The Trouble with GM – part 2

The Trouble with GM – Part 1 dealt with an initial look at GM’s push of a three-pronged luxury offering for all markets. In particular, it dealt with Hummer’s recent debut in the British market, right in the same week as a new round of vehicle taxes were due to be imposed on heavy drinkers.

Here’s Part 2 in a series of an as-yet-unknown length.

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Football season is almost upon us here in Australia. In offices everywhere people are organising their dream team competitions and tipping competitions. People will contribute $2 a week, pick their winners and at season’s end, the person with the highest number of tipped winners will win the prize pool.

These tipsters will analyse the teams every week. They’ll look at who’s playing against who. They’ll pore over who’s injured and at least once a week they will look at a team that’s a 50/50 chance, with an injured star player and a couple of veterans past their prime. And I can guarantee that they’ll consider these reputations, think nostalgically and say to themselves “well….they look pretty good on paper.”

Trouble is, you don’t play football on paper.

GM have their three-pronged premium group – Cadillac, Hummer and Saab – and where Saab were the only global premium brand before, they’re now looking at expanding the entire group world wide. You could easily say “well….they look pretty good on paper.”

Great intro, huh?

Anyway…..let me get straight to the point.

GM see a need to take Cadillac into markets where anecdotal and statistical evidence would seem to indicate that it’s not appreciated, nor wanted. And it’s my contention that the millions upon millions of dollars that they’re spending on this expansion, primarily into Europe, could be better spent on developing Saab.

On paper, the boffins at Detroit see Cadillac as their shining new light in the luxury sector. Restyled for the 00’s, Cadillac has been reborn in the United States and GM apparently see no reason why this can’t translate into success in Europe. It’s GM’s label for the conspicuous consumer and there’s hope eternal in Detroit that Europe gets a lot more conspicuous with its consumption.

Hummer are another story all together, with a slightly oxymoronic expanded lineup of smaller vehicles. Hummer definitely do have a place in the world, given that they’re so different from anything else in terms of styling. Functionality may be a different thing, but on styling alone I’ll leave them alone for now.

Then there’s Saab, that little brand that GM doesn’t quite know what to do with. GM have committed to Saab and that’s a good thing, but I have to raise the question of what they’ve committed to do and how they’ve committed to do it. I’m concerned about whether or not GM are going to turn Saab into the operation it could be or whether they’re going to keep it on life support, dilute the culture surrounding the brand and bleed their technology.

In a chat with GM last week, it was noted that they see Lexus, BMW and Audi as the luxury marques that are really doing things right. They’re the companies that are making the right money out of the premium sector. They’re the ones that GM want to take on. GM have 15% of the world’s automotive market but they have nowhere near that much share in the luxury sector and they want to grow their share of that pie.

On that topic, the following was asked by Saab Corporate Communications Manager, Jan-Willem Vester:

Now, let me ask you: do you think that SAAB is in a position to be…..the brand for General Motors worldwide that can do that?

My answer: It has the potential to do a hell of a lot more towards that goal than Cadillac.

I’ve touched on this in previous articles, but let me say again that Audi are the classic case in point. They’ve traditionally been the very poor third kid on the German automotive scene but Audi are now standing and demanding that their vehicles be taken every bit as seriously as their German counterparts.

It wasn’t always this way though. Do any of you know where Audi have come from in terms of market share and sales? Can the boffins and decision makers in Detroit tell me when Audi’s low point was and how many cars they sold at that time?

Audi worldwide are now enjoying what will quite likely be their 12th consecutive year of growth, and many of those years involved double digit growth. Audi were nearly withdrawn completely from the US market only a short time ago. They reached their low point in the early 1990s and at that time they were 2,000 sales away from oblivion. The parents at Volkswagen considered that if Audi sunk to a floor of 10,000 annual vehicle sales in the US then it was time to pack up and leave.

When Audi sold only 12,300 vehicles in the US in 1992, the dealers were very, very nervous. The entire Audi brand in America was being propped up with sales to a bunch of loyalists, mainly in the north east. Seemingly, the only thing that Audi had going for it at that time was it’s reputation for the Quattro all-wheel-drive system.

That was all that it seemed to have going for it. Behind closed doors, however, they also had a new VAG head honcho who believed in investing and building a product to a standard first and finding a way to achieve the price second. A couple more nervous years followed and once again Audi were perilously close to going belly-up in 1994, but then the turnaround began.

Around 50% growth in 1995.

Another 50% growth year in 1996 – now we’re talking about 27,000 sales per year. This is still less than what Saab sells in the US today.

The double digit growth continued right through the early 00s and has now reached a level where double-digits are harder to achieve because of the higher base amount. They’re still setting records, though. In 2006 Audi achieved it’s highest ever total for US sales, moving 90,116 vehicles.

Considering this, and the fact that Audis I’ve driven from earlier years certainly weren’t any better than Saabs, I do indeed refuse to believe that Saab hasn’t got the potential to be a global player in the premium sector for GM.

So how did Audi do it?

They were the recipients of plenty of investment. They took the best elements that built their cult following and they improved them. They took a sporting heritage and built it into their new offerings with engine and drivetrain combinations that satisfied the faithful and engaged the newcomers. They invested in building interiors that have become an industry benchmark for many automotive pundits. And they marketed their little butts off with slick campaigns that caught the imagination of their immediate target market and those that aspired to be there.

Does that all sound like something that’s impossible to do with a company like Saab? I think not. I think it needs someone with the balls to make the decision rather than just sticking with what you know.

Another quick example. Last weekend, our local newspaper had a feature article on the head honcho for Subaru Australia. Several years ago he stood up in front of his first dealer conference and told the foot soldiers assembled that he was going to change their vehicle lineup in a way that, statistically, threatened to cut two-thirds of their sales. His decision was to axe Subaru’s 2WD vehicles in favour of a complete AWD lineup.

The dealers stood as one and applauded.

Being the guys at the coalface, they knew that AWD was what their customers wanted and whilst it meant a hit in the immediate short term, Australia is now Subaru’s third biggest market after Japan and the United States.

And by the way, he’s a Tasmanian and a former motoring journalist. Sometimes it really does pay off when you think outside the box.

GM have committed to Saab, but they don’t have the belief that Saab could be expanded and built as a brand in a way that could penetrate the premium sector like they think Cadillac could. I think that’s a genuine mistake.

They’re not only overestimating the potential of Cadillac in the European market, they’re vastly underestimating Saab’s potential to expand both in Europe and in the US – a feat that Audi have proven possible.

GM are tapping Saab for their turbocharging expertise. I think they should be tapping Saab to be their worldwide premium leader and investing in Saab in a manner that allows this to happen.

And maybe that’ll be the subject of Part 3.

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References:

Running Rings Around the Rest – Lindsay Brook

AUDI ANNOUNCES RECORD U.S. SALES DURING 2006 – Audi of America

The Trouble with GM – Part 1 – TS

Point of View – Saab USA – TS

Fast Lane to the Top – Keith Didham, News Ltd (no link)

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