GM: Still Clueless After All These Years

This is a make or break year for a once mightly colossus known as General Motors.

I trace the beginning of GM’s downturn from a leading automotive innovator to the maker of boring rental cars back to 1976 when a peppy little import called the Honda Accord first arrived in the U.S.

The 1976 Accord had just everything that the GM cars of that era didn’t.

It was attractive in a cute sort of way. It was larger on the inside than it appeared from the outside, not the other way around. It had a rear hatch that opened to a collapsible back seat, offering lots of storage space. It handled well, had some oomph and was economical, which was no small thing arriving as it did between the two 1970s oil crises. A practical friend who had owned GM cars forever bought a silver '76 Accord and was hooked. I drove it and was hooked, too.

GM’s response to the Accord and successive waves of hot selling offerings from Honda and later Toyota and Nissan (nee Datsun) was to continue churning out formulaicly unattractive and uneconomical cars of dubious quality. In fact, GM’s only direct response to the first wave of the so-called Japanese Invasion was an abomination called the Chevette.

The General’s fortunes briefly improved after Rick Wagoner took over in 1992 and GM's share price soared to a record $90. But beneath the gloss the same fundamental problems persisted, eating into the huge corporation like rust spreading through the underbody of an old Cadillac Coupe de Ville.

These problems included overcapacity – too many assembly plants and not enough orders -- and except for 1998, when there was a seven-week strike, sweetheart contracts with the United Auto Workers union.

But the biggest problem was that Wagoner’s GM was coasting along with that same tired product line as much of the rest of the automotive world was stealing a march on it with attractive and innovative products.

One GM brand was virtually undistinguishable from another. Calls to cut back on the duplication of models between brands and to even fold the lesser selling brands went unheeded until Oldsmobile was belatedly put out of its misery in 2004. (Buick needs to go, too.) Most ominously for GM, Japanese automakers were opening U.S. plants and turning out cars (and later small pickup trucks and still later big pickup trucks) that were as well made as those at their vaunted home plants while GM’s U.S. plants continued to produce poorly made vehicles.

In 1992, the year Wagoner took over, GM sold 35 percent of all cars sold in the U.S.Today it sells 29 percent. Last year it suffered its biggest loss since the Great Depression. It it expected to do only slightly better -- or less worse -- when the books are closed on 2006. Meanwhile, this past spring it invited its heart and soul -- its 113,000 hourly workers -- to take a hike through incentives of up to $140,000 apiece.

It is increasingly difficult to see how Chapter 11 bankruptcy can be avoided as Toyota, which already has overtaken Ford as the No. 2 worldwide seller, sets its sights on the General. (By the by, in their own ways Ford and Daimler Chrysler are in just as bad a shape.)

The question is not whether Toyota will become top dog, but when. My guess would be sometime in 2008 if current trends continue.

* * * * *

Hindsight being what it is, it’s easy now to see that Wagoner was the wrong choice to turn GM around. Wall Street knows that. The car dudes who write for Motor Trend and Automobile know that. Consumers know that. Wagoner and the GM board just happen to be the last people to know that.

Wagoner came up through GM’s financial division rather than manufacturing or sales, which may explain why he has been slow to recognize virtually every major automotive trend that has occurred on his watch.

These trends include minivans, smaller SUVs (Wagoner bought the Hummer brand just as the mega-SUV bubble was bursting) and an increased environmental awareness. GM has been ridiculously slow to embrace now popular gas-electric hybrid vehicles. It has no hybrids in showrooms today, while Toyota-Lexus has 12 models, including the Lexus GS450h, a $70,000 green sports luxury machine. Toyota-Lexus will soon have 20.

GM has survived because it still makes a heck of a lot of cars -- and trucks. It just doesn’t make money. (Its ossified dealer network is in even worse shape than the mother ship, but that's another story.)

In flailing around for a way out of its torpor, GM has become addicted to big rebates and zero-interest financing plans. Things got so bad that it offered deep employee discounts to the general public. Sales perked up, but plummeted when the discounts ended. GM even ran a national ad campaign apologizing for its lousy performance and promised a return to the glory years. The background music was the sound of my GM-proud father spinning in his grave.

There have been successes on Wagoner's watch, but I can count only four of consequence.

* He successfully nurtured Saturn as an un-GM brand.

* He has encouraged the near-death Cadillac division to shed its Geritol image. It now caters to the Led Zeppelin crowd and offers a line of trendy and well-made models, which while not my cup of tea, show that there’s life yet in the General.

* He has made big inroads into China, the third-largest and fastest-growing market.

* He has cut costs and manufacturing capacity.

But Cadillac is a niche brand and GM has yet to offer a mainstream success remotely approaching the VW Passat or Toyota Camry, which is the best selling car in America. Or the still hot selling Honda Accord. (I bought my mother an Accord in the mid-1990s with the money she got from selling her GM stock. Ha!)

No, make that only three successes on Wagoner's watch.

After successfully nurturing Saturn, Wagoner has allowed the once innovative spinoff to be dumbed down into the rest of the corporation. Saturn sales have tanked.

At this point, it's not a matter of General Motors emerging from its long self-inflicted nightmare smaller and leaner. It's a matter of surviving, which makes bankruptcy actually look pretty good since Wagoner has pinned GM's hopes on, of all things, a new line of tarted up big SUVs like the Cadillac Escalade and ChevyTahoe.

Why should we care about any of this? Because GM is still so large and draws from so many suppliers that a terminally illness would reverberate throughout the U.S. economy.

Wagoner has had 14 years to fix GM’s problems. He has only added to them, and the proof is that it still makes an enormous amount of boring crap.

It’s time to go, Rick. And don’t let the door hit you in the butt on the way out.

Oh, by the way, GM’s share price closed last week at $29 and change.

A FOOTNOTE

General Motors unveiled the next generation Malibu today. While it looks like a cross between a Ford Five Hundred and Audi A8, market analysts like what they see -- a mid-sized sedan that has a fighting chance to regain some market share.