General Motors' Branding Fiasco Part One – Sloan's Vision Betrayed
Imagine a different GM from today’s confused and embattled automaker. A General Motors where each division has a clear and coherent brand, universally known and recognized by automotive consumers. Where each division’s image and related price range is unique, without overlap. Where each division is the dominant brand– or at least highly competitive– in its respective market segment. Welcome to General Motors circa 1930.
In its original incarnation, General Motors was a collection of semi-autonomous automobile manufacturers assembled by Billy Durant. As the industry matured, Durant’s management skills didn’t. Alfred P. Sloan, who entered the GM labyrinth after selling his ball bearing business to The General, spent five years analyzing GM’s dealings. In 1923, he proposed a plan that put him in the President’s seat.
Sloan could rightfully be called the father of the modern corporation. The MIT grad struck an ideal balance between a rigid corporate hierarchy and entrepreneurial divisions. GM’s centralized bureaucracy supported each division’s success (e.g. advanced engineering and the first true styling studio), without stifling their creativity and individuality.
At the heart of Sloan’s re-organization: his dictum “a car for every pocketbook.” Each of GM’s five divisions was charged with occupying a clearly differentiated price-stratum of the car market. Aspirations of upward mobility– within the GM family– were encouraged. Today’s Chevy driver was tomorrow’s Pontiac buyer, whose college-educated progeny aspired to a Buick, and so forth.
By 1930, Sloan’s efforts came to full fruition: a line-up of brands that reflected (and appealed to) the income demographics of the times, whilst avoiding potentially deadly internal competition. With this formula in place, GM was on its way to becoming the world’s largest and most profitable corporation.
A closer look at GM’s 1930 pricing and product structure reveals GM’s “secret sauce,” and offers a tantalizing glimpse of what GM would look like today had it not lost its way. [All prices adjusted to 2007 dollars.]
Chevrolet was GM’s low-priced, highest-value, stylish, entry level division (today’s Fit/Yaris/Civic/Corolla). Chevy’s were priced at 33 to 46 percent of MHI (Median Household Income): $12k to $22k.
Pontiac was The General’s high-value, somewhat larger, higher performance, more comfort-oriented lineup (Camcord class). Pontiacs were priced at 45 – 56 percent of MHI: $22k to $28k.
Oldsmobiles were GM’s comfortable, larger, medium prestige autos (Buick, Infinity). Oldsmobiles were priced at 60 – 80 percent of MHI: $30k to $40k.
Buick was GM’s premium prestige, performance and luxury brand (low to mid-range BMW, Lexus, Mercedes). Buicks were priced at 85 – 125 percent of MHI: $40k to $65k.
Cadillac was GM’s ultra-premium, world-class luxury, prestige and performance brand, with V8, V12 and V16 engines (Mercedes S-class through Rolls-Royce, Bentley & Maybach). Caddies were priced at 165 – 650 percent of MHI: $80k to $300k.
The Depression and the subsequent progressive era (with its sky-high taxes) compressed the late ‘20’s broad income distribution. GM eventually followed suit, compressing the pricing range of all its products.
In 1930, a median priced Caddy sold for a 1200 percent premium over a median Chevy. That differential dropped like a stone. In 1940, it sank to 500 percent. In 1950, it was down to 120 percent. By 1960, the differential fell to 90 percent.
Sloan successfully guided GM into the changed realities of the 1950’s. In 1955, GM became the first corporation in the world to make a profit over one billion dollars ($7.5 billion inflation adjusted). He retired as Chairman in 1956 and died in 1966– just as income-distribution demographics started on a 180 degree turn.
Stimulated by JFK’s tax cuts and a booming economy, income distribution in the sixties began a Silly-Putty stretch that hasn’t stopped yet. Accelerated by Reagan and Bush’s tax cuts, wealth distribution today is looking a lot like the late twenties all over again. But GM totally missed the boat. Instead of realigning its brands with income realities, the corporation kept compressing and blurring brand identities.
In 1951, the cheapest Buick cost 30 percent more than a Chevy DeLuxe. By 1961, the differential for the LeSabre over the Impala was 17 percent. By 1971, it was three percent. After 1961, compacts created even more confusion. A thrifty Buick Special could be had for $2384; a nicely-optioned Impala ran $3500.
Mercedes and BMW sales took off in the seventies, and exploded in the eighties. Meanwhile, Buick, Olds and Cadillac were desperately peddling nearly-identical and strangely-shrunken “full-size” cars (not to mention compact abominations like the Cimarron). And Chevy was happily selling the larger (and more elegant) rear wheel-drive Impala/Caprice.
By the ‘80’s, GM’s price compression and brand confusion was complete. Irrelevant Olds would soon be gone. By GM’s own admission, Buick and Pontiac became “damaged brands.” And Cadillac is now desperately fighting for a slice at the low end of the now enormous global luxury car market. Alfred Sloan’s vision is dead.
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