Buyers General Motors operates with a large number of domestic dealers. The total number of dealers in the U.S. is 6,200, but GM is aiming to close 2,600 of them under the new business plan (Neill). With the restructured goals of decreasing cost and increasing profitability, GM has high standards for their dealers. Only those with sufficient profitability and customer satisfaction, as well as proper location and up-to-date facilities will continue to operate (Neill). Because there are so many dealers, the buyer power appears to be rather low, especially now while GM is downsizing. Although there is a high quantity of automobile suppliers in the industry, most dealers become specialized in selling only one firms vehicles. This drastically decreases any buyer power the dealers may have had because significant switching costs associated with selling for another company exist. Because of such high switching costs, dealers are forced to accept the prices that the GM brands decide are appropriate (Neill). The threat from buyers is not a significant one for GM, particularly when compared to other threats the automaker faces. One of the only reasons buyers could pose a threat to GM is that the dealers are often part of a bigger group or association of dealers, which could offer the buyers strength in numbers. For the most part, however, the GM family of brands will not suffer severe threat from their buyers. As pertaining to the planned closing of GMs dealerships, the company has found this venture be extremely costly. The problem occurs when GM has to put itself in further debt to make payments to the State Legislature to protect its dealers prior to closings.

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Colorado was one of the first states to protect the auto dealer in its relationship with the manufacturer. Found in an article recently written by Jerry Kopel , the role of the dealer is explained as:
The sale and distribution of motor vehicles affects the public interest and confidence of the purchaser in the retail dealer from whom the purchase is made and the expectancy that such dealer will remain in business to provide service for the motor vehicle purchased. Proper motor vehicle service is important to highway safety and (1) the manufacturers and distributors of motor vehicles have an obligation to the public (a) not to terminate or refuse to continue their franchise agreements with retail dealers (b) unless the manufacturer or distributor has first established (i) good cause for termination or noncontinuance of any such agreement, (ii) to the end that there shall be no diminution of locally available service. The term good cause in this article has been the cause for much debate and in most cases where GM has closed its dealerships, it has been easier and more cost intelligent to just pay out of pocket for payments to the bad franchiser (Kopel) unless the good cause can be proven within thirty days, which is a section added by Senator Chris Romer. Thirty days is often too short a period to prove that the reason for closure has good cause.

Threat of Entry The automotive industry is lucky when it comes to the level of threat faced from new entrants, which is relatively low for several key reasons. Incumbent firms like General Motors have a definite advantage over potential firms hoping to enter the industry. The major causes are the high barriers to entry associated with the automotive industry. For one, auto manufacturing is a highly capital-intensive undertaking, which makes it difficult for new firms to start-up, let alone compete. The efficient production capacity gained from economies of scale is also large and therefore costly to establish (IBISWorld Car & Auto, pg. 16). Additionally, the automotive industry

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is fairly saturated, being a mature industry, and therefore in order to be successful a new entrant would need to ensure its ability to capture a large enough market share to be profitable. This can prove to be a less than feasible venture for entering firms. The technology costs needed to partake in vital research and development processes adds still another barrier to entry. In order to stay afloat in such a competitive industry, firms need continual innovation to provide products that appeal to the desires and demands of choosy consumers. New entrants rarely have the necessary capital to fund such extensive R&D operations. Additionally, there are extremely strict regulations imposed on the automotive industry by the government. These laws must be adhered to if a firm wishes to avoid heavy fines or penalties, and complying can increase the cost of production significantly enough that it often drives away potential new entrants to the industry (IBISWorld Car & Auto, pg. 16). The ability to afford the costs of imposed regulations also comes into play when firms look to go global. Existing firms have access to the capital and the managerial experience and know-how necessary to expand into international markets whereas, new entrants most likely lack both. The threat from new entrants does not impose a significant threat to an incumbent firm like General Motors. Its long history in the market and the strong relationships with buyers, suppliers and consumers built over time will add yet another deterrent for new entrants. The costs of capital needed for production, the costs of R&D needed to remain competitive, and the costs of developing the network and knowledge needed to become successful offer the greatest safety belt to protect GM from new entrants.

Weakness of Internal Cost Structures

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GM is a benefit-paying organization masking itself as an auto dealer, Donald Coxe chairman of Coxe Advisors LLC. One of the major issues facing GM is their large liability consisting of pension, retiree health care and other liabilities. As of the December 31, 2007 balance sheet, GM postretirement benefits other than pensions were $47,375 billion and pension liability was $11,381 billion; the companys total liability was $184,363 billion. For the past 15 years, GMs annual average of pension and retiree healthcare cost has been $7 billion; however the company plans to reduce this number to $1 billion by 2011(GM Annual Report). The Company plan to drastically reduce some of these liabilities by eliminating over 100,000 retirees healthcare insurance (USNEWS), reducing U.S. hourly employment from about 61,000 in 2008 to 40,000 in 2010, and leveling off at about 38,000 starting in 2011(GM.com). If GM files for bankruptcy, the US government will be dumped with $13.5 billion dollars of unfunded pension, the largest of any US company. If GM is able to alleviate majority of their pension and retiree healthcare liabilities, they will have a greater chance of survival.

Government Intervention and the Restructuring of GM

As a result of the current economy, the state of the auto industry, the companys failed strategy and the threats facing it, GM is in need of major restructuring to turn itself into a viable company for future success. The Federal Government decided to partake in the companys restructuring in the winter of 2008 when the Bush administration okayed a $17.4 billion loan to both GM and Chrysler in hopes of buying time for a restructuring plan slated to fall into place in March (McKinnon). However, in the changeover to the Obama administration, Obama recently required a stricter, more feasible restructuring program, cutting off all funding unless serious results were produced. GM was given until June 1, 2009 to cut costs and start producing a plan which will aim GM for the green (Ruggeri).

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As it stands now, restructuring is the companys highest priority. Its latest plan calls for trimming 47,000 jobs worldwide, closing more than a dozen plants in the United States, eliminating four brands and shuttering 2,600 dealerships (Saner). All said and done, GM will be left with 34 plants, a fifth of what it boasted almost 40 years ago (Vlasic). Its lineup will focus on its strongest brands, Chevrolet, Cadillac, Buick and GMC, while it will eliminate Saturn, Saab and Hummer, and will scale back on Pontiac (Maynard). While General Motors is finalizing bids for its Hummer brand, the Italian automaker, Fiat, is contemplating taking over the companys European brands Opel and Vauxhall ((2) Bunkley) and (Matlack). In addition to making General Motors a much smaller company, the overall structure of GM will see a drastic change in both its leadership and ownership. In March of this year, the Obama administration requested that CEO Rick Wagoner step down from the company. Grounds for his dismissal included the fact that his company had requested the highest amount of aid in government bailout plans, at $26 billion, and the fact that he is considered responsible for increasing GM's focus on trucks and SUVsat the expense of the hybrids and fuel efficient cars that have become more popular in the last couple of years (Allen). Wagoner, who had been CEO for eight years and apart of GM for 30, was replaced on March 30th by Fritz Henderson (Bury). General Motors ownership is also in the lineup for an overhaul. The US Government plans to take a 55% majority stake in the company, in return for which, the government will pardon the companys $10 billion outstanding federal loan (Saner). General Motors also plans to offer its holders of $27 billion in unsecured debt 225 shares in G.M. stock for every $1,000 in debt (Vlasic). However, this exchange gives bondholders only 10% share in the company, with the remainder left for the United Automobile Workers Union (Vlasic). Unfortunately bondholders

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wanted nothing to do with the offer, regarding the proposal inadequate and politically favored. If GM doesnt come up with a solution by June 1st, it will be faced with bankruptcy.

GMs Outlook/Recommendations
As shown throughout this report, General Motors faces a number of strategic issues that demand the firms full attention and immediate action. The strategy that had gained the automaker a wealth of success in the 20th century, a car for every purse and purpose, is no longer practical in the current global marketplace in which it operates. GMs lack of innovation and resistance to change, in addition to the recent economic recession, led to the firm's present state of unpaid debts and financial failures. As the threat of bankruptcy is perhaps imminent, GM is scrambling to restructure its company to prove to the Obama Administration, its shareholders, and the world that it can in fact succeed. As it stands now, the company is downsizing, planning to focus on its four core brands, and is eliminating unneeded costs at all possible steps. And while the company has until June 1st to prove it is headed in the right direction, General Motors must continue with its new strategy; keeping up-to-date with the latest technologies, listening to consumer demands, and producing cars which meet the needs of todays driver. The American public is eagerly counting down along side GM as it awaits the results of its most recent restructuring plan. Whether the Detroit-born automaker will ever reign again as the largest car manufacturer in the world is hard to predict, but with the correct measures put into play, General Motors has a chance of saving its company with the hopes of a brighter, more successful, and certainly more sustainable future.

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