Category: GM Death Watch

By on October 5, 2005

 In a news article entitled "UAW, GM near deal on Health", Detroit News reporter Daniel Howes claims that the United Auto Workers and General Motors are about to sign agreement that will trim $1b off The General's health care payments. The doyen of Detroit sums-up the current state of play in his usual comprehensive and no-nonsense style, but a thorough read of his report reveals that his premise is based entirely on rumor. And the rumor is based on hope. And the hope is false.

It's easy to understand why even seasoned journalists would give voice to such illogical optimism. While we've been charting and predicting GM's demise for some time, the actual implications of that cataclysm are so enormous they defy rational exposition. When a GM lawyer enters federal court holding the General's bankruptcy petition, the entire US automotive industry will change forever. Initially, everyone will suffer. It's no surprise that industry insiders hope against hope that the main players will see sense soon enough to dodge the bullet that will kill the status quo.

What observers fail to understand is that GM and the UAW signed a suicide pact a long time ago. Back in the day, when GM's profit-gorged, short-sighted management traded job security for freedom from strikes, they backed the union into a corner. That's right: the union. Once union members were made fire proof, the union could never, ever agree to their dismissal. Pay raises, working conditions, pension contributions, even health care– they're all negotiable. But any UAW boss that says to one of his members "The company doesn't need you anymore. That's it, you're done; you're outta here" wouldn't last five minutes.

Make no mistake: guaranteed employment is killing GM. While everyone is talking about health care payments, the key fact is this: a large percentage of The General's workforce is completely unnecessary. And yet GM is forced by its UAW contract to keep paying these workers, either by continuing to spew out cars no one wants or by putting them in a "job bank" where they receive full salary and benefits for doing nothing whatsoever. While most people understand the insanity of the job bank, few realize that one of the reasons GM makes far too many products is that the union deal means it would cost them almost as much NOT to make them.

All the UAW can say is, well, it's your fault for not designing, marketing and selling vehicles that people want to buy, which would create enough demand to keep our people employed and help you make enough money to pay our salaries. It's not a bad argument, really, but it was formulated at a time when GM owned the US auto market lock, stock and barrel. And even if it's true, it's not important. The chances of GM's design team pulling a dozen or so rabbits out of its hat are now smaller than a Chevrolet Aveo.

Despite all the media hype and hope, the current situation is a Gordian knot. GM can't live with their UAW contract, they can't get out of it without a strike, and they can no longer afford a strike. Meanwhile, the General is bleeding out. Their market share has evaporated, their new products aren't cutting it, Delphi is about to saddle the company with a $7.5b pension bill (and a catastrophic interruption in the flow of parts), their credit rating will soon be sub-junk (nuclear waste?), their losses are completely unsustainable, and so on. Today's fire sale of their stake in Fuji Industries to arch enemy Toyota is just more proof that their time is up.

In fact, GM is already dead. They're already locked in the corporate version of John Kennedy's plane crash: a death spiral headed straight to a violent, inescapable conclusion. Accepting this premise, we can understand GM's recent behavior in terms of Dr. Elisabeth Kubler-Ross' Five Stages of Grief. We've heard the denial (our products are great!); we've felt the anger (the media hates us!) and now… bargaining. As you read this, GM and UAW reps are at the bargaining table, trying to find a way to deal with their mutual loss. They may establish what Ross called a "temporary truce", but they will eventually have to move on.

When Delphi goes belly-up, I reckon the whole lot of them will make the transition to the final stage: depression. When GM itself follows suit, the depression will become chronic. The media will bemoan the loss of American pride and jobs, the UAW will get all sullen and melancholy, and GM's current management will sulk off into the distance, riding their golden parachutes without comment. All that will be left will be acceptance. Kirk Kerkorian and his pals will take charge of this final stage of the healing process, telling the world that it's over. Deal with it. And after that? Who knows? Hope springs eternal.

By on September 29, 2005

Buzz Hargrove, President of the CAW and master of Pyrrhic victoryToday's 11th hour deal between GM and the Canadian Auto Workers (CAW) is yet another example of The General's singular inability to take the bold action needed to avoid bankruptcy. Instead of reasserting its ancient right to fire workers it doesn't need, GM once again agreed to subsidize idled employees. The General will point to the 1000 jobs sliced from its Canadian operations, but the cuts will be achieved through attrition. CAW President Buzz Hargrove knows what's what, and he isn't afraid to spell it out: 'People will either have work or wages."

The idea that an auto worker deserves full salary for not working is insane. But it's not half as crazy as subsidizing the concept with shareholders' money. In case you thought, well, at least GM exchanged impregnable job security for some benefit reductions, forgeddaboutit. The General's 16,400 Canadian blue collar workers also received a 3.5% pay increase over the life of their contract AND increased pension contributions. Industry experts estimate that the pension top-up will cost GM an EXTRA $179m during the three-year period.

As a warm-up for the '07 negotiations with the United Auto Workers (UAW), GM's Canadian caving expedition is roughly equivalent to a prize fighter preparing for a title bout by working on his tan. The General's crack negotiators couldn't even get CAW assembly line workers to reduce their break time by two minutes. Of course, GM's abject failure to stem the spurting artery of red ink known as "legacy costs" is neither new nor surprising. Rabid Rick Wagoner and his minions have continually staked their fortunes on changing the bandages covering the company's wounds, rather than radical surgery. And by surgery, I mean a strike.

There's no question that a tough stance by GM against its Canadian workers would have triggered a walkout. It's equally true that a strike would have severely dented GM's US operations. In 2004, The General's Canadian factories built 824,619 transmissions, 682,000 engines, 603,660 cars, 320,055 trucks, 24.6 million parts and shipped 117,022 tons of steel. Even if the UAW didn't walk out in sympathy with their neighbors to the north, the disruption to GM's food chain– and its effect on beleaguered suppliers like teetering Delphi– would have been catastrophic.

But survivable. GM's Gulfstream-friendly execs wimped-out because A) they're chicken and B) they don't think they need to draw a line in the sand, ever. Simple logic will convince the UAW to surrender members' entitlements. Shrewdly enough, the UAW has catered to this delusion by commissioning an "outside review" of GM's financial health. GM's leaders believe the UAW will read the report, see the writing on the wall and take one for the team. The General's generals figured a Canadian showdown would have put the UAW in the wrong mood for the conciliations to come.

Hello? Am I the only one actually listening to Big Ron Gettelfinger? When asked about the possibility of surrendering union benefits to ensure GM's continued existence, the UAW Prez said: "There comes a point in time where you think, 'We either move forward or we all go down together…' You can't just take, take, take, take, take and that's the mood that's out there right now.' I'm no labor relations expert, but Big Ron doesn't sound like the kind of guy who will extend the hand of friendship across a bargaining table in the name of mutual self-interest. I mean, if Big Ron thinks he's being abused NOW, what hope is there in '07?

None. GM should have forced the CAW to strike. Considering the inescapable fact that GM will eventually face a UAW strike (and/or Chapter 11), it would've been better for The General to have its labor showdown start in Canada. From a PR point-of-view, Americans would be a lot less likely to support a strike on behalf of Canadian workers than one mounted on behalf of UAW employees. This is also a time when GM's inventories are low, and the company's prospects dim. Better to have it out now, heading for the winter doldrums, than later, when sales will be there for Toyota's taking.

A crippling strike would've also offered GM an excellent opportunity to kill half its brands– and blame someone else. But hey, who am I kidding? You only have to look at the timing of the Solstice, HHR or any one of the company's "new" gas-guzzling SUV's to know that the word "proactive" simply isn't in The General's vocabulary. They're used to playing defense. That's what they'll do until the opposition rips off their head and uses it for a football.

By on September 24, 2005

The L39 burns 130 gallons of aviation fuel per hour.In his first podcast, Maximum Bob Lutz insists that the full-size SUV market will survive the changing economic climate, albeit in a diminished form. What, no Cat 5 devastation? Nope. GM's Car Czar reckons around 750k Americans "genuinely need" a jumbo SUV (down from last year's estimate of over a million). Yes, well, a man who flies an L39 fighter jet for fun may not be the best judge of how gas prices affect the average SUV buyer. In fact, I reckon MB's market estimate is too optimistic by half.

Lutz' cigar-scarred voice claims that the full-sized SUV's core clientele need their gargantuan gas-guzzler because they 'tow a boat' and 'carry lots of kids". Where's the data for that assertion? In truth, it's highly unlikely that even 50% of full-size SUV drivers ever tow a boat. What's more, there are plenty of capable sprog carriers out there– most now available in four-wheel-drive– that don't suck gas with the jumbo SUV's unrelenting extravagance. So unless these owners of full-sized SUV's tote more than three kids AND a boat, they're free to downsize.

Or not. Now that buyers of large SUV's are almost as rare as Oprah magazine cover girls, now that all the low-fertility, non-boating SUV owners who can afford to jettison their land yachts have done so (or will do so at trade-in time), the value of pre-owned XXXL SUV's has collapsed. A large percentage of full-size SUV owners owe significantly more money on their behemoth than it's market value, leaving them unable to escape their loan/vehicle. That's bad news for GM's new Tahoe, Escalade, Yukon, Yukon Denali and the eight (yes eight) other GMT900's headed for dealers' parking lots in '06.

Even those who can afford to pay the freight for these sleeker, more cosseting SUV's won't. The General's previous party line– that people who can buy a $40k to $70k SUV aren't overly concerned about $3-a-gallon gas– is moot. Despite Lutz' belief in his customers' maritime/progeny-based buying motivations, the popular movement into large SUV's was fashion-led. The popular movement OUT of them will be equally stylish– with one important distinction. The current fug of anti-SUV negativity is so poisonous it will only take a few months to destroy an automotive trend that was decades in the making.

For GM stockholders, employees and suppliers, it's a tragedy of the worst kind: preventable. While you can't blame The General for making full-sized hay while the sun shined, the automaker should have seen this coming. Unless you believe that GM's market analysts were paid to play Tetris, unless it's OK to enrich a CEO by $7m+ a year when he can't tell which way the wind's blowing in a howling gale, GM had time to get it right. GM could have– should have– dedicated every resource in their Empire to designing, manufacturing and selling the world's most fuel efficient SUV's. A 20 – 30% improvement in fuel economy would have forestalled much of today's "truck flight".

Of course, arrogance is the engine of tragedy. When Rabid Rick Wagoner met with Toyota Chairman Fujio Cho in May, he should have bowed with appropriate reverence (to put it politely), bought the Japanese automaker's hybrid technology and ordered it installed in all GM SUV's– even if it meant a two-year production delay. Instead, Wagoner-san flew back to Detroit, pulled the trigger on GM's great SUV giveaway and ordered production of GM's "refreshed" SUV's brought forward. Vehicles that get one mpg more than the old ones.

Wagoner's hubris stems from his profound faith in the power of perseverance. (It was the key to his rise within GM.) Rabid Rick clearly believes GM will answer the clarion call for improved mileage with new, world-beating technology… eventually. As in too late. Lutz, on the other hand, is a Marine. His hubris comes from his conviction that a warrior's heart conquers all. Listen to his podcast. Check out Maximum Bob's strange combination of bravado, bluster and battle fatigue. We HAVE what it takes. We CAN bunker down and hold out until the hybrid cavalry arrives. We WILL be OK. Except when Bob says "we" he means "I". [Business Law Number Seven from Maxi Bob's book on Chrysler: 'Teamwork isn't always right.]

I digress. Bottom-line: I'd be surprised to see large SUV sales top 400k a year. And yet Lutz' podcast tells us GM's winning: their new-shape SUV's will maintain a 60% share of the disappearing market. Meanwhile, over at the other tables, the croupier is busy shoveling The General's chips in Japan's direction. If it wasn't so funny, it would be sad. Actually, it is sad. Once upon a time, America's largest companies were known for their ability to bring technologically advanced products to market quickly, cheaply and efficiently. If the world's largest automaker can't re-engineer its vehicles fast enough to avoid a completely predictable market meltdown, then maybe it shouldn't BE the world's largest automaker. Ipso facto.

By on September 21, 2005

 Imagine Maximum Bob Lutz and Marketing Mark LeNeve heading for the unveiling of GM's new 'full-size' SUV's. At the precise moment when another hurricane is eyeing-up Gulf oil refineries, the dynamic duo is charged with selling the idea that The General's latest fuel-sucking land yachts will stop the automaker's financial fibrillation. Never mind all the other diseases eating away at GM: viral benefit payments, broken brands, model metastasis, bubonic incentive programs, hybrid anemia, etc. This SUV thing is where GM gets its first glimpse of the corporate crash cart. So, how did the boys take it?

Denial is a useful psychological condition. It allows humans to maintain hope in the face of ridiculous odds. By that token, Lutz and LaNeve's inability to confront the full horror of GM's situation is both understandable and indefensible. After all, they're the guys behind the wheel of a multi-billion dollar company launching a fleet of the wrong vehicles at the wrong time. And yet they're pathologically incapable of accepting this fact or, more importantly, its implications. I'm serious. This is not the usual corporate spin. These guys are delusional.

As TTAC's invitation to the SUV launch was lost in the mail, we make our diagnosis based on past history and reports in the automotive press– whose own inability to grasp the nettle is equally worrying (The Detroit News headline "Can new lineup of big SUV's revive GM?" should have preceded the world's shortest article.) According to AutoWeek, Mr. Lutz admitted that "It is realistic to assume that this segment won't grow". How about roll over and die? Not in Bob's world. "I think we may maintain our volume at other people's expense, even if the segment shrinks a little bit.'

May? If? A bit? These are not exactly bold words for a guy who flies military jets for fun. As we learned in a Fortune magazine profile of Rabid Rick Wagoner, Maximum Bob's optimistic sales predictions are the source of a great deal of humor within the GM Empire. When Maxi Bob is downbeat, it's time for the cemetery workers to get out the shovels. More to the point, Bob's use of the word "realistic" and "to assume" in the same sentence reveals that he's seen the enemy, recognized his own face and retreated to the executive washroom for a little pep talk with the mirror.

You'd think that Marketing Mark LeNeve would have a firmer grasp of reality, and you'd be right– in a roundabout sort of way. The Detroit News has LaNeve looking at GM's new full-size SUV's and conceding "This launch is critical to us." Note: LeNeve is not known for his arched eyebrow. Anyway, to quote the Sinatras, then he goes and blows it all by saying that I love you. After conceding that the jumbo-sized SUV market "may" contract, LeNeve asserts "This is a very large, very important and very profitable market.' If only he'd used the word "was"…

It gets worse. When confronted with their new SUV's gas-hoggedness, the GM poo-bahs pointed to their invisible friends: crossovers and alternative fuels. The Detroit News said Lutz was quick to point out that yesterday's big-SUV roll-out was only part of GM's "full-frontal product assault on the marketplace". The Car Czar revealed that GM will unleash eight new crossovers in the next four years. (Eight? How about one good one?) For his part, LeNeve reminded journos that GM's 5.3-liter V8 can run on ethanol, and announced plans to promote ethanol use in those states "with a lot of ethanol fueling stations". Both of them.

OK, look; I'm not a big fan of shooting fish in a barrel. But again, the automotive press just isn't holding GM's feet to the fire re: their monumentally stupid decision to spend billions rushing their '07 SUV's to market. To their credit, the Detroit News has sprinkled their stories with pithy quotes from industry Naysayers (Burnham Securities' analyst David Healy: 'To me, GM is kind of whistling past the graveyard.') But the press seems generally comfortable repeating the same old GM BS we've been hearing for decades: success is just a new model (or thirty) away.

Well it isn't. Everyone involved– executives, union members, shareholders, journalists and consumers– should admit and acknowledge that big ass SUV's are a dead genre guzzling. Unless GM can come up with a credible plan B in a hurry, they are completely screwed. Meanwhile, I'd like to know why we're only seeing pictures and descriptions of the new Tahoe. The preview included the new GMC Yukon, GMC Yukon Denali and Cadillac Escalade. I find it astounding that the automotive press would acquiesce to yet another product-related embargo at this critical moment of corporate crisis. It's a totally unacceptable abrogation of their editorial responsibility.

And where was Rick Wagoner?

By on September 15, 2005

Al Ries The GM Death Watch series has repeatedly asserted that The General has too many brands selling too many models, with insufficient focus on any level, with excessive overlap on every level. The very first DW entry, "GM Must Die", recommended that the world's largest automaker should be broken-up; its constituent parts deep-sixed and/or spun off into independent corporate entities. I figured the stance placed me well to the right of my fellow GM-bashers. And then I read Al Ries' Ad Age column, "The Sad and Unnecessary Decline of Saturn" and instantly realized I wasn't being radical enough.

Ries wrote that there are only two ways for a company to increase sales: expand the brand (with new products) or expand market share (capture more of the existing market with the existing product). The Atlanta-based marketing consultant asserts that market share is best. Once a brand captures more than 50% of its market, it's virtually unassailable. Ries cites McDonald's, Heinz ketchup, Microsoft, Tabasco, Rolex, Kleenex, Starbucks, WD-40 and Jello as examples of consumer brands whose market sector dominance insulates them from competitive pressure and obviates the need for brand expansion. [NB: variations within a brand's remit, such as Kleenex with Aloe, are not considered brand extensions.]

Ries' premise flies in the face of the commonly-held theory that an automaker's survival in today's "niche-driven marketplace" depends on a constant and steady stream of new models and variants. If true, Ries' argument makes a complete mockery of this week's auto show hysteria in Frankfurt. Indeed, all those struggling manufacturers promising a raft of new models to rescue their sinking fortunes (Mitsubishi, VW, GM etc.) are actually announcing their intention to drill new holes in their hull. As proof of his postulation, Ries takes a spin 'round Saturn.

At its peak in 1994, GM's "People First" division sold 286,003 vehicles. The figure represented the industry's best vehicle-per-dealer average: 960 cars. That year, Saturn S-series' sales accounted for 16% of the small compact category, second only to the Ford Escort. And then GM took its eye off the ball. Not only did they fail to update the Saturn S-Series– while the Honda Civic went through three evolutions– they also introduced an entirely new replacement, and then an SUV. The upshot? In '04, Saturn's three models totted-up 212,017 sales. That's 26% less volume than a decade previous, with sales per dealer down over 50% (483 units).

As Ries points out, conventional wisdom runs 180 degree counter to his analysis. The industry believes Saturn's troubles stem from a lack of a broad product range, not because of it. Ries cites the long list of insiders who sounded the clarion call to create a larger Saturn portfolio: Automotive News Editor Charles Child, Saturn boss Cynthia Trudell, her replacement Annette Clayton, and, of course, GM Car Czar Maximum Bob Lutz. All of them believed Saturn was languishing because it didn't have enough vehicles to capitalize on the brand's original success.

And now Saturn is finally getting the expanded model range it wants; including a sexy little roadster called the Saturn Sky. Which is basically the same car as the Pontiac Solstice. Which dilutes the strength of BOTH brands. In fact, the more you think about it, the easier it is to see the merit in Ries' supposition. We've always said it makes no sense for GM brands to compete with each other (ipso facto); re-badging the same vehicle for different marques is the worst kind of marketing insanity. But it also makes no sense for a brand to compete with itself.

An automotive brand selling a sedan, SUV and sports car asks consumers to connect widely disparate dots. The best ad campaign in the world must overcome the fundamental "Jack of all trades, master of none" inertia. And even if an automaker somehow fashions an over-arching message (e.g. The Ultimate Driving Machine), multi-branded companies are still stuck in the marketing mire. After all, if Saturn, Chevrolet, Cadillac and Buick all offer a similar range of vehicle types, the consumer will think– quite rightly– that the brands are more similar than they are different. Why bother with any of them?

Assuming Ries' has got it right, how far should carmakers take his idea that expanding market share is better than widening the brand's product line? If you apply the basic principle without fear or favor, Porsche should only be building sports cars (the Panamera sedan probably qualifies, but the Cayenne SUV certainly doesn't). Saturn should only be selling economy cars– if not just one car– and… that's it.

In a recent email, Ries said that he'd heard that there were only eight types of vehicles: pickup, SUV, sedan, sports car, etc. He suggested that GM's eight brands should all make one type of vehicle apiece. Now THAT'S what I call radical.

By on September 12, 2005

 Last June, Rabid Rick Wagoner unveiled his five-point plan to rescue The General. He promised to downsize GM's production capacity– then let normal attrition take its course. He promised thrilling new products– then accelerated production of gas-guzzling SUV's. He promised he'd cut union benefits– then didn't. He promised to end incentives– then launched the Employee Discount for All program. And lastly, Rabid Rick promised to build cars using cheaper parts made in China. This he's doing. Unfortunately, it's the one promise he shouldn't have made.

A quick reminder: China is a dictatorship. There is no freedom of speech, movement or association. There is no independent judiciary. "Workers' rights" exist entirely at the ruling party's pleasure. It is, in truth, a police state. On the positive side (at least from GM's point-of-view), the country has a large supply of men, women and children who are willing to toil on an assembly line for $1.50 an hour without legal protections, health care or a pension.

Let's put aside the moral issue of investing in a communist country– something consumers, the mainstream media and GM's stockholders seem happy to do. On the face of it, Rabid Rick's decision to improve the company's bottom line with low-cost Chinese labor is a no-brainer. If Chinese parts are up-to-snuff, who cares where they're made? Given a bit of time, GM could replace entire UAW-made vehicles with Chinese-made vehicles and poof! The US health care and pension crisis is gone. As long as American consumers don't kick up a fuss, as long as GM doesn't have to hit-up the US government (triggering embarrassing questions from union-supported politicians), they're golden.

Perhaps. Perhaps not. Imagine that President Hu Jintao and his mates suddenly decide that all China-based automakers should be owned and operated by The People's Republic, to create vehicles exclusively for the domestic market. Who's going to stop them? I'm sure GM's high-priced international analysts have officially discounted the possibility, but I wonder if they could name one communist/socialist country that HASN'T nationalized a key industry– including England (British Leyland) and France (Renault). In countries where the armed forces have a say in, um, everything, business conditions can change very, very quickly.

And what of supply lines? The challenges involved with producing key parts for the US automotive industry in an agrarian society that's 6637 miles and 12 times zones away from Detroit seems fairly major to me. Wayward ships, miscommunication, disease, political unrest, general disorganization– I reckon there's plenty of scope for a complete break in the supply chain. Did I mention military action or natural disaster? If the Taiwan situation heats-up, if the region suffers a killer tsunami or typhoon, I don't think Chinese cars or car parts will get first priority.

There are also daunting cultural issues. The world's best manufacturing facilities depend on feedback from the factory floor to eliminate waste, improve quality and create innovation. What are the chances that a class-bound, politically-repressed Chinese worker is going to be a "team player", as explained to him by a Western plant manager? The Chinese automotive worker's pay may be microscopic in comparison to a UAW member, but it's a fortune by local standards. Surely this imbalance places an enormous pressure on Chinese workers to keep their mouths shut in all situations.

Basically, GM is investing billions of dollars in an amoral, unstable, creatively infertile economic environment. What's more, they want their suppliers to do the same. On September 20th, GM purchasing poo-bah Bo Andersson will meet with the company's 250 top suppliers and "recommend" that they cut costs by opening more factories in low-wage countries– especially The People's Republic of China. Bo's suggestion will be backed by an 'aggressive restructuring" of GM's supply base. In other words, get on with it or goodbye.

Sometime before October 17th, parts supplier Delphi will file for Chapter 11, saddling The General with approximately $9b in legacy costs, and proving that managerial incompetence, union intransigence and corporate insolvency are a logical progression. But the correct response to this conundrum is NOT outsourcing to China. Non-UAW American companies have the technology, expertise, flexibility and will to produce parts right here in the USA that can meet or beat the price set by foreign-based operations– without a language barrier or the risks of dealing with a fantastically long supply chain and a totalitarian regime. And that's without any kind of discussion of quality, creativity. national self-interest or, God forbid, morality.

GM's desperation is leading it to reckless adventurism far from home. One way or another, the automaker will pay the price. As an ancient Chinese proverb says, distant water won't help to put out a fire close at hand. Or, more appropriately, once you climb on a tiger's back, it's hard to get off.

By on September 3, 2005

 You get a terrific view from the top of a roller coaster– but there's only one way to go. GM execs would have known the feeling at the beginning of August– if they were paying attention. They weren't. Despite all the experts' warnings, The General's top brass were too busy high-fiving each other over the 'success' of their Employee Discount for Everyone (EDFE) program, talking-up their plans to gently wean customers from discounts and incentives. Well hands in the air boys, the August sales figures are in…

Ward's AutoInfoBank reports that GM's sales are down 16.5%. [All figures cited are in comparison to August '04] Lest you think the results were a simple case of a sinking tide stranding all boats, Autodata reveals that the US automotive market as a whole rose 3.8%. While Daimler Chrysler and Ford eked-out small gains (1.2 and 1.4%), check out their Japanese competition: Toyota (+9.5%), Nissan (+10.6%) and Honda (+18.6%).

What happened? Truck and full-size SUV sales tanked. Although the media has been busy upbraiding consumers for daring to buy the General's discounted gas-hogs (ignoring their eco-moral responsibilities), the press gang failed to realize that the EDFE blowout was the last charge of the light truck brigade. Look at August's top 15 sellers and clock the change. Only two pickups and two SUV's made the list. More to the point, GM's entries on Ward's automotive hit parade were off a whopping 35.4% (Chevrolet Silverado) and 17.5% (Chevrolet Trailblazer).

August's big winners were relatively small cars like the Ford Focus, Honda Civic, Toyota Camry and Nissan Altima– still. Only more so. Sales increases for these vehicles were well into double digits. Although GM has three Chevrolet automobiles in play, two of these models lost sales and one remained static. The Pontiac Grand Prix was the only bright spot in the General picture, up a staggering 78.4%. One problem: the new G6 (developed at a cost of hundreds of millions of dollars) was supposed to be the bright star in the Pontiac firmament…

Obviously, post-Katrina gas prices will accelerate the trend away from low mileage leviathans towards more fuel-efficient vehicles– at the exact moment when GM expects its refreshed trucks and SUV's to carry the can. Of course, any company with 70 models will have a number of products appropriate to a conservation-minded climate. On average, GM's fleet is a fairly frugal bunch. But neither statement obviates the fact that GM has ignored clear and consistent signals that truck-based vehicles were a dead genre guzzling. The General's divisions are still lousy with pickups and SUV's, with no automotive cavalry waiting in the wings. Oops.

Not that you'll hear that expression from inside GM. They're too busy backpedaling from earlier assertions that rising gas prices would not damage their SUV-based plans to finally pull the company out of its tailspin. For months, GM has been insisting that its middle-class customers are insulated from high fuel prices. (No suprise there: The General delayed some mid-sized car programs to speed the launch of their full-sized SUV and pickup programs.) Now that the gas prices are disappearing into the stratosphere, GM's spinfolk are admitting that the cost of gasoline may have a "psychological impact". Spinelessly enough, they're implying that GM's current and impending woes will stem from of potential customers' misguided timidity, rather than The General's abject failure to adapt to market trends.

In any case, the debate over gas hogitude probably suits the suits. It draws attention away from the elephant in the room: sales brought forward by the EDFE. Every industry analyst worth his pocket protector has been saying that GM's summer sales bonanza was the result of customers buying sooner rather than later. Well, it's later. In fact, it's a lot later than GM thinks. The General's rivals are rapidly and inexorably siphoning-off GM's market share. Yet Rabid Rick Wagoner's mob have yet to downsize their operation or 're-negotiate' GM's onerous labor costs to match its dealers' diminishing ability to sell GM vehicles at a price that can generate a profit for the corporation.

GM's reaction to the latest crisis was predictable enough: they extended the EDFE program through September. More significantly, the program now includes many '06 models– a tacit admission that GM has abandoned its ambitious plan to leave their Wal-Mart image behind. At a press conference yesterday, The General's chief industry analyst entered England's understatement hall of fame. After calmly predicting that oil would eventually stabilize at an SUV-friendly $50 a barrel, Paul Bellew admitted that "September will be a challenge."

While GM clings to euphemisms for comfort, corporate carnivore Kirk Kerkorian made an equally predictable play: he bought more of GM's cheapened stock, raising his stake from 7.2 to 9.5 percent. Mr. K's spokesman said the octogenarian billionaire has "confidence in the company, the American auto industry and the US economy as a whole." And, no doubt, the wisdom of firing the boneheads who brought the world's largest automaker to its knees, selling off GM's assets and completely restructuring the business. Hang on folks; it's going to be a wild ride.

By on August 30, 2005

The buck stops here.  Ish.As I write, a group of Wall Street analysts are bunkering in GM's corporate HQ for an update on The General's recovery plans. The morning session will feature a PowerPoint pummeling entitled 'The Solstice Will Come out Tomorrow'. The post-prandial spin session will address the big issue: how GM plans to stem the torrent of red ink spewing from every corporate vein, artery and orifice. As TTAC was denied admission to the confab, we thought we'd Blackberry a few questions to our secret admirers…

1. When is GM going to cut UAW benefits?

Early this summer, Rabid Rick Wagoner stood in front of GM shareholders and solemnly swore to cut the automaker's 'legacy costs' (the communist era health care and retirement benefits enjoyed by current and former United Auto Workers' employees). The UAW responded by hiring an accounting firm to justify their intransigence, nickel-and-dimed dozens of hapless GM negotiators to the brink of insanity by 'exploring cost cutting moves within the existing contract', issued a press release expressing concern about the effects of high gas prices on GM truck sales and bought a Ford Escape Hybrid for their President.

For its part, GM has done… nothing. In fact, the company recently confirmed the status quo with a new contract at its Vibe-making California plant. All Rabid Rick's dark hints about unilateral action (emboldened by independent assertions that GM would win the inevitable court battle) have turned out to be nothing more than feeble posturing. Clearly, Wagoner does not want to trigger a company-crippling UAW strike. Clearly, he must.

2. When is GM going to cut its executives' salary?

While it's not a crime to draw a multi-million dollar salary when your company's swirling around the toilet bowl, the annual compensation paid to GM's top brass (Wagoner, Devine, Briggs, Cowger, Burns, Lutz, LaNeve, et al) gives the UAW the moral high ground. When push comes to shove, when the barricades are manned, the execs' high life will not play well in Peoria. GM's top brass should shred the class warfare card NOW, before the UAW can play it.

3. When is GM going to downsize?

With eight divisions deploying over 70 models, The General is still relying on the sheer weight of numbers to overcome its enemies' tightly-focused, niche-driven insurgencies (e.g. Toyota's Prius and Scion). While the sales chart proves that GM is winning battles, the company's continually decreasing market share and non-existent profits show that it's losing the war.

It's well past time for GM to cut the deadwood. Buick, Saturn, Pontiac, Saab– one or all must go, no matter what the cost in dealer lawsuits and/or UAW retaliation. Failing that, each GM division should be wrenched from the corporate tit; freed from administrative tyranny, corruption and waste. Each division's troops must learn to operate quickly, efficiently and, most importantly of all, independently. Platform sharing yes. Inter-divisional pencil pushing, no.

4. When is GM going to commit to no-haggle pricing?

The "Employee Discount for Everyone" program proved beyond a shadow of a debt that customers prefer pricing clarity to marketing spizzarkle. And yet The General is committed to returning to a bewildering combination of incentives, equipment packages and finance deals, now called "value pricing". While the promise pleases GM's profit-squeezed dealers, it will piss away the one thing that money can't buy: customers' good will.

5. When will GM make a car with a decent interior?

There's no question that many GM products now offer class-competitive build quality. There's even evidence that the company is beginning to understand what makes a visually compelling vehicle. But The General's complete inability to create a car, truck or SUV with an aesthetically attractive interior made from high-quality materials– from the Aveo all the way to the Cadillac STS– is symptomatic of its structural problems.

GM's ergonomic engineers are no worse than Audi's. They're just hamstrung by a monolithic bureaucracy that rewards penny pinching over design excellence. A car's interior is inextricably linked to perceived quality; get that right, and people will believe the company's 'best built' mantra. Car Czar Maximum Bob Lutz knows the drill, and was supposed to sort this shit out. He hasn't.

6. When will GM clean up its act?

GM is stuck in a vicious circle. Its leaders refuse to publicly acknowledge or confront its problems, which creates delusional behavior, which alienates customers and employees, which increase its problems. In other words, GM is lost in a forest of fundamental dishonesty.

For example, the Pontiac Solstice's launch is delayed. No one will tell the media why the delay occurred or commit to a new delivery date. Maximum Bob recently announced that Solstice production has finally started and handed over the keys to a couple of hundred buyers. Only customer deliveries haven't started, really. Dealers don't even have demonstrators. When will that happen? When will GM tell the whole truth about this, and their other challenges? About the same time Mr. Wagoner's mob finally finds its nerve– or unfurl their golden parachutes.

By on August 4, 2005

There will be no white flag upon my door.   It may not have escaped GM watchers' notice that The General has just announced that it's selling 60% of the General Motors Acceptance Corporation's (GMAC) commercial mortgage division. This after agreeing to sell $55b worth of GMAC car loans to Bank of America. The bottom line is clear: The General is hawking the family silver. The only solidly profitable part of the entire corporation is being sold off piecemeal to increase GM's liquidity. It's the long-predicted beginning of the end.

Before we explore GM's rationale for the sale, it's critical to note the commercial division's new owners: Kohlberg Kravis Roberts & Co (KKR). This hugely profitable investment firm practically invented the leveraged buyout. KKR's MO: raise money through junk bonds (ironically enough), buy a large company, sell off underperforming assets, restructure the core business, cut costs and, eventually, re-sell the new, leaner company at a huge profit. KKR has sliced and diced Texaco, Gillette, Playtex, Beatrice, Safeway, Borden, Samsonite and Toys 'R' Us.

More importantly, in 1988, KKR engineered the largest leveraged buyout of all time. They bought RJR Nabisco for $25b. Are you thinking what I'm thinking? KKR's purchase of GMAC Commercial could be the curtain-raiser for buying GM. Obviously, T-TAC is not the only organization which understands that GM's eight divisions would be more profitable if they were independent entities. By the same token, aggressive brand consolidation would also offer greater earnings potential than GM's current corporate cluster fuck. KKR is exceeding good at implementing both strategies.

Of course, the largest obstacle to aggressive restructuring of The General's fiefdom is, without question, the United Auto Workers. No matter who owns GM, the UAW isn't going to play ball until its contract expires in 2007. Even then, they'll fight any pay or health care reduction, restructuring of working practices or elimination of job protections. There's only one way to shuck the union straight jacket: Chapter 11.

Under Chapter 11, GM could seek "protection" against all its union obligations. The company's management could restructure the corporation to the court's content. Given that GM is haemorrhaging $4b per year, the unlikely popularity of GM's latest truck-heavy model line-up, the imminent demise of the sales-sucking Employee Discount for All Program, and the looming prospect of GM assuming $9b of Delphi's pension and retiree health care obligations, the bleeding may worsen. It's a race between management's attempts to stave off bankruptcy and a rushing tide of red ink.

By selling GMAC, GM is literally buying time. No doubt the current management has a new, improved rescue plan that requires an additional five years or so for full implementation. No doubt Rabid Rick Wagoner really does mean to confront the union over health care benefits… eventually. But the torpedo boats are circling. Lest we forget, Kirk 'Tree Shaker' Kerkorian owns a big slice of the action. While we've heard nothing from Mr. K's Tracinda Corporation, it's entirely clear who's management style jibes with his, and you won't find them at GM's Renaissance Center. At least not yet.

There's only one way GM's current management can hang onto their jobs/save the company/avoid a leveraged buyout: trigger a UAW strike and tough it out until they can hammer out a new deal. All Rick would have to do is cut the UAW's health care benefits unilaterally. Of course, surviving a company-wide strike would require a HUGE war chest– which GM is currently acquiring by divesting itself of GMAC.

Could GMAC's forthcoming dissection be part of Rabid Rick's secret end game? That theory pre-supposes that Mr. G Rick Wagoner Jr. is willing to subvert– indeed annihilate– the corporate culture which hired him straight out of Harvard Business School, and put tens of millions of dollars in his pocket. So, no; Rabid Rick and his minions aren't cunning or brave enough to use the nuclear option. They really do think they can produce a turnaround within the current structure– which is a more and more ridiculous idea with each passing day.

The real question here is the same one posited by Wall Street's Mr. Gekko. Is greed good? Is America better served by the elimination of the jobs-for-life, one-big-family ethos that is, was and can no longer be General Motors? Is it better for America's largest automaker to serve shareholders' and consumers' interests than the workers'? Hell yes. Post Chapter 11, GM will arise Phoenix-like from the ashes as a leaner, meaner, keener company. And if it doesn't, it will make room for those companies that are. Such is the way of evolution, which will not– CAN not– be denied.

By on August 3, 2005

Will customers enter the new GM matrix?  I should have seen it coming. How could GM flog its remaining '05 cars, trucks and SUV's at anything other than the Employee Discount for Everyone (EDFE) price? As we've said here before, you can't very well raise the price on an old product when its replacement is heading down the pike. Besides, Ford and Chrysler are continuing their Grab Your Checkbook and Work for Us programs through the summer. So the extension of GM's EDFE program until September 6th makes perfect sense. My bad for believing GM's public promises.

Speaking of which, The General is revving-up its "Total Value Promise" program. That's right, GM's post-fire sale 'Value Pricing' program has evolved. Originally, The General was simply going to lower '06 sticker prices to reflect the products' actual purchase price after [what would have been] incentives. Now, the automaker is saying they've "lowered prices, added features or redesigned over 50 GM models" so "you get more without paying more on the cars and trucks you really want."

The Australian children's entertainment ensemble will be well pleased; never in the course of corporate history has a company created so much wiggle room. All that's missing is the conjunction "and/or"– and you just know it's there in spirit. More specifically, a new GM product might have a lower sticker, or new features for the same sticker, or new features for a lower sticker, or a redesign with new features for the same sticker, or a redesign without new features for a lower sticker, or… the mind boggles. And that's before regional discounts or cash back allowances.

I'm also more than a little impressed by the phrase "on the cars and trucks you really want". What about the cars and trucks people DON'T want? I thought the whole point of incentives– I mean 'a value promise' was to off-load the losers. Correct me if I'm wrong, but isn't the new Chevrolet Corvette one of those cars customers "really want"? And wasn't it excluded from the EDFE program? No wait, the 'Vette's been redesigned, so GM draws a "Get Out of a Lower Sticker Price Free" card. But hang on, the 'Vette was redesigned for '05. Does that mean the new Value Promise is retroactive?

Confused? So what else is new? GM singularly fails to grasp the fact that the public's imagination was captured by the EDFE program's simplicity. The "You pay what we pay" message eliminated most of the confusion and stress of wading through the incentives morass. EDFE wasn't a return to Saturn's old no-haggle pricing, but it was damn close. (One suspects many EDFE customers treated it as such, much to dealers' delight.) The EDFE elevated The General in its customers' estimation, allaying their suspicion that all those complicated incentives were designed to fool them into thinking they were getting a bargain when they weren't.

Which was true. The only way you can judge a car's value is by comparison. It's no coincidence that GM products' official sticker price has been higher than their direct competitors'. That way GM can take money off the 'suggested' retail price to bring the GM product down its competitor's level AND make it seem like customers are getting a "deal". For example, in 2005, the Pontiac Vibe stickered for $1k more than the Toyota Matrix, leaving a nice pad for discounts. Will the Value Promise program end this faux inflation? It's doubtful.

Before Value Pricing morphed into "We Give You Our Word That This Price Represents Excellent Value", pundits were saying that the move towards realistic stickering was motivated by the Internet. GM's official prices supposedly put them at a disadvantage during electronic price comparisons. Not true. The General's websites include a program that calculates post-incentive pricing. More importantly, savvy web shoppers have been heading for sites like to scope the dealer invoice for quite some time. Which they will continue to do, Value Promise or not.

The point is this: GM didn't so much miss the honesty boat as get on it and then hop off mid-river. If The General had created a program in the spirit of EDFE, they would have capitalized on the public's good will. The Value Promise pisses on pricing clarity and further sullies GM's rep. No doubt the program will succeed in some cases, and fail in many others. Creating a class-leading product that makes its competitors look over-priced is the only strategy that works in every case. Hey Rick, what are the chances of THAT happening?

By on July 31, 2005

Anyone care to pay full sticker for one of these bad boys?And so General Motors turns to 'value pricing' to maintain the momentum created by its now defunct Employee Discount For Everyone (EDFE) program. OK, so what the Hell is value pricing? 'Value' is a subjective term. Stick it front of the word 'pricing' and the phrase simply indicates that someone somewhere thinks that a particular price is fair. Whether or not customers agree with The General's assessment will be revealed in a month or so. Meanwhile, let's try to find the truth behind this slippery concept…

This is what we know for sure: the official sticker price for GM's '06 models will be lower than the official sticker price for its '05 models. Whether or not the new sticker price will be significantly less than the EDFE price, or the pre-EDFA discounted price, is not yet clear. (To refresh your memory: the EDFE price represented a large discount from the official sticker price, but a relatively small discount from the actual, discounted price available before the EDFE program began. In a few rare cases, the EDFE price was actually higher than the discounted price.) More importantly, The General swears it will no longer slash prices to chase turnover and market share. The fire sales are finished.

It's a gutsy move. GM is betting the farm that it can create an enormous shift in consumer expectations. The General wants potential purchasers to ditch the idea that GM is the Wal Mart of automakers, where everything is always on sale and price is, let's face it, the main reason you came into the store in the first place. From now on, they want customers to see GM as an automaker who sells real value: excellent cars at an excellent price.

It won't work. First of all, GM does not make excellent cars. While virtually all of its 80 models [now] qualify as worthy, hardly any of them excel in relation to their rivals. If GM tries to sell a Chevrolet Aveo based on anything other than its low price, they're heading for trouble. Unfortunately, the same limitation also applies to everything from the Chevrolet Impala to the Cadillac CTS. Aside from the Pontiac Solstice, Chevrolet Corvette and Hummer H3, GM's products lack the spizzarkle, the killer app, the USP they need to stand apart from their competitors and say, 'Don't worry too much about price 'cause we're the best.' When customers see your products as roughly equivalent to the competitions', price-based comparison shopping is both inevitable and unavoidable.

Second, GM is ignoring the supply side of the equation. The General is locked into union contracts which make it virtually impossible to stop making cars; they have to pay the workers full freight regardless of plant closures. There's no escaping the implications: as soon as supply exceeds demand, the market value of those cars drops. Lest we forget, GM launched the EDFE program to clear enormous inventories of unsold cars. If GM swears off discounts and cars pile up they'll have to… what? Let them rust into the ground on abandoned airfields? Crush them? Anyone who bets against some sort of clearance sale isn't playing with a full deck.

Lastly, The General is lying. According to spokesman Jeff Kuhlman, GM will continue to run regional incentive programs, which might include rebates, dealer cash or cut-rate financing. Huh? Since when is a regional incentive not an incentive? That's a distinction without a difference. What's more, GM is happy to point out that the 's' in MSRP stands for 'suggested'. If a GM dealer wants to sell a vehicle for less than the 'value-priced' sticker, well, that's just the way it is.

GM's new 'value pricing' strategy does not, in fact, signal an end to The General's cut-price mentality. It's a cynical concept designed to hide the fact that GM's limbo dance will continue apace. If GM REALLY wanted out of the bargain basement, they'd bully their dealers into introducing no-haggle pricing; that's the element of the EDFE program that made it work.

In any case, there's no getting around the fact that any product is worth exactly what someone will pay for it. No more, no less. As long as the cost of its products exceeds their market value, The General faces the prospect of being 'value priced' out of business.

By on July 21, 2005

copyright GM's second quarter financial results prove what we've been saying all along: sales do not necessarily equal profits. Thanks to its Employee Discount for All program, The General's turnover climbed by a staggering 47%. The automaker's US market share rose to 30%. And yet GM lost another $1.2b, which is nearasdammit the same amount they lost last quarter. Add up cash reserves, marketable securities and available assets (from an employees' healthcare trust no less) and The General has about $20.2 billion in the bank. Simple math says that GM's US division will be completely bankrupt in a little over four years.

Of course, that assumes a steady burn rate. It's entirely possible that the automaker's fire sale has sucked-up most of the cash from GM's customer base, leaving a diminished market for new products. These new whips will have to kick some major league ass (i.e. Toyota et al) to stave off an even more precipitous earnings slide. And again, that's income. GM's expenditure is still wildly out of control; despite Rabid Rick Wagoner's public pledge to hold the union's feet to the fire on health care benefits, he, um, hasn't. There's no word about containing equally onerous (though less publicized) production, labor, management, administrative, inventory, distribution and marketing costs.

At some point, the situation will reach a tipping point, where everyone from suppliers to politicians will realize that the Titanic isn't going to make it. The words coming from the Chief Financial Officer's poop deck are hardly what you'd call reassuring: 'We have not put targets and we've not put dates on a North American recovery plan, but believe us, we have those targets internally.' So that's alright then. If the lifeboat known as GMAC finance is sold, you can expect the resulting panic to greatly accelerate the main company's demise.

But even if GM's profitable divisions are retained until the very last, it's highly unlikely that GM shareholders will simply stand by and watch the world's largest automaker slip into Chapter 11. When the ship's lights start flickering, Wagoner, Lutz, LaNeve and the rest of the current crew will be cast adrift. Divisions will be shuttered, plants terminated, product lines scuttled, unions confronted, assets sold. In fact, the rescue plan will be pretty much what it should have been five years ago. While you can't blame a Neanderthal for not winning a MacArthur genius award, watching this once proud company creaking and groaning towards a watery grave is as depressing as it is predictable.

The GM story has all the inevitability of a Greek tragedy. While the ending is never in doubt, the tale's twists and turns are endlessly fascinating. Consider Pontiac. While other GM brands managed to (at least) clear out lots of unsold inventory, and some even gained traction (Hummer sales up by over 200%), the Chief's sales were down 14.1%. Meanwhile, Pontiac's secret weapon is stuck in the lab. When the division recently announced that the Solstice would appear in showrooms this August, beleaguered front liners shouted huzzah! Yes but… actual, honest-to-God customer deliveries are still delayed until fall. Oh well.

Pontiac's misfires are yet more proof of the axiom that character is plot. The reason that Pontiac is a dead brand waiting is that it's just one facet of a corporation suffering from multiple personality disorder. In other words, there is no way on God's green earth that GM can make eight– count'em: eight– carmaking divisions fire on all cylinders all at the same time. Even if one or two members of GM's portfolio suddenly become wildly successful– a fair proposition given the law of averages– the others will take the resources generated and piss them away. There will always be a crisis somewhere in The General's ranks. It's a no-win situation.

Need proof? Look overseas. GM's European operations posted a $37m profit. It's not great, but a profit beats a loss every time. So why is GM Europe floating while its US parent flounders? European labor costs are worse than America's, and governmental taxation and regulation is on the far side of burdensome. But GM Europe doesn't sell eight different brands. Vauxhall [UK] is a single strong brand with a coherent message and worthy products. Ditto Opel on the Continent. These companies have focus.

Of course, that's changing. Chevrolet/Daewoo is planning a major European expansion, Cadillac wants to play on the world stage, Saab fancies its chances and… The trick to avoiding tragedy is to be the master of your own character. Clearly, GM is hamstrung by its hubris, and, ultimately, defeated by self-denial.

By on July 13, 2005

Photo courtesy AutoWeekSo, GM car Czar Bob Lutz breaks cover again. This time, Maximum Bob strolled into the offices of AutoWeek to face a grilling from the magazine's [unnamed] editor. Well, maybe not a grilling; more like a few minutes in a reasonably warm room with his coat off and feet up. In fact, the rambling and less-than-grammatical nature of Max Bob's replies to AutoWeek's underhand lobs indicates some kind of no-edit deal with the mag. Presumably, what we're getting is unvarnished Lutz. It's pretty scary stuff.

After a bit of warm-up softball, we get down to the main event: branding. In two of the longest, most 'puddle of consciousness' paragraphs ever posted on the web, Bob provides a guided tour of the magical mystery maze known as GM's branding strategy. [NB: Immediately after this editorial appeared, Autoweek removed its interview with Mr. Lutz from its website.] "I don't want to start a debate" the Editor begins, leading with his chin, "but how many divisions are adequate to cover the market?"

Max Bob immediately attacks GM's critics for double standards. Why accuse The General of excessive divisionality when Toyota has plenty of brands: Scion, Toyota, Lexus, Daihatsu and "I don't know what else"? Hmmm. Although Toyota bought Daihatsu in '99, the company's US operations died in February '92. In its quarantined capacity, Daihatsu isn't exactly a threat to GM's subs. And if Max Bob really doesn't know "what else" GM's arch rival has in its arsenal, well, that's not good– especially as there IS nothing else (excluding Hino commercial trucks and busses).

Adding insult to apathy, Bob goes on to list the VAG group's brands: "Volkswagen, Audi, Goldan, Bentley, Lamborghini, and I probably forgot one or two along the way." You can forgive Max Bob for forgetting Bugatti (as they've forgotten to deliver the Veyron), but you'd hope GM's Vice Chairman for Global Product Development would remember SEAT and SKODA. And who the Hell is Goldan? Maybe Maximum Bob said "Gol dang Bentley", and Autoweek's transcription service heard a more palatable (if imaginary) homonym.

When Max Bob finally turns his attention to his employer's lineup, he declares that Chevrolet is "the essential", Cadillac is "very clearly needed" and Hummer is "expandable". And then Bob's off, chasing cheese in the labyrinth, banging into dead ends at every turn. To wit: "When I say Pontiac should be more BMW, it should be into the niche of somewhat outrageous, aggressive performance. Will a Pontiac obtain a level of perfection of a 3-series? No. That's Pontiac's story."

I think I missed a few chapters. Perhaps Max Bob is trying to say that Pontiacs should be more like BMW's, but only somewhat, because Pontiac doesn't have a hope in Hell of matching BMW quality and engineering at its presumed price point. I'm not sure. In any case, Max Bob's remarks aren't exactly what I'd call a rallying cry.

On the Saturn front, Max Bob posits a philosophical question: "Why do we have to pick between great cars and lousy dealers and great dealers and uninspired cars? What would happen if we put the two together?" Excellent question, but why it applies to Saturn any more than any other of The General's seven other domestic brands is an even better one. Perhaps MB simply forgot about them. After revealing that Yukon-Denali buyers have more money than Escalade owners, Bob says, "So those are basically the brands now, what do we do with them?" Hello; what happened to SAAB?

We later learn that "Saab has a good future, but the part of the future that had to be changed was operating Saab as an independent car company. It just made absolutely no sense, so you've probably seen the announcement that we're establishing a Saab control center. It is sort of like the keepers of the Saab flame."

It's sort of like, you know, frightening; hearing Max Bob admit that GM brands can not act as independent car companies. For one thing, this Saab story makes a mockery of Marketing Mark LaNeve's pledge to eliminate product overlap (i.e. badge engineering) across the GM Empire. For another, genuine independence gives an automotive brand its character (hence GM's lack of same). When Lutz goes on to say that Saab has "never really been totally able to develop their own cars", he's either being disingenuous or pissing on Saab's heritage from a great height. Either way, it doesn't bode well for the Swedes.

In fact, MB's Autoweek appearance gives us no reason to revise our opinion of GM's prospects. Not that his words mean much; it's the next round of Lutzerific vehicles that will tell the tale. If they don't cut the mustard, if they can't be sold at a reasonable profit, The General will continue its inexorable slide into bankruptcy. At that point, Max Bob will regret his words, especially this classic example of hubristic doublespeak: "I don't think we have a lot of over-capacity. What we have is under-demand."

By on June 29, 2005

The hybrid-powered GMC GraphyteOpening up a recent issue of Autoweek, I was astonished by a picture of a new SUV. The vehicle's design was clean, modern and butch, without the slightest hint of off-roader clichés or overarching futurism. The newbie's sheet metal instantly trumped the latest crop of SUV's: the hideously-nosed Subaru Tribeca, the narcoleptic Saab 9-7x and the ungainly Audi Q7. I was even more astonished to see the GMC logo on the stunner's snout. When I saw the words "Hybrid Fever" in the title, I was ready for a big plate of humble pie.

The GMC Graphyte is, I soon learned, a concept car; though not in the Chrysler sense of the phrase. It's not an SUV that will eventually appear at your local dealership in roughly the same form. It's more like "here's something we spent a lot of money on to distract you from the fact that our next generation of trucks is just like the current generation of trucks with slightly better everything, but nothing particularly interesting, and certainly no killer ap like a really good hybrid engine." In other words, if you think GM has a secret weapon waiting in the wings to counter Toyota's inexorable march towards replacing The General as the world's largest automaker, dream on.

A gorgeous shape with tremendous emotional appeal.    In fact, Autoweek let slip that the Graphyte is a sham. The demo SUV was powered by the same old GM iron– despite the plastic cover proclaiming it a hybrid. "We later learned that actual prototypes are out in the real world doing engineering tests…" So no one at GM told Autoweek that the demo SUV had a gas-guzzling V8 until AFTER they drove it? You couldn't ask for a better illustration of the dishonest desperation infesting The General's ranks.

By the same token, Autoweek brings no glory to itself for saving that crucial factoid for paragraph ten, and accepting GM's contention that the engine in question even exists. The truth's late entry into the game can be attributed to the length of the author's pro-GM intro. After accusing hybrid supporters of Stalinist tendencies, the writer reveals that "insiders at GM… admit to not appreciating the emotional appeal of the segment" and "GM expects to become a major player in the model years 2007 and 2008." Translation: GM didn't make hybrids because they didn't realize its customers are such PC morons, but now they do."

An engine cover does not a hybrid make. Heads-up guys! Since when is a car NOT an emotional purchase? Are we to believe GM's product planners are in tune with the emotional appeal of a gas-guzzling Cadillac Escalade, but couldn't get their heads 'round the idea that consumers are willing to pay a premium to do their bit for America's energy independence and the environment– even if their assistance is only marginal? And again, where's the hard evidence that GM's "next generation" (read: late but superior) hybrid technology is ready for MY '07 or '08? If the powerplant ain't in the Graphyte right now, what are the chances it'll be market-ready in just two years?

To its credit, Autoweek understands the reasoning behind GM's continuing reluctance to fully commit to hybrid technology. The magazine repeats the anti-hybrid argument I've heard coming from The General's command post for some time: hybrids are merely halo cars, media-friendly anomalies that burnish a carmaker's green rep but have little appeal to the majority of American car buyers. Autoweek cites an oft-quoted JD Power survey predicting that hybrid-powered vehicles will carve-out a 3% market share by 2012. So it's just not worth it.

Want one?  Can't have it.  Ever. Older readers may remember similar arguments when Japanese imports first arrived on US shores. "Nobody wants those small, cheap cars except a few pot-smoking liberals and poor people.' Well, it didn't turn out that way– especially after the Arab oil embargo changed the rules of the game. This time, GM has failed to recognize that 911 has triggered another sea-change. More and more US consumers want hybrids, and they want them NOW.

Check this: GM just released a study revealing that 39% of Americans believe that improving gas mileage and reducing vehicle emissions should be our top energy priority. Does that sound like a hybrid market to you? GM's response: the poll shows the need to tell the public about our work developing fuel-efficient vehicles and our research into vehicles powered by hydrogen fuel cells. Wrong answer. Graphyte mock-up or no, GM needs to realize that the time for talking is through.

By on June 25, 2005

 Winston Churchill called it the phony war: the period between the Nazi conquest of Poland and their assault on Belgium, The Netherlands and Luxemburg. During these eight months, millions of English subjects believed they were safe from the storm clouds of World War Two. By the same token, tens of thousands of GM employees believe that The General's future is assured, regardless of recent financial 'unpleasantness'. Military historians don't tend to use the phrase, but both groups can be characterized by the expression 'living in denial'.

For those with the courage to look, ominous signs are everywhere. Last month, Rick Wagoner stood in front of his shareholders and promised to end the incentive programs crippling GM's profitability and knee-capping its branding. Instead, The General's general launched the largest incentive campaign since 'Keep America Rolling'. In addition to the usual problems, 'Employee Discounts for Everyone' may be pulling GM buyers forward, rather than winning conquest sales. If so, the ranks of potential GM customers will be perilously thin come winter. Meanwhile, Rabid Rick is fully committed, extending the Employee Discount program beyond the July first deadline. Log this one under "friendly fire, ongoing".

At the same time, Rabid Rick's public pledge to cut the United Auto Workers' health care benefits got lost in the fog of war. First GM's top brass set a July deadline for union concessions. Then the UAW's Supreme Commanders broke radio silence, warning their employers they would not tolerate having their feet held to the fire. GM back-pedaled furiously, denying the deadline's existence. Ford suddenly weighed-in, proclaiming that any UAW concessions to GM must also apply to Ford– completely eliminating any chance of a union roll-back. So GM and their union 'partners' are still eyeing at each other over the parapets instead uniting to save their common homeland. Log this one under "with allies like this…"

And then there is the weaponry. GM is counting on new products to [eventually] save the day. Unfortunately, the messages coming from GM's R&D department are, at best, garbled. For example, GM desperately needs a new rear-wheel-drive platform to compete against the increasing and ongoing success of competitors' RWD products, like the Ford Mustang and Chrysler 300. Or not. In April, GM killed its Zeta rear-wheel-drive platform. Last week, The General changed its mind, hinting that they might [eventually] cobble together a modified 'Zeta lite' platform to underpin new RWD products. That's 'might'. What's more, if GM gave its engineers the green light today, we wouldn't see the fruits of their labors until 2010.

Once again, GM will arrive at the field of battle years after the competition has established territorial dominance (e.g. the HHR vs. the PT Cruiser). But even if The General wins the battle, it's losing the war. A new study by Merrill Lynch concludes that GM is failing to update its products frequently enough to win the hearts and wallets of tomorrow's new car buyers. "Car Wars 2006-2009: The Product Pipeline and its Investment Implications" reports that The General will replace just 16% of its vehicles in the next four years, as compared to 30% and 21% for Korean and Japanese automakers. GM will be outgunned AND outmaneuvered.

Of course, The General dismissed the report. Spokesman Tom Wilkinson said that Merrill Lynch's findings were based on "data we try to keep secret" [note to counter-intelligence: must try harder]. And anyway, GM's got some 80 models out there; replacing them is more difficult for GM than its less prolific foreign competitors. Well EXACTLY. While it's certainly refreshing to hear a tacit admission from GM that its operations are too bloated for today's niche-driven marketplace, it's not exactly news. Insiders who believe that the next round of new GM vehicles (currently being hurried into production) will be enough to fend off its enemies' expert skirmishing should look away now.

When Britain signed the Munich agreement in 1938, appeasing German aggression, Churchill, then an MP, didn't mince his words. "We have suffered a total and unmitigated defeat." It was Churchill's ability to confront danger and disaster head-on that identified him as England's future savior. That said, England entered the war with a global Empire and emerged a pale shadow of its former self, stone broke. And then, gradually, it rebuilt. Is it too much of a stretch to imagine that GM will eventually suffer a similar fate?

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