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Monday, March 28, 2005

Staying Afloat in a Shrinking Boat

A reader recently emailed me in response to my Kill Pontiac post, and pointed out that killing a whole nameplate would be devastating to the GM dealers, and in turn devastating to GM. That is true.

There is just too much auto capacity on the market. With Hyundai/Kia gaining, Chrysler gaining, BMW gaining, Toyota gaining, there has to be some big losers. And China is on the horizon. Unfortunately for us Detroiters, the market share has to come out of GM and Ford.

The goal for GM and Ford is not "how do we win back the market". The boat has sailed, Americans are buying foreign carmaker's products with abandon. The goal is "how do we stay profitable, and retain the market share we have now". The only way to do this is to figure out how to make money as a smaller company than you were 10 years ago. The way to do this is not to pile cash on the hood of sub-par products, you'll just high-volume yourself to death. GM needs to shrink. It will be painful and destructive. The company is getting rid of 2000 salaried heads, and it will need to close plants as well.

GM will lose dealers if they kill Pontiac. But GM will also lose dealers in some areas if its market share keeps dropping--they will just starve to death.

8 comments:

Anonymous said...

As you point out in your Kill Pontiac post, GM is behind in the tech race but will killing Pontiac do anything? I doubt it. GM had an engine that could more than compete with the Honda lump you lovingly gush about in that post. It was the 3.5 litre DOHC Olds that was 75% of a Northstar.

GM shuts down Olds, but does not keep anything good from it. Not only did GM not find room for some of the only technolgy it had that was up to import levels, it also killed off the cars that could have competed in terms of style and content. GM could have repaced say, the Bonneville and Lesabre with variants of the more advanced Aurora, or at least salvaged bits from it's drivetrain and interior, but chose not to due to cost. The direction Olds was going could have saved more of GM even if they just distributed some of the good bits at it's demise. But no, GM continued with pushrods, fluffy seats, toy instruments, and dashes that look like they are made along side cheap plastic beer coolers.

If GM kills Pontiac, don't kid yoursef, all the good bits will be thown out too. Some beancouter will come up for a reason why, and that will be it.

Buick has way too much stigma attached to it to do GM any good. If GM is going to get anywhere with this sort of suggestion it would be to roll the divisions into one, but maintain product differntiation through almost a trim-level option. This would be transparent to the public, but derive all sorts of economies at the corporate level.

Anonymous said...

GM could NEVER roll all it's divisions into one. Dealers have paid to get franchises. Someone with a standalone Chevy dealership couldn't suddenly start selling the exact same products as a Pontiac-GMC dealer across the street, who both sell the exact same products the luxury Cadillac dealer down the street. The legal and monetary ramifications of this would far from "transparent."

The Auto Prophet said...

I too mourn the end of the "shortstar" engine.

Anonymous said...

You misunderstand me. Rolling them together may have larger dealer issues, but it's all a matter of execution. All Buick dealers now are also pontiac dealers from the standpoint of GM and vice versa, but can only order their unique product codes. Head office duplication is elimiated, Two marques are seen by the public, and dealers. Better than killing one of them off. What are the dealers gona sell then?

higb said...

I won't be "anonymous" in this thread because someone else nabbed it first.

I'm listening right now to a GM report here and surfing at the same time.

I'm surprised you are talking about 6-cylinder engines. Out here in California it seems the market splits one of two ways. Either they go for an SUV, or they go for the little 4-cylinder sedans: Corollas, Civics, Jettas. That's my "freeway view" anyway.

I'd expect that segment to grow ... and isn't it what GM is missing?

MxHdrm said...

Sure GM has to shrink, but ti's a questions of demographics as to which division is killed. If the market share is in youth, Pontiac may be able to grab some of the kids by offering a sportier alternative to Chevy. Remember the GTO kicked off the muscle car craze. Whereas Buick is seen as an old man's car. And if the market swings that way, retirees in Florida will be charting a course with Roadmasters again.

I think it will call come down to the demos. Find the biggest chunk and market towards them. As for the technology, the general has done this before. Some technology stays on forever, i.e. the small block and new tech comes late to the party as in the ecotec.

Tom DC/VA said...

If GM were to be bold, in the US it would kill Saab, non-commerical Izuzu, non-commerical GMC, Hummer, Pontiac, and cars at Chevy (except the Corvette). All of them. Dead. GM does not need all those brands. Saab was dead once the 9-2 was bungled. Izuzu has several pointless rebadges of GMCs and nothing interesting of its own. Hummer will be killed by rising oil prices. Non-commerical GMC completely and pointlessly duplicates offerings at Chevy. Pontiac differs from Buick mainly in marketing - the brands overlap more with each other than any other brand - so it is redundant. Other than the Corvette, Chevy's cars are widely regarded as ugly jokes and have been for decades

Surviors would be Cadillac, Buick, Saturn, and Chevy trucks. Cadillac would be the global premium brand that competes against Mercedes, Lexus and the like (though it still lacks a 3-series fighter). Buick would build the great American bloatmobile for older people who don't want to ride a performance suspension across America's crappy roads, or to shell out for a Caddy. Saturn would be the brand that would compete with the Toyotas and Hondas. Chevy would build the trucks and SUVs (and perhaps cars for fleets so the resale value of the other brands doesn't get crushed).

But GM is never bold, so they will slowly ax brands in a series of embarassing rearguard actions. I expect Buick to be the first to go, with the consequence of sending Avalon sales through the roof.

idd said...

It's not just about killing a brand, they also have way too many models: 89.

That's right, 89 models to achieve 24.7% market share. Toyota has 26 models and 12.6% share. They need to cut at least half of the vehicles they currently offer in order to spend as much on engineering and advertising on a per-vehicle basis as Toyota does.