Tuesday, December 30, 2008

When you turn your car on, does it say “Built for the Bailout?” – Why GM still has only the slimmest chance of survival.

GM is going down the tubes; it has less than 100 days to prove it deserves the bailout the government has given it, and is still saddled with large legacy costs due to agreements with the UAW. The situation is grim for GM, and it is doubtful that the company can survive in a form even remotely resembling what it is currently. GM might be able to make its organizational structure more logical—even killing off a brand or two could make sense at this point—and working out better terms with the UAW is a given. However, the issue remains how GM can return to profitability. The bailout money is for GM to build smaller, more fuel-efficient cars. Unfortunately, the compact cars GM has made to date have been rubbish, and the cars it can consider successes are ones that go against what the government has decided GM’s direction should be.

Chevy's slogan used to be “Like a rock.” More than appropriate when you think about how unsophisticated and unreliable GM cars have been on the whole. The organization has brought forth many horrible cars in recent memory. In many cases the cars weren’t inherently awful, with a huge exception being made for the Pontiac Aztek, but virtually every model was worse than what GM’s competitors were producing at the time. Speaking of inherently awful, it would be good to mention here that GM has in fact produced a small, fuel-efficient car in recent times, in the form of the Saturn S-series. Having driven one many times, I can tell you they were torquey with a manual and got good fuel economy, but the interior was possibly the worst car interior of any car sold in America in the last 10 years. What the S-series shows is that GM felt fuel economy was more important than having a car people wanted to actually be in. Every one of GM’s competitors has rolled out cars that show that having both is possible and reasonably priced.

“When you turn on your car, does it return the favor?” That is the phrase Cadillac is using in its recent marketing campaigns, but moreover it symbolizes the focus of the company. Cars and the companies that make them need to have a reason for existing, a style or a je ne sais quoi that conveys an image of what a company’s cars are supposed to be as well as what the car company’s values are. Cadillac is selling cars people want to drive because it has found a central theme that resonates with consumers. For BMW, it is “The Ultimate Driving Machine,” and for Audi, it is the crystallizing word “quattro.” However, the rest of GM lacks that focus, and as a result their cars lack the style and the quality that is expected of a modern car manufacturer. All GM has to go on is “Surprised?” Apparently, GM thinks that consumers like playing Russian roulette when it comes to the reliability of their automobiles.

Even if GM does succeed in selling a decent small, fuel efficient car, then what? The Chevy Cruze, the car that along with the Volt are being touted as GM’s saviors, looks fairly promising, but one car does not make a volume car manufacturer. What about Pontiac? Their apparent savior is a rebadged Daewoo. What about Buick, which went from having seven models in 2005 to only three in 2008? To put this in perspective, Mercedes-Benz has no fewer than 13 models currently on sale in the US. The only cars which have truly screamed success for GM are cars like the Corvette and the Camaro/Firebird, and GM can’t be building its other cars solely in order to support their successful models. Porsche can, because they understood that their “mass-market” car, the Cayenne, would have to be every bit as sophisticated as the sports cars they design. Porsche followed through on a Mercedes advertisement I found on the back of a magazine: “Make the car you have to drive the car you want to drive.”

In the hilarious Saturday Night Live skit about the Big Three, Walter Jones asks Rick Wagoner, “According to your testimony earlier in the week, for every car General Motors sells it loses $2500. Now if that’s the case, just how are you going to turn your company around?” Wagoner responds, “Well I guess we’ll just have to sell more cars…oh no wait…forget that. I don’t know.” No one—not pundits, CEOs, or even comedians—seem to be able to chart a course that could lead GM to success. GM’s corporate structure has to become the paragon of efficiency, the UAW has to concede virtually every benefit, and the Cruze has to sell better than every other competitor combined for GM to have a chance of making it. The government gave GM money to build cars that GM has a poor track record with and will be up against incredibly stiff competition from companies which have already proven they can do small-fuel efficient cars that people like. The cars that GM DOES do well are definitely not small and fuel-efficient.

Ultimately, GM as an institution cannot last. Its ways are too backward and inefficient, and its cars are just too crappy or uninspired. The bailout simply sets requirements that ignore reality and promotes the fallacy that GM can continue on as it has been doing. Once reality has caught up with GM, there are two options. The first, like the fake Rick Wagoner does in the SNL skit, is to ask Congress for tens of billions of dollars every six months. The second, more likely, answer is that GM collapses finally and that something rises from the ashes. This might not be what politicians and people dependent on the Big Three want, but as a result of its collapse GM might finally satisfy the consumer.