Beware the Waking Giant - Brief Article - Editorial

Automotive Industries, July, 2000 by Andrew Cummins

This is not the GM of William Durant ...

I've warned people in this industry to "beware the sleeping giant" and they looked at me like I had two heads. Well, its too late, He's up, he's flexing his muscles, and he's on the move.

In a recent three-day seminar in Brescia, Italy, General Motors brushed off the cobwebs, established Rick Wagoner as the true leader of the world's largest corporation, and unfolded an aggressive business strategy to recapture its global dominance.

Addressing an august group of 53 top automotive journalists and 13 financial analysts from around the world, Wagoner and the GM Senior Management Team very succinctly stated GM's vision. This vision is to reestablish leadership in core automotive businesses globally and to leverage the company's size and expertise to create new business opportinities around their existing customer base.

To enact their plan, GM will rely heavily on its expanding e-businesses as well as its global-alliance strategy for growth in emerging markets. Indeed, at this writing, GM -- in partneship with Fiat -- has made a bid for the coveted Daewoo prize in South Korea. Why Daewoo? Because the South Korean marketplace offers extremely strong growth potential in the coming years. Its share of the global automotive industry is expected to double from 1.5 percent to over three percent by the end of this decade.

Combined with China, Brazil, India, Thailand, Mexico, Poland and Russia, this market conglomerate is expected to account for nearly 60 percent of the automotive industry's growth over the next decade. To try to outline GM's strategy for global penetration in this editorial would be like trying to map the human genetic code on the back of a napkin. Sufficient to say, it will be through its strategic global alliance plan, not through outright acquisitious.

This is not the GM of William Durant, who acquired 25 companies between 1908 and 1910 with a total lack of coordination and accountability and no synergies. This is the GM of today with a strong leader and a cohesive team of dedicated professionals who share the same goals and visions. Their vision is to attain a 28 percent global market share; six to eight percent annual revenue growth; five percent net income margin overall; 15 percent RONA; and top quartile stock price performance.

I like the "new" General Motors. I'm not sure I understand the global alliance philosophy versus the outright buy-and-be-done-with-it scheme. I do recognize the economic advantages of preserving cash, gaining market share through alliances with market leaders, and expanding global penetration in existing as well as emerging markets. The part I don't totally understand is how they create efficiencies, reduce costs, and increase margins without integration and redundancy reductions.

Is GM on an aggressive track to reassert itself as the world leader in the automotive industry? Undoubtedly Do they have the wheels to do? I think so. Is this the right team, and is Rick Wagoner the right guy? Without a doubt.

But they still face tremendous global challenges. GM, like the rest of the industry, is forced to work in a developing world. The new generation of car buyers has a different set of values and concerns than the Buick drivers of old. They're under a tremendous time squeeze, they face increased environmental issues to ensure their quality of life, they're inundated with technology, and they seek the perpetual fountain of youth It's a new world out them for today's designers and marketers of modern transportation and its is changing at light speed.

As auto companies move into the emerging markets, they are confronted by not only a consumer who can't afford to buy their product but also an economic/political environment that could ultimately cost the company billions of dollars. Personal transportation to many is a bicycle and the infrastructure to support more than two wheels has yet to be designed, let alone built. In short, it's a long and winding road of uncertainty.

So what's GM's response to this uncertainty? Full speed ahead because the rewards far exceed the risks. The giant awakens.

Andrew Cummins is Editorial Director of Automotive Industries.