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GMs Capital Allocation Framework Case Solution

Solution Id Length Case Author Case Publisher
2271 619 Words (4 Pages) C. Fritz Foley, F. Katelynn Boland, Michael Lemm Harvard Business School : 218026
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A new capital allocation framework has been developed by General Motors (GM) subsequent to its recovery after the global crisis of 2008 through the implementation of new operating principles. The framework has 3 principles including investment with a 20% return on invested capital (ROIC), maintaining an investment-grade balance sheet with a target of $20B cash balance, and lastly using the remaining free cash flows for payment of dividends to shareholders.

Following questions are answered in this case study solution

  1. Case summary

Case Analysis for GMs Capital Allocation Framework Case Solution

However, the practical application of the framework and its ability to generate value through healthy returns remain questionable within investors and analysts. Further, the investment in European operations especially Russia was also a concern on account of deteriorating macroeconomic conditions coupled with depreciating currency. Other underlying strategic decisions which required immediate attention revolved around innovation in other segments including electric vehicle, driver assistance technology (autonomous cars), the impact of the rising popularity of sharing economy (ridesharing). 

Problem

IFM concept

Solution

Disruption from various sources including high fuel prices, environmental concerns, tightening CO2 emissions regulations, stringent regulations.

The cost of compliance to environmental concerns and adherence to stringent regulations is high.

The company to use energy more efficiently with a focus on installing renewables. The operations to account for reduction, reuse, and recycle while making efforts to conserve water.

Development of shared mobility and autonomous shared mobility could have an impact on the demand for the vehicles thereby affecting profitability.

The rising popularity of the business model for ride-sharing has enabled many people with readily access to ride and the opportunity to travel without having the hassle to own a vehicle. Thus, it may result in reluctance at the consumer’s end to own a vehicle thereby bringing down the overall demand and profitability of the auto companies. 

The company focuses on the development of software, owning the data, and providing coordination services. Thus, providing a valuable driving experience could capture the attention of a passenger even in an autonomous car thus generating demand for a specific product line with greater functionality and convenience.

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