The Long Road Down – Part 2

Read Part 1 – HERE

By Jerry Weber

08.20.2007

Part 2:

Since GM controlled the marketplace during most of the 20th century, the other manufacturers had to follow in most major ways. Therefore, the annual model change, styling, color, features, & marketing, were creations of the General and copied by the other aspiring companies. But GM was not perfect, and their mistakes gave their competitors at least an occasional, if temporary, advantage over them. For example, in 1956, the “jetaway hydramatic” automatic transmission failed constantly. It was used in the Cadillac line, and there were an awful lot of angry well-off Cadillac owners as a result of this engineering failure. In 1959, the GM styling studios went so far over the top with the Chevrolet tailfin that Ford actually passed them in sales with a much more conservative Galaxy model. However, these let-downs were the exception, not the rule and GM could mostly cruise along in the market unmolested.

It seems as time went on GM’s “little mistakes” became more prevalent, and more far-reaching. The Chevrolet Vega of the 1970’s was a far worse car than the much-maligned, but brilliantly-engineered Corvair of the 60’s. In fact the Vega was defined by many enthusiast magazines and consumers as junk. A later evolution of GM’s small car called the Chevette was somewhat better but no match for the Japanese builders.

After scoring one of their last great successes with the 1977 downsizing of their full size cars, GM was basking in their dominance of a market they liked and understood best, full sized cars. The 77-79 cars were well packaged, reliable rear-drive cars that under-girded the line from Chevy to Cadillac. Good cars like the 1979 Chevrolet Malibu and excellent cars like the 1977 Cadillac Seville were good examples of GM’s skill in this segment. And with no Japanese or German competition in this size and price category sales were assured.

Only two years later came the bomb of this era, the Oldsmobile 5.7 liter diesel V8. This was to be GM’s answer to the question of how to keep big cars in the mix while raising economy in order to weather a second oil embargo in 1979. However, the under-built, badly engineered diesel engine that had been converted on the cheap from a gasoline engine failed at alarming rates. Worse, GM used the engine in all their divisions up through Cadillac. Then in 1980 the previously scaled-down full sized cars were given an injection of steroids and looked much larger again. This did not help sales.

80’s musclecar from GM – 1983 Chevrolet Citation X-11

In 1985 GM downsized full sized cars again and this time the results went past plain and were, frankly, unattractive. The new full-sized cars were as blocks of soap carved in three boxes. The front drive unibody models were very utilitarian, but very ugly. Worse the Buick, Oldsmobile and Cadillac renditions looked almost identical. At this time Lincoln, who was only re-skinning their old frame-on-body Town Car, gave it a Rolls Royce prow and advertised that it didn’t look like a Ford or Mercury. Lincoln finally got some traction against Cadillac. After this fiasco, GM reintroduced the old frame-on-body Cadillac Broughams, Buick LeSabres, and Chevrolet Caprices. However, they kept making the front-wheel drive full-sized and smaller-sized cars as well, not seeming to know which way to turn. The Eighties were not kind to GM and in 1989 a huge financial crash led to their first major down-sizing of the company. As I commented in the first part of this series, I believe some management deadwood was indeed given the boot at GM, but along with it, many good stylists, engineers and others left, thus handicapping GM in regard for future changes it would need to get back in the game.

The most serious loss during this period of poorly-executed cut and paste was the brand identity that was Alfred Sloan’s (Al Sloan was for forty years the iron-fisted Chairman of GM) lasting imprint on GM. There was never a question as to which car you were looking at, and which of the five GM divisions the car was from, as each brand had a distinctive look and closely followed the size parameters and luxury add-ons allocated to their specific brand. The old joke was very true: A bank teller had a Chevrolet, a branch manager a Pontiac, a Jr. VP an Oldsmobile, a Senior VP a Buick and finally the president and CEO had (of course!) a Cadillac. You simply substituted brands as your position in life improved. Of course if you stayed in the same job, Sloan’s GM had the annual model changes you could count on as well as an all-new look every three years.

Don’t laugh – it worked for forty years.

But, when all the cars looked alike, GM really didn’t need 5 divisions. And now with all the brands selling less, the annual model change was pushed back to every several years, and then, even worse, with a new tight budget allowing little but grill and taillight differences between many brands. If you’re skeptical, get out the old pictures of the GM cars from the 50’s and 60’s and tell me how many parts of the exterior matched between the different brands. The divisions were always meant to compete with each other for business while cooperating behind the scenes on sharing parts and knowledge, with the new features generally showing up on the higher-priced brands first and cascading down in subsequent years. For instance when Oldsmobile got the hydramatic transmission, it was only exclusive for the first year or two and then the other divisions would begin to share it. Air conditioning (stunningly expensive at the time) started in 1953 with Cadillac and within a couple of years was offered by all five brands. When the divisions were lumped together in the Eighties and given names such as Buick-Olds-Caddy (the large-car division) there went all of the above-mentioned distinctions for cost reasons.

GM lost dominance during this period in many other different areas. They once made all sorts of things: locomotives, earthmovers, refrigerators, buses, heavy-duty trucks, tractors etc. In all of these sectors they were leaders, but the car business was the crown jewel of the empire. As they pared the empire down to the auto base, it became clear that the cars would have to be successful all of the time as GM was not as diversified as they once were. Even the captive parts plants were cut loose. It never dawned on the GM execs that if Delco can’t make money under GM tutelage and sponsorship, how were others going to run these plants profitably? But for about 10 years GM, Ford, and Chrysler were able to sell off parts plants and then drive the cost of these parts down by forcing the new ownership of these now-independent companies to keep reducing prices. This game came to an end after 2000, when one by one the parts makers declared bankruptcy, leaving GM, Ford, and Chrysler in quite a jam, and in the unenviable situation of having to rescue their old companies just to keep the parts coming for the assembly lines that were producing their cars. In other words, for the last twenty years, the Big Three have been selling off the seed corn to feed the beast. Now even GMAC is half gone and Allison transmissions too. Either the cars now make money, or there is no Plan B – at least here in the U.S.

It has been stated endlessly that at the present level of sales, GM can probably only support three car divisions and one for trucks. How to realign GM is another topic entirely, but in my opinion, it cannot update five car and two truck divisions in a timely manner to keep up with the current competitors.

Let’s take a look. Toyota, which includes Scion, has one other division Lexus (and about one-fourth the dealers), Nissan has Infiniti, and Honda has Acura. All of these companies are challenging GM for leadership and do it with a high & low division lineup and a lesser amount of strategic dealerships. Which is the second serious problem; a Buick dealer sells 8 new cars a month, a Toyota dealer over 100, and that’s average. Guess who is the best-financed and heavily-advertised in their respective towns? GM cannot grow back large enough and quickly enough to support all their divisions without severely limiting the amount of new product and advertising support each division gets from the parent company. So divisions and dealers must go to get down to fighting weight. Can this happen in time to save them? There is opinion on both sides of the aisle. Lately GM seems to have stopped the heavy losses, but are they generating the capital to keep going forward? They certainly are producing better products than in the past. Their cars and trucks win awards with magazines and auto journalists more than their other two domestic rivals. However, so far, the sales have not recovered (or stopped declining actually). What will it take for this to happen? I could collect a lot from the General if I knew.

The next short analysis will be on Ford. While many of their problems are the same, their issues come from a somewhat different background, and, it is important to note, despite a long history of competition with General Motors, Ford has never been able to wrest the sales leadership crown away from GM. It took Toyota to do that, and Toyota’s sales gains have not come exclusively from acquiring former GM or Chrysler customers only – Ford has taken a beating at the hands of the Toyota machine in the past decades. And Ford is truly in a do-or-die situation for the next 36 months, whereas both Chrysler and GM have more breathing room than that.

COPYRIGHT Autosavant.net – 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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5 Comments

  1. The Vega and the X-cars didn’t helped GM. And for a little joke to post. I could said then Toyota might had paid Roger B Smith and some others bean-counters under the table to destroy GM, lol!

    I can’t wait to read the next part about Ford, are they more in a do-or-die situation then Chrysler with Nardelli? Looks like Bearhawke, a forum poster who post often on Allpar forums could be right on the target about Carlos Ghosn of Renault-Nissan for a “partnership” with Ford in case R-N couldn’t get Chrysler if Cerberus decide to sell. However wasn’t a similar moment then Ford was in the same situation? I taught of the 1949-51 Ford-Mercury-Lincoln models who saved FoMoCo from the fall and allowed Ford to recapture its #2 position from Chrysler. (From 1933 to 1951 or 1952 some other sources even mentionned 1953 at the beginning of the Ford-Chevy price wars, Ford was 3rd behind GM and Chrysler), I don’t know if the lightning will strike again in favor of Ford…

    Now, we can wonder how long Toyota will remain at the top? With China and India coming as well as Hyundai resurgence (and who knows? Even GM resurgence), it’s doubtful then they could stay 40 years on top.

  2. I think Chrysler has less time than Ford, and I think that was made clear with the appointment of Bob Nardelli to the CEO position.

  3. The Corvair was a very good car and it’s a shame that Nader went after it. Nader’s rant didn’t kill the Corvair, but it sure didn’t help the case for it’s continued existence. Its fun to speculate what if regarding the Corvair, and what the later generations would have looked like in the Seventies and, heaven forbid, the Eighties.

    Also, the Vega was a piece of flotsam and the Chevette was jetsam.

  4. Ford and GM will survive as much smaller, more international car producers in the future. Chrysler will either survive as a dramatically smaller company, be broken up in pieces and sold off (high bids for Jeep!), or sold to a Korean/Chinese/Indian company who can use the dealer network while they make most of the vehicles in their home country. The American auto industry will never be what is was, and will never be again even what it is now. Get used to it. They have no one to blame but themselves.

  5. Thanks for the picture of the Citation X-11. It came out when I was eighteen and I clearly remember my sudden realization that the U.S. car companies were pushing tarted-up junk. To make matters worse Car and Driver magazine gave the X-11 a great review. Even as a teenager I could see the truth. I resolved to never own an American car again and haven’t looked back.

    I’d love to see a thriving U.S. auto industry. Too bad the people who run it have so little integrity. Other companies have treated customers squarely and have been rewarded for it (Volvo, BMW, Toyota, Honda, etc.).

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