GM’s Brand Cannibalization

The WSJ recently ran an article discussing how GM’s practice of producing multiple versions of the same car, not only cannibalizes sales, but sales and marketing budgets as well.

From the Wall St. Journal:

Michael Maguire has mixed feelings about General Motors Corp.'s coming launch of the Chevrolet Traverse, a seven-passenger crossover wagon that promises to boost sales at his family's Chevy dealership along Route 206 in Bordentown, N.J.

The trouble is, the Maguire Automotive Group also owns a Saturn store a mile up the road, and the Traverse will crimp demand for the Outlook, a nearly identical crossover GM's Saturn brand began selling about a year ago. The arrival of the Traverse will mean "the window has completely shut for Saturn," Mr. Maguire said. For dealers like him, GM's move to populate many of its divisions with vehicles that look alike largely for the sake of maintaining each brand's market share amounts to "robbing Peter to pay Paul," he said.

… Mr. Maguire's predicament is an age-old one that continues to undermine the Detroit auto maker's efforts: The eight brands in its portfolio often compete with each other -- both for customers and a slice of GM's marketing budget...

... GM is also working to reduce overhead and overlap among its brands. Buick, Pontiac and GMC vehicles are sold mostly through dealers that carry all three makes. To keep them from competing with each other, GM has trimmed their product lines so that Buick offers premium cars and wagons, Pontiac offers sporty models and GMC concentrates on trucks…

… Still, internal competition continues, and nowhere is that more evident than in GM's push into crossovers, which look like sport-utility vehicles but are lighter and more fuel-efficient.

Last year GM introduced three -- the Saturn Outlook and GMC Acadia, which are all but identical, and the more luxurious Buick Enclave. The Acadia and Enclave were hits but Outlook sales have been less than GM had hoped.

Mr. Maguire said the Outlook was hurt by Saturn's brand image, which isn't as strong as GMC's. Customers often chose the Acadia over the Outlook, even though the GMC model sold for about $2,000 more.

Now Chevy will get its version, the Traverse around October, and dealers are already seeing an impact. In January, dealers held enough Outlooks to last 138 days, up from 98 in December.

The other aspect to this is that selling multiple versions of the same car wastes a lot of engineering resources, which could be better utilized in designing new cars and improving existing ones. Granted, this is a hard thing to quantify as I doubt there is a hard and fast rule of engineering resources invested vs. vehicle quality and desirability in the marketplace. However it doesn’t take a PhD in Mechanical Engineering to see that GM is wasting a lot of their best and brightest on the exercise of modifying a particular car to appear “somewhat” different for the various brands, as opposed to simply producing one great car.

The “corporate cousin” model is a multiple edged sword as it’s not only wasting key resources, but GM could conceivably produce better cars (that would sell in higher quantities) if they focused on producing fewer “twins” of a particular car. For instance, is it really necessary for Pontiac and Saturn to both sell a nearly identical version of the same roadster? Wouldn’t it be a more effective use of resources to just build a great roadster for Pontiac, a brand that is better positioned to sell a sports car? Does it make sense to waste Saab’s resources customizing a GMC Envoy so that it can pretend to be a “Saab SUV”? Wouldn’t Saab get a higher ROI by focusing those resources on their core product offerings, instead of trying to make a GMC look like a Saab?

Furthermore, for the brands that are almost identical does it make sense to even waste the time to differentiate them via things as mundane as different headlights and branding? Based on the article, it appears that the biggest determining factor in terms of how well a cousin sells is the brand it’s sold under not the customizations. Doesn’t it then follow that GM should probably only keep the 1-2 top selling cousins for each model and stop wasting money on the rest?

Moving forward, GM’s priorities need to be:

1. Reducing operating costs
2. Coming up with a more focused marketing and branding strategy where they target particular market segments with no more than 2 options, and create only 1-2 variants of each car.
3. Reshuffle their entire brand and product line-up based on the above; many of the corporate cousins and perhaps even some of the brands need to be put out to pasture.

The fact that GM’s multi-brand strategy not only wastes resources but cannibalizes sales is a prime example of the need for truly new thinking in Detroit, instead of the current turnaround model of simply trying to improve upon business as usual. Only a true paradigm shift in how the Big 3 operate will save the American car industry.

Anticipate seeing more about the marketing and branding angle later….

You can read the WSJ article in full here.

Sources:

The Wall St. Journal: “Eight-Brand Pileup Dents GM’s Turnaround Efforts” – John D. Stoll, March 4, 2008.

Disclosure: At the time of publishing the author didn’t own a position in General Motors.

Comments

[Tony C]

Its all about the dealers. These multiple brands of the same model are all done so each dealer gets to sell into every market segment. It may have made sense when Detroit dominated the Us market, but not any more.
The question remains how to shed what would become unprofitable dealers.

[notsosmart]

i sold my gm stock years ago.

[AmesTiedeman]

Those who doubt GM will be sorely disappointed. I think this is the "big company" turn around story of the next 5 years.

[Markham]

It's not a question of wanting GM to fail and being "disappointed&quo... if they do in fact succeed. Rather it's a question of GM being a mixture of several bad business strategies and not having shown (to date), that they're actually capable of turning the company around.