Fixing General Motors.

April 1, 2006

Former General Motors chairman Robert Stempel declared (when he was general manager of Chevrolet in the early 1980s,) “The secret to success in this industry is simply, product, product, product.”

In 1999, in a story entitled “A close-up look at President Rick Wagoner and his strategy for reviving GM,” Business Week reported: “The core of Wagoner’s strategy for transforming GM has been a thorough renovation of its sagging product lineup. In the past two years, Wagoner has overseen the launch of 20 models.”

The experts applauded. “At the end of the day, what really counts is the hardware,” said Joseph S. Phillippi, an analyst at Lehman Brothers.

That same year, Robert A. Lutz, Chrysler’s retired president said about General Motors: “If they really came up with blockbuster cars and trucks as opposed to me-too vehicles or O.K. vehicles, they could turn things around in a hurry.”

Two years later, General Motors hired Robert Lutz to come up with blockbuster cars and trucks.

That same year, a week after he became General Motors’ youngest chief executive at the age of 47, Richard Wagoner said that new models would help GM’s market share in the United States.

Long-time General Motors vice president of advertising and corporate marketing, Phil Guarascio, put it this way: “(The ongoing goal of management has been) to get the right product into market as fast as possible at the right time.”

Recently, Mark LaNeve, General Motors’ top sales executive said, “These ads will say we have the best product, here’s why . . . and that we also have the best price.”

The results are in. In the April 2006 issue of Consumer Reports (the annual auto issue), the influential magazine selected its top 10 picks for 2006.

Four Hondas. Two Toyotas. Two Subarus. One Acura. And one Infiniti. Ten automobile models. All Japanese cars and trucks. No American vehicles.

Both NBC and ABC carried the Consumer Reports story in their nightly news broadcasts. (Like most Americans, I didn’t watch CBS that night.) And many of the nation’s newspapers, including The New York Times, also carried the Consumer Reports story. 

So what do you suppose the reaction of consumers will be when they see General Motors advertisements that say “we have the best product, here’s why?”

They are likely to think: “I guess they don’t read Consumer Reports in Detroit.”

And another thing. If the secret to success in the automotive industry is “product, product, product,” then why is General Motors spending billions of dollars on advertising. As a matter of fact, GM has been the largest advertiser in America for 8 of the past 10 years.

Would you believe that General Motors in the past decade spent $32.9 billion on advertising in the American market? Considering that GM had a recent market capitalization of $10.9 billion, the past decade of GM advertising cost more than three times the value of the entire company. 

Despite its emphasis on “product, product, product” and its huge advertising expenditures, General Motors’ domestic market share continues to decline. From a 1962 high of 51.9 percent of the market to last year’s 26.2 percent. (General Motors’ market share has declined 30 of the last 43 years.)

And another thing. Last year, General Motors lost $8.6 billion. And just last month, General Motors’ credit ratings took another hit as Moody’s Investors Service slashed the company’s rating one notch further into junk territory and warned the company could resort to bankruptcy. “. . . the evidence points, with increasing certitude,” wrote Carol Loomis in a Fortune magazine cover story about GM last month, “to bankruptcy.”

Old military maxim: When you’re losing the battle, change the battlefield.

General Motors needs to change the battlefield from product . . . to what?

Maybe GM executives should look at Mercedes-Benz, BMW, Porsche and Volvo. Do you suppose the head honchos of these profitable automotive operations were worried when the Consumer Reports ratings came out? Of course, not. The difference is that Mercedes-Benz, BMW, Porsche and Volvo stand for something and General Motors’ brands do not.

Then there’s the old bugaboo about retirees and their health-care costs. “GM and Ford and Chrysler,” said Malcolm Gladwell recently, “cannot compete in the world market if they’re asked to bear the pension and health-care costs of their retirees. Can’t be done. It’s that simple.”

What about Mercedes-Benz, BMW and Porsche? Germany is one of the highest-cost countries in the world. It costs more to make a product there than in almost any other place on the globe. Would General Motors be better off if it built all of its Chevrolets in Cologne? I think not.

Notice, too, that these three German brands, on average, are more expensive than comparable General Motors brands.

The difference, of course, is that Mercedes, BMW and Porsche don’t just build automobiles. They also build brands.

How do you build a brand? You stand for something in the mind.

A research questionnaire recently sent to Volvo buyers gave the new owners 24 choices to describe the “image” of their vehicles: Cute, functional, prestigious, classic, responsive, luxurious, conservative, rugged, aggressive, youthful, good value, distinctive, sophisticated, sleek, simple, well-engineered, elegant, fun to drive, powerful, safe, sporty, advanced, family oriented and economical.

One of the problems with marketing is that it’s too simple. Today’s MBAs are suspicious of any branding strategy that doesn’t incorporate such terms as master brand, flanker brand, subbrand, range brand, product-line brand, driver brand, endorser brand and milker brand.

Interestingly enough, you could take that automobile questionnaire and build an automobile brand from any of the choices offered. Prestigious (Mercedes-Benz.) Cute (Mini Cooper.) Youthful (Scion.) Fun to drive (BMW.) Sporty (Porsche.) Safe (Volvo.)

Now compare these 24 choices with the current slogans of the eight General Motors brands.

GMC . . . . . . . Professional grade.

Saturn . . . . . . People first.

Chevrolet . . . An American revolution.

Pontiac . . . . . Action.

Buick . . . . . . Beyond precision.

Cadillac . . . . Break through.

Hummer . . .  Like nothing else.

Saab . . . . . .  Born from jets.

Do these slogans “position” the brands in any meaningful way? Do they tell you what the target market is for a Saturn? Or a Chevrolet? Or a Buick? Or how they differ from one another?

If a Buick is “beyond precision,” does that mean that Saturn, Chevrolet, Pontiac and Cadillac are not precisely made? (Perhaps it means that Chevrolet is basic precision and Saturn is barely precision.)

Then there’s the matter of street visibility, perhaps the most important aspect of building an automobile brand. A BMW looks like a BMW. A Mercedes looks like a Mercedes. A Porsche looks like a Porsche. A Volvo looks like a Volvo. But what does a Chevrolet look like?

In September of last year, General Motors unveiled a design look for all Chevrolets. The first Chevrolet was built in 1912. Why did it take 93 years to figure out that Chevrolet needed a design look?

To start a meaningful branding process, the first thing that General Motors would have to do is to assign a position in the marketplace for each of its brands. And then to make sure that each brand stays in that position (in spite of the inevitable cries from dealers who always want their brands to stand for everything.) Here are my thoughts.

GMC . . . . . . . . Scrap the brand, but not the product line. GMC stands for General Motors Corp. That’s confusing. How can you build a brand with the corporation’s initials that stands for something different than the entire corporation? Invent a new brand for a professional line of trucks

Saturn . . . . . . Entry-level brand for younger people.

Chevrolet . . . Family vehicles.

Pontiac . . . . . Powerful cars, including the Corvette.

Buick . . . . . . Conservative styling for older people. (Buick should have borrowed styling cues from Bentley, the way Chrysler did with its 300 Series.)

Cadillac . . . . Expensive. Really expensive.

Hummer . . .  Scrap the brand. Hummer sales last year represented only 1.3 percent of General Motors’ unit volume. A company GM’s size shouldn’t be marketing niche vehicles.

Saab . . . . . . Scrap the brand. Saab sales last year represented less than 1 percent of General Motors’ unit volume.

Would General Motors ever use any of these suggestions? Not a chance. Every suggestion would reduce sales in the short term, not increase them. When you dig yourself into a hole, you have to dig yourself out before you can make progress. They would have to take a short-term hit in order to achieve a better long-term position.

Big companies are like dogs. They strain at the leash in order to reach a goal without realizing that the job would be much easier if they just backed up and untangled the leash first.

Fix the brands first. Then fix the company.