GM's comback problems have only just begun

[Originally posted on August 11, 2009 on Google BlogSpot]

The July 9, 2009, issue of theWall Street Journal ran a op-ed piece by one Paul Ingrassia, "GM Gets a Second Chance." Mr. Ingrassia noted with some carefulness how GM was able to make a new start in the world of first making and then marketing automobiles. While little can be said to take away from the logical points to be made by Mr. Ingrassia--they are, in substance, just that: logical. There is an entirely, different, practical world of, first, operating an auto firm in a very mature and competitive industry, and, subsequently, selling cars to very opinionated and demanding customers.

Yesterday, the new GM board met and it would have been interesting to be a "fly on the wall," to hear what they talked about as matters of prime importance at their first session. I do know that they should have gotten a fewmarketing issues straight from the beginning--because there are a few key marketing notions that will be essential to their collective success! Even though GM gets a semi-clean start--in theory--the firm is starting a new leg of a race for survival far behind everybody else in the pack--Honda, Toyota, even Ford and Chrysler! This is the case for a number of very important reasons:

1. The firm is not likely to be operated in a very focused, single-minded manner. In today's world, to run any large, multinational firm that expects to survive--much less thrive--calls for a singular, strong, competitive drive to make money for the firm and it's shareholders...and to operate in a way that is consistent with that purpose. With the composition of the new GM board made up of the representatives of the Washington's current political class and the dominance of shareholder representatives who are most interested in the stability of a retirement fund, getting traction on matters of innovation, risk-taking, and marketplace preeminence won't be easy. Simply put, the product focus and interests of the American vehicle buyer versus those of green, politically-correct politicians or conservative retirement fund managers are potentially very different. Politicians know that the American voter only gets to vote only every two years to enact their political preferences; what the political class fail to appreciate, by contrast, is that the American auto buyer gets to "vote"everyday with his or her car and truck buying dollars. Everyday that passes without GM offering the smart, competitive marketplace products and services that consumers expect represents a very real loss to GM.

2. GM has become very politicized and will operate at a distinct disadvantage until that changes. It is an unfortunate reality that occurred as a part of the "recovery's" beginning stages--but GM as a company will have to pay dearly for. The fact is that with the present administration's bail-out and take-over, there are many in the American marketplace--both Democrats and Republicans--who resent such intrusiveness by government. These prospects and current buyers can potentially "vote" any day of the week with their vehicle-buying dollars and punish GM [i.e., by not buying it products] and this alone could be a very formidable problem for GM to overcome.

A Rasmussen poll a few months ago reported that as many as 25% of Republicans say that they will not consider buying a GM product until the present GM circumstances are changed from a government-controlled POV--that is a huge rip-tide of discontent for GM to swim against. Profitability is a function of economies of scale and market share; the loss of market share at the margin--even if measured in single digits--is a sacrifice to corporate revenues and profitability occurring in--quite literally--in the 100's of millions of dollars. Were there to be a defection of would-be buyers protesting the take-over and management of GM by disaffected consumers--both in terms of Republicans and Dems--the cost disadvantage to GM will be enormous; consumers can--and some significant proportion will--punish GM.

It was Tiger Woods, when asked by a reporter to make a political statement, declined with the observation that he didn't wish to enter the fray of politics--because "Republicans buy Nike products, too." The time for GM to preclude that option has come and gone, but the after-effects of the reality of its political and government entanglements will haunt it for many years to come!

3. How GM handles the massive distribution mistake of the early recovery period is critical.In the beginning stages of the government bail-out, GM slashed the number of dealers across the country that in the future will be recognized vendors of GM products. This decision was made before some of the old [read: problematic] management was gone and before new management was installed; whatever the circumstances, the new executives now must manage what amounted to a very non-strategic, short-sighted call. The number of dealerships an auto maker has is the equivalent of retail shelf-space--the more you have the better you are.

That GM decided to cut product lines [e.g., Pontiac, Saturn] may or may not turn out to be a sound strategic move--only access to insider data would or would not make that case. However, for a firm to slash it's dealerships is tantamount to conceding market advantage to its competitors. Few if any of the discontinued dealers will go out of business--they will, instead, simply become dealers for vehicles that directly compete with GM...Nissan, Toyota, Honda, and so on.

It is a distinct possibility that the dealership network for GM needed re-designing or a re-organization [along the lines of the now 10 or 15 year old epic Ford dealership study described in a pivotal Harvard Business School case], but giving it away to fierce competitors was not the button for GM to push. What GM did is the equivalent of not only failing to pay the slotting fees, but, instead, welcoming its competitors to take over its prior shelf-facings! How GM recovers from this error will be challenging, but it will need to be over-come to get back in the game.

One William H. Hefner responded to Mr. Ingrassia's article with a letter-to-the-editor entitled by the WSJ's headline writer, "It's hard to restore the dead to life." However, if there's a chance of that, it's these three marketplace problems that will be pivotal: Customer-centeredness, getting disenfranchised voters-buyers to again consider its products, and getting dealership exposure back. It won't be fast or easy by any means, but it will be essential.

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[keithmurrayonbiz]

There's an interesting article in the June issue of WIRED that you'll want to see.