General Woes
Just selling more cars may not be enough for the troubled automaker
Mediocrity often sneaks into products undetected. But executives at General Motors think they are learning to spot the unwelcome intruder and show it the door.
Last year, for example, a disagreement broke out among the team developing a new Buick crossover vehicle, due out in the next couple of years. GM designers, responsible for looks and style, felt the vehicle's corners were too square with a hood that hung out too far over the tires. But the engineers, who have to build what the designers draw, said proposed changes would take too much retrofitting. Team managers told the two factions to resolve their differences in a series of "enabler meetings" --troubleshooting sessions at 6:15 in the morning--which GM has begun using to break the notorious bureaucratic logjams at the world's biggest carmaker.
This time, both sides held their ground. Finally, Jim Queen, GM's engineering chief, and Ed Welburn, head of design, stepped in. They finessed a solution that gives the crossover the shapely, Lexus-like curves the designers were after, while appeasing the engineers. "There have been periods at GM when design had total power, and periods when the engineers set all the rules," says marketing chief Mark LaNeve. "Now they work together. The whole attitude has changed."
Clearly, some things have changed at GM as the carmaker battles for its survival under CEO Rick Wagoner. The company has long been derided for bland, compromise designs, like the Chevy Malibu and Pontiac GTO, that look a generation behind the hottest cars in their class. But a series of new vehicles to be launched over the next several years is drawing praise from analysts, auto journalists, and industry insiders. The company is also breaking old habits like building nearly identical cars for different nameplates--think Chevy Cavalier and Pontiac Sunfire--and focusing instead on giving each of its eight brands a distinct identity. And GM's summerlong "employee discount" promotion, initially jeered by skeptics, turned out to be one of the most successful marketing campaigns ever, helping GM thin bloated inventory and gain market share.
"The General" needs to conquer a lot more turf, however, before it can beat back hot competitors like Toyota and Nissan and reverse a precipitous money-losing slide. And even the huge employee-discount program--which offers all consumers the same favored pricing that GM employees get, and is due to expire at the end of September--may end up doing little to aid the automaker's fortunes. Despite boosting sales, the summer's fierce discounting apparently did little to improve GM's profit margins, the worst in the business. Employee and retiree healthcare costs, which will add up to nearly $6 billion this year, sap an increasing portion of company revenues. And GM's image still sags, a huge roadblock to reducing giveaways and boosting profits. "They need to change the perception the consumer has about GM," says Jeff Schuster of J. D. Power & Associates. "Are they the Kmart of cars or a more upscale store?"
The employee-discount program, launched right after GM announced a $1.4 billion loss for the first half of 2005, started with a more strategic purpose than just clearing out aging merchandise. Aggressive rebates and other deals have locked GM, along with Ford and to a lesser extent Chrysler, into a debilitating pattern: Consumers have gotten hooked on incentives on domestic cars and won't buy without them. The only exception is for red-hot new models like the Chrysler 300C, which have been scarce at GM. All that discounting has thrashed profitability. In 2002, according to Harbour Consulting, GM made $701 per vehicle in pretax profit in North America, worse than the Japanese importers but better than Ford and DaimlerChrysler. By the first half of this year that profit had become a $1,227 loss. Toyota, by contrast, has been earning about $1,488 per vehicle, a 23 percent improvement from 2002.
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