GM's Brand Problem.

For good reason there is a lot of focus on GM right now. The company, close to bankruptcy and pleading for a federal lifeline, is the poster child for the American auto industry. I think a Democratic Congress will offer the auto industry some sort of lifeline, if only because American labor worked so hard this election to get out the vote. There is no way they can sit back and allow $700 billion go to the financial sector and nothing to the big three (at least nothing more than the $25 billion already pledged to U.S. auto manufacturers).

GM has plenty of problems, but the largest may simply be its stable of brands. GM can realign all it wants, but the company's flagship brands are clunkers in the U.S. market. I heard on the radio this morning that GM was planning on unveiling a new Buick LaCrosse at the January car show, a model the announcer said "GM was putting a lot of hope into." What a sad and telling statement. A Buick to me is a big, unwieldy car, brown, with a huge molded dashboard. It lurches when you put your foot on the gas pedal and it drives like a sofa. Unfair you say? You say the Buick has changed and my view is outdated. That is my point. No matter what GM does they don't have enough money to turn the American perception of the Buick brand around. It is too tarnished by 30 years of poor design and construction. All the (borrowed) money pouring into PGA sponsorships and Tiger Woods will not move the needle enough to save the brand.

Apparently the brand is a runaway hit in China. In 2006 sales of the Buick in China surpassed those in the U.S. Imagine how many of those U.S. sales included vehicles sold to rental car fleets at little or no margin? At least a third. GM should have pulled the plug on the U.S. Buick brand at that 2006 watershed mark and sold it only in Asia.

The Buick is the tip of the brand iceberg for GM. Another flagship brand is Pontiac. Rental fleet sales can make up more than 40 percent Pontiac annual sales, and don't fall below 30 percent in a typical year. Fleet sales help keep the production lines moving and the union workers building cars, but the margins are non-existent. Worse, the American consumer interacts with these brands at their worst in a rental experience. The vehicles bought for fleets are often the stripped-down, feature-free models. Hardly the ideal initial brand experience.

Buick, Pontiac, Chevrolet, and Oldsmobile make up four of the five starting positions. All those brands were gutted of value in the 70s, 80s, and 90s. Chevy made a comeback as a big truck brand, but truck sales fell off a cliff over the summer and the U.S. recession has stalled major household purchases even as gas prices have fallen back down. Hope for the brand may lie in the redesigned Malibu which has won several awards including 2008 North American Car of the Year. Overall Malibu retail sales are up 134 percent year-over-year.

On the bench we have GMC and HUMMER, two truck-only brands. How many truck brands do you need? The HUMMER is a one-trick pony that has seen its 15-minutes in the sun. The other bench player is Saab, which is a great niche brand languishing on GMs bench. Monthly Saab sales entered 2008 down 25%.While they have recovered somewhat, at 20,000 sales a year, what is the point? Perhaps Saab would do better with a European coach. I'm thinking Mike D'Antoni. The more this basketball analogy grows, the more I think GM is a team with three slow centers with band knees, a few small forwards, and a few international players who are under contract but only play overseas (Vauxall, British; Daewoo, Korean; Opel, German; Lotus, British; Holden, Australian).

I have left out two players. Cadillac, the other starter, and Saturn, the perfect sixth-man. The traditional Cadillac customer may be in a retirement home, not the  demographic you want to pin your hopes on, but it remains a valuable brand. Cadillac made a comeback of sorts during the luxury-mega-SUV phase with RAP stars, movie stars, and wealthy soccer moms, but that was a fad and fads don't make for sustained long-term sales.The new hybrid Escalade averages 20 MPG, a big jump from the 12 MPG regular engine, but at a $73,000 purchase price I wouldn't expect a lot of sales in this economy. Still, the Cadillac CTS sports sedan was the 2008 Motor Trend Car of the Year, and sports sedan is likely to remain a good category.

Saturn has to be looking around wondering "How did I get born into this family? Surely I was adopted." In a good month Saturn can approach 20,000 retail sales. The Vue and Outlook crossovers seem scaled appropriately for an SUV in the new marketplace -- small. In Saturn GM of all companies pulled off something amazing: an American auto manufacturer introduced a new brand and it was successful.

So how do you fix GM? There is nothing new here. Significantly reduce the number of U.S. brands and the models they produce and focus efforts behind those that remain. In the U.S. the Buick and Pontiac brands need to be retired. Cadillac should remain the high-end brand, competing with Lexus, Infinity, etc. Saturn is the value brand. Perhaps Chevy and GMC can be melded into a single brand, with the Chevy GMC as the truck end of the line, and Chevy for the car end of the line. The successful Pontiac Vibe can be oulled into the Chevy brand-family. Three brands is plenty. I'd keep Oldsmobile in my back pocket and experiment with it after the restructuring was done. The Oldsmobile brand is so old, so dated, that it is retro at this point. I could see it being reborn like the Cooper Mini and/or targeting youth like the Toyota Scion. 

Apparently nothing like this is going to happen, at least according General Motors Corp.'s sales chief Mark LaNeve. LaNeve told the Wall Street Journal that the auto maker had no plans to ax any more brands from its portfolio. That is why pouring bail out money into GM isn't going to help, it is just going to sustain the same old problem.

Comments

[Big Chief]

The management of the American car companies should be required to drive a Honda, Toyota and Lexus, then take the cars to their respective service departments. If they still don't know what's wrong with the American car industry they should look for a new line of work. The companies have no control of their dealers and their service departments, which are all over the lot and range from terrible to OK.
As an example Lexus dealers do not vary much from state to state.
Detroit is living in the 40's and 50's where owners traded in their cars every 36 months and the cars were built to be traded in for the latest models. Can't blame the workers because the foreign car companies build cars in the US with the same workers. Unless Detroit rethinks their business plan from engineering, production, styling and marketing when this economy improves they'll still be in the same fix.

[Roland Cailles]

Wow, just wrote the same about the big 3 a few weeks ago. I don't expect a bailout before the new year. As much as I hate the thought of 3 million unemployed, it's time the big 3 face the consequences of poor decisions and failure to innovate.

Thank you for sharing your insights.

[Brian Trueblood]

OK, I agree with your premise and argument. Now that the auto show has come and gone and the press has been astounded by the incredible shift in the car line-up, what are your thoughts on GM? Has anything in the last 2 months happened to lead you to believe they are going to overcome?

[John McDonald -- Former FHer and current GM Spokesman]

Dave -- Very insightful. As we now approach a "New GM" with four core brands (yes, Buick still outsells in China these days -- but China outsells the entire US market these days) ... I wonder if you would consider taking another look at the brand strategy? We're spinning off HUMMER, Saturn and Saab ... and Pontiac will close by the end of 2010. We're cutting our dealer body by 40% in the US and Canada to laser-focus our brands through high-profit distribution points. Customers will see higher quality cars with the latest dealership experience.

If you haven't been in an award-winning Malibu, CTS or Enclave, I encourage you to try one out. You may get the shock of your life.

Please give my best to all of my buddies at F-H.