How GM Plans to Muddle Through

by: Rick Newman August 03, 2008 | about stocks: GM    

Rick Newman

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It's been one lousy year for General Motors (GM)—and it still might get worse. For the first half of the year, the biggest U.S. automaker lost a whopping $15.5 billion. Sales are down more than 15 percent, with buyers fleeing the big trucks and SUVs that have been GM's mainstay. Analysts are even warning that GM could run short of cash in 2009 and are floating the dreaded B word—bankruptcy.

I sat down recently with GM marketing chief Mark LaNeve and asked about the company's prospects. Excerpts follow: 

There's been a lot of bad news lately: plunging car sales, more restructurings, the huge dropoff in trucks and SUVs. Do you feel like GM has a handle on where it's going?

What we don't have a handle on is the industry, especially at the retail level. We're doing better than Ford or Chrysler in some segments, but the only manufacturer doing well year-over-year is Honda. So the whole question is where is the industry going? I'd like to think it's somewhere near the bottom.

GM's market share in the United States has drifted down to about 21 percent. Do you think it will stay there? Are you prepared for it to go lower?

That's a good question. This big change we've seen in trucks has been a 120-day decline. It began after Hurricane Katrina [in 2005] but was very mild, then it took this big dip over the last 120 days. So we're working on lowering our costs and our manufacturing footprint at our current market share. We've got to get costs down so they're equivalent to a lower level of truck sales.

What's your answer to all the armchair analysts who say GM has too many brands, that it needs to get rid of some of the weaker brands like Pontiac, Buick, and Saturn?

If we were to cut three or four brands, what would the benefit be? What would we really save? We actually run our business now like it's four brands, with Pontiac, GMC, and Buick as one brand. And we've filled the portfolio for all of our brands. So if we killed one of the brands, we'd lose a business. We'd save a little short-term marketing money, but not much. Plus, we know from Oldsmobile how much it costs to kill a brand.

We look at the brands as assets, with four channels globally. Saturn is our way of distributing Opels from Europe in the United States. And in the last year, Saturn has had one of the best increases in sales in the industry, if you compare year-over-year sales for the same products. In China, Buick is our major brand.

All the talk lately of bankruptcy, and GM possibly running out of cash in 2009: Do you think the talk itself is harming GM?

It's never helpful. The dealers tend to get very anxious when they hear it, and I've heard very little from dealers. It tends to be a very incendiary issue, but I don't think it's a big issue out there right now.

By the way, it's not just us. Look at the airlines, look at Starbucks closing hundreds of stores. Our industry has certainly been in a recession, but we're not the only ones.

When gas hit $3, consumers didn't really change their behavior that much. The threshold for change seemed to be about $3.50, and now with $4 gas, people are fleeing big vehicles for smaller ones. Do you think consumers are being rational?

The reaction to $4 gas has been more severe than I would have thought. We ran some numbers the other day, and the difference between driving a Silverado pickup with a V-8 engine and a Malibu or Camry with a 4-cylinder comes out to about $17 per week in extra fuel. That's not that much. What has scared people, I think, is that prices have gone higher as we're also having layoffs and the economy is getting worse. And you've got oil analysts saying oil is going to get to $200 per barrel. So suddenly fuel economy is top of mind.

There have been a lot of "restructurings" at GM over the last several years. Are you done yet? Or should we expect more restructurings?

We've made a number of significant moves to take out cost, and I don't think we're going to be done for a long time. We've been doing this for four years, and we're going to keep doing it. We're trying to defend our great truck position, but we have to grow our car position, and the top line.

Saturn is one of the brands you need to fix. Can you say whether the Saturn division is profitable?

What I can say is, it's a lot better than it's ever been. The Outlook, the Vue, the Aura have all been profitable. But, yeah, the brand has been profit-challenged. There have been a lot of low-end cars, and no trucks, which is where we've earned our money. Now, we're trying to make it more like VW, and let Chevy cover the low end of the market.

How much strength is left in the SUV and truck segment?

We've got four really good truck brands: Chevrolet, GMC, Escalade, and Hummer. Hummer has the lowest share and the greatest chance to maximize its value outside of GM, which is why we've put it on the block. Other brands lack the brand image and the market position that we've got. Toyota introduced a much-improved Tundra last year, and we didn't lose one point of share on the Silverado. Now we have to do that with cars. Malibu sales are up 100 percent, but we still don't have the market position of Honda or Toyota. A customer can see every ad they want, but that's not as powerful as selling a car to their neighbors.

We think the big pickup market is close to a floor. Pickups sales should grow along with a housing recovery and economic improvement. But we're not counting on truck-based SUVs coming back.

What kinds of things is GM thinking about to help improve fuel economy?

All kinds of things. We're looking at the possibility of a hybrid for every single model. They might not all happen, but we're looking at it. We're considering putting four-cylinder engines in cars we never would have thought of before.

Like which ones?

I better not say.

It's hard to predict where gas prices will go, but you still need to make assumptions for planning purposes. What assumptions is GM making about gas prices?

We need to get our mix conservative. So we've said, "Let's just plan on $4-per-gallon gas being here for good." There's no upside to planning for an optimistic viewpoint that gas prices are going to come down.

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This article has 14 comments:

  •  
    Aug 03 10:51 AM
    I predict tough times for all the domestic auto manufacturers. Large scale domestic oil is 10 years away. And who knows how long it's going to take to fully implement alternative fuel sources. Corn based ethanol is too inefficient (especially compared to sugar cane - such as what's being used in brazil). GM, Ford & Chrysler had enjoyed sales while oil was selling in a normal zone. It's in a bubble, and the auto manufacturers are going to get crushed.

    I just hope to God that we develop something that will render oil obsolete. Because I would like nothing more than to watch the oil companies, the oil futures speculators (who are manipulating the market), and the entire middle east all to go bankrupt.
    Reply | Link to Comment
  •  
    Aug 03 11:23 AM
    GM marketing chief Mark LaNeve sounds like the fat girl, with blotchy skin, bad teeth, bad breath, poor posture, bitten nails and acne.

    She's gonna start a diet next week - and hey everyone's overweight right now. Her hair, well yes she's just changed her shampoo, look it's here in her shopping basket.

    Teeth ? well they may be green and snaggly but hell she's still got most of 'em. Posture - well that's a problem of her weight which when her diet's sorted.. and her acne will clear up as she's read about a new hybrid treatment.

    HER problem? Hell no it's everyone's problem.

    Bad breath ? She cain't smell it's bad ? EXACTLY what is your problem ?

    GM marketing chief Mark LaNeve , sounds like that guy walking to towards you on the down town used car lot with his hand stretched to shake yours.

    "We ran some numbers last week" .. GM are in the hole.
    Reply | Link to Comment
  •  
    Aug 03 11:25 AM
    Bitten nails ? Hell yes .. wouldn't yours be if you posted US$15.5 Bn losses in 6 weeks = to er well a few years profits ...
    Reply | Link to Comment
  •  
    Aug 03 11:40 AM
    GM will never learn and if they continue with their same old ideas they will go down in flames. They are being so short sighted. They still imagine they can sell trucks and make big profits on them. Instead of being a status symbol, the big truck/vehicle is becoming the symbol of waste, pollution and able to empty your pockets in one fill-up. If you own one, you already know.
    If you don't, look at the price on the gas pump when one's being filled and don't forget what's happened to their resale value, it'll make you cringe.
    Why do you think leasing will become a thing of the past, the auto companies know what losers big vehicles are and cannot afford to be stuck with those clunkers after the lease runs out. If they can still get you to purchase them they can make their big profits and leave you with the worry and loss at resale time.
    How can they assume that gasoline will stay at $4.00/gal when oil is a finite resource, and don't forget the American Dollar is falling in value in relation to the rest of the world, it is just not realistic.
    One trip to Europe will show them the future, it's small economical cars, no longer can they lure consumers into those behemoths that clog every road and parking lot.
    The price of oil has nowhere to go but up with the rest of the world wanting their share of the oil pie. Can you imagine when China gets off thei bicycles and into a Chinese mini car, when all of India gets into their Tata econocar, what will happen to the price of oil?
    GM must finally recognize that their vision of motorized transportation can't be more of the same, it's got to be innovation and vision.
    You can continue to improve your buggy whip, add more bells and whistles, but eventually it'll become useless and so will GM.
    Reply | Link to Comment
  •  
    Aug 03 11:48 AM
    i think he has started looking for a job....and just killing time by dishing out the usual positive talk.

    the best i like is the difference between v8 silverado and V4 camry...is only $17/week.

    15.6 mpg in city/highway -- silverado.--$53.84
    27.62 mpg in city/highway -- Camry---$30.43

    avg driving 30 miles/day, 210 miles/week. gas/gallon=$4

    well not bad he is off only by $6 or 30%.

    its $23/week. if we drive 30 miles/week. most americans drive 12k miles/year........the difference becomes $1337/year.

    and what if gas goes to $5??

    Reply | Link to Comment
  •  
    Aug 03 12:05 PM
    got out of gm as soon as they cut the dividend in half.never lookedback. screwed up co.
    Reply | Link to Comment
  •  
    Aug 03 12:53 PM
    If there is one automaker in the US that has the answer for the truck market & fuel economy in house it is GM. I know that management will be too stupid and far too slow, but within EMD division is the answer. For 60 years it has been increasing efficiency of fuel/weight ratios to the point where they can move 1,000 tons with 6,000 h.p. a mile on a gallon of diesel. Think what you could do with a 20 h.p. motor/generator set in a pickup.
    Reply | Link to Comment
  •  
    Aug 03 03:11 PM
    Don't overlook the VOLT.

    This car has the potential of being a hit, in spite of GM.
    Reply | Link to Comment
  •  
    Aug 03 04:03 PM
    GM does not know how to efficiently run a company. Instead of keeping up with the times, they fought vigorously to keep women-blacks-Latinos out of their white-collar workforce. This caused an environment of overpaid, white "yes" men who said yes to anything that upper management said. For example, people in the field heard over and over from dealers the need for more fuel efficient cars and trucks. GM ignored this and fought Congress to have any legislation for more fuel efficiencies. GM also spent the largest portion of their money in advertising on the internet. Even when there was proof that the money they took out of TV to pay for the internet banner advertising was decreasing their sales. There was an analysis done on this on a market by market basis that statistically proved the concept that the internet advertising was far less effective in selling cars than TV and newspaper. Yet, people were told that this information should be hidden. People wanted to say "yes" to the GM executives who came up with the idea of spending more money on the Internet.
    Reply | Link to Comment
  •  
    Aug 03 04:53 PM
    DRich:

    Unfortunately, EMD is no longer part of GM. It got sold off in 2005. In its last years under GM management, EMD seems to be heading downhill too-- They were getting their butts kicked by General Electric's Dash-9s, AC4400CWs and the Gevos.

    John Smyth:

    Keep in mind in 2010 Toyota will be releasing its plug-in 3rd-generation Prius with the same Lithium Ion technology as the GM Volt, also with a 40-mile pure-electric range. AND, the 3rd-gen PHEV Prius will be selling for about $30,000 compared to $40,000 for the Volt. Things don't look good.

    I'm not buying an GM stock until I see it becomes positive-equity (i.e. it owes less than what the stock float is worth), and it gets 2 consecutive profitable quarters.
    Reply | Link to Comment
  •  
    Aug 03 08:23 PM
    The Demographics has changed in the car buying population, yet over 90% of GM’s mid to upper management is still men – even though 49% of the workforce in America are women. I do not think GM knows how to take care of women. That's why women, who make up 65% of new car purchasers and influence 95% of new car buys, try to find whatever man they can to come with them into the dealership. It is like walking through a construction site with the men whistling. It is an awkward feeling that you do not feel safe; that the men at the dealership are about to take advantage of you. Studies show that both men and women prefer to buy their cars from women. Yet GM has only 3% of their dealerships owned by women. Another fact, those dealerships that are owned by women far out-pace, on average, the average male dealership in terms of sales.
    Reply | Link to Comment
  •  
    Aug 03 08:56 PM
    Good thing Mark LaNeve agreed to go with upper management and continue advertising with the same agency that decreased Pontiac sales by over 60% in the past 8 years and sunk Oldsmobile into dissolve with Leo Burnett’s famous “It is not your father’s Oldsmobile”. Now we can say, “It is not your father’s Buick, Pontiac, or GMC vehicle”. By the way Mark, was your name in an EEOC case regarding discrimination against women?
    Reply | Link to Comment
  •  
    Aug 04 12:01 AM
    You guys are clueless. My wife is a manager for GM, to say GM is blocking women and minorities is just trash.

    Look at Toyota. Japanese companies are known for their diversity hahaha
    Reply | Link to Comment
  •  
    Aug 06 10:15 PM
    You people are so short-sighted. GM has responded quicker than Ford, Chrysler, even Toyota to current economic conditions. I get sick of seeing Toyota "drape" themselves in the American flag and say their cars are American. They make the parts in Japan, ship them over on cheap, goverment subsidized money, and assemble them here and say its American. Wake up, people, one day we won't make ANYTHING in this country if we don't support American industry. THINK ABOUT IT....
    Reply | Link to Comment
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