GM Will Rise Again

Now that General Motors has emerged from bankruptcy, the carmaker will prosper and regain its former glory. Pro or con?

Pro: Now GM Is Doing Everything Right

After 40 years of decline, the world’s second-largest automaker hit rock bottom—bankruptcy court. But now General Motors has pulled itself together by downsizing the company and dealerships and cleaning up the balance sheet. With a new board (including directors handpicked by the government) acting as a watch dog on public funds, GM will show the world it’s capable of rising to No. 1 automaker again.

GM’s new vehicles will provide a much needed boost, potentially allowing it to attain profitability earlier than the targeted 2010. One of the models, the hybrid Chevrolet Volt, will get an impressive 230 miles per gallon in the city. The auto company also is marketing aggressively the new Chevy Equinox and Camaro as well as the Cadillac SRX crossover sport utility vehicles and the Buick LaCrosse sedan. Having shed Saab, Saturn, Hummer, and Pontiac, GM can concentrate on producing better-designed vehicles for its core brands.

GM has reported it will add 60,000 vehicles to its production schedule in the third and fourth quarters and rehire 1,350 laid-off workers. The company now plans to make 535,000 cars and trucks by the end of September. Like other automakers, GM received a boost from of the cash for clunkers program, which offered buyers up to $4,500 to scrap older vehicles getting 18 mpg or less, and trade them in for new, more efficient models.

Moreover, now that it’s emerged from Chapter 11 (http://bx.businessweek.com/general-motors-bankruptcy/), GM can pursue a cost-structure free from some of its former union obligations. Without this handicap, GM can compete head on with Ford (F), Toyota (TM), and Honda (HMC).

Con: GM Has Eaten Its Young

Like homeowners who repeatedly refinanced their houses to extract cash for their overindulgent life styles, GM has “leveraged” its most valuable assets—its once revered marques—by gradually cannibalizing brand equity.

The Hummer, Saab, and Saturn brands have been sold for residual value. Pontiac, like Oldsmobile before it, is being discarded like an empty fish tin, despite strong enthusiasm from many segments. And, in a strategy that’s both perfectly consistent with this “vision” and also a sure sign of desperation to buyers, cars bearing the names of its remaining brands are being sold on America’s online yard sale—eBay (EBAY).

So, in a breathtakingly elegant new plan, the “leaner” GM claims to be focusing on the “core brands” of Chevrolet, Buick, GMC, and Cadillac. Why this quartet? Well, it’s mostly a matter of dumb luck rather than insightful brand conservatorship.

Cadillac got lucky because beginning in 2000, rappers such as Ludacris prominently featured Escalades in music videos, and athletes flaunted them on MTV (VIA) Cribs. Suddenly, Escalades were “in” with the coveted young male demographic. GM executives admitted that this fortuitous turnaround took them by surprise. Unfortunately, celebrities have now moved on to other symbols of automotive status (who’d have guessed?), resulting in an Escalade (and overall Cadillac) decline after a mid-decade peak. But wait, you say, the newest 6,000-pound Escalade is a hybrid! Yes, Cadillac has now moved from Ludacris to ludicrous.

Buick, despite rapid sales declines in the U.S. since 2002, is considered a prestigious brand in China (the last emperor had two). In fact, more Buicks are being sold (and made) in China than in the U.S. Yet European brands are rapidly eclipsing Buick as status symbols in China. What happens when notoriously trendy Chinese consumers drop Buick like last season’s fashions? Say hello to the even leaner GM, a.k.a. Chevrolet.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

Ted

GM and the UAW's effort to get nationalized health care has and will continue to drive away customers.

This lack of concern for the economic viability of the USA is in direct conflict with the corporation and UAW receiving a taxpayer funded bailout.

Jim Beck

Yes, the new GM is aggressively marketing the new Equinox to buyers (like my wife) who appreciate and need a well outfitted, quiet, economical $22,000 vehicle. However, the old GM stocked all their Chevy dealers with loaded down, V6, $35,000 mini-Buicks. Then they tried to move last year's (and 2008's) Equinox dinos with rebates that got the price down within waving distance of the new design.

The GM-eBay marketing approach is actually a great idea to anyone who has tried to navagate any of the GM and GM dealer web sites over the last 10 years. That site actually works and now it is possible to find a product you just might buy without having a zip code window open (although you still have to call to see if the dealer has bothered to update their on-line inventory). While there are some gems in there (i.e. Malibu), unfortunately for the bride, GM is still trying to sell 2008 and 2009 Equinox/Torrent Oldsmobiles at something substantially less than a bargain. GM really should adopt a little desperation with these dogs.

For some reason, I still have some limited loyalty to GM. It's probably got something to do with the Corvette in my garage, my full race Camaro, and our Cadillac. However, I'm still trying to work up the courage to go back to the Chevy dealer to get the oil leak and the defective radio speaker fixed on my 2007 Silverado Classic. It has gone 7,600 miles so far with just a blown water pump.

syj

I have to say the "con" argument made no sense at all. It didn't even sound professional or insightful. Pontiac had little brand equity and was reliant on fleet sales for a substantial portion of volume. Hummer was already going down the tubes and Saab is a niche player that has cost GM money since day one. Why would GM not get rid of those brands? Saturn seemed worth saving, but it was hard to argue with the cut because their sales had not rebounded in spite of having new, competitive vehicles.

Brian Rushton Phillips

In the consumers eyes, the brand is long dead.

http://www.rushtonphillips.com/impossibility_of_death_capitalist.html

The $50 billion taxpayer bailout should have been 'invested' in an improved national health care system.

Louie Lopez

The Ponitac G8 was described by Motor Trend as a "low budget" BMW 5 series. It is such a nice looking, exciting car. They keep Buick and kill Pontiac. Typical GM. I hate GM and never bought any of their cars but have driven them and afterward couldn't wait to get away from the car. But those were old 80s and 90s models. GM has gotten better and I've seen the quality improvement having worked a few years in a garage. But GM's geriatric psychology may be the death of it. But I'm secretly still rooting for them.

Louie Lopez

GM imports the Holden as the G8, a beautiful RWD car, and they kill Pontiac instead of the geriatric Buick. GM's geriatric mindset is exactly why they're in the trouble they're in and it's not the UAW's fault; it's the people that have run the company all these years. I'm surprised at all these anti-union people. America's unions have set many precedents for fair working conditions and worker treatment; they're not the devil. GM's market share declined yearly because their cars were weak competition, the end.

Bill the taxpayer

Having bought GM vehicles my entire adult life, I can say that I have a fair amount of brand loyalty. I used to buy GM because it stood for American freedom with a quality vehicle. Unfortunately, now I find that GM stands for the new American Socialism. Our country was founded on individual rights and free markets. I will never buy another GM vehicle because of the socialism that it represents, (despite having previously bought nearly $200k in GM vehicles). As a country, we have fought for, died for and stood for freedom. I don't need the government telling private companies what they can and cannot do. The government seized GM in nothing more than an outright bid to buy UAW votes. It worked. Unfortunately, I fear that it will continue to work in the future as well. Well, not for me. Ford, what do you have to offer? You will make my next vehicle so I hope it is good. I don't know how many people there are out there like me, but I can say that the money that I control will not support Socialism Unfortunately, the nearly half of my money the government controls already does go to Socialism. I despise the fact that I have two expensive GM vehicles right now, but don't have the money to waste dumping them for a social statement. However, the fact remains that my personal money will neve go to this former icon of America. I believe that there are enough people like me who will ultimately allow the free market to prevail and sink this titanic that the government is trying to keep afloat. I am tired of this administration spending my money like a drunken sailor. I am not evil simply because I make a good living and pay hundreds of people's wages. If the government can take over GM, why not my company?

GM will slowly die unless it becomes run like any other free company. The government can't even run the post-office. What makes them think they can now manufacture things, which is far more difficult.

Michael

Bill the taxpayer: What are you smoking? GM was run as a totally free company and will be again. They went bankrupt being a free company. The government took over the assets from a bankruptcy court. GM's problems have nothing to do with politics. GM never stood for "American freedom" or "a quality vehicle." Their cars were junk and once other competitors entered a free market from the 70s on, GM's market share experienced a linear decline. GM's problems have to do with the fact they made far inferior cars to Toyota and Honda and relied upon giant SUVs during an era of cheap gas. Their business model was predicated upon the idea that there was a sucker born every minute and given that you have 2 of their cars and didn't abandon GM and their garbage cars years ago proves such a model is not without merit. The problem is suckers aren't being born as fast as old suckers are dying, and younger buyers are happy with their quality cars.

Oscar

Some criticize GM for making the hard decisions it is currently undertaking. Yet many more reflective observers (like "Michael" and unlike "syj") realize that GM's current options are severely limited due solely to decades of taking the easy path rather than investing in their future. Hyundai entered the US in 1986 and initially had high sales, but quality problems quickly damaged their reputation and severely cut sales for the next decade. Had GM been managing the Hyundai brand, they would have pulled the plug at that point. But Hyundai invested heavily in quality measures and now has strong sales and brand equity. See the difference? GM has been reckless in adding brands to its lineup and even more reckless in deleting its brands. But, most importantly, GM has repeatedly failed to carefully invest in the brands it sells.

Tim

Right now, the Pro argument seems better than the Con.

Wingnut conservatives will loathe the new GM for all time because of it going through bankruptcy and a high level of government and union involvement of managing the company. However, none of this differs from any of the foreign competition, nearly all of it born from government industrial policies overseas.

Right now GM has good to great product offerings in the Malibu, Camaro, and the Equinox. It also has a new compact, the Cruze, coming out, that is already eating market share from Hyundai Elantra in Korea where the two have been competing for almost a year now.

If GM had been building cars of the caliber of the Equinox for the last ten years it would never have had to declare bankruptcy.

The Equinox has the size of full size vehicle (with back seat leg room at 40 inches!), the fuel economy of a Elantra at the price of Civic, the finish and quietude and ride of a Lexus - all for the price below a Rav4 or CRV. It is quite simply orders of magnitude better than its competition.

A year and a half from now, after it has proven it's quality, the Equinox will be the dominant SUV in sales, period. Other than hard core off roading, or heavy towing of trailers and boats, or carry more than 5 people, there's very little reason to buy any other SUV.

In fact the Equinox is such a good value and such a good product that it will steal sales from other segments.

People that normally buy compacts, when they see the massive increase in value for only a few thousand more dollars for the Equinox, with no penalty in fuel economy, will start migrating to the Equinox. Likewise, people who normally buy full size vehicles for their comfort will also be attracted to the Equinox, and find the fuel economy a bonus. It is that good of a vehicle.

Even the new Cruze will find competing against the Equinox difficult.

A modest increase in car sales from the now depressed 10 million mark can be expected at some point, because cars do obsolesce and will have to be replaced.

GM will do nicely if this happens with the product offering they will have to go with it.

Even the Volt could work out to be a big winner for them. All the electric vehicles represent different bets on the compromises that are required for drivers and manufactures (regarding battery usage, care taking and recharging). GM has done it's homework here, and knows what it is doing here as well, and has staked out its position on this front. There's a better than even chance that they come out on that front with the superior position.

In fact, I think all of the American car companies are in a good position to compete: Chrysler has access to Fiat's airflow technology and arguably the best management in the industry; Ford has great product coming out next year as well.

A modest increase in demand can be expected and that could help the American car industry to recover much of it's footing.

Tom

The Pro argument hinges on maybe's and hopefully's. The Con argument hinges on past events and trends. To be honest I'd say neither is completely right. GM will be profitable, not due to its good operation, but due to the complete market distortion that the US government has created. Already we have reports that GM will save billions in tax payments due to loopholes in bankruptcy law. GM has also had billions wiped off its debt that its competitors have had to pay back themselves. This is once again a government rewarding a company for mediocrity, and by doing so punishing companies like Ford and Toyota for being successful on the strength of their operations and product. And in 20-30 years time, when we are back in the same position (as GM has shown no real sign of true cultural change), the US government of the day will bail them out again for the same reasons they bailed them out this time. Any governments promise can only last as long as they remain elected (and then only maybe).

Drew

If GM cannot speed up its decision process on Opel, it is just losing momentum again, at a critical moment. So I seriously doubt whether it has completed the change of mind-set for the future already.

David

Is there a single reader out there naive enough to not realize that "Tim" (and perhaps "syj") is being paid to write positive comments for GM? It is so painfully obvious that this drivel is taken right out of the GM company press releases it makes my head hurt. Even bad advertising copy has more subtlety and a greater sense of authenticity than this fluff.

When you talk about the "quietude of a Lexus" at the "price of a Civic" it just gets silly. Seriously, who actually talks (or writes) like this outside of an ad agency? GM advertising has always relied upon lame comparisons to better cars, and focusing on marginally relevant attributes such as "back seat leg room" is par for the course.

Prior BusinessWeek articles have recently noted how GM is attempting to master new media such as blogs and Twitter in promoting its vehicles and building brand enthusiasm. Yet it is ham-handed attempts like these to "manage" the public image of GM that turns off even once-loyal buyers and makes the company seem desperate.

So, GM, if you want to survive for more than another couple of years I've got a suggestion: Just make better cars and don't patronize us with the slick salesfloor hype (camouflaged as genuine customer enthusiasm) about the "massive increase in value for only a few thousand more dollars." In other words, spend more of your resources on the cars themselves and less on paying people to be cheerleaders for your increasingly irrelevant brands and company.

Gerald Lee

David,
Go to Edmunds.com and read the review of the 2010 Buick LaCrosse. It says that the LaCrosse blows the Lexus away and is the new standard.

Please don't show your ignorance again.

siphandone

Just make better cars, GM, and stop talking. Then people might start buying again. Otherwise, it will be in coffin.

kgnuehring

The answer to me is simple. No way will GM rise again and it shouldn't. GM makes poor quality vehicles. My last two experiences with a Chevrolet van and the "certified" Chevy dealer and a Buick car is proof. We use to buy GM vehicles; now we buy Toyota.

Windsor Tim

GM needs a true culture change. Granted, their product offerings 'seem' to be improving, but so is their competitions'. The problem is that if they actually started making good products tomorrow, it will likely take at least a generation for the GM 'junk' perception to dissipate enough for them to have a future. Can the current 'new' GM last that long to make it?

Ted

Gm failed in the free market. Foreign carmaker excelled with their govt support. The Japanese cos. don't have to deal wit $1500 per car cost for healthcare. We do. Blame the unions when most of us are middle class Americans is sadistic. This free market and tax cuts solves all problems dogma is silly. Especially considering the great recession financial bubble crash's carnage all around us.

And I too have gone from gm to Nissan altima and Mazda 3 because my $ should be waned with quality affordable products. Aost 10 years later, I'm ready to by a chevy equinox because it is the best midsize SUV bar none. Test drive one and go to edmunds.com.

It is human nature that we go for broke and give it our all when we are at a precipice. GM has. The proof will be in the pudding. And unless we get healthcare costs under control, all our industries will be at a severe economic disadvantge to those whose healthcare costs don't rise at 3X wages and gobble up $1,500 a car.

WEE WILLY

GM make money, yes. Only fools will buy them. Volt $40.000. Yes, everyone is going to run out and buy one. Plug-in cars. What a joke.

Imran Anwar

As much as I would like to agree with Tania Chen, I agree with Robert Winsor more. Sure, Tania, GM, or any company, or even individual, can redeem themselves but not if they are rotten to the core and do not deal with the core issues, pun intended.

Imran

jack

This isn't a complicated question. GM will return to profitability. GM won't rise again, but it will survive.

Reasons:
Brand equity. It isn't as much as it once was, but it's enough to satisfy the requirements of a smaller company.

Innovation. There is enough new technology in the pipeline to make GM a player in the Green World.

Gap will be filled. GM's operations won't quite yield enough to overcome the gap in the short term. It will get financing--public or private--to fill that gap, which will be small enough to look like a good investment.

Finally, GM will sell directly on the net. The dealers will downsize further, transitioning to demos and delivery functions. Wholesale Clubs will be in the picture. Commissioned salesmen will be gone.

DSouza

No automaker who makes anything that gives fewer than 20 km/l will survive.

GM4ME

I certainly hope GM rises again. It's a matter of how well they manage their future business. They were given another chance, because they had the government bailout money. They need to have world class quality and offer products that people want. They also need to properly market their products. Years ago GM had the best advertising and the car models people wanted to buy. A lot of people like to bash GM's quality, but they made many cars that were excellent. I can attest to that personally. I have three Oldsmobiles with Oldsmobile V8's that all have over 300,000 miles on them and they are still going strong. GM always built great fullsize RWD cars and trucks. The small cars unfortunately were another matter. I can only hope GM pulls through and becomes the standard of the world again.

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