The Arizona
Republic
GM's Financial
Troubles
Sure Seem Like Deja
Vu,
And We All
Should Care
By Jon Talton
The Arizona
Republic Business Section, 3-31-05
When General Motors Vice Chairman Bob Lutz hinted that the
struggling automaker may phase out Buick or Pontiac, dealers felt
they had been run over by a speeding SUV.
"We're the last ones to know," Phoenix Buick dealer Rusty Childress said. "You don't say that. Now consumers wonder about the long-term viability of the brand."
Although executives in Detroit quickly backpedaled, the incident illustrates the crisis enveloping the world's largest automaker. Ford is not doing much better. Yet the danger is not similar to the loss of a venerable firm like AT&T. Much of American manufacturing and the economies of whole states are tied to the auto industry. The Big Three have 20,000 dealers.
"We're the last ones to know," Phoenix Buick dealer Rusty Childress said. "You don't say that. Now consumers wonder about the long-term viability of the brand."
Although executives in Detroit quickly backpedaled, the incident illustrates the crisis enveloping the world's largest automaker. Ford is not doing much better. Yet the danger is not similar to the loss of a venerable firm like AT&T. Much of American manufacturing and the economies of whole states are tied to the auto industry. The Big Three have 20,000 dealers.
GM's troubles have been one constant of my career as a
financial journalist. Eighteen years ago in the Midwest, I was
covering GM's efforts to fight imports, cut costs, shed layers of
bureaucracy, improve technology and, most of all, make cars
consumers would want. Those were the days when CEO Roger Smith
thought it was a bright idea to trick out a Chevy Cavalier, call it
a Cadillac Cimarron and charge Caddy prices. Analysts wrote GM
obituaries. Talk about deja vu.
This time feels different. GM is losing money and market share even as the economy grows. Consumers aren't responding to incentives. Credit agencies are shoving bond ratings to just above junk status. We're soon to see an invasion of Chinese imports (get to know the Chery), and the Japanese are storming the last bastion of easy profits, SUVs and trucks.
Worst of all, the cars are still mostly boring.
Lutz was hired to correct that, but aside from the renaissance at Cadillac, the results have been disappointing.
"Lutz is a flash guy," Childress said. "He promised to create 'must-have' products. As it turns out, there's a lot of dullness in the styling." Childress points to the new Buick LaCrosse. "They tried too hard not to offend anybody. . . . What's sad is that the concept car of the LaCrosse was exciting."
It's especially sad considering that Buick was once one of the sexiest brands in the auto world. GM's strength once came from a combination of vast size and vertical integration, along with individual car divisions that attracted the best designers and engineers in the world. In the 1960s, this began to change as GM used the same "platform" across divisions - in other words, a Pontiac Firebird was a variation of the Chevy Camaro. In the 1980s, the divisions lost more autonomy.
Childress tells me GM still hasn't backed away from this "badge engineering," that stifles the creation of sexy cars.
Childress offers this advice: "It's about the product, stupid. It's not about rebates. GM has to get back to the core business, which is the product. . . . Whatever Toyota is doing, they'd better pay attention to."
This time feels different. GM is losing money and market share even as the economy grows. Consumers aren't responding to incentives. Credit agencies are shoving bond ratings to just above junk status. We're soon to see an invasion of Chinese imports (get to know the Chery), and the Japanese are storming the last bastion of easy profits, SUVs and trucks.
Worst of all, the cars are still mostly boring.
Lutz was hired to correct that, but aside from the renaissance at Cadillac, the results have been disappointing.
"Lutz is a flash guy," Childress said. "He promised to create 'must-have' products. As it turns out, there's a lot of dullness in the styling." Childress points to the new Buick LaCrosse. "They tried too hard not to offend anybody. . . . What's sad is that the concept car of the LaCrosse was exciting."
It's especially sad considering that Buick was once one of the sexiest brands in the auto world. GM's strength once came from a combination of vast size and vertical integration, along with individual car divisions that attracted the best designers and engineers in the world. In the 1960s, this began to change as GM used the same "platform" across divisions - in other words, a Pontiac Firebird was a variation of the Chevy Camaro. In the 1980s, the divisions lost more autonomy.
Childress tells me GM still hasn't backed away from this "badge engineering," that stifles the creation of sexy cars.
Childress offers this advice: "It's about the product, stupid. It's not about rebates. GM has to get back to the core business, which is the product. . . . Whatever Toyota is doing, they'd better pay attention to."
Indeed, the Japanese automaker is poised to become the
world's largest.
But it's unclear whether even sexy cars can save GM. The rules have changed. Capital markets demand a return on investment that encourages quick fixes instead of sound strategy. Cheap overseas labor is eroding the wages and benefits of middle-class workers - an achievement heavily driven by the auto industry.
This shake-up won't be as easily shaken off as the loss of hundreds of thousands of steel jobs, airline jobs, telecom jobs and textile jobs.
We're motoring along. But where are we headed?
Reach Talton at jon.talton@arizonarepublic.com or (602) 444-8464.
But it's unclear whether even sexy cars can save GM. The rules have changed. Capital markets demand a return on investment that encourages quick fixes instead of sound strategy. Cheap overseas labor is eroding the wages and benefits of middle-class workers - an achievement heavily driven by the auto industry.
This shake-up won't be as easily shaken off as the loss of hundreds of thousands of steel jobs, airline jobs, telecom jobs and textile jobs.
We're motoring along. But where are we headed?
Reach Talton at jon.talton@arizonarepublic.com or (602) 444-8464.
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