Talks of Brand Sales and Closures in Detroit Stirred By The Uninformed

Posted by: David Kiley on May 27, 2008

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Talks of brand sales and closures is gathering steam with the downturn in auto sales. It’s not that easy.

Tracinda Corp. adviser Jerry York mused recently that he would like Ford, in which Tracinda is gathering shares, to sell off Mercury and Volvo. Sell Mercury? To whom? Volvo? Ford CEO Alan Mulally tried to sell the Swedish brand last year. But a little thing called the credit crisis came along. BMW sniffed at it. But looking at a huge downturn in auto sales, and bracing to gird its earnings, it wisely (in my opinion) declined to buy a Swedish front-drive brand to try and mesh with its German rear-drive brand. To sell a brand, one has to have a supply of buyers.

Mercury is not a sellable asset. It’s like my red satin college radio station jacket. It has value to me, but no one else. Ford, in the bowels of its corporate headquarters, has people trying to sort out a future distribution scheme. None of those plans can seriously include Mercury. What some Ford execs would like to see is a single streamlined network of Ford Lincoln dealers. Plan B is a Ford dealer network, and a Lincoln-Mazda network.

There were thoughts trying to create a network of Lincoln-Volvo dealerships. But Ford’s interest in selling Volvo puts that idea away on the shelf.

And then there is General Motors. GM CEO Rick Wagoner astonishingly said recently, “General Motors’ different brands give the company the best position in the marketplace…Our Opel/Vauxhall, Saab, Chevrolet, Cadillac, Corvette and Hummer brands complement each other perfectly, and represent a clear and consistent market orientation unmatched by any other automaker,” Wagoner told a conference in Cologne, Germany.

What color is the sky in Mr. Wagoner’s world, I wonder. GM is served horribly by its portfolio of brands. It takes valuable resources to support all those mouths with product differentiation and marketing budgets. GM has proved to be pretty unsuccessful adequately supporting Buick, Pontiac, Saturn and Saab, while Chevy, Cadillac and GMC prove to be the core of the company, with Hummer as a sometimes interesting appendage. (Not so interesting when gas gets to be $6.00 per gallon).

GM has lost U.S. and global market share, and struggled to make a nickel while it has all these brands. “Best position in the marketplace.? As Ford CEO Alan Mulally said to some of his managers who tried to argue for hanging onto Jaguar and Land Rover because of their higher profit margins, “How’s that workin’ out for ya so far?”

Those who say Ford and GM should shutter or sell brands should acquaint themselves with the state franchise laws first. Generally, they make the primary rules of the Democratic party look as simple as those for a game of checkers. GM once spent between $1 billion and $2 billion shuttering its Oldsmobile brand. You know what kind of return a company gets by spending $1-$2 billion closing a brand? Nada. Nil. It cleans up the books and your appearance, but there is no return-on-investment.

GM just blew $2.7 billion getting itself tied up in a strike by UAW workers against its chief axle supplier (Yes, I would say GM’s mismanagement of that supplier relationship contributed to the loss, so I’m laying it at the automaker’s door. GM kicked in a little more than $200 million at the end of the strike to help American Axle end the strike. Had it ponied up the money in the beginning, it might have saved $2.5 billion.) It isn’t going to spend billions buying out dealers. Instead, it is trying to get dealers to merge and reduce their ranks via market conditions. It’s slow going.

Eventually, though, I predict that by 2020, GM will probably be lighter by at least two brands—either Buick or Pontiac will be gone, and Saab will be gone. It will happen as dealers go out of business, and then GM can kill off what’s left of the channels…when…hopefully…financial times are better.

Reader Comments

Kroum

May 27, 2008 1:07 PM

David, your analysis is very U.S.-centric. The American auto market is indeed very crowded with manufacturers from around the world struggling to get a piece of the pie, and with lower brand percption barriers than Europe (people happily paying BMW-prices for Japanese faux-luxury brands - which never work in Europe, for example).

However, both Ford and GM are global corporations. Ford Europe is a very well established operation that designs, produces and sells vehicles more or less independently from Ford HQ.

GM, on the other hand, positions its brand portfolio according to market. It is far from perfect, but it's not as bad as you make it look either.

Buick, while oft-ridiculed by the American auto press and market, is GM's flagship in China, the same market which in 10-15 years will probably yield more profits and importance to the General than domestic sales.

And Saab, while having gone through an idenity and product crisis thanks to a couple of poor rebadges, is still GM's only global premium brand. Cadillac will never become a true competitor to BMW and Mercedes-Benz in Europe. It is true that Saab fails to successfully compete with the Teutonic Three right this moment, but make no misake - it has the potential.

NOZ

May 27, 2008 3:29 PM

Several good points covered here, very good in fact. The cost of shutting down Olds is one. Then there is the matter of just what those costs are and why. As usual, there are all kinds of gov't rules and regs to comply with, some good, others self-serving nonsense, the essence of most of the layers of government when one looks under their rugs. Yet without some of the safeguards, the dealers would be completely at the mercy of the manufacturers. And now that we the just plain folks are learning how wise the Failing Three are, well...

Sell Mercury? Right. To whom? There has never been a reason for this so-called division, not since its inception in the 40's. It represents nothing but yet another considerable expense--the olde rock and hard place thing.

Lincoln is into making cheapo/populist limos, not a lot more. And Ford is simply hanging on, there is no compelling reason for anyone to buy the brand, let alone the cars. And increasingly, the trucks as well.

GM might sell Buick to China, ditch Pontiac or let the Ausies have it, try to prop up Chevrolet, but only the Malibu. Cut the trucks to the bone, dismember most of the GMC line, little but clones now anyway. Isuzu makes far better vehicles, one has only to look around the world to see this. Our inner cities as well--if one can see past the graffiti.

Poor Rickie Wagoner. Put a flame under his gondola and Golden Parachute and send him aloft only to fall to earth somewhere else. And SHAME on GM's Bored Ones. Fire the lot while offering each and every one a SAAB in their early retirement. They need some hands-on experience in terms of constant repairs/frustrations with so-called Euro masterpieces that are lauded by the bigoted pundits yet so trouble-prone one decade after another.

NOZ

May 27, 2008 4:41 PM

Kroum,

Suppose you struggle with the definition of 'luxury' a bit more and refine your 'faux-luxury brands' comment. My 'definition' has little to do with cost (far too much of which is often profit/greed/perceived quality/factual mediocrity), far more to do with actual tangible content. This means superlative design, manufacture, and as a result, reliability. Try that trick on MB, Audi, VW, even BMV. And I might add that styling is just a trick to catch the eye of the mini-minded/ego-driven, perhaps run up the cost of collision damage as well.

If there were ever an international brand it is Toyota. And that company earned it the hard way, and against the tide of bigotry stemming from Europe, not to mention America.

There was a time prior to the advent of Japanese-branded vehicles when the European cars where shunned for the junkers they were. Over-heated sluggish MB, their stinking diesels, the road-oiling British rolling tea pots, the Italian parts collections that should have been delivered in shrink wrap, etc. and so on.

David's US-centric analysis? Yours is just plain nasty and wreaking of warped Euro-think. Care to try again?

cj

May 27, 2008 9:22 PM

Agree with the first comment but would also like to add something about the potential.

Badge engineering has hurt GM lots in the past, but done right having several brands can create some huge economics of scale. Look at VW. Their "main brands" are VW, Seat, Skoda, Audi (with the not so main being Bentley and Lamborgini). People put up lots of money buying an Audi TT, which has plenty of components in common with a Golf or even a skoda octavia, its just that VW is good at doing the visible items different.

There is a huge potential in all GM brands, and having them all increases the combined strength (and the economics of scale) in my opinion.

The only brand change that GM need to do (continue) is to merge Opel/saturn/holden so that there are not differences between the brands and that all models are sold globaly.

ballbuster

May 28, 2008 5:09 AM

There are optimist and there are fools who stick their heads in the sand. Those who talk about GM's Saab having "the potential" and as "GM's only global premium brand" in one paragraph while in another paragraph that GM's Buick will be more profitable than domestic sales illustrate the latter ostrich type. So how did GM's once mighty 80% domestic share shrivel to 23% in 25 years? Because GM forgot to be "US-centric"? Or perhaps GM forgot to make domestic cars that the American consumers want. Is it wrong to ask GM to built cars that are "US-centric"? When GM has to sell off 51% of its crown jewel, GMAC, to Cerberus to avoid junk-bond status, is GM "not as bad as you make it look either."? How about GM's share prices plunged from $75 to $17/share in the last 5 years. How is it that the once world standard for luxury car, the Cadillac, has fallen on such hard times that it "will never become a true competitor to BMW and Mercedes in Europe." Let's remind ourselves that BMW was born of recent '70s vintage while Cadillac had the advantage of maturation since the '30s. It is quite apparent that GM has its group of apologist in and out of GM HQ. It is precisely these apologists, in and out of GM HQ, who are the cause of the demise of this once powerful, dignified, and brillant American corporation. It is reprehensible that any one dare to offer any plausible excuse for an American corporation icon that once stood for American ingenuity, innovation, and industrial prowness but now symbolize America's impotency, ineptitude and ignorance. It is humiliation to the point of being sadistic. In retrospect, I should suspect these apologists are traitors or our enemy who want to grind the face of our historical American corporations in the dirt.

jerry e

May 31, 2008 10:55 AM

Wow, who is this NOZ character anyway?!? A very hateful person. Personally, I have bought 3 Honda sedans over the last 10 years and 3 Ford trucks & SUVs. None of the Hondas have been significantly more reliable than the Fords... and none of my father's Toyotas have been significantly more reliable than my Hondas. The perception of Japanese perfection is overblow... as is the perception of American "junk".

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