Where My Mind has Wandered

Detroit's Brand Problem, An Anecdote

I know that U.S. auto manufacturers have achieved a massive improvement in their products and reliability. The feedback from the recent auto show supports this. I think their brands are still a problem, and will continue to hurt the public perception of their new and improved cars.

I'll support this point of view with an anecdote. I have a colleague who is shopping for a new car. He is going to purchase one within the next 30 days. We were discussing the cars he was considering, and he indicated that he has looked at a lot of American cars but could not find one he wanted to buy. Of the Chevy Malibu, which has been praised by industry experts and highly recommended to him, he said "there is no way I'd buy Chevy Malibu because it is a Chevy Malibu."

Therein lies their problem. For 30-years American designed and manufactured automobiles were inferior and the brands are now tarnished for anyone between the ages of 30 and 60 -- the very people the most likely to have the buying power to afford a new car. Buicks are a success in China in part because the Chinese consumer never had to drive an old Buick LeSabre in the early 1980s. That is the terrible crime behind Saturn. GM, of all companies, successfully launched a new brand that achieved a reputation for quality and brand experience. Then they wrecked it by starving the company of resources so the could reinvest in old, tarnished brands. Yes, they made better cars with that reinvesment, but it takes a very long time to change brand perception. And the cars aren't the only thing that needs to change. Much of the mass media advertising and marketing of the U.S. auto manufacturers remains outdated and out of touch with the taste and preferences of American consumers, and the dealer experience also lags behind foreign competitors.

GM hits the brakes.

General Motors announced today that they are cutting back production for the first quarter of 2009 from 750,000 vehicles to 500,000 vehicles. I am curious to see which models will be reduced or shelved.

Waggoner relents, suggests GM may cut brands.

In his second appearance before Congress pleading for a bailout, GM CEO Rick Waggoner finally reversed himself and suggested that GM would sell off or shelve some of the company's poorly performing brands.  On the list: sell Saab and Hummer (assuming someone will buy them), turn Pontiac into a niche brand, and discontinue or sell Saturn. That isn't the list I recommended and the timeline is too long. Waggoner told Congress that the new, streamlined GM would be in place by 2012. That is ponderously slow and indicative of the deeper problems within GM. Get it done in 12 to 18 months or get out of Dodge ... so to speak.

Pontiac is slated to be the "high-value performance brand." That translated from Detroit-speak into English is affordable sports cars.Yes Pontiac muscle cars are part of the GM legacy, but the new G8 is one of the three worst-selling cars in the GM stable. One auto-industry writer lamented the potential discontinuation of the G8:

"If GM ultimately decides to pull the plug on the G8, it would likely be the last Holden-made GM product we would see in the States for the foreseeable future. That would be a shame, too, as the G8 has the rare combination of style, performance and value."

You know the industry is a mess when even the critics are part of the problem. Let's keep the bright red muscle car around even though no one buys it. If you want to see how well GM manages a niche brand just look at Saab. 

Saab is for sale, if anyone is buying, and no one is buying. Will anyone buy the brand if they stop production and put it on the shelf (even though tey only sell 20,000 units a year)? Probably not for much. But how long can GM continue to operate Saab at a loss if it cannot find a buyer? It is an unenviable position. GM has driven Saab into the ground, and they are trying to sell a luxury brand in a down-economy. 

Saturn is a sad story. GM launched a new brand with a clearly differentiated market position. They developed an enthusiastic, and loyal customer base. And then they dropped the ball. Now Saturn is "just not successful" according to statements by GM President Fritz Henderson. Saturn was GM's Scion, but once again, GM is not capable of managing a niche brand to profitability. Henderson can say Saturn is just not successful; I'd say GM's management is just not successful. 

Despite the recent announcement that GM was breaking their endorsement deal with Tiger Woods, Buick will remain one of the core brands. Let's look at the Tiger Woods situation for insight into Buick's brand value. GM spent $40 million over five years to secure the most recognizable spokesperson on the planet, pumped many more millions into tournament sponsorships and golf-related advertising, and they still could not move the needle. So they are going to save $8 million a year in Tiger dollars, which is pennies in Detroit, and do what with Buick? Exactly how are the going to focus their resources on Buick in a away that can change Americans' perception of the brand when their best effort over the last three years failed so spectacularly? I still think Buick should be sold only in Asia. 

Waggoner plans to have the new GM right-sized by 2012. I think the odds are even that GM doesn't exist in 2012.

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.