Jarrett Saunders
Regent University
Econ 230
06/01/2022
Week 2 Milestone 1 “GM”
General Motors is an Automotive Company founded in the year 1908 by William C. Durant. Initially founded as a holding company for the “Buick Car Company '' it later became one of the biggest Automotive dealers for cars, including the Oldsmobile, Cadillac, and the Pontiac. (Detroit Historical Society, 2022)
In 1980 GM controlled around 46% of the automotive market, however, between that time and 2009, its market control fell to 20%, and at that point, the company was forced to go bankrupt. During this time frame, it would be easy to argue that they had a comparative disadvantage over their competitors; Susan Helper and Rebecca Henderson write about the downfall of General Motors and describe that the healthcare and pensions for those who were retired initiated the decline in a financial capacity for the company. They reported that General Motors labor costs were as high as $73/hour, while their competitors at Toyota were rough $48/hour. (Helper & Henderson, 2014) While this was the downfall of what once was an automotive giant, they have recently completed a rebrand and are taking steps forward into the new “EV” or Electric Vehicle Era.
With the demand for electric vehicles on the rise, General Motors is putting its foot in the door to be one of the top competitors in this new era. According to Simon Shepherd, “Electric vehicles (EVs) and plug-in hybrids are currently seen by many countries as a way forward in the quest to decarbonize the private transport sector in the face of climate change, as over 10% of global greenhouse gas (GHG) emissions come from road transport (Shepherd et al., 2012) With this new political and societal push to make electric vehicles the thing of the future. According to a study done by Pew Research Center, 47% of adults support a push to end the production of combustion-engine vehicles by the year 2035. (Spencer and Funk, 2021) While this number varies across different studies, as we move closer to this new era, we can see more people agree with the idea of electric cars coming to the forefront of society.
While we look at the GDP of America, we saw in 2020; the GDP was 20,936.6 Billion, which makes up 18.55 percent of the world's economy. (Trading Economics, 2022) While General Motors has facilities outside of the US, it prides itself on being a company for the American People, investing more than $31 billion in US facilities since 2011. (General Motors, 2022) General Motors also has its largest technical center in South Korea as it pushes to be the spearhead in this new electric push. General Motors had a $10 Billion net income for the full year of 2021 while employing 157,000 people worldwide, across six continents and 22 time zones, that speak 75 languages. While this company stands on its pride in bringing wealth to the American people and their economy, they show up as a major competitor in the global market. While the current economic state of America is affecting major companies, General Motors has seen an increase in positive FCF in the past 8 of 9 years, and a cumulative $16.4 Billion in the past 5 years. (Forbes, 2020) Being the first big company to make a push in Electric Vehicles should allow it to have the capability to fight the GDP fluctuations and create patents to help benefit the company as a whole.
References
Detroit Historical Society. (n.d.). General Motors. Detroit Historical Society. Retrieved July 1, 2022, from https://detroithistorical.org/learn/encyclopedia-of-detroit/general-motors
Helper, Susan, and Rebecca Henderson. 2014. "Management Practices, Relational Contracts, and the Decline of General Motors." Journal of Economic Perspectives, 28 (1): 49-72.
Shepherd, S., Bonsall, P., & Harrison, G. (2012). Factors affecting future demand for electric vehicles: A model-based study. Transport Policy, 20, 62-74.
Spencer, A., & Funk, C. (2021, June 3). Americans' views of electric cars as gas alternatives are mixed. Pew Research Center. Retrieved July 1, 2022, from https://www.pewresearch.org/fact-tank/2021/06/03/electric-vehicles-get-mixed-reception-from-american-consumers/
Trading Economics. (n.d.). United States GDP - 2022 Data - 2023 Forecast - 1960-2021 Historical - Chart - News. Trading Economics. Retrieved July 1, 2022, from https://tradingeconomics.com/united-states/gdp
General Motors. (n.d.). USA Operations | Our Company. General Motors. Retrieved July 1, 2022, from https://www.gm.com/company/usa-operations
GM is a very interesting company, while in today's automotive market, we have loads of big names, and GM sadly has fallen behind. GM is the 6th largest automotive company behind Ford Motives at the 5th spot (Investapida). You stated in your post that the GM was making a pivot to EV. The EV Market rose in 2022 and is expected to continue to rise with a 35% increase over the next year. While a lot of companies have their toes dipped into EV vehicles, they might need to with governments' pushings for 0 emissions, such as California with their ban on selling gas vehicles in 2035. I'm assuming GM wishes to get a head start to hopefully beat big automotive companies like Volkswagen. Refrences: https://www.investopedia.com/articles/company-insights/091516/most-profitable-auto-companies-2016-tm-gm.asp https://www.cnet.com/roadshow/news/states-banning-new-gas-powered-cars/#:~:text=Starting%20in%202035%2C%20California%20will,zero%20tailpipe%20emissions%20by%20then.
Hi Jarrett,
I found your post to be very interesting as for my project I also selected an automobile company. I will be doing my project on Subaru and a lot of the points you raised in your first milestone were also mentioned in mine. The push for electric cars is definitely affecting the automotive market and GM has got a leg up on Subaru considering they have the Electric Chevy Equinox. Subaru does not have an electric car on the market yet but they are set to release one later this year. Any automotive company in today's day in age will begin to experience issues regarding their sales if they do not jump on the electric bandwagon.
Hey there, Jarret!
Great post. I thought your ideas about GM are fascinating. I think it’s amazing that GM owned about 46% of the automotive market. Do you think that because they owned such a high percentage of the market for automobiles, it caused them to be stagnant in their approach to scale and growth? Also, what do you think caused the company to drop to 20% and declare bankruptcy?
Jarrett,
I have enjoyed reading your milestone post this week. General Motors has a vast network of dealerships helps the company to sell, distribute and service its products around the clock. These dealerships are critical to GM’s success as they maintain the primary sales and service interface with the end customers. GM spends a considerable amount of money on research and development to develop the following generation products and services and improve its existing outcomes. Besides, the company has also been investing heavily in vehicles and greenhouse gas emission control, fuel economy improvement, and autonomous driving. GM’s research and development expenses were $6.2 billion, $6.8 billion, and $7.8 billion in the years ended Dec 31, 2020, 2019, and 2018. In terms of the ratio of R&D costs to GM’s total net sales and revenue, they were 5.1%, 5.0% and 5.3% respectively. The number of dealerships, research, and development gives GMand an edge over its competitors (“GM Competitive Advantage”, n.d.).
Reference
GM competitive advantage and core competencies. stockdividendscreener.com. (n.d.). Retrieved July 3, 2022, from https://stockdividendscreener.com/auto-manufacturers/gm-competitive-advantage-and-market-share/
Dear Jarrett Saunders,
I enjoyed reading your post. I am not too familiar with this company so I am happy I was able to learn something new. I have a question though, does General Motors have its car brand and help sell other company cars, or it is just a dealership? I had to search up the company a little more because I'm not too familiar with them honestly and was surprised to read that it was once the holding company for the car company Buick. Also as far as electric cars I believe that getting their foot into that market field will help them get back to the automotive giant they used to be. However, as much as the market is growing, it has been relatively dominated by Tesla. Most people think of Tesla, Nissan, or Kia when they hear electric cars, so I wonder what innovations they'll come up with that would help them stand out from these electric car company giants.