General Motors to Restructure Brand Portfolio

Case Type: operations strategy; organizational behavior; marketing, brand optimization.
Consulting Firm: Samsung Global Strategy Group (GSG) final round full time job interview.
Industry Coverage: automotive, motor vehicles.

Case Interview Question #01284: Our client General Motors Company (NYSE: GM), commonly referred to as General Motors (GM), is an American multinational corporation headquartered in Detroit that designs, manufactures, markets, and distributes automobiles and auto parts. With global headquarters in Detroit’s Renaissance Center, GM manufactures cars and trucks in 35 countries.

General Motors, together with Ford and Fiat Chrysler (FCA US), are often referred to as the “Big Three” automobile manufacturers in the U.S. Current GM auto brands include Buick, Cadillac, Chevrolet, Pontiac and Hummer. For this case, General Motors desperately wants to increase their profits. The CEO of GM has approached our consulting team to help them increase profits. How would you go about it?

Additional Information: to be provided upon request

* The client GM is the biggest US producer of passenger cars and trucks. Currently it has 5 different auto brands:
– Caddillac — luxury brand
– Chevrolet — mass brand
– Buick — between luxury and mass market
– Pontiac — sport cars
– Hummer — heavy cars, trucks and SUVs.

* GM sells cars across the world, with main sales (60%) in the US, 20% in China, and 20% across other countries, such as Russia, India and Brazil.

* All these brands are sold in all countries, but the sales structure and prices for the cars are different in different countries.

* Currently we have sales structure only in for the North America region.

* We do not have any information on competitors.

* Market is stable and we do not have any forecasts on for the future.

Possible Answers:

Step #1. The interviewer or case giver should drive the case. Allow the interviewee to prepare the initial structure. Then hand out Exhibit #1 to interviewee.

Exhibit 1.

A. Sales structure in North America (Cadillac, Chevrolet, Buick, Pontiac, Hummer)

B. Average price of vehicle by brand (Cadillac, Chevrolet, Buick, Pontiac and Hummer) in Thousand $ in North America

Question #1: What is the revenue structure? What is the total revenue of the company?

Possible Solution:

Total revenue = 550 * $50K + 1950 * $30k + 350 * $35k + 200 * $27k + 150 * $60k = $112.65B

Revenue per brand in North America
– Caddillac: 550 * $50K = $27.5B
– Chevrolet: 1950 * $30k = $58.5B
– Buick: 350 * $35k = $12.25B
– Pontiac: 200 * $27k = $5.4B
– Hummer: 150 * $60k = $9B

It is good if the interviewee notices that the two main brands (Caddillac and Chevrolet) drive ~76% of total sales. Too many brands could be a driver of costs.

Step #2. Hand out Exhibit #2 with cost structure.

Exhibit 2. GM Cost Structure per vehicle

Question #2: How much does it cost to manufacture each car? What is the profit margin for each brand?

Possible Solution:

Calculating the profit margins for each of the five brands.

Conclusion: Buick, Pontiac, and Hummer are loosing money for the client GM.

At this point, ask the interviewee what solutions he/she sees and what additional information he/she might need to make a decision. Good answer might include:

* Rise prices for the cars
* Decrease costs (it is not possible at the moment)
* Abandon brands that are loosing money.

Additional Questions: Do you think it is a good idea to rise prices for the brands that are loosing money? What things should we consider? Allow the interviewee to come with some thoughts and hand out Exhibit #3.

Step #3. Hand out Exhibit #3.

Exhibit 3.

A. Clients’ loyalty in North America (Cadillac, Chevrolet, Buick, Pontiac and Hummer)

B. Clients’ satisfaction in North America (Cadillac, Chevrolet, Buick, Pontiac and Hummer)

Additional Information on Exhibit 3:

* Clients’ loyalty demonstrates % of customers who stick with the brand after the first purchase of the car.
* Clients’ satisfaction shows % of customers satisfied with the car.

Question #3: Should the client GM abandon the three brands that are loosing money (Buick, Pontiac, and Hummer)?

Possible Solution:

Due to low customers’ satisfaction and low loyalty it might be a good idea of closing the Pontiac and Hummer brands, which are loosing money for the company. However, some work could be done with Buick, because custromer satisfaction is relatively high and satisfaction is not that bad.

Step #4. To make a final decision it might be a good idea to check profitability and brand loyalty in other countries. Hand out Exhibit #4.

Exhibit 4.

A. Revenue by brand in China (Cadillac, Chevrolet, and Buick)

B. Customer Loyalty by brand in China (Cadillac, Chevrolet, and Buick)

Question #4: What can be concluded from Exhibit #4?

Possible Solution:

Buick stands for the most part of the sales in China, as it is vastly seen as an prestigious American car. Customers like and enjoy the brand. Given the information, it might be damaging for the client GM to close the Buick brand in US, as it might hurt sales in China.

Conclusion: The client should increase prices for Buick in USA and close Pontiac and Hummer brands.

3. Conclusion

Recommendation

* The client GM is loosing money by sustaining unprofitable brands — Pontiac & Hummer.
* Restructuring brand portfolio will increase profitability for the company.

Next Steps

* Increase prices for Buick in USA and close Pontiac and Hummer brands.
* Do not close Buick brand — because this move might hurt sales in China.