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.
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.