GM Needs New Strategy

I like to say, “everybody gets a turn in the box.” That means nobody's perfect. We all make mistakes, and we all have to change our direction once in a while.

Toyota will find out it's made a mistake hunting for the youth market with those Scion cars, just as it found out it made a mistake hunting them with that Echo car. Why? Because there isn't a youth market of any size for new cars. They buy used cars.

Nissan is finding out it's got quality problems with new models that were rushed out. We all know Mitsubishi and Isuzu are in trouble. Suzuki spent a decade losing money here because it kept trying to sell Americans cars that were just too small.

Mercedes runs the risk of being outsold worldwide by BMW, and Volkswagen is in trouble in America because it just wouldn't build an affordable SUV or cute minivan or pickup.

See? Everyone gets a turn in the box, but it's not the end of the world. Companies correct their strategies, improve their products and move along. And it's time for General Motors to do just that. It's pretty clear the strategy is to keep the factories going at all cost.

That's why we find GM factories building the new Chevy Malibu, as well as the old one. Likewise, GM will keep building the old Pontiac Grand Am, even after they switch to a new model called the G6.

That's why we find incentive money hitting $5,000 on GM products. Keep the production going, whatever the cost.

I'm not saying this is a bad strategy. GM figures it would cost more to shut the plants and lay off the workers, paying them forever, in effect, whether they worked or not.

But this philosophy has come to the end of its useful life. The old cars and huge incentives are tarnishing GM's image. Incentives are addictive and must be increased to be effective. What will we end up with, $10,000 incentives?

The strategy keeps GM market share around 28% for a while, but the price is too high. Share fell to 26% in June, and GM could end up with 23%-24% if it cuts incentives and giveaway deals to fleets, workers and their relatives up to six degrees of separation. And some factories could close, placing more workers on that wonderful GM dole.

The cars are improving. This fall we'll have a new midsize Buick, the Pontiac G6 and small Chevy Cobalt sedan replacing the Cavalier. In spring we'll have the Pontiac Solstice roadster and the G6 coupe. The new Malibu and the Equinox cross/utility vehicle are out now. Cadillac is getting on its feet. The trucks and SUVs are doing moderately well.

Those new cars, except for the Solstice, aren't head-turners, but they are a serious improvement. So maybe it's time to try running the auto business like an auto business and not like a “Going Out of Business” store that never goes out of business.

Jerry Flint is a columnist for, and a former senior editor of, Forbes magazine.