Titanic or Turnaround? - Brief Article

Automotive Manufacturing & Production, Feb, 2001 by Brett C. Smith

The folks at GM are at it again. They have assessed their situation and figured out that they are still sinking fast. It has been 20 years of poor planning, failed re-organizations, and yes, most importantly, lost market share. Starting with look-a-like downsized cars of the early 1980s, the CPC-BOC reorganization, the Chuck Jordan-Wayne Cherry design era, through the failed Brand strategy of the late '90s, General Motors has floundered under the direction of its less-than-inspiring leaders.

As leadership realizes the company is in dire straits--for the fourth or fifth time in the last couple of decades--one must wonder whether this is the final farewell. Or, at least, the final farewell for the General as the U.S. market share leader. As 2000 closed, Ford Motor was nipping at the (slow moving) heels of the General and threatening to pass it in U.S. market share.

The announcement in mid-December that GM would eliminate the long-floundering Oldsmobile brand was the most-visible signal that the company has realized the depths of its problem. Much has since been written about the demise of an American icon. Obituaries have talked of the great Oldsmobile Rocket engines, the front wheel drive Toronado of the '60s, and the not-so-great advertising and products of the past 20 years. Certainly the attempt to move to a younger customer base was a failed one. Yet maintaining the traditional base would have also led to disaster.

The loss of the Oldsmobile brand--one of the most fabled in American automotive history--was not the only end of the year news from the General. It also announced that it would reduce its product portfolio by up to 20%. Yet within the next few months, the company is adding the new Buick Rendezvous, the Chevy Avalanche, and, later this year, the new Saturn SUV. Certainly the elimination of the Olds line-up will account for a major portion of the portfolio consolidation. However, if they are going to reduce the number of products offered--and all agree they need to--there needs to be continued drastic actions. A 20% reduction in the product is a step forward, but it still leaves too many products and too many divisions.

The brand that appears to be most readily jettisoned is GMC. As Cadillac introduces the new Escalade, a new Avalanche-based four-door pickup and a Sigma-based SUV, there doesn't appear to be a need for a brand between the Chevy trucks and the luxury Cadillac brand. Yet GM is working hard to differentiate GMC from Chevy and Cadillac. General Motors continues to pour money into developing the 'Professional Grade' image for GMC, yet few outside of GM are aware of the image. GM can argue that the image will be better defined as the new products come to market, distinguishing themselves from the Chevy and Cadillac counterparts--but given the company's recent history, few expect them to pull it off, and if they do, at what cost?

A reduction in products will mean at least a temporary drop in market share. But it is likely that those resources saved by the reduction could allow for increased emphasis on the remaining products and divisions, thus recovering at least a portion of that lost share, but at a higher level of profitability. That is, of course, if it those freed-up resources are invested wisely--something that could be considered less than likely, given past performance. But as any prospectus states, past performance is not necessarily an indication of future performance.

According to Rick Wagoner, General Motors has seen the light, and they are ready to make the changes required. I hope so: a lot of good people work at GM. Unfortunately for them, they work at a company that hasn't seemed to encourage progressive, proactive thinking for several decades. Wagoner appears to be willing to change that. If not, get used to referring to Ford as the new king and GM as the former market-share champ.