GM Cuts Prices and Changes Marketing Strategies

[mgescuro]

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Struggling GM Rolls Out A New Marketing Strategy
By LEE HAWKINS JR.
Staff Reporter of THE WALL STREET JOURNAL
May 23, 2005; Page B1

VACAVILLE, Calif. -- Tom Shellworth has been selling Chevrolets and other General Motors Corp. vehicles in this San Francisco suburb for 30 years. In that time, he's watched as Asian and European auto makers have taken more than half of the California market from Detroit, and driven GM's market share in the state to just 17%.

Now, as part of a substantial course correction to its U.S. marketing strategy, GM is planning to cut prices, pare down overlapping models and mount a fresh counterattack against foreign brands in rich, populous West and East Coast markets and in fast-growing areas like South Florida.

"They're critical, image-shaping markets," says Mark LaNeve, GM's new head of North American sales, service and marketing. Mr. LaNeve is the point man in GM Chairman and Chief Executive Officer Rick Wagoner's effort to fix GM's money-losing North American auto business.

Among the cars Mr. Wagoner and Mr. LaNeve are counting on to rebuild GM's image is the new Chevy Cobalt compact car, designed to compete against California small-car favorites, Honda Motor Co.'s Civic and Toyota Motor Corp.'s Corolla.

Mr. Shellworth says the Cobalt "is a very nice car." But he's cautious about its prospects. "There are a lot of layers of competition to get through to get to the Cobalt," he says. "And that's the challenge that Chevrolet has in marketing out here. How do you get them into the seat to even drive the car?"

Answering that question will be vital for Mr. Wagoner. Slumping sales of GM's highly profitable large sport-utility vehicles have put GM's North American operations on track for a substantial loss this year. GM this year suspended its earnings guidance. GM's debt was downgraded this month to junk status by Standard & Poor's. That means the 0% financing deals and huge rebates the company relied on to sustain sales following the Sept. 11, 2001, terrorist attacks are increasingly costly.
...
A clear sign of GM's distress is that the company's average revenue per vehicle in the first quarter plunged $688 a vehicle, or nearly 4% compared with the year-earlier quarter. GM's revenue per vehicle in the first quarter was the lowest for the January-March period since 2000. The revenue collapse reflects the slump in sales of high profit SUVs such as the Cadillac Escalade and the Chevrolet Suburban. GM's weak presence in the regions of the country where the economy is robust exacerbates the problem.

To change that, Mr. Wagoner said GM plans to accelerate its plans through increasing "marketing money, diversity messages, integration with the dealer network, you name it," he says. "The answer to fix the problem is not the same in each market."

As part of its new approach, GM will move away from one-size fits all deals like 0% financing, toward what Mr. LaNeve calls the "Total Value Proposition." That means many GM vehicles will have lower base prices than cars they replace, and GM will try to sell them with smaller rebates, he says. In addition, Mr. LaNeve says GM will revamp a complex system for pricing optional features that encouraged dealers to stock high-price, feature-loaded vehicles that tended to sit unsold for months.

"If the sweet spot for a TrailBlazer [SUV] is $31,000, we forced dealers to stock $37,000" vehicles, he says. Earlier this spring, GM dropped the base prices of TrailBlazers and other midsize SUV models to align them more closely with competitors. Mr. LaNeve says GM's midsize utility sales are up 30% in March and April compared with February, before the price cut.

In a second, longer-term move, GM will consolidate the struggling Buick and Pontiac brands, cutting the number of models offered in both. GM also plans to push Pontiac and Buick dealers to consolidate, creating one sales channel where two exist now. In this way, GM could realize many of the savings of closing a brand, without incurring the substantial costs of a full shutdown, including buying out dealers.

Pontiac, Mr. LaNeve says, will focus on vehicles that are sporty and athletic. Buick would offer cars tuned for quiet and quality. GMC would sell trucks as it does now. Meanwhile, GM's Saturn brand will transform from a cuddly marketer of utilitarian vehicles to a much sportier brand selling mainly vehicles designed by GM's European Opel division.

"We can't afford to put 10 products into Buick," Mr. LaNeve said during a meeting with reporters Friday. "We can do three or four really good ones." He won't say what models will go, but he suggests that Buick doesn't need two SUVs, as it has now.

GM has vowed to slash overlapping models before, only to slide back into tactics such as offering four nearly identical minivans in the Chevrolet, Buick, Pontiac and Saturn divisions. "I'm not so sure that was a great decision," Mr. LaNeve says. But he insists GM will execute its new strategy.

Realigning products and divisions could take years. That's why GM is pouring money into efforts to rekindle interest in GM's products now in places like San Francisco, New York and Miami.

Mr. LaNeve says GM plans to increase advertising spending in the coastal, metro markets. He has assigned a member of his staff to live full time in South Florida to drive new initiatives there, aiming at the large Hispanic community. GM is tailoring models and offers to specific markets, offering a Cadillac CTS with special wheels and a sunroof on a $399 a month lease in California. Mr. LaNeve has been flying around the country meeting with dealers and selected news media to talk up GM's prospects.

GM also is betting that large SUV sales will rebound next year when it launches redesigned large SUVs. GM's SUVs are the mainstay of its sales in California.

Mr. Shellworth says the 2000 Tahoe "was a runaway hit." But customers who bought the 2000 models "were ready for another car a year or two ago." A lot of those former Tahoe owners wound up buying upscale import midsize and full-size sport utilities, "because they were newer and fresh."

Another problem for GM in California is that it doesn't have gas-electric hybrid vehicles to compete with the Toyota Prius, Ford Motor Co.'s Escape hybrid SUV or Honda's hybrid Accord sedan. Hybrids have been hot sellers in California where gas prices are high, commutes are long and many consumers are environmentally conscious.

"We're not selling the full hybrids in today's market, and that's just reality," Mr. LaNeve says. "I think we can be successful. Do I wish I had something to sell like that? Sure."

[Perian]

A year ago it was "LaNeve" who?

Now it's "LaNeve" wow!

[TaHoE]

LaNeve = THE MAN!

[IMPALAon20s]

and alot of us expected lutz turn things around. i like what i've seen from laNeve so far.

[hudson32]

Maybe instead of 3-4 products for Buick, perhaps 3 levels of cars and 2 of either SUVs or minivans. 5 would work great for Buick.

[tgagneguam]

No single person will turn this company around. It's a team effort, and it will require the top management simply to let the many talented middle people do their jobs in they way they've always wanted to.

[Globalist]

Originally Posted by tgagneguam

No single person will turn this company around. It's a team effort, and it will require the top management simply to let the many talented middle people do their jobs in they way they've always wanted to.

That's very true. It's a team effort--One hand can't clap.

[Randle2I]

Originally Posted by tgagneguam

No single person will turn this company around. It's a team effort, and it will require the top management simply to let the many talented middle people do their jobs in they way they've always wanted to.

QFT!!

LaNeve as well as Lutz as well as EVERYONE ELSE will turn GM around. Since Lutz has been there, he's done a fantastic job, LaNeve is really starting to understand what needs to be done, and I think that soon people will see the fruits of their labor.

[gacSTclass]

GM has vowed to slash overlapping models before, only to slide back into tactics such as offering four nearly identical minivans in the Chevrolet, Buick, Pontiac and Saturn divisions. "I'm not so sure that was a great decision," Mr. LaNeve says. But he insists GM will execute its new strategy.

Mr. LaNeve, YOU ROCK!

[desmo9]

LaNeve, if I'm not mistaken, is the guy behind Cadillac's transformation. He stood behind the CTS and Escalade as they rejuvenated the brand.

Lutz has been kicked out of North America. There's more to it than meets the eye. Lutz simply doesn't have his finger on the pulse of the North American market. Never has and probably never will. He's as asset to GM in the right context, but he wasn't the guy to head North American product.

[desmo9]

One other thing ... it's still unclear where Saturn fits this strategy. Clearly, it'll be maintained as an exclusive division ... not sharing showroom space with Buick/Pontiac/GMC. It appears that GM's expanding Saturn's lineup, too. Thus, that means Chevy, Cadillac, and Saturn have full lineups. Then, of course, we have Saab. Presumably, Saab will remain exclusive like Saturn, but Saab won't have a full lineup. A small car, a mid-size car, and a crossover are all it needs.

[paul3230]

Wow...maybe LaNeve should be running GM...

[paul3230]

It's just seems like he's applying common sense solutions to GM's issues..

[Bvonscott]

This is some of the best news I've heard in a while... I'd like to see them cut some vehicles right away.

[Globalist]

Originally Posted by paul3230

Wow...maybe LaNeve should be running GM...

The next guy who will be running GM is Fitz Henderson actual chairman of GM Europe.