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GM Riding a Wave?


Q&A: GM's Bob Lutz by TCC Team (11/11/2001)
Lutz: GM "Heading Up" by TCC Team (8/6/2001)

While its crosstown rivals at Ford and Chrysler seem to be stuck in the doldrums, General Motors continues to move ahead with an ambitious effort to regain some of the market share and leadership it has lost over the past 15 years.

As a result, the company's image is enjoying something of a makeover. The automaker boldly seized the sales initiative in September when it rolled out a zero-percent financing program to help jump-start car and truck sales in the wake of the September 11 attacks on the World Trade Center and the Pentagon. Sales have boomed, with the industry setting an all-time sales record in October. Even a seemingly unflappable competitor such as Toyota, which offered its own version of zero-percent financing, was forced to match GM's initiative, which helped stimulate sales even more.

"It was like the biggest store had a sale. Everybody benefited," noted Alan Baum, an analyst with The Planning Edge in Farmington Hills, Mich.

The guessing game

Now the biggest guessing game in the auto industry is what will happen when the zero-percent financing deals expire next week. Nate Gooden, the UAW vice president in charge of the DaimlerChrysler department and someone privy to the making of corporate strategy, says the Chrysler Group certainly has no intention of extending the zero-percent financing on its own. It will probably be up to GM and/or Ford to decide whether the rebates continue, he says.

Gooden says he’s something of a wagering man, and he is betting GM will continue to press ahead with big financing deals. GM enjoys having the initiative and he suspects it really doesn't want to let the momentum go back to another company, he told reporters after a union press conference in Dearborn, Mich. "I don't think they're going to give up," he said. Indeed, GM continues to schedule overtime at several assembly plants that build pick up trucks and sport-utility vehicles.

Meanwhile, Robert Lutz, the GM vice chairman hired last summer to lead GM's product development, told USA Today after reviewing the company's product portfolio, he believes GM's could pick up five or six points of market share in the next few years. "If we can just arrest the decline in car share, we'll pull ahead," Lutz told the daily newspaper.

Lutz also indicated he was preparing to create some new buzz around GM during the North American International Auto Show by unveiling a spiffy Chevy concept vehicle.

Profits returning

Ron Zarrella, the executive in charge of GM's North American Operations, also told The Wall Street Journal that GM's North American Operations will be profitable next year despite the looming recession and forecasts of a sales slump next year. The profit won't approach GM's target of five percent of revenue, however, Zarrella told The Journal. Zarrella also suggested GM's OnStar unit could be profitable around 2003.

OnStar officials, meanwhile, have said that they are committed to turning a profit in the next few quarters. OnStar hasn't released any kind of target but it expects to be profitable soon, said Debbie Frakes, OnStar spokeswoman. "We're going to do everything we can to make it happen," she said.

Baum said GM is clearly benefiting from the timing of its cost-cutting. It lagged behind Ford and Chrysler during the 1990s but is now in a stronger position as its cost cutting finally begins to pay dividends.

David Cole, director of the Center For Automotive Research in Ann Arbor, Mich., says GM executives have worked patiently at the kind of in-company cultural revolution that's made the company more adept at competing in today's challenging environment. The slow, steady progress at internal reform has left GM in a very strong position now, Cole said.

Indeed, GM hardly missed a beat last week as it announced the retirement of a key executive, Harold Kutner, the head of GM's worldwide purchasing organization. Kutner was a major figure in the GM's turnaround. He rebuilt the reputation of GM's purchasing organization after Inaki Lopez, left for Volkswagen. Kutner's efforts have helped cut GM's material costs, which in recent years have come down by between two percent and three percent annually.

Bo Andersson, the former Saab executive, who has quietly emerged as a member of GM’s senior management team, will replace Kutner.

EchoStar infusion

GM's balance sheet also has been rebuilt since 1992 and, if federal regulators or Congress don't get in the way, it stands to get a substantial infusion of cash in the next several months from the sale of Hughes Electronics to EchoStar. The EchoStar deal will leave GM enough money for both rebates and product development.

Baum also notes that GM has now crept ahead of its domestic rivals in quality. Ford has slipped and the Chrysler Group, while improving, still hasn't quite matched GM, he noted.

GM, however, is still dependent on rebates. Despite the success of the zero-percent financing program last month, GM is still barely holding its own on the car side of the business. "They still produce cars people settle for rather than building cars than people say, 'Wow, I've got to have that.'"

The other problem is more mundane. Zero-percent financing has taken a lot of loyal GM customers out of the market for next four or even five years. Getting some more remains a challenge, Baum said.

story posted 11/12/01

 
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