Putyourhandsup4detroit is no stranger to GM haters. Actually, sometimes we ourselves are GM haters. Occasionally we are GM lovers. Example; Pontiac Aztek, hater; Cadillac CTS-V Sport Wagon, LOVER! But never did we foresee the hanky-panky of liberal-conservative crossfire latch on to the timeless Chevy-Ford rivalry. If you didn't get the memo, the "pro-American" Americans are drivin' the Blue Oval now.
So quick recap: after decades of craptastic product and business management at General Motors, the invisible hand finally had its way with the General. Well the that is almost had its way until the Obama Administration stepped in. Throwing a very generous lifeline to an undeserving company, GM was given loads of new capital, a pre-packaged bankruptcy procedure, and a nice clean balance sheet on the other side. Too big to fail is how it this second chance was billed. Conservatives were/are livid. Never mind how grim GM's predicament looked pre-bailout, how many jobs were saved (arguably the most effective stimulus package), or how massive the potential economic catastrophe had GM failed, what's done is done. GM lives today and some conservatives are dying to see it fail.
No, not because they love Toyotas, or BMWs, or well-made cars, of course. Some conservatives want to see GM fail as vindication of their own dogmatic ideology. It is hard to admit maybe you were wrong. Other's would like to use GM's failure as a criticism of the Obama Administration. So what does all this political mumbo jumbo have to do with cars? Fast-forward to February 2011, when conservative-hack Peter Flahtery writes a piece on not if, but when "government motors" will fail. Honestly, we feel like we have read this article about GM for the last 40 years, so we have to take everything with a grain of salt. However, we decided to evaluate how well we think GM is doing.
Mr. Flahtery's main contentions are that the current CEO at GM, Dan Akerson, is going to drive the company into the ground. He argues that Mr. Akerson is an Obama-insider/socialist who will implement the Obama Administration "agenda." Mr. Flahtery cites several Internet blogs which criticize Mr. Akerson's desire to make his mark on GM, change management, and move GM to more of a "marketing-organization." Finally, Mr. Flahtery cites the decision to increase production of the Chevy Volt (hybrid--hiss hiss). So GM will therefore fail and the bailout was a waste all along. Did we mention that we hate Obama and Hybrids?
So first, its too early to tell how Dan Akerson will perform. He has a background in finance and private equity--hardly a socialist or Obama Administration insider. As for his vision of GM, the blogosphere sounded the alarm too soon. Car people are sensitive to finance/marketing speak because some of GM's worst CEO's focused on finance and marketing. This doesn't mean that Mr. Akerson will fail. The blogosphere's biggest concern is that Mr. Akerson is new to the car business and doesn't have the experience to run a car company. Nevermind that the CEO rockstars at Ford and Fiat/Chrysler also never had experience in the car industry prior to running Ford/Fiat yet seem to be very successful. Likewise, many "car guys" have performed terribly. The blogosphere also forgets to mention that when Mr. Akerson says "marketing," he means involving consumer input and industry benchmarks into product planing, rather than just "here's the car, go sell it." He also sees eliminating insularity. If this is what marketing means at GM, then that is something we can get behind. At the end of the day, its all about the product.
And what about all the Chevy Volts? Well maybe Mr. Flahtery is just anti-hybrid, but as long as market demand calls for production (why would GM manufacture vehicles for which there is no market demand?). Obviously the tax-rebate helps demand a lot, and just because Mr. Flahtery disagrees with this policy choice by the U.S. government, that doesn't mean GM will fail. Rick Wagoner, the famous GM CEO who oversaw the bleeding of tens of billions of dollars in the year prior to bankruptcy, commented in retrospect that his biggest mistake at GM was not developing a hybrid like Toyota. I am willing to be that Mr. Akerson doesn't want to make that same mistake with electric cars either.
So is this concern about GM all overblown? Well, no. There are still many reasons to worry that the General is nowhere close to being out of the woods:
First of all, GM needs to cut costs. While it has made progress, GM needs to achieve more efficiency than it already has. Ford and Chrysler have made bigger gains in the last year than GM in trending toward profitability (GM and Ford are now profitable, Chrysler just broke even, but started with huge losses). Most of that restructuring needs to occur in GM Europe, but GM North America has more efficiency to wring out.
Second, GM has mediocre brand appeal in the U.S. This correlates with average reliability, but also bad marketing. Most people would never know that new Buick will rock your socks off. Seriously, the Buick Regal will take an Acura TSX to town. Better marketing will certainly help (GM has a history with terrible marketing/advertising). Likewise, GM has made huge gains in reliability. It's still no Honda or Toyota but GM is not as far behind as you might think. Most new GM products since 2007 have been pretty competitive. You would be surprised.
Third, we worry that GM might is getting left behind on the technology front. Yes, the Chevy Volt is a trail blazer, but one vehicle does not make a global car company. For example, GM recently debated whether to develop its new 8-speed automatic transmission for front-wheel drive, or rear-wheel drive. It was leaning against developing the transmission capable for both because of cost concerns (it is essential to keep up with the competition and have an 8-speed for all vehicles). However the decision to make Buick a luxury brand rather than "near-luxury" is completely opposite of the old GM, where near-finished product sufficed. That is exactly the type of decision making we think GM needs to be making.
Fourth, GM needs new products and fast. Because most product development was frozen during bankruptcy, GM has some catching up to do. Some analysts expect GM to lose market share (it did in 2010) for the next few years. This isn't as bad as it sounds since GM's sales increased significantly in 2010 thanks to a rebound in all auto sales did. Likewise, January 2011 was a good month where GM picked up market share, while decreasing fleet sales. As long as auto sales continue to climb back to a "normal" rate, GM can lose a few tenths of a percentage in market share and still be fine. Also, GM is number one in China where sales for 2011 are expected to reach 20 million. This will more than offset minimal market share losses in the U.S.
Things in the U.S. aren't all that bad. A small product wave is hitting dealers right now. For '11 GM added the Volt, and replaced its compact car with the new Cruze. For '12 it will add a new micro car called the Spark, replace the sub-compact Aveo with the Sonic, and redesign the mid-size Malibu. That is adding/replacing every car except for the large-sedan segment (sadly, the ancient Impala, and by ancient we mean dating back to 1988, will continue will now continue through '14 before any replacement). Buick's product onslaught will continue with the '12 Verano compact sedan and '13 Encore compact crossover. The weakest link is Cadillac, which needs the new ATS compact sedan now, as well as a redesigned CTS, and legit full-size sedan. Finally, GM's full-size trucks, SUVs, and Corvette were victims of the product freeze and are coming to the market in '14 or later.
Fifth, good sometimes is not good enough. The new Cruze, Volt, Equinox are good, but we wonder if they are good enough. We feel that the General's products need a little more passion and finesse. GM also needs to continue to improve its reliability. We have seen the new Cruze in person and it is handsome, if not somewhat conservative. Its interior is class-leading, but fully loaded it has a hefty price for the segment. We think this will ultimately turn-off shoppers and the new Hyundai Elantra and Ford Focus will be a better value.
However, things are not all bad. Like we said, GM is doing very well in emerging markets which will more than compensate for a mediocre performance in the U.S. Its products are improving and competitive, and we think GM is making a lot of the right decisions with the direction of Buick and Cadillac. Also, we think the new Chevy Camaro ZL1 is a positive move. Even if Dan Akerson doesn't prove to be the next Sergio Marchionne, he likely wont be Rick Wagoner and GM can replace him with somebody else (he is the third CEO since bankruptcy). And after all, America has purchased hundreds of thousands of Toyota Corollas and Camrys which goes to show that you don't necessarily need to be the class leader or even that good to be successful.
