Viewpoint

GM: Still Making the Same Mistakes


It was almost painful to watch new General Motors CEO Fritz Henderson's live Webcam meeting this past Tuesday. On top of the company's recent problems—a growing negative perception by the American public and years of financial losses, culminating in bankruptcy—it is sadly obvious that no one now in charge at GM understands how car sales really work. What GM desperately needs is for satisfied impulse buyers to become evangelists for its products, or the company will never get close to reliving its glory days.

That statement is not a slight against the many superior products GM has introduced in recent years or the products it plans to bring to the market in the near future. It's just that these guys so clearly know nothing about how to improve GM's perception problem—and this is the "new" team?

There's a fundamental rule of a successful business: "underpromise and overdeliver." That concept has been around since the Studebaker Brothers were building wagons for the Civil War. After the war ended, they codified their business ethic in Studebaker's motto: "Always give a little more than you promise." Nothing better sums up GM's wrongheaded thinking than its execs' promise that the company will return to technological superiority once they finally bring the new Chevrolet Volt to market.

GM's Self-Smearing Image First GM mounted a PR campaign proclaiming that its top priority is to alter how the public thinks of GM and its technological prowess. That's a dangerous position to take, particularly since GM has bragged that its new electric car, the Chevy Volt, would be able to travel 40 miles before the onboard generator kicks in to take over the propulsion and therefore the Volt will be rated around 230 miles to the gallon.

Now why would GM give the public the Volt's maximum range? That's only going to set the public up for disappointment, because some buyers, through their own driving habits, will likely not get that promised 40 miles before the generator kicks in. They'll complain about it, too. GM should have said that the Volt will get a minimum of 30 miles on the battery pack, which would still be the industry's best. That way, people who got more mileage than that would brag to all of their friends—and anyone who stopped them on the street to ask about the Volt—that they were "getting far better than the 30 miles promised." And that would spread positive news about GM's accomplishment. Instead, GM has once again set itself up to have the audience participation go the opposite direction.

No one really knows how the Volt will respond to real-world driving. Bob Lutz told me 18 months ago that GM was having to design all new radio systems, air conditioning, power steering pump, wipers, and so on for the Volt, because in an electric car these systems are all powered directly by the battery.

Additionally, lead-footed drivers will end up draining its battery quickly. I'm reminded of the eight-hour lithium ion battery in my Macintosh laptop. If you turn it on and let it sit idle, eight hours isn't much of a problem. But if you actually use the computer, that battery drains at twice the claimed rate.

Second, execs originally voiced their belief publicly that this electric-hybrid vehicle could possibly be brought to market with a window sticker price around $30,000. Now it's $40,000 and climbing. This, too, made GM's best and brightest look as if they don't know how to price and manufacture their vehicles. And third, the angular, high-tech design that graced the Volt they hauled around to auto shows—which did strongly engage the public's attention—is not going to be the Volt's final exterior design. So GM has misfired on all three points, meaning it's made three promises that it can't keep.

GM's Turnaround: Always Four Years Out The worst mistake is that by the time the Chevy Volt comes to market it won't be the all new and potentially most exciting introduction of 2010. And it needs to be, to attract the techno-impulse buyers—or those who could become mobile evangelists for GM. Why won't it be knocking socks off? Because by the time dealerships actually receive their Volts, the impulse buyers will have been seeing the vehicle for almost three years. To GM's most cherished buyer demographic, the Volt will be old news by the time the first one hits the streets.

GM should know better; in the 1980s the Chevrolet Lumina minivan was called the "most introduced" vehicle in America. GM started using photos of that unique minivan almost four years before actually having them available to sell. Again, by the time it came out it was old news, not something new and exciting. GM made the same mistake with its SSR pickup truck: The impulse buyers couldn't acquire one when their passions were high and by the time they could, years later, the mood had left them.

When we learned that Toyota (TM) had created the first modern hybrid electric with its Prius, the word leaked out mere months before it went on sale in Japan—and no pictures were available.

Note to GM: If you really want impulse buyers, you raise their emotions when they can actually purchase something. Asking them to hold on to that excitement for three or four years demonstrates a profound ignorance about how excitement for new automotive products can be transitory at best.

Please, Bid Our Cars Down The other issue that GM's Henderson made official is that GM and its California dealers will try selling their new vehicles on the popular Web auction site, eBay (EBAY). Now GM's executives are proving they don't even understand how auctions work—that is, assuming you plan on getting maximum money for your product.

Over a month ago, when GM let it be known it might try to auction its vehicles online and eBay said it knew nothing about it, a quick search found a number of new GM products already being peddled online, including its redesigned 2010 Chevy Equinox crossover. That was embarrassing, to say the least: Bids were coming in nowhere near the price that would be required to actually purchase one of those vehicles. Assuming there were any bids at all. Many bidders, on the other hand, were offering top dollar for the popular new Camaro.

Second Note to GM: When you have products that are hot and desirable and whose inventory is extremely limited, that situation will drive the price up in an auction. When you try to auction a mass-produced vehicle whose production levels are going to exceed customer demand, auctions will drive the prices down; in effect, you are intentionally diminishing the value of your own product with the public.

People who have either purchased or sold new automobiles know that sometimes it takes hours of negotiation to get an offer that returns even a minimal profit to the dealer. Online auctions will not suddenly make wary consumers offer so much money on the vehicle that it sells profitably.

As for the salespeople, does GM think they are going to take hours and hours to sell customers on the features and benefits of a vehicle, then be totally cut out of the potential to make a living because, instead of returning to the dealership, the buyer tries to get a super deal at eBay? Well, those cars are not going to be sold at a loss online. Therefore many frustrated customers, realizing they can't buy the GM product at 50¢ on the dollar at eBay, will simply go to another brand of vehicle and negotiate another purchase elsewhere.

Moreover, because its concept of selling cars that have fixed costs at auction will die on arrival, GM will have given itself another black eye with the public.

Ask Your Experts! Fifty years ago when new models came out, they were delivered to dealerships hidden under wraps, and the tarps came off only when dealerships had their new model year open house the third week of each September. The secrecy excited the public and packed showrooms every year; even those that didn't buy wanted to be the first to see what was new. Too bad the new guys haven't had time to brush up on GM's many past successes; but even more recently, they've learned nothing from watching Japan. By playing their cards close to the vest, the Japanese maximize the excitement, surprise, and delight among both buyers and sellers.

GM, you introduce cars far too long before they can be bought. You make promises you can't keep. And then, instead of building value and driving margins up to where GM returns to profitability, you're once again diminishing how customers view your products by constantly finding ways to drive the prices down.

It's clear that you guys have no idea how customers go about selecting and purchasing a new vehicle. You continue to act like you think that if you simplify the selling process, people will return to the flock. True, people want a "deal" when they buy a new car. But more important, they want to buy something exceptional. Today, GM has many exceptional products, the best in their history. The automotive selling process, done right, has little to do with negotiation: It has everything to do with building value in the vehicle.

Your best dealers know how it's done. You should listen to them.
Ed_wallace
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Assn. He reviews new cars every Friday morning at 7:15 on Fox Four's Good Day, contributes articles to Businessweek.com, and hosts the top-rated daytime talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: wheels570@sbcglobal.net, and read all of Ed's work at his news site, www.insideautomotive.com.

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