Hard Reality for Wagoner; But Can "Sprawling Dealer Network" Help the Volt?

[Ming]

Before passing this off as another "Doom and Gloom" article, read it in full (actually, I had to cut a lot out, this is a very long article). The optimism regarding the potential of the Volt is heartening. - Ming

Company that once provided half of all the vehicles in North America finds itself in perilous state
Jul 13, 2008
David Olive
The Toronto Star

Last Monday, the Wall Street Journal shook up the auto world with a front-page report on GM's woes, and the radical steps the firm is contemplating to ensure its survival.

Little in the report was new. Wall Street long ago factored into GM's share price its litany of woes: The billions of dollars in losses GM has accumulated in recent years, and the continuing losses so far this year; the firm's effective negative net value in balance-sheet terms; GM's steady loss in market share, to a lowly 23 per cent or so; the desperate cash position of a firm that burns through some $3 billion (U.S.) each quarter and must raise at least $10 billion in a hostile stock market to make it through to 2010. And looming cuts in GM's white-collar workforce, after the company threw tens of thousands of workers on the street with plant closures including four announced last month alone, in Oshawa, the U.S. and Mexico.

That's why GM stock is trading at about $10, a 54-year low. And why its shareholder value is a pitiful $5.73 billion, which makes what was the world's biggest automaker less valuable than the larger video-game makers.

For investors in GM bonds and stock, the big shocker last week was a Merrill Lynch analyst's report asserting the possibility of a GM bankruptcy could no longer be dismissed. GM critics have long argued that the firm is on a glide path to insolvency and a bankruptcy-court administered breakup.

The Journal shocker, more internal to the industry, was that GM insiders were talking to the paper along nearly the same lines. The GM officials in the Journal piece were quoted anonymously, but for the first time were going outside the company to admit that the idea of selling or killing most of GM's eight brands was at least "on the table." Which means some of the global industry's most venerable brands – conspicuously Buick and Pontiac, and the younger Saturn – could soon join Oldsmobile, closed down by GM a few years ago with few tears shed even if the legacy of Ransom Olds was Olds' status as the world's oldest auto brand.

Thus GM's top North American sales executive quickly fired off a memo this week to the dealers assuring them the Journal piece had no substance. And CEO Rick Wagoner himself informed GM employees the firm was not skating toward insolvency.

But the media reports and Wall Street's assessment come closer to the truth. Some realities are difficult to hide. North American auto sales are down 10 per cent so far this year. GM's are down 16 per cent. And GM sales of the only vehicles it makes money from – large trucks and sport utilities – are down 25 per cent.

GM has little credibility with Wall Street, having failed with a succession of promised turnarounds over the past decade and a half. "Wait until next year" has been its executive-suite refrain for too long. Wagoner's current fix-it plan was advertised as the mother of all turnaround efforts in GM history. And now even GM insiders are conceding it's too little, too late. Wagoner himself might not survive GM's board meeting early next month.

In fairness to Wagoner, he has cut labour costs as rapidly as possible over the past year. The veteran new-model guru he recruited, Bob Lutz, has come through with vehicles that actually have curb appeal, a novelty for GM since the mid-1980s. Lutz has even arrested the decades-long decline of Cadillac, long ago given up for dead against rivals Lexus, Mercedes-Benz and BMW. (Although, to be sure, Cadillac and its Detroit rival, Ford Motor Co.'s Lincoln brand, remain also-rans in the luxury sweeps.)

And Wagoner's unstinting investments in new-product development, despite a dwindling GM cash position, has yielded at least one potential industry game-changer, the all-electric Chevrolet Volt, due in showrooms in 2010.

For all the "halo" effect of Toyota's Prius, which has cast an eco-friendly glow over the entire company (even though Toyota makes its share of gas-guzzling large cars, trucks and SUVs), Prius remains a niche product even after several years on the market. Its anticipated 2008 sales are a mere 100,000 vehicles. And the Prius is a hybrid, using both electric power and conventional gasoline.

Not only is the Volt's all-electric technology revolutionary – the biggest industry advance since automatic transmission and perhaps even the perfection of the internal-combustion engine in Germany in the 19th century – but GM alone has the sprawling dealer network to make the Volt readily available to curious tire-kickers.

Wagoner's dilemma is that he launched his deep cost-cutting far too late. That also applies to the breakthrough deal he forged last year with the United Auto Workers to shift the enormous burden of employee health-care costs to a new trust to be administered by the UAW with a one-time mega-contribution from GM.

Wagoner has been especially late in addressing GM's notoriously bloated white-collar workforce, whose natural bureaucratic tendencies are to block innovation. And he has been slow to remove even those top executives culpable in GM's biggest blunders.

Wagoner has been a staunch defender of an eight-division GM, but ultimately it's not his decision to make. It's the call of an increasingly restless GM board that has a fiduciary duty, if nothing else, to curb the cash burn and preserve as much of GM's value as possible on behalf of shareholders. Wagoner's credibility is undermined by his failed attempt to revive Saturn with a slew of costly new models that are showroom dust-collectors.

The hard reality for Wagoner is that he has had his kick at the can, having run GM since early this decade.

There's a precedent for sacking CEOs set by Robert Stempel's ouster by the GM board in the early 1990s. And there's a promising replacement on deck in Frederick "Fritz" Henderson, the former GM chief financial officer recently promoted to president and head of auto operations, a post he took over from Wagoner.

Henderson turned around GM's troubled European and Asian operations, now regarded as among the few crown jewels GM can use as collateral in its urgent recapitalization effort. No sooner had Henderson stepped into his new job than GM hung a for-sale sign on Hummer, a brand which, like Saab, commands a negligible North American market share of 0.2 per cent.

It's difficult to see a future for GM except after being stripped down to Chevrolet, which accounts for well more than half of GM's total business, and a reviving Cadillac that could serve the same purpose that Lexus and Infinity do for Toyota and Nissan Motor Co., respectively.

To pull itself back from the brink, GM needs to wholly commit itself to the costly task of replicating the Volt and becoming the undisputed leader in the small, fuel-efficient vehicles of a 21st-century market.

FULL Article: http://www.thestar.com/Business/article/459290

[JonathanRohr]

I don't know how feasible this is, but I always thought It would be a good idea to have 1 Volt on each Chevy dealer's showroom floor at all times.

For example, if someone orders a volt, and it comes in; then a second person orders a Volt and it wont arrive for a week, the first Volt stays in the showroom for the overlapping week.

This way each Volt spends a week or two in a very visible place, and the dealers always have one to show.

[Ming]

That's a great idea. I think David Olive may be asking for GM to go one step further and perhaps make concept cars of models that can be shown at BPG, Saturn and Cadillac dealers as well. If the sheetmetal is at least as different as Sky and Solstice, I think people could be impressed by this, especially if (at least) one of the Volt variants has a different body style, like a Meriva-sized mini-minivan.

[mike's 01ws6]

Originally Posted by JonathanRohr

I don't know how feasible this is, but I always thought It would be a good idea to have 1 Volt on each Chevy dealer's showroom floor at all times.

For example, if someone orders a volt, and it comes in; then a second person orders a Volt and it wont arrive for a week, the first Volt stays in the showroom for the overlapping week.

This way each Volt spends a week or two in a very visible place, and the dealers always have one to show.

It takes longer than a week for a car to show up after it is ordered, so there is no way this will work. Im not even sure they will produce enough for each dealer to get one the first year, and maybe 3-4 the second year, and that depends on if they can get enough batteries for them. They only way these cars will spend any time in the showroom is if the dealers choose to mark-up the sticker to some rediculous price and rip off their customers, which will do nothing but hurt GM because the people they turn away will go elsewhere and remember this when the go to purchase their next vehicle.

[Tomko]

The Toronto Star has offered us a welcomed dose of reality with this well-balanced article.

[tgagneguam]

We once again have a journalist using positive superlatives to describe a vehicle GM is still more than one year away from producing. And there's a healthy dose of placing the Prius in its proper perspective, too. Damned "biased" media!

Not only is the Volt's all-electric technology revolutionary – the biggest industry advance since automatic transmission and perhaps even the perfection of the internal-combustion engine in Germany in the 19th century – but GM alone has the sprawling dealer network to make the Volt readily available to curious tire-kickers.

While shaving some dealers or combining them with others may have some merit, I still think there's significant power to leverage from GM's vast dealer network. There are plenty of closed plants from which GM could produce a reliable, reasonable supply of what may very well be a game-changing vehicle from GM. And the dealer network can reach every American with relative ease and remind them daily of the Volt's finer attributes. It may mean that most pass on the opportunity to purchase one, but it also means more people will appreciate that Toyota and Honda don't own fuel economy and innovation.

Again, GM is faced with the task of making some pretty significant assets work for it (rather than bitchin' about how these strengths might superficially appear to be yet another Achilles' heel for the Corporation).

[Mikkoo]

Originally Posted by Tomko

The Toronto Star has offered us a welcomed dose of reality with this well-balanced article.

Yes, and for once they did state that Toyota produces plenty of gas guzzlers. It's fair
to point out that this article was clear to state that only 100,000 Prius models are
produced per year currently. That's a very small dent in Toyota's overall sales picture.
The Volt will put out the eco-friendly picture in a way that Prius owners could
envy. I for one predict GM will beat Toyota, and be the first to put out the Volt, before
Toyota has a counter measure. It's so vital for GM's tarnished image to be first this time.
Otherwise a huge wasted opportunity to change perceptions of GM will be wasted.

[SAngelo]

When will a decision be made on the status of the brands ? I would sell Hummer and Saab and incorporate Saturn into Cadillac, calling it Cadillac/Saturn. The new Saturn vehicles are great cars. I own a 2000 SL2 while not a great drivers car its extremely reliable. When I bought that car Saturns were basic reliable cars with great dealers. Now they are great cars and have great dealers. The reason I have for moving Saturn into cadillac is you can keep all Saturns without cutting any of its vehicles except the Outlook.

BPG should still exist but they should all be "Specialty Niche cars". Two sedans by Buick, 1 front wheel drive, 1 rwd and the Enclave CUV. Pontiac should have two or 3 rwd vehicles only. A G8 (4 door and 2 door-GTO), the Solstice and maybe one more car, a small rwd sedan. GMC should trim their lineup too and they should be more distinctive and look different than Chevrolets. I would cut the Acadia since it runs into the Enclave. Chevrolet should be a full-lineup period !!!!!!

[motorman]

the volt will appeal to DINKs "dual income no kids" people because of the cost. most people realize at $40K the average person will not live long enough to break even on the price of fuel. the "volt" is more to show GM is environmentally friendly so people will buy their other lower priced cars because the greens have convinced a lot of car buyers to stay away from GM because it is out to kill the environment with its gas guzzler SUVs and trucks

[joemac]

All of these articles seem to surmise that all the woes are of GM's making. I've yet to see what would take considerable effort to produce an investigation and article that identifies GM's portion or contribution to the problem at hand, separated from the factors of the poor economic situation that''s currently having tremendous affect on ALL in the automotive business. No one can deny the poor economic conditions that are today a reality have had major effect to GM's business over the last 12 to 24 months. How much of and what percentage is the big mystery that no one seems to be able to represent. It's the easy way out to count the totals as the are, show charts, declines, and losses, then point the finger directly at GM. Everyone's an armchair quarterback at this point, rhetoric flies about of which could have made simple changes at little to no cost that would have GM in the black right now. Sure sure.

Fact is you can't shrink yourself to fiscal health. It's good for trimming the fat, but is in no way shape or form a way to right the ship or a strategic business methodology forward. GM's unique brands and dealer network should be used as a strength and a way to deliver product that's unique and focused. GM seems to be on the way down this path, some however think it's something that can be done in 2/3 years. This is not the case, it's something slow to implement as life cycles of vehicles and architectures age out. GM may also have to some decisions that don't necessary align to the plan along the way. Instance Lambda's. While all four variants are for the uniquely styled, there still is overlap of the market in general or self competition. I'm speculating how the situation might have been different in the product being offered if "timing" of the Spring Hill plant would have coincided with Job1 of the Lambda production. The result could have been three if not two variants, but this alignment of timing was not a reality. Thus your left with decisions that are not optimal or cut and dry.

There are so many vectors to this business I don't think it's as easy as just cut the brands and close the stores. The closure of Oldsmobile cost GM roughly 2 billion and was an immediate loss in market share that was never regained or realigned within GM. To do as some have alluded and shed all but Chevrolet and Cadillac would cost in today's dollars an estimated 16 to 18 billion. Where does GM get the cash to close the brands? Second that money spent on closing brands has very little if any positive affect to GM's business. The end question is how much revenue does the cost spent to closing the brands net? Any? Now on the flip side if GM were to invest that same money into the brands and product the results would surely net revenue. GM might find a suitor for a couple of the brands (foreign), but in the end it would be a losing proposition.

[guitarlix]

Originally Posted by Ming

Before passing this off as another "Doom and Gloom" article, read it in full (actually, I had to cut a lot out, this is a very long article). The optimism regarding the potential of the Volt is heartening. - Ming


Wagoner has been a staunch defender of an eight-division GM, but ultimately it's not his decision to make. It's the call of an increasingly restless GM board that has a fiduciary duty, if nothing else, to curb the cash burn and preserve as much of GM's value as possible on behalf of shareholders. Wagoner's credibility is undermined by his failed attempt to revive Saturn with a slew of costly new models that are showroom dust-collectors.

FIRE THIS MAN

HE IS TOTALLY UNFIT TO GUIDE A GREAT COMPANY LIKE GM AND IS STEERING IT INTO THE GROUND.

ANY MAN WHO CHOSE TO SPEND MILLIONS REVIVING A BRAND LIKE SATURN DOESN'T KNOW WHAT'S HE'S DOING.

[johnstarnes]

Originally Posted by guitarlix

FIRE THIS MAN

HE IS TOTALLY UNFIT TO GUIDE A GREAT COMPANY LIKE GM AND IS STEERING IT INTO THE GROUND.

ANY MAN WHO CHOSE TO SPEND MILLIONS REVIVING A BRAND LIKE SATURN DOESN'T KNOW WHAT'S HE'S DOING.

How many millions per year is he paid to so poorly "lead" GM?

[FenwickHockey65]

Originally Posted by johnstarnes

How many millions per year is he paid to so poorly "lead" GM?

Doesn't he get paid much less than most other CEOs of major corporations?

[sigma]

Originally Posted by FenwickHockey65

Doesn't he get paid much less than most other CEOs of major corporations?

Singificantly less than most other CEO's of company's that are significantly smaller than GM. For instance Alan Mullany at Ford makes nearly 10x what Rick Wagoner does.

As much as people here love to bash Wagoner, he has put billions into new product research and development which is essential to GM remaining competitive over the long term. Any CEO looking to take the easy way out and make Wall Street happy for the next few quarters would have slashed R&D spending and retired. He didn't.

[TriShield]

Tire kickers who will promptly go to Toyota dealerships when they find the Volt is vastly more expensive than the Prius and more than they can afford.

The only thing Wagoner has been essential at is arrogantly running the company into the ground.

I really can't believe people here defend him or GM's business structure after all that's happened.