"We're about 65% there," says GM's top guys

[Flybrian]

About 65 percent there: General Motors making progress

Posted 12/11/2006 1:00:00 AM by Todd Lassa

Link to Full Article @ Motor Trend Community

Even on its own, GM looks much better now than it did last year, when it lost $10.6 billion.

The automaker drove home its reasons for cautious optimism at a media event I attended last Thursday night. Product chief Bob Lutz talked of how the company is returning to a culture of great cars and trucks in order to survive, even thrive. But first, CEO Rick Wagoner (pictured speaking at the recent L.A. auto show) spoke of impending financial results.

This time last year, GM was $2.3 billion in the hole. Much of the remaining $8.3 billion apparently recorded in the fourth quarter (and, actually afterward, since GM re-calculated its ’05 loss a couple of months into ’06) was the result of restructuring and of some bailout money paid to parts supplier spinoff Delphi.

For the first nine months of ’06, GM has made a profit of $1.9 billion, an improvement, Wagoner notes, of a bit more than $4 billion. Most of that comes from improved North American business, Wagoner says, which is up $3.4 billion for the first nine months of ’06, versus the first nine of ’05. GM also set sales records in Latin America and the Middle East, and its sales in China rose 37 percent for the first three quarters. The auto business in China is up generically by 25 percent overall for that period, Wagoner says.

GM has ‘a little over’ $20 billion in cash reserves, he says, and it raised another $14 billion by selling 51 percent of financing arm GMAC last week. North American operations have improved ‘faster than people thought. Over the last 14 months, we’ve taken a lot of action on the cost side of the business, and now we’re on track to get (a) $9 billion cost reduction’ by the end of the year, Wagoner says.

“Those are big numbers, big reductions for us, and for anybody. And they’re going to play a big role in our competitiveness and profitability.”

Profit is as important as cost-cutting, Wagoner notes. GM has cut sticker prices, reduced incentives and improved residual values, all for better profitability and more development cash to build better cars and trucks in the future. His marketing chief, Mark LaNeve, says the GM 5 year/100,000-mile powertrain warranty adds $2,000 to the perceived value of each car and truck sold, according to an internal study.

“We do believe that consumer perceptions of GM quality are out of date and really need to change, and this is one thing that will contribute to that,” Wagoner says. “The most important aspect…of the turnaround plan and indeed the long-term success of our business, is great cars and trucks.”

Wagoner made only a veiled reference to former GM shareholder Kirk Kerkorian’s gambit to replace him with Nissan/Renault’s Carlos Ghosn.

“Despite all the distractions that we faced at GM in recent months, really great cars and trucks remain the first and foremost thing we talk about, our absolute number-one priority. In fact, despite the financial difficulty of recent times, we’ve actually raised our annualized capital spending on new products by some billion-and-a-half dollars over the past few years…”

Thirty percent of 2006 retail sales come from “launch” products (all-new models), and GM expects that to rise to 40 percent next year.

Lutz says the press doesn’t seem to fully grasp the level of cultural change at GM. Besides spending tons of future development money on the “electrification” of the automobile, via its plug-in hybrid and fuel cell programs, GM has streamlined its product development. John Smith leads global product planning. Ed Welburn is in charge of design from every GM studio around the globe. Jim Queen leads global engineering. And Jonathan Lauchner is in charge of global program management.

And various development facilities are in charge of specific kinds of cars and trucks. Teams of designers from around the world may work on any new car or truck, but all front-wheel-drive mid-market sedans, like the Chevy Cobalt and Malibu replacement and Saturn Aura replacement are centered in Germany. Small cars, like the Chevy Aveo, Opel/Vauxhall/Saturn Astra and smaller, are located at GM/Daewoo, light pickups and small and midsize sport/utilities originate out of Latin America, primarily Brazil, and GM North America gets full-size sport utilities, full-size pickups, Corvettes, Solstices and Skys. Australia is in charge of rear-drive sedans. Next up in GM’s restructure is reduction of platforms.

The goal, Lutz says, is to have the best cars and trucks in all segments. He places a lot of emphasis on Welburn’s task.

“When GM was in this period of absolute market dominance and maximum greatness…design ran the place. Design did the offices. Design did the GM show stands. Design did the interiors of the corporate airplanes. Design did the brochures. Design did the street signs. Design just wasted colossal amounts of money on such things as … Bill Mitchell one day decided he wanted to show engineers how sports cars should sound. And he decided to put … acoustics were really part of the design. They were part of the sensory experience. So, Ferraris sounded a lot better than a Pontiac Firebird.

“So he purchased a Ferrari V-12, which today’s equivalent price would be about $75,000, and had it installed in the Pontiac Firebird. All the engineers leaned over, and he fired it up and said, ‘this is how a Pontiac Firebird should sound.’ Nobody in those days asked who authorized the (Ferrari V-12 money), who’s doing that thing. Today, we would.”

So the moral of this story is that GM has guys like Lutz trying to figure out how to make good, interesting cars, and has guys like Wagoner who understand why this must be done. They’re not buying Ferrari engines, but they understand the importance of knowing what a Ferrari sounds like.

GM still has some way to go before most of its cars and trucks are at or near the top of their categories, but most everything it builds is a credible competitor in its class.

GM followed this up with an off-the-record look at some upcoming stuff. And there were some hints revealed at the event that I can, and will, talk about, in my next post.

Has GM turned itself around? I asked one insider at the Rick & Bob Show what he thinks. “We’re about 65 percent there,” he said. That seems like a good estimate. While that means GM still has far to go, it’s a number Ford and Chrysler would kill for.

[Paolino]

Awesome awesome awesome... they have to keep going. And we know of some new products coming out that are going to be sure winners, so this is very good.

[gm4life]

Those boys are getting there. Actually isn't Chrysler with its 300/Charger/Magnum and truck sales doing well still? Ford is screwed prolly more so than GM, because they haven't got anything coming down the pike cept for the Focus.

[regfootball]

kumbaya. now everyone hold hands.

[ocnblu]

It sounds like they're focusing on product. Very pleasing to hear.

[I hope GMRULES again]

Greta news. I like how they say they have a lot of work still do to.

[ellives]

Those boys are getting there. Actually isn't Chrysler with its 300/Charger/Magnum and truck sales doing well still? Ford is screwed prolly more so than GM, because they haven't got anything coming down the pike cept for the Focus.

227504[/snapback]

I seem to remember reading their full sized trucks were piling up in lots around Detroit.