General Motors Production Levels (Research Paper Sample)

General Motors Production Levels
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Paper outline
* Introduction
* Background Information
* Inventory and sales
* Demand and Supply analysis
* Equilibrium quantity and prices
* Elasticity of Demand
* Elasticity interpretation
* Costs analysis
* Total revenue and marginal revenue
* Capital budget cost-related tools
* Expansion Strategies
* Conclusion
* References
General Motors Production Levels
Introduction
General Motors Company remains the leading multinational corporation in the world today. The company records the highest sales units in the world. Since its inception in the year 1908 the company has gained significant global growth and now operate most of the countries directly through subsidiaries or indirectly through joint ventures. To maintain its leadership position, the company through its research and development department innovates and comes-up with new car models. This has enabled the company to become the first company in the world to manufacture hybrid electrical vehicle (General Motors, 2012).
The company announced a profit of $ 4.7 billions after long streams of losses from the year 2004. This is attributed to increased unit sales of 2, 503, and 820 and 2, 547, 203 units in the United States and China. This marked a positive step in the future after the United States intervened through cash bailout to avoid the collapse of General Motors. Additional, the company had an Initial Public Offering (IPO) in the year 2010 that successfully and attracted so many investors across the world. These helped the company return to profitability in the year 2010 to 2011 (Bunkley 2010).
Background Information
General Motors Company is the world largest automotive company. The company manufacturers and sells cars and trucks in more than one-hundred and fifty countries in the world. General Motors is incorporated in the United States of America, and it is headquartered in Detroit. The core General Motors production divisions are Chevrolet, Cadillac, Buick, and GMC. The company manufactures and sale its products through subsidiary companies across the world (General Motors Company, 2012).
General Motors is known by the brand name Opel in the majority of European countries. It works through a subsidiary known as Vauxhall Motors in the United Kingdom. China forms a major production and sell of General Motors cars in the Asian market. In China, General Motors produces the cars under a joint venture with Chinese SAIC Motors. This has seen the rise in the percentage sales of company product units by the year 2010. Furthermore, the company still maintains its dealership position in Japan through GM Chevrolet Shop and also sells its products through Yanase Company Limited (General Motors Company, 2012).
The company has also long history in the African market. Egypt was the first country in which General Motors started its operations in Africa. Presently, General Motors Egypt which was founded by Al-Monsour Automotive Company is the manufacturer of General Motor brands in Egypt. The General Motors East Africa (GMEA) in Nairobi Kenya assembles and markets Isuzu trucks and buses in the East African region. Chevrolet products are also marketed by GMEA. General Motors wholly owns General Motors South Africa (GMSA) in South Africa. GMSA assembles and sales the General Motors products in South Africa. Nigeria and Tunisia are also part of countries in which General Motors operates (General Motors Company, 2012).
Inventory and sales
General Motors manufacturers a wide range of cars. The major brands produced by the company include Buick, GMC and Cadillac. The company also produces trucks and other lighter vehicles. The inventory levels of May, June and July Chevrolet are as shown below.
Table 1: GM vehicle May 2012 vehicle inventory
Inventory

Units @
May 31, 2012

Days Supply
(selling days
Adjusted

Units @
April 30, 2012

Days Supply
(selling days
Adjusted

All Vehicles

694,600

74

701,389

79

Cars and
Crossovers

223,296

116

226,585

121

Table 2: GM vehicle June 2012 vehicle inventory
Inventory

Units @
June 30, 2012

Days Supply
(selling days
Adjusted)

Units @
May 31, 2012

Days Supply
(selling days
adjusted

All Vehicles

700,927

76

694,296

74

Full-size
Pickups

238,194

135

223,296

116

Table 3: GM vehicle July 2012 vehicle inventory
Inventory

Units @
July 31, 2012

Days Supply
(selling days
adjusted)

Units @
June 30, 2012

Days Supply
(selling days
adjusted)

All Vehicles

663,439

79

700,927

76

Cars and
Crossovers

324,504

62

361,416

58

Full-size
Pickups

238,165

136

238,194

135

In the first quarter of the 2012-2013 financial year that ended in May 2012, General Motors set a quarterly sales record in China. During the same period, the company also had significant sales increase of twenty-nine percent in Russia.The global Chevrolet sales also hit a record of 1.2 million units(General Motors Company, 2012).
General Motors reported an eleven percent increase in total sales in the United States of America. This corresponds to sales volume of 245,256 units. Chevrolet recorded a ten percent increase in sales. Buick and GMC both recorded a nineteen percent increase. The total sales increased in June to stand at 248,750 vehicles. This is attributed to double increase in the sales of Buick, Chevrolet, GMC and Cadillac. However, there was a deep in July sales whereby the company managed only 201,237 vehicles. These results are summarized below(General Motors Company, 2012).
2012
Highlights

May 2012 sales

June 2012 sales

July 2012 sales

Chevrolet

177,943

180,098

138,942

GMC

38,877

37,677

34,487

Buick

18,565

18,851

14,391

Cadillac

9,871

12,124

13,417

Total GM

245,256

248,750

201,237

For the purpose of analysis, Chevrolet brand is selected. Furthermore, due to the fact that Chevrolet brand models retail at different prices only one model is used in the analysis. The prices are the prevailing market prices in the United States of America.
Demand and Supply analysis
Supply and Demand are fundamental economics concepts. By definition demand is the quantity of a product or service that consumers are willing to buy at a particular price (Boyes &Melvin 2012). Conversely, supply refers to the amount of products or services that producers or suppliers are willing to offer to the market at a particular price. Understanding demand and supply is essential for any company in the optimal allocation of resources. These concepts help the management to ascertain ideal levels of demand and supply that are essential in the achieving sustainable company revenues (Boyes &Melvin 2012).
In the period running from May to July 2012, Chevrolet brand sold 496,533 models. The volume of sales increased from 177,943 in May to 180,098 in June. However, the sales volume of July dropped to 138,945 vehicles. On the other hand, the prices of Chevrolet Cruze varied from $ 19, 816 per vehicle in May to $ 21,151 per vehicle in July. The price the same car model stood at $ 17,443 in June (General Motors Company, 2012).
Equilibrium quantity and prices
Equilibrium point is a point whereby the quantity demanded of a product equal the quantity supplied in the market at a particular price. This point reveals that a company is efficiently allocating its resources in the production of its products. Equilibrium conditions depict that every market participant that is customer and supplier is satisfied with the prevailing market or economic conditions (Arnold, 2011). The equilibrium price and quantity of General Motors Chevrolet Cruze model is as analyzed in the graph below:
1295400283845Equilibrium 00Equilibrium
9144006350042862528575021,1510021,151
417195031559500
1295400190400-238125211455Price ($)00Price ($)
22955252108200Quantity demanded00Quantity demanded428625669925180000018000126682512699990038671501936750180,09800180,09824384001908175177,94300177,9433048003175019, 816 0019, 816 361950119316517,4430017,44314859001936115138,94500138,945
The equilibrium price from the graph above is approximately $ 18,500 vehicles. At this price the company is expected to supply approximately 179,000 Chevrolet Cruz vehicles. From these equilibrium prices and quantity the company can now efficient allocate resources in the production of the vehicle.
Elasticity of Demand
Price elasticity of demand refers to the responsiveness of quantity demanded of a product or service to changes in prices of the quantities offered. It gives the percentage change in the quantity demanded due to price change (Boyes &Melvin 2012). Price elasticity of demand can either be inelastic or elastic. Inelastic demand is a situation whereby change in price will result in a minimal change in the quantity demanded. On the other hand, elastic demandis a situation where a small change in quantity price result in a large effect on the quantity demanded of that particular product or service. In simple terms elasticity of demand are the changes on the demand curve due to changes in prices of a product or service (Boyes &Melvin 2012).
Majority of products that have elastic demand are durable goods. Automotive product belongs to this category and hence we expect it to have elastic deman...