Olds Won't Be the Last to Go How many brands does an automaker GM's size need?
GM's decision to kill off Oldsmobile was a painful decision for management to make, but not for the reasons that we were given. Oh sure, there were serious frowns, soulful sighs and honest homage paid to the oldest brand in America's automotive history. But what must have hurtCorp. officers more than anything else is that killing off Oldsmobile proved the company's brand strategy of the last five years simply hasn't worked.
When GM embarked on its Procter & Gamble-inspired brand plan, it was ridiculed for bringing in outsiders with experience in selling consumer products. "Ha, ha!" the critics howled, "how can people who sold diapers and potato chips sell cars?"
But their criticism was misplaced. Bringing in outsiders with fresh ideas was a great idea, and most of them have proved they're at least as good as GM's grizzled veterans. What should have been criticized was the plan they had to carry out. Remember, this was a blueprint to focus and target the company's products at all the different demographic and psychographic slices of the market.
On paper it looked great. But when GM unveiled its brand strategy with great fanfare, lo and behold, there was a place and purpose in it for every division and almost every model. The strategy was made to fit what the company was already doing! OK, so they phased out a few slow-selling models - big deal. By and large, everything remained intact. In fact, it was all refreshed and redesigned at tremendous expense.
So how many brands does an automaker GM's size need? Right now, with not much more than a quarter of the market,has to accommodate, coordinate and plan for twelve different brands (Chevrolet, Saturn, Pontiac, Oldsmobile, Buick, GMC, Cadillac, Saab, , , Subaru and soon, Alfa-Romeo) and all their models. It has to juggle myriad cycle plans, tooling programs and ad budgets. And that's just in the American market.
Dropping Oldsmobile won't do much to relieve GM's headache. It needs to drop a lot more. Or better still, it needs to realign its entire product lineup so that it generates competitive margins at realistic market share levels.
Let's say you were starting out today to create an entirely new automotive company to capture, oh, 25% of the American market. All you would need to do is sell mass-market cars, mass-market trucks, performance and luxury vehicles, and some specialty products. That would be the equivalent of sellingMotor Corp.'s and Motor Co. Ltd.'s cars, Motor Co.'s trucks, and Mercedes-Benz's luxury vehicles. So all GM really needs is four large divisions. Let Saturn sell mass-market cars, Chevrolet sell mass-market trucks, Pontiac sell performance and Cadillac sell luxury.
GM's 12-brand strategy doesn't work on several counts, but especially when it comes to investment and marketing. Here's an example why: The company's newest sport/utility lineup, the Chevrolet Trailblazer, GMC Envoy and Oldsmobile Bravada are all solid products with great powertrains and good ride and handling. They also have attractive, distinct styling, inside and out. Each one is aimed at a specific market segment (Chevy = mass market; GMC = near luxury; Olds = import intenders). Sounds like a great combination that should dominate that segment. Yet theExplorer will outsell all three put together.
No matter how efficient GM gets at designing, engineering, manufacturing, marketing and selling, it is putting itself at a cost disadvantage with its too-many-brand strategy. In the sport-ute example here, it has to pay for three different sets of tools for each vehicle, support three different sales organizations to sell them, and split the advertising budget three ways. Meanwhile, Ford comes to market with lower cost and concentrates mega-dollars marketing and advertising just the Explorer name. Ka-bam! Is it any wonder the Explorer is the best selling sport ute in its segment?
As I have written in this space before,outsold GM in California for several months last year. This year Toyota may well outsell GM in the Golden State for the entire year, and that's with only two brands, Toyota and Lexus. If anything proves GM doesn't need nearly as many brands as it has right now, this is it.
And you don't have to look too deep to start figuring out where the next cuts should come. Interestingly, GM is killing off Oldsmobile, a division that sells around 300,000 units a year in the U.S. alone. But it is keeping Saab, a company that barely sells 120,000 units around the world.
So what will GM do? Well, one thing's for sure, it is loathe to make any sudden moves. Former Chairman Roger Smith's reorganization debacle in the mid-1980s scared the company away from making drastic changes. So it will sit back and watch what happens after it drops Olds. It will continue to feed new products to its surviving brand plates. And it will pray that it doesn't lose more market share.
But General Motors still has too many brands and is too large of an organization in relation to its share of the American market. And, sooner or later, that market is going to force the company's hand.