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International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 Volume 5, No. 5, May 2016

i-Explore International Research Journal Consortium www.irjcjournals.org

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The American Auto-Market Leaders in Comparison: A study of

Strategies and Business Models of Ford Motor Company and

General Motors Company

Abeer Alhalabi, MBA Student, University of Bahrain, Kingdom of Bahrain

Mariam Ali, MBA Student, University of Bahrain, Kingdom of Bahrain

Dr. Shaju George, Assistant Professor, Department of Management & Marketing, College of Business Administration,

University of Bahrain, Kingdom of Bahrain

ABSTRACT

The purpose of this comparative research is to firstly,

screen the definition of a strategy and a business model of

a company according to many researchers. Secondly,

concentrate on two automotive companies’ strategies and

business models, namely Ford Motor Company and

General Motors Corporation, to identify similarities and

differences and analyze their competitive environment

using SWOT analysis and Porter’s Five Forces Model.

Ford and GM are deliberately chosen due to their strong

position in the US auto-industry. This industry is very

competitive where all players need to stay strong and

maintain a high market share in order to survive. The final

section of this paper involves a short comparison of the

two companies’ overall profiles, financial situations

including their financial key statistics. They are compared

to examine the commonalities and differences of the two

companies operating in the same industry facing almost

the same threats, and having similar opportunities. This

allows for a better understanding for the two out of the

‘big-three’ major American automotive industry (GM,

Ford and Chrysler).The data was collected from

secondary sources like published journals, books,

websites, case studies and annual reports of the two

companies. The final findings show that Ford concentrates

on cost leadership strategy aligned with its business model

of ‘One Ford’, whereas GM emphasizes on the

differentiation strategy aligned with its ‘Pyramid Profit’

business model.

INTRODUCTION

Over the years since the strategy terminology was used,

many of the scholars are trying to define the word strategy

in different ways. However, all definitions were meeting at

the end to be defining strategy as designing the future on

solid bases today, gathering all the strengths and the

available opportunities you have, in addition to study all

possible threats and weaknesses existing in order to plan

ahead the future events in a proper way that matches your

vision and mission

According to Mintzberg (1996), a strategy describes how

the end goals will be achieved by the means of resources.

This is generally tasked with determining strategy.

Strategy can be intended or can emerge as a pattern of

activity as the organization adapts to its environment or

competes.

Strategy concept goes by age to the terminology, which

was used by the Greeks in their military implication. The

term derives from the Greek “strategos”, translated as the

general in command of troops or the plan of the

destruction of enemies through effective use of resources.

This term in itself contained the idea of objectives to be

achieved and plan of actions to be performed in various

scenarios, depending on the enemy‟s behavior (Bracker,

1980). However, it was extended later to a larger scope to

be used in business management. Strategy commonly

comprises of setting goals and defining actions to achieve

that goals, and utilizing resources by executing the actions.

Many scholars have defined strategy in different words,

but all together form at the end the same meaning that

cross anyone‟s mind when the word “Strategy” is heard.

That is why a “Strategy” is defined depending on the

situation or the status of each one differently.

In general strategy is an art and in order to able to build

strategies, a strategist has to tailor, draw, paint, design, and

polish his/ her ideas and thoughts and turn them into a

bright full, well-designed and meaningful strategy. And

whenever that strategy is no longer effective, it has to be

revised and rebuilt to cope with the current environmental

changes.

LITERATURE REVIEW

Definition of Strategy

Steiner (1979) notes that strategy entered the management

literature as a way of referring to what one did to counter a

competitor‟s actual or predicted moves. He points out in

his notes that there is very little agreement as to the

meaning of strategy in the business world. Steiner has

defined strategy with several definitions, one of which is



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that strategy describes what top management does that is

of great importance to the organization. Also he referred to

strategy as the basic directional decisions, that is, to

purposes and missions. Each strategy involves the

important actions necessary to realize these directions. A

strategy isoughtto answer the questions „what should the

organization be doing?‟ and „what are the ends that the

management seek and how should they achieve them?‟

Porter (1996) argues that competitive strategy is about

being different. Also he says, it means deliberately

choosing a different set of activities to deliver a unique

mix of value. In brief, Porter argues that strategy is about

competitive position, about differentiating yourself in the

eyes of the customer, about adding value through a mix of

activities different from those used by competitors. It

means deliberately choosing a different set of activities to

deliver a unique mix of value. Earlier Porter (1980)

defined competitive strategy as a combination of the goals

for which the firm is striving and the means by which it is

seeking to get there. Thus, Porter comprises strategy as

plan and position.

Andrews (1980) defined corporate strategy as the pattern

of decisions in a company that determines and reveals its

objectives, purposes, or goals, produces the principal

policies and plans for achieving those goals, and defines

the range of business the company is to pursue, the kind of

economic and human organization it is or intends to be,

and the nature of the economic and non-economic

contribution it intends to make to its shareholders,

employees, customers, and communities.Strategy is

defined as a pattern in a stream of decision. However, the

usual definition of "strategy"encourages the concept that

strategiesare deliberate plans considered in advance of the

making of specific decisions (Mintzberg, 1978).

According to Chandler Jr. (1962) strategy is the

determination of the long-run direction of goals and

objectives of a business, the adoption of courses action

and the allocation of resources essential for carrying out

those goals.

Definition of Business Model

A business model is portrayed as a plan that an

organization executes to produce income and earn profit

(Investopedia, 2016). ). A business plan is also seen as the

way a business profits or expects to profit. It has only been

well known in the late 90's which was predominantly

because of the expanded inflation in the IT and Telecom

Industry (Osterwalder, 2005). Business Models are said to

be connected to technological development, nonetheless,

they are still separate from innovation. A business model

is characterized as "a system that solves the problem of

sensing customer needs, engaging with those needs,

delivering satisfaction and monetizing the value" (Baden-

Fuller & Haefliger, 2013).

A business model can be both simple and complex

(Investopedia, 2016) A more complex definition of a

business model is that it is seen as a set of decisions forced

by the senior management of a firm (Masanell & Heilbron,

2015). The business model of a firm thus helps the senior

management detail the decisions that a firm imposes on

the agents who work for it (Amit & Zott, 2001).

Strategy Perspective

According to Zellman (2016), a strategic perspective

determines how the company views and solves important

issues. Putting the word perspective before the word

“strategy” indicates a tactical, carefully formulated

approach.

The challenge of differentiation is to identify salient points

of differences that are not cosmetic or transitory, but

rather, are sustainable. This can be an elusive quest given

the ability of companies to quickly imitate one another in

the contemporary environment, yet some companies have

achieved such sustainable differentiation through their

business models. Sustainable strategic positions tend to be

designed around one of the following five bases of

differentiation: operational excellence, product capabilities

(e.g., quality, selection, availability, features), innovation

leadership, low cost, or intimate customer relationships or

experiences. (Morris, Schindehutte, Richardson, & Allen,

2006)

Mintzberg (1987) has introduced strategy as 5 Ps – plans,

ploys, patterns, position and perspective. He described a

plan as some sort of consciously intended course of action.

This definition appeals to logical viewers of strategic

management rather thank opportunistic viewers. A ploy, is

a sub-set of a plan, and is a strategy in the sense of a

stratagem. While a pattern, is the consistent behavior and

processes, which emerge from strategic thinking whether

by intended or unintended actions. Position, refers to an

acceptable location for the organization in relation to its

competitors in the environment and its market share.

Perspective is described as looking inside the organization,

indeed inside the heads of the collective strategist. It

consists of an ingrained way of perceiving the world.

Those five Ps dominate together Mintzberg view of

strategy.

According to Cole (1997) as demonstrated by Johnson and

Scholes (1993) there is another view of strategy that

categorises a number of different approaches to strategy.

Different views are the natural selection view, when

organizations are under great environmental pressure and

have constantly to adapt to changes in their environment.

The planning view, where strategy comes about though

highly systematised forms of planning; this is the rational

approach to strategy. On the other hand is the logical

incremental view, which is an evolutionary step-by-step

approach to strategy. The cultural view that is an approach



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to strategy based on the experiences, assumptions and

beliefs of management over time. Moreover, the political

view, where strategy emerges after a variety of internal

battles of trading interest and information. Last is the

visionary view, where one individual, or a small group

who have a particular vision of where the organization

should be dominates the strategy.

At the end of the day, each company decides on the

perspective depending on its type of business and other

factors that determine the best perspective to be used.

Business Model Perspective

With the increased need to define and study different and

new types of businesses, the concept of business model

began at the end of the 20th

century (Alt & Zimmermann,

2014).

A business model is conceptualized as a system of

dependent activities that surpasses the vital company and

lengthens its borders. The activity system perspective of

business model is seen to create value and also to

appropriate a share of the value. Two sets of parameters

are recommended when using the activity system in

designing a business model; design elements and design

themes. This perspective on business model design is

consistent with the literature associated with this topic.

There are several advantages to using the activity system

perspective. First, focusing on activities is a natural

perspective. Second, it supports the firm in systematic and

holistic thinking in designing business models, and not

concentrate on disengaged decisions. Third, gives us the

chance to reduce several assumptions made in the

transaction cost economics (TCE) literature. Fourth, it

provides opportunities for further theoretical and empirical

development and modification (Zott & Amit, 2010).

Another perspective to designing business models is

sustainability (Schaltegger, Hansen, & Freund, 2015). The

business model perspective is increasingly inspiring in the

context of sustainability due to the aim of value creation of

a firm and its effects, which results in forming a

reasonable profit making model (Porter & Kramer, 2011).

Further research must be made on business models for

sustainability to develop the theories so as to contribute

viably to the improvement of the economy and the society

(Schaltegger, Hansen, & Freund, 2015). Future research

areas that are considered crucial for the improvement of

business research model are innovation, change and

evolution (Wirtz, Pistoia, Ullrich, & Gottel, 2015).

OBJECTIVES OF THE STUDY

1. To scan the competitive environments of General

Motors and Ford.

2. To identify the strategies adopted by General

Motors and Ford.

3. To identify the business models of General Motors

and Ford.

4. To compare the strategies and business models of

General Motors and Ford.

METHODOLOGY

The methodology used in this paper comprises two main

steps. First, collecting relevant secondary data and

information for each company from published journals,

books, websites, case studies and annual reports. And

second, comparing the two companies by assessing the

commonalities and differences of each among their

strategies, business models, competitive environments,

and their financial positions in the market and their market

share in the automotive industry.

COMPANY BACKGROUND

Ford

The Ford Motor Company is an American multinational

automaker, headquartered in Dearborn, Michigan. It is

directed by William C. Ford, Jr. as an Executive chairman

and Mark Fields as a President and CEO to Ford.

(Wikipedia, 2016)

The company was found by Henry Ford and was

incorporated on June 16, 1903. Ford is a global automotive

industry leader. It manufactures and distributes

automobiles across all the world. Ford was the first behind

the idea of mass production. Ford's ability to make

automobiles affordable for the masses is cited as a driving

force behind both the automobile industry and the creation

of a middle class in America. Ford introduced methods for

large-scale manufacturing of cars and large-scale

management of an industrial workforce using elaborately

engineered manufacturing sequences typified by moving

assembly lines; by 1914 these methods were known

around the world as Fordism. (Letha, 2013)

With about 199,000 employees and 67 plants worldwide

(Ford Motor Company, 2015), the company‟s automotive

brands include Ford and Lincoln. The company sells

automobiles and commercial vehicles under

the Ford brand and most luxury cars under

the Lincoln brand. In addition to trading motors, Ford

affords financial services through Ford Motor Credit

Company. Ford products are mainly automobiles, luxury

vehicles, commercial vehicles and automotive parts,

perhaps no longer, in the past it has produced tractors.

However it provides other services such as automotive

finance, vehicles leasing and vehicles service. (Wikipedia,

2016)

https://en.wikipedia.org/wiki/List_of_Ford_vehicles



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Ford went public on Jan. 17, 1956 when Ford motor stock

had been traded as “F” on the New York Stock Exchange

NYSE and become one of the world's most widely held

and most actively traded. The 1956 IPO was a rousing

success. (Henry, 2003)

While Ford is publicly listed on the NYSE, the Ford

family remains controlling it. Although they have minority

ownership, but the special class of stock “Class B” voting

stock - which was introduced to circumvent the

inheritance taxes - represented only 5% of the company

had entitled them to the 100% of the shareholder votes.

Today the Fords collectively own less than 2% of the

automaker, but they remain firmly in control with 40% of

the voting power. (Muller, 2010)

Besides Ford‟s own business, it possesses also the

Brazilian SUV manufacturer, Troller, and the Australian

performance car manufacturer FPV. Additionally, Ford

owns a 2.1% stake in Mazda of Japan, an 8% stake

in Aston Martin of the United Kingdom, and a 49% stake

in Jiangling of China. It also has a number of joint

ventures in China (Changan Ford Mazda), Taiwan (Ford

Lio Ho), Thailand (AutoAlliance Thailand), Turkey (Ford

Otosan), and Russia (Ford Sollers). (Wikipedia, 2016).

General Motors

General Motors Company (GM) is an American

multinational enterprise headquartered in Detroit,

Michigan, USA. It plans, manufactures and offers autos,

hybrids, trucks and vehicles parts. It also offers autos and

trucks to merchants for consumers, including day by day

car rental organizations, leasing organizations, and

governments. It also offers associated security and

mobility solutions and information technology services.

The company through its auxiliary, General Motors

Financial Company, Inc. gives car financing services. It

has around 215,000 employees and present in 6 continents.

It has more than 20,000 merchants in 140 nations (General

Motors, 2016).

There are 9 distinctive automotive brands owned by

General Motors Company, namely, Chevrolet, GMC,

Buick, Cadillac, Opel, Vauxhall, Holden, Baojun and

Wuling and Jiefang. In 2015, GM delivered over 9.8

million vehicles world-wide, earning a total revenue of

152.4 billion US dollars, and a net income of 9.687 billion

US dollars (Yahoo.Finance, 2016).

The beginning of GM can be followed back to the year

1908. Its founders include William C. Durant and Charles

Stewart Mott. It became a public company and was

incorporated in the year 1916, and is listed in several stock

exchanges like in New York, Toronto, Frankfurt,

Euronext, Paris and London (Reference for Business,

2016). The current CEO of GM is Mary T. Barra who was

elected as CEO in January of 2016 and had been serving

GM as their General Manager since January of 2014

(General Motors, 2016).

COMPETITIVE ENVIRONMENT

Michael Porter has developed the Five Forces analysis

model for analyzing the external factors in firms‟ industry

environments. In this paper, this analytical model is used

to analyze the competitive environment of GM and Ford.

The following summarizes the automotive competitive

environment using Porter‟s five forces analysis (Ferguson,

2015; UK Essays, 2015).

Competitive Rivalry: This refers to the competing firms

that influence the industry environment. The automotive

industry is highly competitive. Some of the top

competitors of GM and Ford include Toyota, Chrysler,

Honda and Nissan. The figure on next page shows the US

market shares of the top automobile producers as of

February 2016.

The tough competition arises from rivals who aggressively

innovate and market their products. Also, the automotive

industry has high exit barriers, which means that firms

would rather keep competing in the industry than to close

their business, because of the high costs and investments.

Bargaining Power of Customers: The bargaining power

of buyers in the industry is high. This is because of the

increased use of technology and globalization. Customers

of this industry have moderate switching costs that they

can easily transfer to other firms. In addition, the moderate

availability of substitutes gives customers the option to

move away from Ford and GM. Auto-buyers these days

know what they are buying and how much they should pay

for what they buy. This induces dealers to provide extreme

discounts giving the buyers higher bargaining power.

Bargaining Power of Suppliers: The bargaining power of

suppliers in the industry is moderate. The moderate overall

supply and moderate population of suppliers give suppliers

significant but limited bargaining power on firms like Ford

and GM. Suppliers have the power to reduce quality or to

raise prices. But the number of suppliers in the automotive

industry is enormous. For Ford, the suppliers‟ bargaining

power is weakened because of its backward vertical

integration through the Ford River Rouge Complex.

Through the Complex, Ford produces some of the

materials it uses to manufacture cars and related finished

products. For GM, raw materials and machine parts

suppliers‟ threat is very low, because there are a lot of

suppliers for those parts.

https://en.wikipedia.org/wiki/Troller



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Source: www.statista.com

Threat of Substitutes: The threat of having substitutes is

high in this industry due to the recent high increase in oil

prices, lack of credit and increased environmental

awareness. There are considerable substitutes including

public transportation and bicycles. In addition, the

switching costs are low because, even though Ford‟s and

GM‟s customers can shift to using these substitutes, they

cannot easily do so when they are still paying for their car

loans. Also, in many instances, these substitutes have

lower performance than the companies‟ products in terms

of convenience and safety.

Threat of New Entry: The threat of entry in the industry

is weak. The barriers of entry are high and the capital

available is minimal. These companies committed to huge

spending to set up and maintain their businesses and

facilities. These costs are a barrier to entry that weakens

the threat of new entrants. In addition, it is costly to

develop a strong brand comparable to Ford‟s and GM‟s,

thereby making it difficult for new entrants to effectively

compete against industry giants.

COMPANY STRATEGIES Ford

The organization of Ford is using differentiated strategy in

their businesses. This strategy is to target two or more

segments by developing marketing mix for each segment.

Ford Motor Company is designed to appeal to many

different types of consumers and to satisfy many different

needs in the form of economy cars, sports cars, luxury

cars, station wagons, vans, trucks, and so on. Ford

produced Ford Fiesta car, which was focused on young

people and ladies. (Letha, 2013)

Ford has applied Six Sigma to control systems by

eliminating data-driven defects. Particularly, Ford has

been regarding DMAIC approach of Six Sigma projects

that includes following steps of the process; which are

Define, Measure, Analyze, Improve and Control

(Thompson, 2007).

Ford has been using different promotional strategies to

maintain their marketing edge over the competitors. The

advertisements and logos with attractive strap line,

amazing designs and advertisement are giving edge over

competitor‟s activities. Ford‟s promotional strategy has 2

http://www.statista.com/



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types of promotion such as above the line promotion and

below the line promotion (Letha, 2013).

By means of its promotional strategy, Ford builds long

lasting relationships with its previous and loyal customers

as well as with new potential customers. Even though Ford

has no longer been sponsoring sporting events, this

exclusive opportunity gave them a unique advantage in the

competitive market. Sponsorship times had helped them to

tap the sports passion of the customers and soared its

brand name and image high in the eyes of fans and

customers alike. They had been successfully handling the

promotional side of the business with tactics to develop

their brand image. And recently Ford has introduced

certain changes in its promotional strategy notably it will

use “push” strategies for traditional segments and “pull”

strategies for new segments (David, 2015).

Sponsorship campaigns play a vital role in Ford`s public

relation strategy and has two major objectives. One is to

reinforce and further build the Ford brand recognition, the

other is to achieve a good connection between Ford and its

potential customers (BusinessCaseStudies, 2016).

Ford has implemented its own pricing strategies, which are

more demand, or market based pricing. Ford used new

strategies called “Blue Tag”, the reduction in the

recommended list price of small and medium cars in

addition to reducing the dealers‟ discount; is expanding

from its large car to the small car range. The price

reductions are between 6%-15% on the Ford Fiesta. The

Ford Motor Company is setting two types of price, which

is price skimming and penetration pricing in the market

industry (Letha, 2013).

Ford applies penetration-pricing strategy wherein prices

are artificially low in order to attract a large number of

buyers quickly and to gain market share. This is a good

strategy to use if there are many competitors. Profits are

not a concern under this strategy. The most important

thing is to get your product known and worry about

making money later. (David, 2015).

Ford's pricing strategy for passenger vehicles (PV) and

commercial vehicles (CV) is set to strengthen the brand's

appeal for retail customers and is called up to bring

benefits to ultimate consumers. Ford strives to maintain a

balance between quality and technically advanced features

that eventually results in a competitive price. The

reasonable prices of the products and its capacity of saving

via low fuel consumption and low maintenance costs have

also made it a favorite with low-income group of

consumers (Bhasin, 2016).

Business challenges such as minimizing warranty costs

related to software, managing the growing amount of

software in vehicles, reducing escalating software

development costs require Ford to come up with a new

way of doing business, a new way of testing, validating

and managing the software content that goes on Ford‟s

vehicles. This has been a key deliverable affecting future

quality as well as the future cost of Ford products. Since

reprogramming a controller is much quicker than a

hardware replacement, this reduces the cost of repairs. It

also eliminates concerns about a part being out of stock, or

the customer having to leave the car overnight, or the

introduction of a squeak or rattle during the repair

(Siemens, 2016).

Ford classified the brand names of midsize, elegant and

generous cars by research techniques. Ford uses the blue

oval that designates Ford brand to determine price and

value added to the cars. The Ford oval symbol has a

historical value for Ford Motor Company and it is one of

the most recognized trademarks in the world. (Letha,

2013)

Source: www.slideshare.net

General Motors

General Motors is seen to be the largest automobile

producer in the world since 1908. In the beginning, GM‟s

strategy used to be product differentiation, by having a

wide variety of vehicles. This strategy was indeed planned

as mentioned by GM‟s CEO in the 1920‟s that “GM

makes a car for every purse and purpose”. This strategy

proved to be successful up until the 20th

century where

level of competition rose significantly and different types

of threats emerged. It seemed to be no longer effective

because GM couldn‟t give each brand the resources and

attention they needed (Boe, Ketler, O'Keefe, Rubenstein ,

& Siverio, 2009).

GM reduced the expenses of some brands like Saturn and

Hammer. They also reduced the pay of employees. GM

also had a cultural change where they reduced the number




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of board members which was done to improve the day-to-

day activities and the efficiency of employees (Hashim,

2014).

According to Mathew Norton (2015), GM was compelled

to take on certain strategies due to the economic crisis in

recent years. However, GM followed three main strategies

and was able to recover its market share and remain one of

the top three auto-producers in the world. Some of the

strategies GM followed were that it started to consider

green movements and the effects of global warming on

society. It thus is aiming at being more sustainable and

environmentally friendly and was forced to catch up with

auto-producers who were environmentally friendly. GM

began to consider fuel efficient vehicles including electric,

hybrid and FLEX fueled automobiles.

Lower cost strategy, which is the ability of a company to

design, produce and market its products more efficiently

than its competitors; and differentiation strategy, which is

the ability of a company to provide unique and superior

value to its customers; remained the mostly used strategies

by GM over the years. GM follows different strategies like

applying technology to its vehicles, producing at the

lowest cost possible, improving the R & D of the

company, and increasing its market share and global

presence. GM‟s long-term strategies include reduce

recalls, increase innovation and improve technology,

increase market share, remain one of the top 3 auto

producers in the US, engage with the community and

perform social responsibility (Whalen, 2014).

Source: www.slideshare.net

COMPANY BUSINESS MODEL

Ford

In 2008, the Ford Motor Company established its "One

Ford" business model; a comprehensive plan to sell

numerous models globally, where previously some models

were designed for local markets only. Ford has recently

closed down or divested itself of several makes including

Lincoln, Volvo, Jaguar and Land Rover. As gas prices

surged to the highest levels during the latest financial

crisis, Ford found itself needing to change its business

model to remain solvent and to respond to changing

customer tastes. At the end of 2008, Ford management

announced the One Ford business plan known formally as

"One Ford: One Team, One Plan, One Goal" identifying

that the company needed to streamline its operation by

unifying its global business (Keegan, 2016).

At Ford, sustainability strategy is integrated with the

business model to create value consistent with the long-

term preservation and enhancement of environmental,

social and financial capital. Leading to being consistent

with Ford‟s aim to deliver Great Products, a Strong

Business and a Better World (Ford Motor Company,

2015).

Ford believes that by reducing the number of brands and

consolidating the number of vehicle platforms upon which

various models are built, it can become more efficient and

more innovative. In 2007, Ford had 27 different vehicle

platforms across the world; in 2015, it has 12 with a goal

to consolidate down to 8 by 2019. Ford embraced the

hybrid electric vehicle trend and produced hybrid models

of several of its vehicles, such as the Escape and Focus.

Revenue and profit generation through vehicle financing

and leasing arrangements is critical to Ford‟s business

model. Ford operates Ford Credit; this financing arm

serves to provide purchase and leasing financing to the

company's customers. In 2014, Ford Credit

generated pretax profits attributable to Ford of $1.9 billion

(Strider, 2015).

General Motors GM‟s business model is said to design, build and offer

automobiles, to reinvest in a world-wide perspective

(Whalen, 2014). GM‟s purpose began with the statement

“We are here to earn customers for life”. They look to

invest in their brands worldwide to create desire and

trustworthiness. They look for new technologies to use in

their vehicles for people to enjoy. They look to encourage

the GM team in serving and developing the community

(General Motors, 2016).

To induce further development, GM is making strategic

investments to produce more innovative, efficient and

technological vehicles. Another way of moving ahead and

staying in business is by cutting huge expenses through

discontinuing some brands like Oldsmobile, Pontiac,

Daewoo, Saturn, Hummer and Saab. GM also looks to

serve the community in a positive manner by producing

fuel efficient and environmentally friendly vehicle like the

Chevrolet Volt, which won awards for outstanding

efficiency and innovation (Strider, 2015).




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GM uses the Pyramid Profit Model as its business model,

as it offers a scope of products within the same market for

all levels of consumers, from inexpensive to luxury.

General Motors offers different brands of cars, for

different consumer classes. To make sure that this model

generates profit, a company must first start with a base

level, “firewall” product, where the product is sold at a

very low price, and with as little resources as possible, so

that no competitor can compete with the price. The

company then builds up the pyramid by offering different

products at higher prices to different consumer classes,

ending with luxury products at the very top of the

pyramid. The company makes the most profit at the top of

the pyramid and vice-versa (Kringler, 2014).

For GM, Cadillac is at the top of the profit pyramid, which

is for the top of the line buyers. Chevrolet is at the bottom

of the pyramid, which is for the bottom of the line buyers.

Clearly, GM recognizes that keeping customers through

the strength of their brand is a strong profit model (Hebert,

2015).

COMPARISON OF STRATEGIES AND

BUSINESS MODELS OF FORD AND GM

Ford and GM are two of the largest market share leaders in

the US (Big Three) but not worldwide. Toyota is first,

followed by Volkswagen, then GM and in sixth place

stands Ford (Strider, 2015). Both Ford‟s and General

Motors‟ main business is manufacturing automobiles for a

global marketplace. Their product mix includes electric

cars, hybrid vehicles, automobiles, light and heavy-duty

trucks (Sousa, 2011).

The corporate cultures of the social media strategy are not

similar For Ford and Gm. The former uses the social

media not only to communicate but also to connect and

listen to its customers. However, GM does not rely on this

new world of social media. Ford is more active on social

media than is GM (Carter, 2012). In 2016, Ford has (app.

3.5m) followers in Facebook, and GM has only (app.

700k).

Social responsibility is a major interest for Ford and GM.

General Motors created the GM Foundation as the source

of their social responsibility work. GM focuses on

Education, health and human services, environmental and

energy and Community Development (General Motors

Company, 2011). Ford maintains its annual Sustainability

report focusing on economy, environment and society

(Ford Motor Company, 2011). Bill Ford Jr. states

“Creating a strong business and building a better world are

not conflicting goals – they are both essential ingredients

for long-term success.” (Ford Motor Company, 2010).

According to Miller (2013) when Ford and GM found that

their brands were too costly and inefficient and lacked

compelling marketing to stay profitable, they adapted the

“less for more” strategy that implies having less brands for

more profits. They were to cut slacking brands and refocus

on their core to rebuild a strong portfolio after the latest

economic recession in US.

GM has led the US auto industry having a high market

share of 50% for more than half a century with its low-cost

leadership before Ford‟s Model T and his cost leadership

strategy made Ford the low-cost leader in manufacturing

autos. However, GM‟s differentiation strategy later was

the reason that spelt doom of Henry Ford‟s Model T

(Aslam, 2015).

The main difference between the two companies is the

way they make profit referring to their business models.

Ford follows the “One Ford” plan, where it reduces the

number of brands it owns and operates around the world

(Keegan, 2016). To achieve one overall company target,

Ford‟s message is clear that there is one team that will

implement the one plan in order reach it.GM on the other

hand owns and operates a large number of differentiated

brands around the world, following the „Pyramid Profit‟

business model. They have different vehicles for different

market segments. (Kringler, 2014)

The two companies‟ profit generation comes from their

financing and leasing activities as well, making it an

important part of their business models. Ford has the Ford

Credit and GM has its General Motors Financing

Company. Ford and GM have been interested in producing

fuel efficient cars by using new technologies. Ford

produced some hybrid models such as the Escape and

Focus. GM produced their version of hybrid vehicles like

the Chevrolet Colt which won awards for exceptional

efficiency and invention (Strider, 2015).

RESEARCH FINDINGS AND COMMENTS

Ford has been seen to follow the cost leadership strategy,

while GM follows the differentiation strategy. As

evidenced by their financial statements (2013-2015), both

maintain their strong financial performance, which can

categories them as two of the „big-three‟ auto-

manufacturers in the US, superior to Chrysler.

With regards to their market share, although Ford and GM

have discarded some of their brands like Ford when it sold Jaguar and Land Rover, and GM sold its shares in Fiat and

Suzuki they both maintained the US auto market dominants.

The social media is a very trending phenomena in the whole

world these days, Ford is doing very well with its socializing

with the people in general and serving their customers in

precise directly through questions and answer all over the

social media channels like Facebook, Twitter and Instagram.

However, GM needs to get more socialized on media and be



44

closer to customers in order to manage the direct

communication aligned with new technologies.

Ford and GM financing and leasing activities allow them

to generate a substantial profit in addition to their core

business of manufacturing vehicles.

Both Ford and GM employ large numbers of employees,

operate world-wide and are looking for different

techniques to power up cars other than fuel, which is why

both have been interested in successfully producing their

hybrid cars.

Even though both operate in a similar manner and are

global, their way of making their money is quite different.

Ford believes in producing one ford and sell it to the

world. GM believes in producing a number of brands at

different prices and for different types and levels of

customers.

FINANCIAL DATA

Source: Yahoo! Finance.

(Balance Sheets and Income Statements of Ford and GM)

1. Profitability

2. Liquidity



45

3. Leverage

4. Market Value Ratio

3-yr Stock Prices

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