GM must get real about its place in the automotive world.

[TriShield]

GM must get real about its place in the automotive world.

by Peter M. DeLorenzo
www.autoextremist.com - Issue 289, March 23, 2005

Watching GM's stock plunge last week to its largest single-day share loss since the stock market crash in 1987 sent chills through the Motor City, the industry and the financial community. The loss was triggered by GM's announcement that it expected a loss of almost $1 billion with a "b" over the last six months of the year, after suggesting less than three months earlier that things would be tough in 2005, but not in the dire category. Well, folks, this is seriously dire, and Wall Street reacted accordingly, coming down hard on GM. Danny Hakim, reporting for The New York Times last Thursday morning said that "The losses reflected an increasingly harsh reality: that General Motors, which three years ago was thought to be the healthiest of the Big Three automakers in Detroit, is now considered the weakest, primarily because it is not selling enough cars at home. The losses also raised questions about the strategy of the company's chairman and chief executive, Rick Wagoner." That's as dire of an assessment as you're likely to hear from anyone about the situation and now GM heads to the media preview days for the New York Auto Show (which begin today) - under the gun and under the microscope.

The fact that GM is in such dire straits right now is shocking to many, but it's not surprising to me, and it shouldn't be a surprise to longtime readers of my column either. GM has been playing Russian Roulette with its incentive-driven marketing strategy for almost three-and-one-half years now. What was a good and patriotic campaign in the beginning to "Keep America Rolling" after the horrific events of 9/11, turned into an obsessive-compulsive addiction that crippled GM's ability to think rationally about the North American market. GM mistook a short-term marketing boost/gambit for a long-term marketing strategy, and they talked themselves into believing that they could actually take away market share from their competitors with it.

It worked for a while, but it also began a debilitating scenario in which GM slowly but surely cheapened their brands across the board, creating a "fire sale" mentality with the public that they're now finding virtually impossible to overcome. Except for the few instances of hit new products, GM has conditioned consumers to only consider its product portfolio when they're in search of a deal. And now that GM is bringing vehicles to market that are actually worth owning on their own merits for a change, they're finding that a growing number of the American driving public couldn't care less.

In short, GM has put itself in a box - and they're running out of time to put things right.

From the time we launched AE on June 1, 1999, GM has clearly been the subject of more of my columns and more of our "On the Table" entries than any other automaker. Part of that is because GM has repeatedly given us so much to write about week-in and week-out (GM's unnatural embracing of a peculiarly virulent mode of Brand Management, a wildly misguided notion that almost single-handedly brought down the company, was particularly ripe for the picking in the first 18 months of AE). And part of it is because I spent my childhood growing up in a GM family (my father Tony was head of GM PR from 1957 to 1979), and I was immersed in the history and the culture of the corporation from a young age. Legends from Harlow "Red" Curtice, to Ed Cole, Bunkie Knudsen, Bill Mitchell, Zora Duntov and many, many others weren't just colorful characters from a GM history book to me - they were living breathing individuals who were on a first name basis with our family. In other words, I have had an intimate, up-close view as to the inner workings of this corporation, and I probably have more of a perspective as to what this company has meant to the auto industry - and to this area - then just about anyone.

So to see GM in this situation is difficult for some, especially for GM veterans of the glory days and particularly for those at work down at "The Tubes" right now. But reality sucks, and this reality for GM-ers is something anathema to their very core. You have to remember that GM was once the New York Yankees of the automobile business. They didn't just win a lot of championships - they won the championship every year. At the peak of its powers, GM dominated the U.S. automobile industry, consistently capturing more than 40 percent of the market (think about that figure for a moment in context with today's market, with GM struggling mightily to even maintain a 25 percent share).

GM was so dominant that it dictated every facet of the business to the rest of the industry, including the segments offered, the pricing, engineering features, design - you name it, and GM set the tone for it. GM's influence over car design was so overwhelming at one point that for one continuous stretch, from the '50s right through to the early '70s, it dictated design for the entire industry with two of the greatest automotive designers of all time - Harley Earl and Bill Mitchell. It was like having Babe Ruth hand off to Mickey Mantle. GM Design's ("Styling" as it was known back then) influence was so overwhelming that they even dictated the colors offered from year to year by the Big Three.

But the problem for GM is that it never moved on from reliving its glory days, and while they were reveling in their legacy, the automotive world irrevocably changed around them. GM's arrogant mindset blinded them to the rapidly changing realities of the North American automotive market. GM was slow to understand the real impact of the Japanese inroads into this market until it was way too late - and by then Chevrolet's position in the market as "America's Car" was totally eclipsed by Toyota. GM refused to admit that the luxury car market was fundamentally altered by the German manufacturers - until its Cadillac division was literally on the ropes. And GM was painfully slow to realize that the quality/reliability component had become the basic price of entry in the new world order of the auto business. I could go on and on about the long litany of mistakes that got GM to this point, but after 5-1/2 years of documenting GM's problems in Autoextremist.com, the time has come for me to delineate just what GM must do to survive in the future. And survive is the operative word here, because right now GM is in freefall in the U.S. market, and unless there's a dramatic restructuring of the organization - GM will become a takeover target and will cease to exist as the company we know today.

Continued at www.autoextremist.com

[Proetus]

I am going to post the rest of it because they remove these from their site after 1 week.
-----------------------------------------------

Here are my key points for righting the listing GM ship...

GM must learn to make money while controlling a 20 percent share of the market. GM used to be the smug "over dog" back in the glory days when it controlled over 40 percent of the market. The problem is that they retained a large measure of their arrogance when their market share fell through the 30s and into the upper 20s. There was even quaint talk a few years ago of regaining the 30 percent plateau, with Rick Wagoner sporting a "30" lapel pin as a reminder to his troops of his stated goal. Now GM controls a very shaky 25 percent share of the North American market and that by no means is a solid number. Factor in fleet sales, and the "real" GM market share number is probably closer to 22.5 percent. And with the imports continuing to make inroads at a terrifying rate, it is not out of line to think that a more rational number for GM to target for its North American operations is a 20 percent share. If GM restructured its operations based on this assumption, it would be a dramatically different company, but it would have a much better chance of being a competitive factor again.

Operating at 20 percent of the North American market, it would be logical that GM right now has too many models, too many divisions, too many nameplates and too many dealers. GM is simply dreaming by continuing to prop up its hoary divisional structure and its bloated dealer body. This is by far the most painful aspect to all of this for GM insiders, both at the corporate and dealer level, but this is the one aspect that must be fundamentally and radically altered. GM cannot continue acting that the good times will return. Instead, GM must come to the stark realization that they must get smaller to regain their footing in this market, and they must understand that market share increases can slowly grow out of a leaner, meaner superstructure. For the near term, GM gaining market share is highly unlikely, but a more attractive mix of fewer, more profitable, class-leading products would go along way toward stabilizing GM's fortunes. I am not going to get into specifying all of the models, nameplates and divisions that must be reduced, cut or altered, but just one small example of how GM could act can be demonstrated with the Buick LaCrosse. Now, most of our AE readers would say, "Would you miss it?" and would gladly vote to deep-six it - and maybe that would be one justifiable scenario. But for the short term, with GM needing to act and act fast with immediate model reductions, the LaCrosse could be reduced from three models to one. I would eliminate the base CX and the middle CXL models, and keep the top-level CXS. Then, I'd cut the price. A real-world price for the CXS shouldn't exceed $26,000 in its present configuration, and at that figure it would be a strong value contender in its segment. Now, take this approach while evaluating GM's entire current and future product programs, and you can just imagine the more focused portfolio you'd end up with.

But if GM is going to take an axe to its product portfolio, then its dealers have to get real about their prospects too. GM cannot conduct itself as an "all things to all people" company at the divisional level any longer. The days when one division could boast a full complement of offerings ended a long time ago, but unfortunately GM and its dealers didn't get that memo until just recently. And I would also argue that the "old-think" GM is still way too active in the corporation for its own good. You only have to look at the fiasco masquerading as GM's latest minivan entry. How could one company take three years to develop a fourth-place minivan - and then knowingly distribute it to four of its divisions? Isn't one mediocre minivan plenty? What's wrong with this picture? Did Pontiac dealers need a minivan? Confined within their own little myopic world and selling in a vacuum, yes, you could squint and say that on a good day and with the planets aligned just right, that Pontiac dealers needed a minivan. But if you step back and take a good look at the competitive set of minivans in the market, and consider GM's hopelessly also-ran position in that particular segment of the market, and also take into account Pontiac's divisional brand identity (at least what's left of it anyway), there is no way in hell that Pontiac should be selling a minivan. Needless to say, I could devote the rest of my columns for the rest of this year delineating example after example of what GM can and should do, but for now it's safe to say that I'm not the one who should be worried about it. GM should be burning the midnight oil in preparation for executing these kinds of scenarios throughout the corporation. And GM dealers better be ready to set aside their 30-day mentalities long enough to realize that they will have to make fundamental changes in the way they conduct their business too. Yes, they have to continue to be responsive to their local markets, but they better ask themselves this basic question: Do they want to have fewer, class-leading products to sell, or do they want to continue to ride the incentive train to oblivion?

Fewer models, fewer nameplates and the biggest automotive advertising budget in the world - what's not to like? Right now, GM is flailing around trying to adequately promote countless nameplates, while still hammering home the latest GM sales event message - and that just isn't going to cut it in this market. Cutting GM's swollen product portfolio back would have the immediate benefit of increasing its media throw-weight against the nameplates it retains. More advertising and promotional money for fewer nameplates? Sounds deceptively simple, and remarkably, it is.

The Rick isn't going anywhere, but... The people clamoring for GM CEO Rick Wagoner's head at this point are seriously misguided. The last thing GM needs in the midst of this burgeoning chaos is a regime change, because it would accomplish exactly zero. Make no mistake, Rick is a very bright guy, and he has some very capable hands on deck, but realistically, he's under the gun. Rick's measured-paced plan to get GM back on the right track over the last four years has become instantly obsolete - because they are out of time. The cuts and the restructuring have to come now, not 18 months from now or six months from now, and The Rick and his team are seriously up against it. Analysts commonly refer to Rick's Fiat debacle as his one glaring mistake since taking office. But I would label it as one of Rick's mistakes. The other was not closing the deal to bring Wolfgang Bernhard on board. Bob Lutz is a car guy legend, but if my back's to the wall and I still needed to deliver great products in spite of having to take on a massive restructuring effort at the same time, there's only one car executive in the world whom I would want and absolutely need on my side - and that's Wolfgang Bernhard. Fiat ended up being a $4.5 billion mistake for The Rick and GM. But by not hiring Bernhard when they had the chance, the long-term implications for GM could be far costlier than that. It was announced yesterday that Rick stepped up and bought 50,000 shares of GM stock to the tune of $1.5 million. By doing that, his message is clear: He believes in himself and his team, and he's not going anywhere. Confidence is good in a CEO, but now Rick has to deliver GM from disaster, and the clock is ticking.

It's the product, stupid. If there is one thing I have been consistent about since Day One of this website, it's that The Product is, was and always will be King. For a manufacturer to conduct itself with any less of an understanding of this fact is suicide, or at least a ticket to a very bad time, as GM is discovering right now. GM is finding out the hard way that by just covering a segment with a freshened or a newly contemporary product entry isn't going to cut it in this, the most competitive market in automotive history. That its new products aren't getting the attention they hoped for goes without saying, but why is that, exactly? For one thing, they're worrying about too many models, nameplates and divisions. They're still operating as if they control a huge chunk of the market and can get away with propping up their now obsolete divisional structure. But GM forgets that out in the real world, the customer doesn't care about GM's latest interpretation of the Sloan model. They don't care about segment differentiation or GM's "ladder" view of their product portfolio. The customer just cares about being able to buy good cars and trucks with bulletproof quality and reliability, excellent value and a modicum of style.

If GM weren't so focused on their old way of doing things over the last 20 years and in protecting the "sanctity" of their Neanderthal divisional structure, the market might not have flown right by them. But it did and so here they are.

GM's new products aren't flying off of the lots because they didn't go far enough with them. In some cases, they're too pricey, and in most cases they're simply just not good enough. With interiors that don't go far enough, engines that aren't feature competitive, and with details that aren't executed with finesse or a sense of style, GM is operating at an overall grade level of "C-" to "B" (excepting their few obvious "A+" examples) in a market that demands an "A" before any serious consideration begins. But when they're running around trying to keep too many balls in the air what did they expect would happen?

[Proetus]

GM must change the fundamental way they approach this business. I'll give you just one classic example. The Chevrolet Equinox is, by any measure, one of GM's few new product hits. It is smartly styled, properly priced and executed very, very well. And miracle of miracles, customers are embracing it without having to be prodded by the Giant Rebate Stick.

Now, let's just imagine for a moment if Toyota had the Equinox - what would they do? They would pour over the Equinox with a fine-tooth comb. They'd improve the details, sweeten the mechanicals, refine the interior and make it better in every single way. Their approach revolves around the concept of gradually improving and refining a vehicle throughout its lifecycle to make it better in every respect and as a result, this is why Toyota is usually successful every time out - in any segment they compete in. They build brand equity by delivering relentlessly honed products that never disappoint.

What does GM do with the Equinox? Instead of seizing the opportunity of potentially having a rare, long-term product hit (the kind that doesn't come around very often in GM's world), and nurturing it by polishing it to a sheen and solidifying its place in the market with a clever big-buck marketing push - they do a few improvements to it and then give Pontiac dealers a version called the Torrent.

If there is one vehicle scenario in GM's rapidly dwindling empire that encapsulates everything that is wrong with this company in terms of product development philosophy, business approach and marketing planning, the Equinox/Torrent example is it. Now, multiply that scenario throughout the rest of the corporation, and its no wonder GM's market share is in freefall.

GM needs some new ideas, because the old ones stopped working many moons ago. They're too big, too cumbersome and too slow. Their resources are stretched way too thin and for what? The ludicrous pursuit of propping up a now ancient business model that no longer applies? That seems unbelievably silly.

Yes, there are a ton of other problems that GM has to deal with. The crushing legacy costs, the nonsensical union contracts, the ridiculous medical care costs, the relentless competition, but in the end, the reason GM finds itself in this position is because of their ingrained recalcitrance and refusal to admit that what worked for the old, dominant, legendary version of GM makes no sense whatsoever in the cutthroat and globally chaotic automotive market that exists today.

Some people in this town cling to the belief that there's a rotation on the Detroit "roller coaster" that seems to follow this sequence - Ford gets in to trouble, then starts its comeback. Chrysler gets into trouble, stabilizes, and starts its comeback. And now it's just GM's turn in the tank. The problem is that Detroit overall is running out of comebacks. With mounting competitive pressures emanating from the Far East and consumers refusing to give Detroit products the time of day (except for the obvious "hits"), the domestic car industry based here in the Motor City is facing the most serious crisis in its history.

As for GM, they can't continue to operate by just selling to their loyal buyers over and over again, because those buyers will slowly but surely dwindle each year. Until they convince people who don't already drive GM vehicles to seriously consider and actually buy their products, this scenario is not looking promising.

In short, there will be no comeback unless GM gets real about its place in the automotive world. It's no longer a matter of fixing things so that GM can regain its rightful place at the top - it's a matter of survival, pure and simple.

[Ming]

But the problem for GM is that it never moved on from reliving its glory days, and while they were reveling in their legacy, the automotive world irrevocably changed around them.

Reminds me of how in video games you so often see 1960's GM muscle cars, while the "modern" cars of today are represented, by the most part, by Import brands. Nostalgia and glory days can only take you so far.

[Mikkoo]

On all counts I agree with the Autoextremist. GM just isn't
the conquering giant that set the trends. And of course
their products are not setting the world on fire. Time for
GM to start thinking like a small company, and strive to
make every product class leading.

[stewacide]

The Equinox example is spot on. They need to push the Equinox name hard and put all their resources into making the Equinox better and better, not seeing how many value-less clones they can spin off. Anything they gain in sales doing that will be lost in margins and momentum.

The G6/Malibu/whatever-the-Saturn-will-be-called example is just as perplexing. It looks like they put a lot of time, effort, and money into differientating the Malibu and G6 (and soon the Saturn): WHY?!?!? Near as I can tell they go after the EXACT same market segment.

Compare to Ford's strategy in the same segment. The Mazda6 and Fusion, despite being based on the same platform (like the GM cars), are VERY different creatures.

Unlike the pseudo-sporty G6 the Mazda6 is the real deal: being small and light for the class, with a double-wishbone front suspension (to the Fusions MacPhearson), slickest manuals in the segment across the whole range, unique body styles (e.g. hatch), and a real-deal blow-your-socks-off performance version in the MazdaSpeed6. Buyers are too informed these days to be fooled into thinking a car is "sporty" because of the styling or because it's a Pontiac.

Ford still has Mercury to kill off but at least they aren't putting any money into it...

[ImajV]

Cut one or two brands.. and gradually shrink your fleet sales. It'll shrink your market share, but just focus on profitability and getting the products right. As a result, your share will rebound, and as the author said, your marketing can become more focused.

More focused marketing builds image for each individual brand. And take away products that don't fit the image. A mom driving her kids to school every day in a Montana doesnt bring to mind the word ACTION.

Improve your products constantly. Shorten the life cycle. THough we blast Toyota, their system of continuous improvement would truly make great prodcuts for GM. If Equinox can achieve this many sales, imagine what it could have with a better interior or a more powerful engine

[MN12Fan]

Originally Posted by stewacide

The Equinox example is spot on. They need to push the Equinox name hard and put all their resources into making the Equinox better and better, not seeing how many value-less clones they can spin off. Anything they gain in sales doing that will be lost in margins and momentum.

The G6/Malibu/whatever-the-Saturn-will-be-called example is just as perplexing. It looks like they put a lot of time, effort, and money into differientating the Malibu and G6 (and soon the Saturn): WHY?!?!? Near as I can tell they go after the EXACT same market segment.

Compare to Ford's strategy in the same segment. The Mazda6 and Fusion, despite being based on the same platform (like the GM cars), are VERY different creatures.

Unlike the pseudo-sporty G6 the Mazda6 is the real deal: being small and light for the class, with a double-wishbone front suspension (to the Fusions MacPhearson), slickest manuals in the segment across the whole range, unique body styles (e.g. hatch), and a real-deal blow-your-socks-off performance version in the MazdaSpeed6. Buyers are too informed these days to be fooled into thinking a car is "sporty" because of the styling or because it's a Pontiac.

Ford still has Mercury to kill off but at least they aren't putting any money into it...

The Equinox isn't that bad (my sister has one and it's okay) but it's too late to the game to have the impact that GM may have wanted, or needs. Vehicles like the Ford Escape were out years before the Equinox and, even so, they still bring things to the table that the new Equinox doesn't (like the Escape Hybrid).

The situation of the G6 and Malibu is kind of odd. I heard a report, Neil Cavuto I think, that was saying that the G6 is selling worse than its predecessor, the Grand Am, even though it is a clearly superior car. Actually, now that I think of it, the report was talking about how the whole Oprah giveaway had no discernably positive impact on G6 sales. As for the Malibu, I think it's just ugly.

As for Mercury, when did Ford ever put money into them. People often think Mercury is some unsuccessful brand because it doesn't have any outstanding products but all it really is is a Ford alternative. Mercury's current purpose is basically to offer Ford rebadges with a different, maybe even slightly more upscale, look. It is uncreative but it has worked really well before. One interesting example is the Grand Marquis. Obviously Grand Marquis brings up thoughts of a "Mercury Crown Victoria," which is really all it is, but it sells well in an odd way. Last year, Ford sold just over 70,000 Crown Vics, mostly to fleets. However, the Grand Marquis, which is basically the same car mind you (tends to cost slightly more even), sold almost 80,000 units last year, most of which were to private consumers. Mercury should have a greater element of uniqueness to its vehicles beyond just styling but straight rebadges haven't always proven to be unsuccessful choices in its case.

[JBsZ06]

Great thread and spot on...

Cut Saturn/Pontiac/Buick and maybe even GMC...

Create one new brand...called? Who cares cause its product that matters..

Call it Aurora....

Then take Chevy and have a majority of its car based product coming in from Asia..(dawaeoo? sp) Low cost manufacturing..

Chevy/Aurora/Cadillac...

Now GM can compete...

Will it happen? Doubt it but its radical enough to work...

PRODUCT/PRODUCT/PRODUCT..and thats all that matters...

Spend the money on Product..

[stewacide]

Ford wants to kill Mercury. There's nothing it does that can't be done better with the Ford brand. The only reason it exists is to prop-up independent Lincoln dealers.

In fact Ford already pulled the trigger here in Canada, where Mercury was killed off a few years ago and Ford and Lincoln dealerships merged. They still sell the Grand Marquis because it appeals to very old people for some reason, but it doesn't require a whole brand to do that, and it will probably be killed off too soon in light of the Five-Hundred.

If I'm not mistaken Ford intended to do the same in the US but pulled back when it hit its last slump (paradoxically it can be very expensive to kill off a division, especially when it requires a major dealer reorganization). Now that things seem back in order, and especially since Lincoln has the Zephyr and soon the redesigned Asiator to sell as entry-level models, I'm guessing Mercury's days in the US are numbered as well. Ford will probably enourage Lincoln dealers to take on PAG franchises or vice versa... the effort to give Mazda better dealership coverage in the US may factor into this as well...

[TriShield]

Originally Posted by MN12Fan

The situation of the G6 and Malibu is kind of odd. I heard a report, Neil Cavuto I think, that was saying that the G6 is selling worse than its predecessor, the Grand Am, even though it is a clearly superior car.

The G6 is completely bombing saleswise.

Anything was a superior car to the Grand Am, that's not really saying much for the G6. The G6 is still a mediocre car in it's segment, it should not have been released until it was a spectacular car that was nearly class leading.

It's not the caliber of product that will draw new customers to GM away from imports. It's still many steps behind the competition and this applies to nearly everything GM is releasing today.

You cannot expect to regain market share and customers with crappy products, which is what most of GM's mainstream offerings are. Crappy.

[the Blue One]

WHAT HE SAID! WHAT HE SAID!
The industry (here in MI anyway) has pegged GM's eventual market share at 20% for the last couple of years, now we have somebody shouting it out.
His ideas to re-work GM are spot-on and the longer they are resisted the worse it's going to be for GM and it's employees.

In this morning's Detroit Free Press it was brought up that Harley Davidson is now worth more than General Motors (total shares x market price). Sad, very sad

[Proetus]

They have added a few more comments in the "On The Table" section:

Gary Cowger kicked off the show at the IMPA breakfast and basically laid out how GM would fight out of their current problems. At one point, he put up a slide that showed that GM had 37 models in 1964, and 89 today, insisting that GM had to have the diversity in their portfolio to meet the needs of the mosaic-like market we live in currently. My thoughts on that is that GM should go back to that 37 model figure and build the best d*mn 37 models they can muster. Even in this exploding mosaic of a market we live in, there's no practical substitute for focusing on the job at hand. GM needs fewer models, executed at the top of their class. Then we'll see.

[yoblues]

Most of my rants have always been about the idiot suits who run the company. I kept hoping but I finally realized it was all over when they came out with the Solstice and a few months later you get the Sky. Roadsters are nice but they are the smallest selling segment in the auto industry and the GM suits give you two of them. They really do not have a clue.

[AndrewGS]

If only they could bring the new FWD cars and big trucks and SUVs out sooner.

What they need are more FWD cars and big-assed truck offerings that all cost above $40,000.

More FWD and Trucks + ? = Profit