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.