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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Problem Statement

General Motors has recently restructured the compensation plan of their SFE Elite program. They have cut the bonus structure by a third of the amount a salesperson could have made preciously, claiming that they are wanting to have their sales people focus more on the customer service than making the sale. By restructuring the SFE Elite program many current GM sales employees are finding it impossible to make the same amount of money they did before the restructure. This potentially could lead to decrease moral in the sales force or even major employee turnovers. However, it would appear that GM isn't making changes in sales management alone, but the company as a whole. Though consumers are buying more vehicles than ever, the type of vehicles they look to purchase are changing. Customers are looking to buy more SUVs and trucks rather than cars and coupes. In addition, cars are becoming very software driven and in an attempt to please the new demands of their customers, GM is looking cut production costs in order to supply the innovation process. They plan to shut down five plants across North America and lay off about 14,000 workers by the end of  this year to invest into said innovation process and designing of new products (Fox News). This very well could be a major driving force behind the new SFE Elite payout plan.

Situational Analysis

Context

As mentioned previously, General Motors has slashed by a third the maximum amount a salesperson can earn in bonus payments from the automaker in its Standards For Excellence program (LaRaeu 2018). This new program restricts the salesperson's bonus on the vehicle overall to zero dollars if the salesperson cannot convince a client to accept membership in the GM Rewards program. The concern is that the new plan will lead to increased turnover and the reductions could amount to as much as 8 percent of GM's global workforce of 180,000 employees. Because customer preference has changed, GM is doing what it can to acclimate, however it may be too much too quick. We have listed out some recommendations later on in this report that may assist GM in achieving their overall goal while maintaining employee retention.

Company

General Motors was founded in Flint, Michigan in 1908 by William C. Durant. The company first began to sell motorcars and has since expanded its product offerings to electric cars, fuel-efficient vehicles, and more. Today, the company comprises of the brands Chevrolet, Cadallic, Buick, GMC, Holden, Wulgin Motors, Bajoan, and FAW jiefang. With these brands the company has experienced growth in North American and international markets since its conception and is one of the world's largest automobile manufacturing companies. It's mission is:“to earn customers for life by building brands that inspire passion and loyalty through not only breakthrough technologies but also by serving and improving the communities in which we live and work around the world.” The company has been able to strength their brand loyalty among customers by ensuring that their image is one built on trust. They focus on improving their relationships with customers, employees, and retailers (Schafer).  The company has been diversifying their product offerings by investing in innovative vehicles, such as their research and development into self-driven cars and offering affordable electric cars. The company has taken on a variety of sales and marketing strategies to build their relationships and inform customers on their product offerings.

Sales and Marketing Strategy

According the General Motors's Form-10K, “The quality of GM dealerships and our relationship with our dealers and distributors are critical to our success as dealers maintain the primary sales and service interface with the end consumer of our products.” The company heavily relies on sales through the use of retailers and wholesalers, which makes up 79% of their total revenue. Both retailers and wholesalers are able to sell the company's cars in fleets to varying organizations and customers, such as government agencies, leasing agencies, and car rental companies. Retailers employ cars salesmen to sell their products face-to-face with a customer, and to personalize their auto recommendations based on customer preferences. These retailers also offer General Motor vehicles online to make the car buying process for customers easier and include a greater variety of products. So while it is very important that the company builds relationships with retailers, it is also important for them to foster brand loyalty to ensure that end users favor their automobiles over others. Without this demand for the company's cars it would be increasingly difficult for them to sell their products to retailers. The company is able to build brand loyalty with end users through a variety of marketing methods such as advertisements and sales promotions.

General Motors marketing strategy is defined as a, “comprehensive marketing and advertising model to gain strong brand awareness worldwide (General Motors Marketing Mix (4Ps) Strategy).” The company utilizes advertisements through digital advertisements, TV commercials, celebrity endorsement, and more to reach their worldwide audience. One of the companies most successful advertisement is the “Real People, not Actors” campaign which showed actual customers viewing Chevy automobiles and talking about the benefits of the car. After the company began this campaign they reported a 34% surge in North America profits (Secrets of the “Real People” Campaign). This shows that the company has been able to find ways through these advertisements to increase brand awareness and loyalty. The company also utilizes a variety of sales promotions, from discounts for services to freebies in order get customers to dealers. While the company does focus on increasing their brand awareness and getting customers to buy their automobiles through advertisements and sales promotions, they also market through, ‘the use of dealer, retail and fleet incentives such as customer rebates and finance rate support. (Form 10-K).” They are able to offer competitive prices to their customers using these methods and further gain a competitive advantage over their competitors.

Customers

General Motors is a global business that sells its products directly to retailers and wholesalers, which then sales its products to end users and organizations. Although, the company sells through retailers and wholesalers it is important that their end users are at the forefront of the company's marketing focus (Myer, 2007). This is so that they are able to build demand for their automobiles to ensure that retailers and wholesalers will continue to buy their products.  The automobile industry is driven by demand of the end user, and those companies that are able to generate brand loyalty earn high market shares.

Wholesalers and retailers

As stated 79% of General Motors revenue comes from wholesalers and retailers. Some of General Motors key wholesale and retail buyers are Amerco, AutoCanada, A.P Eagers, Supreme Industries, and Vertu Motors. Amerco is the parent company of U-Haul and offers auto and trailers rentals to their customers. They buy most of their vehicle chaiss (auto frame and running gear) from General Motors and Ford. AutoCanada is a Canadian auto dealership group that operates nine General Motor dealerships in North America. A.P Eagers is a dealership company that operates four of General Motors Holden brand dealerships in Australia. Supreme Industries design custom automobiles for end users and has bought many of their vehicles chaiss' from General Motors. The last important retail customer for General Motors is Vertu Motors which operates 14 of the company's dealerships in the United Kingdom's (Carpenter, 2016). These retailers and wholesalers are essential to General Motors getting their products to end users who drive the automobile industry.

End users

General Motors has a variety of brand loyal users. The company uses segmentation to market their various products to their end users. The company monitors demographics such as age, gender, and income to create products that fulfill a need for different target audiences. For example, General Motor's luxury brand Cadillac average buyer age is 59, this demographic is in at their peak earning potential and can afford these cars at a premium. Therefore, the company is able to market to this demographic the benefits of the car, despite their high prices (Gaille, 2015). The company also looks at psychographics (lifestyles and interest) and geographic data of their various end users (Bahsain, 2018). One way this has worked for the company is by targeting young adult drivers and marketing to them their various Chevrolet offerings, such as Spark and Aveo. The company paired with MTV to gain insight into the wants and needs of young consumers, and was able to build content that connected with this consumer group (Joesph, 2013).

 Competition

  (i) Ford --

Ford Motor is General Motors top competitor with 12,000 more employees and an annual revenue of $159.6 billion compared to GM's $140 billion. Founded in Dearborn, Michigan in 1903, the automobile manufacturer and distributor has GM beat with a seniority of by about five years. Ford also happens to be one of the top 3 in the auto manufacturing industry with $756 million in overall funding (Owler Company).In a recent turn of events, Ford has actually become one of GM's most recent collaborators. With Ford and other competitors involved in collaboration,  the goal is to provide improvements such as hydrogen and fuel cell cars and electrochemical energy storage vehicles. This is further articulated in the collaborators section of this report.

(ii) Tesla

Tesla is one of the world's leading innovative automotive companies, the company is known for its untraditional vehicles and unique selling style. The company employees 46,000 employees (Kolondy, 2018) and has earned revenue in the last year of $11.7 billion (Annual Financials for Tesla, Inc). While most of General Motors competitors operates using dealerships, Tesla sales it vehicles using retail stores in high traffic areas. The company has done this to, “not to sell a person a car, but to educate them on what electric cars and, particularly, what Tesla electric cars can provide (Chambers, 2011).” While Tesla is a highly desired vehicle among consumers, the company has recently laid off 9% of its sales workforce. The company has recently experienced a huge decline in sales, which makes it hard for them to compete in the automobile industry (DeBord, 2018).

Collaborators

General Motors has collaborated with a wide variety of organizations and companies for improving product design, promoting their products, and partaking in research and development. The company is apart of the United States Council for Automotive Research (USCAR), which focuses on improving the automotive industry through developing better energy efficient and safe vehicles (Partner & Collaborators). The government agency partners with Fiat Chrysler Automobiles (FCA), Ford, and General Motors. Together they work on a variety of automobile improvements such as hydrogen and fuel cell cars and electrochemical energy storage vehicles.

General Motors has a history of collaborating with their competitors to improve their automobile offerings and provide value to their customers. One of the most recent collaborations is with Ford Motors, the companies band together to develop a transmission that can improve fuel efficiency and improve the use of phone technology in their vehicles. Ford and General Motors are interested in providing value to their customers by innovation, and has put their competition aside to collab on these projects. These innovations can offer both companies an advantage over other competitors, and the companies combined resources can save them both time and money (Schafer). The company has also paired with its competitor, Toyota, to create a car with a Japanese transmission and a US body style. Once again the company is able to pool its resources with another company to further save time and money. The company has also paired with Honda in a $2.75 billion to work on a self-driving vehicle (Leone, 2018). It is clear that General Motors values innovation in their offerings and continues to work on this by partnering with various organizations and companies.

It is also very important that General Motors collaborates with retailers and wholesalers to get their products to their customers. Although, General Motors can increase brand loyalty through a variety of promotional channels, it is also very important that retailers are able to hire salespeople who can highlight the benefits of their automobiles. General Motors should realize that face to face interactions is also very important when it comes to selling their products. For this reason, they should work with retailers to train their salespeople with product knowledge and customer relation skills.

Evaluation of Financials/Non-Financials

Sales Analysis - ( Numbers obtained through GM Authority)

Growth in sales: (This year sales-last year sales)/last year sales ($ – $) /$

($2,169,011-$3,002,237)/$3,002,237 = -.2775% or -27.75%

Productivity Analysis:

According to Statista Analytics, there are currently about 180,000 Sales Representatives employed by GM. Listed below is a brief productivity analysis of GM's salesforce at the individual level.  

https://ycharts.com/financials/GM/income_statement/quarterly

Sales/salesperson: This year sales/# of salespeople/ =

$146,000,000,000/180,000  = $811,112

Gross margin/salesperson: Gross margin/# of salespeople/ =

$30,719,000,000/180,000 =$170,661

Even with decent productivity at the individual level, there has been a decline in sales growth for this year. The year has not yet termed, but with the -27% difference it can be assumed that the company may not recover their losses in time to break even. Lack of sales growth for this year could have to do with the new compensation structure they implemented this past year (See Exhibit 1 below). In latter sections, there is a recommendation  and implementation plan that goes into further detail in how to address this.  

Exhibit 1: New Bonus Structure from 2017 to 2018

Description: In its 2018 SFE Consultant Performance Program, a copy of which was obtained by Automotive News, GM has cut the top amount a salesperson can earn this year to $150 per car from $225 in 2017, assuming retail sales of at least 11 Chevrolet vehicles, seven GMCs or five Buicks in a month. The bonuses are smaller for fewer sales.

Alternatives

Reduce salespeople commision but match by salary --

First alternative would be to reduce the salesperson's commission, but to match with salary. With this alternative there would be less turnover of sales people, stable salary and able to budget and monitor the salesperson on their performance. By raising salary it would show greater focus on customer service. This alternative could be viable however, it would prove problematic for the salesperson's incentive to perform at the same caliber as they would with more commission based pay. The employees would either not work as hard or may feel unable to sell as much as they did before to make the same amount to pay. In essence, current sales teams may reject this change in pay.

Advantages:

Less turnover of salespeople

Stable salary able to budget and monitor

Greater focus on customer service

Disadvantages:

Less incentive to perform

 Current sales team rejection towards change

2. Implement bonus cutback over a longer period of time to reduce possible turnover--

This alternative would be to gradually transition to desired plan over a longer time span. By gradually transitioning to this new compensation plan, it would show smaller difference in compensation reduction and ease current long standing employees into this change. By pursuing this plan, it would reduce turnover by providing current sales team less hardship during the organizational restructure, and in result have less turnover for employees. From this it would allow management to audit the process to discover the current restructures shortcomings. However, the disadvantage to this strategy is that the longer timespan lengthens the movement towards more innovative tech incorporated. By taking more time to restructure there will be more tech development as time goes on and as well as greater R&D. Taking a longer amount of time to implement could result in decreased moral and even greater turnover in employees as the plan get carried out.

Advantages:

Reduced turnover by providing current sales team less hardship during the organizational restructure

Allows management to audit the process to discover the current restructures shortcomings

Disadvantages:

Longer timespan lengthens the movement towards more innovative tech incorporated

Decreased moral and higher turnover as plan carries out

Recommendation and Implementation Plan

It is our recommendation that GM reevaluate the current financial plan. According to a study done by Hireology, a talent and management firm, nearly 60% of dealership hires are millennials and out of those, 30% turn annually. Millennials typically carry a higher debt then past generations which is why they desire a stable salary. GM seeks a new innovative process in operations primarily due to the shift towards automation and internet sales. Customers pull up information on their phone before even speaking to a dealer. Technological advancements require salespeople to be more knowledgeable yet potential customers are dissatisfied when they seem to know more than the dealer.

 Due to this shift in industry practice, it is our recommendation to reduce the salesforce commision while combating the reduction with a slightly increased salary. This will provide the sales team job security and allow a greater opportunity for customer service rather than haggling for the quickest sale. In order to combat the loss of incentive through commision based compensation, regular sales competitions followed by bonuses during outstanding performance would allow the team to stay motivated and focus on customer satisfaction. While General Motors would be paying the sales force a higher salary, the decrease in turnover would limit the time and training costs per dealership.

 Finally, in order to fully implement this change, both group and individual meetings should be held to explain the shift while detailing the new financial plan. Next, the incorporation of the new technology or the “innovative process” must be explained thoroughly to ensure salespeople the increased ability when selling the desired vehicles. Survey should be collected from clients to identify who provides the best customer service, while recognition and reward be given to the best performers in both sales and service.

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