Please, GM, Don't Slit Your Own Throat

General Motors (GM) is shedding its peripheral brands in hopes of focusing its resources on saving its core brands: Chevy, Buick, Cadillac and GMC.

It has cut Saab loose, and the Swedish car maker filed for bankruptcy this morning.

However, the plan of GM to spin off Saturn is far more troubling. Reuters reports this afternoon:

GM said on Thursday it was working to spin off Saturn as a distribution company to source cars from other automakers and sell them through the brand's 420 U.S. showrooms.

This passage in Thursday's WSJ set off my alarm bells:

Some Saturn dealers now hope that instead of closing the brand, GM will spin it off as a separate company. A team of Saturn dealers is spending 60 days working with GM to evaluate the possibility. These dealers would sell vehicles under the Saturn brand made by other manufacturers, possibly from overseas.

"This is going to be somebody's low-cost entry to the world's largest car market," said David Fischer Sr., chairman and chief executive officer of Suburban Collection, which operates eight Saturn dealerships in Florida and Michigan.

The articles don’t say, but my guess is that the interested buyers would be low-cost producers from China or India.

If I could offer one word of advice to GM:

Don't!

This is exactly like RCA in the 1950s. To gain a small amount of incremental income, it licensed its color TV patents to some small, obscure electronics companies in the Far East. The immediate result (as recounted by the late Al Chandler) was that the Sony, Panasonic, Toshiba, JVC and other color TVs effectively put RCA out of business.

GM doesn’t have technology, but it does have distribution. It would be foolhardy to sell some of that distribution to enable additional entry (in the already crowded US market) by a low-cost maker of fuel efficient vehicles.

Comments

[Spur Ride:]

I thought the problem with GM was their fixed labor cost not technology? How can the U.S. lead in other technologies but follow in auto technology. I don't think the GM engineers are behind in technology I think they are struggling with artificial high unit labor cost being subsituted for technology.

Feb 20 10:01 PM

[If U Say So:]

GM is attempting to limit its expense by closing out the designing and manufacturing of yet another brand. Spinning off Saturn is a total nonstarter as they will need an infusion of capital to do this. Its like asking a hemophiliac to donate blood. Eliminating at least one brand is probably a good idea. This is about survival. This is one move I can agree with.
But, why should Saturn dealers close dealerships? Just contract out with another auto manufacturer or even for one of GM's other brands. If it can't be done, then closing is the only thing to do.

Feb 20 11:05 PM

[drone:]

Right, that's exactly what will happen so they might as well get a few bucks for it if they can.


On Feb 20 01:56 PM John Walter wrote:

> Not sure I understand.
>
> RCA licensed patents, without which the overseas manufacturers presumably
> could not manufacture compatible TVs. If GM can get $$$ for dealerships
> it would otherwise close, how is that a negative?
>
> Couldn't Chinese and Indian manufacturers set up their own distributorships
> right next door to GM?
>
> Maybe I just don't understand the car business ( <--- likely).

Feb 21 06:41 AM

[bosun.j:]

Joel,

Liked your article. One must ask if perhaps your conclusions are based on the belief there will be enough buyers for cars at any price.

Feb 21 07:08 AM

[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 21 08:29 AM

[Leftfield:]

Oldsmobile was the largest-selling brand in the U.S., late 70's-early 80's. You know what happened. G.M. couldn't figure out what to do with that; they let the oldest and most successful U.S. brand die!

Who says their management is smart? Who says the unions are okay? The unions sucked the company's blood, now they both come to the taxpayers and claim, too big to fail, save us? That's how to preserve good jobs?

Only politicians could buy that.

Feb 21 08:34 AM

[atlasman:]

Here is my plan. Granted it is a little bit of a hail Mary but it is the type of outside the lines thinking we need.

1. Let GM and Chrysler go CH11.
2. Spin off Saturn and integrate it with Tesla. Inject 1/4th of the money GM thinks it will need to survice to make the spin work.
3. GM will comeback from CH11 in much better shape. Chrysler sadly will not make it.
4. Sell the Saturn/Tesla company 5-7 years from now (maybe back to GM) when it is successfully selling millions of new vehicles based on Tesla electric technology.
5. Government get its money back from initial investment.

We are all better off

Feb 21 08:47 AM

[a. palmer jr.:]

The above comment was similiar to what I was thinking. Turn Saturn into an all-electric car company to build only hybrids and EVs. Turn Chevrolet into small cars and build a few performance cars and have Cadillac build the regular Cadillacs and a slightly cheaper model to replace the Buick. I understand GM is already going to dump the Pontiac, good move IMO, End up with Saturn Electric, Chevrolet, and Cadillac. I think it would work.

Feb 21 10:08 AM

[a. palmer jr.:]

I forgot to mention: I worked in the RCA plant in the sixties when we were told to show the Japanese what our jobs were and how to build a television. We didn't like it, but we weren't given a choice. Our boss told us that it wasn't something RCA wanted to do but it was part of the Marshall plan after the war. I guess we were supposed to make amends to Japan for our attacks after Pearl Harbor or something like that. Anyway, it wasn't RCA it was our government screwing us, as usual. Well, we showed them around, let them in on our procedures, etc. and a few years later they shut the plant down and I got laid off. I paid taxes for that!!

Feb 21 10:20 AM

[DownHillFro...:]

Thank you! Unfortunately, as you clearly state, most Americans don't get the concept of watching each others backs. Sad.......


On Feb 20 06:22 PM Trader Rick wrote:

> Im from Canada and have been watching this for a while.
>
> It seems to me that the smart thing to do would be to get behind
> these manufacturers and not just sit on the sidlines pissing on them.
>
>
> You are talking about fellow Americans who live next door to you
> and do you really think it's ok for them to lose their jobs etc.
> now or at any other time?
>
> Ford Chev and Chrysler make some nice cars. Sure some are dogs but
> nobody forces you to buy the dogs. Let them know , through the maket
> by buying the ones that are good . Contrary to some opinion the people
> who run the companies are fairly smart people and maybe they will
> catch on.
>
> One thing I do know is that to stand up on a soapbox and yell for
> their and their employees heads is sure not productive.
>
> I always thought that Americans helped each other but maybe I was
> wrong.

Feb 21 11:30 AM

[Tesa:]

If you have noticed, all car companies, foreign or domestic, are experiencing a sever melt down and not just American car companies that were singled out as scape goats for credit market collapse.

Both housing market and car market have serious market viability issues that is not just credit related but also energy related.

At this point the post important thing is to retain the ratio of the car market pie that these companies had before the credit melt down.
So doesn't matter how you cut the pie in production or development to exit the recession.

But of course its unlikely that the newest technology would be transferred because the markets have yet to be developed to accept the new formats and this is a big task and risky so foreign suppliers because the markets have not been regulated for format battles yet. This would be at least couple of years from now..

Feb 21 12:43 PM

[ATLBob:]

I really wish that GM and Chrysler WOULD slit their own throats, instead of subjecting us to the "death of a thousand paper-cuts" with their ongoing cries for the handout du jour.

Perhaps it's time for GM to declare bankruptcy, reorganize with fewer brands, fewer employees, fewer dealers, new union agreements and new management and see if they can build great cars that allow them to compete and thrive in the world marketplace. At least we'd bear the pain relatively quickly and could begin moving forward: either with them as viable competitive entities or without them.

Feb 21 01:02 PM

[Tony C:]

<<<Oldsmobile was the largest-selling brand in the U.S., late 70's-early 80's. You know what happened. G.M. couldn't figure out what to do with that; they let the oldest and most successful U.S. brand die!>>> leftfield

Oldsmobile never outsold Chevrolet.

Feb 21 04:11 PM

[car_guy:]

Tesla is a joke. They will become a powertrain supplier and will never produce the sedan they said was already going to be in production by now.

This is a great plan, take all of the capital investment and hard work of thousands of people over 20 years and give it to a California company with no product.

Nothing is keeping Tesla from buying the Saturn brand from GM!!! Why does everything need to be given to this company?

On Feb 21 08:47 AM atlasman wrote:

> Here is my plan. Granted it is a little bit of a hail Mary but it
> is the type of outside the lines thinking we need.
>
> 1. Let GM and Chrysler go CH11.
> 2. Spin off Saturn and integrate it with Tesla. Inject 1/4th of
> the money GM thinks it will need to survice to make the spin work.
>
> 3. GM will comeback from CH11 in much better shape. Chrysler sadly
> will not make it.
> 4. Sell the Saturn/Tesla company 5-7 years from now (maybe back
> to GM) when it is successfully selling millions of new vehicles based
> on Tesla electric technology.
> 5. Government get its money back from initial investment.
>
> We are all better off

Feb 21 04:47 PM

[car_guy:]

Another article by someone who doesn't actually understand the industry.

Saturn is a brand, not a car company. It doesn't have a factory or and engineering organization or even a parts operation. GM would sell the brand name & whatever unique pieces of distribution exist and avoid paying the dealers billions in buyouts. This would not net them much cash and would be a convenience to the buyer. GM doesn't sell, they will have to buy out the Saturn dealers, at a minimum their products and parts, and the same dealers could put a Tata sign on the old dealership the next day (depending on the buyout terms). This way GM saves the $ to buyout the dealers, the dealers keep their investment, and the new brand owner saves some time building a network. Nothing keeps a dealer from buying a competitive franchise so there is no barrier to entry to this market.

I would bet that the new owner would sell their brand alongside Saturn and then phase out the Saturn brand when GM stops providing vehicles. This is what Renault did when they bought a piece of AMC in the late '70s. If GM was smart, they would continue to supply some Saturn vehicles under contract to the new owner to keep the Saturn volume while avoiding most of the expense.

Feb 21 05:13 PM

[arlin:]

GM needs a new business plan that can make them profitable while they are selling far fewer vehicles. If their plan was to make 14 million vehicles and they sell only 12 million vehicles,and in the future even fewer vehicles,and we now know that their fixed costs are extrodinary and they are unprofitale ;How can the government run their business any better then GM can?
Chapter 11 might be the only solution in the US,I hear their Chineese business is good.....also all this buying American which I totally agree with btw,should mean the total car is American parts and all imo.
So why is the American taxpayer on the hook for any company that buys foreign parts,employs foreign workers,probably at substandard wages?
That being said I have no love lost for the unions and their worker requirements
where in some cases overtime is paid at 10;30 am..everything is out of wack.
If GM is paying a foreign worker $10 a day and last time I checked a Chevy silverado z71 was around 35 grand how can they loose so much money?
How much profit is in that silverado?

Feb 21 05:17 PM

[car_guy:]

The point of a separate brand is to provide a different variation of a common product to drive higher sales volumes and lower overall unit price. A brand may have a unique aspiration vehicle, but everything else is shared. The only unique vehicle in the Lexus lineup is the LS 400, everything else is based on a Toyota product.

Saturn was set up as a separate 'company' primarily to negotiate a better union contract (very few job classifications and work rules) that would hopefully be used as the pattern for a future GM contract and to avoid using the GM parts bin to design a small car which would hopefully result in some innovative new designs, which it did (high volume plastic body panels, new auto trans design, etc).

However, Saturn was incorporated into GM because it couldn't survive on a single platform, especially a small car platform. Toyota doesn't just make a Corolla and Honda doesn't just make a Civic so Saturn couldn't just make it an SL1 and survive for long. The Civic and Corolla are not even the biggest sellers for those brands. So Saturn sold many vehicles to new buyers but didn't have a place for them to go.

GM waited way too long to fix this, but they have made a huge investment in Saturn over the last 5-6 years because they did have faith in the brand and the dealer network. Saturn quietly has the best lineup of vehicles in GM and they were allowed to launch the Outlook crossover almost 1 year before Chevy launched the Traverse to help Saturn gain sales. They also had some of the first GM hybrids and the fuel efficient Astra. However, despite this major investment, sales have not even grown proportionally.

Do you deal with banks that are feeding off taxpayer $$$?

On Feb 20 07:39 PM bcncv wrote:

> Saturn used to have a good brand, and make good cars, but the same
> mis-management that killed GM killed Saturn. My 97' Saturn was a
> great car, but I wouldn't touch any of the new ones. They tried
> to make it just like any other GM car, which goes entirely against
> the point of a separate brand.
>
> If GM had time, money, and competence (which they don't) they could
> rebuild Saturn. Now, they're just buying months until they die.
>
>
> I would love to buy an American car again, but I will absolutely
> refuse to buy a car from any company that has taken taxpayer money.
> Feeding off taxpayers is as un-American as it gets. Too bad Ford
> doesn't make any models I like.

Feb 21 05:26 PM

[car_guy:]

Your faith in electric vehicles, and Saturn, is admirable. However, the biggest lesson from Saturn is that you can't get by on a single model or kind of car and retain customers. This is why Toyota added versions of the Camry, crossover vehicles, minivans, trucks, etc. You need to have every 'kind' of vehicle in the showroom when your customer comes back to replace their vehicle. Many vehicle purchases are driven by life events like marriage or the birth of a child. Replace the 2 door after the first child, get the 3rd row of seats after the 3rd. If those vehicles are not in the showroom the customer goes somewhere else.

GM's brand strategy is focuses on this concept and is aligned with their global brand/sales strategy.
1-Chevy is a full line affordable brand, small cars to trucks including electric. Chevy goes after Toyota globally.
2-Cadillac is a full line luxury brand, mid-lux to trucks and high-end electrics. Cadillac goes after Lexus, BMW, MB, etc globally.
3-Buick/Pontiac/GMC puts 3 part-line brands in a single dealership to create a full line brand. Pontiac for small & sporty cars, Buick for mid size and large cars and crossovers, GMC for trucks. It makes the best of a bad situation because it would cost a fortune to shut down all 3 brands and many dealers already had 2 of the 3 brands in a single dealership. Buick is also very strong in China, although that is not necessarily a case for keeping it in the US.

Saturn tried to be the small car brand, but Americans don't like to buy small cars if they don't have to, so Saturn struggled. Now GM has given it a full line of vehicles (except a truck) and it essentially competes with Chevy.


On Feb 21 10:08 AM a. palmer jr. wrote:

> The above comment was similiar to what I was thinking. Turn Saturn
> into an all-electric car company to build only hybrids and EVs. Turn
> Chevrolet into small cars and build a few performance cars and have
> Cadillac build the regular Cadillacs and a slightly cheaper model
> to replace the Buick. I understand GM is already going to dump the
> Pontiac, good move IMO, End up with Saturn Electric, Chevrolet,
> and Cadillac. I think it would work.

Feb 21 05:44 PM

[33Nick:]

We wonder about the viability of GMC in the long run, since, so far it only has heavy vehicles. It's too bad loosing brands as Saturn and Saab that have a loyal following and are more fuel efficient than the ones that will remain. It seems GM management is still a bit of a mystery.

Nick,
Electricnick.com

Feb 23 11:25 AM

[Mad Hedge F...:]

General Motors (GM) announced a Q4 loss, and a 6.2 billion cash burn, leaving them with a scant $14 billion left. The company will have to file for bankruptcy when this figure drops below $10 billion, or in about two months. Last year GM lost $84.7 million a day! Apparently when people are afraid of losing their job and their house and are maxed out on their credit cards, they don’t run out and buy a new car. At least some fiscal responsibility is returning. Unsurprisingly, CEO rick Wagoner was back on capitol hill today panhandling for more money. The death watch has started.

Feb 26 09:32 AM