GM-Navistar truck pact expires without final deal

[nadepalma]

Interesting News for GM - and may have other implications as well:

SOURCE: AutoNews.com

GM-Navistar truck pact expires without final deal

August 20, 2008 - 1:15 pm ET

CHICAGO (Reuters) -- Navistar International Corp. said on Wednesday that a tentative agreement struck late last year to buy General Motors' medium-duty truck business has expired without a deal being reached.

Citing what it characterized as the "significant marketplace and economic changes" since the memorandum of understanding was signed in December, Navistar said the companies had decided not to renew the tentative agreement.

MORE HERE

[nadepalma]

This is certainly news from a stategic perspective and may presents an opportunity for GM to eliminate an existing retail brand.

Many on GMI have said that GM has WAY too many brands and that some may need to be cut. GMC, in particular, is a bit of a redundant retail brand.

Keeping their medium duty truck operations in house, GM could almost kill two birds with one stone. GM could possibly stop selling GMC as a true retail, mass-market product - and simply use GMC as a professional, commerical grade operation.

That means, GM could stop selling Chevy variants of the Kodiak, etc - and merely rebadge all their bigger stuff as GMCs. It would also mean GMC would no longer sell rebadged stuff for the masses and focus only on the industrial market.

This would allow GM to "cut an extra division" without cutting it altogether and retaining the GMC name for what it claims to alredy be - "Professional Grade"

It would also allow GM to continue to consolidate and shift their brand strategy. We've already read rumors that Saturn showrooms may be consolidated with BPG showrooms. Some would say that FOUR BRANDS under one sales channel is a bit much and would present some overlap and image problems.

But if GMC will moved in a new direction - and the total number of locations selling GMC were reduced - then GM could end up ahead of the game and shift their retail strategy.

Just my two cents, but I think it makes sense.

[likearock00]

With the economy in the crapper, these trucks are going to crawl off the lots. I can't say I blame Navistar. I have a feeling GM is going to be stuck with them and Hummer for quite some time.

[RamJet502]

Originally Posted by likearock00

With the economy in the crapper, these trucks are going to crawl off the lots. I can't say I blame Navistar. I have a feeling GM is going to be stuck with them and Hummer for quite some time.

I agree, GM needs to weather the storm.

[likearock00]

Originally Posted by nadepalma

I say this presents an opportunity for GM to do some brand pairing.

Many on GMI have said that GM has WAY too many brands and that some may need to be cut. GMC, in particular, is a bit of a redundant retail brand.

Keeping their medium duty truck operations in house, GM could almost kill two birds with one stone. GM could possibly stop selling GMC as a true retail, mass-market product, and simply use GMC as a profession, commerical grade product.

That means, GM could stop selling Chevy variants of the Kodiak, etc - and merely rebadge all their bigger stuff as GMCs. It would also mean GMC would no longer sell rebadged stuff for the masses and focus only on the industrial market.

This would allow GM to "cut an extra division" without cutting it altogether and retaining the GMC name for what it claims to alredy be - "Professional Grade"

Just my two cents, but I think it makes sense.

I hear what you're saying, but GMC is the least of GM's problem. They don't have any exclusive products, nor do they have any individual dealerships. It's really a cheap divison as far as overhead. Pontiac and Buick are the two divisions that actually require work on GM's part.

[nadepalma]

Originally Posted by likearock00

I hear what you're saying, but GMC is the least of GM's problem. They don't have any exclusive products, nor do they have any individual dealerships. It's really a cheap divison as far as overhead. Pontiac and Buick are the two divisions that actually require work on GM's part.

Understood, but I believe that moving forward, GMC will become less and less relevant for the forseeable future. And Pontiac and Buick - which no doubt have their own problems - will be looked to share a greater and greater role in the BPG channel set up. Even if GM pays very little to produce GMC products, they still spend money in marketing/advertising/differentiate sheetmetal/etc.

That saved money could be used on other products, but also to advertise on existing/future Pontiac/Buick products.

For example (and it's an incredibly simplistic example), GM said that they wouldn't use money to promote the G5 through television commericals - only online or lumped in with other Pontiac products. So the Pontiac advertising budget has very little money for the G5. Now we all recognize that the G5 is a bit of a letdown as a product and is nothing more than a Cobalt rebadge - but with fuel prices so high, the G5 should be touted as a fuel-sipping product that could drive BPG sales.

However, no money was budgeted for this. But if they had more money for marketing....? Maybe it would be selling better, get more attention, etc. Regardless, it has been a missed opportunity for GM to get more traffic in BPG showrooms.

We all know that GM has already started to push for BPG consolidation. And shifting the focus from retail to commerical sales in the description above could help alleviate any kind of law suits from exitign BPG dealers, while allowing GM to focus their monies in other directions.

The GM brass has to start to think about these things and make the tough decisions...but that's just me.

[rsbaker]

I'm actually glad to hear this news. I don't think GM should sell everything off. they need to find a way to make money on everything they sell. GM used to make Heavy Duty as well as medium duty trucks. Why is it that Peterbuilt, Freightliner, Mack, and Volvo and Izuzu can make money on trucks and GM Can't. Well I think they can and should. Given the size of GM and it's global reach, it seems that they should be able to make a better product than those companies and sell trucks at a better prices and still make proffit. GM should try to do with big trucks what they are doing for cars with the Volt. That would be revolutionary.

[johnny smallblock]

For what seems like the hundredth time: The average GMC vehicle sold generates more profit then the sale of an equivalent Chevy vehicle. Plus, buyers of Denali vehicles have a higher average household income then Cadillac buyers.

There are 2 expenses to keeping GMC: advertising and sheet metal. I'm assuming that since GMC was one of GM's most profitable brands for years it was well worth it. Maybe that will change as trucks become less popular.

Frankly, I still don't see why the 2-modes aren't available on every GMC (and HUMMER).

[bone]

I,for one, am pleased that the deal fell through. The Topkick and Kodiak are great looking and performing vehicles that give GM exposure in the medium-duty market. I just wish that GM hadn't dropped their heavy-duty line which was a top performer until the middle eighties when GM lost interest. The 1967 to 1974 GMC MH 9500,IMO,is the best looking heavy-duty truck ever put on the road.

http://www.hankstruckpictures.com/pi...3_20070606.jpg

[61BelAir]

There's no need to close GMC as they are still making GM money! The truck market may have gotten smaller but it still exists so why would you close a brand that covers that market? Many people are getting out of their trucks now because of the gas, but those are the people who were using trucks for personal transportation. There are still people out there who use their trucks for work and it is still a sizeable community.

[member12]

GM has an impressive medium duty truck line. I don't know if it's making money or not, but they do seem to sell very well.

This is certainly news from a stategic perspective and may presents an opportunity for GM to eliminate an existing retail brand.

Many on GMI have said that GM has WAY too many brands and that some may need to be cut. GMC, in particular, is a bit of a redundant retail brand.

Keeping their medium duty truck operations in house, GM could almost kill two birds with one stone. GM could possibly stop selling GMC as a true retail, mass-market product - and simply use GMC as a professional, commerical grade operation.

That means, GM could stop selling Chevy variants of the Kodiak, etc - and merely rebadge all their bigger stuff as GMCs. It would also mean GMC would no longer sell rebadged stuff for the masses and focus only on the industrial market.

This would allow GM to "cut an extra division" without cutting it altogether and retaining the GMC name for what it claims to alredy be - "Professional Grade"

Why kill GMC? It sells.

Cut slow selling models....don't cut brands that are powerless to perform on their own. Pontiac is only going to be as successful as GM wants it to be.

[GMCSonoma]

"Meduim Duty" is the franchise...not just Chevy or GMC.....

[nadepalma]

Originally Posted by johnny smallblock

For what seems like the hundredth time: The average GMC vehicle sold generates more profit then the sale of an equivalent Chevy vehicle. Plus, buyers of Denali vehicles have a higher average household income then Cadillac buyers.

There are 2 expenses to keeping GMC: advertising and sheet metal. I'm assuming that since GMC was one of GM's most profitable brands for years it was well worth it. Maybe that will change as trucks become less popular.

Johnny, I see your point, but product profitability alone - at the expense of other divisions or products - cannot be the sole reason to keep a brand or similar products around.

This is especially true when you consider peripheral issues like corporate image (is GM a "green company" or "do they make gas guzzlers"?), too few advertising dollars (who wins in marketing prioritiziation - does the Aura marketing push always lose out to the Malibu's?), and a far-flung dealership network.

Consider that the Crown Victoria, Grand Marquis, and the Town Car ALL make HUGE margins for Ford - and yet Ford has discontinued retail sales of the Crown Vic (now only fleet sales), the Grand Marquis production will end, and the Town Car will eventually be phased out. Yes, it's an old product, but they DO make huge margins (the tooling was paid off forever ago and one report I read said that Ford makes $5K of profit per Panther product).

Same could have been said about "cheap to make" but high margin products like Lincoln Mark LT (based off the F150) or the Jeep Commander (based off the Grand Cherokee), and yet one is dead and the other will join it soon.

Or for that matter, the same could have been said about entire divisions like Oldsmobile, Plymouth, Geo or Eagle.

Afterall, all were relatively cheap to manufacture and used mostly off the shelf items from the coporate partsbin. Yes, Oldsmobile was set apart a bit more from these other brands and probably more expensive, but most of Plymouth's lineup was derived from near identical Dodge or Chrylser products - how much did it really cost ChryCo to do this? I'm sure it was nothing, considering the fact that the only differences were literally grilles and badges - and yet Plymouth was retired to the history books. Eagle was a mix off products from Mitsubishi and Chrylser - it probably cost close to nothing too. Even Geo was a bag of mixed rebadged Suzuki, Isuzu, and Toyota products - and it died too.

And yet all of these were mostly cheap to make and restyle, and probably made fair profits of their own for mass-market vehicles.

Even GM possibly selling or shutting down Hummer - which probably makes massive profit per unit - speaks to the fact that profit-per-vehicle formula isn't the entire story. Other factors fit into this and should be considered if a brand is to be "viable and sustainable" or not.

I'm not saying your points aren't valid, but how far do you go with it if it means it could impact the rest of the company? With the rest of the ship in need of repairs (and losses at GM North America dragging down the rest of the world-wide operations), GM really should look at cutting some of it's divisions to keep the rest of the empire running. The Navistar deal above could present a way to do this while saving face and reshifting an existing nameplate.

Just my thoughts on this...thanks Johnny!!!

[Tstag]

But selling the division would have raised vital cash for GM and removed a liability. So now they can't find a buyer for this division and possibly also Hummer. What's up for sale next?

[nadepalma]

Originally Posted by Tstag

But selling the division would have raised vital cash for GM and removed a liability. So now they can't find a buyer for this division and possibly also Hummer. What's up for sale next?

GM arguably could NOT sell GMC as a division since it so integrated into their own operations. If GMC were to go, it would have to be phased out (like Oldsmobile was).

As for liability, the idea of killing the brand may mean a legal liability. However 2 things may stop this:

1). As others have pointed out, GMC dealerships are not stand alone franchises - the incorporate Pontiac and Buick in most cases. That means the owners will still have products to sell and may ultimately circumvent any legal liability since they didn't violate the franchise agreements (depending on the State).

2). If they were to follow a plan similar to the idea I had above, they would limit their exposure since GMC would simply be recaste as a medium duty truck division instead of a mass-market, retail truck/SUV division. They can't sue GM over that anymore than Chrysler/Jeep dealerships could sue Chrysler Corporation for reducing overlapping models so the number of Jeep and Chrysler branded products drops over the next few years.

Either way, there maybe less of a risk here than what some would perceive.

As for Hummer - who knows what will happen. But if they are having the issues they are finding a buyer, I'd almost suspect that they are going to kill off Hummer in the end too.