To clarify, I'm not an automotive engineer, but in the Civil field. So I'll give you an analogy:
A developer has a product he wants to bring to market. Say, an apartment complex. Now, he's built these complexes for years and so has a good idea of what the buildings will cost. This would be analogous to the parts/materials cost to build a car.
But what varies from one apartment project to another are the costs associated with building on a particular site. Some sites are easy to develop. Some require massive amounts of site costs. These would be analogous to the labor cost to build a car.
Now, that developer knows that he can only get $X amount for his units in a particular market. He must make that build/no build decision based on what his COST will be to get this units (or cars) to market vs. what he can charge. As an engineer, I have absolutely no input on what his 'reasonable' profit can be. I'm simply charged with getting that product (be it apartment units or cars) to market at a cost dictated to me. If my cost to develop a particularly nasty piece of property is really high (analogous to labor cost), then either the project doesn't get built, OR I have to cut cost out of the buildings.
I don't know if this makes my point any clearer or not.
I'm not claiming that the engineers don't have constraints, but rather the managers who create the constraints aren't going to give you more money to spend in one area if it gets freed up in another.
For decades, GM has prioritized cost management -- badge engineering and excessive production are both driven by the desire to amortize fixed costs over greater numbers of units to create the illusion of margin. The goal has never been to reduce labor costs so that the product can be improved, but to reduce all costs so that margins can be increased.
The spiral downward comes primarily from the revenue side:
-First, GM pushes volumes in order to amortize fixed costs. End result: Fleet sales, badge engineering, falling residuals, etc., and quality becomes uneven, as cost is prioritized over quality
-Retail consumers react by defecting to other products. (No one is fooled by the Chevy disguised as a Cadillac, and fewer consumers see a meaningful difference between a Chevy and a Buick, for example, and the quality difference is palpable)
-Due to falling retail demand, excess inventories increase...
-...Which leads to falling wholesale prices due to increased discounting and incentives, and even more fleet sales.
-And so on.
This should illustrate why the prioritization of costs actually results in decreasing revenues and further squeezing.
Any branded retailer knows that the value of a brand comes in the ability to command a premium because your name carries a positive reputation that consumers are willing to pay for, the same sort of reason that Starbucks costs more than does Folger's, even when sitting next to each other on the same shelf.
GM's fleet sales and badge engineering have destroyed this brand value to the point that most of its nameplates have no discernable value, which forces GM to sell cars at a discount compared to its rivals. If you cut costs without building the brand, you really won't gain anything, you'll just slow the bleeding.
To put that analogy into real estate terms, if the developer can hit a given IRR hurdle, the project will get built. Just so long as the minimum threshold is passed, the deal will be done, because that deal is good enough.
If there ends up being a cost reduction in one area (for example, the price of lumber goes down ten percent, or his borrowing costs decline), the developer will not necessarily react by putting more value into the units or by cutting prices -- instead, he'll pocket the extra margin as additional profit. He's not going to start spending extra money on the project just for the sake of maintaining with the earlier budget.
Again, I see no evidence that GM would build better projects if labor costs were lower. Based upon what I've seen it sell in the marketplace, I suspect that it will simply try to pocket more cash from each sale (although its cost management strategy will probably prevent that from succeeding over the long run.)
I believe your argument is flawed and rorr's is closer to the truth. In a corporate environment, it IS definitely a zero sum game. Each department is allocated a certain sum of money and all departments are in competition. If you are under budget, you must spend the money or face a budget reduction the following year. It is only the dumb 25-ish year old department manager that comes in and "pockets" money for corporate usage. They are unaware of the strife and consequences of their naive actions. Upper management strategically places these people to squeeze costs. It is flawed logic, but it is what I have observed. Bottom line - GM wants bankruptcy. The CEO won't publicly admit it for political reasons, however, it is the easy way out. Any company that uses the Tahoe as a platform vehicle for the future wants bankruptcy, even if GM doesn't directly say it.
I'm not claiming that the engineers don't have constraints, but rather the managers who create the constraints aren't going to give you more money to spend in one area if it gets freed up in another.
I am an engineer, and I have done some vehicle work (along with all types of other projects). I can tell you from personal experience that money will be transferred from one area to another very easily as long as the project doesn't go over budget. If the labor costs come down, GM definitely CAN put more money into other areas.
You hit everything right but the last couple sentences.
The CEO absolutely does not want bankruptcy. Go that route with a high priced, long lived commodity like a car/truck and people will not buy. There would be months of almost zero sales or prices will drop so low to sell stock that GM will have to close shop. I assume you mean the type of bankruptcy that allows continuing in business but allowing restructuring (like Delphi).
Not sure about what you mean with the comment on the Tahoe. It is an excellent vehicle in its market. It is very profitable and is bringing in so much cash today that it will bring GM back into the black much quicker than if it had not updated the vehicle (assuming the other costs reduction items are continued). Also the competitors from Japan are running as fast as they can to get into the large SUV market. There are many out there who seem to think that the large SUV is dead. It is not. The market segment will be reduced and GM will have to fight like mad to keep its share form going to the import SUV's. But GM saw this 4 years ago and started development of a whole new class of vehicle-a large crossover SUV which will give many of the customers a vehicle that can haul people and their stuff but still give much improved MPG, but not able to go off roading or pull a larger trailer.
Your point about spending for the perpetuation of the bureaucracy is fair enough, but it somewhat skirts my point, namely that GM doesn't have a history of allocating resources efficiently, even when given the opportunity.
Based upon the product offerings, I have no reason to believe that if given more cash, GM would use that windfall to build a better car that provides a basis for long-term sales. Even when the profits were flowing in the door, this didn't happen, so I have no reason to believe that it would happen going forward, barring a substantial change in management. And even if the money was put into R&D, I have to wonder whether the cars would be one whit better -- I don't see how spending more cash on the Cobalt would have made it a better car than it is today, the budget was not the problem. Spending cash for its own sake is not enough, it has to be spent on resources that count for something and fulfill consumer wants and needs.
GM management had no problem squandering that cash on bad mergers, more adventures in faulty badge engineering, or perpetuating its failed channel strategy. If the UAW went away tomorrow, then I suspect that your engineering budgets for subsequent projects would be adjusted accordingly to pay for all of these other doomed projects. The track record of failed endeavors is so consistent and sure that there's no reason to believe that they would simply wouldn't fail yet again.
Anyone with a bit of financial analysis skills can see that BK is almost certainly inevitable. Even with the sale of GMAC, there's hardly any cash left, and SUV and truck sales are not likely going to be able to generate enough profits to save the company, despite the wishful thinking of the fans.
UAL is a good model for what can be expected to happen going forward -- obligations will be written down or written off, and the union and dealer network will be crammed down. Of course, BK would include a reorganization plan, I don't think anyone who understands finance and Wall Street believes that a liquidation scenario is likely.
"Forget for a moment the whole multi-division issue: you've complained often that GM can't seem to field a GOOD high-quality small car to go head to head with the like's of the Civic/Corolla/Mazda3 type cars. Since these small cars are often 'gateways' to get consumers started on a (hopefully) lifelong attachment to a particular manufacturer, it makes sense that a manufacturer field a credible entry into this market. You've also noted, frequently, that the Cobalt in your opinion simply doesn't cut it against the competition in this segment."
"Now, assume you are a designer/engineer trying to build a good car in this segment. You must take into account the fact that the designers/engineers working for the competition are no dummies. You must take into account that this is a price sensitive market. You must take into account that one can only save so much through judicious materials choices. And finally, you must take into account that you START at least $1500 in the hole due to higher labor/legacy costs."
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Gateway cars are crucial for an auto company in as much as they are the best method available to attract new, loyal customers.
As such, any company worth it's salt would try to build the best car they can and sell it at or near cost. Selling an entry-level car at anything less than the lowest possible price assumes that new, young buyers actually have a wad of discretionary income to blow. Which, unfortunately, is usually not the case.
While GM may have a $1,500 hole that they have to dig out of, they should have considered 'subsidizing' their entry-level cars with some of the profits made from their lucrative SUV/truck sales.
(or at least have done so during their 'fat' years... the years in which GM was flush with cash)
That 'subsidy', if used to build a stellar entry-level car, will pay a lifetime of dividends as that young customer returns again and again. (Hopefully, each time with a little more money to spend.)
I don't see how spending more cash on the Cobalt would have made it a better car than it is today, the budget was not the problem.
So let's say the $1500 in labor differential between GM and the imports were to disappear. And let's say GM management decided to pocket half of it and spend the other $750 on improving the car. They could probably upgrade the interior close to the level of the civic for $200-$300. Then they could spend the rest buying more expensive parts throughout the car. Do you think they might have a better and more reliable car? Do you suppose improving it might raise the average transaction price? Then GM would have more even more money to pocket or improve it further.
There's a reason that the bigger (and more expensive) you go, the more competitive GM becomes. GM can absorb a few thousand in extra labor costs on a $65,000 Escalade. They can't on a $16,000 Cobalt.
GM always subsidized their small cars with their trucks and large cars
GM certainly did subsidize them financially. Unfortunately, the subsidy didn't seem to be accompanied by a mandate to build a competitive, high quality product.
Perhaps we should get to the bottom line -- GM has never really cared about building a very good small car, dismissing them as being unwanted (even though people seem to be quite content buying Civics, Corollas, etc.) or unprofitable (even though other companies manage to sell these while earning handsome profits.) Always an excuse, never a result.
GMNA seems to have been in the small car business not because they particularly liked it, but because (a) its fleet customers demanded one and (b) CAFE requirements effectively mandated them as an offset to the other fuel burners in its line-up. Instead of investing in small cars, GM has done the bare minimum to put theirs on the road. The result has been tinny Sprints/Metros and the Avis-inspired Cavalier, rather than cars people might actually want.
I think our poster KDHSpyder has it right -- GM has largely been in the used car business, except it builds them from the start with the goal of dumping them into fleets. No need to worry about brand management or reputation when the fleet buyer doesn't care what brand it is, just so long as it's cheap.
They'd be lucky to sell a Cobalt for $16k. The brand is so devalued that the fleet market is buying these for perhaps $12k.
I keep pointing this out -- the real loss to GM is on the revenue portion of the income statement. GM simply cannot sell its cars for the same prices that the transplants can, because of their various related problems.
Ask yourself how Toyota Motor Corp. is able to command an average wholesale price that is almost $5,000 above that of GM's, despite its being more heavily weighted in the small car business. Then go further, and determine why GM loses market share while others gain it. After that, you will gain an insight as to what it is most crucially wrong with GM.
I agree 100% with you. The joke that was the Cavalier was produced for 2 decades and it was ALWAYS a piece of crap. Look how long GM made the 2.8 liter V6. I've known a few that got a lot of miles(some in the 300,000 range) from that motor. But I've known A LOT more that had nothing but trouble with it. Cracked blocks at 50,000,80,000 etc.. GM didn't care. They just kept pumping out crap. Look at some of the forums for GM cars. Parts wearing out,transmissions falling apart,all with less than 100,000 on the clock. And that new family of V8s in trucks seem to make a lot of people unhappy. Of course some of the problems can be put down to bad maintenence. And GM isn't the only company that doesn't care. Look how long Der Chrysler has been putting those awful transmissions in their minivans.
Ask yourself how Toyota Motor Corp. is able to command an average wholesale price that is almost $5,000 above that of GM's, despite its being more heavily weighted in the small car business.
It is because of fleet sales. If you were running GM and could sell 100,000 cobalts to Enterprise at a $1000 loss, or could not build them and pay workers $2000 to not build them, which would you do? They're not selling cars to rental fleets at a loss because it's fun. If they build fewer cars their per car labor costs go up dramatically, because with the UAW contract their labor costs are pretty close to fixed across the company. They've also got a much larger retiree benefit cost that is also fixed across the company. That's not the case with toyota.
I keep pointing this out -- the real loss to GM is on the revenue portion of the income statement. GM simply cannot sell its cars for the same prices that the transplants can, because of their various related problems.
And if they built cars that did sell at the same price a Honda/Toyota, do you think they could build them for the same price as their current cars? If they built a car that was EXACTlY like the new civic in every way, and which sold for exactly the same price, they would still have to deal with that differential in fixed costs which simply cannot be absorbed on an entry-level car.
AND, i'd be willing to bet that getting the same quality part from Delphi costs GM more than it costs Honda to get from their suppliers. Delphi has the same exaggerated labor costs as GM, and GM is stuck buying from them because they are on the hook for Delphi's employees.
Then go further, and determine why GM loses market share while others gain it.
The vast majority of market share gains by imports the last few years has been from them moving into new categories. Ten years ago, Honda and Toyota had little besides the Accord/Camry, and Civic/Corolla.
If you were running GM and could sell 100,000 cobalts to Enterprise at a $1000 loss, or could not build them and pay workers $2000 to not build them, which would you do?
Here's a radical thought -- I'd build a car that was good enough that your average Toyota and Honda buyer would actually want to pay retail for it.
These subpar GM cars were designed for the fleet market from their inception. They were not designed to compete effectively with the imports in the first place, so naturally, the products weren't competitive.
If they built a car that was EXACTlY like the new civic in every way, and which sold for exactly the same price, they would still have to deal with that differential in fixed costs which simply cannot be absorbed on an entry-level car.
Given a choice between a $5,000 revenue increase and a $1,500 cost decrease, I'd go for the revenue increase -- the net gain would be $3,500. But if the products are uncompetitive from the start, then I suppose it's obvious why this would be impossible, and why those costs are a heavy burden. You can't hurdle high costs if your products sell at a steep discount, and volume won't help.
The vast majority of market share gains by imports the last few years has been from them moving into new categories.
Of course, that's true. GM has been a weak competitor in almost every niche in the passenger car market, leaving it vulnerable to rivals that built a better product. So why wouldn't it lose business?
From small car to luxury car, GM is an also-ran in essentially every single category. Naturally, weak products accompanied by poor service and a lack of genuine commitment has led GM to the abyss where it stands today. You can increase production volumes all you like or cut wages in half if you prefer, but that won't turn a Cadillac into a Lexus LS.
Agreed, the evidence is in the product. A company with the resources that GM once had would not have produced a product that poor, or continued to produce it with minimal improvement for that long, if the company had competent management or if had been serious about being competitive in that segment.
GM management obviously didn't really much care about what the car did to its brand equity or reputation, most likely because its largest customers (Avis, National and various government agencies) didn't much care, and weren't willing to pay a premium to get a better vehicle.
I think our poster KDHSpyder has it right -- GM has largely been in the used car business, except it builds them from the start with the goal of dumping them into fleets. No need to worry about brand management or reputation when the fleet buyer doesn't care what brand it is, just so long as it's cheap.
I was going to step in and say just about that when I read your post.
I am still of the opinion that GM decided in the mid/late 90's to become primarily a truck/SUV/Cadillac producer. That's where the money is. As numerous posters have pointed out the margins can support a full union presence and still make gargantuan profits.
The entry level auto and midsized auto segment were IMO poor stepchildren embarrassed to come to dinner in their humble rags.
Visionary foresight is a rare anywhere. About the last visionary effort GM made here was to create Saturn and it's special marketing. Then it was gutted - because ... Saturns were entry level and midsized auto's.
This was an example of the power of the number crunchers over the visionaries. It also gave an indication of what was to come. It's just math.
Potentials: Vehicle A makes $1000 at full sticker ( we have a small presence ) Vehicle B makes $3000 at full sticker ( we have a good presence ) Vehicle C makes $22000 at full sticker ( we have a HUGE presence )
As a product manager, VP, Director how can you not emphasize vehicle C, and maximize it's potential.
But visionaries are not usually welcome at discussions about cold hard numbers.
Yes, the problems are multi-faceted, but the falling market share and severe discounting that are at the root of the problem are both a byproduct of poor brand management, inferior design, inconsistent reliability and a lack of customer focus, which are all management-based problems.
The last time I checked, the management does not physically put shoddy workmanship in the cars. Do you honestly believe if GM were given designs from Toyota or BMW for free, they'd be able to sell the cars without discounting?? No, sir, the oversupply dictated by union contracts alone would make sure price gets driven down.
The UAW obviously has no trouble building Mustangs and 300's, or assembling Ford's nicely designed modular V-8's, and Americans have had no trouble buying them, regardless of who builds them.
Isn't that the same modular V-8 in the slow-selling and heavily discounted Lincoln LS?? I'm starting to wonder how long have you been buying new cars and how old are you anyway? Do you know anything about product cycles?? For domestics (and Toyota to a lesser degree; niche players like BMW, especially the more niche models, much less), the first model year or two are hot. After that everything gets discounted. Both Mustangs and 300's are already heavily discounted; they will show up in rental fleets in large numbers if not already.
Visionary foresight is a rare anywhere. About the last visionary effort GM made here was to create Saturn and it's special marketing. Then it was gutted - because ... Saturns were entry level and midsized auto's.
Not to mention Saturn's exception to normal UAW rule made for a thorn in the union bosses' eye; such bold experiments could not be allowed to succeed. Regular union shops demanded model updates in the following round of negotiations after Saturn was started and left Saturn out of those demands, with the forseeable result that Saturn went on for nearly a decade without new models. The same sort of union politics is being played out at the detriment of CAW shops, including the Oshawa plants, so much for brotherhood.
GM management had no problem squandering that cash on bad mergers,
Yet, they also made more money on good M&A than their loss on bad M&A . . . 3-4 times better.
more adventures in faulty badge engineering, or perpetuating its failed channel strategy.
All the high volume badges were part of GM before 1950. Only the small volume niche badges, Saturn, Saab and Hummer are new. Hummer is profitable. Saturn and Saab do not lose much annually, and depending on who you talk to, were once considered potential saviors of GM from mundane brands. It's easy to be critical; yet the critics were the ones behind the ideas of Saturn and Saab a decade and half ago.
If the UAW went away tomorrow, then I suspect that your engineering budgets for subsequent projects would be adjusted accordingly to pay for all of these other doomed projects.
If UAW went away tomorrow, GM would be saing $10-15 billion annually; that's just counting excessive wages and retiree health cost, not counting any savings associated with finally getting manufacturing quality and quantity back into management control. I haven't seen any GM project that lost $10-15 billion annually, have you? Perhaps you can lose $10-15 billion if you were put in charge.
Here's a radical thought -- I'd build a car that was good enough that your average Toyota and Honda buyer would actually want to pay retail for it.
Sure, go ahead and build it and come back tell us how you did, in your own garage! You said "I'd"! GM has neither the low-cost labor structure, nor the automation or part supply economy of scale for those small cars like Toyota and Honda do. Both Civic and Corolla are global platforms that use the same robots, same tools and same parts, sold in far greater numbers overseas than in the US market all helping defray R&D cost and reduce tooling and parts cost in volume. GM has no such overseas market. That's why Fiat was considered a partner. Of course, you are against any overseas linkups too.
These subpar GM cars were designed for the fleet market from their inception. They were not designed to compete effectively with the imports in the first place, so naturally, the products weren't competitive.
By the second design iteration, you'd better figure out what your real customers are.
Given a choice between a $5,000 revenue increase and a $1,500 cost decrease, I'd go for the revenue increase -- the net gain would be $3,500. But if the products are uncompetitive from the start, then I suppose it's obvious why this would be impossible, and why those costs are a heavy burden. You can't hurdle high costs if your products sell at a steep discount, and volume won't help.
First of all, the $1500 number is way low, while the $5000 number completely ignores the difference in their fleet mixes. More importantly, even if GM production lines were given the Toyota/Lexus designs, the lines would not be able to churn out Toyota/Lexus quality vehicles. They would not be able to control supply like Toyota/Lexus does either because UAW workers have to be paid whether the produciton is making cars or not. When IS300 sales fell from 2000 units/mo to 400 units/mo, Lexus cut production accordingly to hold the $30k price line. If UAW workers were making it, they would keep cranking out at 2000 units/mo, driving price down to $20k, which would be the price of Toyota Altezza, turning "good Lexus up marketing decision" into pointless badge engineering. As you can see, the primary difference between GM and Toyota is not in the management, but in the work force, more importantly, in the labor contract. What works for Toyota may not work for GM at all due to the labor problem
From small car to luxury car, GM is an also-ran in essentially every single category. Naturally, weak products accompanied by poor service and a lack of genuine commitment has led GM to the abyss where it stands today.
What more can you expect from a work force with an employment contract that promotes mediocrity.
You can increase production volumes all you like or cut wages in half if you prefer, but that won't turn a Cadillac into a Lexus LS.
Nobody else should try to turn into a Lexus LS. Infiniti tried that in the second generation, with no success. The best strategy GM can have is making the best of the situation it faces, not trying to emulate a rival that operates on an entirely diffrent set of parameters. When you are given lemon, the best you can do is making lemonade; trying to make pineapple juice with only lemon is not going to get you anywhere.
GM management obviously didn't really much care about what the car did to its brand equity or reputation, most likely because its largest customers (Avis, National and various government agencies) didn't much care, and weren't willing to pay a premium to get a better vehicle.
Considering that particular market exists, considering that GM has no worldwide small car sales to capitalize on, considering the massivly higher labor cost GM has over Honda and Toyota, wouldn't it be rather dumb of GM to compete against the likes of Civic and Corolla head-on?? Even Civic and Corolla do not compete against each other exactly head-on. Every manufacturer has to carve out its own niche. If not for CAFE fines, GM probably should be out of the small car market altogether, like BMW and MB (other examples of high cost manufacturers).
Okay, you have got to be part of GM managment. C'mon admit it. Otherwise you sound like if you were a woman you'd want to have Rickys baby.
Conspiracy theories are not necessary, and sexist jokes are not funny.
And the SRX name should be changed to SUX. Every test I've read about it the vehicle broke down and had to be towed. EVERY one.I have a coworker with one and it's been nothing but problems from the start.And yes I'm sure you'll come up with some answer of how that isn't the godlike managments fault!
Nore sure where you have been reading reviews. I never saw break-downs when I read the reviews on SRX. In any case, if this were BMW, the reviewers would rank it #1 despite break-downs ;-) If not for the fact that dealers were insisting on close to MSRP, I would have bought one instead of my 04 Highlander Limited, which I bought for $300 below Invoice (i.e. $3-4000 under MSRP). Now, anyone ignoring product cycles can chew on that: a GM vehicle selling close to MSRP while a Toyota one being discounted by $3-4000. Of course, it's all because of production cycle; Highlander was in third or fourth model year. The fact I knew GM had to be producing too many by model-year end because of labor contract stopped me from paying close to MSRP 8 months earlier!
Okay, It's ALL the unions fault! GM's managment is so brilliant that they could turn GM around like Ghnosen did with Nissan.
In case you missed the news, Ghosn is not interested in taking the GM job. Even he knows that GM's labor situation makes the job exceedingly difficult. BTW, Ghosn knows Wagoner is a competent manager; Wagoner's success at GM Brazil was the reason why Renault hired Ghosn from away Michelin to begin with. Ghosn's sucess there (and later at Nissan) are practicall taken out Wagoner's playbook at GM Brazil: slash production (labor) cost and turn out interesting new products, only more flambuyant and hard-nosed about it. Ghosn has quite a "neutron Jack"-like reputation, which may not work with UAW.
Maybe the answer is to move all production to Mexico and China! Then the truly brilliant management of Ricky "Retardo" Waggy can come shining through and save the day!!
Actually, GM Brazil and GM China did quite well under Wagoner's tutelage, not to diminish contribution from other managers. Your clueless ad hominim verbal abuse is further argument for why CEO's deserve higher pay.
It must just be in vogue- "GM bashing" just like MALE bashing a few years ago. I wonder if the consistent negative posters even own a car,are employed in the industry,let alone own a car of domestic manufacture. I can see opinions being strong but I think some of these posters would fail abysmally if really put in charge of anything larger than a Paper Route. The direction given is from the role of a "benevolent dictatorship". Just because they say so doesn't magically make it happen. To philosophize is one thing, to be able to clearly steer a corporation out of this mess the size of GM is another. It is not just an issue of not making things happen. It is also an issue of not being allowed to make changes without dire consequences. It will take time. I am old enough to remember that MADE IN JAPAN was equivalent to JUNK. Everything changes so will GM.
We will see. But I think that GM will come out of this OK. A lot more lean and efficient than the world has ever seen. It will not be to the liking of most but they will make a health profit in the future with great vehicles.
Yes, I do drive a GM Product. I like it ! On principle I will NOT buy a Japanese Vehicle. The consumer will make the ultimate decision in their purchase.
Your clueless ad hominim verbal abuse is further argument for why CEO's deserve higher pay.
I agree with you, the bigger the target the bigger the paycheck.
Having worked a Union job for more years than most of the posters here. I agree with your assessment of the UAW. They were the pinnacle of protection for the employee in this country. Time to move on as they are hurting America more than helping us remain competitive. The gravy train is grinding to a halt. If GM could continue to build big trucks and SUVs and leave the little crap to HonToy, there would be a chance of survival. Too bad the UAW employees are following their Union leadership like sheep to the slaughter. My advice is, take the generous buyout while it is on the table. Get out and train for a different line of work.
considering that GM has no worldwide small car sales to capitalize on
Wow, you really need to start learning about the company.
Have you ever heard of Opel/ Vauxhall? (Given your odd perceptions about European countries that would indicate that you have limited experience abroad, perhaps not.) That division has been producing small cars for sometime. Some of them have actually been pretty good.
And even if GM had absolutely no one on staff to design such cars, it has a few obvious alternatives: hire some people, license technologies from others, form joint ventures, subcontract engineering, etc. But again, looking at the domestic lineup makes it clear that GMNA never took these products seriously, and never really tried.
Every manufacturer has to carve out its own niche.
Unfortunately for GM, mediocrity is not a great niche.
And GM, Toyota, Ford, Renault-Nissan, etc. are NOT niche manufacturers, they are mass market players. Yes, the individual badges and nameplates need to develop their own respective niches, but on the whole, GM is going to need to appeal to a wide array of customers if it ever is to have a hope of regaining market share similar to what it once had. Selling trucks and SUV's in an era of $3 fuel won't be enough to accomplish that.
The last time I checked, the management does not physically put shoddy workmanship in the cars.
That's a bit like claiming that a coach isn't responsible for losing a season's worth of games.
Of course, management is responsible for that. It's their facility, their design, their staffing, their output. Assuming responsibility for the product is one of management's key duties to the company.
It is their job to produce a quality product and to sell it at a profit. If they can't do that, then they need to resign or be fired.
You seem to have missed the analogy. A great coach can pull a fantastic performance out of a team that might flounder under a lesser coach. The leadership is what counts.
In any case, it might be worth considering that to the extent that the workforce is a problem, the company might be able to attract a better level of worker if the company was better managed. Since GM seems to so adept at creating a mediocre product, is it surprising to you that it is also going to excel at creating a mediocre workforce? How many workers with any pride in craftsmanship can be expected to go out of their way to work for GM?
As a Saab owner, it would be hard not to have heard of Opel Vauxhall. Open/Vauxhall, even with their best seller Astra, still represent much smaller scale than the likes of Civic, Corolla and their respective platform-mates.
(Given your odd perceptions about European countries that would indicate that you have limited experience abroad, perhaps not.)
I spent over 16 years abroad.
And even if GM had absolutely no one on staff to design such cars, it has a few obvious alternatives: hire some people, license technologies from others, form joint ventures, subcontract engineering, etc.
That's a quick 180-degree turn-around from your earlier criticism about GM's overseas entanglement. Perhaps until reading my post last night, you never thought of the importance of economy of scale in carmaking??
GM is going to need to appeal to a wide array of customers if it ever is to have a hope of regaining market share similar to what it once had. Selling trucks and SUV's in an era of $3 fuel won't be enough to accomplish that.
You are betraying even more ignorance. There is no way GM can possibly regain 60% market share in the US. It simply won't happen. If you are planning on regaining 60% market share someday, you should not trim any brand! March sales prove yet again that you perceptions about small cars vs. SUV's and crossovers are all wrong:
And who do you have in mind to replace them? Yourself? So that you can lose Billions more foregoing profitable M&A, ingoring real market demand while focusing on money losing small cars?
The coach analogy is utterly inept. Coach pick players, the management at GM does not. Coach can fire layers, the management at GM can not. A much more appropriate analogy is that of the firefighter or doctor. The fire at GM has been burning for decades, the union cancer at the company has been growing for decades. Even the best firefighter and doctor can not solve all problems. They can only prioritize, and saving what can be saved.
You know in pro sports it's the coach that is ultimately to blame unless the player is so abyssmal or disruptive that he/she must go.
I'd say, a team of players who quit in the middle of a game would be considered "abyssmal and disruptive." UAW did just that in 1998 when Wagoner tried to improve production quality and productivity on a particular production line. UAW staged a company-wide work stoppage in response. A real case in point, the fans were not sympathetic to the baseball player strike a few years ago, for example.
As a Saab owner, it would be hard not to have heard of Opel Vauxhall. Open/Vauxhall
I'm not sure what being a Sob (sobbing over those excess inventories, I suppose) owner has to do with it, but within the European market, the Astra and Corsa sell decently in comparison to the Japanese makers. GME has made its missteps to be sure, but it seems more adept at creating products in line with the needs of European retail customer than GMNA is in the US.
That's a quick 180-degree turn-around from your earlier criticism about GM's overseas entanglement.
We can't have a good discussion if most of your points are going to based upon rebuttals of things that were never said.
I take no issue whatsoever with the idea of international operations. Rather, I've pointed out the flaws of a bad M&A strategy that, as Forbes pointed out, has clearly lost GM tens of billions of dollars. I even pointed out during my critique of the failed FIAT deal that GM could have achieved certain benefits from a JV relationship with FIAT without sinking $4.4 billion into a sinkhole. It's not one extreme or the other, as you'd like to paint it.
Perhaps until reading my post last night, you never thought of the importance of economy of scale in carmaking??
Consumers don't buy economies of scale, they buy products they like at prices they want to pay. It is exactly this incessant desire to manage GM by the balance sheet that has driven it into the ground, because this effort has come at the expense of overall margins and, more importantly, the value of its brands.
There is no way GM can possibly regain 60% market share in the US.
Again, another comment based upon a point that I never made.
I never claimed that GM would achieve 60% market share again -- it's far too late for that, the brand has been devalued too much for this to ever happen. However, all automakers evaluate their performance in terms of overall market share, and GM is clearly losing its share of the market.
Declining market share is another management failure, no mass market producer would ever brag about losing the market. Given the current lineup, this will certainly get worse before it ever gets better.
I'm not sure what being a Sob (sobbing over those excess inventories, I suppose) owner has to do with it
Your ignorance of the car business is shining through once again. Saab shares some of the Opel platforms.
but within the European market, the Astra and Corsa sell decently in comparison to the Japanese makers.
The key is worldwide platform sharing. Europe alone is not enough. Astra and Corsa were pratically non-existent outside of Europe, until the last year or two in India.
GME has made its missteps to be sure, but it seems more adept at creating products in line with the needs of European retail customer than GMNA is in the US.
SUV's, trucks, large and medium sized cars outsell small cars in the US by a factor of 8-to-1. I'd say some of the posters here are far more out of touch with what retail customers want in the US than the GM management is.
Why bother even talking about regaining lost market share if you knew full well that GM once owned 60% of US market? You probably did not. Market share is not as important as profitability.
Declining market share is another management failure,
Yet, your proposed brand killing would reduce market share even faster.
Yet, your proposed brand killing would reduce market share even faster.
You can't kill what's already dead. With a few exceptions (Corvette and Suburban come to mind as exceptions), GM nameplates have zero value, and are probably a liability.
Successful nameplates such as Civic, Corolla, Camry, BMW 3-series, and Mustang have been in continuous usage for 20-30 years or even more, over numerous generations. Those are examples of great brand management that GM should learn from.
In contrast, GM needs to continuously retire nameplates, as it is constantly in need to have fresh starts (that rarely seem to be terribly fresh.) The fact that GM doesn't want you the consumer to associate its current cars from their predecessors tells you a lot about how poor the products have been. Unfortunately for GM, though, simply renaming the same old dreck is not enough.
Market share is not as important as profitability.
I hope you do realize that this contradicts your earlier contention that economies of scale are important to the automaking business.
And it's another strawman argument, because I never claimed that profitability wasn't a goal. But unlike certain players such as BMW, GM is not a niche automaker, it needs to appeal to a wide audience. To lose market share today is to help to ensure further losses later, because those customers who defect today will be hard to win back for their future car purchases.
Market share is a measure of brand equity, which drives future sales. A brand with negative equity is not a brand worth preserving. (Hence, may Olds rest in peace, and may more nameplates follow in its footsteps.)
Hey, I've got an idea for a slight change of pace: since the topic is "UAW and Domestic Automakers", why not set GM off the side for a bit and maybe discuss the relationship between the UAW and Ford or the UAW and DCX?
Maybe if we can identify some very common problems between all of the Big 2.5 manufacturer's in this country, it would be easier to tie these problems to the UAW since they are the common element. However, if GM has certain problems which are NOT shared by Ford/DCX, perhaps this would be an indication the problem isn't NECESSARILY with the UAW?
...all this extreme bashing of GM almost has ME convinced my cars are the very nadir of mediocrity though my experience with them is the most extreme opposite. This is the kind of thing despots use to scapegoat ethnic or religious minorities they don't like. The people at first think you're a bigoted madman, but if you keep repeating over and over and over the message that a certain (car maker/group of people you don't like) is the world's core of evil, others will start to believe your bull.
Hoping a for the collapse of major American manufacturer that employs tens of thousands with hundreds of thousands of others depending on it is self-hating, self-destructive, and suicidal. The thought of a Toyota dealership is more like an Al Qaeda cell awaiting the destruction of America.
Do my eyes deceive me, or did you just compare Toyota to Osama bin Laden? Please tell me that you are pulling my leg, before I choke on my sandwich here...
of Diet Pepsi, socala, 'cause that is what that just sounded like.
Are nerves being twinged a tad here? Remember Toyota's statement of a few months ago that they hope that GM doesn't fall too hard, or words slightly to that effect?
Actually it seems that GM is going about this thing very slowly when it seems that pulling the bathtub plug all of sudden now is more in order. So they can get to work building "a leaner and meaner Mr.General", eh?
Comments
A developer has a product he wants to bring to market. Say, an apartment complex. Now, he's built these complexes for years and so has a good idea of what the buildings will cost. This would be analogous to the parts/materials cost to build a car.
But what varies from one apartment project to another are the costs associated with building on a particular site. Some sites are easy to develop. Some require massive amounts of site costs. These would be analogous to the labor cost to build a car.
Now, that developer knows that he can only get $X amount for his units in a particular market. He must make that build/no build decision based on what his COST will be to get this units (or cars) to market vs. what he can charge. As an engineer, I have absolutely no input on what his 'reasonable' profit can be. I'm simply charged with getting that product (be it apartment units or cars) to market at a cost dictated to me. If my cost to develop a particularly nasty piece of property is really high (analogous to labor cost), then either the project doesn't get built, OR I have to cut cost out of the buildings.
I don't know if this makes my point any clearer or not.
For decades, GM has prioritized cost management -- badge engineering and excessive production are both driven by the desire to amortize fixed costs over greater numbers of units to create the illusion of margin. The goal has never been to reduce labor costs so that the product can be improved, but to reduce all costs so that margins can be increased.
The spiral downward comes primarily from the revenue side:
-First, GM pushes volumes in order to amortize fixed costs. End result: Fleet sales, badge engineering, falling residuals, etc., and quality becomes uneven, as cost is prioritized over quality
-Retail consumers react by defecting to other products. (No one is fooled by the Chevy disguised as a Cadillac, and fewer consumers see a meaningful difference between a Chevy and a Buick, for example, and the quality difference is palpable)
-Due to falling retail demand, excess inventories increase...
-...Which leads to falling wholesale prices due to increased discounting and incentives, and even more fleet sales.
-And so on.
This should illustrate why the prioritization of costs actually results in decreasing revenues and further squeezing.
Any branded retailer knows that the value of a brand comes in the ability to command a premium because your name carries a positive reputation that consumers are willing to pay for, the same sort of reason that Starbucks costs more than does Folger's, even when sitting next to each other on the same shelf.
GM's fleet sales and badge engineering have destroyed this brand value to the point that most of its nameplates have no discernable value, which forces GM to sell cars at a discount compared to its rivals. If you cut costs without building the brand, you really won't gain anything, you'll just slow the bleeding.
If there ends up being a cost reduction in one area (for example, the price of lumber goes down ten percent, or his borrowing costs decline), the developer will not necessarily react by putting more value into the units or by cutting prices -- instead, he'll pocket the extra margin as additional profit. He's not going to start spending extra money on the project just for the sake of maintaining with the earlier budget.
Again, I see no evidence that GM would build better projects if labor costs were lower. Based upon what I've seen it sell in the marketplace, I suspect that it will simply try to pocket more cash from each sale (although its cost management strategy will probably prevent that from succeeding over the long run.)
Is this information available to the car-buying public?
2021 Kia Soul LX 6-speed stick
I am an engineer, and I have done some vehicle work (along with all types of other projects). I can tell you from personal experience that money will be transferred from one area to another very easily as long as the project doesn't go over budget. If the labor costs come down, GM definitely CAN put more money into other areas.
The CEO absolutely does not want bankruptcy. Go that route with a high priced, long lived commodity like a car/truck and people will not buy. There would be months of almost zero sales or prices will drop so low to sell stock that GM will have to close shop. I assume you mean the type of bankruptcy that allows continuing in business but allowing restructuring (like Delphi).
Not sure about what you mean with the comment on the Tahoe. It is an excellent vehicle in its market. It is very profitable and is bringing in so much cash today that it will bring GM back into the black much quicker than if it had not updated the vehicle (assuming the other costs reduction items are continued). Also the competitors from Japan are running as fast as they can to get into the large SUV market. There are many out there who seem to think that the large SUV is dead. It is not. The market segment will be reduced and GM will have to fight like mad to keep its share form going to the import SUV's. But GM saw this 4 years ago and started development of a whole new class of vehicle-a large crossover SUV which will give many of the customers a vehicle that can haul people and their stuff but still give much improved MPG, but not able to go off roading or pull a larger trailer.
Based upon the product offerings, I have no reason to believe that if given more cash, GM would use that windfall to build a better car that provides a basis for long-term sales. Even when the profits were flowing in the door, this didn't happen, so I have no reason to believe that it would happen going forward, barring a substantial change in management. And even if the money was put into R&D, I have to wonder whether the cars would be one whit better -- I don't see how spending more cash on the Cobalt would have made it a better car than it is today, the budget was not the problem. Spending cash for its own sake is not enough, it has to be spent on resources that count for something and fulfill consumer wants and needs.
GM management had no problem squandering that cash on bad mergers, more adventures in faulty badge engineering, or perpetuating its failed channel strategy. If the UAW went away tomorrow, then I suspect that your engineering budgets for subsequent projects would be adjusted accordingly to pay for all of these other doomed projects. The track record of failed endeavors is so consistent and sure that there's no reason to believe that they would simply wouldn't fail yet again.
Anyone with a bit of financial analysis skills can see that BK is almost certainly inevitable. Even with the sale of GMAC, there's hardly any cash left, and SUV and truck sales are not likely going to be able to generate enough profits to save the company, despite the wishful thinking of the fans.
UAL is a good model for what can be expected to happen going forward -- obligations will be written down or written off, and the union and dealer network will be crammed down. Of course, BK would include a reorganization plan, I don't think anyone who understands finance and Wall Street believes that a liquidation scenario is likely.
"Now, assume you are a designer/engineer trying to build a good car in this segment. You must take into account the fact that the designers/engineers working for the competition are no dummies. You must take into account that this is a price sensitive market. You must take into account that one can only save so much through judicious materials choices. And finally, you must take into account that you START at least $1500 in the hole due to higher labor/legacy costs."
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Gateway cars are crucial for an auto company in as much as they are the best method available to attract new, loyal customers.
As such, any company worth it's salt would try to build the best car they can and sell it at or near cost. Selling an entry-level car at anything less than the lowest possible price assumes that new, young buyers actually have a wad of discretionary income to blow. Which, unfortunately, is usually not the case.
While GM may have a $1,500 hole that they have to dig out of, they should have considered 'subsidizing' their entry-level cars with some of the profits made from their lucrative SUV/truck sales.
(or at least have done so during their 'fat' years... the years in which GM was flush with cash)
That 'subsidy', if used to build a stellar entry-level car, will pay a lifetime of dividends as that young customer returns again and again. (Hopefully, each time with a little more money to spend.)
Good Lord!!!
:surprise:
Methinks GM should be firing their designers.
:P
So let's say the $1500 in labor differential between GM and the imports were to disappear. And let's say GM management decided to pocket half of it and spend the other $750 on improving the car. They could probably upgrade the interior close to the level of the civic for $200-$300. Then they could spend the rest buying more expensive parts throughout the car. Do you think they might have a better and more reliable car? Do you suppose improving it might raise the average transaction price? Then GM would have more even more money to pocket or improve it further.
There's a reason that the bigger (and more expensive) you go, the more competitive GM becomes. GM can absorb a few thousand in extra labor costs on a $65,000 Escalade. They can't on a $16,000 Cobalt.
GM certainly did subsidize them financially. Unfortunately, the subsidy didn't seem to be accompanied by a mandate to build a competitive, high quality product.
Perhaps we should get to the bottom line -- GM has never really cared about building a very good small car, dismissing them as being unwanted (even though people seem to be quite content buying Civics, Corollas, etc.) or unprofitable (even though other companies manage to sell these while earning handsome profits.) Always an excuse, never a result.
GMNA seems to have been in the small car business not because they particularly liked it, but because (a) its fleet customers demanded one and (b) CAFE requirements effectively mandated them as an offset to the other fuel burners in its line-up. Instead of investing in small cars, GM has done the bare minimum to put theirs on the road. The result has been tinny Sprints/Metros and the Avis-inspired Cavalier, rather than cars people might actually want.
I think our poster KDHSpyder has it right -- GM has largely been in the used car business, except it builds them from the start with the goal of dumping them into fleets. No need to worry about brand management or reputation when the fleet buyer doesn't care what brand it is, just so long as it's cheap.
They'd be lucky to sell a Cobalt for $16k. The brand is so devalued that the fleet market is buying these for perhaps $12k.
I keep pointing this out -- the real loss to GM is on the revenue portion of the income statement. GM simply cannot sell its cars for the same prices that the transplants can, because of their various related problems.
Ask yourself how Toyota Motor Corp. is able to command an average wholesale price that is almost $5,000 above that of GM's, despite its being more heavily weighted in the small car business. Then go further, and determine why GM loses market share while others gain it. After that, you will gain an insight as to what it is most crucially wrong with GM.
Look at some of the forums for GM cars. Parts wearing out,transmissions falling apart,all with less than 100,000 on the clock. And that new family of V8s in trucks seem to make a lot of people unhappy. Of course some of the problems can be put down to bad maintenence. And GM isn't the only company that doesn't care. Look how long Der Chrysler has been putting those awful transmissions in their minivans.
It is because of fleet sales. If you were running GM and could sell 100,000 cobalts to Enterprise at a $1000 loss, or could not build them and pay workers $2000 to not build them, which would you do? They're not selling cars to rental fleets at a loss because it's fun. If they build fewer cars their per car labor costs go up dramatically, because with the UAW contract their labor costs are pretty close to fixed across the company. They've also got a much larger retiree benefit cost that is also fixed across the company. That's not the case with toyota.
I keep pointing this out -- the real loss to GM is on the revenue portion of the income statement. GM simply cannot sell its cars for the same prices that the transplants can, because of their various related problems.
And if they built cars that did sell at the same price a Honda/Toyota, do you think they could build them for the same price as their current cars? If they built a car that was EXACTlY like the new civic in every way, and which sold for exactly the same price, they would still have to deal with that differential in fixed costs which simply cannot be absorbed on an entry-level car.
AND, i'd be willing to bet that getting the same quality part from Delphi costs GM more than it costs Honda to get from their suppliers. Delphi has the same exaggerated labor costs as GM, and GM is stuck buying from them because they are on the hook for Delphi's employees.
Then go further, and determine why GM loses market share while others gain it.
The vast majority of market share gains by imports the last few years has been from them moving into new categories. Ten years ago, Honda and Toyota had little besides the Accord/Camry, and Civic/Corolla.
Here's a radical thought -- I'd build a car that was good enough that your average Toyota and Honda buyer would actually want to pay retail for it.
These subpar GM cars were designed for the fleet market from their inception. They were not designed to compete effectively with the imports in the first place, so naturally, the products weren't competitive.
If they built a car that was EXACTlY like the new civic in every way, and which sold for exactly the same price, they would still have to deal with that differential in fixed costs which simply cannot be absorbed on an entry-level car.
Given a choice between a $5,000 revenue increase and a $1,500 cost decrease, I'd go for the revenue increase -- the net gain would be $3,500. But if the products are uncompetitive from the start, then I suppose it's obvious why this would be impossible, and why those costs are a heavy burden. You can't hurdle high costs if your products sell at a steep discount, and volume won't help.
The vast majority of market share gains by imports the last few years has been from them moving into new categories.
Of course, that's true. GM has been a weak competitor in almost every niche in the passenger car market, leaving it vulnerable to rivals that built a better product. So why wouldn't it lose business?
From small car to luxury car, GM is an also-ran in essentially every single category. Naturally, weak products accompanied by poor service and a lack of genuine commitment has led GM to the abyss where it stands today. You can increase production volumes all you like or cut wages in half if you prefer, but that won't turn a Cadillac into a Lexus LS.
GM management obviously didn't really much care about what the car did to its brand equity or reputation, most likely because its largest customers (Avis, National and various government agencies) didn't much care, and weren't willing to pay a premium to get a better vehicle.
I was going to step in and say just about that when I read your post.
I am still of the opinion that GM decided in the mid/late 90's to become primarily a truck/SUV/Cadillac producer. That's where the money is. As numerous posters have pointed out the margins can support a full union presence and still make gargantuan profits.
The entry level auto and midsized auto segment were IMO poor stepchildren embarrassed to come to dinner in their humble rags.
Visionary foresight is a rare anywhere. About the last visionary effort GM made here was to create Saturn and it's special marketing. Then it was gutted - because ... Saturns were entry level and midsized auto's.
This was an example of the power of the number crunchers over the visionaries. It also gave an indication of what was to come. It's just math.
Potentials:
Vehicle A makes $1000 at full sticker ( we have a small presence )
Vehicle B makes $3000 at full sticker ( we have a good presence )
Vehicle C makes $22000 at full sticker ( we have a HUGE presence )
As a product manager, VP, Director how can you not emphasize vehicle C, and maximize it's potential.
But visionaries are not usually welcome at discussions about cold hard numbers.
The last time I checked, the management does not physically put shoddy workmanship in the cars. Do you honestly believe if GM were given designs from Toyota or BMW for free, they'd be able to sell the cars without discounting?? No, sir, the oversupply dictated by union contracts alone would make sure price gets driven down.
The UAW obviously has no trouble building Mustangs and 300's, or assembling Ford's nicely designed modular V-8's, and Americans have had no trouble buying them, regardless of who builds them.
Isn't that the same modular V-8 in the slow-selling and heavily discounted Lincoln LS?? I'm starting to wonder how long have you been buying new cars and how old are you anyway? Do you know anything about product cycles?? For domestics (and Toyota to a lesser degree; niche players like BMW, especially the more niche models, much less), the first model year or two are hot. After that everything gets discounted. Both Mustangs and 300's are already heavily discounted; they will show up in rental fleets in large numbers if not already.
Not to mention Saturn's exception to normal UAW rule made for a thorn in the union bosses' eye; such bold experiments could not be allowed to succeed. Regular union shops demanded model updates in the following round of negotiations after Saturn was started and left Saturn out of those demands, with the forseeable result that Saturn went on for nearly a decade without new models. The same sort of union politics is being played out at the detriment of CAW shops, including the Oshawa plants, so much for brotherhood.
Yet, they also made more money on good M&A than their loss on bad M&A . . . 3-4 times better.
more adventures in faulty badge engineering, or perpetuating its failed channel strategy.
All the high volume badges were part of GM before 1950. Only the small volume niche badges, Saturn, Saab and Hummer are new. Hummer is profitable. Saturn and Saab do not lose much annually, and depending on who you talk to, were once considered potential saviors of GM from mundane brands. It's easy to be critical; yet the critics were the ones behind the ideas of Saturn and Saab a decade and half ago.
If the UAW went away tomorrow, then I suspect that your engineering budgets for subsequent projects would be adjusted accordingly to pay for all of these other doomed projects.
If UAW went away tomorrow, GM would be saing $10-15 billion annually; that's just counting excessive wages and retiree health cost, not counting any savings associated with finally getting manufacturing quality and quantity back into management control. I haven't seen any GM project that lost $10-15 billion annually, have you? Perhaps you can lose $10-15 billion if you were put in charge.
Sure, go ahead and build it and come back tell us how you did, in your own garage! You said "I'd"! GM has neither the low-cost labor structure, nor the automation or part supply economy of scale for those small cars like Toyota and Honda do. Both Civic and Corolla are global platforms that use the same robots, same tools and same parts, sold in far greater numbers overseas than in the US market all helping defray R&D cost and reduce tooling and parts cost in volume. GM has no such overseas market. That's why Fiat was considered a partner. Of course, you are against any overseas linkups too.
These subpar GM cars were designed for the fleet market from their inception. They were not designed to compete effectively with the imports in the first place, so naturally, the products weren't competitive.
By the second design iteration, you'd better figure out what your real customers are.
Given a choice between a $5,000 revenue increase and a $1,500 cost decrease, I'd go for the revenue increase -- the net gain would be $3,500. But if the products are uncompetitive from the start, then I suppose it's obvious why this would be impossible, and why those costs are a heavy burden. You can't hurdle high costs if your products sell at a steep discount, and volume won't help.
First of all, the $1500 number is way low, while the $5000 number completely ignores the difference in their fleet mixes. More importantly, even if GM production lines were given the Toyota/Lexus designs, the lines would not be able to churn out Toyota/Lexus quality vehicles. They would not be able to control supply like Toyota/Lexus does either because UAW workers have to be paid whether the produciton is making cars or not. When IS300 sales fell from 2000 units/mo to 400 units/mo, Lexus cut production accordingly to hold the $30k price line. If UAW workers were making it, they would keep cranking out at 2000 units/mo, driving price down to $20k, which would be the price of Toyota Altezza, turning "good Lexus up marketing decision" into pointless badge engineering. As you can see, the primary difference between GM and Toyota is not in the management, but in the work force, more importantly, in the labor contract. What works for Toyota may not work for GM at all due to the labor problem
From small car to luxury car, GM is an also-ran in essentially every single category. Naturally, weak products accompanied by poor service and a lack of genuine commitment has led GM to the abyss where it stands today.
What more can you expect from a work force with an employment contract that promotes mediocrity.
You can increase production volumes all you like or cut wages in half if you prefer, but that won't turn a Cadillac into a Lexus LS.
Nobody else should try to turn into a Lexus LS. Infiniti tried that in the second generation, with no success. The best strategy GM can have is making the best of the situation it faces, not trying to emulate a rival that operates on an entirely diffrent set of parameters. When you are given lemon, the best you can do is making lemonade; trying to make pineapple juice with only lemon is not going to get you anywhere.
Considering that particular market exists, considering that GM has no worldwide small car sales to capitalize on, considering the massivly higher labor cost GM has over Honda and Toyota, wouldn't it be rather dumb of GM to compete against the likes of Civic and Corolla head-on?? Even Civic and Corolla do not compete against each other exactly head-on. Every manufacturer has to carve out its own niche. If not for CAFE fines, GM probably should be out of the small car market altogether, like BMW and MB (other examples of high cost manufacturers).
Conspiracy theories are not necessary, and sexist jokes are not funny.
And the SRX name should be changed to SUX. Every test I've read about it the vehicle broke down and had to be towed. EVERY one.I have a coworker with one and it's been nothing but problems from the start.And yes I'm sure you'll come up with some answer of how that isn't the godlike managments fault!
Nore sure where you have been reading reviews. I never saw break-downs when I read the reviews on SRX. In any case, if this were BMW, the reviewers would rank it #1 despite break-downs ;-) If not for the fact that dealers were insisting on close to MSRP, I would have bought one instead of my 04 Highlander Limited, which I bought for $300 below Invoice (i.e. $3-4000 under MSRP). Now, anyone ignoring product cycles can chew on that: a GM vehicle selling close to MSRP while a Toyota one being discounted by $3-4000. Of course, it's all because of production cycle; Highlander was in third or fourth model year. The fact I knew GM had to be producing too many by model-year end because of labor contract stopped me from paying close to MSRP 8 months earlier!
In case you missed the news, Ghosn is not interested in taking the GM job. Even he knows that GM's labor situation makes the job exceedingly difficult. BTW, Ghosn knows Wagoner is a competent manager; Wagoner's success at GM Brazil was the reason why Renault hired Ghosn from away Michelin to begin with. Ghosn's sucess there (and later at Nissan) are practicall taken out Wagoner's playbook at GM Brazil: slash production (labor) cost and turn out interesting new products, only more flambuyant and hard-nosed about it. Ghosn has quite a "neutron Jack"-like reputation, which may not work with UAW.
Maybe the answer is to move all production to Mexico and China! Then the truly brilliant management of Ricky "Retardo" Waggy can come shining through and save the day!!
Actually, GM Brazil and GM China did quite well under Wagoner's tutelage, not to diminish contribution from other managers. Your clueless ad hominim verbal abuse is further argument for why CEO's deserve higher pay.
I am old enough to remember that MADE IN JAPAN was equivalent to JUNK. Everything changes so will GM.
We will see. But I think that GM will come out of this OK.
A lot more lean and efficient than the world has ever seen. It will not be to the liking of most but they will make a health profit in the future with great vehicles.
Yes, I do drive a GM Product. I like it ! On principle I will NOT buy a Japanese Vehicle. The consumer will make the ultimate decision in their purchase.
I agree with you, the bigger the target the bigger the paycheck.
Having worked a Union job for more years than most of the posters here. I agree with your assessment of the UAW. They were the pinnacle of protection for the employee in this country. Time to move on as they are hurting America more than helping us remain competitive. The gravy train is grinding to a halt. If GM could continue to build big trucks and SUVs and leave the little crap to HonToy, there would be a chance of survival. Too bad the UAW employees are following their Union leadership like sheep to the slaughter. My advice is, take the generous buyout while it is on the table. Get out and train for a different line of work.
Wow, you really need to start learning about the company.
Have you ever heard of Opel/ Vauxhall? (Given your odd perceptions about European countries that would indicate that you have limited experience abroad, perhaps not.) That division has been producing small cars for sometime. Some of them have actually been pretty good.
And even if GM had absolutely no one on staff to design such cars, it has a few obvious alternatives: hire some people, license technologies from others, form joint ventures, subcontract engineering, etc. But again, looking at the domestic lineup makes it clear that GMNA never took these products seriously, and never really tried.
Every manufacturer has to carve out its own niche.
Unfortunately for GM, mediocrity is not a great niche.
And GM, Toyota, Ford, Renault-Nissan, etc. are NOT niche manufacturers, they are mass market players. Yes, the individual badges and nameplates need to develop their own respective niches, but on the whole, GM is going to need to appeal to a wide array of customers if it ever is to have a hope of regaining market share similar to what it once had. Selling trucks and SUV's in an era of $3 fuel won't be enough to accomplish that.
Me too,
I am on my 5th new GM PU/SUV since 1988. I have liked them all. They also had great resale value.
That's a bit like claiming that a coach isn't responsible for losing a season's worth of games.
Of course, management is responsible for that. It's their facility, their design, their staffing, their output. Assuming responsibility for the product is one of management's key duties to the company.
It is their job to produce a quality product and to sell it at a profit. If they can't do that, then they need to resign or be fired.
Poor analogy. If a coach is not happy with a player he kicks him off the team. Do you have a clue as to how hard that is with a Union member? I do!
In any case, it might be worth considering that to the extent that the workforce is a problem, the company might be able to attract a better level of worker if the company was better managed. Since GM seems to so adept at creating a mediocre product, is it surprising to you that it is also going to excel at creating a mediocre workforce? How many workers with any pride in craftsmanship can be expected to go out of their way to work for GM?
As a Saab owner, it would be hard not to have heard of Opel Vauxhall. Open/Vauxhall, even with their best seller Astra, still represent much smaller scale than the likes of Civic, Corolla and their respective platform-mates.
(Given your odd perceptions about European countries that would indicate that you have limited experience abroad, perhaps not.)
I spent over 16 years abroad.
And even if GM had absolutely no one on staff to design such cars, it has a few obvious alternatives: hire some people, license technologies from others, form joint ventures, subcontract engineering, etc.
That's a quick 180-degree turn-around from your earlier criticism about GM's overseas entanglement. Perhaps until reading my post last night, you never thought of the importance of economy of scale in carmaking??
GM is going to need to appeal to a wide array of customers if it ever is to have a hope of regaining market share similar to what it once had. Selling trucks and SUV's in an era of $3 fuel won't be enough to accomplish that.
You are betraying even more ignorance. There is no way GM can possibly regain 60% market share in the US. It simply won't happen. If you are planning on regaining 60% market share someday, you should not trim any brand! March sales prove yet again that you perceptions about small cars vs. SUV's and crossovers are all wrong:
http://www.businessweek.com/autos/content/apr2006/bw20060411_071091.htm?chan=aut- os_autos+index+page_news
The coach analogy is utterly inept. Coach pick players, the management at GM does not. Coach can fire layers, the management at GM can not. A much more appropriate analogy is that of the firefighter or doctor. The fire at GM has been burning for decades, the union cancer at the company has been growing for decades. Even the best firefighter and doctor can not solve all problems. They can only prioritize, and saving what can be saved.
I'd say, a team of players who quit in the middle of a game would be considered "abyssmal and disruptive." UAW did just that in 1998 when Wagoner tried to improve production quality and productivity on a particular production line. UAW staged a company-wide work stoppage in response. A real case in point, the fans were not sympathetic to the baseball player strike a few years ago, for example.
I'm not sure what being a Sob (sobbing over those excess inventories, I suppose) owner has to do with it, but within the European market, the Astra and Corsa sell decently in comparison to the Japanese makers. GME has made its missteps to be sure, but it seems more adept at creating products in line with the needs of European retail customer than GMNA is in the US.
That's a quick 180-degree turn-around from your earlier criticism about GM's overseas entanglement.
We can't have a good discussion if most of your points are going to based upon rebuttals of things that were never said.
I take no issue whatsoever with the idea of international operations. Rather, I've pointed out the flaws of a bad M&A strategy that, as Forbes pointed out, has clearly lost GM tens of billions of dollars. I even pointed out during my critique of the failed FIAT deal that GM could have achieved certain benefits from a JV relationship with FIAT without sinking $4.4 billion into a sinkhole. It's not one extreme or the other, as you'd like to paint it.
Perhaps until reading my post last night, you never thought of the importance of economy of scale in carmaking??
Consumers don't buy economies of scale, they buy products they like at prices they want to pay. It is exactly this incessant desire to manage GM by the balance sheet that has driven it into the ground, because this effort has come at the expense of overall margins and, more importantly, the value of its brands.
There is no way GM can possibly regain 60% market share in the US.
Again, another comment based upon a point that I never made.
I never claimed that GM would achieve 60% market share again -- it's far too late for that, the brand has been devalued too much for this to ever happen. However, all automakers evaluate their performance in terms of overall market share, and GM is clearly losing its share of the market.
Declining market share is another management failure, no mass market producer would ever brag about losing the market. Given the current lineup, this will certainly get worse before it ever gets better.
Your ignorance of the car business is shining through once again. Saab shares some of the Opel platforms.
but within the European market, the Astra and Corsa sell decently in comparison to the Japanese makers.
The key is worldwide platform sharing. Europe alone is not enough. Astra and Corsa were pratically non-existent outside of Europe, until the last year or two in India.
GME has made its missteps to be sure, but it seems more adept at creating products in line with the needs of European retail customer than GMNA is in the US.
SUV's, trucks, large and medium sized cars outsell small cars in the US by a factor of 8-to-1. I'd say some of the posters here are far more out of touch with what retail customers want in the US than the GM management is.
Why bother even talking about regaining lost market share if you knew full well that GM once owned 60% of US market? You probably did not. Market share is not as important as profitability.
Declining market share is another management failure,
Yet, your proposed brand killing would reduce market share even faster.
You can't kill what's already dead. With a few exceptions (Corvette and Suburban come to mind as exceptions), GM nameplates have zero value, and are probably a liability.
Successful nameplates such as Civic, Corolla, Camry, BMW 3-series, and Mustang have been in continuous usage for 20-30 years or even more, over numerous generations. Those are examples of great brand management that GM should learn from.
In contrast, GM needs to continuously retire nameplates, as it is constantly in need to have fresh starts (that rarely seem to be terribly fresh.) The fact that GM doesn't want you the consumer to associate its current cars from their predecessors tells you a lot about how poor the products have been. Unfortunately for GM, though, simply renaming the same old dreck is not enough.
Market share is not as important as profitability.
I hope you do realize that this contradicts your earlier contention that economies of scale are important to the automaking business.
And it's another strawman argument, because I never claimed that profitability wasn't a goal. But unlike certain players such as BMW, GM is not a niche automaker, it needs to appeal to a wide audience. To lose market share today is to help to ensure further losses later, because those customers who defect today will be hard to win back for their future car purchases.
Market share is a measure of brand equity, which drives future sales. A brand with negative equity is not a brand worth preserving. (Hence, may Olds rest in peace, and may more nameplates follow in its footsteps.)
IN.....hold....
OUT.....hold...
IN......hold it....hold it....
....and....OUT.
Okay - I feel better
Hey, I've got an idea for a slight change of pace: since the topic is "UAW and Domestic Automakers", why not set GM off the side for a bit and maybe discuss the relationship between the UAW and Ford or the UAW and DCX?
Maybe if we can identify some very common problems between all of the Big 2.5 manufacturer's in this country, it would be easier to tie these problems to the UAW since they are the common element. However, if GM has certain problems which are NOT shared by Ford/DCX, perhaps this would be an indication the problem isn't NECESSARILY with the UAW?
HEY! We're finally getting through to lemko! :P
So now you're comparing criticism of GM products to racism?
Now I've read everything. Who would have thought that a Toyota dealership was the equivalent of a Klan meeting hall?
Are nerves being twinged a tad here? Remember Toyota's statement of a few months ago that they hope that GM doesn't fall too hard, or words slightly to that effect?
Actually it seems that GM is going about this thing very slowly when it seems that pulling the bathtub plug all of sudden now is more in order. So they can get to work building "a leaner and meaner Mr.General", eh?
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