The Fate of Empires and Search For Survival (Part Two)

Daniel O’Callaghan continues his digest of Bob Lutz’s 2011 book, ‘Car Guys vs Bean Counters’, which charts the decline of General Motors and Lutz’s decade-long struggle to rescue it.

(c) consumer guide auto

In an effort to understand better what gave the Japanese manufacturers such an edge in terms of quality and reliability, GM established a joint-venture with Toyota in 1984, the quaintly named New United Motorcar Manufacturing Inc. (NUMMI) to build both GM and Toyota versions of the Corolla at a new plant in California.

The GM version was launched as the GEO Prism. It continued in production from 1989 to 2002, encompassing three generations of Corolla. Other Geo models, based on designs from Suzuki and Isuzu were launched but made little impact, the market consistently rating the Japanese badged equivalents higher in terms of quality and reliability, much to Lutz’s puzzlement and annoyance.

Geo was eventually folded into Chevrolet and its unclear what, if anything, GM gained from the venture. Toyota executives were polite and deferential but gave little information of value away. GM executives who spent time working at the joint facility were ignored or shunned when they returned and expounded different ways of doing things.

Around the same time, GM implemented a highly ambitious and expensive automation programme. The company thought it could leverage its financial muscle in a way that its weaker domestic competitors could not, to reduce unit costs and improve profitability. Unfortunately, the programme was rushed and the new technology proved to be unreliable. The cost savings on production line labour were more than offset by the costs of maintaining teams of highly trained engineers to service and repair the troublesome machines. This, and the cost of amortising the expensive new machinery, actually drove up GM’s unit costs and damaged margins.

Another initiative to reduce costs was the sharing of not just internal components and body structures, but also visible external parts such as doors, boot and bonnet lids between the different marques. This severely curtailed designers’ freedom to build distinctive and attractive vehicles that maintained each marque’s identity. The customers’ allegiance to each marque was sorely tested.

Recognising this issue, the company decided the solution was not to revert to more individualistic design, but to overlay the generic designs with marque-specific details, like plastic body cladding and hollow rectangular head restraints on Pontiacs, five-spoke wheels and a wide chrome grille bar on Chevrolets, the latter detail aping the marque’s successful trucks. Saturn, it decreed, being perceived as the choice of those with little interest in cars, would be bland in the extreme, with no hints of individualism in their designs!

2000 Saturn L-Series: wikipedia.org

‘Brand Management’ became the new mantra within GM, not only for each marque, but for individual models too, which would, GM decreed, be treated as though they were distinct ‘brands’. This concept was promoted to GM by non-executive board members from US consumer goods companies, where it was used to embed distinctions between different brands of, for example, toothpaste or breakfast cereal in the minds of the consumer.

More than ninety teams of product and marketing people, largely working independently of each other, tried to define ‘brand characteristics’ for each vehicle and devise unique, individual advertising campaigns to support this effort. GM’s marketing and advertising budget became highly fragmented and the spend on individual models was, in Lutz’s view, derisory and ineffective. The structure was an organisational nightmare and the marketing specialists employed by GM came mainly from consumer goods backgrounds with little or no experience in the automotive industry.

While all this was going on, GM’s North American truck division was carrying on with a simple, clear focus on building better trucks and SUVs than Ford or Dodge. The division’s ongoing success in a strong economy where demand was growing obscured to some degree the crisis that was enveloping the car divisions.

Another factor that disguised the decline in GM’s car divisions was the continuing profitability of the company’s finance arm, General Motors Acceptance Corporation (GMAC) which was now providing the vast bulk of group profits. This led some commentators to quip that GM was now a finance company that had a sideline in manufacturing cars and trucks.

The decline in GM was perfectly encapsulated in the Pontiac Aztek, launched in 2000 to almost universal incredulity and derision. It was, in today’s terms, a compact crossover, but any practical merits it had were overwhelmed by its weirdly geometric and incoherent design. The Aztek was meant to symbolise a break with GM’s overly cautious recent designs but was simply repellent to most observers. It has been frequently voted the ‘ugliest car of all time’. The Aztek however did enjoy a strange renaissance as the car driven by Walter White, the lead character in the cult TV drama ‘Breaking Bad’.

caranddriver.com

Rick Wagoner, a GM ‘lifer’ who had been appointed President and CEO in 2000, and Jack Smith, then GM’s Chairman, were well aware of the product and organisational problems that had beset GM. Other GM board members had previously made overtures to Lutz about re-joining the company, but it was Wagoner who finally agreed the deal. Lutz first turned down the offer of a consultancy, arguing that he would be powerless against the existing GM hierarchy, before accepting a full-time post as Vice-Chairman in charge of product development. The appointment was initially for three years, but Lutz would eventually spend the best part of a decade with the company.

In Part Three, we’ll discover what Lutz found when he arrived at GM on 1st September 2001 and how he set about trying to address its manifold problems.

Author: Daniel O'Callaghan

Shut-line obsessive...Hates rudeness, loves biscuits.

16 thoughts on “The Fate of Empires and Search For Survival (Part Two)”

  1. What GM learned from Geo was how to better buy up and rebadged the kinds of cars they could not make themselves. That´s pretty much it. Tasked with making cars comparable to the Asian imports they produce Saturn which morphed into Geo using Opels who made kinds of cars they could make in N America. At least it was a GM outpost.

    1. There was no Insignia engineered by Saab but there would have been a Saab with a platform engineered by Alfa Romeo. The 159’s platform was originally developed by the Italians for use at Alfa, Saab and Buick but then was considered too expensive for Saab.

    1. Opel didn´t make money because of a tax reduction scheme. The division repeatedly lost moderate amounts of money rather than huge losses; enough to keep threatening unions and not so much as to make closure obvious. GM Europe probably lost money because it had to pay royalties to GM USA via the design division in Ruesselsheim. I am pretty sure Opel Design was a separate entity to Opel Manufacturing and Marketing and the latter paid money to to former to use the IP it developed. McDonald´s in Denmark has never paid a penny in tax. Ditto Nestle but they keep trading here. It is probably the same ruse and it is very hard to nail down, as far as I can see. The German government probably could not force GM Europe to pay taxes because of the threat of closures that would come as retaliation. GM would say “if we have to pay X00 million we´ll cut costs to make sure we an equivalent amount of money one or the other.” And the state was probably happy to take tax via the sales of cars and the employment and other down-stream activities.
      That GM Europe lost money says little about how much profit they really made.

    2. this is a very interesting point. the made anyway enough money to pay salaries and bonuses.

    3. This year marks the first time since 1997 that Opel employees receive a bonus.

    4. When I paid a visit to the Opel Forum in Rüsselsheim about a decade ago, I was discretely told the same by Opel employees. From what I was told, Opel ceded all IP to GM without reimbursement, then paid royalties for every unit made.

    5. Hi Robert:
      Something similar might apply to Ford where also the brand has mysteriously hovered above and below the break-even point for years. Our good friends in the automotive media who breathlessly report the latest “loss” at GM Europe or Ford Europe seem not to be aware of this or else don´t report it. Take your choice.

      Hurragh for Opel though. And a big hurragh for Ford Europe anyway. I like these brands and what they stand for.

    6. Crazy, isn’t it? The profitability or otherwise of a subsidiary in a large company can be massaged via accounting, not the underlying performance of the business.

      I used to think the same about SEAT – Herr Piech was often heard to lament the performance of the loss-making subsidiary, but lavish resources on Audi… yet SEAT makes cars for Audi in Spanish factories!

      I think this was often used to starve SEAT of investment and ensure all the key decisions were made in Germany. Indeed, Audi has retained a great deal of autonomy and control within VAG, including lead responsibility for large car platforms.

      Onto GM and Saab. Had they allowed the Swedes to take responsibility for key engineering programmes – a large FWD platform perhaps? – how might things be different now?

      A Vectra or Insignia engineered by Saab sounds like a canny purchase for the informed driver. A 900 based on a Vectra chassis sounds like a good reason to make a visit to your local Audi dealership.

    7. Opel’s Rüsselsheim design division was officially called GME TDC or ITDC – GM Europe (international) technical development centre and it was a subsidiary of GM, not Opel.

  2. Thank you for this series of articles, Daniel.

    I was wincing while reading this – GM’s understanding of ‘brand management’ is so awful that it is almost surprising they still have any brands left to manage.

    One of my favourite illustrations of the ‘problem with GM’ is the Cadillac Escalade.

    Firstly, hobbled by a platform sharing structure that enforced the lowest common denominator on GM’s more profitable brands, Cadillac felt compelled to launch a new ‘luxury’ SUV based on the somewhat crude underpinnings of a GMC truck.

    This could have killed the brand stone dead, but a surprising thing happened: the Escalade sold. However, Cadillac executives were apparently appalled when they realised why – the vehicle had been adopted by hip hop articles and was now starring in a number of popular rap videos.

    Rather than capitalise on this, Cadillac tried for a while to pretend it wasn’t happening.

    GM has never seemed to regard its customers with enough respect. When it comes to a brand, the only thing that really matters is what that brand conjures in the minds of your existing and potential customers.

    1. Hi Jacomo, you’re right, the Escalade is certainty a sorry tale, but even more egregious in my view was GM’s treatment of Saab. GM had so little understanding of or respect for the Swedish company’s engineering heritage (and its potential customers’ intelligence) that it thought it could stick a Saab grille onto just about anything and get away with it. Hence, the 2004 9-2X, a Subaru Impreza estate with a new snout, followed a year later by the 9-7X, a thinly disguised Chevrolet TrailBlazer. The former lasted just two years, selling around 10,500 examples. The latter lasted four years and sold around 86,000 examples before Saab became a casualty of GM’s bankruptcy in 2009.

      I’ll say no more for now as I don’t want to scoop future instalments of this series…stay tuned to DTW!

    2. My brother had a 92x Saabaru until recently. Likeable car… no surprise, as it is basically an Impreza WRX wagon with a different nose and nicer upholstery.

      He hoped it would become a collector’s item and increase in value, given its rarity… sadly not!

  3. It would be interesting to know what happened at GM North America engineering throughout the 70’s and early 80’s, as they failed to produce anything resembling a state of the art engine from the early 70’s until Oldsmobile’s Quad 4 (1987).
    They also built not one, but two engines with the most curious material mix, both the Vega I4 as well as Cadillac’s HT 4100 V8 had an aluminum block with cast iron heads. Neither had a very good reputation, nor did the very conservative Chevrolet 60° V6 introduced in 1980.

    1. I remember well the saab 900 and the saab 9-3, the saab 9000 was made on a Thema lance base, and still had its charm, in my opinion the Saab brand was already dead after these two models. After the Saab it became like the last Jaguar models when it was in Ford´s hands.

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