Autoextremist: What GM should look like.

[buyacargetacheck]

http://www.autoextremist.com/page2.shtml#Rant

[buyacargetacheck]

Like a lot of folks here I think about what GM should look like a lot. It's almost an obsession. One thing, though, that a lot of us armchair generals seem to omit from our thinking is why is GM losing money??? GM's public financial statements don't reveal what part of the business is hemorrhaging. So, while talking about ditching brands to clear up brand identity is fun it doesn't really help in terms of knowing if it will put GM back in the black.

On the other hand, if one knew that "Saturn" or "Pontiac" was consistently unprofitable or that one car line within those brands made them unprofitable then action could be taken. Car lines (aside from Chevrolet and Cadillac) that are consistently unprofitable should be purged. The best way for GM to handle the dealers in that situation is to starve them of product.

If the profitability problem with GM only lies with pensions and health care then why should we be talking about killing brands at all?

Bottom line, opinions like those from DeLorenzo would be more interesting if we knew the full financial story.

[Newbiewar]

Like a lot of folks here I think about what GM should look like a lot.  It's almost an obsession.  One thing, though, that a lot of us armchair generals seem to omit from our thinking is why is GM losing money???  GM's public financial statements don't reveal what part of the business is hemorrhaging.  So, while talking about ditching brands to clear up brand identity is fun it doesn't really help in terms of knowing if it will put GM back in the black.

On the other hand, if one knew that "Saturn" or "Pontiac" was consistently unprofitable or that one car line within those brands made them unprofitable then action could be taken.  Car lines (aside from Chevrolet and Cadillac) that are consistently unprofitable should be purged.  The best way for GM to handle the dealers in that situation is to starve them of product.

If the profitability problem with GM only lies with pensions and health care then why should we be talking about killing brands at all?

Bottom line, opinions like those from DeLorenzo would be more interesting if we knew the full financial story.

this guy is focusing on suv's and trucks... GM already dominates that market... cars is really where GM has lost market share...

if GM could build attractive cars, and cars people wanted... GM would be just as good as it was back in the day... but GM has forgot about the cars...

[ehaase]

GM has done a lot to cut expenses. It needs more relief from its pension and health care costs.

However, GM needs to concentrate on maximizing revenue. Continually eliminating brands and models reduces expenses, but

There was an excellent article in today's Wall Street Journal about GM's need to develop products more appealing to people in the large metropolitan areas on the East and West Coast. GM's cars and trucks appeal to many middle and working class folks in the midwest, but it needs more products that appeal to the affluent on the coasts.

[buyacargetacheck]

GM's cars and trucks appeal to many middle and working class folks in the midwest, but it needs more products that appeal to the affluent on the coasts.

I have lived on both coasts (LA now) and I can tell you that's true. The Tahoes and Corvettes are popular in LA, but you don't see many new GM cars here without "Enterprise" license plate frames. Unfortunate because the Malibu and Impala look like great alternatives to Camry and Accord for less money.

[sciguy_0504]

So Buick is left with 2 models and Saturn and Pontiac are left with 3? You might as well cut one of them, too, so you can make the two that are left nameplates with an actual lineup.

[Newbiewar]

So Buick is left with 2 models and Saturn and Pontiac are left with 3?  You might as well cut one of them, too, so you can make the two that are left nameplates with an actual lineup.

thats the beauty of having the GMC-Pontiac-Buick merger... its all one dealer, so it doesnt really need to have all three with full lines...

[evok]

Based upon "The Pompous One" line up - besides taking GM 5 years to implement fully would knock GM's sales to 3,000,000 in the US. That is down from app. 4.5 - 5.0 million sales today.

That is a lot of cash flow to knock off the bottom line. How is that going to help pay for the obligations, how many plants is that going to close?

"The Pompous One" has been sniffing too much bile and it is going to his head. It is about time someone pulls "The Pompous One's" head out of his ...

His proposal would cost GM app. $60 billion.

Edited March 8, 2006 by evok

[jbartley]

he has a good idea, but it won't work.

People who buy GM products. Like the brands.

My mother drove a buick, b/c was THE CAR when she grew up, and she loved everything the buick emblem stands for, now she's moved on to Cadillac, but the same principles apply.

the consumer WILL KNOW, it's no longer a buick, just a special "buick" edition of another car.

if GM were to stick everything under the same umbrella, what's the point, they've lost all heritage and diffence, suddenly they are toyota.

Putting Hummer under Cadillac would be a big mistake, put them next door to each. DIFFERENT showrooms people!

the guy is a little crazy, and this subject is getting old...

Edited March 8, 2006 by jbartley

[Northstar]

Usually Delorenzo is at least mostly in agreement with my thoughts, but this is just crazy. He thinks GM can sustain it's current market share with only ~28 models with over half being from the "luxury/high performance" category? Basically, this would leave GM with 13 models to attack the mainstream market. Unless all the cars are selling at Camry levels and all the "people movers" are selling at like 300k average, there's no way it would work.

[enzl]

Based upon "The Pompous One" line up - besides taking GM 5 years to implement fully would knock GM's sales to 3,000,000 in the US.  That is down from app. 4.5 - 5.0 million sales today.

That is a lot of cash flow to knock off the bottom line.  How is that going to help pay for the obligations, how many plants is that going to close?

"The Pompous One" has been sniffing too much bile and it is going to his head.  It is about time someone pulls  "The Pompous One's" head out of his ...

His proposal would cost GM app. $60 billion.

Where do you get $60 Billion? In revenue?

If we are to take the assumptions one step further, wouldn't it stand to reason that the remaining car lines would get more marketing support, less internal competition and a greater opportunity to be interesting and significant, due to the reduction in badge engineered dilution of resources?

I don't wholeheartedly agree with his 'solution', but less models could, ironically, sell in equal volumes if done correctly....

[tama z71]

Usually I like DeLorenzo's work, but this looks like one of those "last night at midnight oh $h! i forgot!" pieces.

Edited March 8, 2006 by tama z71

[mphmag]

Usually I like DeLorenzo's work, but this looks like one of those "last night at midnight oh $h! i forgot!" pieces.

I've had a ton of those nights! Not with MPH of course.

But awesome comment.

[Robert Hall]

Usually Delorenzo is at least mostly in agreement with my thoughts, but this is just crazy. He thinks GM can sustain it's current market share with only ~28 models with over half being from the "luxury/high performance" category? Basically, this would leave GM with 13 models to attack the mainstream market. Unless all the cars are selling at Camry levels and all the "people movers" are selling at like 300k average, there's no way it would work.

I think that is the idea... that if you get rid of the overlapping models, individual mainstream models *could* sell at Camry numbers.. (though there is no guarantee they would).

[Cadillacfan]

Getting rid of brands is exactly what GM shouldn't do right now. Make all the brands strong and the company will be stronger and more efficient as a result. GM has a huge task ahead.

This guy should stick with the website and not actually be part of the automotive word in a physical sense..(i.e. he should not be involved in any automotive company at all)

Edited March 9, 2006 by Cadillacfan

[wildcat]

Well, Mr. DeLorenzo certainly has it down to next-to-nothing for Buick and Pontiac. No Riviera, no Velite; no GTO, no Firebird. And as much as I love the model name "Electra 225," wasn't that, to use his own words, "configured for a bygone era"? The 225 inches was the length of the '59 Electra; isn't that a bit too big for today?

[evok]

Where do you get $60 Billion? In revenue?

Revenue.

[enzl]

Revenue.

Isn't that assuming that GM makes a profit in producing that revenue???

If bringing in that 'last' $60b costs GM $61b+, isn't GM better off without that revenue? (I realize fixed costs being what they are, this is improbable...but couldn't a surgical strike against models that share factory space with volume products happen?--or a last minute deal with the unions to allow significant downsizing of workforce to reflect the new reality?)

In other words...it makes more sense to make money than make cars...shouldn't the focus be on 'right-sizing' the company, rather than struggling to retain an outmoded divisional structure that hasn't worked right in 30 years?

[FUTURE_OF_GM]

Pure garbage...

[evok]

Isn't that assuming that GM makes a profit in producing that revenue???

If bringing in that 'last' $60b costs GM $61b+, isn't GM better off without that revenue? (I realize fixed costs being what they are, this is improbable...but couldn't a surgical strike against models that share factory space with volume products happen?--or a last minute deal with the unions to allow significant downsizing of workforce to reflect the new reality?)

In other words...it makes more sense to make money than make cars...shouldn't the focus be on 'right-sizing' the company, rather than struggling to retain an outmoded divisional structure that hasn't worked right in 30 years?

It has nothing to do with profit but cash flow. For a company like GM, they need as much revenue as possible to pay for their cost of health care, pensions, plants etc. If GM were to all of a sudden do what "The Pompous One" suggests, GM would be bankrupt in hours. What he suggested can't be done and for somone like him to suggest it is irresponsible journalism. Even though in reality he is not a journalist, an analsyt or an industry expert.

Here is a simple example:

Currently it is estimated that GM's pensions and health care cost 1500/vehicle at say 5 million sales in the US. That is a cost that for now is not going anywhere.

If GM shrinks to 3 million in NA, that would drive that same cost to 2500/vehicle.

GM could close as many plants in NA but that will not fix their legacy costs.

Also what "The Pompous One" proposes requires dealers to be shut down and brands to be eliminated. That is not going to happen because of state franchise law that for the most part are unique to each state. For them at this point to do what the "The Pompous One" suggests would cost them billions in buying out dealers.

That is why the B-P-GMC consolodation is very important. If GM ever decides to get ride of one of those brands, the cost should be neglegible.

"The Pompous One" is selling his snake oil to anyone that will listen.

[enzl]

It has nothing to do with profit but cash flow.  For a company like GM, they need as much revenue as possible to pay for their cost of health care, pensions, plants etc.  If GM were to all of a sudden do what "The Pompous One" suggests, GM would be bankrupt in hours.  What he suggested can't be done and for somone like him to suggest it is irresponsible journalism.  Even though in reality he is not a journalist, an analsyt or an industry expert.

Here is a simple example:

Currently it is estimated that GM's pensions and health care cost 1500/vehicle at say 5 million sales in the US.  That is a cost that for now is not going anywhere.

If GM shrinks to 3 million in NA, that would drive that same cost to 2500/vehicle.

GM could close as many plants in NA but that will not fix their legacy costs.

Also what "The Pompous One" proposes requires dealers to be shut down and brands to be eliminated.  That is not going to happen because of state franchise law that for the most part are unique to each state.  For them at this point to do what the "The Pompous One" suggests would cost them billions in buying out dealers.

That is why the B-P-GMC consolodation is very important.  If GM ever decides to get ride of one of those brands, the cost should be neglegible.

"The Pompous One" is selling his snake oil to anyone that will listen.

Taking your numbers at face value (and I have no reason to dispute them...)

Wouldn't increased profitability of each vehicle, due to reduction in a variety of costs (design, engineering, marketing, material & labor) cover part of that legacy cost??? In other words, if I save Billions NOT bringing badge jobs and dubious nameplates to market, can't I just apply that money to the legacy costs?

I stand by my original premise that bringing in $60 billion by spending more than $60 B seems ludicrous....I'm not trying to be obtuse, just trying to understand why LOSING more money to increase cashflow to pay retirees & keep people working until GM has to absorb the legacy costs of today's workers (who become retirees) later is like pouring more water into a pail with a hole...you may have more water temporarily, but the water WILL run out. That's a certainty.

I understand cashflow in a large business, but you're literally asking a dying patient to run a marathon while tending to his/her own illness...it doesn't make much sense. And, in the meanwhile, the horribly underfunded products that are diluted at conception become less and less desireable, less saleable and, viola, you get to the point GM is at today...they're the Kmart of cars, the Target of trucks....you're selling deals to get precius cash flow, not creating memorable products that people aspire to purchase...DeLorenzo is a pompous ass...but, he much closer to being correct than you're giving him credit for....most of his writing is spot on...he called all of today's issues years ago...and, you're not giving him proper credit as an industry guy...my understanding is he has worked for at least 2 of the big 3 as some sort of marketing/ad guru...

[Shantanu]

With the consolidation of the GMC-Buick-Pontiac dealerships, I wonder if GMC could be folded into a new division called "Chevy Trucks", that's basically the same as any Chevy Franchise, but they only sell the truck line, or basically the exact same products that GMC sells today.

GM could save a lot of money in marketing. GM's advertising bill is what, $3 billion a year? GMC has got to be eating up at least $400 million of that or so.

[Flybrian]

If GMC can manage to separate itself more from Chevolet with classier, more distinctive, and unique vehicles, it can exist comfortably. It has so for decades as is.

[Shantanu]

Taking your numbers at face value (and I have no reason to dispute them...)

Wouldn't increased profitability of each vehicle, due to reduction in a variety of costs (design, engineering, marketing, material & labor) cover part of that legacy cost??? In other words, if I save Billions NOT bringing badge jobs and dubious nameplates to market, can't I just apply that money to the legacy costs?

I stand by my original premise that bringing in $60 billion by spending more than $60 B seems ludicrous....I'm not trying to be obtuse, just trying to understand why LOSING more money to increase cashflow to pay retirees & keep people working until GM has to absorb the legacy costs of today's workers (who become retirees) later is like pouring more water into a pail with a hole...you may have more water temporarily, but the water WILL run out. That's a certainty.

I understand cashflow in a large business, but you're literally asking a dying patient to run a marathon while tending to his/her own illness...it doesn't make much sense. And, in the meanwhile, the horribly underfunded products that are diluted at conception become less and less desireable, less saleable and, viola, you get to the point GM is at today...they're the Kmart of cars, the Target of trucks....you're selling deals to get precius cash flow, not creating memorable products that people aspire to purchase...DeLorenzo is a pompous ass...but, he much closer to being correct than you're giving him credit for....most of his writing is spot on...he called all of today's issues years ago...and, you're not giving him proper credit as an industry guy...my understanding is he has worked for at least 2 of the big 3 as some sort of marketing/ad guru...

The pensions, health care, and even the salary of the workers are a fixed cost, that's the problem. And profitability in the auto industry is generally low all around (even at Toyota, in terms of the revenue they pull in), because the business is too competetive. GM's best bet is to maximize the revenue so they can pay off their obligations, until they start to decline next decade.

Those UAW workers will make $60,000 a year no matter what, and eat up $40,000 in benefits, whether or not they are making cars. So from GM's POV, it makes sense to have them working, even if the cars that they make are unprofitable. It's all about the marginal revenue exceeding the variable cost or something, I'm beginning to forget my basic economics.

[FUTURE_OF_GM]

GMC is not the problem in the first place and should not be brought into this...

GM's problem is not VOLUME or division related per se, I mean sure, ULTIMATELY that's what the whole business boils down to and what it's all about BUT, they STILL sell 1 in 4 cars in the United States. The problem is FIXED costs and PROFIT MARGINS, hence why DESPITE huge criticism, the GMT900 program was rushed ahead and is so essential to their survival.

[motownr]

That is why the B-P-GMC consolodation is very important.  If GM ever decides to get ride of one of those brands, the cost should be neglegible.

Hi Evok:

If GM folds BPG, won't they be on the hook for AT LEAST the same amount as they are now?

With Olds, the formula went up if it was exclusive--which it would be with BPG dealers.

Plus, by going to channel, GM isn't really cutting the number of brands (which is what the state franchise laws deal with)--just the number of brand owners.

I thought the math for the deal had to deal with fewer overlapping vehicles, not the cost of buying out the channel if the General doesn't go into Chapter.

Am I missing something?

[CaddyXLR-V]

Taking your numbers at face value (and I have no reason to dispute them...)

Wouldn't increased profitability of each vehicle, due to reduction in a variety of costs (design, engineering, marketing, material & labor) cover part of that legacy cost??? In other words, if I save Billions NOT bringing badge jobs and dubious nameplates to market, can't I just apply that money to the legacy costs?

I stand by my original premise that bringing in $60 billion by spending more than $60 B seems ludicrous....I'm not trying to be obtuse, just trying to understand why LOSING more money to increase cashflow to pay retirees & keep people working until GM has to absorb the legacy costs of today's workers (who become retirees) later is like pouring more water into a pail with a hole...you may have more water temporarily, but the water WILL run out. That's a certainty.

I understand cashflow in a large business, but you're literally asking a dying patient to run a marathon while tending to his/her own illness...it doesn't make much sense. And, in the meanwhile, the horribly underfunded products that are diluted at conception become less and less desireable, less saleable and, viola, you get to the point GM is at today...they're the Kmart of cars, the Target of trucks....you're selling deals to get precius cash flow, not creating memorable products that people aspire to purchase...DeLorenzo is a pompous ass...but, he much closer to being correct than you're giving him credit for....most of his writing is spot on...he called all of today's issues years ago...and, you're not giving him proper credit as an industry guy...my understanding is he has worked for at least 2 of the big 3 as some sort of marketing/ad guru...

GM's costs are going to stay roughly the same regardless of revenue. They might save a small amount but nowhere close to what they would lose in revenue. Lower revenue by 60B to save 2B, so now your 58B negative. At that rate GM would be dead in hours.

[evok]

De Lorenzo is not an expert in the business. His back ground is in advertising, not finance, manufacturing, engineering or marketing with an OEM. His father 35 years ago was VP of GM’s communication. Just because he has a website where he shouts his “opinion” does not make anyone knowledgeable about this business. De Lorenzo does not support his “opinion” with data or facts or inside information.

Just recently (for two weeks in a row) he has been touting that there is a Firebird on the way. That myth not only has been debunked by people on the boards but also by Lutz himself. Lutz went out of his way to say what he did. Where is the retraction this week in AE, or anything acknowledging the Firebird story was FALSE? That is they type of auto news he presents.

His recent rant with regard to restructuring GM’s line up goes to show how inept his “opinion” is and has been. De Lorenzo I am sure can not even read a financial statement much less comprehend the root issues facing GM and the rest of the global industry. He is a talking head, attempting to make himself credible, but people involved in the industry directly see him as mere entertainment. With that said, his plan in the past weeks AE is as credible a pipe dream GM line up that are posted on message boards. They are not rooted in feasibility nor do they take into account the root issues that face the company.

· GM is a global company and only half its business is located in the US. De Lorenzo does not take into account GM breadth of exposure and resources.

· GM is limited in how they can consolidate dealers. GM’s hands are tied, they either buy out franchises out right which is not going to happen or they have to invest in product to compensate for the lost sales in the consolidated division. De Lorenzo over simplifies what GM can do when it comes to their dealer network.

· De Lorenzo does not address GM giving up app. 2 million in sales. How will GM pay those UAW workers that will be transferred to the jobs bank? By my estimates that is another 30,000+ workers.

· De Lorenzo does not address how the lost 2 million sales will factor in the legacy cost.

· His plan will not reduce the overhead that needs to be address by GM. That

GM’s approximate 200 billion in cash revenue currently is paying for a lot of the over head. This revenue is keeping the over head /vehicle sold down. They might not be making a profit now, but they certainly will not be making a profit by his plan.

GM took approximately 3 billion out of VEBA last year.

GM has to fully restructure their legacy cost, close more factories while making what remains more productive and flexible, reduce their head count probably by another 20k, renegotiate a viable contract with the UAW in 07, get rid of the jobs bank and ultimately produce desirable, class leading product. That is the secret to GM becoming profitable. GM can work with their current brands and control development by working globally. That is already in the works.

But listening to what De Lorenzo has to say and GM acting on it is just naïve. It is just not in GM’s best interest to do as he says and frankly, they can’t. His plan is certain bankruptcy.

Edited March 10, 2006 by evok

[The O.C.]

I've had a ton of those nights! Not with MPH of course.

But awesome comment.

Sorry to be off topic.....but where's the new MPH???????