By on June 25, 2005

 Winston Churchill called it the phony war: the period between the Nazi conquest of Poland and their assault on Belgium, The Netherlands and Luxemburg. During these eight months, millions of English subjects believed they were safe from the storm clouds of World War Two. By the same token, tens of thousands of GM employees believe that The General's future is assured, regardless of recent financial 'unpleasantness'. Military historians don't tend to use the phrase, but both groups can be characterized by the expression 'living in denial'.

For those with the courage to look, ominous signs are everywhere. Last month, Rick Wagoner stood in front of his shareholders and promised to end the incentive programs crippling GM's profitability and knee-capping its branding. Instead, The General's general launched the largest incentive campaign since 'Keep America Rolling'. In addition to the usual problems, 'Employee Discounts for Everyone' may be pulling GM buyers forward, rather than winning conquest sales. If so, the ranks of potential GM customers will be perilously thin come winter. Meanwhile, Rabid Rick is fully committed, extending the Employee Discount program beyond the July first deadline. Log this one under "friendly fire, ongoing".

At the same time, Rabid Rick's public pledge to cut the United Auto Workers' health care benefits got lost in the fog of war. First GM's top brass set a July deadline for union concessions. Then the UAW's Supreme Commanders broke radio silence, warning their employers they would not tolerate having their feet held to the fire. GM back-pedaled furiously, denying the deadline's existence. Ford suddenly weighed-in, proclaiming that any UAW concessions to GM must also apply to Ford– completely eliminating any chance of a union roll-back. So GM and their union 'partners' are still eyeing at each other over the parapets instead uniting to save their common homeland. Log this one under "with allies like this…"

And then there is the weaponry. GM is counting on new products to [eventually] save the day. Unfortunately, the messages coming from GM's R&D department are, at best, garbled. For example, GM desperately needs a new rear-wheel-drive platform to compete against the increasing and ongoing success of competitors' RWD products, like the Ford Mustang and Chrysler 300. Or not. In April, GM killed its Zeta rear-wheel-drive platform. Last week, The General changed its mind, hinting that they might [eventually] cobble together a modified 'Zeta lite' platform to underpin new RWD products. That's 'might'. What's more, if GM gave its engineers the green light today, we wouldn't see the fruits of their labors until 2010.

Once again, GM will arrive at the field of battle years after the competition has established territorial dominance (e.g. the HHR vs. the PT Cruiser). But even if The General wins the battle, it's losing the war. A new study by Merrill Lynch concludes that GM is failing to update its products frequently enough to win the hearts and wallets of tomorrow's new car buyers. "Car Wars 2006-2009: The Product Pipeline and its Investment Implications" reports that The General will replace just 16% of its vehicles in the next four years, as compared to 30% and 21% for Korean and Japanese automakers. GM will be outgunned AND outmaneuvered.

Of course, The General dismissed the report. Spokesman Tom Wilkinson said that Merrill Lynch's findings were based on "data we try to keep secret" [note to counter-intelligence: must try harder]. And anyway, GM's got some 80 models out there; replacing them is more difficult for GM than its less prolific foreign competitors. Well EXACTLY. While it's certainly refreshing to hear a tacit admission from GM that its operations are too bloated for today's niche-driven marketplace, it's not exactly news. Insiders who believe that the next round of new GM vehicles (currently being hurried into production) will be enough to fend off its enemies' expert skirmishing should look away now.

When Britain signed the Munich agreement in 1938, appeasing German aggression, Churchill, then an MP, didn't mince his words. "We have suffered a total and unmitigated defeat." It was Churchill's ability to confront danger and disaster head-on that identified him as England's future savior. That said, England entered the war with a global Empire and emerged a pale shadow of its former self, stone broke. And then, gradually, it rebuilt. Is it too much of a stretch to imagine that GM will eventually suffer a similar fate?

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