Task force: 5 fatal flaws in GM's viability plan

[wildcat]

I would think that every poster on Cheers and Gears would want to read what President's Obama's auto task force found to be wrong with GM's viability plan. Here are the details from Jamie LaReau of Automotive News:

President Barack Obama's auto task force says General Motors will be hard-pressed to meet its projections in five key areas without dramatically restructuring the company.

In response to the viability plan GM submitted Feb. 17, the task force demanded that GM intensify its restructuring over the next 60 days or face possible bankruptcy.

In a statement released today, the task force criticized GM's assumptions in these areas:

1. Market share

2. Price

3. Brands/dealers

4. Product mix

5. Legacy liabilities

The task force did not dispute that GM is in the early stages of a turnaround, saying it has made "material progress in a number of areas, including purchasing, product design, manufacturing, brand rationalization and its dealer network."

But despite that progress, GM's current plan "contemplates initiatives that will take many years to complete," the task force wrote.

Key areas are:

1. Market share

In 2008, GM's North American market share was 21.5 percent, down from 23.8 percent in 2006. In its Feb. 17 viability plan, GM estimated that its market share would be 21.1 percent this year and decline to 19.4 percent in 2012 and 19.1 percent by 2014.

But the task force noted that GM has been losing market share for decades. "Yet its plan assumes only a very moderate decline, despite reducing fleet sales and shuttering brands that represent 1.8 percent of its current market share," the task force wrote.

GM is looking to sell Hummer and Saab and has committed to providing product to Saturn through the 2012 model year. If Saturn can't be spun off, GM will phase out the brand.

But Obama's team is pushing GM to move more quickly to make itself competitive.

2. Price

GM's February viability plan did not discuss its expectations on pricing, said GM spokesman Tom Wilkinson. He added that "the task force went through all of this and did their own financial analysis."

And the task force analysis found flaws in GM's assumptions.

"The plan assumes improvement in net price realization despite a severely distressed market, lingering consumer quality perceptions and an increase in smaller vehicles," the task force report noted. It went on to mention how GM historically has struggled to maintain pricing power.

The task force noted that in 2006 and 2007, GM North America achieved a 30.4 percent "contribution margin" -- the sale price minus any variable costs of building the car. GM assumes that margin will increase to 30.8 percent this year and be at 30.7 percent in 2010, 30.9 percent in 2013, and 30.3 percent in 2014, the task force says.

That's despite a distressed market and an increased focus on passenger cars and crossovers, which traditionally have yielded lower margins.

3. Brands/dealers

GM is currently "burdened with underperforming brands, nameplates and an excess of dealers," the task force said.

GM said it plans to offer just four core brands -- Chevrolet, Cadillac, Buick and GMC --and a cut-down version of Pontiac. It also said it would reduce its dealer count from 6,246 in 2008 to 4,100 in 2014.

The task force said those measures are not aggressive enough.

4. Product mix

GM said its restructuring plan would allow it to produce "fewer, better" entries because it will have fewer brands, nameplates and dealers. GM said cutting brands would improve profitability because more than 90 percent of its U.S. profits are derived from the four core brands.

But the task force noted that GM earns a large portion of its profits from high-margin trucks and SUVs, "which are vulnerable to a continuing shift in consumer preference to smaller vehicles."

The report went on to say that while the Chevrolet Volt electric hybrid car "holds promise," it will be too pricey for short-term commercial success.

GM has estimated that the Volt likely would come to market with a $40,000 or more sticker.

5. Legacy liabilities

GM owes $20 billion to its Voluntary Employees' Beneficiary Association plan. It is trying to persuade the UAW to take half of that amount in stock rather than cash.

GM also indicated that the asset values in its pension fund have declined significantly over the past six months. GM's total U.S. qualified pension plans had $84.2 billion in assets at the end of 2008, compared with $104.1 billion in 2007. That has left GM's pension plans only 87 percent funded last year, compared with 124 percent funded the year before.

The task force said that going forward, GM's cash needs associated with legacy liabilities grow "to unsustainable levels, reaching approximately $6 billion per year in 2013 and 2014."

For GM to meet that obligation, it will need to sell 900,000 more vehicles per year. That would leave GM "fighting to maximize volume rather than return on investment," the task force said.

The task force said that GM's progress over the past few years has been "far too slow" in these five areas and that if the company is to survive, its stakeholders must engage in a "substantially more aggressive restructuring plan."

[Bimmer325]

The above criticisms sound pretty reasonable to me, especially in terms of brands/dealers. I'm not entirely sure what the point of a "cut-down" Pontiac is, other than saving GM the trouble of having to reorganize Buick/Pontiac/GMC dealers. What, exactly, has Pontiac done to prove itself as a viable/relevant brand?

[SAmadei]

The above criticisms sound pretty reasonable to me, especially in terms of brands/dealers. I'm not entirely sure what the point of a "cut-down" Pontiac is, other than saving GM the trouble of having to reorganize Buick/Pontiac/GMC dealers. What, exactly, has Pontiac done to prove itself as a viable/relevant brand?

Outsold Buick. And Saturn. And Saab. And Cadillac.

[CaddyXLR-V]

The above criticisms sound pretty reasonable to me, especially in terms of brands/dealers. I'm not entirely sure what the point of a "cut-down" Pontiac is, other than saving GM the trouble of having to reorganize Buick/Pontiac/GMC dealers. What, exactly, has Pontiac done to prove itself as a viable/relevant brand?

It's not the number of brands killing GM, it's how they use them. Pontiac hasn't got a significant investment since the G6, and even that wasn't as significant as other brands have received since then, and is still GM's 3rd best selling brand.

[The O.C.]

The above criticisms sound pretty reasonable to me, especially in terms of brands/dealers. I'm not entirely sure what the point of a "cut-down" Pontiac is, other than saving GM the trouble of having to reorganize Buick/Pontiac/GMC dealers. What, exactly, has Pontiac done to prove itself as a viable/relevant brand?

Interesting thing.....yesterday, on my day off, I was perusing through old Car & Driver magazines from 1987. What struck me was the road test of the then new Pontiac Bonneville SE.

The article was overwhelmingly positive, as were the "CounterPoints" at the end of the article. All the editors were praising Pontiac for building a car that Honda and Audi customers would truly "feel comfortable in."

More than one of the editors made the comment that out of all five GM divisions, Pontiac was the one truly in line to be the most successful GM division in the long-term based upon their superb product portfolio (at the time.)

How ironic we find Pontiac today, 22 years later, in the position it is now........????

[CaddyXLR-V]

Interesting thing.....yesterday, on my day off, I was perusing through old Car & Driver magazines from 1987. What struck me was the road test of the then new Pontiac Bonneville SE.

The article was overwhelmingly positive, as were the "CounterPoints" at the end of the article. All the editors were praising Pontiac for building a car that Honda and Audi customers would truly "feel comfortable in."

More than one of the editors made the comment that out of all five GM divisions, Pontiac was the one truly in line to be the most successful GM division in the long-term based upon their superb product portfolio (at the time.)

How ironic we find Pontiac today, 22 years later, in the position it is now........????

Because instead of continuing to make Pontiac great, they decided to waste money creating Saturn. Then buying Saab.

[FUTURE_OF_GM]

3. Brands/dealers

GM is currently "burdened with underperforming brands, nameplates and an excess of dealers," the task force said.

GM said it plans to offer just four core brands -- Chevrolet, Cadillac, Buick and GMC --and a cut-down version of Pontiac. It also said it would reduce its dealer count from 6,246 in 2008 to 4,100 in 2014.

The task force said those measures are not aggressive enough.

And what exactly is that supposed to mean? GM retains the brands that account for 83% of it's share and that "isn't enough cutting"

Me thinks that someone in Congress had a grandma that got ran over by a Pontiac... They're pushing awfully hard to eliminate as many historic and potentially profitable brands as possible.

GM has it's 3 core brand strategy, what difference does a niche brand make? (Unless someone just has it in for the brand/company)

Or do they think GM should just be Chevrolet & Cadillac, because all of the government official hump Toyotas as a past time?

Outsold Buick. And Saturn. And Saab. And Cadillac.

LOL,

Not to mention, it's done all of the above on roughly HALF of the investment of those brands.

[vonVeezelsnider]

If they must- Chevrolet-Buick-Cadillac with Chevrolet-Cadillac as a last resort... although I believe that the existing structure of Chev-B-G-Cadillac sans Pontiac would be optimal at least as long as GMC remains a profitable entity.

[97regalGS]

Interesting thing.....yesterday, on my day off, I was perusing through old Car & Driver magazines from 1987. What struck me was the road test of the then new Pontiac Bonneville SE.

The article was overwhelmingly positive, as were the "CounterPoints" at the end of the article. All the editors were praising Pontiac for building a car that Honda and Audi customers would truly "feel comfortable in."

More than one of the editors made the comment that out of all five GM divisions, Pontiac was the one truly in line to be the most successful GM division in the long-term based upon their superb product portfolio (at the time.)

How ironic we find Pontiac today, 22 years later, in the position it is now........????

in the 1990's the Aurora, Intrique and Alero were the answer to honda/toyota

[Camino LS6]

I get a distinctly Consumer Reports vibe from the way that the criticisms are being offered. They are vague at best ("not enough", "too slow") and seems to rely heavily on past sins as a barometer for expectations going forward.

If I were a GM exec, I'd be asking: "What, exactly do you want us to do to meet your expectations? "

Makes me wonder if the endgame has already been decided.

[SAmadei]

If they must- Chevrolet-Buick-Cadillac with Chevrolet-Cadillac as a last resort... although I believe that the existing structure of Chev-B-G-Cadillac sans Pontiac would be optimal at least as long as GMC remains a profitable entity.

They already have three brands... Chevy, BPG and Cadillac. For those of you who want Vanilla, Chocolate or Goldleaf.

Can someone please tell the government that Buick, Pontiac and GMC are already one.

Personally, I wonder is the taskforce is pissed about GM taking its third best selling division out of the equation. Perhaps the government wants to see a GM structured like Chevy-Pontiac-GMC.

This especially considering that the government wants to see more competitive small cars on the menu, which are going to come from Chevy and Pontiac... not GMC, Buick or Cadillac... regardless of how many people who think the next Skyhawk, BLS or Cimarron is going to save GM's small car deficit.

[carman21]

It would not surprise me if GM was reduced to three brands period.

Chevrolet

Buick

Cadillac

[Camino LS6]

I would not be surprised at any crazy outcome.

Perhaps GM could become CM ( Chevrolet Motors).

[Daryl Z71]

I dont understand how the government expect them to get the prices of the vehicles lower? The government wants new fuel efficent green cars fine give them to them, but don't turn around and expect to sell the damn thing for next to nothing when it cost so much to produce in the first place. The government has to realize that if you want to go green with all this electric crap fine, but its gonna cost you. Idiots...

[Intrepidation]

I would start by demanding that their interiors stop sucking from a quality standpoint.

[Daryl Z71]

I would start by demanding that their interiors stop sucking from a quality standpoint.

WTF is with the interior $h!? Its a car not a damn house! lol IDK man I think the interiors are alot better now then before espically when I compare my 94 Camaro to my moms 07 Monte Carlo.

Edited March 30, 2009 by Daryl 83

[siegen]

Outsold Buick. And Saturn. And Saab. And Cadillac.

Pontiac does nothing that Chevrolet can't do or is already doing. If Pontiac went away most buyers would just go to Chevrolet. Pontiac's only saving grace is the Solstice. And Chevrolet holds the performance crown anyway with the Corvette. Pontiac doesn't make business sense.

Buick and Cadillac, on the other hand, are well enough differentiated from Chevrolet. If Cadillac went away buyers would likely go to other luxury brands. If Buick went away buyers would go to other comfy premium brands, likely Lexus (would do wonders for Lexus ES sales I'm sure).

Edited March 30, 2009 by siegen

[CaddyXLR-V]

Pontiac does nothing that Chevrolet can't do or is already doing. If Pontiac went away most buyers would just go to Chevrolet. Pontiac's only saving grace is the Solstice. And Chevrolet holds the performance crown anyway with the Corvette. Pontiac doesn't make business sense.

Buick and Cadillac, on the other hand, are well enough differentiated from Chevrolet. If Cadillac went away buyers would likely go to other luxury brands. If Buick went away buyers would go to other comfy premium brands, likely Lexus (would do wonders for Lexus ES sales I'm sure).

I see Pontiac buyers going to Mazda or Nissan, and Buick buyers going to the Impala, Taurus, or Avalon.

[Intrepidation]

WTF is with the interior $h!? Its a car not a damn house! lol IDK man I think the interiors are alot better now then before espically when I compare my 94 Camaro to my moms 07 Monte Carlo.

Because if they are as good or better than the competition from a quality standpoint, then that's one less thing for people to complain about. It's also a big issue since people have been complaining about the Domestic's interiors for decades. You would think that after so long it wouldn't b that hard to put it together properly and out of quality materials.

I personally am not anal about interior quality as much as others, but I can see where they are coming from. It's not your house but think of how much time you spend inside your vehicle. It should be an enjoyable, comfortable place to spend that time in.

[CaddyXLR-V]

Because if they are as good or better than the competition from a quality standpoint, then that's one less thing for people to complain about. It's also a big issue since people have been complaining about the Domestic's interiors for decades. You would think that after so long it wouldn't b that hard to put it together properly and out of quality materials.

I personally am not anal about interior quality as much as others, but I can see where they are coming from. It's not your house but think of how much time you spend inside your vehicle. It should be an enjoyable, comfortable place to spend that time in.

While I don't care about interiors as much as performance, and what the drive wheels are, all else being equal, I would take the car with the better interior. Since most cars are so similar in performance now, interiors play a bigger role in deciding which car to buy.

[turbo200]

WTF is with the interior $h!? Its a car not a damn house! lol IDK man I think the interiors are alot better now then before espically when I compare my 94 Camaro to my moms 07 Monte Carlo.

forsake progress for progress' sake? a dell computer should look the same, act the same, last the same amount of time, break down the same, today as a 1994 computer.

prize for great reasoning of the day!

really, people who argue things should just stay the same or they're as good as they should be. that is the most backward kind of belief i have ever heard. we should always be getting better. that's the way our lives are, that's the way we want to be as humans.

Edited March 30, 2009 by turbo200

[Daryl Z71]

Because if they are as good or better than the competition from a quality standpoint, then that's one less thing for people to complain about. It's also a big issue since people have been complaining about the Domestic's interiors for decades. You would think that after so long it wouldn't b that hard to put it together properly and out of quality materials.

I personally am not anal about interior quality as much as others, but I can see where they are coming from. It's not your house but think of how much time you spend inside your vehicle. It should be an enjoyable, comfortable place to spend that time in.

Yea you don't want to ride around in a vehicle where the interior is falling apart or making a bunch of noises. I like my Camaro alot, but I admit that it does have alot of creeks.

[balthazar]

I get a distinctly Consumer Reports vibe from the way that the criticisms are being offered. They are vague at best ("not enough", "too slow") and seems to rely heavily on past sins as a barometer for expectations going forward.

Makes me wonder if the endgame has already been decided.

Agreed.

-- -- -- -- --

>>"marketshare"<<

In & of itself- meaningless. In this instance of 'viability' we need profit. The 2 are not directly linked, ie; a -say- 10% marketshare could be more profitable than a 20% share.

Want to up the marketshare immediately? toss a few foreign brands out of the country- those buyers 'will likely go to GM'. Or do what should've been done 50 years ago; charge business license fees to the foreign companies based on a scale related to volume. No one will leave- toyota makes 75% of its global profit in the US.. All that licensing fee money (lost) could have already built multiple alternative fuel infrastructures, instead of taxpayer funds.

>>"But the task force noted that GM earns a large portion of its profits from high-margin trucks and SUVs, "which are vulnerable to a continuing shift in consumer preference to smaller vehicles.""<<

In light of the 6-month backlog of priuses on dealer lots, obviously smaller-margin small cars & hybrids are also 'vunerable to the ever-shifting consumer preference.'

[SAmadei]

Pontiac does nothing that Chevrolet can't do or is already doing. If Pontiac went away most buyers would just go to Chevrolet. Pontiac's only saving grace is the Solstice. And Chevrolet holds the performance crown anyway with the Corvette. Pontiac doesn't make business sense.

Buick and Cadillac, on the other hand, are well enough differentiated from Chevrolet. If Cadillac went away buyers would likely go to other luxury brands. If Buick went away buyers would go to other comfy premium brands, likely Lexus (would do wonders for Lexus ES sales I'm sure).

Pontiac buyers won't go to Chevy. Just like Olds people didn't go to Buick. Pontiac buyers will go to Mazda, Nissan, Subaru and Mini.

The argument that 'Pontiac does nothing that Chevy can't do' is invalid, as GMC fails this litmus test even worse than Pontiac. GMC would go away based on redundant product. GMC has the added downside that it sells gas hungry trucks.

I don't feel Buick or Cadillac's product lines are particularly differentiated, either. LaCrosse... overpriced Impala. DTS/Lucerne... decade old platform that only garnish sales from the fact their siblings have been killed off (Aurora, Bonneville). Enclave... everybody has one of those. Escalade... super-overpriced Tahoe. SRX will be shared, soon. CTS and STS are Cadillac's saving grace...

Pontiac has the Solstice, G6 coupe, G6 convert, G8 and could have the G8 ST, G8 Wagon and G8 Coupe for cheap. All they need is marketing.