General Motors Death Watch 161: The Emperor's New Clothes

In the old fairy story, con men convince a naked sovereign that he’s wearing fine clothes. Applying that cautionary tale to General Motors is not as straightforward as it seems. Is GM CEO Rick Wagoner aware that the enormous automaker is tumbling towards bankruptcy? Or is he living in a dream world, demanding that his "kingdom" admire his invisible finery? Whether Wagoner’s deluded or deluding, his ”GM Statement on Turnaround Plan” indicates that GM is still buck naked.

"We're delivering on the turnaround plan we established in 2005, and have exceeded expectations on virtually all counts," Wagoner proclaimed.

Welcome to Wagoner’s world, where you can announce that you’ve exceeded your expectations without revealing them. In truth, Wagoner has never set hard targets for GM’s recovery. Not sales. Not market share. Not even a return to profitability. If GM doesn't say where they’re going, why should we believe they’re getting there?

Even a brief look at GM’s declining sales, lost market share and red ink-stained balance sheet reveals that Wagoner’s a legend in his own mind. GM’s decline is a trend that started before the unspecified 2005 “turnaround plan,” that’s continued unabated since its implementation. But never mind that, because “We've set a strong foundation that we can truly build on. We're encouraged by our progress in revitalizing our product portfolio, strengthening our brands, reducing structural cost and growing the business globally.”

Hang on; a few well-received products do not a turnaround make. For one thing, the Chevrolet Malibu, new Cadillac CTS and Lambda-based Crossovers may be media darlings, but none qualify as a runaway sales success. That's especially true as The General screwed-up the supply chain for all three cars, leaving dealers SOL. Lest we forget, GMNA is still juggling eight brands and 49 products (not including discontinued models still for sale or variants). Even if you spot GM five hit products, well, you do the math.

And while we’re at it, GM’s product portfolio is still truck-heavy in an increasingly truck-aversive domestic market. Using the EPA definition of a truck, 28 of those 49 products qualify. That’s 57 percent. Trumpeting the fact that [some of] the vehicles within GM’s product portfolio are “revitalized” is equivalent to boasting that you made a perfect three-point landing at the wrong airport. And that’s without questioning GM's trucks' diminishing profitability.

But we’re really off in “admire that naked man’s clothes” territory when considering Wagoner’s assertion that his administration has strengthened GM’s brands.

Chevrolet is gas-friendly to gas free (if you consider a diesel pick-up “gas free”), but it still sells everything from a rebadged Korean econobox to a $60k sports car without any unifying concept. Saturn asks potential buyers to “Rethink” without giving them anything coherent to think about. Cadillac, the supposed standard of the world, lacks a credible flagship– and looks set to fall further down market. What is a Saab? Does anyone care? Near-luxury Buick is near death (unless you’re in China). Buick's most aggressive competitor, GMC, is re-positioning itself as an upmarket Chevy. Which is what again?

Pontiac is in a Holden pattern, repositioning itself as an importer of rebadged Australian rear wheel-drive sedans. Meanwhile, it sells a farrago of rebadged Chevies (which is what again?), a couple of Toyota and Saturn homonyms and… the Grand Prix. Of all GM’s eight brands, weak-selling Hummer is the strongest; albeit one that’s a politically or gas conscious buyer's anti-matter.

If "strengthening brands" means eight automotive “companies” offering a range of mostly lackluster products that overlap each other in niche, price, engineering and style; products that don’t as a whole adhere to a clear branding strategy, mission accomplished.

So all we’re left with is “reducing structural cost.” As GM’s NA market share is shrinking, and cost-cutting is GM’s Beancounter in Chief’s forte, you’d expect progress on that front. But it should be remembered that all this cost reduction adds to GM’s mountain of debt. The bill for all those employee buyouts and plant closures will eventually come due, and GM’s forthcoming $29.9b VEBA contribution ain’t chicken feed neither.

As for “growing the business globally,” GM North America was, is and will be a financial sinkhole. It will continue to swallow-up all the profits GM can generate abroad– until GM’s Board of Bystanders will be forced to cut North America loose (i.e. declare Chapter 11) to save its European operations.

If you’re happy to admire the Emperor’s new clothes, the “GM Statement on Turnaround Plan” will inspire reverence. But let me draw your attention to one small statement therein. Wagoner promises to “build GM's advanced propulsion leadership position.” For Wagoner to even IMPLY that GM is the leader in advanced propulsion, or SUGGEST that they’re going to build that leadership from scratch, moves beyond hubris into an entirely new realm of fantasy. News flash: the Emperor is naked.

[Read the “GM Statement on Turnaround Plan” here.]