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Saab Story

18th December 2009

Pontiac, Saturn and now Saab.  Can Hummer be far behind?  I’m not talking about brands that GM has decided are not “core” anymore, but those that are going or out of business in the last several months.  Pontiac was supposed to become a niche brand, and then the government told GM to shut it down.  Saturn was supposed to be sold to Roger Penske, and when that fell through, GM decided to just shut it down.  Now Saab will have a similar fate.  Saab was supposed to be sold to Koenigsegg, a Swedish producer of exotic sports cars.  That fell through, and then GM sold some of Saab’s assets to Beijing Automotive (BAIC) this week.  Word came out that GM was working with Spyker on a deal for the rest of Saab.  Today, GM made the announcement below.

Detroit.  General Motors announced today that the intended sale of Saab Automobile AB would not be concluded. After the withdrawal of Koenigsegg Group AB last month, GM had been in discussions with Spyker Cars about its interest in acquiring Saab. During the due diligence, certain issues arose that both parties believe could not be resolved.  As a result, GM will start an orderly wind-down of Saab operations.

“Despite the best efforts of all involved, it has become very clear that the due diligence required to complete this complex transaction could not be executed in a reasonable time. In order to maintain operations, Saab needed a quick resolution,” said GM Europe President Nick Reilly.  “We regret that we were not able to complete this transaction with Spyker Cars. We will work closely with the Saab organization to wind down the business in an orderly and responsible manner. This is not a bankruptcy or forced liquidation process. Consequently, we expect Saab to satisfy debts including supplier payments, and to wind down production and the distribution channel in an orderly manner while looking after our customers.”

Saab will continue to honor warranties, while providing service and spare parts to current Saab owners around the world.

As part of its efforts to become a leaner organization, GM began seeking a buyer for Saab’s operations in January.  Last week, Saab Automobile AB announced that it had closed on the sale of certain Saab 9-3, current 9-5 and powertrain technology and tooling to Beijing Automotive Industry Holdings Co. Ltd. (BAIC).  GM expects today’s announcement to have no impact on the earlier sale.

As the company continues to reinvent itself, GM has been faced with some very difficult but necessary business decisions. The focus will remain on the four core brands – Buick, Cadillac, Chevrolet and GMC – and several regional brands, including Opel / Vauxhall in Europe.  This will enable the company to devote more engineering and marketing resources to each brand and model.

You have to wonder what was the hurry?  GM has only referred to a December 31 deadline to get a deal done.  That sure seems like an artificial/meaningless/arbitrary date, which is fine – it’s their business to run as they please.  Just spare us the self-imposed emergency.

That’s what I think – how about you?  Please leave your comments below.

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GM CEO Fritz Henderson Resigns

1st December 2009

Former GM CEO Fritz Henderson

Former GM CEO Fritz Henderson

Fritz Henderson, who took over as GM’s CEO when Rick Wagoner was relieved of his position in March, resigned effective today, following the monthly board of directors meeting.  GM Chairman Ed Whitacre will assume the title of CEO while GM conducts an international search for a permanent replacement.

Henderson, 51, was a GM lifer, who had been with GM for 25 years, and has been hurt by that image. The press and government have portrayed him as a competent manager and finance executive, but one who would not provide the kind of outside influence that GM needs. GM spokesman Chris Preuss denied any government involvement in the decision, calling it a “board decision.”

GM issued the following statement:

At its monthly meeting in Detroit today, the General Motors Board of Directors accepted the resignation of Fritz Henderson as Director, President and CEO of the company.

Fritz has done a remarkable job in leading the company through an unprecedented period of challenge and change.  While momentum has been building over the past several months, all involved agree that changes needed to be made.  To this end, I have taken over the role of Chairman and CEO while an international search for a new president and CEO begins immediately.  With these new duties, I will begin working in the Renaissance Center headquarters on a daily basis.  The leadership team – many who are with me today – are united and committed to the task at hand.

I want to assure all of our employees, dealers, suppliers, union partners and most of all, our customers, that GM’s daily business operations will continue as normal. I remain more convinced than ever that our company is on the right path and that we will continue to be a leader in offering the worldwide buying public the highest quality, highest value cars and trucks.  We now need to accelerate our progress toward that goal, which will also mean a return to profitability and repaying the American and Canadian tax payers as soon as possible.

In closing, I want to once again thank Fritz Henderson for his years of leadership and service to General Motors; we’re grateful for his many contributions.  I look forward to working with the entire GM team as we now begin the next chapter of this great company.

Henderson’s bio, according to Wikipedia:

Henderson was born in Detroit, Michigan. Henderson is a 1976 graduate of Lake Orion High School in Lake Orion, Michigan. He holds a Master of Business Administration degree from Harvard Business School and a bachelor’s degree in business administration from the University of Michigan’s Ross School of Business. During his time at Michigan, Henderson pitched for the University of Michigan Wolverines baseball team.

Since joining GM in 1984, he held a number of positions with the company until 1992 when he became GMAC group vice president of finance in Detroit.

From 1997 to 2000, Henderson became GM vice president and managing director of GM do Brasil covering GM operations in Brazil, Argentina, Paraguay, and Uruguay. Here he was successful in introducing small, inexpensive cars such as the Celta subcompact and the Meriva microvan, both produced in Brazil.

In June 2000, he was appointed group vice president and president of GM-LAAM (Latin America, Africa and Middle East) and in January 2002, he moved to Singapore as president of GM Asia Pacific where he was successful in expanding operations in Korea and China.

In 2004, Henderson was appointed chairman of GM Europe, based in Zurich, Switzerland, where he undertook substantial restructuring including significant reductions in jobs.

After becoming vice chairman and chief financial officer in January 2006, in March 2009, he became GM president and chief operating officer. At the time, the Financial Times quoted him as saying: “Being part of a turnround at GM when, frankly, many people don’t think it can be done, is exhilarating, if you like challenges. I have never had a dull day in my time at GM.”

When GM exited bankruptcy, Henderson said, “This is an exciting day for General Motors, one that will allow every employee, including me, to get back to the business of designing, building and selling great cars and trucks and serving the needs of our customers. We deeply appreciate the support we’ve received. We’ll work hard to repay the trust, and the money, that so many have invested in GM.”

In August 2009, Henderson refused to move the economically priced, rear wheel drive, Pontiac G8, to another GM marque after slashing the brand.

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NEW YORK – General Motors achieved another milestone in its reinvention last night when Judge Robert Gerber of the U.S. Bankruptcy Court for the Southern District of New York approved the sale of substantially all of General Motors Corporation’s assets to NGMCO, Inc. (“New General Motors Company”). In connection with the closing of the sale transaction, NGMCO, Inc. will change its name to General Motors Company and continue to operate under GM’s historic corporate and sub brands. The approval marks another step toward the launch of an independent new GM.

The new company will acquire GM’s strongest operations and will have a competitive operating cost structure, partly as a result of recent agreements with the United Auto Workers (UAW) and Canadian Auto Workers (CAW).

The new GM will have lower leverage and a stronger balance sheet, which when combined with a lower break-even point, will allow it to reduce its risk, operate profitably at much lower volume levels, and to reinvest in the business in the key areas of advanced technology and product development. GM’s subsidiaries outside the United States will be acquired by the new company and are expected to continue to operate without interruption.

The new GM will be headquartered in Detroit and will be led by Fritz Henderson as President/CEO and Edward E. Whitacre, Jr. as chairman of the board of directors.

“A healthy domestic auto industry remains vital to the global economy and we deeply appreciate the support the U.S., Canadian and Ontario governments and taxpayers have given GM, and the sacrifices that have been made by so many. This has been an especially challenging period, and we’ve had to make very difficult decisions to address some of the issues that have plagued our business for decades. Now it’s our responsibility to fix this business and place the company on a clear path to success without delay,” said Henderson.

The new GM’s common stock will be owned by:
· U.S. Department of the Treasury: 60.8 percent
· UAW Retiree Medical Benefits Trust: 17.5 percent
· Canada and Ontario governments: 11.7 percent
· The old GM: 10 percent

Additionally, the old GM and the UAW Retiree Medical Benefits Trust will hold warrants that are exercisable for 15 percent and 2.5 percent of the interests in the new GM, respectively.

The UAW Retiree Medical Benefits Trust and the Canadian government each may nominate one member to serve on the board of the new GM. The retiree benefits trust has selected seasoned auto industry analyst Stephen Girsky, who was previously employed by GM as a special advisor to then-chairman Rick Wagoner. Also selected to serve on the board of directors of the new GM are six current members of the General Motors Corporation board, including Erroll Davis, Neville Isdell, Kent Kresa, Philip Laskawy, Kathryn Marinello and Fritz Henderson. The Canadian government representative and four additional board members to be identified by the U.S. Treasury will be announced at a later date. Given that the current board must bear a large portion of the blame for the company’s current situation, this decision to keep some of them seems ill-advised.

Judge Gerber’s order includes a four-day stay before closing of the sale can occur. However, GM expects the sale to close in the near future. The new GM’s business is expected to be immediately operational and fully competitive, with an exciting line of new products, a smaller, more focused brand portfolio and the rationalization of its dealer network well underway. Current GM employees will be offered positions by the new company.

In connection with the closing, the current General Motors Corporation will change its name to Motors Liquidation Company. Retained assets will be wound down or sold. A new board of directors will oversee that process and the liquidation of the company under the supervision of the Bankruptcy Court.

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Penske to Buy Saturn

5th June 2009

General Motors Corp. and Penske Automotive Group today confirmed details of a proposed transaction under which Penske would acquire the Saturn brand. If completed, the deal would save more than 350 dealerships and 13,000 jobs at Saturn and its retailers in the United States, and would preserve the customer-focused Saturn brand.

The proposed transaction is part of GM’s rebuilding efforts outlined in the viability plan that was submitted to the U.S. government earlier this year. Under the terms in the memorandum of understanding, Penske would obtain the rights to the brand as well as certain other Saturn assets, including the Saturn parts inventory. GM would continue production, on a contract basis, of the Saturn Aura, Vue and Outlook for an interim period.

“This is the combination of two iconic teams: Saturn and Penske,” said Saturn general manager Jill Lajdziak. “GM had the vision to create Saturn and has the desire to see it succeed in the future.”

“Saturn has a passionate customer base and outstanding dealer network,” said Roger Penske, chairman of Penske Automotive Group. “For nearly 20 years Saturn has focused on treating the customer right. We share that philosophy, and we want to build on those strengths.”

Saturn began selling cars in 1990 and has sold more than 4 million vehicles. More than 80 percent of those vehicles are still in operation, according to data from R.L. Polk. Saturn has regularly scored among the industry leaders for non-luxury brands in customer satisfaction surveys.

The transaction is expected to close in the third quarter of this year and is subject to customary closing conditions and regulatory approvals. Financial terms of the agreement will not be disclosed at this time.

This is the first arrangement of this kind in the auto industry, where there is a separate distribution company with its own brand, free to contract with any manufacturer to sell their product.  This is true retailing in the Sears or Best Buy model, as opposed to the traditional franchise arrangement in the industry.  Will it work?  My guess is yes, due in no small part to the well-deserved reputation of the Saturn retail network.  The Saturn brand can stand on its own, and it may be better off without being associated with General Motors. Because Saturn was launched as “A Different Kind of Car Company” back in 1990, and was never really included in General Motors from a customer standpoint, it should be easy to separate it from the negative baggage that goes with GM these days.

The other factor that will help Saturn succeed in this new frontier is Roger Penske, who has a track record of business and other successes, including Hertz Truck rental, Detroit Diesel and United Auto Group (now Penske Auto Group, the second largest auto dealer in the US) and Super Bowl XL, whose host committee Penske chaired.

Who knows – this may turn out to be the start of a new era of automotive retailing, where retail networks are free to sell whichever cars and trucks they choose. It would certainly make the manufacturers a little more eager to keep their retailers happy.  Under the present model, they are both captives to the other, and the only way to break that relationship is in court.


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GM Declares Bankruptcy

1st June 2009

In a move unexpected only by some members of the Taliban, GM formally declared bankruptcy this morning in NY. Under its plan, GM will sell substantially all of its global assets to “New” GM. Because GM’s sale of assets to the New GM already has the support of the U.S. Treasury, the UAW and a substantial portion of GM’s unsecured bondholders, GM expects the sale to be approved and consummated quickly.

CEO Fritz Henderson made the following statement:

Today marks a defining moment in the reinvention of GM as a leaner, more customer-focused, and more cost-competitive company that, above all, can quickly generate winning bottom line results. The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business. We are going to do it once and do it right. The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention, as well as strong safeguards for our customers and our business. We are focused on the job at hand, for the benefit of our customers, employees, dealers, suppliers, retirees, taxpayers, investors and other stakeholders.

We recognize the sacrifices that so many have been asked to make as we have worked to reinvent GM and the automobile. GM deeply appreciates the support and the demonstration of confidence in our future by President Obama, the Presidential Task Force on Autos, the Canadian and Ontario governments, American and Canadian taxpayers, the unsecured bondholders who are supporting the proposed sale transaction, the UAW and CAW and their leadership, and the men and women of GM, including our retirees. You have enabled us to carry out this vital transformation for the good of GM, our customers and the economy, and we are working to validate your trust each day.

From day one, the New GM will be well-positioned to capitalize on the award-winning vehicles we have developed and launched during the past few years, and on our investments in exciting new technologies like the Chevy Volt, so that we can build and return value to our customers and to the millions who will have a stake in our success. The New GM will play a critical role in the future of the automobile, and assure that the U.S. has a strong stake in this rapidly changing global manufacturing industry.

The US taxpayers will now own 60% of GM and the UAW will own 17.5%. This creates many potential conflicts of interest, and it will be difficult or impossible for the government to do what it has said it will do: keep a hands-off approach to the running of General Motors.

  1. How will the government balance its desire for higher fuel efficiency with GM’s (and therefore, its biggest shareholder’s) need to turn a profit? President Obama has said he intends to be out of the auto business as soon as possible. That will require GM to make a profit so the Treasury can sell its shares to pay off the $50 billion it has invested in GM. It’s a fact of the auto industry – at least in the US – that the larger, less efficient vehicles make more profit. See the problem? For the US to break even on its “investment”, GM will need to have a market capitalization of at least $80 billion, but the recent high point was $56 billion in 2000.
  2. Will the government be able to resist giving GM (and Chrysler as well) preferential treatment in regulations, tax breaks, government contracts, etc? After all, won’t they have a fiduciary responsibility to the taxpayers to ensure the investment in GM is paid off as quickly as possible?
  3. How will the UAW balance the needs of its members (high pay and benefits, job security) with its need for GM to make a profit so the UAW can sell its shares to pay for the long-term needs of its members (retiree health care, etc.)?
  4. All of this applies to Chrysler as well, but to a lesser extent. That leaves one other big question: where does all this leave Ford? Ford, which is not exactly healthy, has been able to keep the Feds out of its boardroom. Will not Ford be in an unfavorable position with respect to the points above? If so, what does that say about our society, that we will put a company at a competitive disadvantage which has fought hard to keep itself solvent?

These are difficult questions to an unprecedented situation. I’m not smart enough to know the answers, but I sure hope the gods of the Potomac are.

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Chrysler today filed papers with the U.S. Bankruptcy Court to eliminate the franchise agreements of 789 (about 25%) of its dealers.  In a conference call today, Jim Press, Chrysler President and Steven Landry, Executive VP, NA Sales and Marketing/Global Service and Parts outlined the transition.  They said that the “rejected” dealers will be dealt with exactly the same through the end of their franchises, which will be June 9.  Chrysler will assist with the redistribution of the 44,000 new vehicles on the lots to other dealers in the areas affected.  They will also assist with the parts, if the dealers wish.  The dealers will no longer be able to sell new Chrysler vehicles, but they will still be able to service vehicles.  They will not be eligible for warranty work, though, as that work is reserved for franchised dealers.

There is no appeal process for dealers; however, the bankruptcy court has to approve the action.

Landry stated that the problem “is not too many dealers, it is too little industry.”  Press reiterated this point, calling the dealers Chrysler’s partners and said this has been a very difficult decision.

The number of jobs lost as a result of this action is not known, because many of the affected dealers are dualed with competitive brands or will be combined with other Chrysler LLC dealers.  Many also sell fewer than 100 units per year.

Every state except Alaska is affected by this action.  Pennsylvania (53) and Texas (50) have the most and several others have over 30 each.  23 states have 10 or fewer dealers losing their franchises.

Chrysler says that while they are rejecting 25% of their franchises, those 789 only represent 14% of sales.

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RIP Pontiac

29th April 2009

General Motors announced this week that Pontiac will cease operations by next year.  This had been rumored for at least several days, and GM’s only comment was, “Contrary to media speculation, General Motors has not announced any changes to its long-term viability plan or to the future status of any of its brands…” This wasn’t a denial either.  With the announcement to kill Pontiac, it sure seems that the cynics who said GM now stands for “Government Motors” were right.  GM was under intense pressure from the feds to make drastic changes (cut more brands, cut dealerships, etc.), as the government needed to be able to show the public that they were playing hardball with GM, that they were doing everything they could to protect the taxpayers’ investment in GM.  In Washington, this means you need a headline, not necessarily a plan that will work.

Susan Docherty, VP of Buick-Pontiac-GMC, made the following statement:

“Anyone who has been associated with the Pontiac brand knows that this was a difficult decision. Pontiac has had a rich and storied history, but unfortunately, despite the efforts of all concerned, the brand has been unprofitable over the past several years. We had hoped in our February 17 Viability Plan to convert Pontiac to a niche brand within the Buick-Pontiac-GMC channel.

However, the Viability Plan as submitted was not acceptable. GM was further challenged to take more significant restructuring actions which would allow the company to be viable even in these unprecedented market conditions and in any future cyclical market downturns. These restructuring actions require further sacrifice by all stakeholders: GM employees, suppliers, investors and dealers.

As part of these renewed restructuring efforts, we spent considerable time formulating Pontiac portfolio scenarios that would allow the brand to be sustainable and profitable long term. Unfortunately after careful evaluation, none of these scenarios proved viable.

Therefore, GM is announcing the phase out of the Pontiac brand by year end 2010. This action will allow General Motors to devote its limited capital and other resources to GM’s four core brands: Chevrolet, Cadillac, Buick and GMC.”

GM’s plan for Pontiac from their February Viability Plan was to reduce the Pontiac product lineup and make Pontiac more of a niche brand.  This made perfect sense.  Pontiac was most successful when it was the “excitement” division within GM.  GTOs, Firebirds, Solstice and the G8 make sense for Pontiac; Trans Sports, Aztecs, Torrents and the G3 don’t.

Pontiac is no longer a stand-alone division, so it doesn’t need a full lineup of various types of vehicles to make the brand “viable.”  There are only 35 dealers in the US that sell only Pontiacs.  Pontiacs are now sold almost exclusively through Buick/Pontiac/GMC dealers.  This strategy made sense, as those 3 brands all have very different images and would have allowed all of the dealers to have a full line of cars and trucks without the General having to produce copy-cat cars to keep 3 sales channels viable.  Done properly, these 3 brands together would not overlap with Chevrolet or Cadillac either.

So Pontiac doesn’t have its own sales channel to support, doesn’t have its own engineering staff (that went away 25+ years ago) or its own manufacturing facilities (ditto).  It doesn’t even have its own management, as Susan Docherty is the VP of Buick-Pontiac-GMC.  Maybe I’m just being dense, but where is the benefit of killing off Pontiac? Pontiac is a brand that has had some trouble remembering its identity, but so have others.  It has a great history, and if properly nurtured as a niche brand, it could have not only survived, it could have thrived.

RIP Pontiac.  Some of us will miss you.

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Cash for clunkers…the phrase is gaining prominence by the day. There are several proposals that fall under this heading, and while they differ in some significant ways, they all have the same goal and premise.  Trade in your old, gas-guzzler for a voucher or tax credit towards the purchase of a new, more fuel-efficient model. There are THREE basic points that differ between the proposals: amount of the voucher/tax credit, how old/guzzling the old car must be and where/by which company the new car was built.

Rep. Betty Sutton (D-OH) has drafted legislation that would give buyers vouchers of $3000 to $5000 if they turn in cars that are eight years old or older and buy new cars that get at least 24 miles per gallon on the highway or trucks that get 27 mpg. The money could also be used for mass transit. Sen. Dianne Feinstein’s (D-CA) bill, which provides incentives of $2500 to $4500, the “clunker” could get no more than 18 miles per gallon. The new car would have to exceed fuel-efficiency standards for its class by at least 25%. Feinstein’s places a price ceiling of the new vehicle at $45,000, while Sutton’s has a cap of $35,000.

Some argue over the amount of the voucher/credit. I have no opinion here. I would leave that up to some economist with elbow patches on their tweed jacket.  It just needs to be enough to have its intended effect – getting enough clunkers off the road to make a difference in emissions and spur the economy.

I think that specific numbers for the fuel economy part don’t make sense.  The new vehicle simply needs to be much more fuel-efficient than the clunker.  What if your present vehicle is a 1978 Chevy pickup that gets 11 MPG and you need to have a pickup for whatever reason. Wouldn’t a Chevy Silverado hybrid that gets 20 MPG in the city and 20 on the highway be a great choice and one that is worthy of the subsidy? I think Feinstein’s bill comes closer to my point here, but wouldn’t trading a 20 MPG car for a 35 MPG car still be a great idea?

The last point is the one that really gets peoples’ blood boiling.  To exclude or not to exclude – that is the question. Some proposals only include US-made vehicles; others include all points of origin. Say you want to include only “American” products. OK, but what does that mean? These days, that is a pretty ambiguous term. Should a Toyota Camry, made in Kentucky, be included? What about a Honda Accord made in Ohio? On the other hand, how about a Chevrolet Aveo, made in Korea? I think that the reason for this proposed legislation is to help spur the US economy. Therefore, all US-made cars and trucks should be eligible for the incentive. Another wrench in the works are cars like the Ford Fusion and Chevrolet HHR, both made in Mexico. Should these qualify? I think so, because Mexico is only their final assembly point. The design, engineering and all other related activities are in the US. So my final answer is that all brands if US-made or US brand if made in North America should be eligible for the incentive. Foreign brands will not like this, but let’s be honest here. These bills propose to clean up the environment a little while spurring the US ECONOMY. Vehicles designed, engineered and manufactured elsewhere quite simply do not spur the US economy. We should not be subsidizing the sale of those vehicles.

That’s my story, and I’m sticking to it.  Comments? Feel free to leave them. I might even respond.

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Hot off the presses! GM has advised the Obama administration that it will not need the $2 billion previously requested for March. Ray Young, GM Executive Vice President and Chief Financial Officer, issued the following statement to the GM leadership team early this afternoon:

We have advised the U.S. Presidential Task Force on The Auto Industry that the $2 billion of funding previously requested for March would not be needed at this time. This development reflects the acceleration of GM’s company-wide cost reduction efforts as well as pro-active deferrals of spending previously anticipated in January and February. Thanks to you and your teams for your tremendous focus on cost during this critical time.

We will remain in regular contact with the Task Force on the status of GM’s restructuring actions, our liquidity position, timing of future funding requests, and other relevant topics of mutual concern. We will continue to keep you informed as well.

Hopefully, this means that GM is turning a corner, but it is clearly too early to say that.  Instead, it probably reflects GM’s wish to make themselves look “viable” to the task force that is in the process of deciding their fate.  GM isn’t going to take any money that it does not desperately need, given the terms of the loans and the negative PR associated with the whole process.  GM’s sales have clearly been affected by all of the negative publicity and the specter of a possible bankruptcy.  Turning down the loan might very well help their short-term sales.

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GM Cancels Diesel Program

11th March 2009

Another shoe drops.  GM has announced that it cancelled the 4.5L Duramax Diesel engine program – indefinitely.  They released the following statement today (11 March 2009):

“Given the current economic climate, GM has reviewed and updated its U.S. product portfolio and has decided to place on indefinite hold its previously announced plan to add a Duramax 4.5L V-8 diesel engine in 2010 to its Chevrolet Silverado and GMC Sierra light-duty trucks.

Chevrolet and GMC will continue to offer a heavy duty Duramax 6.6L V-8 diesel, which is class-leading in both horsepower and torque. Light-duty truck customers can also choose from several fuel-efficient gasoline engines with GM’s Active Fuel Management mated to a six-speed transmission or a new 2-Mode hybrid that provides up to 40 percent improved city fuel mileage and 25 percent improvement in overall fuel efficiency. In fact, no other full-size pickup has better fuel economy.

GM remains optimistic that the Duramax 4.5L V-8 diesel may be a viable option in its future portfolio.”

This is truly a sad day for many reasons.  GM stood to gain revenue and share with this engine.  Diesels command a healthy premium over gas-powered vehicles and they would have been first to market in the light-duty full-size pickup segment.  Pickup buyers tend to be very loyal, but the Diesel could have tempted some Dodge or Ford buyers into a GM showroom.  So GM, its dealers and shareholders all lose money with this decision.  GM’s reputation would have gained as well.  Being first with a feature like this carries may benefits that no amount of advertising or PR money can buy.  This engine was going to be very innovative, with cylinder heads that eliminated the need for intake and exhaust manifolds.  In addition, Diesels get better fuel economy, more torque and last longer than their gasoline friends – all of which would contribute to the reputation gain mentioned above.

So why is GM pulling the plug?  There are probably several reasons.  The most obvious is an effort to save money, which is in precious short supply over at the General.  However, if this engine was scheduled to begin production this fall, the facilities and tooling have to be substantially complete, as does the engineering.  Can you say, “Sunk costs?”  Another reason is gas prices have fallen significantly in the last 6-8 months.  Lower gas prices make the advantage of Diesel’s fuel economy less compelling for customers, resulting in lower sales.  Another possible reason is posturing for the administration task force.  Maybe they think if they are shown cancelling high-profile projects, that will demonstrate the severity of the situation.  If so, they are playing a very risky game of chicken.  Cancelling a program whose investments have largely already been paid and that will make you money and improve your market share and reputation to make a point could VERY easily backfire.

I think GM is simply trying to conserve funds.  This might seem short-sighted, due to the benefits outlined above, but GM’s situation is dire, to say the least.  While certainly not the optimal solution, they are finding themselves in the position of making decisions now which will hurt them in the long-term to save them from collapse in the short-term.  The long-term only matters if it exists.


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