Can GM Turn Itself Around? Page 2

February 19, 2006

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 Toyota division in Power’s Initial Quality Survey, and Cadillac has been breathing down the back of the vaunted Lexus luxury brand, long the undisputed quality benchmark.


Who’s counting?


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 California, Seattle, or Secaucus. The Red States may have provided enough votes to elect a president, but they’re not powerful enough to reverse GM’s decline.

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