By on May 21, 2007

cadillacv16.jpgImagine 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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49 Comments on “General Motors’ Branding Fiasco Part One – Sloan’s Vision Betrayed...”


  • avatar
    Lichtronamo

    Dead is right. Long term, GM must face the reality that competition in the US means it can never fully recover its former brand structure or its market dominance.

    The best thing GM could do now is to follow Toyota’s brand model with fewer products sold at higher margins. Drop Pontiac, Buick, Saab, and probably Saturn. Sell only Chevys as a standalone with Cadillac, GMC and Hummer joined together the way Ford is moving Jaguar and Land Rover together.

  • avatar

    GM build cars?

    I always thought they were a niche-market truck maker! Every time I drive by my hometown GM dealer all they have is row upon row of pickups and SUVs. Oh yeah… and one Corvette. GM Builds cars huh… Go figure. Who’da thunk it? Golly gee, coulda fooled me.

    –chuck

  • avatar
    jerry weber

    Paul, many aren’t old enough to remember when GM was exactly as you portrayed. Buick even had their own automatic called dynaflow with no gears, we now call it variable transmissions. But with all of the gm stores seperate entities (except in small towns), someone in the 1960’s got the idea that every gm store should have a full line of product: compact, intermediate, full size, and have them in all their variations ie. sedan, coupe, hardtop, convertable,& wagon. In those days every model had all of the body styles. Well, even gm couldn’t create all those different models for all those five brands. So someone in the gm braintrust said a lot of money could be made taking a chevy malibu and making it a buick special or olds cutlass, buick special, and sell it for more money with the premium brand label on it. Further look how many more outlets to sell the origional malibu out of. Problem was the chevy dealer needed that car for itself to secure their position as number one selling car in the US. Even caddy got a chevy nova rebadged as a cimmeron and later a seville. Problem was chevy got competition from within gm and the other premium brands lost their focus on selling upscale cars. And as packard found out in the 1930’s selling the packard label at pontiac prices destroyed the premium name packard. Well gm couldn’t change this reality either. I don’t know how well gm would be if they kept their focus as Sloan created it, however we do know that badge engineering brought them to where they are now and their still doing it. Which division is more premium chevy or pontiac? What is a buick? and why do caddys sell for $10,000 off sticker and have poor resale value? If you can solve this, please copy Rick in Detroit.

  • avatar
    geeber

    Very good article. One topic that need to be explored in more depth is the proliferation of models in the late 1950s and early 1960s, and how that trend affected GM and its divisional structure.

    Ford and Rambler led the way with this trend…it started with the four-seat 1958 Thunderbird, and the increasing sales success of the “standard” Ramblers at about the same time.

    Suddenly, Ford was selling a car that was priced in the Buick class – and doing it successfully. The Rambler’s success forced the Big Three to respond with compact cars. The compact car market opened a segment below the “standard” offerings of the old “Low Price Three” (Chevrolet, Ford and Plymouth). But those divisions weren’t about to give up their full-size cars, even if they were now selling compacts.

    The medium-priced marques soon demanded compacts of their own (the “senior” compacts, which began with the Mercury Comet of mid-1960). As noted in the article, these compacts were often cheaper than the standard-size cars from the old Low Price Three. A car wearing a Mercury or a Buick badge was not necessarily more prestigious or expensive than one wearing a Ford or a Chevy badge.

    This trend only got worse with the debut of the intermediate Ford Fairlane in 1962, and the Ford Mustang in mid-1964.

    And then there was the 1965 Ford Galaxie LTD, which was nicer than a comparable Mercury, and competed successfully in the old medium-price class. Chevy came up with the Caprice.

    Sloan’s vision worked best when each division only offered a lineup based on one basic model, with different trim levels (and perhaps, wheelbases).

    But can Sloan’s vision really work when each division offers a full line of models to deal with a segmented market? And while it’s fashionable to lambast GM’s leadership, how much of this was driven by the dealers, who take the short-term look (for example, if fuel economy becomes hot selling point, they want a subcompact to sell, even if that model would not fit the brand’s image) and want to cover as broad a segment of the market as possible?

  • avatar

    I applaud adjusting the prices to 2007$ (everyone should adjust their dollars). But I’m very surprised that this indicates that in 1930, median income was around 50k, which, if I remember correctly, is what it is today. I would have thought it would have been lower in 1930, especially since that was the first full year of the depression. But I would have expected it to be lower in 1928, the last full year before the depression.

  • avatar
    Paul Niedermeyer

    jerry weber, geeber,

    This is going to be a multi-part series, and some of those issues will be covered. Stay tuned.

  • avatar
    Paul Niedermeyer

    David,

    Household income in 1930 was about $1500 ($18k inflation adjusted). If you make a straight inflation adjustment, the car prices came out very low, in 2007 dollars. So I chose a different methodology: comparing what the prices were then, as a percentage of household income, and aplying that to today.

    The reason a straight inflation adjustment doesn’t work well over such a long time period is somewhat complex. Some things to consider: cars were much simpler then, and financing was just starting to be somewhat common. Most cars were still bought with cash.

    We can see this trend in just the past two decades: longer term low-interest have increased car purchasing power.

    I feel that my methodology comes out with more meaningful 2007 adjusted prices.

  • avatar
    Hippo

    Actually you can take it much further, well you can’t because you are part of management and have to be PC I can.

    Remember the old sayings “what’s good for GM….” or “as GM goes so does the country” ?

    You can make a very good case that it is especially so today

    If GM in the Sloan days is the US after WW2, then the time gap has shrunk and the state of GM today is exactly the state of US society today and totally has lost identity by the introduction of extraneous cultures, ineptocrat decisions and virtual bankruptcy.

  • avatar
    Hippo

    Paul,
    My post was before I saw your last post, LOL great minds think alike.

  • avatar
    KatiePuckrik

    2 points with this particular GM problem.

    1: GM have created a rod for their own back with this current structure of brands. An ideal structure would be:

    Chevrolet for everyday cars and light trucks (also Corvette)
    Cadillac for luxury cars
    Hummer for SUV’s
    Saturn as the Euro killer for North America
    Opel for their main brand for the rest of the world.

    However, this leaves Saab, GMC, Pontiac and Vauxhall redundant.

    But, because of the current structure of brands and knowing how people are brand loyal, they might not be able to cut brands without losing customers. One particular case is Vauxhall Vs Opel. I grew up in the UK and during the 80’s GM tried to push the Opel brand in the UK and drop the Vauxhall name. It didn’t work and the Opel brand was withdrawn because people stuck with the Vauxhall name. And don’t think the UK market doesn’t count for much; it’s GM’s biggest European market (and remember, this is a continent which contains Germany!). So GM can’t afford to screw around with their brands too much. This example isn’t isolated, I’m sure there are many more markets which will suffer if GM tries to cut brands.

    2: Cutting brands involves a lot of money (Remember Oldsmobile?). All those people to make redundant, dealerships to be bought out, etc. So, the brand would REALLY have to underperform before it will be cheaper to cut the brand. However, Saab does have a future, just not with GM. Saab used to be a quirky Euro brand which had the life crushed out of by GM. GM don’t need Saab (in my opinion, they never needed Saab) because they have ample “Euro killer” in Saturn and Opel/Vauxhall. But, they don’t have to kill the brand, because Renault are currently on the hunt for a luxury brand of their own (they can’t have Infiniti, because it is Nissan’s and Renault only own a stake in Nissan NOT wholly own it. Plus, you can’t really share a brand, can you?). So Renault could very easily take Saab off GM’s hands for a reasonable price. This leaves, Pontiac and GMC. Now remember, I’m not from North America so pardon me if I make some mistakes here. GMC makes SUV’s and vans. Now Hummer make SUV’s and Chevy makes vans. Both of which are bigger (and more marketable) brands. So there really is no need for GMC. Which leaves Pontiac. Now, I really don’t know what Pontiac does! Seriously, I don’t know! And that on that fact alone, Pontiac should be cut. All over the world, Caddy, Chevy and Hummer are well known (even if they aren’t sold in that country), but Pontiac is, quite frankly, a non entity.

    So, in conclusion, there are only 2 brands which GM need to cut, GMC and Pontiac. But, it will need to be in SERIOUS trouble before it becomes viable to cut and GM aren’t there………yet.

  • avatar
    salokj

    this article was interesting to read, but I have one comment on comparing today’s GM/car market in general to the 1930s. Credit is much more prolific today than it was in 1930 (or the 50s or whenever) and those people who would’ve lusted after a Buick or Olds or Caddy in 1930 now get low-interest rate financing (from GM or someone else) to buy it, even if it’s well above their means. I don’t think that the same type of stratification of models could work because people today just buy what they want…they don’t wait until they can afford that new full-size pickup to buy it…the instant-gratification society doesn’t have the patience to climb the corporate ladder to buy a Buick (or whatever).

  • avatar
    Johnson

    “Imagine a different GM from today’s confused and embattled automaker … Welcome to General Motors circa 1930”

    Hard to imagine a GM different than what they are today … and not surprising that it was all the way back in 1930 that GM was a different automaker. It’s been a long, 70+ years of decline.

    One thing must be mentioned; competition in 1930 was nowhere near what it is now in the auto industry.

  • avatar

    So I chose a different methodology: comparing what the prices were then, as a percentage of household income, and aplying that to today.

    Very clever! Makes sense to me.

  • avatar
    geeber

    Johnson: One thing must be mentioned; competition in 1930 was nowhere near what it is now in the auto industry.

    Competition was quite brutal in 1930, and would only get worse as the market contracted. At the bottom of the market, Ford was still very strong in 1930 with the Model A; Plymouth was also moving up the sales charts at a rapid rate; and Essex (part of Hudson) still had a considerable presence in the low-price field.

    At the upper end, Packard, not Cadillac, was the dominant player. The Cadillac V-16 and V-12 models were engineered specifically to vault Cadillac over Packard, and make it the number-one luxury car in America. Lincoln was also strong in the very uppercrust of the luxury market.

    In the middle of the market, GM had to battle Chrysler, Dodge, DeSoto, Hudson, Nash, Studebaker and the various “minor” independents.

    The competition was just as tough as that provided by the foreign marques today.

    The market itself was also much tougher – between 1929 and 1932, automobile production in the United States contracted by a staggering 72 percent! Today, we consider a 10 percent decline to be serious!

    The market of 1930 was not a cakewalk for GM (or anyone else) by any means, and it wasn’t necessarily any easier than today’s market.

    The main advantages the GM of 1930 had over the GM of today was no government regulation of automobile design, and no UAW representing hourly workers. But those advantages applied to every other automaker operating in the U.S., too.

  • avatar
    rjsasko

    This is the first Death Watch editorial that is really getting somewhere. Extrapolating from the data means that: Chevrolet needs to strip out some of the extras and go downscale while Cadillac needs to move drastically upscale and all those in the middle need to readjust the niche they are targeting. Is it doable? For Caddy maybe. Build the Sixteen and a few other choice goodies. Makes room for Buick then. Who gives a crap about SAAB-sell it off for whatever they can get for it. They could still do with a performance division whether it is a revamped Pontiac, a revved-up Saturn or jazzy Opel or Holden. It still makes some sense to team up GMC or GMC/Hummer with non-Chevrolet dealerships. But no matter how I look at it thay have a real problem with Goliath Chevy vs. all their other brands at the same price point(s). And they cannot afford to fold any of them like they did Olds.

    One more thing-never underestimate how much of GM’s problems are the direct result of the U.S. government. GM went off of the rails when they had to stop operating as Sloan’s staff and line organization. The reason they did that was the Justice department threatening to break up GM-easy to do when each division was a self-contained entity other than the accounting staff. GM “muddied up” their internals to create a knot that could not easily be untangled. Badge engineering and lack of focuse was the inevitable result.

  • avatar
    alanp

    KatiePuckrik,

    You seem to have forgotten – and it’s easily forgettible – BUICK. Which also needs to be dropped. Instantly. Immediately.

  • avatar
    Jonathon

    Great article. It’s nice to read something that goes beyond the “GM has too many brands! They’ve got to kill them all” knee-jerk mentality and explores how it used to work and why it stopped working. Theoretically, if it worked at some point in the past, it could work now. Too bad GM still isn’t making any effort to eliminate all the brand overlap.

    And as Geeber suggested, at least some of this is driven by the dealers. Case in point: the Pontiac G4/G5. GM allegedly wants to turn Pontiac back into a real performance division, but it’s hard to do that when the dealers are whining that they don’t have any compact cars and crossover SUVs to sell.

  • avatar
    Steve_S

    Interesting read, looking forward to the next installment.

    Downsizing GM:
    It’s been discussed here and elsewhere to death. It can’t be done without bankruptcy or changes to franchise law. GM needs to adjust its brands and size to its new market share but it can’t afford to do so. They can’t afford to buy out all the dealers. They saw what killing Oldsmobile cost them, there is no way they can do it with another 3-4 brands as they stand now assuming they wanted to.

    I can’t say that I entirely agree that each brand should be divided up solely based on cost. There is no reason you can not have Chevy and Saturn with some overlap in the cost arena as long as they are significantly different in design and dealership experience. I can see no reason for GMC, Saab, Buick and Pontiac to exist. All of Pontiac’s models and GMC’s models could be sold at Chevy dealers (some are re-badges anyway). Hummer should be bundled with Chevy.

    Is there a way to reduce the brands and not buyout the dealers? As in change all GMC, Saab, Buick and Pontiac dealers into Chevy/Hummer, Saturn or Cadillac dealers?

  • avatar
    Lichtronamo

    KatiePuckrik:

    If Chevy were fully invested in and able to go toe-to-toe with Toyota (instead of Hyundai/Kia), there would be no need for a euro-killer Saturn brand. Besides, they’re the all american brand (see GM Deathwatch 133).

    DDL

  • avatar
    50merc

    GM lost its way when it “rationalized” brands to get economies of scale by sharing more components. Fifty years ago there was a heckuva lot of difference, not just in appearance, but the in the “feel” of a say a Powerglide Chevy, Hydramatic Olds or Dynaflow Buick. A Buick Roadmaster was a big step up in many ways from a Pontiac Chieftain. You knew it when you saw it and when you drove it.

    Then the beancounters got control, and intangibles such as the mystique of having a “Rocket V8” were tossed out. Couldn’t all divisions use the same 350cid engine? And transmission, and body? Sure, make ’em all the same! And flimsier! No wonder brands became “damaged.”

    Now it seems like I’m the only one with a soft spot in my heart for grand old names like Olds (killed though it was the oldest US auto brand) and Buick (now on everyone’s hit list though it was the beginning of GM). Those names remind us of when automotive pioneers created an industry that did much to make America wealthy and powerful.

  • avatar
    GasGuzzler

    Katie Puckrik:
    “..Which leaves Pontiac. Now, I really don’t know what Pontiac does! Seriously, I don’t know! And that on that fact alone, Pontiac should be cut.”

    EXACTLY!! For those of us who are younger (I’m in my mid/late 20s) we have no idea what these brands originally stood for; it’s just a huge morass of substandard autos from GM. The first time I learned that Pontiac was originally, and supposed to be, the GM “performance” brand, I about threw up in my mouth. You mean the G6 is all about performance? You’ve got to be joking! And this is exactly why GM needs to kill Pontiac, Pontiac=performance does not resonate with today’s car buyer.

  • avatar
    mikey

    Come on now folks you can’t kill PONTIAC.I can understand the folks in Europe don’t get it, but Pontiac is everything that GM represents,second only to Chevy.
    Have a look at sales figures for the G6 and the old Grand
    Am .Buick is hurting and thier not killing it either.
    As others have stated, killing Olds wasn’t pretty or cheap.
    If the General sinks, and the jury is still out on that one.all brands will down with the ship.
    The ship is still floating its got some leaks and listing badly.But the pumps are working and the engines turning piston slap and all.If it makes it to port they sure ain’t gonna start cutting her up.
    Does anybody know where the life jackets are?

  • avatar

    KatiePuckrik: Now, I really don’t know what Pontiac does! Seriously, I don’t know! And that on that fact alone, Pontiac should be cut.

    Sheesh, Katie! You don’t know what Pontiac does???!

    Well, that’s actually because it doesn’t do its job very well anymore. How can anyone be expected to know anymore? But it is, or was GM’s “sporty” division.

  • avatar
    26theone

    The old brand structure serves no purpose. Get the axe for 4 brands.

    Buick only has 2 sedan models anyway easily absorbed by the Chevy brand.

    GMC is so similar to Chevy now it doesnt even need analysis.

    Pontiac’s G5 and G6 moves over to the Saturn brand. No need to have both Sky and Solstice. Saturn has more brand momentum that Pontiac has had in 30 years.

    Pull SAAB from the US market instead of dumbing it down.

    Leave Caddy, Chevy, Hummer, and Saturn. That would be a lean GM.

  • avatar
    Johnson

    geeber, I disagree. While there was *some* competition in the 1930s, it’s not as bad as the competition and marketplace is now. You yourself mention that many makers in the 30s were “minor” independent makers. GM and Ford were both well established, and were big enough to handle the volatility of the market back then.

    Also as you pointed out, there were no government regulations, like fuel economy or emissions standards. Labor laws and unions were virtually non-existent. There was also no real sense of perception or brand loyalty back then, as consumers used to be very fickle, and America was still a young, growing and maturing country at the point. Consumers back then also had very little expectation of cars. People were happy if their cars would run for a few miles without any problems.

    The only competition back then came mainly from other American makers. European makers were non-players in the US market at that point, and the Japanese auto industry was practically non-existent at that point.

    Fact of the matter is, during GM’s reign as “#1 automaker”, it experienced less competition than it has faced in the last 10 years.

  • avatar
    Lokkii

    The problem all comes down to this:
    When you ask the question:
    “Why buy an X-brand car?”
    There is now little to distingush between Pontiac and Chevy. Caddy has find begun to become distinctive again, like their looks or not, but Pontiac, Buick and Chevy are pretty much interchangeable. Yes the models are actually(finally) different from each other, but not in their character.

    Given a new model with zero labeling on it, it used to be that you could guess that which GM brand it was by the degree of luxury and performance. Nowadays, (while it’s better than it was 5 years ago) it’s not so clear.

  • avatar
    rtz

    What GM really wants is everyone to be able to afford any car they make. The Corvette at the price it is, sells the amount it does. What if it were cheaper? How many would it sell then? GM ideally likes to sell multi hundred thousand cars a year per model.

  • avatar

    Excellent way of shining a light on GM’s woes. My impression is that GM at some point stopped creating categories of cars, each within its own brand, and instead began building similiar families of models under each brand.
    Using portion of MHI to illustrate the price difference draws a disctinction from Base Utility to High Luxury among their 30s offerings. This helped distinguish the brands back then.
    What could do it now?

    GM needs to create distinct categories. These could be:

    1. EV/Hybrid/
    2. Fuel Efficient Compact
    3. Full size performance
    4. High-Performance
    5. SUV/Trucks/Pick-Ups
    6. Top marque luxury

    Then it’s a question of assigning the brand(s) to each category, seeking to achieve brand distinction without any of the brands competing against the others in the GM-family. This, of course, is exactly what GM hasn’t done for the last twenty years.

    Can they make the change? They definitely should.

  • avatar
    AGR

    Thank You Paul! great read love the price comparisons from the 30’s to today.

    Its also the time when GM had over a 50% share of the North American market, and started dealing with a variety of anti trust issues and claims. Its interesting that no one ever factors in the effects of these anti trust actions.

    It escalated when GM was rumoured to buy Chrysler.

    As the various models / identities / brands are blurred, the habitual purchase trends and model year change overs are blurred.

  • avatar
    Geotpf

    Many of GM’s brands lose money every year. In fact, the only profitable ones are probably Chevy, GMC, and Cadillac. However, if they shut down any of the other brands, they would lose even more money.

    First, there’s the payouts to dealers to shut them down. Depending on the brand, this is at least a billion dollars.

    Second, there’s the loss of market share. If you shut down Buick, people who buy Buicks aren’t going to automatically buy Chevys, Pontiacs, or Cadillacs-no, they will buy Toyotas, Hondas, and Mercedeses. Since you lost market share, you have fewer vehicles to spread engineering costs amoungst, especially if that brand was selling clones or near-clones of another brand’s.

    All that being said, if a brand sells zero vehicles, or close to it, it obviously gets shut down (although Isuzu is busy trying to prove this particular theory wrong).

    The net result here is GM will not shut down any brands until they have to, meaning until the end is very near (which it’s not-in fact, of the Detroit 3, GM is probably in the best shape at this point, which means it probably can survive indefinitely, watching Ford and Chrysler fall first). But here’s the order if they do get shut down:

    First, Saab goes away, at least in the United States. Always a slow seller in the US, it’s not getting any better any time soon.

    Then, Saturn gets shut down. Right now, Saturn is stuffed with new products-yet none of them are really selling. GM may decided enough is enough and shut down this eternal money loser-this current surge of new product may be the last gasp for them.

    Then, Hummer may go. Gas prices should be high enough by this point that it’s reason for being will be going away anyways.

    Then, and only then, would Pontiac-Buick-GMC go away. see, Pontiac, Buick, and GMC dealers are combined in most areas, forming a sort of Chevy Part Deux, only slightly (very slightly) more upscale. But GMC is particular is quite profitable-and GMC dealers need cars to sell on the side, which is where Buick and Pontiac come in. I suppose Buick could away before this, but it’ll probably stay a three-vehicle sub-brand in this channel, a la Scion to Toyota.

    Of course, by the time PBG really gets shut down, GM is about to go belly up in any case.

  • avatar
    jthorner

    One of the best business books ever written is Alfred Sloan’s “My Years With General Motors”. Sloan demonstrated an ability to think deeply about the various conflicting forces at work in a business in a way which none of his successors have been able to pull off.

    GM under Sloan was a masterpiece of creative tension between headquarters control and divisional autonomy. Sloan enforced a set of business architectural rules and processes while at the same time allowing the different divisions to go their own ways. In the 1970s GM suddenly got rationalization religion and killed off independent powertrains and so forth. Today we see the products which result from a completely centralized management, design and engineering structure trying to maintain the fiction of independent brands. There are no divisions in modern GM structure. The “brand managers” for Chevy, etc. are marketing positions of very little power. The crazy thing is that GM tries to keep up the fiction of independent brands to the outside world while inside they are all already dead.

    In Sloan’s day there was of course some sharing, but little more so than if modern day Toyota and Honda both buy certain parts from a common supplier.

    Paul’s essay is brilliant and hits the mark spot on.

  • avatar

    Great article.

    I don’t know if Cadillac can go upscale to the level of making insanely expensive cars. A lot of dealers have Cadillac/Pontiac/Chevrolet/Buick combined, at least here in Canada.

    I couldn’t imagine some Aveo salesman having the wherewithall to sell a Cadillac 16.

    As for Pontiac, I’ll be sad to see it go. In the past it was Chevrolet’s performance brand. The Firebird/Trans Am always sold for more than the Camaro, and it was better looking too. If they can continue going a radically different direction than Chevrolet (G8, Solstice, and so on), there may be room for it yet, on the same level as Buick, but where Buick is comfort, Pontiac is performance.

  • avatar
    AGR

    Samir Sied,

    If you are in Canada you kwow that Pontiac / Buick / GMC dealers are the norm in Canada for many years.

    Many GM dealers in their renovated or facelifted facilities have a seperate Cadillac showroom, if they have a Cadillac franchise.

    In smaller markets GM has been combining all their makes / brands under one dealer.

  • avatar
    yankinwaoz

    Tell me if I am wrong. But isn’t Toyota doing the same thing that GM did? I find it difficult to tell the difference, and hence the benefit, of a low end Lexus compared to a high end Camry. The new Corollas seem to be going after the Camry market, being advertised as bigger, more powerful, and more luxurious.

    OK… Toyota only has 3 brands, so far. But I am seeing a lot of GM methods in their overlap.

  • avatar
    cdandy

    Points to ponder……….

    1. WWII left Europe’s and Japan’s industrial centers, i.e. automobile mfg, in absolute disorganization and shambles. GM was in the right place at the right time with the right decentralized product lines to sell to eager buyers and rise to 50 percent marketshare in NA in 10 years!!! GM would enjoy another 10 years of dominance before the slow growth of the world car market, coupled with their own internal cost structure would slowly eat away at their business model to leave them where they are today. Oh, did I leave out poor product decisions??

    2. Platforms meant something 40 years ago. So you want that Cutlass Supreme. Too expensive, then you can buy an F85, the same car only dressed K-mart’s clothes, instead of Macy’s. In other words, GM was the master of options, knew that the options are what added value to a platform and the choice of options let buyers tailor the car the wanted to their budget. They were happy in one respect, they got an Oldsmobile A-body, which reflected what they could afford. Now, it’s take it or leave it and they are building a car to fit a buying niche. The number of the same niche cars in the same niche has tripled or more, the option combination choices have shrunk and the costs have gone so high that they have to use subprime financing to sell the them. Oh, news flash what, they are going to build 5 different cars on one platform. What’s old is new again.

    3. Bean counters took over at GM. To drive down the cost of building a car, GM cut corners so badly, that it has left permanent memories of those financially emaciated products in peoples minds. Imagine how Gil Burrell felt after seeing what Pontiac engineers did to his wonderful Olds V-8, still the most reliable V-8 ever produced by GM.

    4. People drove cars, farmers drove trucks. That was all there was 40 years ago. Now, anyone can drive anything because anything can be driven given the technology. Add to that you got SUV’s, CUV’s, minivans, etc. Point is, the day when a Mustang or Camaro or Cutlass Supreme would dominate sales are over. There are too many choices and tastes/trends change too fast.

    5. GM’s brands are like a failed marriage. It’s over. Change the names and move on. Everywhere, especially with the young, brands are morphing into what will sell. All of GM brands are old and conjer up bad quality memories of old people and fundydudizm on young people. Toyota Zion division doesn’t have those problems.

    6. The inordinate pressure to cut costs will cause GM to fail and all others to build cars that as predictable as the latest computer and operating system. And in my last gasp of hope, that in the mundane moray of automotive destiny, Oldsmobile will rise up to once again to dominate the automobile market!!!!! That is until they release a diesel.

    Thanks for the ear.

  • avatar
    indi500fan

    It’s tough to get rid of brands. State franchise laws give dealers a ton of power, and state legislators typically get a lot of campaign bucks from car dealers (& insurance and real estate interests). After the pain of Oldsmobile, I think GM is more in the “starve out” mode for dealers now.

  • avatar
    jerry weber

    What to do with damaged brands? Gm is trying mightly to put some pizzaz into yesterdays brands. Can you ever really bring back a dying nameplate? Toyota did better with new concocted names like lexus, and scion right from the get go. It seems that when you advertise say pontiac or buick, first comes up the old images (for us old timers) then young people think of a more recent past (not very exciting)and all of this mental baggage has to be wrestled with before the new product can take center stage. Now add in that the new product is not all that exciting and is only better measured by GM's last generation benchmark. But since the Japanese and Koreans can overhaul a model every 5 years and the domestics take 7, doesn't it only make sense that after 15 years gm is one full generation behind? This has been a long term slide for all the domestics, and you don't parachute knockout product down from the sky with no r&d experience. I understand about all those dealers with legally binding franchises, however the public can care less and is voting with their checkbooks at someone elses dealership. If the brand situation isn't cleaned up, GM and it's dealers will have it done for them by lawyers in courts.(after the bankrupcy)

  • avatar
    Jeff in Canada

    A good read, I'm amazed that GM had it right at some point in their history. Alot has been written withing these posts about which brands GM should kill off, keep, and re-position. I could offer my opinion, but it would jsut be another "Here's what they should do…" and really, I have no idea how to run a car company. What I do know is that GM has to do SOMETHING to fix their damaged brands, and it's image. It's been a couple years since they started to admit that they had lost their way, and there doesn't appear to be any reaction in the product line-ups to this fact. I could feel like their was some way of saving the General, if I had seen some action in the last few years. But we still have horrible badge-engineering and poor products being pumped out. My perception of GM will change, when their product line-up actually becomes what they say it is. Re-think American?

  • avatar
    geeber

    Johnson: I disagree. While there was *some* competition in the 1930s, it’s not as bad as the competition and marketplace is now. You yourself mention that many makers in the 30s were “minor” independent makers.

    By “minor” independents, I did not mean Studebaker, Nash, Hudson and Packard. They were major players in their respective segments during the 1930s. Packard was THE luxury marque in America at the beginning of the 1930s.

    The minor indepedents were Graham, Hupmobile, Cord and Auburn.

    Johnson: GM and Ford were both well established, and were big enough to handle the volatility of the market back then.

    The article focuses on GM, not Ford. Ford was still very powerful in the bottom of the market at the beginning of the 1930s. And Lincoln actually sold rather well in the highest price brackets (custom-body cars).

    Ford was a big source of competition for GM.

    Johnson: Also as you pointed out, there were no government regulations, like fuel economy or emissions standards. Labor laws and unions were virtually non-existent.

    And, as I pointed out, those conditions applied to every auto maker, so they didn’t constitute a competitive advantage for GM. If anything, the advent of the UAW, and then government regulations, HELPED GM, because they drove up costs, which GM could spread out over a much larger production base than AMC, or even Chrysler.

    Johnson: There was also no real sense of perception or brand loyalty back then, as consumers used to be very fickle, and America was still a young, growing and maturing country at the point.

    Can’t buy it. Ford and Packard, in particular, had very strong followings. Packard had very strong owner loyalty rates, and was as well known and respected in its day as Mercedes was (until recently) in ours. When Cadillac went after Packard, it had a very tough job ahead of it. Same with Chevy taking on Ford.

    Johnson: Consumers back then also had very little expectation of cars. People were happy if their cars would run for a few miles without any problems.

    You’re making the mistake of looking at the world of the 1930s through our eyes. Compared to customers in, say, 1920, customers in 1930 had much higher expectations from their new vehicles. That is the relevant comparison.

    Johnson: Fact of the matter is, during GM’s reign as “#1 automaker”, it experienced less competition than it has faced in the last 10 years.

    Not during the 1930s it didn’t, which is what we are talking about.

  • avatar

    SATURN.

    Started out right. Unique, different, no sharing with other GM.

    NOW. Just another GM badge whore

  • avatar

    yankinwaoz “Tell me if I am wrong. But isn’t Toyota doing the same thing that GM did? I find it difficult to tell the difference, and hence the benefit, of a low end Lexus compared to a high end Camry.”

    Only just a slight overlap between 2 divisions. If Toyota develops Scion as a full brand and they give Lexus pickups then they would be on the same road. But don’t forget even GM pulled it off for years by having the divisions as semi autonomous units which allowed the overlapping brands to have clear identitities and the cars were seen as significantly different

  • avatar
    jthorner

    Saturn never should have been started in the first place. GM needed to fix what they had, not dilute efforts with a clean sheet operation on the side. If you have a troubled marriage the solution isn’t to get a little something on the side.

  • avatar
    blautens

    Great article – love the history and appreciate you researching the prices and translating them into today’s dollars.

  • avatar

    jthorner I have heard similiar views as yours regarding Saturn. My view is at the time mid 80s, GM was rolling in cash and rolling in profits, their market share was aproaching 50 percent, GM’s downsized car program was kicking Ford and Chryslers behind and yet even GM saw signs that they hadn’t done well in small cars, they didn’t understand the import market that well and they recognized that a small portion of the market was not even considering a domestic car.

    If you look at the results, they did pretty well, they got consumers who were not even cross shopping their other divisions. Their failure was a lack of follow up. It seems like it would have been very hard to fight the existing dealer network etc etc to create similiar vehicles for Chevy and Pontiac etc. One problem in my opinion is that GM never wanted to make too good a small car for Chevy as an example because it might canabilize sales from more profitable larger Chevys or more profitable sister division cars. The old make the small cars crappy so that the customer will want to spend more on the car or truck you really wanted them to buy routine. The Saturn division didn’t have that baggage. They simply added the Aura 10 years too late.

  • avatar
    geeber

    Saturn was hurt by two factors:

    1. It was Roger Smith’s baby. Once he left, the division had no champion, and it was associated with a leader who was reviled outside of GM and not particularly well-liked within the company.

    2. It stole development funds away from the other divisions. Chevrolet, Pontiac, (especially) Oldsmobile and Buick all needed help by the late 1980s, but the money was being spent on Saturn. When Saturn really got rolling in the mid-1990s, and was doing well, the development funds were funneled to the other divisions (especially Oldsmobile), as they were behind not just the imports, but Ford as well. Saturn was allowed to languish, and never regained its early momentum.

    If GM had tried something along the lines of Saturn in the 1970s, when it ruled the car market and was rolling in money, it might have worked. But, by the 1990s, GM just didn’t have the money to make Saturn a success and keep the other divisions stocked with fresh product.

  • avatar

    If you’re REALLY curious as to how well GM had the market segmented, here’s a list of GM’s car lineup for 1929 – in order from cheapest to most expensive:

    Chevrolet
    Pontiac
    Oakland
    Viking
    Oldsmobile
    Marquette
    Buick
    LaSalle
    Cadillac

    Yeah, they had it that each division, other than Chevrolet (they knew enough not to mess with that money-maker) spawned a new division making a car just under the original marque in price, but still more expensive than the next lower marque (if the order gets a bit confusing, Pontiac came out of Oakland).

    The Wall Street crash killed Viking and Marquette quickly, Oakland died shortly afterwards, LaSalle did quite fine until 1941 when it suddenly became the cheap Cadillac.

    Oh yeah, these weren’t just badge engineering specials, either. For example, while Oldsmobile used a straight eight, Viking was a V-8.

  • avatar
    Pch101

    This is a terrific series, and I applaud the effort of bringing a branding discussion to a non-business audience. That being said, I believe that it is fair to uphold Sloan’s progressive branding system as keys to both GM’s earlier successes and its later failures.

    Back in Sloan’s day, each marque was limited to a couple of cars and platforms, each of which had a few body styles. With each marque serving a narrow mission, and with consumers having fairly limited expectations vis-à-vis product diversity, it was possible for Chevy back in this earlier heyday to get away with having just two core models, as this brochure from 1936 illustrates: http://www.tocmp.com/brochures/Chev/1936/1936ChevroletBrochure/Back_cover.html

    Imagine if today’s Chevy lineup was comprised solely of the Malibu and Impala, each of which came in 2-door sedan, 4-door sedan, coupe and wagon body styles. That would offer a reasonable analogy to what Sloan was doing back in his time.

    Sloan created a system in which the brands would compete with one another (albeit over turfs which were segregated.) As the consumer market evolved with greater expectations for product diversity and branding distinction, it was just a matter of time before those managers charged with building those marques would aspire to expand their pool of buyers by broadening their product lineups and cannibalizing business from their ever-more-closely-related sister divisions. Ultimately, it was the desire of individual brand managers to become all things to all people, while keeping their costs in line, which led to badge engineering and the long-term dilution of their brand values. What was good in the short run was disastrous for the long run.

    Accordingly, Sloan’s system was destined to fail, and it might be more accurate to say that the GM of today has fully realized his vision, rather than betrayed it. GM would have shown a lot more foresight had it long ago consolidated these separate badges under one or two umbrellas (for example, putting Chevy and Pontiac under one group, and Cadillac, Olds and Buick under another), and limited itself to a total of perhaps twenty nameplates or so among the five of these…but what sort of competitive brand manager worth his salt and determined to grow his marque would have ever wanted to do that?

  • avatar
    olddavid

    I have to comment on your description of the New Deal as “sky high taxes”. It was income equalization. A Socialist method of distributing the unequal wealth, mandated by the voting public, as they were mostly poor and starving. We are approaching the same levels again today. But the wealthy have nothing to fear as the populace has the cojones of road kill. They will subsidize oil, defense, etc., while blaming themselves for their troubles.

  • avatar
    Dynamic88

    I’m from Lansing, so naturally I’m partial to Olds. That said, it seems to me Pontiac was the most redundant division and least different division – just another Chevy. Pontiac should have been killed first. Then, maybe Olds and Buick too.

    Adjusting prices for today, and as a percentage of median household income was brilliant. It showed that there was little overlap in price among GMs divisions. It’s easier to maintain the fiction of truely different cars when they don’t cost the same.

    Could GM have stuck with Sloan’s set-up? I think so. The solution would have been to have customers go to another dealership, in the big city, if they wanted something upmarket. If Chevy can sell everything from an econobox to a full sized sedan with power everything, why bother having more than one division?

    One solution might have been to allow GM dealers to sell any GM product – something they almost do anyway with Chevy/Olds dealerships, or Cadillac/Olds dealerships, and so on. The problem is that the same platform with different grills and taillights made customers keenly aware that there was no real difference. For this to work, an Olds has to be different than a Chevy. The same dealer can sell both (maybe), but the customer has to be able to see that an Olds is a step up from a Chevy. And if he looks at a Buick, he has to be able to see it’s a step up from an Olds.

    Go back to Sloan’s idea, or just badge everything as a Chevy.

    I think there has always been a problem for the 3 divisions in between the extremes. People tend to think naturally in 3s – entry level, top of the line, and in between. When there are 3 divisions in between, they have to be distinct – from each other, and from entry level and top of the line. Sloan managed to keep these distinctions, and success followed.

    As for Saturn, GM never needed a separate division to prodce import fighters – it needed import fighters in every division. GM’s problems are bigger than indistinct branding – they fell behind Toyota and Honda in quality, and they’ve been playing catch-up ever since. Only Toyota and Honda aren’t standing still waiting to be caught.

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