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New GM: Going Green & Global

On August 20, 2010 Rick Wagoner, the Chief Executive Officer of GM, sat in his office
contemplating the events of the last two weeks and debating his next move. Sales rate of vehicles
in China recently started declining in first 8 months of 2010. The trend shows that many leading
dealerships across the country are less likely to purchase the cars and trucks in the coming
months. Rick Wagoner was put in a crisis that threatened the momentum gained from a highly
successful four-year marketing campaign in China that had given GM leadership over Toyota.
On August 5th, China’s State Environmental Protection Administration (SEPA) focused on
environmental sustainability issues and implemented EURO IV Emission Standards and issued a
press release stating: "Vehicles being sold in Beijing and Shanghai don’t meet the Emission
Standards set by SEPA". According to tests conducted by SEPA from April to August, more than
20% of GM’s vehicles from across two cities were found to have higher level of carbon dioxide
emission than was regulated by SEPA Emission Standards. In reaction to this report, the Chinese
government suspended GM vehicles for an unspecified period of time. GM’s own tests
conducted at an independent plant showed no evidence of the claims made by SEPA.

Background & Trend

General Motors is one of the world’s largest automakers and it’s been producing cars and trucks
in 31 different countries and serving these vehicles through the brands: Cadillac, Chevrolet,
GMC, Daewoo, Opel, etc. GM employs 205,000 people in every major region of the world and
does business in 157 countries. GM’s largest national market is China, followed by the United
States, Brazil, and Germany.

“From day one, GM and our partners have been committed to continually rolling out new and
upgraded models with specific engineering done in China for China to satisfy the needs of
Chinese vehicle buyers across the country,” said GM Chief Executive Officer Rick Wagoner.

GM is profitably utilizing China’s well-known pollution problem as a means of strengthening its

market share in the world’s largest and fastest-growing automotive market. More than 7 million
cars were sold in China in 2006, already outpacing Japan. General Motors sold 4.58 million more
vehicles in the first nine months of 2007, a 23.8% jump from the year before 1. By establishing a
$250 million research and development center in Shanghai, specifically for eco-friendly
technology development such as alternative fuels, hybrid cars, and more efficient power trains,
GM’s remarkable performance in China has acquired an international recognition.
1
According to a research conducted by Gasgoo, China’s largest automotive B2B marketplace, GM’s overall auto
sales in China increased to a great extent. p.6
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GM’s performance in America and Europe, however, seems to be exactly opposite 2. GM had a
tumultuous 2009 that saw it enter and exit bankruptcy. Although GM isn’t disclosing it profits in
China, they are estimated around $400 million or perhaps $500 million in 2009 when the
Chinese automotive market had such a good year. “Half a billion in profits is not going to save a
company that is losing $1billion-plus a quarter in the United States 3,” said the GM insider. “But
without China, GM probably cannot be saved at all”.

According to Kevin Wale, president of GM China, the company would continue its China-
focused investments and he added that GM would spend about $ 1 billion a year on production
and sales in China over the next five years through Bloomberg News. Although this huge amount
of investment, analysts are saying it’d be difficult for GM to maintain the current performance in
China. Ashvin Chotai, an analyst with Global Insight Inc., said "Even with this $1 billion a year,
it’ll be tough to remain No. 1 in China. With China becoming the most important strategic
market in the world, it’s crucial to have their investment to stay in the race."

Automotive Industry & Its Opportunities in China

China’s automobile industry has been in rapid development since the early 1990s and China has
become the largest auto market in the world within a decade. China underlined the power shift
from Western auto market to Asia as data confirmed that the sales of vehicles in China shot up in
2009 and the government announced that China has already become the leading automotive
market in the world, several years ahead of expectation. More than 55% of the vehicles are
manufactured by joint ventures with foreign auto makers such as Volkswagen, General Motors,
Hyundai, Honda, Toyota etc.

By cutting the purchase taxes in half for every size of vehicles in January 2009, the overall
vehicle sales in China was boosted up and the momentum seemed to last throughout the year. “A
car has become the new ‘must have’ for a lot of people and purchasing a car is considered
essential for households, businesses, and local industry,” said an executive of an automaker
company in Shanghai. According to a report released in Shanghai in September 2010 by
AlixPartners, the automotive industry consultancy, China last year was required to supply almost
half the world’s heavy and medium commercial vehicles due to strong local demand and it was
obviously considered as huge opportunities for foreign automakers. China was the only major
market to show growth in the number of vehicle sales in 2009, up 22 percent from a year ago,
according to AlixPartners. China’s vice-minister of industry and information technology said the
sales of vehicles in China would rise about 15 percent in 2010.
2
According to the report released by New York Times, GM’s auto sales and its market share in United States had
dramatically declined in 2008. p.6
3
The market share of auto market in United Stated has been declining continuously. On the other hand, the market
share of auto market in China has been increasing. p.7
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Due to rapidly expanding the number of cars in China, the pollution problem obviously has
become an epidemic. Consequently, Chinese government has decided to encourage the
development of clean and fuel-efficient vehicles in an effort to sustain continued growth of the
country’s automobile industry, at the same time, to prevent the natural environment. Priority is
given to facilitating the research and development of electric and hybrid vehicles as well as
alternative fuel vehicles, especially CNG/LNG. China’s State Environmental Protection
Administration (SEPA) upgraded emission controls and major cities like Beijing and Shanghai
already introduced Euro IV emission standards. Along with the rise of strengthened emission
standard, the competition between the foreign automakers towards larger share of hybrid market
is at the peak.

GM: Mind-set and Actions towards Green Hallmark

Until late 1960s, few people and businesses paid attention to the environmental consequences of
their decisions and actions. However, a number of environmental disasters brought a new spirit
of environmentalism to each individual, green consumers started emerging. Along with the rise
of the green customers, companies find opportunities and try to meet their customers’ need in
variety ways such as establishing R&D center to develop eco-friendly products or building green
brand image to their customers. A lot of customers and companies now-a-days tend to pick eco-
friendly product rather than a basic feature product4.

GM, as a responsible corporate citizen, has realized how important being socially responsible is.
And as an automaker in these times, they are striving to lead edge of technology development
that will help to reduce the impact; their products have on the environment. In designing new
vehicles, they use recycled and bio-based materials from renewable resources whenever
economically and technically feasible. GM also knows that as demand for automobiles grows
around the world so does the need for energy. So they believe their success depends on their
ability to develop advanced technologies and solutions that help make the vehicles more
sustainable.

In order to build ‘Green’ brand image, GM adopted environmental principles to serve as a guide
for all GM employees worldwide. They encourage environmental consciousness in both daily
conduct and in the planning of future products and programs. GM is striving to gain green
hallmark on their vehicles as a symbol of ‘Green’ and it seems they have achieved it to some
extent as Jacob Jome, the professor of chemical engineering in university of Rochester, said
“GM stands for Green Motors, the mark of excellence. A company exclusively dedicated to
green automobiles.”
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According to survey “Corporate Environmental Behavior and the Impact on Brands” shows that people would
prefer to work for a company that has a good reputation for environmental responsibility and also would be more
likely to purchase products of services from a company with a good reputation for environmental responsibility.
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Competitors in Hybrid Auto Market

The automotive industry is one of the most competitive areas in the world. Innovation has long
been an industry hallmark and, as oil hovers near $100 a barrel, fuel efficiency has emerged as
the latest way to get ahead in the race for auto sales. Soaring gas prices and environmental
concerns also have blown the door wide open for fuel-efficient hybrid cars.

Toyota, GM’s arch-rival, is the world leader in hybrid technology. The company sold 277,750
hybrid vehicles in 2007, up 44% from a year ago. Toyota’s Prius, Camry, and Highlander are
considered the best hybrids on the market today. Infact, the Prius is the industry’s best-selling
hybrid vehicle. Toyota’s successful innovation has led itself to acquire the world-class reputation
in hybrid auto market and its hybrid cars were considered as a bold attempt to capitalize on a
market shift toward fuel-efficient and eco-friendly vehicles. “This is classic Toyota,” Erich
Merkle, of automotive forecasting firm IRN, told BusinessWeek. “They’re positioning
themselves ahead of the curve, preparing products for a generation of consumers that is still
coming up.”

Wagoner, GM Chief Executive Officer, expected that GM alone will get 75% of its car-and truck
sales from outside the United States in the next decade but this was seen as a staggering
assertion. Although GM has been one of the biggest names in the American automotive industry
since 1908, it’s become increasingly clear that global diversification is the way of the future, and
GM and Toyota aren’t the only ones capitalizing on the trend5.

Future Innovation at GM
GM is developing the “Volt” and its still-unproven technology in parallel on one of its briskest
development schedules ever. It aims to start selling the car by late 2010 and, in so doing, wrest
industry leadership on environmental issues from Toyota, it’s arch-rival. The battery-testing
facility at General Motors in Michigan is operating 24/7 on the Chevrolet Volt, the electric car
which is the “number one priority” for the company at the moment. A mission statement for the
Volt's "E-Flex" technology lists among the car's goals that it "radically shifts GM's public
perceptions".

GM has global ambitions for the Volt, which, unlike Toyota's Prius and other hybrid petrol-
electric cars on the market, promises a 40-mile drive on pure electric power, and can be
recharged at a cost of about 80 cents.
5
According to a research conducted by Gasgoo, China’s largest automotive B2B marketplace, Ford’s overall auto
sales in China also increased but less compared to GM. p.8
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"This will be a global car - right-hand drive, left-hand drive, compliant with regulations
everywhere," Bob Lutz, GM's vice-chairman of global product development, said as the
company opened the programs door’s to media.

The brisk time-table poses risks, notably the reliability of the advanced lithium-ion battery packs
that will power the car, which can malfunction if just one cell is damaged. Toyota is developing
its own plug-in hybrid vehicle using different lithium-ion technology but has made no
commitment to launching mass-market sales. To compress tests of the batteries over a 10-year
life into just two years, GM is running battery-cycling equipment around the clock in Michigan
and Germany. The batteries, being developed for GM separately by Germany's Continental and a
subsidiary of South Korea's LG Chem, will soon be integrated into "mule" vehicles for on-road
tests.

The Japanese carmaker sold more than 180,000 of its Prius cars in the US last year and claims
some 80 per cent of global hybrid sales. It uses the Prius to promote its overall green credentials,
to the irritation of GM and other rivals. GM, however, says the Volt will outclass the Prius with
an extended range that approximates to the average American commute, meaning most drivers
will rarely tank up.

As it develops the Volt, GM's main rival might again be Toyota, which is developing a plug-in
hybrid vehicle with a longer pure-electric range than the Prius. Rivalry with Toyota aside, GM's
hand is being forced by America's tighter fuel economy regulations and rising petrol prices.
Other carmakers are also accelerating work on electric cars.

Rick Wagoner’s Dilemma

As he contemplated the crisis at hand, Rick Wagoner questioned what action if any was
necessary. GM was well within United States legal guidelines and the crisis had not been widely
reported outside of US. Rick Wagoner knew that China had a short attention span and had reason
to think that it wouldn’t be long before the SEPA’s report faded. On the other hand, he wondered
if the situation might offer the company an opportunity to display higher standards of social
responsibility at a time when it needed to differentiate itself from the competition. Multinationals
had slipped in numerous situations of late and were blamed for not adhering to the same
standards in developing countries as in industrialized nations. The additive effect of this negative
press meant that the potential damage to GM’s reputation was even greater. Finally, an
ineffective resolution would be a devastating blow to the momentum GM had gained after four
long years of work on the marketing front.
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Exhibit 1 General Motors Auto Sales in 2008 and 2009 in China

*Source: http://www.gasgoo.com/

Exhibit 2 General Motors Auto Sales in China and United State

*Source: http://www.money.cnn.com/
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Exhibit 3 July 2008 Automobile Sales and Comparative Market Share in United States

Exhibit 4 Ford Auto Sales in 2008 and 2009 in China

*Source: http://www.futurelab.com/
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Exhibit 5 Ford Auto Sales in 2008 and 2009 in China

*Source: http://www.gasgoo.com/
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References
http://www.financialtimes.com

http://www.wikipedia.com

http://www.money.cnn.com

http://www.futurelab.org.uk/

http://www.gm.com

http://www.ford.com

http://www.moneymorning.com

http://www.gasgoo.com

http://en.rian.ru/

http://www.toyota.com