GM needs to stop launching two dogs for every one hit, admits CEO Henderson. The Chevy Malibu is a sign the maker does have something going for it.
“There are no second chances,” stressed General Motors CEO Fritz Henderson, as he wrapped up a media briefing called to detail the bankruptcy of the 101-year-old automaker.
The automaker today filed for bankruptcy protection, a process that is expected to take it at least 60 to 90 days to pass through before emerging as a “new” GM. To prop up the giant maker during its transition, and to keep it going while the economy recovers, bondholders and union workers have agreed to billions of dollars in sacrifices, while the Obama Administration will invest another $30 billion, bringing the value of the government’s aid to a total of $50 billion.
Is it worth it? Will taxpayers, in particular, get their money back out? President Barack Obama insisted the automaker had come up with “a viable and achievable plan that will give this iconic brand a chance to rise again.”
Not everyone is convinced. Analyst Joe Phillippi, of AutoTrends Consulting, said “A lot of folks are rather skeptical” about GM’s plans, particularly when it comes to the 18% to 18.5% market share it hopes to maintain.
Yet despite some concerns, analysts say there are also reasons to feel upbeat about GM’s chances. The automaker’s CEO, Fritz Henderson, acknowledged that even though critical elements of the turnaround plan had come together without a bankruptcy filing, the move into Chapter 11 helps clear out some of the other chains that bind the company. It will, among other things, make it easier to shed unprofitable assets and to reduce its bloated retail network.
But there’s no downplaying the fact that bondholders wiped out most of their $27 billion debt, while the United Auto Workers Union not only slashed the amount of money GM had to invest in its employee health care fund, but also granted huge concessions that will make the automaker a much more efficient manufacturer.
For much of the last two decades, GM’s assembly and parts plants defined inefficiency. It was long taken as gospel that it cost the automaker at least $2,000 more than its Asian rivals to produce the typical midsize car. Forgot small cars, like those needed to compete against import models like the Nissan Versa or Honda Fit. Those were guaranteed loss-makers.
But in 2007, the union began bending, authorizing, among other things, a limited two-tier wage structure. Last Summer, even before the latest round of concessions, the annual Harbour Report, a measure of factory floor productivity, found that Chrysler had tied industry leader Toyota’s efficiency, with GM rapidly coming up behind.
Now, as the result of the latest givebacks, GM has agreed to produce a competitive small car, the Chevrolet Spark, in the U.S., and according to union chief Ron Gettelfinger, the maker expects to earn a profit on the subcompact.
For years, GM lagged in other critical areas, notably including quality. While it still has a way to go to catch the industry leaders, Toyota, in particular, it has scored with a number of new products, such as the Chevrolet Malibu, which not only was voted North American Car of the Year, in 2008, but has topped the quality charts gathered by such arbiters as Consumer Reports magazine and California-based J.D. Power and Associates.
Meanwhile, the Buick division, one of four GM brands that will survive the bankruptcy, toppled the perennial king-of-the-hill, Toyota’s Lexus brand, in Power’s 2009 Vehicle Dependability Study.
Then there’s design. In the 1920s, it was the factor that differentiated GM from its more function-driven competitors, such as Ford, and by the 1950s, the vaunted General Motors styling dome, in Warren, Michigan, was the source of some of the most dramatic styling breakthroughs in the industry, designs that few competitors would risk failing to follow.
In the ’70s, ’80s and ’90s, GM Design clearly lost its way, as anyone who has seen a Pontiac Aztek can attest to. But over the last five years, under the guidance of design director Ed Welburn, the automaker has begun turning out more and more standout products, like the Chevy Malibu and Cadillac CTS. Going forward, with just four brands to “feed,” rather than eight, it should be easier to turn out stand-outs rather than look-alikes that get lost in the crowd.
Unfortunately, the Malibu is still more the exception than the rule. In a meeting with the media, CEO Henderson acknowledged that out of the typical 15 product “launches,” GM could expect only five real hits. Put another way, the automaker’s recently-retired “car czar,” Bob Lutz, lamented that, for decades, the company has all too often settled for “brilliantly executed mediocrity.
“That doesn’t work well in a market where people are looking for things to incite them to buy,” Lutz continued. “If there’s one lesson — and I hope it’s my legacy at GM — I am reasonably confident that the whole organization understands that there’s no such thing as good enough when it comes to product.”
Even if GM can deliver a higher ratio of hits, that alone may not turn things around, analysts like Art Spinella, of CNW Marketing, warn. Henderson went so far as to apologize to buyers who’ve been burned, over the years, whether by poor products or less-than stellar customer service. “The old GM, which let too many of you down,” he insisted, “is history.”
But getting the public to accept that isn’t going to be easy. Spinella’s data show that even without a bankruptcy, nearly a third of American car buyers refused to consider a GM product. With the maker in Chapter 11, that rises to 37%. “It may take several generations of products better than our competitors before people get the message,” conceded Lutz.
GM can’t wait that long, so it will have to go after every additional buyer it can find, one at a time. The good news is that it has some positive things to show for itself, this time around.