The 'New' GM: Too Much Like the Old GM

Let's look at the brand consolidation aspect of the GM Restructuring Plan:

Hummer is going to be phased out by the end of the year. Nothing much to say here: shoot this one, it's dead.

Pontiac will be scaled back and refocused as a "niche automaker," no doubt with a focus on the company's high-performance automobiles. This makes perfect sense as it makes more sense for Pontiac to sell high-powered G8s than it does for it to compete against Chevy with run of the mill mid-sized family cars as well.

Saturn will be phased out by 2011 unless "no alternatives arise." One of those alternatives is a proposal by a group of Saturn dealers to spin the brand off into an independent company. One of their ideas is that they would eventually sell "Saturns" that were produced by Chinese and Indian manufacturers.

The situation with Saturn is truly a shame as it was a brand that was building up a solid following in the early 90s; after all, can anyone name a domestic car brand that had people showing up for an annual festival? While I'm sure there are festivals around niche products like the Corvette or the Mustang, a festival for a domestic car brand is rare. Normally that's something you only see for brands like BMW or Porsche.

Even if the spin-off occurs I don't see how Saturn survives. Having to depend on no-name foreign OEMs to produce your product may work for DVD payers at Wal-Mart (WMT), but it's a different story in the auto industry. Not only do you have to sell people on spending money on Saturn, but you have to also sell them on trusting a manufacturer they've never heard of, and it's not like Saturn currently has any brand equity you could leverage in the proposed scenario.

It's not the same as when VW (VLKAY.PK) bought the rights to the Bugatti name, and high-end enthusiasts knew that the same company behind such brands as Audi, Lamborghini and Bentley would be producing the cars.

Saab will be sold off and may even have to file for bankruptcy by the end of the month. Either way, GM plans for Saab to be an independent company by the end of the year. The support of the Swedish government would be needed to complete a sale, but initial reports seem to indicate that the Swedes aren't especially interested.

I'm concerned about Saab's survival as well because nearly all of the potential suitors are dealing with their own issues around declining sales, losing money, etc., not to mention the fact that it's a massive turnaround project. GM has to both find someone who is interested in buying Saab, in addition to finding someone who can afford to make the investment. Chances are if Saab is sold it won't be a real 'sale', more like someone taking the company over in exchange for future considerations if the deal turns out to be profitable.

Here's hoping that my earlier fantasy of VW buying Saab comes true: if VW can resurrect Bugatti from the dead I'm sure they can save Saab.

While the above is definitely a good start I would've liked to have seen GM drop Buick as well, and either kill the cars in the brand's current line-up and/or rebadge a few of them as lower-end Cadillacs. Think: Cadillac's answer to the place the Audi A3 and the Acura TSX serve in their respective carmakers' lineups.

It's probably not a bad idea to drop GMC as well, because all marketing speak aside, they're just allegedly higher-end versions of Chevy trucks. Not to mention the fact that anyone buying a GMC knows that they're getting a GM product, and that their purchase isn't markedly different from its Chevy Cousin. Popular GMC vehicles should be able to be marketed as higher-end entrants in the Chevy line-up without any problems.

You can read a PDF version of GM's restructuring plan here, and WSJ coverage of it here.

As for the plan itself, I figure you can either go all in or make baby steps, and while the company has made some significant progress, I'm still firmly in the bankruptcy camp. It seems to me that the company's management (and our politicians) are focused more on saving/propping up the old GM than they are in remaking the company into something altogether new and successful.

Sources:

The Wall St. Journal: "GM Seeks $16.6 Billion More in U.S. Aid" -- John D. Stoll, Sharon Terlep, Alex P. Kellogg, February 18, 2009.

General Motors Corporation: "2009 -- 2014 Restructuring Plan" -- February 17, 2009.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[John D:]

If you have nothing good to say - don't say nothing at all !!!!
These are the cards that have been dealt - stimulas package and all - if you don't like the cards - leave the table and lets get on with the game !!!!!!!!!!!!!!!!!!!!!!...

Feb 19 11:00 AM

[shure46:]

The new American business model will be , hopefully a decent wage when you are at work ... but all the perks and benefits ( basically paying you not to work ) will end ..... it's inevitable .....America is now in stiff competition with the world , and unfortunately that means our lifestyle will decline , while the rest of the world's improves , until finally we meet in the middle , and the playing field is somewhat leveled ...... There is a huge untapped market for a basic , simple , affordable , quality car that gets decent gas mileage .... Yet GM's grand plan is a Hybrid Escalade that costs 75,000 dollars ...... and our government needs to shore up social security and create one huge health care pool that all Americans can buy into ....reasonable premiums , and a health care program that is not full of loopholes to avoid payment when needed ....partly guv subsidized , and partly private pay .....but not RUN by the government .... and we can do without all the complicated safety regulations , electronics , and wall to wall airbags in cars that adds thousands of dollars to the sticker price ........ Just like some people only want a cellphone and not a portable computer / TV / camera / fax machine , some people just want a car , and not a spaceship !!!!! As for me , you can keep your airbags for 3,000 dollars , and I am fine with seatbelts , and I don't need ABS brakes , or a car to think for me ......I am still capable of making my own decisions

Feb 19 11:04 AM

[Marky61:]

One of the reasons the auto plants north of the border have been somewhat spared from the worst of the bloodletting is that Canada has universal healthcare, which has saved the automakers billions in employee health costs. The legacy costs are more manageable. The Obama government needs to copy Canada's healthcare system - it only makes business sense! Don't let the lobbyists fool you into believing the system doesn't work. It works better that any HMO!

Feb 19 11:16 AM

[shure46:]

I am a remodeling contractor , when I work I make about 25 dollars an hour , when I don't work I make nothing ..... No one provides my health care , I have to buy it , I am relying on Social Security and my savings for retirement .... I get 0 paid vacations and holidays per year .....If I am out of work , there is no one that makes sure I get paid to sit on my ass .... No one matches my year end income taxes or Social Security witholdings , I pay the full amount myself ..... I work out in the heat , and I work out in the cold ... I do not have a comfy break room with a TV and snack machines .... I do not get mandatory breaks every hour , and I do not get paid medical leave if I cut my finger ....... American workers - Welcome to my world , it will be your world soon ...... Suffer a little now , or a lot later .......and P.S. - Upper management and CEO's ???? Time for YOU to lead by example , and share in the experience ..... An Honorable General leads from the front , not the rear .............

Feb 19 11:21 AM

[shure46:]

Marky61 - agreed 100% ..... we need a national health pool , where everyone buys into the same system .....partly subsidized , and partly private pay ...... with SOME government oversight to prevent fraud , but NOT government managed ......Everyone in this country should be able to get reasonable health care for 75 bucks a month premium ( maybe 200 for a family of 4 - If ya have 7 kids then tough crap , you pay 400 a month - you have no business having 7 kids when the world population is exploding ) ..... We just need an affordable , reasonable system , that is not full of loopholes to avoid paying the doctor bills ...... It is a joke to collect premiums , and then find a loophole not to pay up ...... and there are many such loopholes ....THAT is the tragedy of our system ...people WITH insurance get screwed !!!!!! ....... In the new system , EVERYTHING should be covered , and if you need health care you will owe a reasonable deductible ( to prevent frivolous doctor visits ) AND , you will owe ALL back premiums you have failed to pay in ....... That is your out of pocket expense ...... The goal is to prevent financial ruin if you need major health care ...... but I do not subscribe to some sort of government run free health care system paid purely with tax dollars ...

Feb 19 11:36 AM

[Bad Idea:]

My take on GM's restructuring plan:

Hummer - I agree. This brand is the poster boy for in-your-face American excess. I'm not a tree-hugger, but Hummer could build a 100 mpg hybrid and I still would not buy it because of their image. Mullet-sporting short guys who own pit bulls will have to find another ride.

Pontiac - Just get rid of it. It will never a poor man's BMW. I like the G8 and the G6 coupe, but two cars are not enough to keep a brand viable. Turn the G8 into an Impala SS and the G6 into a Monte Carlo and move on.

Saturn - It was a nice car in the early 90's. GM ruined it with their typical cost-cutting moves. Saturn dealers finished it off by adding crappy dealer-installed options on every car on the lot to maximize profit. That said, Saturn has a nice product line to work with at this time. Spend some money on interior fit, finish, and quality and dump Buick.

Saab - A stupid, panic-induced purchase that never should have happened. GM saw Ford buying Jaguar, Land Rover, and Volvo, and they felt they'd better buy something before Ford owned it all. Owner's of "real" Saabs stopped buying, and who can blame them? I've never been a Saab fan, but I have to admit it is insulting when GM started selling Chevy Trailblazers as the Saab 9-7x.

One other thing to note about Saab - In it's BEST year, Saab sold fewer cars than Oldsmobile did in it's WORST year.

Buick - Nice cars, if you are over 75 years old. Get rid of it. Give the Enclave to Cadillac.

GMC - Get rid of it. GM spends all of it's ad money on Chevy trucks. It does not need an identical brand to compete for the same customers.

Feb 19 12:01 PM

[bobbobwhite:]

I agree with most of what you say about personal responsibility and strong resistance to freemarket overkill, but you must realize that when the world's economic playing field is finally leveled it will be at the very bottom...bare survival, no more, then...... nothing.

We are using this earth as an inner-city vacant lot for our societal trash, bad habits and unconcern. And, it will only get worse as more uncaring humans are born and trained to do the same thing. No good ending can be expected from any bad planning and execution, and human existence is no exception. Bad planning and execution is all we humans seem to be able to do, no matter the many harsh warnings given us over history.

Thus, we deserve our fate and do not deserve to continue as a species. I would say it's all so very pathetic and abjectly stupid of us, but then we all must realize that it was surely "planned" that way by nature from the very beginning, as all nature cares about is the effective recycling of sun energy any way it gets done for the best perpetuation of that cycle. We have proven that we are not any good at it, so we must be eliminated by nature in accordance with its rules, as have many other species over time. No need to cry about it, that's just the way it is. Get used to it.


On Feb 19 11:04 AM shure46 wrote:

> The new American business model will be , hopefully a decent wage
> when you are at work ... but all the perks and benefits ( basically
> paying you not to work ) will end ..... it's inevitable .....America
> is now in stiff competition with the world , and unfortunately that
> means our lifestyle will decline , while the rest of the world's
> improves , until finally we meet in the middle , and the playing
> field is somewhat leveled ...... There is a huge untapped market
> for a basic , simple , affordable , quality car that gets decent
> gas mileage .... Yet GM's grand plan is a Hybrid Escalade that costs
> 75,000 dollars ...... and our government needs to shore up social
> security and create one huge health care pool that all Americans
> can buy into ....reasonable premiums , and a health care program
> that is not full of loopholes to avoid payment when needed ....partly
> guv subsidized , and partly private pay .....but not RUN by the government
> .... and we can do without all the complicated safety regulations
> , electronics , and wall to wall airbags in cars that adds thousands
> of dollars to the sticker price ........ Just like some people only
> want a cellphone and not a portable computer / TV / camera / fax
> machine , some people just want a car , and not a spaceship !!!!!
> As for me , you can keep your airbags for 3,000 dollars , and I am
> fine with seatbelts , and I don't need ABS brakes , or a car to think
> for me ......I am still capable of making my own decisions

Feb 19 12:06 PM

[run75441:]

shure:

Did you also walk uphill back and forth to school also?

We all pay the same amount of SS Withholding Taxes as I do not see the other 6.2% in my salary which would be there if there was no SS. I am not sure why you believe SS needs shoring up, because it doesn't. It still generates a surplus in revenue and will continue to do so until 2019 (est). CBO say SS is cool until 2030 before payments exceed revenues. There is an outside chance that revenues could exceed payments much further out as SS uses an Intermediate Cost scenario when calculating payments. Currently the payouts are trending somewhere between Low Cost and Intermediate Cost.

The rest of your diatribe is pretty much your preference in life and one you chose for yourself. Glad you like it. I think I will go in a different direction.

Feb 19 01:15 PM

[Thadeus Tho...:]

GM has the capability now to be viable. I think if the combined Saturn with Chevrolet, it might be a good way to go. Buick with Cadillac, as a poster said , would work also. In the meantime, if GM "freshened" up the interior on a few cars it does have [ala Maibu/Aura] or try and get rid of or diminish the hard plastic look inside some of it's cars, sales would improve. There is a new Cobalt replacement coming :

www.motortrend.com/fut...

If they can reduce the cost of a few existing models and come our with a few new models with base prices in the $9,995 range, do it with some style [ not gaudy Asian design ] and decent mpg ; then GM will be on track.

Feb 19 01:26 PM

[ctj:]

You are not thinking clear on Buick...number one brand in china, country with the fastest growing middle class. They already sell more buicks in china than in the u.s. and the new lacrosse (which is stunning by any account) was mostly designed in china for china. GM's ratio of cars sold in the u.s. vs. outside the u.s. is already at 40-60 and going even more towards the foreign shift. Truth is, U.S. market has matured and with all the automakers playing here it will become like Europe...no one with more than teens of market share. Lift your eyes up above the shoreline and you'll see that buick is important to the future and why.

Feb 19 04:19 PM

[Thadeus Tho...:]

@ jzt

---> " You are not thinking clear on Buick...number one brand in china, country with the fastest growing middle class" <-----

I agree. Buick has credentials in China. Still has a decent demographic here in the US too. Some people keep forgetting the volume of business GM does world wide. GM Still sells more cars outside the US than Toyota, Honda, and the so called European "premium" brands. And Toyota barely overtook GM here.

Feb 19 04:53 PM

[User 360706:]

"after all, can anyone name a domestic car brand that had people showing up for an annual festival? While I'm sure there are festivals around niche products like the Corvette or the Mustang, a festival for a domestic car brand is rare. "

This is a TOTALLY false comment. There are hundreds or thousands of such festivals every year. And that's only if you feel the need to group them by make or model. The performance types cars are no question the biggest - corvette, camaro, firebird, mustang, gto, turbo buicks, mopar muscle cars, etc, etc, but there is a surprisingly huge following for Jeeps and trucks, even as specific as the trailblazer SS. Throwback vehicles like the PT Cruiser, prowler, and SSR tend to have a large following too. The "Cars at Carlisle" shows alone bring in thousands of people and cars every single year.

If you're talking general street rod or muscle car show, most of which have some sort of limitations on year or vehicle type to ensure the domestic focus, there are probably 10 times that many.

Feb 20 08:25 AM

[Tony C:]

<<<Some people keep forgetting the volume of business GM does world wide. GM Still sells more cars outside the US than Toyota, Honda, and the so called European "premium" brands. And Toyota barely overtook GM here.>>> Thadeus

LOL.
GM was surpassed in worldwide sales in 2007. It became official after 2008. GM does NOT outsell Toyota worldwide.
They still do outsell Toyota in the US, though with the dropping of these brands, there is a question of how long that will remain true.
But don't let not having a clue about the facts stop you from posting opinions!

Feb 20 10:21 AM

[Tony C:]

<<<GM has the capability now to be viable. I think if the combined Saturn with Chevrolet, it might be a good way to go.>>> Thadeus

OK, let's look at that option. What product does that bring into Chevy dealerships that they don't already have?
Saturn would bring the Sky, whose twin (Pontiac Solstice) may already end up in Chevy dealers when Pontiac gets "downsized." Actually both the Sky and Solstice are scheduled to be cancelled in a few years.
Chevy would get the Saturn Aura, but that is a twin of the Malibu they already sell. They would get the Outlook CUV, which they already sell as the Traverse. They would get the Vue SUV, which they already sell as the Equinox.
And they would get the imported Astra, which GM has been losing large amounts of money on since day one, and is destined to go away.
So there you have. A couple of cars set to be cancelled, and a few they already sell. What a big gain that would be!
Got any more business plans?

Feb 20 10:29 AM

[Thadeus Tho...:]

@ Tony Carlos

You are awfully good at assuming things and elaborating on what people say ( in my case me) based on your own erroneous opinions and selective information.
Have a nice weekend . . . "Markham". . . jr.

Feb 20 03:37 PM

[car_guy:]

shure46 - interesting comments, here are my responses to some of your thoughts:

...... There is a huge untapped market for a basic , simple , affordable , quality car that gets decent gas mileage
--Everyone says this, too bad it isn't true. If it was, Saturn would be successful and GM would be in a little better shape. Saturn built exactly the type of cars you describe in a single plant and for the first couple of years was successful. However, people mature and very few people want, or even can, drive these types of cars forever.

...... and our government needs to shore up social security and create one huge health care pool that all Americans can buy into ....reasonable premiums , and a health care program that is not full of loopholes to avoid payment when needed ....partly guv subsidized , and partly private pay .....but not RUN by the government
--This would make us like every other European and Asian industrialized country, what a concept. If this were the case, GM would be just fine. GM currently pays health insurance benefits for 1 million people in the US alone and these benefits have doubled in cost since 2000. This costs them about $1,500-2000 per car which is why they make money on expensive vehicles (>$30K), like trucks, but not less expensive vehicles (<$20K) like some cars.

.... and we can do without all the complicated safety regulations, electronics , and wall to wall airbags in cars that adds thousands of dollars to the sticker price As for me , you can keep your airbags for 3,000 dollars , and I am fine with seatbelts , and I don't need ABS brakes , or a car to think for me ......I am still capable of making my own decisions
--blame the government for this, not the car companies. Thanks to Ralph Nader and his lawyer driven friends all of the things you complain about are mandated by the government.

Feb 21 06:51 PM

[car_guy:]

Where are you planning to get the billions of dollars to buy out the dealers for 5 brands? Remember that it cost GM $2B to shut down Oldsmobile. Your plan would cost $10B and not make a single vehicle any better.


On Feb 19 12:01 PM Bad Idea wrote:

> My take on GM's restructuring plan:
>
> Hummer - I agree. This brand is the poster boy for in-your-face
> American excess. I'm not a tree-hugger, but Hummer could build a
> 100 mpg hybrid and I still would not buy it because of their image.
> Mullet-sporting short guys who own pit bulls will have to find another
> ride.
>
> Pontiac - Just get rid of it. It will never a poor man's BMW. I
> like the G8 and the G6 coupe, but two cars are not enough to keep
> a brand viable. Turn the G8 into an Impala SS and the G6 into a
> Monte Carlo and move on.
>
> Saturn - It was a nice car in the early 90's. GM ruined it with
> their typical cost-cutting moves. Saturn dealers finished it off
> by adding crappy dealer-installed options on every car on the lot
> to maximize profit. That said, Saturn has a nice product line to
> work with at this time. Spend some money on interior fit, finish,
> and quality and dump Buick.
>
> Saab - A stupid, panic-induced purchase that never should have happened.
> GM saw Ford buying Jaguar, Land Rover, and Volvo, and they felt they'd
> better buy something before Ford owned it all. Owner's of "real"
> Saabs stopped buying, and who can blame them? I've never been a
> Saab fan, but I have to admit it is insulting when GM started selling
> Chevy Trailblazers as the Saab 9-7x.
>
> One other thing to note about Saab - In it's BEST year, Saab sold
> fewer cars than Oldsmobile did in it's WORST year.
>
> Buick - Nice cars, if you are over 75 years old. Get rid of it.
> Give the Enclave to Cadillac.
>
> GMC - Get rid of it. GM spends all of it's ad money on Chevy trucks.
> It does not need an identical brand to compete for the same customers.

Feb 21 06:59 PM

[car_guy:]

GM was not passed by Toyota in 2007. GM included sales for a JV in China that it owns less than than majority interest in, but that describes literally every JV in China. Toyota also always includes the volume for Hino, which is a commercial truck manf that GM does not really compete with.

GM does outsell Toyota in China and Europe, almost 2 to 1. Toyota sold 1.47M vehicles in Japan, which is essentially a closed market for cars. I wouldn't laugh so hard because outside of Japan, where GM actually competes with Toyota, GM still sells more vehicles than Toyota.

On Feb 20 10:21 AM Tony Carlos wrote:

> <<<Some people keep forgetting the volume of business GM does world
> wide. GM Still sells more cars outside the US than Toyota, Honda,
> and the so called European "premium" brands. And Toyota barely overtook
> GM here.>>> Thadeus
>
> LOL.
> GM was surpassed in worldwide sales in 2007. It became official
> after 2008. GM does NOT outsell Toyota worldwide.
> They still do outsell Toyota in the US, though with the dropping
> of these brands, there is a question of how long that will remain
> true.
> But don't let not having a clue about the facts stop you from posting
> opinions!

Feb 21 07:47 PM

[Mad Hedge F...:]

I’ll tell you what GM’s problem is. My dad was a religious lifetime GM customer, buying a new Oldsmobile every five years. Once he even flew to Detroit for a factory tour and drove his new prize home. Thirty years ago I told him he was doing GM no favors by buying their cars, and the only way to force them to improve a deteriorating product was to buy better made German and Japanese vehicles. This was right after the State of California had forced auto makers to install seatbelts on new cars. Airbags and ABS brake systems were still years away. His response, “I didn’t fight the Japs for four years so I could buy their cars.” (He was a Marine). GM’s problem is that my Dad passed away seven years ago. Of the original 17 million WWII veterans, 1,500 a day are dying, and there are only 1.5 million left. All of them loved Detroit because it built great Jeeps, Sherman tanks, and half tracks. Their kids prefer German, Japanese, Italian, Korean, and soon, Chinese, and Indian vehicles. It is no coincidence that GM’s problems really accelerated with the passing of the “greatest generation.”

Feb 23 07:41 AM

[Conan the B...:]

Mad Hedge: The older generation passed it onto their kids too. Buy American.

As I see it, Their Grandkids see through GM.

They don't like what they see. Nothing differentiates a GM from a Honda, they all look alike. Price is the difference.

Why the hell should a hybrid look like a non-hybrid?

Mustangs, GTOs, even and Edsel look, bring back the old styles. Give them new engines but make them distinctive, Make them American again.

Just a personal opinion.

Feb 23 10:07 AM