Sunday, December 2, 2018

GM's Problem: It Still Can't Build Competitive Cars

GM announced major plant closings, job cuts, and cutting car models. This time its assembly plants in Lordstown, Ohio, Hamtramck, Michigan, and Ontario, Canada, as well as transmission plants in Baltimore and Warren, Michigan, are earmarked for closure. No plant closure would be necessary if GM could sell cars. What else is new? GM consistently had problems marketing downsized cars that Americans were willing to buy since the two Arab oil embargoes of the 1970’s. The once industrial goliath has been losing market share for five decades, slipping from over half of the U.S. auto market to hovering around 17%. Its been cutting assembly plants for decades from Massachusetts to California, laying off tens of thousands of blue collar and white collar employees. Ask Buick City, St. Louis Truck, Wilmington, South Gate, Oakland, Detroit Cadillac, Norwalk, Framingham, Janesville, Willow Run, North Tarrytown, Baltimore, Oklahoma City, Fremont, Saginaw, Pontiac, Ypsilanti, Linden, Van Nuys, and Doraville. The GM bankruptcy gave GM a fresh start. It wiped out the pension liabilities, shuttered factories, cut dealers, walked away from toxic facilities, wiped out products liability claims, and emerged with a multibillion dollar tax loss carryforward, shielding it from federal income taxes for years. GM though could still not design and build cars Americans wanted to purchase. The Japanese and Koreans ate GM’s lunch in sedans. The Japanese and Germans control the luxury car market. “Cadillac” is no longer the standard of luxury cars. GM car sales in California, the largest market in the US, are negligible. Buick and Cadillac survived the bankruptcy only because they are big sellers in China, which is now GM’s largest market. Vehicle sales (cars and light trucks) peaked in 2016 at 17,547,028. Sales have slipped since then, with sedan sales leading the downturn. The top selling vehicles in October were the Ford F-150 pickup, Dodge Ram pickup, Chevy Silverado pickup, Toyota RAV 4, Honda CRV, Chevrolet Equinox, Nissan Rogue, Toyota Camry, Honda Accord, and Honda Civic. Only the last three were cars; the top seven were pickups or SUV’s. 60% of GM’s sales in October were trucks and SUVs, up from 50% five years ago. Detroit is increasingly unable to compete in car sales. The imports are also dropping, but in smaller numbers from a higher base. They are feeling the pain less. Once again, GM is behind the curve. Fiat Chrysler announced in April 2017 that it will concentrate on Dodge Trucks and Jeeps. The only cars it will continue to produce are the Chrysler Pacifica Minivan, Chrysler 300, the Dodge Challenger and the Dodge Charger. The Charger, Challenger, and Chrysler 300 are built on the same platform. Ford in April, 2018 said it would discontinue all car models except for the Focus Active, a crossover hatchback, and Mustang. $11 billion is being reallocated from cars to trucks, SUVs, and electrics. GM at its peak could successfully lead from behind. It did not need to innovate because it had the resources to respond and adapt. No longer! GM’s travails are shown by the Chevy Volt. It announced the hybrid Volt as the future of the new General Motors during the 2010 reorganization with projected annual sales of over 100,000 units. The Volt was a flop, starting with its initial list price of $40,280. The remodeled Volt in 2016 started at $33,170. GM’s assumption must have been the large federal ($7,500) and state tax credits would make it affordable, such that that the car would pay for itself over time with fuel savings. GM sold 113,489 Volts in the United States from mid-December 2010 through December 2016. Many of those “sales” were low-priced leases. By way of comparison, Tesla has sold over 500,000 higher priced all-electric Teslas, while the Toyota Prius passed 1 million sales by April 2011. Companies respond to the market or go out of business. Detroit is responding to the changing dynamics of the domestic auto market. GM is shifting billions from cars to autonomous cars and electric vehicles. It paid $1 billion in early 2016 to acquire Cruise, a San Francisco self-driving company with 40 employees. It now has over 1,000 employees. It is further prioritizing factory investment in China and Mexico, away from the United States. President Trump is upset. He won Michigan and Ohio on a Make America Great Again Campaign, restoring manufacturing jobs to the heartland of America. He’s threatened to cut off the subsidies for electric vehicles and impose tariffs on imported cars. He said: “You know the United States saved General Motors, and for them to take that company out of Ohio is not good. I think she’s going to put something back in soon.” Mary Barry, GM's CEO, sees the future a self-driving cars, electric cars, and ride sharing networks. Time will tell if her vision is correct. General Motors executive Mark Reuss took his son to see the shuttered Buick City complex in Flint, Michigan. His son asked: “Why did this happen dad?” Mark Reuss responded: “This happened because we could not compete.” GM could not compete!!!!!

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