GM: Solutions For Effective Change

I, like so many people who have been following General Motors’ fortunes for some time, am wondering what the company’s long term plan of action is in the face of historic losses, plant closings, and unrelenting and widening competition. No, I am not talking about GM’s global operations, rather I am talking about the North American fortunes of the world’s largest automaker. Quite frankly, the North American market is currently unprofitable for the company while GM holds its own, even thrives, in many markets beyond our borders. The following are some suggestions to help “The General” not only get back on its feet again, but to halt the bleeding in North America.

File For Bankruptcy -- It is time to play hardball with recalcitrant unions and government authorities who don’t understand that GM is playing on an uneven field. Toyota, Honda, Nissan, and Hyundai all build cars in the U.S. None of them are saddled by huge legacy costs, i.e. health and pension benefits, local tax burdens, etc. Yes, GM negotiated their contracts in good faith, however the market has changed tremendously over the past several decades and is wholly unfavorable to the way GM has been doing business since then. In addition, GM often operates at a disadvantage in foreign markets as local laws limit their ability to effectively sell their vehicles.

Quit Building Small Cars -- All small cars built by GM should no longer be built in the U.S. This includes the Saturn ION and Chevrolet Cobalt. Instead, GM should rely on imports. By tapping its relationship with Daewoo of South Korea, GM can bring in enough cheaply made models to remain competitive and to give consumers affordable transportation under the Saturn, Chevrolet, and Pontiac nameplates. Use factories in Canada and the U.S. to build larger cars and trucks only. GM has been successfully selling the Chevy Aveo, a Daewoo model, and can easily sell other models at competitive prices. This practice would be especially wise as cheaply priced Chinese cars begin to hit the North American market in 2007.

Shore Up The Divisions Unlike some who think that GM has too many divisions, I disagree. Better to clarify your existing divisions than to go through the costly and negative closing of existing divisions. The Oldsmobile termination was a huge financial drain on the company and ended up fueling hostility against the company. Therefore, this is what I propose for GM:

1. Cadillac – GM’s luxury division is riding high and no changes need to be made. Keep producing distinguishable high quality luxury cars and Cadillac will continue to compete against the likes of Lexus, Mercedes, BMW, and Infiniti. Cadillac outsells Lincoln by more than 2 to 1 and the division performs well in all consumer quality and satisfaction surveys.

2. Buick – As the “near luxury” division for GM, Buick must create a viable alternative to Cadillac without sacrificing quality or confusing consumers. Bring back in a “halo” model like the Regal to show Buick’s youthful side.

3. Pontiac – Unless the Firebird returns, Pontiac’s performance image is gone for good. Pontiac needs this car and it must be different from the proposed Chevy Camaro. Besides Saab, Pontiac is the one division that needs the most work when it comes to reinventing itself.

4. Chevrolet – Keep up what you have, but rely on imports to fill the lower end of the market. Redo the Impala to help it compete successfully against the Chrysler 300, Toyota Camry, and Honda Accord. Yes, bring back the Camaro!

5. Saturn – Moving in the right direction, Saturn should chiefly sell cars that are Opel inspired. Give the car a more European flair and the division will succeed. The Sky is a knock out and the Opel inspired Aura is a vast improvement over the old “L” Series model. Keep the strong dealer network in place and Saturn will compete successfully against Hyundai, Honda, Toyota, Nissan, and others.

6. Saab – GM’s Swedish division is floundering and may be cut. Better yet, let the division sell upscale versions of Opel models and please do not throw out the Swedish touch: safety and durability. Unfortunately, GM hasn’t been as kind to its Swedish company as Ford has been to its Volvo subsidiary.

7. GMC – Between Chevy and GMC, no manufacturer sells more passengers trucks then this division. Likely, nothing will change, but coming out with a more capable small pick up truck would go along way in helping GMC and Chevy. Also, redo the Equinox to be a real battler against the Ford Escape and Toyota RAV4.

8. Hummer – GM’s niche division is the Hummer and little needs to be changed other than to add an H4, a compact Hummer. With the H4, give the division something to go with that can battle the Jeep Wrangler. Hummer will always be perceived as the company’s gas guzzling company, but it is also profitable for the corporation.

Personally, I do not want the bankruptcy route to be exercised as I know that so many suppliers would be left out in the cold, jobs lost, and goodwill would take a hit for at least the short term. Still, aggressive action – even beyond plant closings and layoffs – must be considered otherwise GM will be relegated to operating as a second rate player in North America while pursuing its fortunes abroad. In my opinion, neglecting the profitable North American market would be a shame and very costly.

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