Greater Autonomy for the General Motors Divisions

[Centurion]

We've often bemoaned the loss of divisional autonomy within the General Motors organization, and most of us would agree that GM was at the top of its game when each of the divisions had far greater responsibility for design, engineering, assembly, and marketing. As all of these aspects of the car business have become increasingly centralized during recent decades, the very reason for the existence of GM's various brands has largely vanished.

I was heartened to read today's Autoextremist.com, where DeLorenzo reports on a move to restore far greater autonomy to the divisions. No, things won't be like the old days, and, of course, the realities of the marketplace are greatly changed. And a separate Buick Division no longer exists; the brand will continue as part of the Buick-Pontiac-GMC Division. Still, I'm excited to learn that GM is willing to make its divisions something more than mere marketing channels.

It's a fascinating piece, so please be certain to read the entire article:

http://autoextremist.com/index.shtml

[Mark Shaw]

This guy is right on the money! I also recognized similar happenings in my current (non-automotive) company in his article.

[Pete O]

The management of most publicly traded American companies have attention deficit disorder. They can't see beyond the next quarterly earning's release and the current stock price. Every reorganization is expected to make an immediate return, and if it doesn't they try something else, and then something else, and then something else. When that doesn't work, the CEO lays off 20,000 workers, claims victory, and retires with a golden parachute. It really is remarkable that GM has survived as long as it has with leadership that knows nothing except how to pander to the Wall Street analysts.

[Bill Stoneberg]

I am watching the same stuff happen to the software company I work for. We lay people off in the states to cut expenses so our stock prices will rise. We keep hiring accounting types here in the US, while all our R & D is going to India, Israel or Mexico because it is cheaper. In the meantime our CEO is cashing in 1.5 million stock options now that our stock is high again.

[NTX5467]

There is a little misinformation regarding the "Buick-Pontiac-GMC division". The offical terminology for that pairing is "channel", not "division".

For a good number of years, GM has been (on an "opportunity basis" -- their terminology) to combine car lines into two marketing "channels". There are many valid reasons to do this, but from my observation, it's more of a marketing combination to allow the resultant dealership to have enough sales volume (with the three vehicle lines) to generate sufficient profits to do what they need to do in the market they are doing it in. Before the end of Oldsmobile, the two "channels" were Chevrolet-Olds-Cadillac and Buick-Pontiac-GMC.

As many might have noted over the years of GM dealerships, there were some traditional "duals" in Pontiac and GMC. This pretty much put those particular dealerships in the same general "ballgame" as a Chevrolet dealer (which had cars and trucks, too), yet this was "light duty" GMC rather than HD GMC (the prior GMC Truck & Coach Division, which built the medium duty GMC trucks, HD GMC over-the-road trucks, and the famous GM Busses).

In those days, Chevrolet "owned" the light duty assembly plants and GMC "owned" the medium duty assembly plants. Chevrolet produced the GMC light duty trucks and then "sold" them to GMC division, which helped the resultant slightly higher price of GMC trucks vs. the same truck as a Chevrolet. Reverse that for the medium duty trucks. As I recall, the price difference was about $50.00/unit back then, or possibly a little more.

There were also free-standing GMC Truck Centers (sales, service, and parts) that were "factory stores" (the terminology I heard used back then). These were in the major metro areas and catered only to the HD GMC trucks and were typically not tied to any other GM dealership. GMC also had their own free-standing parts warehouses (the old GMC warehouse still stands in Dallas, with the "GMC" logo sculptured from stone over the front door) which functioned just like the larger GM Parts Division warehouses of that timeframe.

In the 1980s, GM sold their HD truck business to White and their parts warehouse operations were consolidated into the normal GM Service Parts Operations entity. There were other parts warehouse consolidations as new, computerized warehouse complexes were built to replace the older warehouses for the single operations (including ACDelco).

In the medium duty truck areas, those vehicles are somewhat like computer brands--assembled from components from various suppliers that meet particular SAE specs for the "class" of truck. Therefore, about the only thing that might specifically be of the truck's brand would be the cab itself. Front suspensions can be from the manufacturer too, as could the engines and other powertrain items, but they can also be highly mix-match too.

Now that GM has their successful Duramax diesel V-8, they've expanded their truck lineup to include the 4500s and (longer wheelbase version) 5500s. In comparison, like the older C40s and C50s of prior decades (which generally became the C70s of the later '70s and '80s, which you generally saw the most of as GM medium duty trucks on the road).

From what I've seen, when the channels were touted as the "next big thing", there was an orientation floating around in some circles that a GM customer was a generic customer. That they'd buy any GM car rather than a specific GM "division" vehicle as it best suited their lifestyle and demographics. I personally believe that this "generic customer" orientation has done more harm than good. This was also during their "brand management" era.

During this era too, GM tried to move Buick more into the realm of Lexus--by observation. If you look at the Regals of the later '80s, you could order the charcoal or dark gray lower paint that was similar to what Lexus did on some of their vehicles back then (I thought the Buicks looked better, though). This orientation was a covert one, but I noticed that it was there.

The other thing they wanted to do was put up Buick "Flagship" stores that would be free-standing, Buick-only dealerships. One such store is Cavender Buick in northwest San Antonio. A handfull of others exist in other parts of the nation. It was a great idea, but one that many resisted due to the suspected smaller sales volume that would result and possibly diminish the profitability of the store. Yet if you look at Lexus dealerships, they are very nicely done and "rich" looking (to match the market demographics of their customer base and what they are used to). These flagship stores were also supposed to have the best people in them too, employee-wise, kind of like things were in the 1960s when the "Buick Experts" (sales, parts, service) were at the Buick dealership as they only worked on or saw Buicks (rather than other GM carlines, which were highly individualized back then).

AutoWeek noted in some comments about the (failed) Lincoln Blackwood and the early success of the Cadillac Escalade, that if a CEO went to look at a Lincoln, he might see his secretary there looking at a Cougar, yet if the same CEO went to look at Escalades, he would most probably not see any of his/her employees there. Exclusivitity is the name of the game and the success of the Escalade could have been helped by the fact that most Cadillac stores are free-standing stores.

In the more current-time interpretation of the channels, Buick-Pontiac-GMC (after Pontiac "division" and GMC "division" became "Pontiac-GMC") seems to be a pretty good "fit" as things have evolved. With Oldsmobile out of the mix, that leaves Chevrolet and Cadillac "dualled"--which seems something of an odd pairing, but considering the Cadillac trucks, it might not be. Only thing is that having a traditional Cadillac customer sitting in the waiting room next to a Cavalier owner does not always mix too well. Where the Cadillac sales/service drive has been put in its own unique building, Cadillac have been very successful (even surpassing some of the older, free-standing stores in the process)--again, giving the Cadillac owners an exclusive venue to purchase and get service work written up (even if the Cadillacs and other GM vehicles are worked on in the same repair shop). Yet this free-standing building can be on the same physical property as the Chevrolet entity, which helps with "overhead" issues.

Now that we've seen that this configuration can work, possibly a variation of the prior Buick Flagship store can become more viable? Only thing is that the parts/service operations will need to be upgraded to entice the customers to venture into those departments and come away feeling that everything is "top notch" in all respects (rather than feeling like their higher-level GM vehicles are being worked and parts sold by "lesser" employees than they might find at a traditional Cadillac dealership or at a Lexus or Mercedes dealership). To their credit, GM has upgraded many orientations to orchestrate these things, but as always, a good plan can be degraded by implementation issues--by observation.

In more modern times, the prior free-standing GM "division" have become "sales units" for vehicles of particular brands. Engineering and other items are now common within the various platforms, yet customized for the various brands and their target customer and related demographics. With Oldsmobile out of the mix, Pontiac and Buick have expanded their lines to somewhat compensate--at least on paper. The reason I say "on paper" is that Oldsmobile had a particular demographic of customer that they "designed for". It was a more upscale customer than Pontiac, but flashier than the more upscale Buicks. Somehow, I keep seeing signals that our "modern" marketing types don't understand how the prior GM stepping-stone marketing system worked--even saying it's old and outdated--yet it's being successfully mimicked by Toyota to everybody's seeming approval.

Chevrolet was the "entry level" and "value brand" of GM (i.e., low price, high value). Pontiac was next up with more performance and luxury, but not too high priced, yet with their own particular engines/powertrain items. Olds was next and generally was the lead "engineering leadership" divison (front wheel drive in the 1960s Toronado, turbocharging on the '62 Olds F-85, etc.) into the early 1970s. Buick was just under Cadillac, with Cadillac being on top. The general orienation (originally) was that a younger person would purchase a Chevrolet and then move up to the next higher division when their station in life increased as did their income, until they were in Buicks or Cadillacs when they were retirement age. As each dealership was a free-standing store in many cases, you could expect to be treated better when you bought a "better" carline GM vehicle (or Ford or Chrysler corporation vehice), which was a more costly vehicle to buy than a Chevrolet, but had many other features that Chevrolets didn't have.

One positive aspect of having many vehicle lines under a particular corporate umbrella is that some of the vehicle lines could get "experimental" with regard to pushing the envelope of engineering (transmissions and engines, for example) development and innovation. If there was a "thunk" in the marketplace, it just affected those particular vehicle divisions rather than the whole entity. Yet if Mercedes, for example, tried the same thing, with a "thud", it'd affect the whole Mercedes line of vehicles. Yet if there was "win" in the marketplace, that technology was expanded to the entire GM product line (or Mercedes too, in that case). Therefore, each vehicle division (when they had pretty much independent operating autonomy back then) could explore things they could not otherwise explore and not have to worry about it adversely affecting the total corporate entity's reputation (although there most probably was a certain amount of corporate "guidance" on these things).

Then, in the early 1960s, each divison's offerings expanded such that each divison had their own "entry level" vehicle line (i.e., compacts, then later intermediates) other than their lower-priced full-size cars. This led to price overlap among the various brands--which was complicated somewhat by the introduction of the 1965 Chevy Caprice. "Do you buy a highly equipped Chevrolet Caprice or do you buy a more modestly-equipped Pontiac Catalina, Olds Delta 88, or Buick LeSabre?" became a viable question--a "common" vehicle with lots of power equipment of a "better" vehicle that you don't get power seats and windows with, yet is a more prestigious brand? This orientation seems to confuse the modern marketing types that just look at price points rather than target markets.

By observation, GM needs EACH of its existing vehicle "divisions" if it's going to remain (or maintain) any semblance of competitiveness in the marketplace! It's been observed that as GM or Ford or Chrysler Group leaves a particular market area (where their foreign competition might desire to expand), that gap has been filled by the foreign competition. The foreign competitors have not moved to introduce a "Camaro" replacement, but then it seems that the Mitsubishi Eclipse has gotten some of it, while also expanding their existing product lines as their customers might desire to purchase same-brand upscale vehicles and SUV-type vehicles.

Toyota and Nissan each had little trucks for years, then also brought out a mid-size truck, and now they have some highly viable full-size truck vehicles and SUVs. Not to mention how single carlines have grown and evolved to include sub-compacts to full-size to luxury models. Keeps their customer base in their brand rather than in somebody else's vehicles. The same general business model that GM did in the early 1960s when each division got compacts models and then intermediate models to supplement their existing full-size vehicles (other than Cadillac at that time).

As other marketing entities have proven over the years, when they try to follow rather than lead (although GM has not had the best "luck" in more recent decades when they tried to "lead"), mediocre sales and products result. As Chrysler proved in the 1990s, when you successfully lead with compelling product lines, vehicles that are different than what anybody else has and are desired by the purchasing public, sales and profits and rising stock prices result. For example, when the then-new Dodge Ram fell from the ceiling in Cobo Hall, their stock price went from $8.00/share to $16.00/share overnight. When the LH cars came out the next year, the stock doubled again. Lots of good things happened to Chrysler in that time frame, not to mention record profit-sharing with their employees! Chrysler didn't have the total sales volume to compete head-to-head with GM or Ford, but they pretty much controlled the marketplace and highly influenced the GM products that came in a few years (by observation in many sales brochures).

In the 2006 model lines, more divisional identity has returned. For example, the Impala re-fresh has put it pretty much back to what we had with the middle-'80s Caprices--a really nice product with a great equipment mix at a very attractive price point. Great performance with the enhanced 3.5L VVT V-6 and fuel economy that many imports can't match. A Chevrolet "value" for sure!

Similar things have been happening at Pontiac and Buick and Cadillac too! We might have lost some traditional model names, but the new vehicles to replace them are more inline with the orientation of the particular divisions in prior decades, which might have similar price points but are oriented toward different customer demographics.

As these things continue to evolve, I highly suspect that the prior acknowledgement that each GM brand has a particular customer it needs to satisfy will be further strengthened. When each of GM's individual brands once again has their own brand identity (rather than a Corporate Identity), sales and market penetration should increase (if everything else is orchestrated and implemented optimally).

Where the prior brand management orientation seemed to fail was that each model line in the divisional brand was it's own "brand" per se. It was promoted as "a Camaro", for example, not "Camaro by Chevrolet" (as first gen Camaro nameplated noted). If a potential Camaro customer could not swing a Camaro, they now went in search of other Camaro competitors rather than seeing if another Chevrolet product might better fit their needs and financing (as would have happened in the 1960s or 1970s, for example). In those earlier decades, if a Camaro was deemed to be inappropriate, the same customer would have had strong enough approvals of the Chevrolet brand to start with, they could have bought a Malibu 2-door hardtop instead of the Camaro they thought they wanted.

DFW auto historian Ed Wallace commented that those that sought to "unlock shareholder value" by the sale of corporate assets were not really concerned with the health of the resultant business entity, but rather with how much those sales would potentially increase their quarterly dividends by the proceeds being put in "corporate profits". A "leaner, meaner" business model does NOT always increase corporate profits NOR does it make for a better operation which can further generate greater operating profits in the future--by my own observation.

Mr. Stoneberg mentioned off-shore outsourcing issues. I saw an article on this in a business magazine that noted that many USA corporations had stopped using off-shore customer service reps as their customer service surveys had taken some major hits from what they previously had been. It was rediscovered that when the people talking to your customers work "for you", they have a much better buy-in to seeing that THEIR customers are satisfied than a contract worker that works for somebody else (not to mentioned language-understandably issues, as was also noted in the article)--with all due respect to the contract workers that do do a great job.

I feel that GM is on the upswing again. I do concur that it's much easier to show corporate profits by cutting things (jobs, employees, plants, etc.) rather than BUILDING the brand equity and resultant sales (even of existing products!!) to generate real profits rather than paper profits. But the profits which result from building your business will generally be much longer-lasting than those obtained by other means. Plus, with a more-intact operation, there should be greater possibilities to further grown the business once it starts growing. One thing leads to another, onward and upward! It takes longer to build than it does to cut, but which is the more lasting? To build a broader customer base is a must for any business to remain viable in the long run--which you can't do if you keep chopping and cutting things (plants, products, staffing). "Building" is slower, but when you build on each prior success and keep things going in that direction, a deep foundation for future successes and growth becomes a part of the corporate mentality--provided the necessary flexibility to quickly alter prior projections (sales, product, marketing) is still there.

Another quick observation . . . if GM had not cut Oldsmobile (and the approx 250K sales it generated it its last full year of production before the "end" was announced), how would that have helped contribute to corporate profits and decreased the famous "retiree benefits" as a function of each vehicle sold? With each plant that GM has closed, I suspect that many workers could have taken a "I'll not buy another GM product again" orientation. How many plant workers were buying new vehicles each year (some more than one/year) that suddenly are buying other brands of vehicles (or went to work for another vehicle manufacturer and are now buying their vehicles)? So, eventually, we end up with about 500,000 people that have become purchasers of non-GM brand vehicles -- over a period of time. Yes, billions of dollars were saved by the parent company with these cuts, but with effective growth and product promotion of the various vehicle lines, there should have been the potential to make many times more money than the savings amounted to in corporate profits--or at least it would seem to be that way. Only thing is that these cuts (and "non-profits") were made in a time in GM's history when some sub-optimal product decisions were made (good but not great products) and marketing certainly could have been better. Several different viewpoints from different orientations and perspectives . . .

Perhaps I'm a conservative optimist, but I feel that is better for all involved (including the USA economy) than being charitable and giving things away (that were previously viable profit centers) to other competitors only to have them grow and prosper as the "giver" seems to wither and be diminished by their charitable actions. By observation, there are only so many things that can be cut before there's nothing left to cut.

Just some (many) thoughts . . .

NTX5467