Why GM Needs To Reorganize

SEARCH BLOG: AUTOMOBILES

• Buick
• Cadillac
  
• Chevrolet
• GMC
• Hummer
  
• Oldsmobile
• Pontiac
• Saturn

General Motors has seven current American brands, plus SAAB and Opel in Europe. The question is ... why?

One of the "legacy costs" that doesn't get talked about much is "branding." In order to understand why GM has so many brands, you have to understand a little about automotive history.

In the first half of the 20th century, when the boom of auto manufacturers was occurring, a Buick was a Buick... a car that had a few options and a few colors. Manufacturers created "new" cars by having a different nameplate... like Pontiac or Oldsmobile... which were either brands that had been absorbed into the corporation or identities given to an existing car that had somewhat differentiating sheetmetal and options... like the Edsel.

It wasn't until after World War II that corporations like GM began to create different cars within individual brand... Chevy 210 and Bel Air... models.


This changed the game for marketing. Now the "low priced" brand could sell a "loaded" version that competed with the "higher price" brand... while still have a standard or "stripped" version that retained the low price image of the brand.

Then came the brilliant idea to not only differentiate versions of the cars... models..., but to introduce whole new cars into the brand... like the Chevy Corvair.

Why not a different type of vehicle under the model nameplate... all under the same brand?

Now that there were different model nameplates under the brand, each representing a different type of vehicle, why not add new vehicles under the model? Why not have a Corvair car and truck?

So, in this example, the Chevrolet brand had the Chevrolet and Corvair vehicles, both of which included cars and trucks, and then the models became the different trim levels or configurations. What had originally differentiated brands now differentiated models within the brand. One brand was taking on the purpose of multiple brands within the corporation.

The logical consequence of this was that there was an explosion of models and configurations and options within each brand... and confusion about what a brand really was. Was it the Chevy Cimmaron and the Cadillac Cavalier?

Marketing took over. Engineering was a function of making minor changes to make one vehicle look like 5 brands and 15 models. It became a jumble. And the brand focus was hidden by the fog of models and configurations and trim levels.

This was not without consequence.

1. Overhead grew within the corporation. Each brand had to have its own staffs and sales organizations and dealership network.
2. Engineering resources were diffused. As much effort was placed on brand and model differentiation as basic quality and innovation... maybe more. It was better to do 20 things so-so than 3 things superlatively.
3. Real outside competition was ignored. Those pesky foreign manufacturers were an annoyance more than a wake-up call. The in-house brands were too busy competing for each others' customers to worry about some "Toy-autos."
4. Finance staffs focused on "leveraging" and "commonality." All the company had to do was re-badge and profits would come rolling in.
5. Accountants convinced CEOs that by extending models for five years or seven years instead of three or four years that tooling costs per vehicle would be much less and... logically... profits per vehicle would be much higher.

So engineering and innovation were stifled behind the smokescreen of Marketing and Finance. Product got old and stale and dull. Foreign manufacturers focused on long-term strategies of quality and innovation... and stuck to their stories... and prospered.

Now General Motors has a half a dozen brands with dozens of models and more dozens of configurations and options for a market share of 1/3 what they had when they had 5 brands... each with a car and one with a truck. Does anyone see the problem?

If you go back and read yesterdays post, The Reorganized General Motors, perhaps you will understand not only why GM needs to reorganize, but the manner in which they need to do so.

The credit crisis has only served to force their hand in an undisciplined and politically-laden manner, but it was inevitable that GM would have gradually reorganized anyway... given their continued eroding share of the U.S. automotive market.

..