Sets Final UAW Deadline by Joseph Szczesny (2/19/2006)
Will there be a strike on March 30?
Workers at General Motors’
Pontiac Assembly Plant, a half-hour’s drive north of
The announcement comes in sharp contrast to others the automaker has made in recent months. Just weeks ago, GM revealed plans to sharply cut back on salaried pension and healthcare, while also “sharing the pain” with stockholders, who’ll lose half their dividends, and senior executives, who’ll lose up to half their pay. Last autumn, CEO Rick Wagoner announced plans to close five assembly plants and trim around 30,000 jobs.
Even the latest, upbeat
announcement has fueled skepticism. The
When the giant automaker began work on those SUVs, it envisioned a market segment of at least one million vehicles annually. Now, however, it’s more likely to run in the range of 750,000, according to vice chairman Bob Lutz. Even if GM can maintain its current share, an eye-popping 60 percent, that’s a significant shortfall.
Like the big SUVs, the
next-generation pickups face a new world order of high-priced petroleum, as well
as some increasingly serious import competition from the General’s most feared
That would be devastating to GM, in particular, as one senior truck executive — who spoke only on background — acknowledged this week. During a test drive of the Tahoe’s sibling SUV, the GMC Yukon, he lamented hearing from colleagues across the company. “You’ve got to save us,” said one, admitting his own project was almost certainly not going to meet its sales and profit targets.
Living up to expectations
With the exception of the obscenely profitable full-size trucks, few recent GM products have lived up to expectations. The automaker’s ungainly sport vans have proved an unmitigated disaster. Specialty vehicles, such as Chevy’s “Corvette pickup,” the SSR, and convertible/ute Envoy XUV, have answered questions consumers weren’t asking.
All the while, sales
and market share have continued to plunge. Just a few years ago, workers at GM
world headquarters in
Considering the crowded nature of the American market, where more than 30 brands and close to 300 different models compete, no one expects GM to regain the awesome 50-percent share it commanded at peak. But at some point, the giant’s business case no longer remains sustainable.
CEO Wagoner is stuck in an awkward public position. He needs to emphasize the carmaker’s problems, in order to encourage rapid change in the organization. He’s painted a dire enough image to even win multi-billion-dollar healthcare concessions from a normally recalcitrant United Auto Workers union. But that’s clearly not enough as Wagoner struggles to bring structural costs down from the current 35 percent of revenues to about 25 percent.
Falling and rising
Why has GM’s share slumped while the competition steadily gains strength? Company executives are quick with answers designed to off-load blame. There’s no way to prevent brands like Toyota from picking up sales and share, insists Mark LaNeve, GM’s North American marketing chief, as they enter new segments, such as full-size trucks. True, to a point, but the biggest declines have, over the last two decades, occurred in segments GM simply walked away from, or fielded clearly uncompetitive product. Until the late 1980s, the automaker owned the mid-size sedan segment. Not today.
That’s all the more frustrating for longtime GM managers who, for the most part, have only just begun to get the products they’ve been calling for. It wasn’t an easy task. Former brand czar Ron Zarrella’s smoke-and-mirrors strategy confounded logic and delayed work on better product.
Wagoner himself admitted as much at GM’s annual meeting last year. “If I had a chance to rerun the last five years,” Wagoner conceded in a scrum with reporters, “we probably would have done a little more thinking about making sure that each product was distinctive and had a chance to be successful.”
Far too many GM products still fall well short of leadership status. The automaker is only grudgingly coming to recognize that cheap, plastic interiors don’t work. It is offering too many four-speed transmissions where the standard is now the five- or six-speed. It has been painfully slow to the hybrid market.
Yet as reviews of the new full-size SUVs suggest, there are now a growing number of GM products that really are world-class. The Chevrolet Corvette is truly world-class. Okay, one might counter, that’s a low-volume specialty vehicle. So then there are the new, full-sized SUVs, and some surprisingly competent sedans, such as the latest Chevrolet Impala.
Better yet, the latest GM vehicles
are climbing in the quality charts, according to the oft-quoted J.D. Power &
Associates. Indeed, three General Motors brands outperform the
But does it matter to consumers?
In large swaths of the country, General Motors has become virtually irrelevant.
With the rare exception of a couple recent models, such as Cadillac’s
bling-heavy Escalade SUV, you aren’t likely to see many GM products in Southern
Compounding the situation, the longer GM’s problems remain in the news, the longer the dreaded “b-word,” bankruptcy, is headlined, the more consumers walk away. “Folks don’t like to do business with companies they fear might not be there” when it’s time for an oil change or warranty repair, laments a divisional marketing director, also asking anonymity.
Can GM avoid bankruptcy? Analysts
and investors seem evenly split on the idea, despite Wagoner’s passionate
assertion that Chapter 11 is “not part of our strategy.” The smaller GM gets,
the harder it becomes to come up with funding to cover its massive legacy costs.
And it’s facing new federal rules that could force it to cough up even more.
Worse, as it pushes to bring capacity in line with demand, it actually worsens
the situation, sending still more union employees onto the retirement rolls. And
then there’s the seemingly intractable situation with
“I think they’ll struggle mightily to avoid bankruptcy,” says the CEO of a major supplier — which is currently preparing to emerge from Chapter 11 itself. “But I don’t see how that can happen, not without huge concessions from the UAW,” added the exec, who began his career at GM.
Ron Gettelfinger, the union’s president, recently ruled out further concessions, certainly before the two sides return to the bargaining table in 2007.
In January, Jerry York, the front man for billionaire investor Kirk Kerkorian, warned that GM had perhaps 1000 days’ worth of cash reserves left at its current burn rate. It’s possible, some GM insiders suggest, York will change that tune now that he’s been given a board seat. Perhaps not. The latest financial figures seem to indicate he’s on target.
So pumping some of that cash into the Pontiac plant is risky. Of course, it’d be even riskier to scrimp. GM has to invest in product and hope that it’s finally delivering what customers expect. The challenge is to then get consumers to believe that message. “It could take a generation,” warns analyst Phillippi, and GM simply may not have enough time.