Industry Report: GMs Bob Lutz Considers Dumping One Brand to Curb Losses
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New Strategy Wont Allow Overlap of Buick, Pontiac and GMC Products
As General Motors market share continues to slide southward and profits seem out of reach, the automaker may phase out one of its many nameplates. Vice Chairman Bob Lutz, always willing to show his cards to the media, sometimes much to the dismay of those who work alongside him, commented Wednesday that one of GMs weaker brands may have to go if sales projections couldnt be met.
Which one would it be? Just to refresh your memory, GM produces Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab and Saturn vehicles in North America, plus Adam Opel in Europe, not including the U.K. in which it rebadges Opel as Vauxhall, and Holden in Australia. It also owns a significant portion of Isuzu, a nameplate that now sells rebadged GM SUVs and soon a facelifted Chevy Colorado/GMC Canyon pickup truck, plus Suzuki, Subaru and Fiat. Did I miss any? OK, Daewoo, but the brand has pretty well been eliminated from anywhere but South Korea, so its a moot point.
While GM has reduced its involvement in Fiat measurably, and is aligning more than ever with Subaru, seen in its new Saab 9-2X and upcoming Saab 9-6X, based on the new Subaru Tribeca, its Opel and Vauxhall brands have been in dire straights for years. Just the same, GM isnt about to ditch them just yet as the move would represent pulling out of the European market, except for a few Daewoos sold as Chevys (sold as Buicks in some Asian countries by the way), a trickle of new Cadillacs and rivulet of Saab models. Holden does reasonably well in Australia, and therefore the brand should remain untouched.
Rather, the nameplate to get the axe will come from within the North American market, if it comes at all. Addressing a Morgan Stanley automotive conference in New York, the VP inferred that due to a lack of investment in recent years Buick and Pontiac are both “damaged brands”, although GM is attempting to correct its wrongs with an assortment of new vehicles just arriving now or due to arrive on the market soon. If some brands, not necessarily Buick or Pontiac, fail to meet sales projections, he continued, “then we would have to take a look at a phase-out. I hope we dont have to do that. What weve got to do is keep the brands weve got.”
GM made a difficult decision a number of years back when announcing Oldsmobiles demise, which resulted in a gradual phase-out ending only this year. While fans of the centenary brand were disappointed, there werent enough immediate sales and few future prospects, as Oldsmobile buyers were an aging demographic, to justify its existence.
Of course Pontiac reaches a younger demographic than Oldsmobile did, or does Buick for that matter, but its products have struggled to remain competitive against those made by similarly “sporty” Asian brands, such as Honda, Mazda and Nissan. Only its almost defunct Sunfire compact has been a big seller, and then merely because it has been priced so low that it can hardly be profitable. The new Pursuit and G6, both surprisingly good, seem to be doing well, but both models are still in their first-year honeymoon phase, with long-term prospects unknown.
Buick, on the other hand, is targeting Toyota and Lexus buyers, a tough lot to convert. While the domestic brand enjoys superb
third-party reliability ratings and is now building an excellent product in its new midsize LaCrosse sedan, such might not be enough to get buyers of the Asian automaker to take notice. Its upcoming Lucerne looks attractive, offers V8-power and will most likely increase the brands overall competitiveness, but again, will it be enough?
On another note, Buick has finally entered the minivan market with its 2005 Terraza, a slightly restyled version of the Chevy Uplander, Pontiac Montana SV6 and new Saturn Relay, designed to take on the Chrysler Town & Country, plus now it has two SUVs, or at least one SUV and another crossover. But the latter, the Rendezvous, is not competitive to best sellers like the Chrysler Pacifica and Lexus RX 330, and therefore struggles. Buick has long awaited a replacement, with something along the lines of the beautifully styled Centieme concept that debuted in 2003, but nothing new has arrived. Its Rainier SUV is merely an upgraded Chevy TrailBlazer/GMC Envoy, replacing the defunct Olds Bravada. While it offers the most distinctive styling of the GM midsize SUV lineup, its truck-like demeanor hasnt been well received among Buicks pampered clientele.
And that brings up another issue on the same theme? Just how many versions of the GM midsize SUV can the company spin off? Added to the TrailBlazer, Envoy and Rainier is the slow-selling Isuzu Ascender and upcoming Saab 9-7X. It should also be mentioned that GM is still trying to sell off a backlog of Oldsmobile Bravadas. Altogether there are six versions of this SUV, plus Hummers new H3, a similarly sized, off-road capable sport utility.
Sport utilities aside, it would be hard to conceive of GM killing off Buick or Pontiac any time soon, especially after dropping Oldsmobile. But automotive analysts continue to recommend that the worlds largest automaker divest further, if it plans on ever returning to profitability.
So if GM had to make the hard choice, which brand should go? Saturn seems to be on an upwardly mobile course, with fresh new products and among the youngest, most loyal ownership demographic GM enjoys, so it will most likely remain part of the fold. It is also aligning its product development with mainstream GM brands in North America, as well as Europes Opel, which is a move that makes a great deal of sense and could help both brands reduce development costs by taking advantage of economies of scale.
Chevrolet is the automakers core brand and the first entry-level nameplate to go global; now made available in Europe and other markets. Chevy is also GMs primary truck brand, and together with GMC accounts for a great portion of the automakers sales and profits. But this last point brings up another issue. Chevy and GMC trucks are virtually carbon copies of each other; the most glaring example of brand engineering in the domestic auto industry. Why have two brands selling the same vehicle, with the added development, management and marketing expenses? While sending GMC to pasture would be a smart choice, on paper at least, the vehement outcry by faithful truck fans would reverberate across the continent for years to come. And to complicate matters further, GMC is profitable, plus it satisfies the Generals dealers who dont sell bowtie products.
Hummer, however, is struggling. Its H1 sells nominally, while H2 sales have fallen off dramatically, with GM looking to the new midsize H3, and potentially a pickup variant shown in concept form as the H3T, to boost interest in the brand. Its not only hurting from a sales volume perspective, but Hummers brutish image and extremely poor fuel economy is a difficult sell in todays environmentally conscious market. If there was a brand that needed an optional hybrid electric drivetrain, its Hummer.
Cadillac is probably GMs hottest brand, with a host of new rear- and all-wheel drive sedans, a full-size SUV, crossover SUV, a crossover SUV-pickup truck and two new limousines. In an interesting twist, it will be building a new B-segment car in Saabs Trollhatten plant, dubbed the BLS, only for European consumption. And that new relationship might be exactly what Saab needs, as the premium player has struggled to become profitable for years despite considerable investment. Saab seems to be on a positive course now, however, and looks to be given a new lease on life.
Isuzu seems like the most obvious brand to drop, but its not entirely up to GM to do so, and it wouldnt make all that much difference to the domestic automakers bottom line anyway. So were back to Buick and Pontiac, with the former seeming like the most obvious candidate to get phased out, along with its aging demographic, if GM plans to follow through with Lutzs comments.
But if Mark LaNeve, Vice President of Sales and Marketing for GM, has anything to say about it, Lutzs words are all hogwash. Reports state that LaNeve, commenting the day after Lutzs statement, said that GM is investing heavily in all eight brands, and that phasing out a particular division is not under consideration.
“We have no plans, or even discussions, of killing any brands,” LaNeve avered. “Were investing more heavily than ever in product and marketing programs.”
Of course, LaNeve needed to say that the various brands were safe in order to appease dealers. If there had been no “discussion” of killing a GM nameplate, it would be highly unlikely Lutz would have made up the comment our of thin air.
LaNeve went on, however, to comment on a new plan for Buick, Pontiac, and interestingly, GMC. The automaker is looking at these three brands as one channel, which would sell different types of products and not just rebadged duplicates, in order “to service that channel and to focus ” the lineup.
“These portfolios were going to deliver we dont have to deliver an A to Z portfolio for those three brands,” he said. “We can tighten and focus them. Id rather have four or five great Pontiacs or Buicks than eight undistinguishable products. That business model makes a lot of sense.”
It does make a lot of sense, actually, and if GM can do it, it might work. Still, its up against brands such as Toyota, which manage to sell conservative sedans, sporty cars, trucks, SUVs, etcetera, under the Toyota, Lexus and Scion banners. Honda does the same, while adding motorcycles, ATVs, power generators, and just about everything else to its portfolio. This allows it to market one powerful brand, seen just about everywhere. While this works for Honda, mind you, it surely doenst for Mitsubishi.
Like Mitsubishi, GM faces other challenges that only make weaker sales more difficult to deal with. Its the largest private provider of health care in the U.S., which puts the automaker under tremendous strain. If it eliminated a brand it would also most likely be able to close down one or two unprofitable manufacturing plants, which would not only cut salaries, but health care costs.
“An across-the-board competitive health care plan for salaried and hourly employees could literally save us billions,” said Gary Cowger, GMs president and CEO. Health care costs, added Lutz, are “a huge albatross hanging over American industry today.”
The automaker also faces $300 billion in outstanding debt. It may sell a stake in its GMAC Commercial Mortgage division, now that potential investors have shown interest, but being a highly profitable subsidiary, which has supported GMs poor vehicle profits, it would be a hard pill to swallow.
But all is not lost in the shadow of darkness. In his address to the Morgan Stanley conference crowd, Lutz was positive about some new products and for the automakers eventual turnaround.
“Sure, we face short-term challenges, and this is not going to be a banner year,” he said. “Its a difficult period of adjustment. But we will get through it.”
Lutz mentioned the new compact Chevrolet Cobalt and midsize Pontiac G6 as strong sellers, actually quoting an auto journalist who stated in a positive review of the Cobalt that “the Titanic may yet turn fast enough to miss the iceberg.”
And in the end, GM will come out of its troubles just fine. Yet it will still have to make its refocusing plan work, or face the elimination of one of its brands. Buick will most likely get the axe, if only for the same reasons Oldsmobile did, but this will take some time as its aging clientele still need to buy new cars and there are a lot of them out there, with a great deal of expendable income.