GM’s Long Road Ahead

 By Brendan Moore

03.15.2007

gm-logo-small1After 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.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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19 Comments

  1. How about a list of the top 5 GM cars you have found to be well-made?

  2. Not a problem –

    In no particular order, here are some good/great cars from GM:

    Saturn Aura XR

    Cadillac CTS

    Buick Lucerne CXS

    Saturn Sky/Pontiac Solstice

    Chevrolet Corvette

  3. I think you’ve got it exactly right. I admit that I am one of the people that dismiss any domestic car immediately. I have owned 4 Toyotas in a row and I never looked at any other car when I was car shopping for the last four times. The last American car I owned was in the early 1980’s and it was a piece of junk that cost me a lot of money in repairs and left me stranded a couple of times. I went to Toyota (1982 maybe?) and have never looked back.

  4. It’s people like you that are part of the problm. There is nothing wrong with American cars, but when you write that American cars are crummy, then people beleive you. It is the liberal media that has turned American against american cars and everything else Americn. USA is nunber 1!

  5. carman – Are you kidding me?!?! So, basically, your point of view is that as long as you don’t say something out loud, then it doesn’t really exist?

    How the USA ever got to be No. 1 with guys like you on our team is a mystery.

  6. I owned two Camrys in a row and took a chance on the new Saturn Aura a few months ago.

    Great car. It seems like the best kept secret in the marketplace. If only all GM cars were this good, they wouldn’t have a problem.

  7. American cars are nowhere close to as good as Japanese cars. If there is anyone that really believes this, then they need their head examined. The domestic car companies will go out of business in the next 10 years and that’s just whate they deserve. They make terrible cars.

  8. A fine article stating some glaringly obvious truths. It baffles me, the way that Americans on the one hand vaunt their patriotism – and I don’t doubt or disbelieve them – and on the other express the greatest disdain for their own manufactures while eagerly enriching foreign companies and treasuries.

  9. I got here from the GMI site and I have to say, you have it right. GM put out a long unbroken line of mostly bad cars for decades. Now they’re paying for it big time. Even people that have never owned a GM car will tell you never to buy one – they’ve heard enough people repeat it over and over again, so they know it must be fact. In fact, some of these people are young people that have only ever owned ONE car so far in their life, period. They’re hardly experts on cars but they’re absolutely certain you should NEVER buy an American car.

    Where I live in SoCal, if you told someone you were thinking of buying a Pontiac, they would just think you were retarded and probably just not talk to you about cars any more. In SoCal, imports rule.

  10. The perception isn’t entirely inaccurate. Ford is doing a better job than GM of matching Toyota in terms of reliability. Then again, the difference is a few tenths of a repair per car per year in many cases.

    The latest results of my research in this area:

    Vehicle Reliability Survey results

  11. Very perceptive, and it’s all true. In my circle of friends, you would be considered somewhat mentally-deficient if you told people you were going to buy a new GM car. The trucks are perceived as good vehicles, but the cars are not, no matter what the current reality is.

  12. Its difficult for me to feel symapathy for GM at this point. Especially after suffering through four of their sub-standard cars in a row in the late Seventies and early Eighties. I went over to the Germans and have never looked back. In fact, I cannot envision any scenario in which I buy a GM car, or for that matter, any American car EVER again.

  13. Things turn around in the car business, let’s not forget that! Fiat was on it’s deathbed a very short time ago, and they are the new darling of Europe now with red-hot sales and kudos in the press. GM has some good cars now, and more on the way. It’s bad, but not as bad as some make out.

  14. I have a 2005 Cadillac CTS and it’s a great car. And it’s been very reliable. I’ve owned 23 cars and those cars were American, German, Japanese. This Caddy is as good as any of those cars in terms of quality. I’ve never owned a truck from anyone, so I can’t comment on that, but if my Caddy is indicative of GM’s car quality now, then they’re going to do all right in the future, I think.

  15. I agree completely with this article. I owned crappy GM and Ford products in the past, but have now moved on to the imports.. namely Honda and BMW. Never in my life will I ever spend my hard earned money on a GM or Ford product again. Back when I purchased those cars, money was much tighter for me, and having to fork over loads of money on repairs because of a lack of quality has left me with bitterness toward those companies. I simply do not care if their product has improved. They deserve to go bankrupt for the heaps of crap they shoved on consumers years ago, and it looks like this will be the final outcome.

  16. Fool me once. Shame on you.
    Fool me twice. Shame on me.

    I’m 42. I’m tired of being asked to accept shoddy workmanship in the name of being patriotic. I’m tired of being told again and again, “Trust us this time. We’ve got it”.

    With cars costing $30k and up, there is simply too much money to risk getting burned again. I’m no longer betting on your horse.

    Sorry big 2.8. You blew it.

  17. I don’t care what their cars are like now because I’m still angry about the GM cars I bought previously that were pure unadulterated junk. Not only were the cars junk, but the begrudging, poor service I received while the car was under warranty left a pretty strong negative impression as well. No way I’m ever buying another GM car. It’s the Germans for me, my friend!

  18. It is very interesting to read this post and comments with the post now, near the end of 2009. GM still has the same problem, but so much has happened on the way.

  19. This will probably still be true a few years from now. GM will still be floundering and will still be trying to atone for the bad things they did to American consumers for thirty years.

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