General Motors Death Watch 136: Black Tuesday

Robert Farago
by Robert Farago
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general motors death watch 136 black tuesday

In June ’05, GM CEO Rick Wagoner unveiled his turnaround plan for the beleaguered automaker: accelerate new products, eliminate discounts, renegotiate union contracts, import parts from China and downsize to match diminished demand. The last of these five points captured the critics’ imagination. “You can’t cut your way to profits,” they warned. Wagoner reacted with characteristic bravado: “We aren't going out of business in the next six months.” One wonders how those words would sound today, two days after the world learned that GM’s June sales slid 21.3 percent.

By now GM has a lot of practice explaining operating losses, shrinking sales and lost market share. Still, Black Tuesday challenged veteran mouthpiece Paul Ballew’s exculpatory skills. Once again, Ballew was determined to convince GM’s camp followers that the automaker’s sagging fortunes actually represent good governance and bad luck. To that end, Ballew rounded up the usual suspects.

GM’s Spinmeister began by pointing out that the showroom massacre was “partly attributable to a planned reduction of an additional 13,487 daily rental sale vehicles.” Although Ballew did his best to headline the fact, empirical analysis suggests additional emphasis on the word “partly.” In June, GM’s sales fell by 86,825 units (320,688 vehicles vs. 407,513). GM’s reduced fleet sales only account for 15.5 percent of the total tumble.

Ballew then trotted-out the old “soft industry” excuse. Only it turns out the U.S. automobile industry has an airtight alibi. According to Autodata, American automobile sales fell just three percent in June; from last year’s 1.5m to this year’s 1.46m. The numbers clearly indicate that the industry was tucked-up in bed at the time of GM’s bloodbath.

And anyway, how do you explain the fact that GM’s transplanted competition went nuts? Nissan posted a massive 22.7 percent sales increase. Toyota’s turnover rose by 10.2 percent. Honda’s sales ascended by 11.5 percent. Hyundai’s sales climbed 11 percent.

Surprisingly, Ballew says GM wasn’t surprised by their [continuing] shimmy down the sales charts. “We had very strong retail sales in June and July a year ago, so we knew we'd have a tough time on the retail side.”

Yes, well, that's what happens when you offer zero percent financing to anyone with a pulse for six days, and then don't. In any case, there's no getting around the fact that GM sold 50k units less in June than it did the previous month.

Ballew identified two legitimate conspirators: rising gas prices and slowing housing starts. The twin terrors tore into GM’s truck sales, scything 22.9 percent from the previous June's total. Sales of the relatively new GMC Sierra and Chevrolet Silverado pickup trucks fell 26.5 and 23.5 percent respectively.

Surprisingly, Ballew says GM was surprised by Toyota’s aggressive offers on their Texas Tundra: zero-percent financing for 60 months and $5k in dealer incentives. The fact that GM failed to realize that their deep-pocketed nemesis would slap cash on the dash to attain their 200k per annum Tundra target shows GM’s woeful lack of situational awareness.

It gets worse. Ballew hinted that his employer will react in kind, increasing incentives on its pickups to protect its turf. As predicted, Toyota’s entry into the market is gradually and inexorably taking its toll on the profitability of GM’s last remaining cash cow.

Meanwhile, GM's new product cadence has peaked, and its eight brands are in dire straits. Caddy (-28.4 percent), Chevrolet (-23.5 percent), Hummer (-10 percent), Pontiac (-18.1 percent), GMC (-16.1 percent), Buick (-30.4 percent) and Saturn (-8.8 percent) all sucked the joy out of June. Only Saab stayed above water, adding 1066 sales, topping out at 4361 vehicles.

In silver lining search mode, Paul Ballew and Marketing Maven Mark LeNeve pointed to the early success of the SUV-sales-stealing Lambda triplets (Acadia, Outlook and Enclave) — although admitting you can’t build a new model fast enough to meet demand is a curious sort of boast for a company that's boasted about reduced production.

So, where does all this leave Rick Wagoner’s turnaround plan? Accelerate new products. Flop. Eliminate discounts. Nope. Renegotiate union contracts. Health care “giveback” swallowed by soaring costs. Import cheaper parts from China. Check. Trim excess capacity. Who cares? If you didn’t believe it then, believe it now: you can’t cut your way to prosperity.

To wit: GM’s U.S. market share fell 3.3 percent in June, down from last year's 25.4 percent to this year’s 22.1 percent. (Down 8.1 percent since '90.) Toyota’s U.S. market share now stands at 16.9 percent. When you consider the disparity in the two automakers' dealership count– 7715 vs. 1740– it's easy to see which company is headed for Chapter 11, and why.

In fact, since Rick Wagoner launched his turnaround plan, GM’s market share has shrunk by 5.2 percent. No matter what else GM's CEO may or may not have achieved in that time, the figure is an irrefutable condemnation of his administration. GM's Board of Bystanders granted Rick Wagoner a bankruptcy-proof pension. It's time they activate it.

Robert Farago
Robert Farago

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  • Kkop Kkop on Jul 08, 2007

    It's easy to blame management for all the ills, but I think the isolation from the real automotive world extends down the ranks at the big three. I just returned from a visit to Michigan. (BTW: a strange country; the big three's products are everywhere. In fact, they seem to be more numerous than furrin cars and trucks!) Anyway, many vehicles had this sticker on them: "Out of a job yet? Keep buying foreign!" In the rest of the country, the sticker pointed at Detroit would probably read: "Out of job yet? Keep making crap products I don't want!"

  • Fallout11 Fallout11 on Jul 09, 2007

    I live in the deep south and work at a blue collar machine shop. Yet a walk through the parking lot shows three times as many new model Tundras as GMT-900 based vehicles combined. GM is dead, they just haven't figured it out yet.

  • SCE to AUX I'm not understanding the linkage between the old State v Federal domain debate, and layoffs at Stellantis.Stellantis has serious portfolio issues, so I'm inclined to blame layoffs on them.
  • Analoggrotto Meanwhile, we can't build enough Tellurides, Sorentos, Souls and are driving ATPs that only highstreet can get close to.
  • Kjhkjlhkjhkljh kljhjkhjklhkjh ""we cant build cars that don't cheat emission tests""
  • Jeff NYC does have the right to access these charges and unless you are traveling on business or a necessity you don't have to drive or live in NYC. I have been in NYC a few times and I have absolutely no desire to go back. I can say the same thing about Chicago, Los Angeles, San Francisco, and Houston where I lived for 29 years. A city can get too big where it is no longer livable for many. I was raised in West Houston near the Katy Freeway which is part of I-10. The Katy Freeway when I moved from Houston in 1987 was a 6 lane road--3 lanes on each side of the interstate with each side having side access roads which we called feeder roads for a total of 8 lanes. Today the Katy freeway has 26 lanes which include feeder roads. I went back to Houston in 2010 to see my father who was dying and lost any desire to go back. To expand the Katy Freeway it took thousands of businesses to be torn down. I read an article about future expansion of the Katy freeway that said the only way to expand it was to either put a deck above it or to go underground. One of the things the city was looking at was to have tolls during the peak hours of traffic. Houston is very flat and it is easier to expand the size of roads than in many eastern cities but how easy is it to expand a current road that already has 26 lanes and is one of the widest roads in the World. It seems that adding more lanes to the Katy freeway just expanded the amount of traffic and increased the need for more lanes. Just adding more lanes and expanding roads is not a long term solution especially when more homes and businesses are built in an area. There was rapid growth In Northern Kentucky when I lived in Hebron near the Northern Kentucky Cincinnati Airport. Amazon built a terminal and facility onto the airport that was larger than the rest of the airport. Amazon built more warehouses, more homes were being built, and more businesses. Boone, Kenton, and Campbell counties in Northern Kentucky are constantly expanding roads and repairing them. Also there is the Brent Spence Bridge which crosses the Ohio River into Cincinnati that is part of I-71 and I-75 and major North and South corridor. The bridge is 60 years old and is obsolete and is in severe disrepair. I-71 and I-75 are major corridors for truck transportation.