The American Spectator

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Special Report

Sometimes, excellent products (and even better prices) aren't enough.

Ask General Motors about that.

Despite a slew of genuinely appealing -- and genuinely well-built -- vehicles, the automaker's death spiral toward the hard, cruel earth continues to pick up speed.

In late December, the value of GM shares free-fell to an 18-year-low on the NYSE -- to less than $20 per share. This "no confidence" vote by the stock market comes on the heels of massive layoffs and the shuttering of 12 of GM's North American manufacturing/assembly facilities -- amid a year of appalling losses, including a stupendous $846 million in the first quarter of 2005.

Last summer's "Employee Pricing" program was as desperate a gambit as Hitler's all-or-nothing roll of the dice in the Ardennes in the winter of '44. And like the Battle of the Bulge, there was a brief forward thrust -- sales upticked as customers snapped-up bargain-priced GM vehicles. But like the over-extended and exhausted armies of the German Wehrmacht, the "sales bulge" could not be sustained. Once the fire-sale pricing disappeared, so did the buyers.

Meanwhile, GM's battle with intractable unions continues apace -- and there's little hope of doing anything about its overlapping/duplicative/ossified dealer network.

GM's biggest single problem, however, is that it simply has too many makes and models of cars given its share of the market.

HERE'S A FACT TO PONDER: In 1970, GM's Chevrolet division alone had more market share than the entire GM lineup has today. That's Buick, Pontiac, Cadillac, GMC, Saturn and Hummer -- combined. Yet each of these GM divisions (excepting Hummer and GMC, which are truck/SUV-specific) is still trying to market and sell a full line of vehicles -- as many as five or six different models per brand. There are six or seven GM minivans alone -- the Chevy Uplander and Venture, the Pontiac Montana and Torrent, the Buick Terraza and Rendezvous and the Saturn Relay.

This is madness.

Toyota, Honda, and Nissan each have exactly one minivan; they compete against each other -- and against GM. But GM's overlapping in-house divisions compete among themselves first (for engineering and development resources, then for marketing budgets, etc.) and then hair-split the ever-dwindling market between them -- before the outside competition even enters the picture.

Which business model makes more sense?

GM also makes half a dozen mid-sized sedans -- but can't make money selling them. Toyota has half the number of sedans in its lineup, but makes money hand over fist on them -- and is poised to become the world's largest automaker as a result.

GM has spent more than a decade trying to make a go of its small car spin-off, Saturn -- which now competes for resources and customers with emergent Chevy small cars like the Cobalt. The Cobalt is an excellent small car; the best such vehicle in GM's lineup, in fact. Its existence arguably renders Saturn -- which was conceived back in the late 1980s as a way to rehabilitate GM's reputation in the small car marketplace -- irrelevant. Why not quietly fold Saturn into Chevrolet -- or just retire the Saturn brand entirely? Because the dealer network and others GM is bound to contractually would squeal like stuck pigs -- not grasping (like the blunt-skulled unions) that if GM croaks as a result of being top-heavy and inefficient, their jobs are gone anyhow.

It's the same deal with once-great but now marginal GM divisions like Buick and Pontiac. Yes, there are some nice cars (Lucerne for Buick, Solstice for Pontiac). But each division also has less than 3 percent of the market (in the case of Buick, a lot less). Yet the Buick and Pontiac dealer network is about as large as it was in the salad days of the '60s and '70s, when some Buick and Pontiac models (individual vehicles) were selling in greater numbers than the entire model lineup does today.

SOMETHING MUST BE DONE. Morgan Stanley auto industry analyst Stephen Girsky says GM's declining market share "... doesn't support its size. They have too many plants, too many workers, too many models, too many dealers and their employee benefits are too high." It's obvious to even the causal observer -- but GM can't seem to make any headway. Its products are better than they have been in years -- but the bottom line is, the company's not making money selling them.

topics:
Business, Unions