Witzenburg: Elephant in the Boardroom by Gary Witzenburg (2/26/2006)
Business costs are driving U.S. companies offshore.
End of the Line for Generous Motors? by Joseph
A new cap on pensions means the days of big bennies are out.
Can GM Turn Itself Around? by TCC Team (2/20/2006)
Is there enough time, analysts ask?
Delphi Sets Final UAW Deadline by Joseph
Will there be a strike on March 30?
2004 Pontiac GTOEnlarge Photo
2004 Pontiac GTOEnlarge Photo
The Australian-made GTO, with its
400-horsepower, 6.0-liter V-8 engine could accelerate from 0 to 60 mph in six
seconds. But sales, despite some hefty discounts and some heavy-duty personal
lobbying of the press by GM Vice Chairman Robert Lutz, never lived up to the
Thus, GM decided to pull the plug
on GTO without even bothering to find a replacement for the car. At the same,
time GM also shut down an assembly plant in Oklahoma City that build mid-size
sport-utility vehicles. GM is ostensibly working on a replacement for the
current mid-sized SUVS, which are also being supplanted by a new generation of
crossover vehicles. However, GM’s crossover replacements won’t be ready until
later this year when the company opens a new assembly plant outside of Lansing,
2006 Pontiac GTO
The start-up of the new Lansing
plant has been pushed back by years as GM has wrestled with decisions on what to
build in the new plant.
Consequently, the new crossover from Lansing will be rolling out months after competitors have managed to introduce a new generation of crossovers to the public.
Have things really changed?
A new report from Merrill Lynch
suggests that GM has been investing too little in new products for a long time
and it isn’t clear that even in the present crisis, the auto giant is prepared
to change. “We believe GM will continue its historical pattern of underinvesting
in product to the detriment of earnings and stock price,” noted a new research
report from John Murphy, Merrill Lynch’s new auto analyst.
“GM’s market share losses are not
new news. The company’s consistent underinvestment is the primary driver of its
consistent market share losses,” the report says.
Murphy points out that in 1998
GM’s legacy cash costs were about half of the company’s combined spending in
capital investment and research and development, which together drive product
development. As the size of GM’s retiree base has risen in recent years, the
legacy costs now equal 80 percent of the combination of capital and research and
development spending, the research notes.
The numbers are pretty stark,
according to the numbers worked up by Merrill Lynch. In 2005, GM’s spending
on product development was $1611 per vehicle, while spending on legacy costs,
including pensions and retiree healthcare amounted to $1338. Meanwhile,
competitors are investing much more aggressively in future product than GM. GM
not only lags behind it European and Asian rivals but even its domestic
competitors such as Ford and Chrysler, the report noted.
For GM, the relatively lower
capital spending and spending on research and development has resulted in a less
competitive product lineup for GM, according to the replacement rate charted by
GM’s product replacement rate is lagging the competition, which is one of the main reasons why GM’s market share has dropped.
Moreover, the situation could only
get worse as rivals such as Toyota and Honda are expected to replace vehicles
that represent better than 90 percent of their sales volume. GM’s replacement
rate is calculated at 64 percent even with the introduction of new pickup trucks
and full-size sport-utility vehicles.
In turn the decline in market
share, created by the shortcomings in product development, invariably leads to
other problems, including a drop in dealer profits. “The result is that dealers
are actively allocating capital to more successful brands, which is accelerating
both their market share gains and GM’s losses,” the Merrill Lynch report
Merrill Lynch’s analysts, however, did not try to quantify the damage to GM’s reputation or image by the company’s inability to deliver attractive new vehicles to the showroom on a regular basis. Nor did it address the problem with GM design, which has been left in the dust by its rivals over the past decade.