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For A New GM, Old Questions On Incentives, Product Development

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Last year when automaker General Motors [NYSE: GM] emerged from bankruptcy, the outlook for the automaker was looking bullish by most accounts. Yet recently, some analysts and observers have expressed concern for the company's tack under CEO Dan Akerson.

While other companies have been reeling in incentives, GM led in incentive spending among automakers for the first two months of 2011.

According to Autodata figures cited by the Detroit News, GM was spending an average $3,732 in incentives per vehicle—$1,154, or 45 percent, higher than the industry average.

That's increased GM's market share—albeit at the expense of image, resale value, and even company profits—oddly, at a time when most other automakers have admitted that such a strategy doesn't make long-term business sense.

At General Motors, it's only the latest twist in a decades-long power struggle between executives who are accustomed to the auto industry and those brought in from outside, who tend to be more focused around the idea that a car is a consumer product, appliance, or commodity.

Falling into that latter group is Akerson, who has previously held executive posts at Nextel and MCI. "It's a consumer product," he recently said to the Wall Street Journal earlier this year. "GM has to start acting like a consumer-driven, not engineering-driven, company. We sell a consumer product -- our can just costs $30,000."

Akerson has also criticized the typical four-year new-vehicle product-development cycle.

A few executives, like former vice chairman Bob Lutz, have championed engineering and product over the idea of marketing a consumable. Prior to its largely recession-induced bankruptcy GM had been on an upward trajectory—with Lutz in part to credit—thanks to a series of leading-edge products like the Chevrolet Volt and Cadillac CTS.

Some have anticipated leadership under Akerson as leading to the same tight spot that the company was led into by Chairman John Smale and North American chief Ron Zarella, in the 1990s—with a focus on cost-cutting and the cutting of more farsighted programs.

Most long-reigning executives in the auto sector do agree that the business is different. Here, top-notch engineering is the foundation of strong consumer products, and an assurance that they won't wilt with each financial quarter, or product cycle.

Is this a flashback to the mistakes GM made in the 1990s and early last decade? Surely it's different this time as the automaker can't go back to focusing mostly on trucks. But stay tuned.

[MSNBC]

 
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Comments (3)
  1. This is an excellent post. While underscoring longer-term, strategic questions (e.g. not issues lending themselves to easy, black-and-white, screaming discussions), the importance of these issues are difficult to overstate. I am rooting so very hard for GM. I want the taxpayers to get their money back and, longer term, to show that the bailout created a great, job-creating company. Any evidence of back-sliding is really, really devastating to this narrative.
     
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  2. In the period before 1980 the five GM divisions were each strongly differentiated and had unique styling and engineering traits. Beginning in late 1970 the focus changed to reducing costs, increasing sales with incentives and placating the unions. Thus began the demise of Pontiac and Oldsmobile, and the overall loss of character of GM, except for Cadillac. Now management is behaving like that again.
     
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  3. What is needed are great cars. While this is delivered by engineering, having the right leaders and marketers who effectively "know the market" is what drives the activity in the right direction. People like Iaccoca, Lutz are some of these leaders. In my experience in the industry, there are precious few of those people and they often are seen as mavericks in the business. Applying the cookie cutter approach only delivers boring, albeit reliable, products that broadly appeal to customers wanting "A to B" transport. What this approach doesn't deliver, is better margins, created around products that drive passion and excitement. It's fair to say that some products are for the A to B mentality, particularly if you are a GM, Ford or Toyota etc. With the Koreans and Chinese building on the horizon though - the companies who develop exciting, stylistically bold and innovative products,are going to be the ones that attract brand loyalty and better margins for manufacturers, dealers and utlimately the customer, in the form of re-sale values. I would like to see the American makers re-gain their confidence in design - and not try to make their cars look like Japanese or European products. American cars used to have a style all their own - bred of a confidence that led the industry. Some cars do this today - like Mustang, Cadillac, Dodge with its Charger, Camaro etc - and you see it most of all in the trucks - where it is the Japanse who try to emulate the American product.
     
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