Source: Forbes Magazine
-----------------------------------------------------------------------
NEW YORK - The heat is on General Motors.
This week, the industry's leading trade publication, Automotive News delivered a big blow.
"The new cars aren't hits," said one headline. "Detroit appears destined for a smaller place in the auto universe," read another. The story lumped General Motors and Ford Motor together in a shrinking-market-share scenario for Detroit.
I think that General Motors has bigger problems and is in more trouble than Ford Motor, which is still controlled by the Ford family.
GM's February sales were just above 24% of the market, a low in modern times for a strike-free month. Inventories are still sky-high despite production cutbacks and massive incentives. GM has a 102-days supply, compared with 89 at Ford, 77 at DaimlerChrysler, 58 at American Honda and 40 at Toyota. Early estimates of March sales indicate that GM is likely to post another decline.
A few weeks ago, GM's marketing vice president was replaced, an important change for the better, because the marketing was truly bad. A week ago, the head of Saab in Sweden, which is GM owned, quit after it was announced that the next generation 9-3 Saab would be built in Germany, not Sweden.
And then there was the disappointing announcement last month of a $2 billion payoff to Fiat to get out of a deal that cost GM a total of $4.5 billion. I'm not aware of any criticism, punishment or bonus reduction for the executives who led GM into the Fiat mess. This should also embarrass GM's directors.
The stock has been moving lower, too, dropping close to a 52-week low.
Add all this together and it doesn't take a weatherman to tell which way the wind is blowing. The question is whether GM's current management is capable of taking shelter from the storm.
GM's market share has been falling for decades. Forty years ago, GM had half the U.S. market. Back in 1992 at the beginning of reign of Jack Smith/Rick Wagoner (now chairman and chief executive) the company had a 35% to 36% share. GM executives always pushed the idea that it could regain momentum, getting back to 29% to 30% of the market.
The February sales results seemed to shatter that illusion. In fact, GM's share of the business has been artificially propped up for years by heavy incentives--cash back to buyers, 0% interest rates, credit card come-ons, sales to rent-a-car fleets, and special deals for workers, relatives of workers and employees of suppliers. My guess has been that without these gimmicks, GM's actual market share would have been 23% to 24%.
What's wrong?
Wagoner has been complaining about the company's own medical benefit costs, which run $5 billion a year (and always climbing) for its 1.1 million employees, retirees and dependents. The company borrowed heavily, too, to fully fund its $80 billion pension fund.
Wagoner also complains about nations, such as Japan, that juggle their currency to give their car exports an advantage.
I think that Wagoner is right on both counts, but the company hasn't had the courage to tell its union that the benefits aren't affordable now. And in 40 years the U.S. government hasn't cracked down on foreign currency manipulation.
GM's biggest shortcoming is that its cars and trucks have fallen behind the foreign competition in design and technology. The rash of new vehicle announcements from the likes of Toyota, Lexus, Honda, BMW and even Hyundai won't make things any easier for GM.
At the root of all of GM's woes: Its top people really don't understand the automobile business. Wagoner had to go outside and hire Robert Lutz, a retired Chrysler/Ford/BMW executive, and make him vice chairman and product czar in an effort to improve GM's cars and trucks.
In my opinion, the structure of GM just doesn't work. It is difficult to see how anyone who understands cars or the car business can rise to the top. The structure seems designed to keep finance men up and everybody else down. It's impossible to find anyone on the car side, barring Lutz, who can actually get anything done.
There will be growing pressure on GM to take drastic action. Strong leaders have turned around other badly troubled auto companies. Look at what Lee Iococca did for Chrysler in the 1980s, what Ferdinand Piech did for Volkswagen in the 1990s and what Carlos Ghosn did for Nissan in just the last few years.
A couple of winning vehicles can turn a company around quickly. Chrysler was a loser, but its new Chrysler 300C and Dodge Magnum are successful and are pushing up market share. Both GM and Ford have enormous resources, huge dealer organizations and good names. If the product is right, they can succeed.
The heat is on, particularly at GM.
Please Scroll Down to See Forums Below 
