General Motors Death Watch 99: It's A Small World

What do China, Thailand, India, Mexico, Eastern Europe and Venezuela have in common? They’re not America. Or, if you prefer, the United Auto Workers don't work there. Which is why General Motors is planning on producing its new Gamma Gamma Hey small car platform in these low-cost labor countries– and exporting the wee beastie to the US and other "developed" nations. In fact, it’s increasingly clear that GM is trying to outsource/globalize/synergize its way out of trouble. It seems to make sense: building standardized products in non-unionized factories will save the carmakers billions. But are they going about it the right way?

On one hand, GM seems to know what it's doing abroad. In China, GM uses its proven engineering and manufacturing skills to create the bird-eyed Buick GL-8 minivan and the recently announced Cadillac STS variant (the SLS). Both vehicles demonstrate The General’s ability to modify established products to local tastes. And there’s no question that GM’s reaping the rewards: sales of Chinese Buicks, Cadillacs, Chevrolets, Opels, Saabs and Wulings rose 35.2 percent this year, to a grand total of 665,390 units.

On the other hand, there’s the Cadillac BLS, a Swedish-built Euro-spec sedan riding on GM’s Epsilon platform, powered by a FIAT-sourced 1.9-liter diesel, wearing a US luxury car badge. Or how about the most recent Pontiac GTO, a re-badged Australian Holden Monaro built on an enlarged Opel Omega B platform (formerly used for the Cadillac Catera), sold in the Middle East as a Chevrolet Lumina SS? The failure of these cars to find a sustainable international audience illustrates the challenge of leveraging economy of scale into a viable product– when you start with economy of scale rather than a viable product.

Of course, GM (and now Ford) aspires to the Toyota model: sell the same "world" car (built on the same platform) in as many markets as possible. That’s fine if A) you build the right car and B) you've got deep enough pockets and a lean enough organization to recover from a major bomb. Do we really believe that GM can pull off a Corolla? The new Gamma platform small car was designed by Daewoo; if past history is any guide, they ain't no Toyota. By the same token, when the Toyota Echo went nowhere fast (in every sense of the phrase), the Japanese automaker re-engineered it to become the best-selling Yaris and other local variants. Does GM have the resources it would need to snatch victory from a dud Gamma-woo?

As Toyota has demonstrated countless times in dozens of countries, “world” cars require a coherent and focused sales, marketing and distribution channel. And that's only possible if the car in question is part of a coherent and focused brand. While analysts tend to think of small cars for developing nations as a commodity– if it's cheap enough, it'll sell– branding plays just as crucial a role at the bottom of the market as it does at the top. A Toyota small car is not an Opel, Daewoo or Chevrolet small car. It's a Toyota, and everyone– designers, engineers, auto workers, marketing execs, dealers, salesmen and customers– know what that means.

What IS GM's world brand these days? Oh right, it has four: Buick, Chevrolet, Cadillac and Saab. Although there are basic distinctions between these brands, things fall apart at the local level. Chevrolets are many brands and a wide variety of models to many people around the world– to the point where GM decided to create a separate "Corvette" brand in Europe. A Cadillac is a luxury car made of unobtanium in some markets, and a garden variety mid-priced mid-sized sedan in others. A Saab is a sophisticated European-style sedan in some markets, and a Chevy Trailblazer with the ignition key between the seats in others.

When it comes to international automobile production, GM’s biggest problem isn’t its cost structure; it’s brand management. No matter where they do business in the world, no matter what food items are on the menu, McDonald’s and its customers know who it is. The same can not be said for GM, which, lest we forget, doesn't even exist as a brand. The General's cluelessness on the product branding front threatens any potential production-related savings from multinational platform sharing. Not to put too fine a point on it, low unit costs only create profits if you sell what you make.

This brings us back to the primacy of products over process, and the all-conquering power of coherent brands. GM CEO Rabid Rick Wagoner may be looking around the world and lovin' it, but until and unless GM sorts out its branding issues, globalization will hasten its destruction, not its success.