Business Strategy and Economic Value Added: General Motors 2007/2014

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Type de publication:

Conference Paper

Source:

Gerpisa colloquium, Paris (2015)

Mots-clés:

Economic Value Added, General Motors

Résumé:

Business Strategy and Economic Value Added: General Motors 2007/2014

In recent years several programs were implemented for increasing automotive production in the United States in order to achieve Ford, General Motors (GM) and Chrysler economic recovery. Reduction in fixed costs per vehicle, cutbacks in productive capacity and the rising of cars prices that had remained stagnant for several years prior to the crisis of 2007, enabled these three companies to make a profit. In 2012, these three American companies had more profits than the Japanese, Toyota and Honda (McAlliden and Yen, 2012). The aim of this work is to analyze General Motor’s strategy to overcome the crisis and its operation results, specifically profits and economic value creation after its restructuring process. As central hypothesis we propose that the profit strategy followed by GM led them to create an economic value after restructuring the company. The monetary value of the company was determined by the Economic Value Added (EVA) method that is the difference between a company net operating income after taxes and its cost of equity and debt capital. We establish the value of the company by its ability to earn a larger rate than its cost of capital and the ability to design strategies aimed at creating value. We found that the company destroyed value in the studied stage. The competitive strategy included reducing volume and diversity, reducing and restructuring dealership, concentrating of brands territories, expanding the internationalisation process to China, investing in R&D especially in electric vehicles technology, reducing numbers of jobs, wages and compensations. However the company failed to create economic value.

Texte complet:

23th International Colloquium of GERPISA
ENS Cachan, Cedex, France. 10-12 June 2014.

Business Strategy and Economic Value Added
in General Motors 2007/2014

Roberto Valenzuela y Lourdes Alvarez

Abstract
In recent years several programs were implemented for increasing automotive production in the United States in order to achieve Ford, General Motors (GM) and Chrysler economic recovery. Reduction in fixed costs per vehicle, cutbacks in productive capacity and the rising of cars prices that had remained stagnant for several years prior to the crisis of 2007, enabled these three companies to make a profit. In 2012, these three American companies had more profits than the Japanese, Toyota and Honda (McAlliden and Yen, 2012). The aim of this work is to analyze General Motor’s strategy to overcome the crisis and its operation results, specifically profits and economic value creation after its restructuring process. As central hypothesis we propose that the profit strategy followed by GM led them to create an economic value after restructuring the company. The monetary value of the company was determined by the Economic Value Added (EVA) method that is the difference between a company net operating income after taxes and its cost of equity and debt capital. We establish the value of the company by its ability to earn a larger rate than its cost of capital and the ability to design strategies aimed at creating value. We found that the company destroyed value in the studied stage. The competitive strategy included reducing volume and diversity, reducing and restructuring dealership, concentrating of brands territories, expanding the internationalisation process to China, investing in R&D especially in electric vehicles technology, reducing numbers of jobs, wages and compensations. However the company failed to create economic value.

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