GM: The Heat Is On

[Perian]

Source: Forbes Magazine

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NEW YORK - The heat is on General Motors.

This week, the industry's leading trade publication, Automotive News delivered a big blow.

"The new cars aren't hits," said one headline. "Detroit appears destined for a smaller place in the auto universe," read another. The story lumped General Motors and Ford Motor together in a shrinking-market-share scenario for Detroit.

I think that General Motors has bigger problems and is in more trouble than Ford Motor, which is still controlled by the Ford family.

GM's February sales were just above 24% of the market, a low in modern times for a strike-free month. Inventories are still sky-high despite production cutbacks and massive incentives. GM has a 102-days supply, compared with 89 at Ford, 77 at DaimlerChrysler, 58 at American Honda and 40 at Toyota. Early estimates of March sales indicate that GM is likely to post another decline.

A few weeks ago, GM's marketing vice president was replaced, an important change for the better, because the marketing was truly bad. A week ago, the head of Saab in Sweden, which is GM owned, quit after it was announced that the next generation 9-3 Saab would be built in Germany, not Sweden.

And then there was the disappointing announcement last month of a $2 billion payoff to Fiat to get out of a deal that cost GM a total of $4.5 billion. I'm not aware of any criticism, punishment or bonus reduction for the executives who led GM into the Fiat mess. This should also embarrass GM's directors.

The stock has been moving lower, too, dropping close to a 52-week low.

Add all this together and it doesn't take a weatherman to tell which way the wind is blowing. The question is whether GM's current management is capable of taking shelter from the storm.

GM's market share has been falling for decades. Forty years ago, GM had half the U.S. market. Back in 1992 at the beginning of reign of Jack Smith/Rick Wagoner (now chairman and chief executive) the company had a 35% to 36% share. GM executives always pushed the idea that it could regain momentum, getting back to 29% to 30% of the market.

The February sales results seemed to shatter that illusion. In fact, GM's share of the business has been artificially propped up for years by heavy incentives--cash back to buyers, 0% interest rates, credit card come-ons, sales to rent-a-car fleets, and special deals for workers, relatives of workers and employees of suppliers. My guess has been that without these gimmicks, GM's actual market share would have been 23% to 24%.

What's wrong?

Wagoner has been complaining about the company's own medical benefit costs, which run $5 billion a year (and always climbing) for its 1.1 million employees, retirees and dependents. The company borrowed heavily, too, to fully fund its $80 billion pension fund.

Wagoner also complains about nations, such as Japan, that juggle their currency to give their car exports an advantage.

I think that Wagoner is right on both counts, but the company hasn't had the courage to tell its union that the benefits aren't affordable now. And in 40 years the U.S. government hasn't cracked down on foreign currency manipulation.

GM's biggest shortcoming is that its cars and trucks have fallen behind the foreign competition in design and technology. The rash of new vehicle announcements from the likes of Toyota, Lexus, Honda, BMW and even Hyundai won't make things any easier for GM.

At the root of all of GM's woes: Its top people really don't understand the automobile business. Wagoner had to go outside and hire Robert Lutz, a retired Chrysler/Ford/BMW executive, and make him vice chairman and product czar in an effort to improve GM's cars and trucks.

In my opinion, the structure of GM just doesn't work. It is difficult to see how anyone who understands cars or the car business can rise to the top. The structure seems designed to keep finance men up and everybody else down. It's impossible to find anyone on the car side, barring Lutz, who can actually get anything done.

There will be growing pressure on GM to take drastic action. Strong leaders have turned around other badly troubled auto companies. Look at what Lee Iococca did for Chrysler in the 1980s, what Ferdinand Piech did for Volkswagen in the 1990s and what Carlos Ghosn did for Nissan in just the last few years.

A couple of winning vehicles can turn a company around quickly. Chrysler was a loser, but its new Chrysler 300C and Dodge Magnum are successful and are pushing up market share. Both GM and Ford have enormous resources, huge dealer organizations and good names. If the product is right, they can succeed.

The heat is on, particularly at GM.

[Perian]

Originally Posted by Perian

I think that Wagoner is right on both counts, but the company hasn't had the courage to tell its union that the benefits aren't affordable now.

This must change - before it's to late. Where are the voices of the UAW?

Are they to busy insulting Marines to suggest that maybe it's time to talk to GM/Ford?

Now is the time.

[nsap]

Personally, I think that GM needs to clean house on the executive level. We need more gear-heads than penny-pintchers at GM.

Like the article says, one hit product can change everything.

[Globalist]

Originally Posted by Perian

This must change - before it's to late.

The best defense is attack. GM must act and now.

[Swahili]

Originally Posted by nsap

Personally, I think that GM needs to clean house on the executive level. We need more gear-heads than penny-pintchers at GM.

Like the article says, one hit product can change everything.

So true. Again, as it has been said many times before on GMI, that of course GM market share has been decreasing for the past 40 years since there have been more introductions of other car companies into the North American market. The problem now however, is that the number of companies in the business is fairly constant and GM still seems to be slipping.

After reading articles such as these I come to my own conclusion which I'll spill here. GM's problem is not so much the health care problem in my opinion. As nsap says, GM needs more gear heads. Yes the GM health care problem is off great concern, but those billions of dollars that could potentially go towards R&D, better upkeep and refreshing of vehicles and divisions, would be wasted because GM doesn't currently employ the right number or type of car people necessary to put those dollars to the best use possible.

Sort out the brass, give Lutz some more freedom and slack on the chain, and allow to the General to get back in the game firing on all cylinders, not just a couple.

[Slack]

I think a lot of people, the GM faithful included, are losing patience with GM. We just get one mediocre product after the next. GM needs to make good, polarizing cars. Middle of the pack isn't bad for one car, but when you're entire lineup is that way you have serisous issues to resolve.

[GM_Guy81]

We all basically knew this. Nothing really new in the article.

Lets just hope that GM can pull it off. Replacing Wagoner with a real car guy would be a drastic improvement though, some one in their late 30s early 40s who understands todays market, and todays tastes.

[spudglo08]

Fire wagoner and hire someone that knows what makes a good car.Find a modern day Harvey Earl.Hell hire Jay Leno hes more of a gear head than Wagoner could ever be.Just get you ***** togather GM.And do it fast.

[nsap]

Originally Posted by GM_Guy81

We all basically knew this. Nothing really new in the article.

Lets just hope that GM can pull it off. Replacing Wagoner with a real car guy would be a drastic improvement though, some one in their late 30s early 40s who understands todays market, and todays tastes.

Not only would a new CEO have to be a gear-head, and understand today's trends, but it would have to be someone like Bill Ford. Bill has cut over a 1 Billion in wasted cash. That needs to be done at GM.

[dav305z]

I think a lot of people calling for Lutz's head have been mistaken - he's the only good thing they have right now. I noticed that the new Chevy and Saab division heads named this week are both marketing guys. Stupid stupid stupid.
I think the article is dead on. The people who screwed up this company are still in power today, still promisng change but not delivering - perhaps they are not capable of delivering. It might be time for a major shake up in the top offices at GM.

[spudglo08]

Hey make Lutz CEO.

[TimR]

Originally Posted by Perian

It is difficult to see how anyone who understands cars or the car business can rise to the top.

Am I stupid here or does this statement not make sense??

Tim

[hotrod1949]

GM is such a massive, top heavy organization that it takes forever to get anything done. They need to bite the bullet and reduce the layers of management and become a lean, efficient operation.

Concept to production should take 36 months or less, not the 60 to 72 months it has been taking. Hiring young, open minded engineers and designers couldn't hurt either, so many in the organization are in a deep rut that they can't get out of. GM used to have the best designers and engineers, but they don't anymore. Talented, creative minds need to be challenged and nurtured, not shackled.

GM has to become a leader again in design, technology and quality, with the capability of quickly responding to the car buying public if it wants to regain market share.

[SilverZ]

Blah blah a 100,000 unit 300C doesnt turn around a company. Anything and everything just to make a fuss.

[Globalist]

Originally Posted by spudglo08

Fire wagoner and hire someone that knows what makes a good car.Find a modern day Harvey Earl.Hell hire Jay Leno hes more of a gear head than Wagoner could ever be.Just get you ***** togather GM.And do it fast.

I disagree. Wagoner is the guy who had the courage to hire Bob Lutz and convince him to join a well known byzantine bureaucracy.

And Lutz is known as an outspoken person--wild card. To be able to do that means that Wagoner is self-confident. It also mean that he wants to change GM's culture. He is acting like Ronald Reagan--surrounding himself with great people like Lutz, Devine, and promoting more car guys to the top. And that's a great quality in a leader. I respect him for that.