Fixing GM is an Escalade-sized job

Posted by: David Welch on April 21, 2006

First, the good news about General Motors. Though the company did lose more than $500 million in the first quarter, its losses are half what they were a year ago. Its European operations are starting to make money. There are even some good sign in the home market, where most of its financial troubles are coming from.

Some new GM vehicles, like the Chevy Tahoe, GMC Yukon and Cadillac Escalade large suvs are doing very well. Dealers say they’re hot sellers and buyers are paying as much as $7,000 more per vehicle than they did for the old utes. The Hummer H3 is also a hit.

The bad news is that GM still has many of the same problems that pushed the company into the mess it is now trying to escape. The first-quarter improvements came in large part from a $3 billion jump in revenue in North America. GM Vice Chairman and CFO Frederick A. “Fritz” Henderson says about one-third of that jump came from the new suvs.

With gasoline prices headed toward $3 a gallon, sales of big suvs are threatened just like they were a year ago. Sure, GM has the best and newest full-size suvs on the market. That helps them protect or even improve its two-third stake in a profitable business. But it’s a shrinking business. GM’s lifeline is still exposed to fuel prices—something which is well beyond management’s control. Henderson says in GM’s car business, many buyers are switching from V-6 engines to thriftier 4-cylinder motors. That’s proof that gas prices do affect buyers.

The only way for GM to hedge against gas prices is to sell more crossover suvs—which is where the real action is these days—and cars. GM does have crossovers coming soon, but none of them are mid-sized car-based suvs like the Toyota Highlander or Mazda CX-9.

And its car portfolio? The Buick Lucerne and Chevy Impala are quite nice, as is the soon-to-be-launched Saturn Aura. The problem there is that none of those vehicles—while competitive—are seen as best in class. The brands that sell them have image problems and GM doesn’t have the marketing cash to support all eight of its divisions. Saturn dealers in the coastal markets—where imports dominate—complain of being shouted out by foreign brands because they don’t have enough cash or advertising to cut through the noise made by the competition. One GM exec conceded to me a few weeks ago that, “when you have 56 children, you can’t care for all of them.”

Yep. Wrap all of this together and GM is still laboring with a lot of the same ‘ole problems. The company relies too much on gas hogs. It can’t support its bloated family of brands. And the imports still have more to offer when it comes to cars and crossover suvs. Until GM licks those issues, its recovery will be a long slog.

Reader Comments

China Law Blog

May 3, 2006 8:45 AM

The amazing thing is that despite its extensive U.S. travails, GM continues to run on all cylinders in China. It's sales continue to rise there and it is still very much viewed as a car of choice by China's yuppies (Chuppies). Could China ever become its Escalade-size fix?

cion

June 1, 2006 7:00 PM

The thing is, it seems a lot of GM's problems come from underenginered cars and trucks. At one time it was thought that U.S. workers could'nt build the same quality as there Japanese counterparts. That myth has proven wrong. They have had since the oil crisis to build a smooth 4 cylinder engine, they have not. And if the money is with larger SUV's, why not build a pure hybrid with no battery pack like a locomotive since with just the electric motors pulling the truck it would pull more weight and the cost of trucks could more absorb the price. Also with the home security issue the truck could double as a portable home generator.

Greg

September 11, 2007 12:01 AM

An electric truck that doubles as a generator at home? Yeah, that'll fix GM. People will love generating their own power for the house at only $3 to $4 per gallon. If they develop a vehicle like that we should unleash it on Al Qaida.

GM needs to kill about half its divisions, and use the savings to make world-competitive vehicles in the divisions that remain. It doesn't take a genius to figure this out.

They've been surprisingly successful at unloading some of their excess workforce. That was long overdue, as GM could no longer afford to be known as Generous Motors. Now if they could fix their dealer and division structure and parlay that savings into product, they might have a shot at seeing the turn of the next century.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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