What Should GM’s Next Move Be?
When it comes to major, public-facing manufacturers, there are few companies more interesting to follow than General Motors. In general, automotive companies absorb most of the public’s mindshare when it comes to manufacturing, but GM’s progression over the last few years has been compelling, to say the least. And while I’m not the one to forecast whether the company will or won’t make a full comeback after its troubles in the Great Recession, I can say it’s been an interesting ride either way.
The most quantitative means of looking at GM’s progress is probably sales numbers, which have painted an interesting picture. Overall, the company’s December sales were 4.9 percent higher than December 2011, which seems like a positive movement on face value. 2012 total sales were also up 3.7 percent over 2011. Still more great news, right? Yes, growth is never a bad thing, but it’s not a great thing when it lags behind the rest of the industry.
GM’s overall marketshare dwindled by nearly two percent between the beginning of 2011 to an 80-year low of 17.9 percent. How could that be, when sales are up? Well, GM’s 3.7 percent growth was nothing compared to Toyota, Honda, Subaru, or even Chrysler, who all saw sales increases of more than 20 percent year-over-year. Toyota’s revival was so strong that it re-took the “No. 1 automaker” claim back from GM.
CEO Dan Akerson needs to move, and quickly, in order to stem the brand-and-sales hemorrhaging. The company, as a whole, needs to remember that it had only been No. 1 because Japan was hit hard by an earthquake, and that Toyota itself was hit even harder because of its ghastly string of recalls.
That point hasn’t stopped Akerson from strongly promoting his brand as a strong contender for 2013. Analysts seem bullish about the promise of 2013, in general terms, for the automotive industry, and so GM needs to be ready to grab hold of the reins as things continue to get better. Akerson has said that GM will rise out of “junk-grade” investment status this year, and that GM will once more be a “blue chip” stock by the middle of this decade.
He said, “It starts and ends with product. The sun will be at our backs. These will be good years, not only here domestically but on an international basis.”
Anyone who follows GM knows that the sun is pretty much anywhere but “at [its] back.” The company still faces a great deal of stigma regarding the quality of its cars, its emphasis on the efficacy of electric vehicles with the languishing Chevrolet Volt, and the fact that it “borrowed” $49.5 billion from American taxpayers. There is a lot of progress that needs to be made, R&D wise and to the bottom line. There’s also that matter of partial government ownership.
Considering where GM stands now, it’s an apt time to look at the company’s two biggest problems, which twist into a compelling enigma.
Because General Motors shares a common acronym with “Government Motors,” notwithstanding the fact that the U.S. Treasury Department still owns roughly one-fifth of the company, there’s a real stigma attached to GM’s operations. It’s hard for many to separate the fact that the company hasn’t been entirely independent — unlike fellow Detroit automaker Ford — and that relates directly to sales for many.
GM brand Chevrolet has taken one small step in the rebranding department by dropping its old advertising slogan, “Chevy Runs Deep,” for “Find New Roads.” According to a GM marketing chief, Alan Batey, this new slogan will “serve as an external message that works in all markets,” particularly “emerging markets like Russia and India, where the potential for continued growth is the greatest." By adopting a more global slogan, Chevy is currently undergoing a drastic rebranding by, more or less, ditching the American base in hopes for rising sales in other countries, where buyers aren’t as aware of the company’s financial background.
In my opinion, the move to push faster in the global space is a smart one. Even though the U.S. market is growing — car and truck sales hit 14.5 million in 2012 and are expected to hit 15.5 million this year — most automakers are seeing even higher growth in China and Russia, both of which are home to burgeoning middle classes.
A global push may be a smart business decision, but it’s not going to do the company much good domestically. It’s a bit of an oxymoron to aggressively pursue Chinese and Russian markets when U.S. taxpayers and unions were on the line when it came to the bailout. A major part of the rebranding — at least within the U.S. — needs to pitch GM as an American company with America’s best interests at heart.
Remember the advertising slogan that made debut at the 2012 Super Bowl: “Imported from Detroit”? That campaign received an enormous amount of buzz, and from impressions I’ve gathered from manufacturing insiders and regular consumers alike, Chrysler has shed almost all of its negative reputation for taking a bailout (albeit a much smaller one).
That leaves us to talk about debt.
Technically, the new GM has repaid its debt to the U.S. Treasury Department as of April 21, 2010. Of course, that’s not the entire picture. The Treasury still holds a significant portion of equity in GM stock, and while it’s no longer a majority stakeholder, it’s still very significant. Recently, GM announced that it would buy back 200 million shares of its own stock from the Treasury, further bringing down that government-owned share to about 19 percent.
Of the buyback, GM Chief Financial Officer Dan Ammann said, "This is very attractive to the company, to our shareholders. It obviously brings some clarity and certainty around the U.S. Treasury exit. … It's obviously good for the business in terms of continuing to remove the perception of government involvement in the company, which is going to be good for sales."
The New York Times reported that GM executives have been badgering the Treasury department into selling off the remaining 300 million shares so that it could rid itself of the “Government Motors” nickname. And it seems the Treasury is planning to do so by 2014, at which point the company will be severed from the U.S. government, fiscally and obligatorily.
Many have noticed that even given these stock selloffs, the Treasury will not get back the money it had invested in GM because the company’s share price remains disappointingly low. According to the Times, that would equate to a loss of $12 billion to taxpayers. Lower than it could have been, surely, but worse than we all would have liked. And that doesn’t even start with shareholders who lost big on the company’s long-term mismanagement. Or the money still owed by GM’s old financial arm.
That Next Move
Unfortunately for GM, rebranding and repaying are two sides of the same coin. The former can’t really come without the latter. And in the absence of that “magic bullet” solution that gets both out of the way, any path moving forward is a difficult one, at best.
And I don’t think I have all the answers. If I was in the market for a car right now, and I was dead-set on a GM model, there are a few things they would need to get sorted out before I could get confident in my purchase. First, the company needs to reiterate its commitment to the U.S. We shouldn’t be playing second fiddle to growing-but-unproven foreign markets — at least now when we were the ones saving GM’s skin back in 2009.
In my opinion, the best way to reinstate this confidence is to invest more heavily in American production. GM has very recently announced $1.5 billion in new American investments, on top of $10.2 billion since 2009. There’s recent $600 million investment in Kansas city, and another $200 million in Michigan.
That’s a start, but it still doesn’t make up for the theoretical amount the U.S. Treasury will lose during the stock sell-off, and it doesn’t account for the overall bailout loan. I’d be a much happier theoretical consumer if I knew that GM was committed to designing, engineering and making cars locally — prove that every new car off the dealership lots is because of a newly-created job, or will help create another.
“Transparency” is a word that gets tossed around a lot when it comes to our federal government — we all want a better view into how it works, but said view somehow never comes to pass. GM is in a position to make that happen. I don’t think it’s unreasonable for the company to reveal what it’s been doing in the years since the bailout. How has it changed its management structure? How is it reinvigorating useful R&D? By giving that transparency back to the American people, GM could help restore confidence in its brand.
I want a stronger GM, if only to keep the company from coming back for seconds. An independent GM that is profitable and competitive will create more jobs for Americans. How they get there is still an unknown, but I know what I want to see: I hope GM “finds new roads,” but doesn’t forget the taxpayer-laid ones that got them there.