STRATEGIC MANAGEMENT

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College Of Technology London
STRATEGIC MANAGEMENT
GM FIAT STRATEGIC ALLIANCE
Lecturer: Dr. John W Lang
Submitted by
Sarath Sivadasan
Student ID: 095267-86
(MBA Group 1)
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UWL ID : 29002387

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1. 3
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3. 5
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GM – FIAT STRATEGIC ALLIANCE
EXECUTIVE SUMMARY
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General motors and Fiat are among the top automotive manufactures in the world. They had
started a strategic alliance from 2001 to 2005. The alliance was limited to the world’s largest
automotive markets, Latin American and Europe.
The strategic alliance of GM and Fiat was truly concentrated on regaining their market share in
Europe and North America, also to create some values for their share holders. So the company
planned their operations more focused on the areas like
• Cost reduction for acquiring cost leadership.
• Regulating the activities of power train models.
• Cross sharing of automotive technology.
• Development of common architecture and platform.
GM and Fiat started their partnership in 2000, with all the above objectives, but the alliance was
limited only to the purchasing and production activities. Even though the two companies had a
strategic alliance, in the marketing, sales and financial activities GM and Fiat are still different
companies. That means they continue to be good competitors in the market.
This report is concentrated to the strategic alliance of GM and Fiat by explain and analyzing the
various relevant factors like , the structure, objectives, strategies, planning, benefits and savings
of the strategic alliance with the help of different management analytical tools.
INTRODUCTION
General Motors is one of the largest automobile manufacture in the world, started their operation
in 1908. The head quarter of the company is at Detroit. The business of the GM extended to 157
countries worldwide, with more than 205,000 employees. The main markets of the company are
United States, United Kingdom, Brazil, Canada, Germany, China and Italy. General Motors
delivers their sales and services through different brand names in different countries they are
Chevrolet, Buick, Daewoo, GMC, Cadillac, Opel, Holden, Vauxhall, Jie fang and Wulling.
(General Motors, 2010)

General Motors founded in the year in 1908, in the first year operation itself company captured
19 % of the US market with the sales of 25,000 cars and trucks. In 1923 company started its first
operation outside North America. Following this in 1925 and 1929 GM acquired Vauxhall
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motors in UK and Adam Opel in Germany respectively. In 1989 general Motors acquired about
50 per cent stake of Saab Automobile Sweden. And latter in 2000 hundred per cent of the Saab
was acquired by General Motors. In 2000 General Motors started a Strategic alliance with Fiat.
And in 2002 GM Daewoo Auto started operation in Europe. Because of the market penetration
of the car manufacturing companies outside US, made a lot of challenges in the market. General
Motors market share suddenly declines and resulted in a loss of 81 billion in that 50 billion was
on the last four year. At last in 2009, largest American car maker giant, General Motors declared
it in bankrupt.
(See Appendix 5.6: Revenue and Profitability Comparison of GM)
The joint alliance between GM and Fiat is an important partnership decision made by the
company in struggling time. Joint ventures mainly concentrated on the cost reduction and
purchasing power improvement. This analysis mainly focused to the GM strategic alliance and
its impact on GM by framing following objectives.
• To evaluate the reason behind the strategic alliance in the perspective of both General
Motors and Fiat auto group.
• To analyze the strategic planning behind the cost leadership of the strategic alliance.
• To analyze the strategic planning of GM- Fiat alliance for the market penetration
• To analyze the strategic needs and savings behind GM Fiat alliance.
This analysis is done mainly with the secondary data available from text books, internet, journals
and articles. The analysis covers constrains like limitations of time and unavailability of primary
data. The difficulty in accessing high level strategic information can also be considered as the
limitation of this analysis.
3. MAIN BODY
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Joint Venture can be defined affectively as the partnership between two or more organizations to
share skills, recourses, Market and knowledge with a new organizational unit. Normally
company uses joint venture for stabilizing the market competition, increasing the market share
by gaining operational synergies and expanding the market. (efmacfm,2007)
One of the main synergy benefits is the cost saving by either through the rationalization of
employment or by the sharing of fixed cost between the organizations. Risk sharing, access to
technology, expansion of the customer base, entry to new markets and entry in emerging
economics are also important points the companies concentrates when they set up a strategic
alliance with another company.(Hewitt, 2005,p.8 )
GM – FIAT STRATEGIC ALLIANCE: AN OVER VIEW
In the current high competitive automobile industry the companies are always looking forward to
create potential partners through which they can build joint ventures in order to satisfy their
goals and needs. In this way GM and Fiat formed a strategic alliance in 2000 to create values and
opportunities for both GM and Fiat. The alliances are limited to Europe and Latin America,
which is considered as words largest automobile market.
GM signed the joint venture agreement in 2000 March 13 by acquiring 20 per cent capital stock
of Fiat. Similarly Fiat purchased about 6 per cent of General Motors. In July 24, 2000 that
partnership formed joint venture of companies, they are
• GM- Fiat worldwide purchasing BV.
• GM-fiat power train BV.
The main expectation about the operation of this venture is that, it was estimated if the joint
venture is a successes and in its full phase it will make a savings of about 2 billion in 2005.
(Camutto, Volpato, 2002, p.336)
(See appendix 5.1 for the internal business environment – SWOT)
3.1, REASONS BEHIND THE STRATEGIC ALLIANCE
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1,GM – PERSPECTIVE
• GM had the resources for the acquisition and strategic alliance at that time.
• To get good management around globe since the GM presence has limited because of the

World War II.
• In the period 2000 the competitors forced gm to secure the European Market share.
• Over capacity of production in GM motor. Example Chevrolet, Opel and Saab.
• As a result of the high level competition the profit of the company reduced 25.8 % in the
UK market. The market share of GM in the home country was also reducing. So
company need to recapture the market share.
• In 1999 there was an attempt by the Chrysler for acquisition. In spite of this the various
acquisitions and joint venture of the competitors like ford, Benz etc, at that time forced
GM to start a strategic alliance.
2, FIAT – PERSPECTIVE
• For strengthening the competitive opportunities with low investment risk.
• The market share of Fiat was falling highly in the UK market and become 9.5 % from
35.4 %. In South America also Fiat was struggling from the economic crisis.
• Unsuccessful launch of new models of Fiat took them to huge losses. For overcome this
financial crisis company need a strong alliance with other company.
• The market share of the company is declining in the home market (Italy).
• Rapid revenue fall of Fiat due to the over capacity of production, just like GM.
• Increased competition and problems of marketing in Europe and North America.(Hoppe,
et al ,2007)
(See Appendix 5.2 for External Business Environment analysis - PESTL)
3.2, STRUCTURE OF THE AGREEMENT
Time scale of the Agreement: in March 13 2000 the agreement and the negotiation of the
strategy become public. This happened 2 months of confidential negotiation. The juridical
formals of the partnership agreement was took place on 2000 July 24.
Thus the European commission release the information that, General Motors and Fiat had made
agreement to coordinate in areas like production of power train and purchasing of parts and
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components. This together constitutes the 80 % of the manufacturing cost. In Sept 31, 2000 the
two 50/50 joint venture company came into existence. The equality in the purchasing cost made

the joint venture of the two companies more effective.
3.3, STRATEGIC PLANNING FOR COST LEADERSHIP -GENERIC
STRATEGY
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COST LEADERSHIP
(1), Analyzing the Need for Achieving Cost Leadership
American car manufacturing companies had a huge economic scale of production in the period
of 1950s. But at the end of 1964 Japanese car manufactures started producing more economic
cars with advanced low cost production techniques. This enabled them to penetrate the global
auto motive market and acquire cost leadership from the US car manufactures like GM, Ford etc.
The following table shows the cost reduction of Japanese car companies over US companies,
(Bodevin, et al,n.d.)
(See Appendix 5.3: Market share comparison of GM with Competitors)
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In addition to the entry threat of the Japanese car manufacture the market share of both fiat and
GM was reducing in Europe and Latin America. The main reason behind this is the cost
leadership of external car makers. Fiat faced a declining market share in Italy (home country),
Europe, and South Africa etc. So in that business environment acquiring cost leadership was
really important for the existence of both GM and Fiat.
1997 2000
Italy 42.6 % 35.4%
Europe 11.7% 9.5 %
(Market share decrement of Fiat 1997- 2000)(Hoppe, 2007)
2, Strategic planning for achieving Cost Leadership
One of the main objectives behind the strategic alliance was achieving cost leadership. The
recourses commitment and combined effort was planned so that it can allow greater flexibility in
the operations. The combinations of technological and physical capabilities of the companies are
expected to deliver cost benefits to both GM and Fiat.

Even though there was some cost and risk associated with the alliance, the successful alliance
was planned to deliver competitive advantage to the companies through sharing and distribution
of knowledge.GM was more focused on their falling brand image. The brands like Opel, Saab
and Vauxall had already established as small car manufactures in Europe.(culpan, 2002,p.130)
The alliance primarily focuses to strength their products in European and Latin American
Market. After the capture good market share, they planned to bring this model to other markets.
Since GM and Fiat are facing the problems regarding the limited domestic growth opportunities,
both companies were looking for cross border strategic alliance to enhance the competitive
strength. The cost reduction of the alliance is truly based on the synergy savings in the
production and purchasing.
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(inderscience ,2002)
The total expected savings at the fifth year of the alliance was 2 billion. The figure shows the
cost impact on the purchasing and power train. The 60 % and 20 % of the cost contributes the
purchasing and power train respectively; together constitute the 80 % of the total manufacturing
cost. If the alliance could make a good saving in this 80 % of the manufacturing cost, The GM
and Fiat could able to achieve the cost leadership in the market, that was the strategic planning
behind the alliance.(Camuffo,Giueseppro,2002, p.347)
3.4, LONG TERM AND SHORT TERM STRATEGIES FOR MARKET
PENETRATION
(mrdashboard, n.d.)
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SHORT TERM STRATEGIES
Since the market share of both GM and Fiat had been reducing due to the high market
penetration of new car makers and increased bargaining power of the buyers it was very
important for both the companies to do something to resist that. Other forcing factors are the new
market trends forward on the fuel efficiency, prices of gas, switch of customers to bus and trains.
In that business environment it was very vital that the agreement rapidly delivers some positive

results (Hoppe, et al ,2007)
The strategic alliance agreement is truly based on cost reduction and product quality
enhancement. The company (GM- Fiat) planned to achieve these results rapidly by combined
purchasing activities and centralized re organization of parts.
The purchasing of joint venture was rationalized with the common design of different models
and usage of common parts and systems in different models in the power train project.
Ability to acquire some economics in purchasing raw materials increased, because of the greater
bargaining power in the market. That was due to the fact that purchasing volume doubled.
For example the re launch of the Italian Alfa Romeo in North America. The New business
environment due to the agreement may enhance the opportunities and internal values of this
brand and this Fiat can easily make use of a number of local production facilities.
(Camuffo,Volpato,2000)
MEDIUM AND LONG TERM STRATEGIES
According to both GM and Fiat the long term objectives are more potentially important and
stimulating of the joint activities. The main reason behind this was, the companies will get a
chance to adjust the commercial and marketing traits on their individual brands. For example, in
the case of GM models from Pontaic to Chevrolet, similarly for Fiat the brand under Alfa Romeo
and Lanica. This helps the companies to built models according to the local specifications.
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Since the cost leadership was one of the main objective under the alliance the scope of
economics are
• Commonality of components and materials for different models.
• Integrated development of new technologies.
• Study for the development of common parts and architecture.
The long-term scope of technological advancement was also unavoidable like
• Information Communication Technology (ICT): This is an integrated system of both
mechanical and electronic technology for the efficient co-design activities and the
development of common activities. In spite of this ICT also helps in the data transfer and
testing of experimentations.

The other strategic objective behind the alliance was the standardization of road handling and
performance for the developing of common platform. The highest level of possible unification
between GM and Fiat may limit the brand characteristic of the individual brands. For this the
alliance focused on the development of common architecture strategic to obtain the
differentiation on vehicles for satisfaction of customers. Some important benefits of the common
architecture are
• Future vehicle design: knowledge base can be used to develop complex parts of future
models.
• Advanced technology application in production process to achieve cost benefits.
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3.5, STRATEGIC ALLIANCE NEED AND BENEFITS -VALUE CHAIN
ANALYSIS
RAW MATERIALS PURCHASING AND IN BOUND LOGISTICS
Fiat was following an out sourcing policy in which the manufacture becomes overly depend to
the suppliers. That was proved to be wrong latter because of problems and implication on
internal know how of the company. The reason was that, it concentrates only on short term
benefits rather than long term.(Commarata et al, 2006,p.13 )But GM have an excellent global
market net work includes more 32 countries worldwide. This enables then to reduce the
bargaining power of suppliers more than in the case of Fiat. (Economica,2002)
(See Appendix 5.6 for the Industry Analysis of the Alliance)
Joint venture for purchasing – (GM- Fiat Worldwide purchasing company)
• This company includes a work force of 2200 employees , in which 1400 employees was
from the GM side and 800 employees from the .Rationalized purchasing activities are
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organized for acquiring the needs and strategic relevance of the automobile industry. The
cumulative purchasing turn over in the first year 2000 is
1, GM - 17 (bn euro)
2, Fiat - 16 (bn euro)

• In the strategic alliance 70 per cent of suppliers are common. This gives benefits to both
GM Fiat. This also makes benefit to the supplies because, they can increases their sales
(almost double) without additional marketing cost. This lead to the cost reduction.
• The worldwide purchasing is organized in a regional basis with head quarters in
Germany.
• Technology: The joint venture had a Just In Time (JIT) supplier net work all over the
world. The supplier network is enforced with global network of GM and also with the
software, Telecom services.
PRODUCTION
In 1990s Fiat attention was on internationalization of their production process by establishing
production plants on enhancing countries like Turkey, India, Brazil, Argentina etc. But this was
not effective in achievement of production goals and made debts to Fiat.
Fiat plan for the production of world car was also not success because it conflicts with the
necessary local customer needs and satisfaction. Over production capacity of both GM and Fiat
creates instability due to high risk, high stock inventory cost, stock problem etc. Even though
GM had production capacity, company requires more innovative products and services for their
customers.
The production joint venture – power train
• The company is controlled 50/50 accurately by GM and Fiat with head quarters in Turin
with employee power of 25,500 people. The product innovation is one of the main
objectives, with the use of advanced technology. The main production process involves
Engines (gasoline, diesel and alternative propulsion)
Transmission (automatic, manual and AWD)
• The strategic mission behind this joint production is to achieve the leadership in
performance cost, quality and product innovation.
• The main aims are 1, Reduction in development cost
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2, Reduction in time to market
3, Optimization manufacturing capacity

4, Product differentiation
SYNERGY SAVING
The expected saving of alliance in 2005 was 2 billion. This includes the savings from the
production as well as the purchasing. According to the analysts this 2 billion is a significant
figure when considering the profitability and health of the auto manufacturing company.
The figure shows the clear idea about the estimated surgical savings by GM Fiat alliance. The
profit of GM in 2000 was 2.3 billion from sales of 148.1 billion. So when considering the 2
billion margin of the alliances, it was considerably a big amount. When analyzing the graph , the
savings from the power train is small at the beginning ,and it increased latter due to the
implementation of product innovation, knowledge , technology and development of common
architecture. On the beginning of 2002 the alliance is expecting to get some savings from the
vehicles design also.
(See appendix 5.4 for Synergy Saving Structure)
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When adding the cost of purchasing and production, one obtains about 80 % of the total cost.
The remaining 20 % is for the final assembly products. So the joint venture had high scope to
make a good savings in the purchasing and power train and I can contribute a lot to the cost
reduction of the companies. (Camutto, Volpato, 2002)
5, CONCLUSION
5.1, RECOMMENDATION
Flexibility of the agreement: In 2005 the GM – Fiat alliance failed to reach the agreement and
GM paid 1.8 bn euro ($ 2.4 bn) to fiat just to close the strategic alliance.(BBCnews,2005). This
shows the expectations and predictions of GM about Fiat went wrong and GM had no option to
get rid of the agreement unless they pay the high amount of money. If they planned this situation
at the start and made the agreement more flexible, they could have save that money. So the
alliance should always expect the dynamic and uncertain Business environments.
(See Appendix 5.5: Stock Price Details of GM)
Dependability of the partners should be studied properly before signing the partnership. The
financial stability of Fiat was not very good at the time of the agreement. They continued to lose

their finical arms and also the 6 % stake of GM after the alliance. The heavy loss of Fiat forced
GM to close the joint operations in Europe.(BBCnews,2005) In GMs point of view the alliance
was just a mistake but for Fiat it was for their stability and existence in the market, rather than
the achieving the objective of the alliance agreement. So the dependency and dependability of
the partners should be analyzed properly before making the strategic alliance.
GM was the giant auto makers of US for almost 50 years, but they ignored the completion in the
market and new entry of auto makers resulted in the quick market loss. GM started defending the
completion very late. So continues evaluation of the performance of company and competitors
should be done to know about changing market trends.
(See Appendix 5.6: Revenue and Profitability Comparison of GM)
Since heavy investment is required for the international strategic alliance, the risk factor should
be analyzed to prevent the alliance from financial failure.
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General Motors has been aggressive to diversification and strategic alliance, form early 80s.
Company entered into its first alliance in 1982 with Isuzu motors limited. The joint ventures and
acquisitions played a vital role in the performance graph of GM, both positively and negatively.
The strategic alliance with Fiat was proved out to be a mistake, which increased the instability of
the company. To conclude, this report tried to focus different faces of the strategic alliance to
analyze the advantages, expectations and planning of the alliance in the strategic level.
5, APPENDIX
5.1, SOWT ANALYSIS OF THE JOINT VENTURE
Strengths
• Wide Global network of GM with
large number of Suppliers and
distributors.
• Qualified and skilled work force of
Fiat.
• Global experience and verity of
brands of GM.

• The experience of Fiat in the
production of small cars.
• Recognition of GM and fiat in the
North American and European
market.
Weakness
• GM had low experience in the
production of smaller cars.
• Weak marketing power of Fiat:
Marketing of fiat is little concentrated
to changing market trends and needs of
the customers.
• The high and fixed investment of GM
in SUV vehicles.
• Financial instability of Fiat in the
European market.
• Bureaucratic management delays and
low reputation in Green technology of
GM.
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Opportunities
• Both GM and Fiat can effectively
face the global tight competition due
to the infiltration of Japanese and
Korean companies.
• Opportunity increasing the product
range and lineup. This helps them to
satisfy the differential and
fragmented demand to utilize

maximum market opportunities.
• High scope in the savings of
purchasing manufacturing and
product design to increase the
financial stability of the company.
• New market trends: Manufacturing
can be done according to the market
trends with low risk in the financial
effort for international strategies.
Threats
• Declining profit of both GM and Fiat.
The profit of GM had reduced 26 % in
the year 1999 to 2000 which is 4.5
billion. In 2000 the market share of
Fiat in Europe reduced to 9.5 % from
35.4 %.
• The availability of needed parts of the
production may be affected by the
strikes in foreign nations.
• Green image of GM was not
recognized as a green company.
4.2,, ANALYZING THE EXTERNAL ENVIRONMENT OF THE JOINT VENTURE
(PEST)
Political and Legal:
GM had been facing the government and legal regulations in their alliances and acquisitions
since 1960. This includes a number of environmental concerns for safer automobiles.
• Increased Safety regulation: This includes the National Traffic and Motor vehicle Safety
Act in 1996. MPG regulations, Act of 1957 energy crisis (energy policy and
conservation) and increased restrictions in Europe.
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• Trading policy: The agreement with Fiat guarantees 50/50 control and ownership in the
two joint venture units. General motor acquire 20 percent of Fiat and similarly fiat have 6
percent of stake of GM.
• The agreement provides the right for Fiat to sell the remaining 80 per cent of their share
in market between three to nine years after the agreement starts.
Economical:
• In 2000 GM had a production capacity of 8.5 million units to make sales revenue of
148.2 billion in which 2.3 billion is profit. The additional estimated 2 billion saving from
the joint venture is a motivation for the joint alliance.
• The elimination of the trade tariffs between US and UK.
• Home environment: High competitive home environment because of the market
penetration japans and Korean companies.
Social:
• Environmental concerns: New trends in which the customers become more aware about
the product and services, and also the companies delivering those products.
• Society recognizes people by the car they are driving.
• Demand for small vehicles: The introduction of Japanese companies reduced the cost of
premium model cars. This trend reduced the global market share of GM by 20 per cent.
(efmaetm,2007)
Technological
• Use of advanced Technology in the global supply chain for reducing cost. This includes
the online exchange for suppliers, which helps the company to stream line supply chain
for the cost saving.
• Implementation of advanced technology is necessary for the low cost production of car to
compete the new car manufactures.
• Internet marketing: it was found that more than 50 percent of the customer’s uses
internet search engines before they conform their purchase, 80 per cent of this is
regarding the auto industry.
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5.3, MARKET SHARE COMPARISON OF GM WITH COMPETITORS
(thenumberguru, 2008)
The figure indicates the decline of GM market share from the period 1998 to 2008. The market
share of GM reduced from 30 to 21 % while for Toyota it increased from 9 to 18 %.
5.4, SYNERGY SAVINGS STRUCTURE
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5.5 GENERAL MOTORS STOCK PRICE DETAILS
(Qwickstep , n.d.)
5.6, REVENUE AND PROFITABILITY COMPARISON OF GM
(Krmmailk, 2010)
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(Krmmalik, 2010)
5.7, INDUSTRY ANALYSIS OF THE ALLIANCE – PORTERS FIVE FORCE
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6, REFERENCES
• Dobson, P. Starkey, K & Richards, John. 2004, Strategic Management: issues and cases,
Black well publishing Ltd.
• Hitt, M. Ireland, D & Hoskisson , R . 2009, Strategic Management Competitiveness and
Globalization: Cases, south western Cengage learning, USA.
• Culpan , R .2002. Global Business Alliance: Theory and Practice, Quorum Books, USA.
• McAfee , P.R., 2002 . Managerial Economics: How Toyota invaded the American Car
Market, P. 4-8.
• Hoppe, J .Reynold, J & Hinker ,E .2007 . Fiat and GM: The troubled Alliance Case
Study. P. 4- 12.

• Camuffo , A. Volpato , G .2002 . Partnering on the Global Auto Industry: The Fiat – GM
Strategic Alliance. P. 335-350.
• Ionic, O. 2008. Applying Real Option Analysis to Value the GM Fiat Strategic joint
Venture. P. 17- 20.
• Camuffo , A. Geril, F . n.d. Synergy Saving in the GM – Fiat Strategic Alliance . P. 72-
80.
• Cammarates , V Kuruez, V . 2006. The fiat Case: A Therapeutial Crisis. P. 9 – 27.
• Hill , C. Jone , G , 2004 . Strategic Management – An Integrated Approach, Biztantra
publications.
• General Motor corporation ,2009,About us [online] Available from URL:
/>nal_analysis.pdf (retrieved on 30/07/10).
• Guardian, 2005,GM- declares Bankruptcy the biggest manufacturing collapse [online]
Available from URL: />bankruptcy-chapter-11 (retrieved on 28/07/10).
• BBC news, 2005,Fiat GM fail to agree on sales [online] Available from URL:
(retrieved on 02/08/10).
• Value Chain, 2005,GM Failure – what happened? [online] Available from URL:
/>lean.html/comment-page-1 (retrieved on 02/08/10).
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• Quickmba , n.d. Porters Five Force Mode , [online] Available from URL:
(retrieved on 1/08/10) .
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