GM’s Long Road Ahead
By Brendan Moore
After a much-delayed restating of results due to accounting discrepancies, GM announced a net profit of $950 million USD in the fourth quarter of 2006. General Motors took in $207 billion in 2006, but nonetheless lost $2 billion for the year. GM stated that the results showed that there was still quite a bit of cost-cutting to do going forward.
Additionally, GM needs to wring out substantial concessions from the UAW this summer, and in a recent development, has lost some of the financial cushion it expected to have from GMAC as a result of expected defaults (approximately $1billion) on sub-prime mortgages projected for this year.
Of course, all of this would be a sidebar to the real news of a wonderful 2006 if GM was able to sell cars at the same levels of profit as Toyota. As an example, if GM matched Toyota’s return on sales of 5%, GM would have made a profit of over $10 billion in 2006.
There is no doubt that General Motors needs reductions in their costs, wherever those cuts come from – union healthcare concessions, platform sharing, manufacturing efficiencies, etc. But they also need to sell more of what they have and without resorting to rebates and incentives, which drain away profit. Many new models were launched recently, and have made a good accounting of themselves in the automotive press. Yet, except for the new Silverado pickup, those models (i.e., Saturn Aura) are not getting the volume of customers they should proportional to their press clippings.
Why is this?
Putting aside the developments with Chrysler for a moment, even the most optimistic of brand managers at the Big 2 would tell you Ford and GM have been in trouble for a long time, losing market share to the imports in steady fashion. Ford is actually in much worse shape than General Motors at the moment because General Motors, as mentioned, actually has some pretty good product out right now and a lot more really good product in the pipe. Ford has some vehicles that are good and almost nothing in the pipe. Ford almost deserves the kicks it’s getting right now from the buying public, at least in terms of paying the wages of sin, anyway. The poor guys that just showed up (read: Mulally) at Ford don’t deserve blame for the past neglect foisted upon the company, but those are the breaks.
So, let’s focus on GM for a minute. Even though General Motors has much better product than Ford available now, it’s really not doing that much better in terms of sales of cars. Trucks and SUVs, sure, they’re doing well, but GM has some very good cars that are just basically being ignored by consumers. This brings me to the reason GM had a bad January and February in 2007 and will probably have a not-so-great March, too:
Despite the fact that General Motors has some good cars to sell now, most people in the United States just refuse to believe it. This is a huge problem for GM and will continue to be a problem for years to come. So the unfortunate situation is that many millions of people in the United States have a dated perception of GM that has been eclipsed by current reality.
And here’s why – General Motors put out a lot of junk (except for trucks) in the U.S. for about 30 years, and there is no one that blasted GM more than I did in those years. However, some of the vehicles in their product line now have achieved parity with the best that the Japanese automakers have to offer. Not all, mind you, I would say, but rather a growing minority. But there is some excellent product at General Motors here in the States if you know where to look. Unfortunately for GM, perception lags reality – witness the many opinions offered by millions of consumers here in the U.S. about how EVERYTHING made by GM is awful. Usually this is followed by some anecdote about some awful GM product they had in the past. I’m reasonably certain those same people would also offer up a contrasting anecdote about their wonderful Japanese or European car that racked up a huge amount of mileage on the clock and rarely broke down.
Now, despite what some people may think, big ‘ol fat dumb GM is acutely aware of this. But, what can they do? There is not enough marketing money in the world to erase the past, so all they can do is keep making their cars better, keep pointing this out to automotive journalists and the public and hope that people notice. I am not taking on the role of apologist or cheerleader for GM; I am simply stating the facts.
Yes, many of their models need a lot of improvement (I just described three of them in print recently as “craptastic”). But there are quite a few models that are very, very good, and deserve consideration if you’re looking at cars in their particular segment. General Motors is on its way back, no matter what some sizable percentage of the public says.
It’s painful to the people at GM that all of GM’s vehicles get tarred with the same brush of outdated perception, but then again, GM has no one but themselves to blame for the current point of view many people have about General Motors. Everyone seems to have an anecdote about a lousy GM car that they had, or their brother had, or their best friend’s fiancée had, or whatever. As I said, GM put out lousy cars here for about 30 years and since they are still the largest car maker in the world, that’s a lot of lousy cars, and a lot of lousy car anecdotes. Millions upon millions of lousy car anecdotes. There are currently a large percentage of people in the U.S. that believe in their heart of hearts that if a car has any General Motors badge on it, it’s rubbish. They don’t need to drive it, they don’t need to look at it – no need, it’s junk. Nothing, and I mean nothing, can dissuade these people from this point of view. It’s going to take many years of good cars across the model lineup for people to change their opinions about GM. And until that happens, it’s going to be very much an uphill struggle here in the States for GM to take away car sales from the imports. If I had to guess, I would say that GM is simply at the end of the beginning of their long rehabilitation.
GM needs to sell enough of their current cars that are good/great before something ugly happens from a financial perspective in order to allow public perception to catch up to the reality that they’re got some pretty nice iron available. And how long will that take? I don’t know, and I don’t think anyone else does, either. Regardless, none of what I’ve written here is a secret to anyone at General Motors. They are all well aware of how much the General Motors brand has been damaged over the years. But, to give credit where credit is due, they’re dug in for the long haul. They intend to be around for a long, long time. As an auto enthusiast that enjoys having a lot of choices in terms of companies to buy from, I hope they’re successful in turning GM around.
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