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GM Plays Brand Favorites

Ask a General Motors (GM) executive about the company's plans to wind down four of its eight vehicle brands, and the answers are circumspect. Saturn could be sold, but GM hasn't given a firm answer. Hummer is for sale and Saab might be, if there is a buyer. Pontiac will still exist, but maybe selling just a couple of cars at Buick-GMC showrooms.

Even if GM can't bring itself to part with these brand weaklings, it is expressing its intentions in other ways. The company's four "core" brands, which aren't under strategic review—Chevrolet, Cadillac, Buick, and GMC—are getting the lion's share of new cars and marketing cash. And GM will continue to spend more to market those four core brands than it does the four that are under review.

"Over time, the strategy is to focus our resources on the core brands," says Mark LaNeve, GM's vice-president of North American sales and marketing. "Those four brands will get higher spending. It's clear that we can't afford the kind of product and marketing investment that eight brands need."

The Chosen Few

Just look at what GM showed off at the Detroit auto show this week. Chevy had its new Equinox crossover SUV that goes on sale this spring, along with the seven-passenger Orlando crossover and Spark subcompact that will hit the market in 2011. There was also a new Buick LaCrosse sedan and Cadillac SRX.

Hummer, Saab, Saturn, and Pontiac, on the other hand, had nothing new to show.

Also, last year Chevy got a windfall of marketing cash. GM spent $454 million on marketing and advertising in the U.S. during the first nine months of 2008—more than the $386 million that Toyota (TM) spent on its namesake brand, according to New York-based TNS Media Intelligence. One big reason Chevrolet outspent Toyota, says Chevy General Manager Ed Peper, is that the company devoted a lot of money to the launch of its Malibu sedan. So the overall Chevy budget was unusually large, Peper says. During the same period, Pontiac got just $83 million, and Saturn spent $127 million on marketing.

It worked for Chevy. The division spent almost $170 million in the first nine months of last year marketing the Malibu. The car's sales grew 50% in '08. It struck a chord with car buyers after it replaced an outgoing model that was seen as an also-ran. And it chalked up that gain even though the new Malibu's sticker price was $4,000 higher than that of the old Malibu.

"We have seen the excellent result GM has gotten with an excellent effort on Malibu," says Eric Noble, president of The CarLab, an auto industry consulting firm based in Orange, Calif.

Eight Is More Than Enough

In the past, GM typically plowed money into one or two brands at a time, while the other siblings were left to fend off competition with too few new products and slack marketing. In the early 1990s, for instance, it shorted Oldsmobile while investing in the new Saturn brand. But later in the '90s GM spent heavily on an ultimately futile effort to save Olds, and left Saturn bereft of new vehicles. And since 2001, GM has launched a $4 billion effort to rebuild Cadillac, and spent a decent chunk on some new Buicks, while Pontiac and Saab have gone without.

What's different now is that management is acknowledging it can't support eight brands and is focusing resources more intently on the four divisions that it thinks will be survivors. "GM can't afford to send all eight kids to college," says Noble. "GM is better served spending a dollar on Chevrolet than it is Pontiac."

Even if GM isn't shutting down its weak brands, the company is getting the message that the company has to start shifting resources to the divisions that have better consumer acceptance and bigger sales. The four core brands that GM identified in its restructuring plan to Congress when it applied for $18 billion in loans (the company got approval for $13.4 billion) represent 83% of its sales.

The weaker brands are already getting short shrift. At a recent strategy meeting, General Motors North America President Troy Clarke pointed out that last year the company spent $7 million marketing its Pontiac Vibe. That's one-tenth of what Toyota spent on advertising and marketing for the Corolla Matrix, which is a similar car built on the same assembly line at a joint venture plant in Fremont, Calif.

Short Shrift for the Swede

Saab is really the neglected child in the GM family. TNS says GM spent just $11 million on the Swedish brand during the first three quarters of 2008.

Expect more of the same this year. Chevrolet is launching the new Equinox and the Camaro muscle car. Both will get a lot of cash, so Chevy will enjoy another big year of marketing. Says Peper: quot;Our percentage of GM spending has gone up and will continue to."

GM is forced to prioritize its resources. Killing off a brand entirely is a painful and costly option. Since dealers commit their investment dollars to a franchise, ditching a brand typically results in costly lawsuits, unless the manufacturer phases out a brand over time and the dealers just walk away. Killing Oldsmobile, which GM began doing in 2001, cost the company about $2 billion.

The Pontiac Question

Plus, dumping a brand would mean losing its sales almost immediately. Take Pontiac. Even though it's a relatively small part of GM's sales, the division's G6 midsize car still sold 140,000 units last year. GM would have to quickly find a way to steer buyers into midsize cars sold by Chevrolet or even Saturn. So GM could just let the life cycle of the G6 run out and decide on a strategy later. In fact, most Pontiac dealers are now paired with Buick, which will sell a midsize car in a few years that essentially replaces the G6. Says Clarke: "Why not just let the remaining Pontiacs sell out and then make a decision?"

And that's how GM will eventually arrive at a more simple line of cars and brands. The company will build the core while letting the others slowly shrink. If it can find buyers for Saab, Saturn, and Hummer, it could exit more quickly. In the long run, Clarke says, GM will get from its current 78 different cars to about 40, sold within four brands.

"It will play out," Clarke says. "It's an absolute intention to get to four brands."

It just may happen at GM's glacial pace.

Welch is BusinessWeek's Detroit bureau chief.

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