Stop the Losses (and excuses)
Tuesday, January 2, 2007
Pumping On The Brakes
At one time, General Motors had a 60% share of the U.S. market. By 1980, GM's split of the market had fallen to 46%. That was all in the past. I mark the modern failures to stop the descent as beginning with the GM management change in 1992 and the reigns of Chief Executive Jack Smith and his successor today, Rick Wagoner. With so many strong competitors in today's auto market, it was inevitable that GM would lose some ground, but it is truly amazing that GM's board of directors has accepted a nearly 30% drop in market share with barely a whimper.
GM (nyse: GM - news - people ) keeps repeating the same dismal cycle. Sales drop, market share drops and losses mount. Then, the company closes factories, lays off workers and takes billion-dollar write-offs. The laid-off workers keep getting paid under one program or another, and when they hit retirement age, they get GM pensions and GM health care. Of course, the market share keeps dropping, so the pattern repeats itself. With the exception of the years of the successful GM campaign--based on massive sales incentives--to "keep American rolling" after the Sept. 11, 2001, attacks, GM has seen an uninterrupted decline in market share.
Year GM Market Share
Source: Automotive News
For ages, GM executives thought they could regain market share. I recall Chairman Roger Smith talking in the late 1980s about returning to 40%, and I recall today's Chairman Wagoner talking a few years ago about getting back to 30%.
Now Mark LaNeve, GM's sales vice president, says he would be happy if he could climb one-tenth of 1% in market share in 2007. "If we gain a tenth, that's a hell of a job," he says. LaNeve also believes GM is near a bottom.
LaNeve is the best marketing man GM has had in the last half century. I have watched the company that long, too, so I do not discount his words.
He says the share of retail business--meaning cars and trucks sold to regular consumers--has leveled off, to around 21.5% to 22%. The remainder of that 24.7% current stake is in fleet business, which means sales to car rental companies and commercial fleets. That has accounted for a quarter of GM's new vehicle sales, but LaNeve is trying to cut sales to rental car companies.
From what LaNeve told me about the business, I would say he expects GM's market share to bottom at around 23.5% to 24%. LaNeve makes a strong case for the end of the share decline.
For starters, GM has new big pickups and big sport utility vehicles, and even if that overall market is slipping, GM is likely to grab sales from competitors. The company is also rolling out three new large crossover SUVs, for GMC, Saturn and Buick, and LaNeve sees 120,000 to 130,000 combined sales annually. (Apparently, a Chevy version is also in the works, but for later in the decade.)
The company is also rejuvenating Saturn, with the new Aura sedan and Sky roadster already on the market and a new VUE SUV next year. It has some successful vehicles, like the Chevy Impala and Cadillac CTS sedans, and its Chevy HHR, a wagon/hatchback. And a new Chevy Malibu arrives at the end of 2007.
GM has realized that it cannot compete model-to-model against Toyota Motor (nyse: TM - news - people ), so it is backing out of some markets, such as minivans. It has also decided that it cannot support all its nameplates the way it did in the past, so it has divided them into two groups:
The winners: Chevrolet, Cadillac, Saturn and GMC.
The also-rans: Pontiac, Buick, Hummer and Saab.
Both Pontiac (377,000 sales in 11 months) and Buick (225,000 sales) outsell Saturn (206,000). But GM figures it can equip Saturn with new cars by getting them from its German unit, Opel. GM is not quite sure how to rebuild the other two units or how to pay for the rebuilding. Pontiac is supposed to be the sporty division. That means providing Pontiac with new rear-drive cars, which might include imports from Australia, but GM does not quite know what to do with Buick--other than that Buicks should be bigger, more expensive cars. So count on Pontiac and Buick getting fewer new models than the four "winner" divisions.
Another negative is that GM believes business will be weak at the beginning of 2007, with GM's first-quarter production schedules running 9% less than last year. In addition, the company just announced that it would slow production in January of its larger sport utilities.
I read the signs slightly differently than LaNeve. I believe that GM's market share losses are bottoming out, but that that the decline is not over yet. I think that GM is likely to level off closer to 20% of the market, including both its retail and fleet sales. Even so, GM will be number one in the U.S. for at least a few more years. Toyota is the challenger, but it does not have enough production capacity yet.
In Europe, the leading producer, Volkswagen, has 20% of the market. That is how General Motors could end up here.
Understand this: There can be no turnaround at General Motors until the automaker stops losing market share. What is true is that the GM cars and trucks are getting better, and that GM is trimming its losses. But it's no turnaround until the market share stops dropping.