Is GM Headed For Breakup?

With the latest US bridge financing for the 'Big 3' dead on the Senate floor, one has to wonder what will become of them.

Chrysler will shrink to a shadow of its former self. (Those old enough to remember their show rooms in the early 80s will remember walking into a room full of K-platform cars and leftovers from the mid-70s. This time around, I suspect the remains will include a minivan, and possibly something based on a Mitsubishi platform ... and not much else.

GM on the other hand could be headed for a fate not unlike what happened to AT&T/Bell in the early 80s. GM has a couple of brands that I suspect will survive in some form or anther. I can see Chevrolet, Pontiac and Cadillac remaining fairly intact; Saturn will likely become a brand used to label whatever they can import from Europe and Korea. (Not unlike GM's ill-fated "Passport" and "Geo" brands - hopefully better managed than that...)

Buick will vanish - at least in North America, and I suspect the 'GMC' branded trucks will also go away - being otherwise identical to their Chevrolet-branded cousins.

Just at a guess, we'll see the following companies emerge from a GM bankruptcy in North America ("MiniGeMs"?):

1. Chevrolet - Mostly producing family cars and light trucks
2. Pontiac - Will try to position itself as a "near luxury" brand competing with Acura
3. Cadillac - Will continue to be Cadillac
4. Saturn - Will mostly become a dealership network selling rebranded Opel product.
No speculation on what will happen with their holdings in Europe and Asia - I simply don't know enough of GM's current holdings over there

All of those companies will be producing in much reduced volumes from today, and I expect their lineups to be trimmed dramatically.

Any guesses as to what shape GM takes on after a bankruptcy filing is, of course, purely hypothetical - based far more in my imaginings than anything even remotely real.

What the impact of a dramatic reshaping will be on the US and Canadian economies will be is hard to say - I'd have to imagine that it will be messy in the short term until the new companies start to take shape and fill the gaps. I expect the stock markets to take a nosedive on this, not because it's warranted, but because the stock markets are run more on emotion than on anything resembling rationality. Sit back, and hold on.

No Wonder The Big 3 Are Screwed

With this kind of brilliant advice.

Walter S. McManus, the head of the Automotive Analysis Division of the University of Michigan Transportation Research Institute, says he could see it coming.

"Brand loyalty is overrated," McManus stated flatly. "It is costly to do all the fuzzies, and Saturn's example is clear that it doesn't pay off for what is essentially an economy-car company. Women especially appreciated the Saturn way, but Honda sells more cars to women, despite having a less female-friendly approach."

Jeepers. What a pin-headed bit of logic. Honda isn't particularly 'female friendly' (any more than other car makes, really), but they've earned that market by producing cars that work. For a long time.

No, Honda's cars aren't the most exciting out there - but they work, they are well made and they've had a solid reputation for decades. Yes, the early models were - well - crude. But once they hit the mid-80s, the company hit its stride - especially with the Accords.

I can't count the number of people I work with whose first car was a Honda Civic, or they bought one for their daughter's first car (often with the thought that it was a reliable car that wouldn't strand their daughter somewhere in the dead of night).

Myself, I'm on my second Honda; my father is on his second (in fifteen years!) - brand loyalty isn't worth much? Horsefeathers. Chances are that I'll give whatever Honda has on the floor in another few years a serious look when I go to replace my current car. Why? Because the cars have treated me well, the service department at the dealership has been fair to me, and Honda has stood behind their product. Loyalty is earned.

Saturn set out on the right track in the late 80s - it was a lack of vision and persistence on GM's part that undermined the first initiative that company had which was going in the right direction. Those that I know that have owned Saturns have spoken well of their experiences with the dealers (in the early years), even if the car itself was "average" quality.

A Bitter Pill...

Via The Galloping Beaver: Chinese Companies Might Buy GM and Chrysler

If the speculation is correct, GM may well find itself owned by one of China's automakers - that's really going to upset the "buy American" crowd, but it might be one of the few practical outcomes for the Big 3 that would result in the kind of dramatic changes in the companies that I've talked about before.

On the other hand, I wouldn't want to be among the senior management of the acquired company. Cross-cultural management is difficult at the best of times, and when the company that has been bought is in need of dramatic overhaul, it's apt to turn into a messy situation for the workers.

If US lawmakers approve a bailout to prevent such a buyout from happening then they will actually be making an even bigger mistake than they did with the banking industry.

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.