At times, examining the operations of General Motors (GM) is like looking into of one of those insanely complicated tourbillon mechanical watches. Like a fine timepiece, GM has lots of moving pieces, many of them out of sight. The trick is to separate the balance wheel and hairspring — parts that are essential to the operation — from others that are merely decorative, or, at worst, distractions.
The month of May produced a geyser of news for GM watchers to assimilate, analyze, and evaluate. Sales and earnings were down from a year ago, but share prices were up — climbing above the $33 IPO price for the first time in two years. Sales were higher in the U.S. and much higher in China but lower in Europe. North America was preparing for a monster launch of new truck models but brought on extra workers and stretched out schedules to make sure there are no screw-ups. Second-guessers on the popular investor site Seeking Alpha are sharply divided about the automaker’s prospects. “General Motors continues to roll” is the headline on one posting. Another reads: “General Motors: A Sucker’s Bet.”
Let’s focus first on the good news. In the U.S., GM gained market share in April and for the first four months of the year. Its sales resurgence is being led by new high-margin vehicles added to the Buick and Cadillac lines, which are up 23% and 37% respectively. GM is also mobilizing for one of the biggest new product introductions in its history, replacing first its full-size pickup trucks Silverado and Sierra, and then its big sport utilities. In all, 61% of GM’s product line will turn over in the next two years, exciting dealers and giving a big boost to profits.
On the other hand, GM is losing ground to Ford (F), which has gained slightly more U.S. share in 2013 and earned 60% more in corporate net income during the first quarter. Sales of Chevrolet cars, the ones GM needs to attract younger buyers and meet government fuel economy standards, have sagged, and the much-heralded Volt is moving at a rate even slower than last year. Automotive News reports that GM is so concerned about its upcoming truck launch that it has hired back about 100 retired engineers to monitor the work of suppliers and delayed the rollout of the SUVs by three months.
Europe remains a sinkhole. Opel/Vauxhall gained share because it lost fewer sales than an overall market that was down 6% in April , but Chevrolet got shellacked, with sales that fell 27%, and the Detroit News reports that analysts see no overall improvement in the European market until 2016. GM plans to invest $5.25 billion in Opel over the next three years, but doubts remain about the resonance of the Opel brand with European customers, as well as the eventual payoff from GM’s shotgun marriage with Peugeot.
China, where GM sells more cars than in the U.S., remains a bright spot, with sales in April rising 15%. Ignoring signs of a slowdown in China’s white-hot economy, GM plans to invest $16 billion in China by 2016, and has just announced it will build a new Cadillac plant in Shanghai as part of a plan to triple Cadillac sales in the next 30 months. Equally encouraging, GM is getting some breaks from the Chinese government. It has reversed a policy that would have discontinued investment incentives for foreign automotive manufacturers, giving GM more room to maneuver.
Down at Renaissance Center headquarters in Detroit, GM’s brass should be feeling pretty good about itself. The “Government Motors” tag that GM hated should become obsolete a year from now when the U.S. Treasury sells the last of its GM shares. Among other things, the end of government ownership means GM can start competing for top automotive talent with higher pay packages and allow its executives to discontinue their frequent flier programs on commercial airliners and fly corporate again. GM also feels optimistic enough to start investing in its past as well as its future. At the same time that it announced a fourth U.S. information technology center near Phoenix that will employ 1,000 people, it said it has agreed to buy the 133-year-old Durant-Dort Carriage Co. factory in Flint where it was born, as a showcase for its corporate history.
So what’s to worry? Here are three big questions that ought to be weighing on GM management right now:
1. What is our corporate competitive advantage? GM is a huge company, but both Ford and Volkswagen make better use of their enormous scale with platform efficiencies. GM builds well-made vehicles, but its reputation for quality and reliability can’t touch Toyota’s (TM) or Honda’s (HMC). Nor, when customers go looking for the leader in safety, technology, or fuel economy, do they make a GM dealer their first stop.
2. Where are we the world’s best? Probably only in niche categories like large crossovers (Chevy Traverse, GMC Acadia, Buick Enclave) and full-size SUVs (Chevy Suburban, GMC Yukon, Cadillac Escalade). Cadillac is a rising star in the luxury passenger car segment but still can’t touch the Germans, and Ford remains the pickup truck leader until proven otherwise. Everywhere else, GM is an also-ran.
3. Who are we going to pick to succeed chairman and CEO Dan Akerson? Akerson, 64, has signaled that he plans to leave within three years, but GM’s bankruptcy and downsizing wiped out a whole generation of executives who might logically have followed him. As a result, the leading inside contenders are relative youngsters: vice-chairman Steve Girsky, 51, product development chief Mary Barra, also 51, North American boss Mark Reuss, 49, and CFO Dan Ammann, 41. If any one of them is named CEO, the GM board would likely want to find a non-executive chairman to work in tandem with them, but as former chairman and CEO Ed Whitacre has noted, the current cast of GM directors has been reluctant volunteers when asked to step up.
The fate of any auto company has always been tied to the direction of the economies in which they operate, and GM is no different. When times are flush, or relatively so, they become healthily profitable; when times are hard, automakers suffer too. The fundamentals of the American economy, the age of the automotive fleet, and GM’s new product replacement cadence suggest that it should continue to do well in the U.S. The true test of its abilities won’t come until the next downturn. In Europe, GM is buckling down for the long term, and the success of its plan to get back to profitability won’t be clear until 2016. China should continue to be a winner, barring natural or political disaster, as long as GM can continue to keep pace with its competitors
Roger Smith, GM’s Chairman and CEO from 1981 to 1990, liked to say that he was doing neither as well as his friends suggested, or as poorly as his enemies charged. The same is true of GM today.