Just like the mythical phoenix, the New General Motors was re-born from its (good) ashes in 2009. The newly-formed entity is healthier than ever: it’s profitable, enjoys lean operational efficiency, has the most focused brand strategy in decades, and will have a completely revamped and very competitive product lineup by the end of 2013. But all that is not to say that everything is nice and rosy: there are still problems that need to be solved and eliminated. In my opinion, the following three primary ailments need to be vanquished in order for GM to reach its highest potential.
The European Quandary
If you’re as tired of seeing reports about how bad GM’s European operations are leaking money, then you’re not the only one. Since 1999, the automaker’s European unit lost $16.8 billion — and there doesn’t seem to be an end to the losses in the near future. However, GM is working hard to turn its European business around.
Earlier this year, it formed an alliance with PSA Peugeot Citroen to increase the economies of scale of both manufacturers as it relates to buying, logistics, vehicle development, and possibly plant utilization. And while the fruits of the partnership aren’t expected to produce any significant savings until a few years from now, the alliance doesn’t solve the root of the problems with GM’s European ventures — significant plant overcapacity.
Luckily, it seems that the new management team is exploring all options, including replacing the Opel brand altogether in some European markets and spinning it off as a newly-created joint venture with Peugeot, among other creative business strategies. But even if GM ends up miraculously offloading Opel in the face of a strong union and deep national ties, it will still be left with Chevrolet in the European market — which holds around one percent market share in the region. Chevy’s European sales are growing, albeit slowly.
Whatever the solution, it’s clear that GM needs to stop bleeding money in Europe — and the formula isn’t as clear-cut as most would like.
The Pension Obligation
Next to the unprofitable European unit, GM’s underfunded pension liability amounts to the second largest risk to the company.
Earlier this year, GM moved to de-risk its pension burden by offering some 42,000 of its 118,000 former salaried retirees (who left GM between October of 1997 and December 2011) and their surviving spouses a lump sum payment. Those opting to keep the monthly check have been switched to an annuity provided by Prudential Insurance.
According to GM, the change eliminates $26 billion of its $134 billion in worldwide pension obligations, with most of the cost paid with money GM has set aside in its pension fund and an additional $4 billion from its corporate funds. That still leaves its global pension plan underfunded by roughly $25 billion — with $109 billion in assets and $134 billion in obligations.
Getting out of the pension game allows GM to do what it does best: designing, engineering, and building vehicles — rather than managing pension-related finances. But at the end of the day, GM is still left with a $25 billion liability that it will need to address sooner rather than later.
The Image
The General still bears the Government Motors stigma thanks to the 2009 bailout that allowed the New GM to exist. Granted, there is a whole lot of misinformation about the bankruptcy and the current state of affairs. And while GM may never escape that image with a particular subset of consumers, perception is reality… and just like some spilled coffee on a breakfast nook, the subject of federal ownership is quite sticky: should the U.S. Treasury divest its remaining share and take a whopping multi-billion-dollar loss? Should it wait until the stock appreciates to ultimately sell it? Or maybe GM should just start buying back the shares from the non-private shareholders with outstanding shares, such as the U.S. and Canadian governments. If so, at what price should it buy the shares? There isn’t a clear-cut answer to any of these questions — but someone, at some point, will need to make a decision.
Ultimately, these three items represent the biggest problems faced by the New General Motors today. Solving them would likely send the stock price way, way up (there’s the solution to the stock issue) — and, perhaps allow The General’s employees to focus even more on creating class-leading vehicles that sell very well across the globe, rather than on dealing with politics and other non-core business functions. At the end of the day — fix these three things, and everything will get more rosy rather quickly.
Comments
I know people who will not buy GM because of bankrupcy and poor quality from a decade ago
Simply put , the buying public have moved on , the GM brand names mean less and less to the younger buyers coming to the market for their first and second vehicles . The consumers have infinite choices from some agressive companies like: Kia , Hyundai , Honda , Toyota , Nissan , Ford , etc , etc . GM still has almost autonomous brands within itself competing with other GM divisions for business . They use simlar platforms and trot out different looks . This is expensive and fritters away profits , while this autonomy keeps the company from tightly focussing on the best products to compete in the marketplace . Its like fighting an opponent with one hand tied to your back . Gm brand awareness is slipping away from the younger generation more and more , particularly in the sub compact , compact and mid size segments….do you read me GM ??
I disagree with your comment and would like to see your facts regarding GM slipping away from the younger generation in the sub-compact, compact and midsize segments. The Spark, Sonic and Cruze have all been tremendous sales successes particularily with the younger generation.
In addition, although GM does have some cross competition between models, those are slowly going away (look at the new Impala/Malibu compared the to old Impala/Malibu – much different) and commonizing platforms is NOT more expensive. GM is working everyday to minimize powertrain differences as another method of saving costs.
The buying public is very fickle (remember the crap that Hyundai/Kia was putting out just 5 years ago?) and GM’s new offerings are significantly better than the previous versions (unlike the “new” Honda Accord or Civic) in styling, features, quality and profit so I see GM continuing on their current upward trends by working on the issues Alex presented.
??? Where are you getting your information from? GM’s small vehicles are gaining sales month after month and gaining younger sales. Buick’s average buyer has dropped 3 years while the industry has gained 3 years since 2007 for a relative 6 year drop. And yes, older folks still buy the brand, but younger do have the brand awareness as they buy the Regals, Veranos , not to mention the families buying the Enclaves.
While you may know the Cruze is based on the same architecture as the Verano the public is about aware as they are of the Camry is the same as an ES. They just do not know and would not care if they did know. EVERY full line manufacturer has the same kind of platform sharing from Toyota/SCION/Lexus to Ford/Lincoln to Honda/Acura to VW/Audi. Everyone does it.
http://digital.olivesoftware.com/OLIVE/ODE/DET/LandingPage/LandingPage.aspx?href=VEROLzIwMTIvMDQvMjM.&pageno=MQ..&entity=QXIwMDcwMQ..&view=ZW50aXR5
I half-agree with you. To non-automobile enthusiasts, GM’s brands are beginning to matter less and less. That doesn’t mean that their sales are worse; it just means that they can no longer depend on brand loyalty. Buyers who once said “I always buy Chevy” are now confused that once-troubled Kia, for example, could offer a sedan that is fun to drive, reliable and gets mistaken for a Lexus. The dynamics of the automotive market are tilting drastically and brands in general seem to be breaking out of their molds (mostly for the better) more and more these days, making the names mean almost nothing.
GM is certainly not doing worse than before. Without brand-loyalty to keep it afloat, it has had to create competitive and rewarding products that have managed to both surprise its existing customers and lure in new ones.
Moreover GM does have a lot of platform sharing. Really the only GM products I can think of that do not share their platforms are the Cadillac CTS (now that the old SRX and STS have been retired) and the Chevrolet Corvette (now that the XLR is gone). But economies of scale necessitate such platform-sharing for profitable companies. Platforms are immensely expensive. But GM is making great strides in differentiating one brand’s entry on a particular platform from the other’s, and thus avoiding disgruntled customers and cross-shopping.
The only thing I see that should be majorly improved is the relationship between Chevrolet and GMC. GM needs to have Chevy ease-up on the large vehicles and let GMC take over. Really, there is no reason for there to be both a Chevrolet Express and a GMC Savanna; only the latter should be kept. Also heavy-duty truck manufacturing (2500 and up) could be delegated to GMC. Then Chevrolet could retire the Suburban and offer only the GMC Yukon XL (and, for luxury shoppers, the Cadillac Escalade ESV). Lastly the Traverse could be discontinued and the GMC Acadia’s price-range extended to lower-end Lambda-platform shoppers.
Still it seems to me that GM is doing just fine here in the U.S.
@USAJIM Whoa! The Cruze is the best-selling compact car and GM is somehow losing the younger buyers? How does that work?
http://gmauthority.com/blog/2012/10/incentives-may-have-boosted-chevy-cruze-to-number-1-compact-spot-in-september-2012/
Also, GM’s brands are not autonomous divisions. I believe they should be, as it would give GM an additional edge over the competition in the luxury space… but that’s a topic for a different day. The point is that the GM of today is very efficient in the way it develops, engineers, designs, and produces cars. Platform sharing is done right, and done well — and there’s nothing expensive about that. An autonomy (with brands as independent divisions) would be more expensive, but possibly more advantageous (competitively).
Ultimately, the reality couldn’t be further from your perspective… and I mean nothing unpleasant by that.
Perhaps the biggest problem GM faces is in the executive suite. Dan Akerson, an executive from a failed mobile phone company and member of the vulture capital fund, The Carlyle Group, became CEO after AT&T executive Ed Whitacre turned down the job and no one else wanted it.
They can’t find an executive to run Opel. Akerson just promoted GM’s Chief Lobbyist, another AT&T alumni, Robert Ferguson to “VP of Global Cadillac” to project the Cadillac luxury brand. Akerson hasn’t filled GM’s top executives ranks for global purchasing or marketing. He’s also known as a bully in the executive suite.
Does no one want these jobs? Are the existing management ranks at GM so bad that no one can fill positions? Is it possible that no one wants to work for Akerson?
Things need to be shaken up inside GM, but this guy – always the smartest guy in the room according to him – doesn’t feel like the right person to do it. All signs point to a demoralization in the executive suite and that trickles down into the rank and file. Hell, Lt. Dan doesn’t really even like most of GM’s products.
What GM needs is another Bob Lutz or someone of the caliber of Alan Mulally to take control and built a team to get the job done.
GM has plenty of experienced and talented engineers and designers and very dedicated rank-and-file workers as well as manufacturing workers. Management needs to do a better job of putting it all together to build even better, more desirable cars and trucks and wring cost savings out of GM’s global empire.
Sounds like a regurgitation of Peter D – the Autoextremist…
http://www.autoextremist.com/current/?currentPage=2
I work at GM and can tell you we are all behind Dan. We needed a shake up and to get some of the old school thinking out and I think people from outside are the best to do that. Besides, with the restrictions on Executive pay due to the government ownership, going outside to run Opel, for example is almost impossible.
Yes, I’ve read Peter DeLorenzo for many years. And he’s usually right about these things. But it’s not a regurgitation. Several other insiders have had similar observations. There’s an editorial in this week’s Automotive News too.
That said, I agree that management still needs to be shaken up and that the old GM think must go. I think the product is being held back some but I also see flashes of brilliance that I know exist. I don’t see much brilliance in the management ranks right now.
The old saw about the governed limitations as an excuse for not finding or retaining talent is getting old. I bet there are plenty of fresh young minds who would jump at the opportunity and salary to make a mark for themselves.