Sunday, April 24, 2005

The Future of General Motors

You probably heard about "health benefits" were a problem, didn't you?


It is a sunny Tuesday afternoon in California and I’m driving It is a sunny Tuesday afternoon in California and I’m driving down a traffic-clogged freeway at the wheel of a white Pontiac Grand Prix.

General Motors has just posted a $1.1 billion first-quarter loss. Healthcare costs for current and retired employees are to blame, says Rick Wagoner, chief executive. On the car radio, analysts debate what can be done to get GM’s finances back in shape.

By the end of the three minute discussion I am apoplectic. Have none of these people driven a GM Pontiac, Saturn, Buick or Chevrolet recently? GM’s problems stem not from its spiralling healthcare costs but from its inability to build cars worth buying.

The Grand Prix is a case in point: cheap plastics, uncomfortable seats, bone-jarring suspension, the exterior dimensions of a large car combined with the interior space of a small car.

The American car-buying public agrees. The Grand Prix is Pontiac’s top-selling model, a “sports sedan” relaunched with much ballyhoo in 2004. But GM sold only 25,000 in the first quarter, a 44 per cent decline compared with last year.

Strip out cars sold to rental fleets - the one I’m driving belongs to Enterprise Rent-a-Car - and the figures would be even worse. To be sure, GM’s predicament is tragic. Despite 30 years of declining market share, the group remains a national asset, accounting for about 1 per cent of US gross domestic product...

Take the new Chevrolet Malibu, designed to go head-to-head with Toyota’s Camry and Honda’s Accord. Granted, it is less offensive than the Grand Prix. But it is nowhere near good enough to tempt buyers away from the two best-selling cars in North America. Malibu sales in the first quarter were 36,000, against 98,000 Camrys and 77,000 Accords.

Is lack of resources to blame for this procession of disappointing products? It does not help. Healthcare costs add $1,500 to the cost of each new GM vehicle, putting pressure on design engineers to use lower-grade materials and off-the-shelf components. Yet resource allocation remains by far a bigger problem.

For example, while Toyota and Honda were investing in gasoline-electric “hybrid” engines, GM pumped research and development dollars into hydrogen-powered vehicles that remain years away from mass production. The result is that the world’s biggest carmaker has nothing to compete against the new breed of hybrid vehicles led by Toyota’s Prius.

Similarly, while the Japanese companies were investing in their core products, GM squandered capital on the acquisition of Saab, the niche Swedish car company, and a questionable investment in Fiat...

Even when GM does place the right strategic bet, execution invariably lets it down. The Malibu, meant to be a money-spinner selling 200,000-300,000 a year, is a car so “utterly lacking” in charisma (the verdict of Car & Driver magazine) that Chevrolet stands no chance of reaching its target unless it offers deep, deep discounts. Shareholders’ return on the $1 billion or so invested will be low.

Incidentally, Cadillac has the following options available to equip your funeral coach:

QA8 — Chrome Wheels
  • Heavy-duty chrome wheels including spare

UG1 — Universal Garage Door Opener
  • 3-channel programmable HomeLink

U1R — Radio and CD/Cassette
  • 8-speaker ETR AM/FM stereo with cassette and CD player
  • Seek-and-scan, digital clock, TheftLock

U1Z — 6-Disc CD Changer
  • Located in glove box

But of course, those cars are generally rented too. Seriously, GM makes no car I would consider buying. Their cars are shoddy (with the possible exception of Cadillac, but I'll always suspect it's really a fancy Chevy), even decades after the 80s.

Don't blame the employees' health plans- blame the strategy (investing in Fiat?) and product mix.

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