Exhaust Note #19: Is GM Breaking Up?
- July 7, 2008
- Buick, Cadillac, Chevrolet, Exhaust Note, More Categories...
- Posted by George Peterson
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After a lovely 4th of July weekend, doing my best to focus energies on anything not related to work (something I hear is easy for most people to do, but I’ve never quite got the knack of), I started my usual workday morning routine at my local Bally Total Fitness. And, sure enough, as soon as I get near the gym TV, there’s the news, dragging me right back to 5:15 am Monday morning reality.
The 5 am scoop in Detroit was the rumor GM is considering dumping more brands, one way or another, and firing more mid-management white-collar employees. (No, UAW, you do not have the corner on losing jobs. I swear.) Of course, by time I was in the office and caught up with e-mail, GM has flatly denied that any brand, other than Hummer, is up for review. We’ll only know the truth of that if GM manages to hold onto the seven remaining brands, and assuming Hummer is sold. Here’s the thing: If GM is not considering reducing their brand count, they should be.
Rumors actually surfaced on this subject last week. In fact, I’m pretty sure it was on my way home to enjoy said holiday weekend that I heard an automotive journalist being interviewed for his opinions on the rumors and what GM should do opine that Saab and Saturn are the likeliest brands to go. Monday morning and it’s groundhog day again. Between that interview and Monday morning, it turned into “news” that GM is considering selling those two brands. Says a lot about how quickly (and recklessly) rumors and speculation fly in this industry, but that’s a story for another day.
The reality is that in 2007CY, GM had a 23.8% market share, selling eight brands. Between those eight brands, the company was pushing 52 nameplates. Spread across the 3.8 million units the manufacturer sold last year, it amounts to a rough average of 73,500 units per nameplate. GM was nowhere near selling 73,500 Saab 9-3s or Pontiac Solstices ever, but selling 618,300 Chevy Silverados and 311,100 Impalas evens things out.
Compare this to Toyota. Between Toyota’s three brands, selling 27 makes, that Japanese juggernaut averaged unit sales of 97,000. Honda/Acura was even stronger, averaging sales of 110,800 per make. Ford even had a slightly stronger average, with nearly 80,000 units per make, before giving up Jaguar and Land Rover. Counting out the now-sold Land Rover and Jaguar, because those two brands sold only about 65,000 units last year and theoretically required some type of marketing for their combined twelve nameplates, and Ford’s average-per-nameplate shoots up to 97,000 units.
In 2007, there were 274 nameplates to choose from. The investment in 52 of those brought GM only 23.8% market share. By comparison, Toyota offered 9.8% of the available nameplates. Investing in 27 nameplates bought Toyota 16.3% of the market. Honda only invested in 14 brands, and still took 9.6% of the market. GM’s investment in nearly twice as many brands as Toyota did not bring twice the market share, but did drain GM’s cash and support.
Advertising: No, Buy Me!
So, why might these numbers matter? For one thing, nameplates need marketing and advertising, guerilla, internet, traditional, or some newfangled method. It isn’t good enough to have an excellent product, as Saturn marketers can attest to. You have to reach out and find buyers; you cannot simply wait for them to notice how good you are. A good product today, a colleague once said, is necessary to get in the door. But that’s all it will do for you. It’s nearly impossible to advertise your way into strong sales of a bad product. But without effective advertising, good products are dead in the water.
Consumers personalize their media sources at an ever-faster rate, making it increasingly difficult to find them. You customize your TiVo, internet pages, even the news beamed to your cell phone. New ways need to be found to reach people both used to filtering out ads and with ever-expanding capabilities to do so.
And all of that takes money. Under eight different brands, 52 nameplates to advertise may simply be too great a strain, and the least profitable simply not worth the effort. The more brands you have, the more money you need. GM is turning their lineup global, and leveraging global platforms and resources more effectively than ever before. Overcapacity is, to some degree, being addressed. Where the workforce can be cut (and sometimes probably even where it can’t), it is being done. These fundamental shifts in strategy will certainly pay off for them in the long run. But at the end of the day, it still may not save some GM brands from falling by the wayside.
Reduced Share, More Profit?
Giving up a brand will mean that GM also gives up market share, but the share they’re left with may well be more profitable. Prior to the current truck-market crash, AutoPacific’s Sales Forecast only saw GM’s market share drop from 23.8% in 2007CY to 22.8% in 2013. That isn’t a huge drop overall, though some years between are lean. Dropping a couple of brands would take it down a notch, but that may be the price for improved overall financial health.
If GM sold Saab and Hummer, by AutoPacific’s 2Q 2008 forecast, they could jump their average sales per nameplate from 70,700 units to about 79,800 units. This would drop GM’s overall market share in 2013 from 22.7% to 21.9%, less than one percent. Selling Saturn as well would increase the sales per nameplate number about 1200 units, to 80,100, and decrease GM’s market share to 19.9%.
Moral of the story
Selling off low-volume brands can help increase the overall sales per nameplate number, which should increase profitability and strengthen the corporation and all of its entities. But selling off marginal performers is more difficult, especially when economies of scale can be factored in. Saturn’s expected 348,000-unit year in 2013 may be a significant number of units to lose, in terms of manufacturer efficiency. Losing Saab’s expected 53,600 units not so much.
Saturn’s five 2013 nameplates, should they sell in the volumes forecast, have a much stronger chance of earning their keep than Saab or Hummer do. And the brand image of Hummer is, this month anyway, a drag more than a boon, while Saab is just quirky.