THE AUTOEXTREMIST
Tuesday, May 12, 2009 at 08:21PM May 13, 2009
GM bankruptcy is a certainty. What happens next isn’t.
By Peter M. De Lorenzo
(Posted 5/13, 7:00AM) Detroit. With the Obama administration’s auto industry task force flexing their muscles with each passing day – the latest example being that it ordered Chrysler to cut its marketing budget in half for the duration of the nine-week bankruptcy period (see “On The Table” – ed.) – it’s clear that lessons learned and actions undertaken by the group entrusted with executing Chrysler, I mean, uh, executing the bankruptcy for Chrysler will be enhanced and fine-tuned for the General Motors bankruptcy, which is as good as a done deal on June 1.
That the auto industry task force would finally get into marketing decisions is no surprise because marketing is not only a huge expenditure for an automobile company, in many respects it’s the very lifeblood of a company. But once you start messing with a car company’s marketing, the “trickle down” effect is considerable, and that’s why when outsiders start determining marketing spending, the “wince” factor grows exponentially for people in the business with a fundamental understanding of what’s actually involved.
What will the auto industry task force learn by playing in the marketing arena? Probably not much about marketing, but there’s a real good chance they’ll learn some very painful lessons in “Managing an Auto Company 101.”
Cut a car company’s marketing budget and what happens? You reduce that company’s presence in the media. Cut its presence in the media, and you directly and negatively affect its presence in the market. Cut a car company’s presence in the market, and you directly and negatively affect its dealers who are trying to retail cars and trucks in that market. Take actions that directly and negatively affect a car company’s dealers, and you start losing sales. Start losing sales, and you start cutting back the number of vehicles being produced at the plants, translating into plants that are either running at reduced capacity or worse, idled completely. Not to mention an immediate reduction in revenue for the company.
Keeping up this train of thought and given the fact that Chrysler’s plants are already idled, once a car company has idled plants or plants running at reduced capacity while in turn generating reduced revenue or, in this case, zero revenue, then it directly and negatively affects the funds available for the company’s long-term product planning and reduces the kinds of competitive vehicles the company can eventually bring to market. Once that happens then research and development funds are curtailed, and the whole scenario starts feeding on itself in a swirling maelstrom of Not Good.
Everybody is still talking about how great the Fiat partnership will be for Chrysler, but no one is talking about the fact that the first Fiat likely to hit Chrysler showrooms – even if everything goes perfectly – is a good 20 to 24 months away. What, pray tell, are Chrysler dealers going to do in the meantime, besides close?
With the Obama administration’s auto industry task force “telegraphing” what’s going to happen when GM pirouettes into bankruptcy by way of the steps it’s taking while handling Chrysler, the upcoming scenario for GM is a thousand shades of grim.
Once the announcement is made on June 1, plants will be idled, marketing will be drastically curtailed, suppliers will file for bankruptcy en masse, and GM’s dealer body will implode. In effect, GM will go “dark” for the entire summer. What happens next isn’t likely to be pretty.
As I said a few columns ago, the constant din in the media associated with both Chrysler and GM for the last six months has been the two “Bs” – “Bankruptcy” and “Bad.” In Chrysler’s case, having Fiat to lean on is its only hope, but they don’t have any product to speak of for two years – except for a new Grand Cherokee – so where does that leave that enterprise, besides stalled at the side of the road?
GM does have some very capable and highly competitive products, however, both on the ground now, and in the pipeline, but if the company goes “dark” this summer while the dealers who are left busy themselves moving existing inventory – at least that’s the plan anyway – what, if anything will be left of GM after months of being in bankruptcy?
The thought that a “new” GM will be able to emerge from bankruptcy, flip a switch and start selling 2010 models on Labor Day like nothing bad ever happened is incredibly naïve at best. That a leaner, meaner company emerges from bankruptcy with just four divisions to worry about - Cadillac, Chevrolet, Buick and GMC - is a noble plan, but that doesn't guarantee success by any stretch of the imagination.
It's easy for people to say that the "GM" moniker will be pushed to the background and that the divisional offerings will be the focus of the new company, but does anyone out there really buy into the notion that it will fly with the U.S. consumer? After months of negativity associated with GM do you actually believe shoppers will say, "Oh, they're all fixed now, I'm good with it" when it comes time to consider a GM product?
The GM loyalist customers out there might buy into the "new" GM, but I'm afraid that's as far as it will go, even if the company does have some of the best products available in the market. The rest of Americ'a car shoppers will have that negative formula of GM = Bad roiling around in their brains every time they go so far as to even consider a GM product.
And that's a Mount Rushmore of Not Good.
With its stock tumbling to its lowest level since the great Depression, a GM bankruptcy filing is a certainty.
The assumption that it will emerge from bankruptcy and actually survive isn't, unfortunately.
Thanks for listening.
See another live episode of "Autoline After Hours" hosted by Autoline Detroit's John McElroy, with Peter De Lorenzo and auto industry PR veteran Jason Vines this Thursday evening, May 14, at 7:00PM EDT at www.autolinedetroit.tv. By the way, if you'd like to subscribe to the Autoline After Hours podcasts, click on the following links:
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