Management Economics: General Motors Market Structure Analysis

This report provides a comprehensive analysis of General Motors (GM), examining its market position, historical data, and the characteristics of the automotive industry. It delves into GM's market analysis, focusing on its revenue, market share, and the competitive landscape, including key competitors like Ford and Chrysler. The report explores the market structure, identifying it as an oligopoly and analyzing its implications for GM. Furthermore, it critically analyzes different market structures to determine the optimal structure for GM, highlighting the barriers to entry and the advantages of operating within the oligopoly. The report also assesses the impact of government interventions on societal benefits, emphasizing the role of the automotive industry in economic development and employment. The analysis includes sales data, financial performance metrics, and an evaluation of the impact of government policies, concluding with recommendations for GM's strategic direction within the automotive industry.

MANAGEMENT
ECONOMICS

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Overview of Company, with its products/services description, along with historical data1
2. Market Analysis of General Motors...................................................................................2
3. Characteristics of past and current market structure of General Motors............................5
4. a) Critical analysis on different market structure to identify optimal structure for General
Motors in automotive industry...............................................................................................5
4. b) Find impact of lesser or greater government interventions in terms of societal benefits6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Managerial economics refers to a concept of management of business capital, resource,
income and expenditure in a profitable way. In order to resolve any business related issue, this
concept deals with various economical concepts, theories and methodologies (Khot and
Thiagarajan, 2019). For this purpose, to take any financial decision, managers of a firm can use
economic theories with past data, that helps in estimating current and future progress as well. In
order to understand, how different tools and theories of economics can be applied to manage
business, a report is presented below where, automotive industry is targeted. For this purpose,
General Motors Company is chosen, which is considered as one of the largest automobile firm,
that offers a range of commercial vehicles and automobile parts. To analyse its market condition
and structure, in which this company operates, an in-depth investigation is done, that helps in
exploring its historical data. This data is used to analyse market structure in the form of
monopolistic and oligopoly is critically examined. Along with this, suggestions for greater or
lesser government intervention upon production of this firm are made for beneficial of society.
MAIN BODY
1. Overview of Company, with its products/services description, along with historical data
The automotive industry is one of the major industrial sector, where changes has done
more rigorously and forces economic worldwide (do Carmo, Neto and Donadone, 2019). This
industry contributes a large revenue in developing economy of a nation, by producing and
distributing millions of cars, trucks and other transportations in a year (Mason, 2019). Despite
the fact about larger organisations who have struggled with a number of business issues with
overcapacity as well as low profitability, organisations that deal in automotive industry always
retains strong influence over marketplace (Chuang and Zhao, 2019). Moreover, it has also heavy
linkages with various supplier industries in manufacturing vehicles. Along with this, having a
strong political influence, automobile industry is also responsible for giving employment to
millions of people, either directly or indirectly that also contributes for society development
(Severino and Godinho Filho, 2019). In context with General Motors (GM), this multinational
corporation of America is headquartered in Detroit in the year 1908. It operates business in more
than 37 countries, where its core branded vehicles include GMC, Chevrolet, Buick and Cadillac
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(Hong-jie, 2019). In terms of sales, volume of cars of this firm has been reached to a milestone
of approx. million vehicles annually.
At initial period, automobile industry that is commercial and both private vehicles were
dominated by steam-powered vehicles (Jin and McKelvey, 2019). Therefore, they were much
expensive as well as difficult to maintain so, only people of upper classes can afford to buy such
product. But with development of technology, now, vehicles are available in a wide range and
within range of people budget. Along with this, when GM has started its business then
competition also not high, because manufacturing such product requires large amount of capital
and labours with high technology (Khot and Thiagarajan, 2019). Till 1960s to now in 21st
century, there was a rapid development in manufacturing process and production, that adds more
features in vehicles and provide more safety to people during their journey. A milestone in
context with history of automobile industry, the innovations can be defined in terms of efficiency
in fuel injection processes, with independent suspensions and turbochargers (Hanley, Shogren
and White, 2019). Along with this, with Computer Aided Design (CAD), autonomous
technology, laser sensors, Artificial intelligence and more, has made it possible to run vehicles
cars with fuel efficiency and driverless as well (Thampapillai and Ruth, 2019).
2. Market Analysis of General Motors
General Motors is a global automobile company which makes and sells a number of
commercial and private vehicles including cars, trucks and other automobile parts in various
companies (Khot and Thiagarajan, 2019). Apart from automotive products, this firm also
provides financing services in terms of automotive via GM financing company. This company
sells its products directly to end customers by wide network of dealers that helps in generating
high revenue as well. The global wholesale market in terms of sales, in 2016, revenue of GM
has reached from 5.9 million to 6.25 million as compared to previous year (do Carmo, Neto and
Donadone, 2019). Along with this, it has evaluated that within wholesale market, the share of
respective firm in the area of US has touched to 17% in 2016 while, in other area i.e. North
America it covers 16.6% (Chuang and Zhao, 2019). But with increasing competition, due to
presence of large brands like Volkswagen and others, there was a small decline of sales has also
observed. Another main market, where global presence of GM has seen in terms of revenue is
China, where it has grabbed 13.8% of total sales revenue (Strategic Analysis of GM, 2018).
Despite of other markets like UK, China, Asian countries and more, the area where GM has
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gained highest market share, within all categories of transport vehicles is US, where it sells more
than 24.2% of total cars (Severino and Godinho Filho, 2019). In order to gain high competitive
advantage, management of GM always focus on bringing new technologies to produce eco-
friendly like electric vehicles, by making large investment in research and development.
Currently, it focuses more on managing and developing more features in vehicles like
the ignition switch fiasco, high safety for passenger and their convenience (Hong-jie, 2019).
Chances of attainment of this objective is high due to strong financial performance, where GM
has enough money for making innovation in electrical vehicles.
Sales Data of General Motors –
Year General Motors
Annual Revenue
(Millions of US $)
2018 $147,049
2017 $145,588
2016 $149,184
2015 $135,725
2014 $155,929
2013 $155,427
2012 $152,256
2011 $150,276
2010 $135,592
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2009 $104,589
2008 $148,979
Operating Performance
Fiscal 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM 5-Yr Index
92.10-9.84
Return on
Assets %
92.1 3.39 5.35 3.31 2.39 1.63 5.21 4.53 -1.79 3.6 3.86 2.83 8.11
Return on
Equity %
— 19.85 28.35 18.14 11.54 7.48 25.72 22.52 -9.84 21.43 21.35 14.53 23.75
Return on
Invested
Capital %
— 11.88 19.03 12.01 6.54 3.71 10.68 8.35 -2.88 5.97 6.71 5.42 13.84
Financial
Leverage
6.41 5.39 5.21 5.78 4.21 5.01 4.88 5.06 6.07 5.85 — — —
100.10-20.02
Gross
Margin %
-7.27 12.39 12.71 7.89 13.19 11.45 15.78 18.06 21.1 17.95 19.48 17.59 —
Operating
Margin %
-20.02 3.75 4.62 -2.11 3.65 1.06 3.21 5.74 6.88 3.02 4.74 4.4 —
Net Margin
%
100.1 3.44 5.05 3.19 2.43 1.8 6.36 5.67 -2.67 5.38 6.09 3.66 16.15
Days Sales
Outstanding
28.11 22.16 22.65 29.23 43.74 56.67 62.28 63.72 75.7 77.05 86.64 71.59 —
Days
Inventory
37.9 34.15 36.8 37.79 38.89 36.59 38.98 36.88 38.85 30.98 36.2 37.91 —
Days
Payables
66.67 61.79 63.99 64.63 65.99 61 66.26 68.3 80.85 69.92 72.87 72.59 —
Receivables
Turnover
12.99 16.47 16.12 12.49 8.34 6.44 5.86 5.73 4.82 4.74 4.21 5.18 —
Inventory
Turnover
9.63 10.69 9.92 9.66 9.39 9.98 9.36 9.9 9.4 11.78 10.08 9.69 —
Fixed Asset
Turnover
3.58 7.15 7.12 6.24 5.64 4.87 3.53 2.73 1.95 1.82 1.77 2.75 —
Total Asset
Turnover
0.92 0.99 1.06 1.04 0.98 0.91 0.82 0.8 0.67 0.67 0.63 0.75 —
EBITDA 118.34 10.15 9.23 5.91 10.19 7.62 10.62 13.62 16.97 15.55 16.91 12.94 —
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Margin %
EBITDA
(Bil)
123.77 13.76 13.87 8.99 15.83 11.89 16.18 22.66 24.7 22.87 24.49 19.83 —
Free Cash
Flow/Net
Income
— 0.42 0.12 0.24 0.53 — — — — — 0.81
Therefore, from these statistical information, it has been evaluated that General Motors
has strong financial position in automobile industry, that helps in generating high revenue and
competitively sustain its position, for longer period (Jin and McKelvey, 2019).
3. Characteristics of past and current market structure of General Motors
Automobile industry considered as best examples of an oligopoly, where only few number
of large organisations exists, due to high rate of consumption (Khot and Thiagarajan, 2019). In
US market, it consists mainly of three large firms, that are Ford, General Motors (GM) and
Chrysler. So, influence of this type of market structure i.e. oligopoly can be reflected in terms of
price and development of new car models into worldwide market of cars and other transport
(Hanley, Shogren and White, 2019). General Motors therefore, operates its business from
beginning to now in an Oligopoly market structure, which depicts that automobile industrial
market has a handful of organisations, where all are operating within same structure
(Thampapillai and Ruth, 2019). Therefore, it enables customers to substitute one vehicle for
another, by purchasing only from fewer companies due to oligopoly market structure. In context
with US market, companies including GM, Ford and Chrysler, due to Oligopoly market
structure, it creates barriers for others, to entrance in such a place (Mason, 2019). Hereby, one of
the biggest factor that creates barriers for small firms include the large amount of start-up costs
or initial investment. Therefore, as compared with other market structures like monopoly which
includes a large number of companies that offer same product with differentiation strategy,
Oligopoly considered as the second highest barrier after capital investment to entry, into
automotive industry.
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4. a) Critical analysis on different market structure to identify optimal structure for General
Motors in automotive industry
The overwhelming of proportion in terms of sales and revenue is in hands of few
companies only, with more than $1.5 billion (Hanley, Shogren and White, 2019).. It includes
seven major industries who has covered a wide area of market share, among whom General
Motors is on first monopolies automobile industry, that sales a large amount of cars annually
(Thampapillai and Ruth, 2019). In context with monopoly structure of market, this type of
structure normally exists within retail and hospitality sectors, where to open business, less start-
up cost is required. The characteristics of this type of market conclude as the presence of various
sellers who sell their commodities by differentiating them from other competitors (Mason, 2019).
So, this type of structure in automobile industry cannot be created, because it is dominated with
few large companies, who are enough strong to give a high competition. So, operating business
in oligopoly automotive sector, for small firms is beyond their capabilities. This would provide
opportunity to General Motors and other large organisations of automotive industry to operate
business successfully and generate high revenues (Khot and Thiagarajan, 2019). Along with this,
as products of these firms like cars available of high rates, therefore, to purchase the same,
customers focus specially on comfortable rides, safety and features that provides long term
benefits to them. So, meeting their demands will lead General Motors to retain them with
business more easily (Jin and McKelvey, 2019). Henceforth, it has been analysed that operated
business in oligopoly structure of market, seems optimal for General Motors. From the following
demand and supply curve of automobile industry, General Motors also measured as one of the
largest firm that covers a large market share in entire world, as compared to Toyota, Hyundai,
Volkswagen and more.
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4. b) Find impact of lesser or greater government interventions in terms of societal benefits
As automotive industry contributes a major role in enhancing economy and offering high job
employment to both skilled and un-skilled labours, there is a need of high intervention of
government (Hong-jie, 2019). This would give support to respective industry in expanding
business and offering more job opportunities to people, that will help in both society and nation
development. The development within automobile maintenance industry is seem to be less
developed for satisfying the increasing demand for proper production (Severino and Godinho
Filho, 2019). As automobile products like cars and other transport vehicles also contributes a
major role in increasing global warming, therefore, greater interventions of government by
establishing policies for eco-friendly products like electric vehicles also need to be essential.
This would help in proper sustainable development of the automobile industry, by applying
policies on operation structure as well as economic development stage (Chuang and Zhao, 2019).
Through high government interventions, well-developed maintenance of automobile production
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can be maintained. This would help in improve customer loyalty and gain their retention for
enhancing performance of automobile manufacture industry. Along with this, it also helps in
surviving competitively in such as industry (do Carmo, Neto and Donadone, 2019). Along with
this, government policies also support companies that deal in respective industry, including
General Motors to develop more features and create innovations for producing eco-friendly
vehicles. In context with UK marketplace, growth of automotive sector and its transition to the
next innovative generation of vehicles, also require people to develop their skills, so that they
can contribute their efforts in manufacturing innovative vehicles (Khot and Thiagarajan, 2019).
For this purpose, for substantial upskilling of workers, Government of UK and automotive
industries also gives commitment to provide adequate amount of trainings for human resource
development.
CONCLUSION
It has been summarised from this entire report, economic management is the main concept
that helps in studying the current as well as previous condition of a company. Though applying a
number of approaches like supply and demand analysis, five-years financial data, optimal market
structure etc. future progress of company can be estimated, in more relevant manner. As in
present assignment, study has been taken on automotive industry, so, it has been analysed by
applying the theories of managerial economics that from beginning to the current market,
companies dealing in this industry are still operating in same market structure i.e. oligopoly.
Therefore, it provides a number of benefits to automobile companies to run their business
successfully. Along with this, to simulate demands of customers for getting eco-friendly and
fuel-efficient vehicles, government interventions also provide support to such companies in
maintaining sustainability in business.
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REFERENCES
Books and Journals
Chuang, C. H., & Zhao, Y. (2019). Demand stimulation in finished-goods inventory
management: Empirical evidence from General Motors dealerships. International
Journal of Production Economics, 208, 208-220.
do Carmo, M., Neto, M. S., & Donadone, J. C. (2019). Financialization in the Automotive
Industry: Shareholders, Managers, and Salaries. Journal of Economic Issues, 53(3),
841-862.
Hanley, N., Shogren, J., & White, B. (2019). Introduction to environmental economics. Oxford
University Press.
Hong-jie, H. U. A. N. G. (2019). Effectiveness of Government Support Policy: Analysis of
Financial Performance Based on China's New Energy Automobile Enterprises. Journal
of Sanming University, (4), 15.
Jin, J., & McKelvey, M. (2019). Building a sectoral innovation system for new energy vehicles
in Hangzhou, China: Insights from evolutionary economics and strategic niche
management. Journal of Cleaner Production, 224, 1-9.
Khot, S., & Thiagarajan, S. (2019). Resilience and sustainability of supply chain management in
the Indian automobile industry. International Journal of Data and Network
Science, 3(4), 339-348.
Khot, S., & Thiagarajan, S. (2019). Resilience and sustainability of supply chain management in
the Indian automobile industry. International Journal of Data and Network
Science, 3(4), 339-348.
Mason, R. M. (Ed.). (2019). Information services: Economics, management, and technology.
Routledge.
Severino, M. R., & Godinho Filho, M. (2019). POLCA system for supply chain management:
simulation in the automotive industry. Journal of Intelligent Manufacturing, 30(3),
1271-1289.
Thampapillai, D. J., & Ruth, M. (2019). Environmental economics: Concepts, methods and
policies. Routledge.
Online
Strategic Analysis of GM. 2018. [Online] Available Through: < https://notesmatic.com/general-
motors-gm-strategic-analysis/ >.
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