General Motors Death Watch 185: Plan 9 From Outer Space

Now that GM's staring down the barrel of bankruptcy, the artist formerly known as the world’s largest automaker has launched a fresh offensive. Not a product offensive, of course. That would have required forward planning. We’re talking about a PR offensive. Hope for the hopeless. Alternatively, weasel words for the unwary. Here’s the headline, courtesy of unnamed sources, via the Wall Street Journal: a return to profitability by 2010. And here’s the kicker: the target date is “unofficial.” Does it get any more fantastic than that? Yes, it does.

The trick, of course, is for GM to get from here (looming cash-starved bankruptcy) to there (profit). You know: a plan. The only thing is, GM CEO Rick Wagoner has steadfastly refused to publicly declare any details of his “turnaround plan” since the words first passed his lips. Details as in targets. Targets as in accountability. Accountability as in “If I don’t do what I said I was going to do, fire my ass.” You can see the problem with that one.

Instead, GM PR's fed the ailing American automaker's camp followers a steady diet of generalities, dreams and excuses. Back in November ’05, the turnaround plan had four points: health cost reductions, product renaissance, better sales and marketing, and capacity reduction. Obviously, GM’s products were, are and always will be the most important element. If GM had made the right decisions then, they’d be well-positioned now.

“GM North America will continue with its aggressive product assault on all vehicle segments," the '05 press release declared. "To target key growth segments with the right products, GM earlier this year increased capital expenditures, with the vast majority of that increase going toward future car and truck programs…

“Starting in January, GM will begin rolling out more than a dozen all-new versions of its full-size SUVs for Chevrolet, GMC and Cadillac, to be followed in late 2007 with the availability of GM's advanced two-mode hybrid powertrain. In the same year, GM will begin rolling out an entire new lineup of full-size pickups, another segment in which GM is the industry leader.”

Oops. So much for Car Czar “Maximum Bob” Lutz golden touch. Or Rick Wagoner’s leadership. So, what’s the new new plan; the strategy that will rescue GM now that the old new plan is in shambles? According to the Journal’s proverbial “people close to the matter” (i.e. GM PR Spinmeister Steve Harris), The General is “preparing to cut thousands more white-collar jobs and is considering whether it should sell or shutter more of its brands.”

While white collar cuts are no biggie (unless you’re a GM white collar worker), the idea that GM is “considering” slicing dead brands is awe-inspiring. Anyone with a basic grasp of auto industry economics knows that GM's 19 percent U.S. market share mandates brand extinction. Buick, Hummer, GMC, Pontiac Saab and Saturn are all dead brands walking– to the point where no one in their right mind would buy them. At the same time, it’s equally obvious that GM cannot afford to cut the deadwood.

As we’ve pointed-out numerous times, the U.S. franchise system is a patchwork of 50 state laws that all favor franchisee rights. GM can’t just shutter its moribund brands and walk away from thousands of dealers. As long as there is a company to sue, the abandoned store owners will sue it. When GM closed Oldsmobile, the pay offs cost the company a billion dollars (back when a billion dollars was real money). And almost as much again in legal fees. Not to mention lost sales.

GM’s looking to raise $15b by the end of the year. There’s no way they can use the money to pay off six brands. First, it’s not enough. Second, GM needs the money just to keep the lights on. There are only two practicable way to downsize GM’s portfolio. Either GM must starve the brands of product– as it is now doing (not doing?) for HUMMER– or declare bankruptcy and use the court’s protection to git ‘er done.

GM doesn't have enough cash to wait out its dealers, and can’t stomach the nuclear option (C11). Which is why, back in February, Mr. Wagoner dismissed the idea of killing brands as "not a thoughtful discussion." So why, pray tell, is the Journal/GM re-raising the possibility of brand slaughter? Because GM wants that 15 bil and the financial markets have completely lost faith. But not, apparently, GM’s Board of Bystanders.

"[Wagoner] also has support on GM's board. Key directors still believe the management team under Mr. Wagoner is capable of delivering a turnaround and insist ‘we will win or lose together,’ this person said. Despite GM's mounting troubles, the board is anticipating management will soon notch "some victories under our belt," one director said, asking not to be named.’”

The Bystanders will go down with the ship? GM’s going to pull a rabbit out of its hat? At GM, fantasy never goes out of style.