Brain Food: Behind the Spin - General Motors

THE DILEMMA

by
Last Updated: 31 Aug 2010

Buy One, Get One Free is a promotion usually reserved for shampoo and toothpaste. But for cars? In a ploy that betrays GM's bloated inventory, Kansas City dealers have been giving away a $10,000 Chevrolet Aveo to buyers of the 2004 Trailblazer, Tahoe and Suburban SUV. 'It was very successful,' says Jeff Rigg, sales manager at Van Chevrolet-Cadillac. But the offer indicates how fiercely GM has to fight for market share in the US. And it's worse in Europe, where European operations (including Saab and Opel/Vauxhall) have not made a profit since 1999, losing nearly $400 million in the first nine months of 2004. As a result, HQ in Detroit is to make 12,000 redundancies, mostly in Germany.

THE SPIN

To soften a backlash by disgruntled Germans, GM placed full-page ads in the German press. German business magazine Stern responded with a front cover depicting a GM-branded cowboy boot stamping on German workers. Carl-Peter Forster, GM Europe president, pleaded: 'If you look back three years, nobody would ever have predicted the softness of the European market, especially in Germany.'

THE STRAIGHT TALK

The German government blames 'grave management failures' at GM, pointing to 'baffling mistakes over many years'. Branding is at the heart of its problems - Opel cars are just not sexy enough for European motorists, who prefer VWs and Renaults. Project Olympia, the company's three-year cost-cutting and quality-improvement strategy, started in 2001, has failed.

Says chairman of GM Europe Fritz Henderson: 'Our assumptions about market share increases were wrong... We have excess capacity and we're going to have to deal with it.'

THE VERDICT

'Radical surgery is well overdue at GM Europe and I'm very pleased to see them taking some tough decisions,' says Stephen Cheetham, motor analyst at Sanford C Bernstein. GM's financial services arm has shored up the motor business, which suffers from negative pricing, uncompetitive wages in Europe, rising healthcare costs for US workers and intense competition everywhere. GM plans to replace 90% of its product line in the next four years and has an Opel/Vauxhall SUV and the next-generation Corsa in the pipeline, but it has failed to capitalise on the high-margin Saab brand.

And then there is Daewoo: GM bought the Korean firm in 2002 and will rebrand it as Chevrolet in Europe. Says Henderson: 'Any successful turnaround has to start with a great product.' Does GM have what it takes?

Find this article useful?

Get more great articles like this in your inbox every lunchtime