General Motors Corporation (GM) has done very little to solve its most important problem by selling off a part of GMAC and cutting at deal with the UAW.
This is the most important conclusion of a wide-ranging conversation today with Gerald C. Meyers, Professor, Ross School of Business at the University of Michigan. His views on the automotive industry are widely followed by the media and the car companies themselves.
Professor Meyers' take on GM's news that it was getting $9 billion from the sale of part of GMAC and had also come to an agreement with the UAW on worker buyouts is that they are a good first step. But, that is all they are. He views these developments as "holding actions."
His primary concern remains the top line at GM. Without improvement there, the sales of assets and UAW agreements only buy a little more time. "In my mind, the primary problems going forward are revenue and share. These developments do nothing to address that," he told us.
He does not seem optimistic that the revenue problem will be addressed soon. In his mind, the products GM has now are the same ones they had a week ago and will have a week from now. The new GMT 900 platform for pick-ups and SUVs may help GM for awhile. But, the opening of the new Toyota plant in San Antonio where the Tundra full sized pick-ups will be produced is "a frontal assault on GM's most profitable products, their pick-ups."
Professor Meyers' great concern is that GM products are not exciting. As he said, the "Lutz effect" of introducing outstanding new products under GM's design chief, Bob Lutz, has not taken hold. Unless or until it does, he remains skeptical about a major improvement in GM's fortures.
Turning to Ford Motor Company (F), Professor Meyers views the company's prospects as worse than GM's. "The actions of Ford are not visible," he says. His view of the Ford product line is that it is even less exciting than GM's. As he looks at Ford, his most important observation is that the company is not even keeping loyal, repeat buyers. "The fall-off in Ford's share is worse than GM's. At 15% or 16% share, Ford should find a level of customer loyalty, but it is not there," he added.
Professor Meyers likes the Chrysler (DCX) product line and thinks it is exciting to a relatively significant portion of the car buying public. He believes that DaimlerChrysler AG will have to "run like hell with limited engineering and design resources", but he thinks that there are enough buyers who want the Chrysler products to keep up current volume.
On the subject of bankruptcy, Professor Meyers believes that, while it may be an alternative that business professors and financiers would consider sensible, the car companies themselves will do whatever they can to avoid it. The reasons for this is that it would create a marketing and dealer relationship nightmare that could not be managed. Customers who buy cars and plan to keep them for several years do not want to think that the manufacturer may not be around. Dealers who spend large sums on their showrooms and marketing do not want to do business with a company that cannot keep product coming. Even a careful, prepackaged Chapter 11, that improves the chances of more and better products, creates the need for an education process about finance and bankruptcy law for both customers and dealers that is beyond the capacity of the car companies.
Perhaps Ford and GM need to worry about creating exciting cars more than they need to worry about cutting costs.
- Other opinion and analysis of the General Motors Corporation and its stock
- Other opinion and analysis of the Ford Motor Company and its stock
- Other opinion and analysis of DaimlerChrysler AG and its stock
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also the president of Switchboard when it was the 10th most visited site on the internet, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. In the past, he has served on the boards of Edgar Online and TheStreet.com.