Wednesday, November 12, 2008

GM's Liquidity Crisis

General Motors is in a cash crisis that has come to a head in the current credit market crisis.

As a company, GM is a child of the late 19th Century industrial era. It comes from a time when success was determined by size, and it got big. Very big. GM itself is essentially a modest sized economy in its own right.

So...when it runs into difficulties, the US economy is affected. Quite literally, what's good for GM is good for the economy. But, the sheer size of the company has enabled it to become complacent, with a 'weather the storm' attitude. It's been losing money on its automotive operations in North America since 2004.

Think about that - it's been losing money on its core business for four years - that's almost half a decade. Why? Because their offerings have been disappointing at best, and generally give the impression of being shoddily assembled. Except for the Cadillac brand which has been steadily catching up to its competitors, the mainstay of GM's offerings - Chevrolet and Pontiac - have been steadily sliding when compared to Toyota, Honda and even Nissan and Mazda.

The biggest mistake? Little or no meaningful product differentiation. Not only are the cars built on common platforms, the overall dimensions, shape and features are nearly identical. The similarities between a Chevy Cobalt, a Pontiac G5 and a Saturn Ion (mercifully extinct now) are basically nil. They look more or less similar; the features differ minimally, and they all drive about the same. The difference - a bit of trim and a few badges.

GM is a dinosaur. Big, unwieldy and unmaneuverable. Their "product optimization" efforts have hamstrung their offerings badly, and the obvious duplication across product lines is painful. I actually liked Saturn for being different from the rest of GM's line - their vehicles looked different, drove differently and so on - when they rolled out the Ion a few years ago, they essentially killed off the uniqueness of the brand - creating "yet another Chevrolet". (Bringing the Opel Astra over under the Saturn badge was a brilliant move - they need more of those kind of changes to happen)

The current credit market is essentially an extinction event for big, monolithic industry companies like GM. They need to make their various brand divisions independent again - able to move on their own, and with their own unique identity - more than just a marketing brand and a bit of custom shaped plastics. Only when the monolith allows itself to become a collection of more autonomous, smaller companies will it stand a chance of succeeding in today's climate.


Anonymous said...

More to come on this soap opera. Several web sites, being one example, have some analysis that indicate that the proposed bailout requested is simply not enough to sustain GM over much more than a few months.

I rather suspect that we will be seeing GM apply for Bankruptcy protection in the not too distant future.


Anonymous said...

Further information:
The following quote comes from a posting on

"...according to Bloomberg, GM will not be able to go C11 and will have to go straight to C7.

The problem is there is no credit, these days, to finance a chapter 11 bankruptcy on this scale. ..."



Anonymous said...

Well I disagree strongly with most of this. First an effort was made to downsize years ago by sharing platforms and drive trains. Also when it comes to the chevy brand the comments are ludicrous aveo 35mpg for 11-13 k with a 5yr 100k warranty second a cobalt built with 37 mpg for around 14k and the new malibu for 20- 27k I challenge anyone to find an import with all the equipment on these vehicles and warranty for the same money.

The main problem is americans perception of themselves. we lost something far more important than the economy and industry we lost belief in ourselves , unless we as americans start to support our own econimy all is lost.

MgS said...

Anonymous @ 8:54:

My point is that the attempt to downsize by sharing platforms was badly done, and resulted in what amount to identical vehicles with only trivial differentiation between brands.

Cars aren't just about equipment and features, either. There's an expectation around quality and reliability that comes into play as well. Gadgets and gewgaws are more things to break...and they tend to. Everybody I know with a GM car has had continuous problems with secondary systems in their vehicles - from their much touted OnStar integrations to power seats, power sliding doors and goodness knows what else.

It's not just perception - it's perception based in reality. GM needs to change itself dramatically, and its offerings to consumers even more so.

In tight times, people aren't looking for toys. They'll buy a product on price, reliability and their faith in it. There's a reason that Honda can't keep enough Fit units on dealer lots; and the Toyota Corolla and Yaris models are selling in record numbers. (in spite of Toyota's QA issues in the last couple of years - which I hope they are improving on)

Anonymous said...

anonymous @ 8:54

On the fuel milage side of the issue: The major import brands all have mainstream cars in the same price range that are at 35 mpg or higher.

On the warranty side: On the surface the warranty numbers being offered by GM seem to be better than the imports, until you examine cost of ownership over the five years compared to cost of ownership over five years for the imports. The imports are notably cheaper on the cost of ownership which implies both a better build of vehicle as well as limitations to the warranties of the domestic brands.