Can GM Keep Momentum Up?

How quickly things can change. Little more than a year ago, the mood was one of gloom and doom at General Motors headquarters, along theDetroit River. Sales and share were plunging, losses were mounting, and its Japanese arch-rival, Toyota, seemed poised to take the lead in global sales.

As 2007 draws to a close, however, GM’s sales and share are stabilizing. Its balance sheet is improving. Toyota is suddenly the one in trouble. It lost global sales leadership back to GM during the third quarter, and in the all-important U.S. market, the Japanese maker is suffering from a string of well-publicized quality snafus.

 

What may matter most, though, is that GM is rolling out an array of new products that are winning raves – and new buyers. The Chevrolet Malibu, in particular, is being hailed by critics as the first GM mid-size sedan in decades to pose a credible threat in a segment long dominated by the Asians.

 

“The role of that car (the Malibu) is to gain credibility and stabilize GM’s presence in this very large segment,” says the U.S. automaker’s vice chairman and “car czar,” Bob Lutz.

 

But the man behind GM’s ongoing product assault admits that the Malibu alone won’t turn things around after years of steady decline.

 

“We were off our game for 20 years, losing our momentum,” Lutz acknowledges, after a day of driving the Malibu with journalists. “So, it’s going to take time. It took 20 to 30 years to get, reputationally, where we are today, and it’s going to take another two to three years to get a new generation of buyers into GM.”

 

Windows of opportunity

 

Some analysts would actually see that as overly optimistic. “Out where I live, you don’t even see GM products, other than the occasional truck, and that is going to take a long time to change,” contends a veteran industry analyst who, because of his work with the automaker, asked not to be identified by name.

 

Indeed, Lutz concedes that there’s a broad public distrust of domestic products, especially in the so-called “smile regions” of the country, the East, West, and Gulf Coasts, and that this skepticism is “much deeper” when it comes to the Big Three giant, General Motors, than it is for Detroit’s other manufacturers, Ford and Chrysler.

 

At the same time, Lutz beams, “It is clear, there is a window of opportunity” that’s been opened up by the unexpected problems plaguing arch-rival Toyota. The Japanese marque was recently chastised by the influential Consumer Reports magazine, which took several key models, including the V-6 Camry sedan and the four-wheel-drive Tundra pickup, off its Recommended Buy list. Other consumer surveys have dogged Toyota for declining quality and lackluster customer service.

 

Ironically, some analysts, such as Art Spinella, of CNW Marketing, have used the term, “GM-like,” to describe the problems plaguing Toyota . Too big, they caution, and too arrogant. Such criticism may be overly harsh, and the Japanese maker has certainly proved itself capable of quickly fixing problems. So, says Lutz, there’s little reason to slow down to enjoy the moment.

 

“We celebrate on the run,” he cautions, adding that “We still have substantial…problems in North America,” which have to be fixed. Profitability isn’t anywhere near what Wall Street demands. Productivity is improving, but by no means at the industry benchmark. The new contract with union workers closed 75 percent of the cost gap with foreign-owned assembly plants, but there’s still a gap. And while studies by the vaunted J.D. Power and Associates, among others, show that GM’s quality numbers are rising, they’re still by no means the best-in-class.

 

So, don’t worry about GM getting cocky again, insists the septuagenarian former Marine pilot. “I think I’ll be retired – or dead,” he jokes, before “I will start worrying about reemerging arrogance” at GM.

 

The fuel-economy push

 

Though a decade past the point when a top manager would normally retire, Lutz shows no inclination to step down. And his ramrod posture underscores his good health. But despite his generally confident demeanor, Lutz has a lot to worry about.

 

The biggest challenge, he is asked, and he hesitates only the slightest moment before firing back a question of his own: “Tell me what fuel economy regulations will be. We will live or die on that challenge.”

 

Congress has been studying several proposals which could push the current Corporate Average Fuel Economy, or CAFE, standards well into the 30-mile-per-gallon range. It’s a figure Lutz absolutely insists is un-doable – at least not with the current sort of products American motorists prefer. It would force the industry to sell the sort of downsized cars and crossovers now seen in Europe and Japan, he contends, and virtually eliminate the pickups, SUVs, and other light trucks that account for about half of today’s U.S. market.

 

Meeting the challenge would require expensive technology, Lutz contends, so a car like the Malibu , which will average about $24,000, would jump to $34,000.

 

So, says Lutz, the ongoing debate is holding GM’s plans hostage. By now, the automaker would be locking down its product programs through 2012 and even 2013. Instead, “anything beyond 2011 is fuzzy,” the executive laments.

 

And that only underscores why GM can’t afford to celebrate, despite the applause it is getting these days for products like Malibu . The turnaround it has experienced over the last 18 months could just as quickly reverse course once again.

 

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2008 Chevrolet Malibu Road Test by Paul A. Eisenstein (11/2/2007)
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