GM's Brand Dilemma

Posted by: David Welch on July 07, 2008

Of all of the problems facing General Motors, the most intractable is its group of eight brands. The company simply doesn’t have the cash to fund new models and raise a hue and cry for each division. Today’s Wall Street Journal has a story saying that GM’s top brass are looking at divesting or shuttering more brands with an eventual goal of chopping the company down to two primary brands—Chevrolet and Cadillac.

It’s a great idea. If only it could be carried off so easily. The company has already said it will try to pawn Hummer off on someone. Company spokesman Tony Cervone says GM isn’t reviewing its other brands for sale or execution the way it has with Hummer. I won’t get in the middle of this he said, he said. But suffice to say, GM’s executives know that they have too many brands. But you don’t just lop them off like leprous limbs. Most of them would have few, if any, potential buyers.

GM can’t just stop building Saturns and Saabs and walk away with a half-hearted apology to the brand’s few remaining loyalists. State franchise laws make it nearly impossible to close a franchise without dealers suing—and usually winning—millions for their bad investment. Remember, GM announced the sale of Oldsmobile in 2000 and it eventually cost about $2 billion. When GM is looking for ways to raise cash and survive this economic slump, bribing a bunch of Saturn, Saab and Pontiac dealers with a few billion bob just isn’t in the budget. Somehow over many decades, GM has managed to get itself in business deals that prevent it from laying off workers, cutting benefits or disposing of brands without paying someone to go away.

They could try to sell some of the brands. But most of them are unwanted by consumers, so why would another car maker want them? Saturn has some consumer-friendly cachet. But the brand is on pace to sell 200,000 cars this year, which is less than Oldsmobile’s volume the year it was marked for death. When GM showed its award-winning Saturn Aura sedan to consumer clinics before the car was launched, it registered an impressive 3.4 on a 4.0-point scale. But when they showed it with a Saturn badge, it scored a 2.0. That says the brand is toast. Saab has sold 10,000 cars in the U.S. so far this year. The name can’t command luxury car prices, but expensive European wages and lopsided exchange rates make it a perennial money loser. Who wants that?

Instead, expect incrementalism. GM will end up feeding the strong brands, like Chevy, Cadillac and Buick (it’s liked in China) and cutting back new-car programs for the weak ones. Meanwhile, GM is getting dealers lumped together into one channel. Many Pontiac, Buick and GMC stores are now together under one roof and owned by the same dealer. Eventually, when all of those dealers are grouped together into one store, GM could cut brands. The dealers will be reluctant to sue if they have still have one of the remaining brands to sell. Plus, the dealers will probably get better models and more marketing support for the brand they keep.

Saturn is a tough case. The brand has few new products coming. GM may just let the brand's lineup shrink until its retailers throw in the towel. That would make Saturn easier and cheaper to shut down. At the moment, several GM executives say, Saturn's future cars are delayed indefinitely. GM will have to spend at least $2.5 billion a year more to meet future fuel economy rules in the U.S. and Europe. That will take priority over new cars for weak brands like Saturn.

You’ll see other rationalization. Many Saab stores are merged in with Cadillac dealerships. Eventually, GM could kill the quirky Swedish name with the promise to dealers that less money spent on Saab means more for Caddy. Again, the dealers will be placated. This isn’t ideal. And it takes years. But it’s all GM can afford to do unless someone wants to buy brands that consumers aren’t shopping.


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Reader Comments

billd

July 7, 2008 06:18 PM

If GM went bankrupt, it could end the contracts with dealers and unions. Then it could restructure as a new company with just Chevrolet and Caddy.

Sounds like an opportunity!

Ron Bosetti

July 7, 2008 06:19 PM

I've thought for a long time that GM should just have Chevy and Caddy. I never even considered BOP when I shopped for cars although we did have a Pontiac Grand Am, vintage 2005. Article didn't mention trucks. Chevy and GMC are mirrow images why not let Chevy build the consumer type trucks and GMC the heavy duty and industrial vehicles.

rj fattore

July 7, 2008 06:43 PM

Oakland, Viking, Marquette, LaSalle. Companions brands that were closed rather quickly when the business case merited elimination. Dealers aren't dumb. The merged will be placated, a few will sue, most with good locations are doing something else already.

GM is hemorraging from a fat middle. It is a dirty little secret known to everyone that cares. Why do you think Jerry York and Lerlorain left?

RJ Fattore

Luis B Aramburu

July 7, 2008 06:46 PM

Some brands, such as Buick, GMC and Pontiac cannot be sold because they are just recycled Chevrolets made in the same assembly plants with almost the same components. Saturn, as Lee Iacocca said, "was a mistake since its conception and that mistake keeps growing all the time." By not bringing new cars to market it seems GM has, finally, decided to kill Saturn. Saab should probably be given for free to Tata, just to get rid of it. In the end, GM should probably only have Chevrolet, Cadillac, Buick (in China) and Opel (in Europe). The car company is now too small (and still shrinking fast) to justify more brands.

raymund satina

July 7, 2008 08:47 PM

Saturn is the only division that has a better designed cars with proven sales. Why put it on the chopping block? All GM need to do is replace their "politburo" executives with a more dynamic, design savvy executives. Cut down on SUV production. Focus on smaller, practical, well designed green cars. The BEAT is one good example, unfortunately it was designed and sold in Europe.

Joseph Merhi

July 7, 2008 08:49 PM

Hello,
I beleive chopping the company down to two primary brands not goog idea.Just unified the designs the engines etc. of buick, Olds, Chevy, Pontiac, Gmc and Saturn. You don't need the cash to fund for new models, you don't have to spend on each division, you will reduce spending on 5 new models. Dealers will have no right to sue you. Then sell the Hammer I will find you costumer ? and stop the production of Saab in USA and import it from suede.
Sincerely
Joseph Merhi 949 735 8386

Pat

July 7, 2008 08:54 PM

"Somehow over many decades, GM has managed to get itself in business deals that prevent it from laying off workers, cutting benefits or disposing of brands without paying someone to go away."

This is true for 2 reasons:

a) Americans have voted for those who enact immoral government coercion and theft - like the forced recognition of the exclusivity of labor unions, compliance with arbitrary "corporate average fuel economy" laws, unemployment-creating minimum wage laws, virtue-punishing progressive income and capital gains taxes, arbitrary (non-gold-backed) money, courts which allow extortion, ad nauseam.

b) GM's barbaric dog-eat-dog philosophy has cannibalized dealers, suppliers, consumers and taxpayers (e.g., by sanctioning a weaker dollar to bail out non-competitive American firms and labor unions). If GM leaders had been more rational, they would have realized that large, sustainable gains do not result from trades where one party gains at the expense of the other.

Approximately 8 decades of chickens are coming home to roost. Unfortunately, what's bad for GM is bad for America - so until GM and Americans take a principled stand against the immorality of *all* initiations of coercion - government or private - our economy will continue to decline.

William Parkhurst

July 7, 2008 09:37 PM

Let's face it, GM is done for. Too high union wages, stupid deals, and lousy products have done in the company. It's only a matter of time.

The once mighty american company deserves its death spiral.

Greed and complacency in good times did the company in. When the auto workers of non-union plants will work for less, how can a company pay high wages to the unions without creating a superior product? The GM products got better but too late.

Let's be real: It's all over for General Motors.

Corntrollio

July 7, 2008 09:45 PM

Why not replace Saturn with Opel? It would cost some to market the name, but the R&D is already being done.

thedarkone

July 7, 2008 10:49 PM

It seems that the inevitable is now taking place.

Larry

July 7, 2008 11:53 PM

Why can't GM shut down a brand even if dealers protest? They don't have any money to compensate anyone, so what could the dealers get anyway?

As the author states, GM has over the years put itself into situation that are hard to get out of without having to pay off people.

Snoz

July 8, 2008 04:56 AM

GM's business model consisting of 8 brands is not inherently flawed. The fatal flaw was in ex-CEO Roger Smith who erased the distictions between the brands by using interchangeable parts: Same Chevy engines in Oldsmobile, Caddy, Buick, and installing them without removing the Chevy decals; same fenders on Buick, Oldsmobile, Chevy, Caddy; same bumper systems thru out the brands; same front and rear windshield thru out the brands; same interiors except for minor trims; same seating; same hood, same trunk. Before Roger Smith's tenure, Pontiac stood for performance, ie, GTO; Cadillac stood for premium luxury car, ie, Fleetwood, Sedan de Ville; Buick and Oldsmobile stood for solid family cars a notch below Cadillac while Chevy had a broad lineup of cars ranging from entry model to mover-uppers like the Impala. Roger Smith screwed up Sloan's business model while Wagoner can't figure out how to solve the problem. Lutz, the old fart empty-nester, is preoccupied with his 2 seater, Soltice/Sky, not realizing he is on his own little island. Inept Wellburn is still trying to prove he is a good designer after his disasterous Buick Aztek, a design only Wellburn's mother could love. Wellburn's new motif for the Chevy,the front horizontal split-grill has not exactly taken the public by storm either. As a matter of history, not a single design from Wellburn has positively excited anyone except himself. Because the stockholders are pounding down the corporate door, Wagoner, Lutz, and Wellburn are history before this year's end. With new leadership, GM's business model will be restored to mirror the highly successful Sloan's business plan that other car manufactures have emulated. As for those who predict the early demise of GM, it is an over exaggeration as Mark Twain would say.

Tom Paine

July 8, 2008 01:08 PM

This whole thing should not be a surprise as many have written about GM having too many indistinguishable brands for some years. Although it appears that Saturn is not getting any new cars, I cannot understand why GM just doesn't continue what it has been doing there, namely selling rebadged Opels, spreading the development costs more widely. And while Ed Welburn may have designed the hideous Aztek, he is also responsible for the sensational Cadillac CTS Coupe, a car that is reason enough to keep Cadillac alive.

Frank

July 8, 2008 11:23 PM

Like closing Saturn would save them money... Two things : those 200000 Saturn buyers bought their Saturns but would never consider buying any other product from GM and if they shut it down, they will go somewhere non-GM. Its just a fact. And they would lose money anyway.

And now Saturn are rebadged Opel so it must not be the most expensive brand to run, it would cost the same to import Opel and market it anyway in the US. That is if they actually do some marketing, unlike they are doing for Saturn.

Fire those suits running the business and put engineers in their place! They will start selling cars people want, like Toyota maybe!! Shareholders run business is just bad. Put people in charge who knows what the customers wants and you'll stop selling cars that nobody want to buy.

Roxy

July 9, 2008 10:51 PM

I have worked in some form or another in a GM dealership for the last 22yrs, the last several years being at Saturn. I love Saturn but somewhere along the way of course they messed it up, huge!... Take their last slogan: "Rethink" it was "Rethink American" and then they realized "oh yeah most of our cars are built outside the US. Lets blow away more money..... Then they bring in a new product, The Astra: anyone heard of it? Nope? thats because they haven't done an advertising campaign on it yeah. Dealers has tons of these Astras(Opels. Oh I forgot they spend all their money on the "Rethink" campaign. By the way, has anyone heard of that either??

Tom

July 10, 2008 05:57 PM

I wish they'd sell Saab off and let them do their own thing. They went to crap after GM took over.

http://www.buyingadvice.com/saab-complaints.html

Ovidiu Miron

July 11, 2008 11:57 AM

Yes, they could try to sell some of the brands. But, let's think at the fact that this isn't a very smart Marketing move everytime.

Marc Lord

July 11, 2008 06:43 PM

I think most of you work for either Toyota or Honda. Your hatred of GM is amazing.

Snoz

July 16, 2008 04:54 AM

Marc Lord:

We don't hate GM. We just hate Wagoner, Wellburn and Lutz, the 3 CEO clowns who 1) have taken $70/share to below $9.00/share 2)reduced GM's domestic market share to below 25% 3)allowed Toyota to take the lead in Hybrid techology, reaped the halo 4) tarnished the image of the America car manufacturing leadership with shody products 5) allowed Lexus, Mercedes and Audi to over take Cadillac, the American icon of luxury car since the late '30s 6) Allow Wellburn to waste money on producing the ugly Aztek which made GM the laughing stock in the car design world 7) allowing competitors to ridicule GM CEO's are much of "hicks."

russ smith

November 27, 2008 01:49 PM

most american car buyers have no idea that so many of the gm line-up are warmed over opel's. many are not old enought to even remember when we had a lot of opel's running around.i've told many people about opel there first response (what's an opel) these are folks under age 35 to 40 . im 50 and I remember opels when I was a kid.gm is playing off the cosumer that these are american cars. people that buy toyotas and honda want that kind of car.basic no frills or gadgets.leave it outside wash only when you can't see out the windows, etc.this is what most car companies are up against,a car is a thing to get from point a to point b BUT some of us still want luxury or near luxury at a resonable price. 40 to 50 thousand dollars for a buick seems a little steap even more for a caddy?

Mr. T

December 4, 2008 10:07 AM

Simple G.M. give yourself a name that is notiable to your cars (example) Toyota camery, celica, ect...
Try (Chevrolet Moters) with chevys as stand alone stores caddys and G.M.C (HEAVY DUTY AND COMM.) stores. Buick and opel overseas. Sell Hummer, cut pontiac, and merg the principles of Saturn through out the brands.

fahim

January 26, 2009 04:18 AM

The point being that Hummer got very limited customers and i'm sure GM is making money on that like VW makes money with Bentley. But other brands like oldsmobile and cadillac needs to find their specific direction ...

Alex D,

March 10, 2009 08:57 PM

Saturn,SAAB and Hummer should all be shuttered before the end of the year. combined they have less than 1,000 dealerships, a far cry from the 2,800 dealerships Oldsmobile had when they folded back in 2000.(Cost $2 billion to close Oldsmobile.)

using that methodology, it should only cost GM $500-700 million dollars to shut those brands, which is a bargain compared to how much it is currently costing the company to retain those brands and advertise those brands.

selling these brands and dealer networks to a foreign automaker would be a mistake, theyll shift production and produce inexpensive cars, reinvent the entire line up and gain entry to lucrative markets. this would be a long term danger for the company.

the Pontiac/Buick/GMC sales channel will work for the company in the future as they are three brands that act as one. they share manufacturing,dealer networks. Although to operate under one name would be less expensive, this strategy combines sport cars, mid level luxury, and SUV truck lines which GM will be better able to focus on in the future with better advertising and products.

There currently is talk a stake in Opel might be bought by another manufacturer, but it would probably be in GM's best interest to combine Vauxhall and Opel under the Opel Brand and retain ownership of that small car brand.(it will prove useful in the future.)

Holden and Daewoo can merge into Holden and become another important international brand for GM. drastically cutting duplicative expenses and management and poising the company for growth and prosperity.

If opel is sold it will leave their plans for Buick up in the air, because imported Holden vehicles were going to play a major role in the company going forward. it remains to be seen the ultimate goals of the company, but hopefully they will do what is neccesary for success.

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Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

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