This research focuses on the managerial techniques and financial statements of the General Motors Company, a public company located in Detroit, state of Michigan. The firm PLC is reported to the leading manufacturer of vehicles and automotive supplies. The research is divided into ten parts, each one is correspondingly related to the specific task of the assignment at hand.
With regard to the reasons of my choice (i.e. why I chose to research General Motors Company but not the nearest competitors) lies in three primary reasons. First, the company is headquartered in the United States of America, and operates primarily in this country; therefore the market situation can be studied without extra difficulties. Secondly, the data about the firm, in particular annual financial statements of the firm are easily available and are regularly published and updated by the firms’ officials. Thirdly, the company seems to develop the policy of openness and social collaboration.
Demand and supply analysis
In accordance with the annual financial statement of the company a sharp increase in sales is being speculated. The latest available data found was the fourth quarter of 2011 financial year, which stipulates that the firm has sold more than 100, 000 vehicles solely across the United States of America. This figure establishes the fact, that the demand on this cars is permanently present within the country. However, it shall be additionally highlighted that the recently occurred financial crisis has affected the sales in the United States of America significantly. The consumers’ capacity along the country has dropped up to 40% in separately regarded states. However several states remained unaffected by the repercussions of this financial calamity. The general picture is that while the managerial team of the company resolved to diminish the supplies, anticipating that the wave of crisis would hit hard the consumers and they will not be able to purchase any vehicles or auto-related appliances and supplies manufactured by the firm. These financial predictions were justified at the dawn of the financial crisis in early 2008 and 2009, while the consumers’ paying capacity was substantially underestimated by the managers in 2011. Following this statement, the board of managers of the General Motors Group should have definitely resolved to expand the national market and the productivity tempos in the forth quarter of 2011. However, the team has decided to deter the expansion of the market, and the results backfired. Approximately 15% of the prospective consumers ( 43, 976 buyers) failed to obtain the desired vehicle or related good.
The reason of this type of consumer behavior is that the average price for the cards manufactured by GM is affordable for the majority of well-off United States residents. Average US$ 23, 454 was not an obstacle for the future owners of the GM cars, and even the financial crisis didn’t hinder them from planning the purchase. Furthermore, in early 2007 when the average price was US$ 25,617 the demand was lower (7% of those wanting did not obtain their cars and related goods). It shall be noted, that 2007 is subdued to the category of the pre-crisis years.
From this simple equation it becomes visible that along with the decrease in price the demand for the output of the General Motors keeps on skyrocketing.
The equilibrium price is the average price given for the certain type of the commodity by the market , with the establishment of the which the entire supplies of the company are sold out , and the demand keep on to grow. Regarding the present financial situation of the company, it may be easily noted that the equilibrium price for the commodities following the Maslow equation is 24, 334 US dollars. On this price level, the entire supplies of vehicles and auto-related commodities would be momentarily purchased by the firm, while there will be no longer those wishing to buy more production. Therefore, the market situation would be perfect: neither the demand, nor the supply would exceed each other. The optimal numbers of the cars distributed along thee country is something between 123 000 to 125 000 cars annually. This amount does seem to be sufficient to satisfy both the growing and the existing needs of the present United States of America existing and prospective automotive community.
Having analyzed the current economic and market situation with general motors and its subsidiaries companies it becomes visible that the average for the vehicles and auto-related commodities manufactured by the company are excessively elastic from the elasticity point of view. In particular, even the slightest changes in prices may considerably affect the demand for the output. It was reported that shall the price be minimized on 5 %, the demand would respectively grow on 15%, and vice versa: if the price is heightened the demand would be accordingly diminished.
The current demand situation on the national level ( US sales only, about 134 000 sales in aggregate annually) demonstrates the financial team that the excessive elasticity at hand shall be particularly accentuated by the managers of the company. This mechanism shall be permanently leveraged and widely applied. In other words, the level of the price shall be minimized to the least acceptable level, hereby enabling the demand to increase to the highest possible marks. Following this management strategy, the accrued profits can be substantially maximized and the optimal financial model can be attained. Overall, the ever-increasing demand for the output of General Motors products must dictate the managers that the fiscal policy of the company must be reconsidered.
Following the calculations, the elasticity is stipulated on the level of + 0, 7 (very elastic price).
The above discussed elasticity model is applicable for the nearest competitors of the company in general and for Toyota and Volkswagen in general. If the above calculated elasticity model is applied by those companies, the competitors may create a prolific conditions for supplanting General Motors from both national and international markets. The firm at hand can be heavily assailed and eventually economically “killed” by the competitors even they possess such and elasticity at their disposal.
To evidence the above stated speculation, the one should refer to early 2000s. According to the statements released by the Toyota officials, in particular to the annual financial statements published by the firm, the elasticity of the Toyota output was at the same level, than the elasticity is today for the General Motors. Fortunately, that time Toyota failed to use the advantage, although leading scholars with the industry anticipated that General Motors could have been easily ousted both in its domestic markets and internationally. According to the leading professors, market analysts and other scientific luminaries, although financial collapses were not reported the company was virtually on the verge of the economic catastrophe, if Toyota acted more aggressively and resolved to diminish the prices and revenues accrued accordingly in order to conquer the market and to oust GM permanently.
In accordance to the recently published financial statements of the company, total costs of the firm amounted for US $ 50 billion for the latest quarter of 2011. Total variable costs were on the level of 11 billion US dollar, marginal costs US $ 5 billion and fixed costs on the level of US $20 billion. Having analyzed these values it must be noted, I reached the conclusion that the fiscal planning and scheduling of the company has been meticulously calculated and assessed. If the ration of marginal costs to total costs does not exceed 5 %, it signifies that the firms capacity is stable and the firm is capable of remaining afloat, if the crisis times strike hard.
In order to increase the profits, all types of costs shall to be minimized to the highest possible level, although the quality of the output must remain unaffected. In particular, from the above presented graphs it is visible that if both marginal and operating costs are respectively diminished, the revenues of the firm are likely to increase.
In order to maximize the profits, the firm shall definitely act more aggressively. In particular, the costs must be cut, as it has been revealed in the previous assignment. Then, the elasticity of the price shall also be accentuated. With the certain degree of certainty it can be recapitulated that the price can be continuously increased to the certain figure, hereby increasing profits and remaining the sales unaffected.
In my personal opinion, two strategies do seem to be feasible for this operation. First and foremost, a huge state loan may be applied for in order to finance the operation, because it is highly doubtful that the firm can properly finance the project confined to the limits of its own resources. The second prospective and feasible strategy involves entering into the lease agreements with the nearest competitors of the firm. Both approaches may facilitate in accumulating the amount necessary for the implementation of the projects which require capital budget decisions.
As far as the globalization of markets is concerned, two major strategies do seem to be acceptable for the firm of such scale. Considering the saturated nature of both Asian and European markets, the firm undoubtedly has to consolidate the efforts with the local biggest producers and to divide the market on the agreement basis. Otherwise, the’ invasion’ to the market may be of no avail, primarily due to the fact that local competitors are more adapted to the business intercourse within the area of their practice. Therefore , a strong and permanent cooperation is necessary.
The second strategy involves the implication of the team of high skilled professionals, who are capable of accumulating and proper application of both experience and theories. This team is designed to adapt the purely American manufacturer to the realities of European, Asian and African markets. Following these two schemes, foreign markets can be operated by General Motors.