Mini-case Discussion- Can GM be saved?

Question

I thought it might be interesting to branch beyond our usual topics and engage in a discussion on current business issues.

The most logical topic to me is the fate of General Motors. The article is old but provides a good summary.

https://www.businessweek.com/magazine/co ... _mz001.htm

Ivey/UWO Product Number: 905M59 is an interesting case study of GM for those who are interested in a more formal treatment.

I am curious to hear if anyone has ideas of ways to revitalize General Motors . . .

What brands should GM preserve?
Would it be better for GM to exit from the auto industry?

cpetro29 · Answer

It would be hard for GM to exit. They're bleeding money, but they can sell some of the brands. I contend that Ford has ruined more car brands than GM. My suggestions for GM:

Bring back the Saab hatch.
Push the Pontiac Solstice (best car Pontiac has had in a decade)
Chevy and Buick blow - sell them quickly. Not even Tiger Woods can sell a Buick.
GMC - focus on trucks only, invest in gas efficient trucks
Caddy - continue to pimp the Escalade. Scale back the grandpa cars - I only see them in the Avis parking lot.
Saturn - no comment. Take it or leave it.
Hummer- I guess keep it, although, I have no idea how this is a success with gas at $3/gallon

Hjort · Answer

Note, however, that Chevrolet was the best selling vehicle brand among all automakers selling the in US in 2005. Are you still sure you would want to eliminate Chevrolet? 

The 1980s segmentation among the car brands was largely along these lines- 

Chevrolet (the car for "everyman")
Pontiac (the young, sporty
Cadillac (cars for the rich and successful)
Buick and Oldsmobile had a confused, overlapping relationship. They were both intended to cars for customers who graduated from the inexpensive brands (Chev and Pontiac). Considering this overlap, it is no great surprise that Oldsmobile was eventually cut. 

Whatever brands are cut from GM, it would probably still need a central brand with broad appeal.

heman · Answer

Interesting topic Here are my 2 cents *Management changes Rick Wagoner out Carlos goshn in. This might be far fetched though

.Btw They both recently met about a grand alliance between Nissan/Renault and GM. *Health Car changes- This is always a tough one. American workers and workers in developed countries in general are obviously going to command higher health care premiums. But here are the numbers between GM and Toyota head to head in 2004 Health care cost/vehicle for GM - $1525 for Toyota $201 Source- At Kearney inc & 2005 Harbour report GM can pass some of this cost to the employees. They can try introducing Health Savings A/c type of plans where employees can pay for their annual medical expenses on a tax free basis. I dont know if they already do some of the above. * Profitability per vehicle- GM Loses $2,331 per vehicle Toyota:Makes $1,488 per vehicle Source- At Kearney inc & 2005 Harbour report Plans like "you pay what we pay " are good for Marketing purposes bad for the books. Concentrate on making fuel efficient cars. People will come to you. * Component outsourcing- Kick Delphi auto parts out and outsource parts production to low wage countries. *Open Union free plants- Hyundai/Kia did it in Alabama. Union free plants will allow managment to focus on long term goals rather than union headaches. I dont know if such a move is possible though. It might be concieved as radical move for GM.Also Since all of GM's 77 plants are unionized I dont know if GM can open a single plant which would be non unionized. It could be a start. *Address the GM retirees Pension time bomb- With 460,000 retirees since inception this has been one of the big stickler for investors/Wall street to get back into GM.Last I heard GM was shortchanged out of its pension plan by$14 some billion. Management might have to work some middle ground. But jeez who has pension's anymore. Encourage 401K type of plans.Even good ol buffet & charlie munger threw up their hands @ their yearly interaction with shareholders, when a question was asked about GM's pension time bomb . BTW I was @ the conference with my single berkshire share purchase

* Investor confidence- Announce more share buy backs.I would not cut dividend at this stage even though GM is making a loss . This would send wrong signal to investors. *Model wise changes Saturn- Like Hjort says This is truly the car for the "everyman" . Saturn has reputation for good customer service. I would continue to build hybrid models as saturn and chevy customers stretch from lower to middle income families. With gas prices hitting record highs every summer GM must make more energy efficient cars. Americans taught the Japanese auto makers how to make cars. Learn from the Japanese auto makers how to make good hybrid cars. Hummer- Gas prices wouldnt affect Hummer clientiele. I think Mini Hummer was a good idea. Continue same marketing efforts. Expect slowdown in 2-3 years. There are only so many upper middle class and above population. Buick& cadillac- Known to be favourites among older folks. Continue to target Baby boomer market. Will last for another 5-10 years. This is a good market as Baby Boomers have great savings and GM doesnt have to worry about defaulted monthly payments. It adds up. Pontiac- Good car. Target younger generation conscious about horse power. Oldsmobile- I believe they are already stopping production on most models. This is the right move. Saab- Not sure if this really took off in America. Would maket it in Europe though that is already a tough market with VW and BMW having their home base. Emerging markets- Gm cars are ideal for developing countries due to their economical price. This can be a definite advantage in developing countries.I would be aggresive in Emerging markets particulary BRIC countries(Brazil Russia India China) which are seeing new wealth. Thats it Heman

Hjort · Answer

I like the thorough treatment of GM's problems.

On management changes, it is interesting that Wagoner is still CEO while Bill Ford removed himself as CEO (but remains Chairman). Ford's experience reminds us once again of the debate over the wisdom of having the same person both the CEO and the COB. 

On the issue of unions, GM has certainly had its share of problems with organized labor. However, one could also argue that to some extent GM has made the unions its scapegoat for GM's own mistakes. In this line of argument, the primary problem GM faced was the fact that it made poorly designed cars that sold primarily because they were cheaper than those of rivals. GM left an opening for foreign rivals by failing to produce desirable small cars. When GM tried to produce small cars to "drive the imports off the shores of America" they churned out losers like the X-car and the J-car. GM also engaged in a rather sad round of "platform engineering" that compromised the brand identity of its divisions. GM sold cars that looked so similar through different divisions (and at different price points) that even dealers had trouble telling them apart. GM was propped up for a while with large SUVs and trucks but never fully addressed its weaknesses with cars. Labor problems exacerbated these problems by contributing to the poor build quality of GM's cars and resisting efforts to improve quality. 

The idea of legacy costs is a fascinating one. In some ways, GM's present situation is an example of gambler's remorse. Decades ago GM placed a bet- it bet that it was better to pay workers in the form of medical care and deferred compensation instead of higher current wages. GM enjoyed the benefit of paying less in the short run only to face a far larger cost in the long run. With the benefit of hindsight, we can tell this was a pretty awful wager since medical costs increased greatly and foreign competition made supporting a large pension far more difficult. 

Considering the fact that GM lost roughly US$10,567 million last year alone, should GM even offer a dividend? The signaling value of dividends is worth considering, but GM already sent a pretty strong signal when it cut its dividend in half in February. 

As a division for elimination- How about GMC? It just basically sells rebadged Chevrolet trucks and vans through a different dealer outlet.

Hjort · Answer

Anyone else out there with thoughts on this topic?

died4me · Answer

GM reminds me Bethlehem Steel.
The management of Bethlehem Steel blamed on the its market condition and its foreign competitors while the management of Nucor saw the same situation as a benefit for it. ( Sounds familiar? Jim Collins said this)

Something that I really don't understand is that Buffet is standing behind GM.....WHY??? Does he think that it can be revived?

Actually, I saw the hope in GM line-up recently. Have you noticed that many good looking vehicles are coming out of Daewoo division of GM?
I think GM finally started to realize how to utilize each division's strength.

Here are my takes on GM:

1. CHANGE the current management. 99% of times, Managers are responsible. I am a firm believer that CEO is ultimately responsible for the company's performance.

2. Get rid of Buick!! or at least its designers!!! 
It is getting better.. But not good enough

3. Chevy cars... it really perplexes me. How in the world this can be the best selling brand??? I tell you what.. That was possible because of the BULK sales to rental car companies. Just look at them... so ugly!
I noticed that Chevy is promoting its fuel efficiency in effort to take back some of the customers from its Japanese competitors. Yeah, it is a nice try. However, GM needs to understand that consumers also consider their future car's resale value. Obviously, no one can fix the resale value over night.
GM must painstakingly work on the quality of its cars. It may take 3~5 painful years.

4. I think GMâ€™s light trucks will do fine as they have been. Once again, GM needs to focus on FUEL efficiency!!

5. Saturn: I see a hope with the new line-up. 

6. Caddy: Who would want to buy the new DTS???? Well, okay Buffet bought it recently. Well he still lives in the same house that he bought more than 40yrs ago. He is unique!!
Target the aging baby-boomers!

7. GMC: It really needs to have its own brand image.

8. Saab: The concept of its vehicle doesn't really satisfy American consumers in my opinion. What comes in your mind if you think of Saab?
To me? Aerospace engineers founded the company. What is the point of showing four doors opened for its new 9-5?? 
This is what comes in my mind.
Bottom-line: It doesn't have an appeal. Not worth the money.

Overall, the refinement of the GM vehicles must improve. The manufacturing process doesn't support this. Workers are not even ready to change the GM from inside out. 
As Jim Collins said "Wrong people in wrong seatsâ€

Mini-case Discussion- Can GM be saved?

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