The trouble with GM
GM is having lots of trouble. Proof of this is that the company's market value is the same as it was in 1954 (possibly less). That means, if you had put your life savings into GM stock in 1954, and sold all of your GM stock this summer, that you would not have made a penny! Fifty years is a lifetime or more of investing to most people – and to have not made a penny, means that you really lost a ton of money through inflation.
Why is this? Are people at GM dumb? I think not - their engineers come from the same schools that Toyota hires from. They studied hard, and made good grades just like their classmates who are at their competitor companies. Rather, I think that GM has a management problem - one that starts at the very top. Think about this; GM sells cars across the world through 13 (THIRTEEN!) different brands (Chevrolet, Buick, Saab, GMC, Pontiac, Cadillac, Hummer, and Saturn, Opel, Vauxhall, Isuzu, Holden, and Daewoo)(1). Worse, ten of these 13 are sold in the US - coincidentally, their worst market.
This might be okay, especially if the vehicles are quite different and the market niches small and well defined. But, and this is a big but, GM's product lines often are nearly identical. Take for example GMC and Chevy trucks. These two divisions are selling what is arguably the same vehicle. Slightly different parts and trim levels, sure, but the engine, frame, electronics, brakes, etc. are the same (2,3). This is inexplicable to me. Toyota has itself as well as luxury brand Lexus, but the differences are clear - pricing, styling, trim level, and service. The only thing that that stands out as different among GM’s is the nameplate.
But let's not jump to conclusions. There might be a good reason here. But, for a company that outsells its competitor Ford, it certainly is not marketing. Think about this - what is the best selling truck brand in Texas? Ford, of course - you've seen their ads boasting of this for years (at least if you live in Texas). What is interesting about this is that while Ford outsells GMC, and Ford outsells Chevy trucks, it does NOT outsell GMC + Chevy trucks combined. So already, GM has lost mindshare and bragging rights.
Worse than needing to maintain two different advertising campaigns, two sets of dealers (although many dealers may have both at the same multiplex), and worst of all, two sets of supply chains are needed. Two products (think engine covers) must be designed, manufactured, stored, ordered, & shipped when there could only be one. Further, this drives up the number of products that must be around for years after the car is sold, so that people can get replacement parts for their cars. Certainly no self-respecting GMC owner wants an engine cover that says Chevy. And vice-versa.
Another thing that bothers me is the lock-in that GM management displays when talking about the future. Consider this example: "GM, which is banking on a slew of new large trucks and SUVs this year to bolster its recovery, predicts gas prices will stabilize at lower levels."(4) As sad as it is to say, this quote from a GM official came in January 2006, when a gallon in the US was near $3 per gallon. Clearly we have an example of GM thinking we hit the peak. As of July 2008, gasoline hit a US average of over $4 per gallon (but has pulled back slightly since). Interestingly, Toyota, which has now equaled GM in size, had this to say about high gas prices in the exact same article: " 'Cheap fuel in America is a thing of the past,' said Jim Press, president of Toyota Motor Sales USA. The Japanese automaker benefited from soaring demand for fuel-efficient gas-electric hybrid cars"(4). Remember - this was over two years ago!
So GM management displayed a great example of betting their business on one scenario. In fact, this type of behavior is so myopic, that I hesitate to call it a scenario. For it to be a true scenario there should be at least two alternatives. I think that smart management would at least have two (or preferably, given energy's historic volatility, three - one for low gas prices, one for current gas prices (at the time, $3 per gallon), and one for really high gas prices (perhaps $5 or even $6 per gallon). By locking in their "scenario", not only were they unable to make a good decision, but also, they could not even frame the decision. (Realistically, their "scenario" was treated as fact instead of a possibility.) When planning for the future, there are very few facts, but many possibilities.
It seems to me, that GM management has shown absolute ineptitude for planning. This is too bad, because that is why we hire management in the first place. At least, that is what Rich Wagoner, their current CEO, gets paid for (averaging over $5 million per year for the last five years)(5). Perhaps there is a bright spot on the horizon, as Mark LaNeve, GM's VP of Sales, seems to be taking a more eyes-wide-open approach: "We've told dealers that there will be fewer Pontiacs and Buicks in the model line-up, but they will be really good Pontiacs and Buicks." (6). At least this is a start. Now for the tough part – committing to action.
1 - http://finance.yahoo.com/q/pr?s=GM
2 - http://www.newcars.com/gmc/envoy/reviews/chevrolet-trailblazer.html
3 - http://www.thetruthaboutcars.com/pricing/comparisons1/Envoy-vs-TrailBlazer-price-comparison.php?session_code=1&aff=1
4 - http://www.detnews.com/apps/pbcs.dll/article?AID=/20060105/AUTO01/601050399/1148
5 - http://www.forbes.com/lists/2008/12/lead_bestbosses08_G-Richard-Wagoner-Jr_SOX2.html
6 - http://blogs.edmunds.com/karl/2008/05/gm-vp-mark-laneve-on-gas-prices-hybrids-and-more.html
Why is this? Are people at GM dumb? I think not - their engineers come from the same schools that Toyota hires from. They studied hard, and made good grades just like their classmates who are at their competitor companies. Rather, I think that GM has a management problem - one that starts at the very top. Think about this; GM sells cars across the world through 13 (THIRTEEN!) different brands (Chevrolet, Buick, Saab, GMC, Pontiac, Cadillac, Hummer, and Saturn, Opel, Vauxhall, Isuzu, Holden, and Daewoo)(1). Worse, ten of these 13 are sold in the US - coincidentally, their worst market.
This might be okay, especially if the vehicles are quite different and the market niches small and well defined. But, and this is a big but, GM's product lines often are nearly identical. Take for example GMC and Chevy trucks. These two divisions are selling what is arguably the same vehicle. Slightly different parts and trim levels, sure, but the engine, frame, electronics, brakes, etc. are the same (2,3). This is inexplicable to me. Toyota has itself as well as luxury brand Lexus, but the differences are clear - pricing, styling, trim level, and service. The only thing that that stands out as different among GM’s is the nameplate.
But let's not jump to conclusions. There might be a good reason here. But, for a company that outsells its competitor Ford, it certainly is not marketing. Think about this - what is the best selling truck brand in Texas? Ford, of course - you've seen their ads boasting of this for years (at least if you live in Texas). What is interesting about this is that while Ford outsells GMC, and Ford outsells Chevy trucks, it does NOT outsell GMC + Chevy trucks combined. So already, GM has lost mindshare and bragging rights.
Worse than needing to maintain two different advertising campaigns, two sets of dealers (although many dealers may have both at the same multiplex), and worst of all, two sets of supply chains are needed. Two products (think engine covers) must be designed, manufactured, stored, ordered, & shipped when there could only be one. Further, this drives up the number of products that must be around for years after the car is sold, so that people can get replacement parts for their cars. Certainly no self-respecting GMC owner wants an engine cover that says Chevy. And vice-versa.
Another thing that bothers me is the lock-in that GM management displays when talking about the future. Consider this example: "GM, which is banking on a slew of new large trucks and SUVs this year to bolster its recovery, predicts gas prices will stabilize at lower levels."(4) As sad as it is to say, this quote from a GM official came in January 2006, when a gallon in the US was near $3 per gallon. Clearly we have an example of GM thinking we hit the peak. As of July 2008, gasoline hit a US average of over $4 per gallon (but has pulled back slightly since). Interestingly, Toyota, which has now equaled GM in size, had this to say about high gas prices in the exact same article: " 'Cheap fuel in America is a thing of the past,' said Jim Press, president of Toyota Motor Sales USA. The Japanese automaker benefited from soaring demand for fuel-efficient gas-electric hybrid cars"(4). Remember - this was over two years ago!
So GM management displayed a great example of betting their business on one scenario. In fact, this type of behavior is so myopic, that I hesitate to call it a scenario. For it to be a true scenario there should be at least two alternatives. I think that smart management would at least have two (or preferably, given energy's historic volatility, three - one for low gas prices, one for current gas prices (at the time, $3 per gallon), and one for really high gas prices (perhaps $5 or even $6 per gallon). By locking in their "scenario", not only were they unable to make a good decision, but also, they could not even frame the decision. (Realistically, their "scenario" was treated as fact instead of a possibility.) When planning for the future, there are very few facts, but many possibilities.
It seems to me, that GM management has shown absolute ineptitude for planning. This is too bad, because that is why we hire management in the first place. At least, that is what Rich Wagoner, their current CEO, gets paid for (averaging over $5 million per year for the last five years)(5). Perhaps there is a bright spot on the horizon, as Mark LaNeve, GM's VP of Sales, seems to be taking a more eyes-wide-open approach: "We've told dealers that there will be fewer Pontiacs and Buicks in the model line-up, but they will be really good Pontiacs and Buicks." (6). At least this is a start. Now for the tough part – committing to action.
1 - http://finance.yahoo.com/q/pr?s=GM
2 - http://www.newcars.com/gmc/envoy/reviews/chevrolet-trailblazer.html
3 - http://www.thetruthaboutcars.com/pricing/comparisons1/Envoy-vs-TrailBlazer-price-comparison.php?session_code=1&aff=1
4 - http://www.detnews.com/apps/pbcs.dll/article?AID=/20060105/AUTO01/601050399/1148
5 - http://www.forbes.com/lists/2008/12/lead_bestbosses08_G-Richard-Wagoner-Jr_SOX2.html
6 - http://blogs.edmunds.com/karl/2008/05/gm-vp-mark-laneve-on-gas-prices-hybrids-and-more.html
posted by Mark at 2:41 PM
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