Identification and assessment of significant risks using game theory by GM

Identification and assessment of significant risks using game theory by GM

General Motors is working towards converting its existing line of vehicle business into all new electric vehicles. It implies that the organization require resources and correct assessment of the resources. Converting traditional vehicles into electric vehicles would involve risks, and the company can consider using game theory in order to assess the risk. The game theory considers the factors that could affect customers, employees and other parties involved. During the decision making process, the reaction of these two parties matters and ways in which they will respond to the final decision also matters. The management at General Motors can use the game theory for assessing the problem and then determining the most suitable solution.

The customers might opine that they will prefer electric vehicles rather than the traditional vehicles because it can reduce harmful emissions and enhance the overall health. EVs also produce less noise pollution and considering the environmental impact, it can be stated that EVs produce less harmful impact. On the other hand, another customer base might not show interest in electric vehicles due to the high price attached to it. The vehicles that run on internal-combustion engine are available at a far low cost (Butler & Martin, 2016). Hence, the price parity would affect the sales of electric vehicles of GM. This in turn, might severely affect the decision of the management. Apart from customers, it is vital to consider the opinion of employees as well. In this game, the “players” are groups, individuals and entities that are interconnected.

Two major risks involved while converting from existing line of business to all-electric line

While attempting to transform the business line from traditional fuel-based cars to electric cars, General Motors might face two common risks-

Scarcity of resources– Without the existence of proper natural resources, it would be challenging for General Motors to build and maintain electric vehicles. Natural resources are scare in nature and it might lead to the shortage of mineral supply. The traditional industry used to rely upon adequate mineral supply; however, the modern industry might be at an economically disadvantaged position. Nevertheless, the global automotive industry is shifting from traditional vehicles to modern electric vehicles (Cinti, 2017). It should be noted that the shift is irreversible and the company might face a shortage of business partners as well. The company has been forced by its business partners to delay the launch of certain car models. Since the company is dependent on supply, it has been noted that it might incur huge financial losses.

EVs might also create pollution– There is a notion that EVs have a low impact on the climate. People underestimate the environmental footprint of EVs. The car components of EVs have little end-of-life value. Alternative fuel that will be used in EVs might also create pollution. The risks of carbon emission exist as well. Customers are most likely to assume that electric cars are environment-friendly, however, throughout the production lifecycle, it is challenging for the company to achieve this target. In terms of sales performance as well as business performance, the company might suffer and this in turn would redeem the brand value. Again, the risk of reputation loss is present because in the age of social media, customers have the power to potentially “shame” the company. The public image of the company might be affected and the automotive manufacturers would not be able to deal with it.

Type of risk incurred by GM

It can be stated that resource scarcity is the inherent kind of risk. Before introducing electric vehicles in the market, the likelihood of failing prevails due to resource scarcity. Without proper support of business partners and a well-defined strategy and action plan, GM cannot tackle the risk (Wang et al., 2018). Similarly, the fact that EVs are not always environment-friendly is a residual risk. After developing and launching EVs in the market, the company might encounter the risks outlined above. Again, a residual risk is more or less similar to an inherent risk. Without proper control mechanisms, the company would be at a potentially risky zone. A risk assessment process should be implemented in order to response effectively to the issue.