Automotive News - July 21, 2008 - (Page 34) 34 • JULY 21, 2008 G M ’ S C O M E B A C K S T R AT E G Y GM goal: Big small-car profits news ANALYSIS Jamie LaReau jlareau@crain.com GM’s Mark LaNeve: The company is “looking for big savings and getting better at digital” advertising. DETROIT — General Motors wants to charge big prices for small cars. At the press conference last week to announce new plans for cutbacks and cash-raising, GM executives said it would be easy — raise prices to match the growing demand for small and mid-sized cars and crossovers. But that business model has pitfalls. “That presumes there’s no competition,” says Doug Scott, senior vice president of consultant GfK Automotive in suburban Detroit. “The Ford Focus is out there now, and the Accord and Camry. It’s going to take a marketing budget to tell people why they need to pay a little more for your car.” And GM is cutting its marketing budget by $1 billion, along with slashing its capital expenditures by $1.5 billion and holding its engineering costs at the present level for the next couple of years. So GM faces a balancing act. With less development money, it must build small cars that command higher transaction prices. Then, with a lower ad budget, it must persuade American car buyers to choose its products. As GM sales boss Mark LaNeve told Automotive News, “That’s challenging, and it’ll be even more challenging now.” Pared ad budget is back on the chopping block Mary Connelly mconnelly@crain.com REUTERS CEO Rick Wagoner, flanked by COO Fritz Henderson, left, and Vice Chairman Bob Lutz, outlines GM’s plans. GM’s turnaround plan Suspend cash dividend and save about $141 million a quarter Cut salaried employment cash costs more than 20% Cut truck capacity by 300,000 units through 2009 Cut sales and marketing spending and hold engineering spending Hold capital spending to $7 billion annually in 2009 Cut U.S. and Canada headcount in 2008 Effective Jan. 1, eliminate health care coverage and increase pensions for U.S. salaried retirees over age 65 Give no base compensation raises for U.S. and Canada salaried employees and no annual discretionary cash bonuses for executives Defer $1.7 billion of its payment into the UAW VEBA trust until 2010 Raise at least $4 billion to $7 billion through financing and asset sales, which could include the sale of Hummer Car competition For one thing, GM has less credibility with car buyers than with truck buyers. As of June 30, GM had a 13 percent share of the small car market, says John Casesa, a partner in Casesa Strategic Partners in New York. Meanwhile, he says, GM held a 50 percent share of the SUV market. Casesa says GM can generate revenue from cars because demand is likely to outstrip supply. So GM’s car plants will be busy. But, Casesa says: “It’s unlikely the company’s returns in small cars will ever match the returns they made in large SUVs and pickups. The reason? The small car business has far more competitors, and GM has a much lower market share in it.” If gasoline prices continue to rise, GM’s leaders believe it can command higher prices for its cars. “At historically $6 a gallon, now $9 or $10 a gallon in Europe, the European equivalent to a Ford Focus, Volkswagen Jetta or Chevrolet Cobalt carries an (average transaction price) of $35,000, $36,000, $37,000,” says Bob Lutz, GM’s vice chairman of product development. Lutz says the way to re-enter the segment is with superior product. For example, GM’s Cobalt replace- ment, the Cruze, likely will sticker for a few thousand dollars more than the current Cobalt. Global design Chevrolet dealers say some consumers will pay the starting sticker price of $22,995, including shipping, for a Cobalt SS. “It’s a hot rod, but it’s good on gas,” says Gordon Stewart, a suburban Detroit dealer who owns four Chevrolet dealerships in the South and Midwest. “We’re getting kids in that that we hadn’t seen before.” Dealer John Voss, of Dayton, Ohio, says Chevrolet Impala and Malibu sedans are selling well, but he’s not getting sticker price. “If you raise the prices 20 percent, there’s going to be a resistance, particularly if the imports don’t do that,” says Voss, owner of Voss Chevrolet. GM’s global product development process means that it can design better small cars by doing work in countries that value small cars, says Ed Welburn, GM’s global design chief. “In North America, we never did a good small car,” Welburn told Automotive News. “Today, we are able to draw on resources of design centers in Korea, Brazil and Europe who really know how to do small cars.” But the glory days, when profits from big trucks helped maintain GM as a corporate goliath, could be over. “What they’re outlining — this mix shift that we’re seeing — is going to force them to be smaller,” Casesa says. “It will force them to take more cost out of the business. They’re going to have to do more than simply shift the mix to get the returns back up and I don’t know if they can get there.” c Alysha Webb contributed to this report Products — not entire brands — likely to be ditched Jamie LaReau jlareau@crain.com DETROIT — It’s no secret that General Motors struggles with too little cash and too many products. But GM executives are more likely to pare product lineups than eliminate brands. Killing a brand is costly, as GM learned when it spent $1 billion to shutter Oldsmobile. While Cadillac and Chevrolet may keep robust lineups as GM’s core brands, the automaker may thin the portfolios of other brands. Product chief Bob Lutz, hinted at that last week. “What we’re not going to do for the future,” Lutz said, “is provide every division with a version of something that every other division has, where the brands lose focus and essentially compete among themselves and create a bunch of confusion and too many marketing entities.” Cuts to eliminate overlapping vehicles probably won’t show up until after 2010. Where could GM trim product fat? Big crossovers GM arguably has too many big crossovers. It could kill the Saturn Outlook. The Outlook is not selling as well as its sibling vehicles on the Lambda architecture — the Buick Enclave and GMC Acadia. The Outlook could become more expendable after the Chevrolet Traverse, the next crossover due on Lambda, hits the streets this fall. Lutz also hinted at changes in the Buick-Pontiac-GMC retail channel. “Our franchises are all going to be abundantly provided for with passenger cars and crossovers of various sizes because we have the B-P-G channel, which very clearly needs small, fuel-efficient vehicles,” he said. “The GMC part, of course, will continue to have the full-sized trucks but with a continued emphasis on the crossover vehicles — including a vehicle that is a sister vehicle, although highly differentiated, to the Chevy Equinox.” Buick likely will keep the seven-seat Enclave. But the next-generation GMC Acadia could become the smaller sister vehicle to the Equinox. buzzed-about Invicta sedan. The Invicta concept, shown in April at the Beijing show, is 3.9 inches shorter and 0.8 inches wider than the 2008 LaCrosse. Pontiac also is likely to be whittled down to a few performance sedans and the Solstice roadster. GMC is likely to keep its pickups and a couple of crossovers. Saturn Saturn could lose the mid-sized Aura, which is on the same architecture as the Chevrolet Malibu. But unlike the Malibu, the Aura has not had strong sales. Saturn is expected to keep the small Vue crossover, Astra compact and Sky roadster, and add the Opel Corsa subcompact. Saturn then would return to being a small-vehicle brand emphasizing value and fuel economy. c B-P-G channel GM is deferring its program for large rear-drive cars for Buick and Chevrolet. If that program ends, Buick probably won’t have a replacement for the large fwd Lucerne, scheduled to go out of production in 2010, according to a production plan GM gave the UAW last year. That gives Buick three products: the Enclave, LaCrosse sedan and Between mid-2005 and the end of last year, General Motors slashed its U.S. advertising budget by almost $1 billion, TNS Media Intelligence estimates. That’s more money than all but 15 companies spend annually to advertise in U.S. media, the research firm says. As part of the restructuring plan outlined last week by CEO Rick Wagoner, GM is cutting its estimated $2.1 billion ad budget even more. Mark LaNeve, GM’s vice president of North American sales, service and marketing, told Automotive News the company is “looking for big savings and getting better at digital” advertising. Jon Swallen, senior vice president of research at TNS, cites two key changes in GM advertising: 1. A shift to car advertising from trucks. 2. An accelerating shift to online display advertising from other media. In the first three months of 2008, Swallen estimates, GM spent nearly $535.3 million on U.S. advertising, a 13.1 percent increase from the yearago quarter. The marketing launches of the redesigned Cadillac CTS and Chevrolet Malibu sedans largely accounted for that increase, he says. Swallen says he expects GM’s ad spending for all of 2008 to drop from last year’s level. GM spokeswoman Kelly Cusinato declined to comment on the TNS estimates. In this year’s first quarter, Swallen says, GM spent about $160 million to advertise its trucks, 50 percent less than in the year-ago quarter. At the same time, he says, GM’s first-quarter spending on car advertising doubled from the first quarter of 2007, to about $220 million. As rising gasoline prices cause more U.S. buyers to opt for cars rather than trucks, that change in GM’s ad focus could become even more pronounced, Swallen says. Swallen notes that since 2005, GM has cut U.S. ad spending in all major media except the Internet. “Disproportionate reductions have come out of the hides of local newspapers and local TV stations,” he says. Last year, Swallen says, GM spent $149.8 million to advertise in newspapers. In 2005, he says, that figure was nearly $575 million. By contrast, he says, the a
Table of Contents Feed for the Digital Edition of Automotive News - July 21, 2008 Automotive News - July 21, 2008 Gray sky, not blue; store values wilt Sour Chery: Bricklin suit claims corruption Germans in U.S. eye VW work S.C. warranty insurer faces shutdown LaNeve: Make do with less marketing money Tesla CAFE: 244 mpg Lincoln's big crossover Schaeffler goes shopping: Can supplier land Continental? Dealers cut, shift their ad spending Truck for the times? Oklahoma pickup gets 37 mpg For Chrysler sensations, glory days are gone Kuzak: Redone Fords must have best fuel economy The Fisher brothers: Quite a body of work Kazamai concept: Mazda's design heard round the world 3 years later, Mitsubishi, UAW resume contract talks Big-pickup production will plunge Nason's NHTSA: More rules, fewer penalties A vote for the Volt Hyundai: Genesis gives brand a new beginning in luxury GM may survive; to thrive, it needs hot products GM just bought some time Green can be cool; it's up to the maker Why don't we drive diesels in the U.S.? Hooray! Joint effort stops airbag deaths All-Stars: Look beyond top brass Leno was right about U.S. cars Toyota recalls Siennas, disputes safety issue This time, the industry embraces connectivity Telematics connects with consumers Telematics gets no respect — the word, that is Tapping mapping for an extra eye on the road Drivers can check CO2 'tire print' Pay As You Drive insurance tracks cars to trim costs Subscribers, sponsors may fund telematics services Big-truck sales fall 14% in June Continental plant to make brakes Lear to shut Mo. seating plant Modine shifts production to Ky. Linamar buys Visteon plant Picture this Lexus revamps 'Taste' marketing extravaganzas Suzuki hires new auto ad agency Fisker turns to Finnish firm to make first hybrids American Suzuki gets new president Canada sales slip 5.6% in June Dealers A big fuel saver: Easy-rolling tires (but watch braking) MPG now! Automakers race to boost efficiency Products — not entire brands — likely to be ditched Pared ad budget is back on the chopping block GM goal: Big small-car profits Congress mulls arbitration bill 2009 Mazda6 price: $19,220 Copart files antitrust suit Denton's out, Leuliette's in as Dura CEO June output falls 13.8% Dodge Challenger: Not quite a sellout Magazine is raided in Renault espionage case Ya gotta believe: Dealers buy GM stock States of the auto industry Will the big guns pull the trigger? Lear a year later: Icahn's offer in hindsight Midcourse correction in Toyota's global sales outlook Chattanooga: A good site better Automotive News - July 21, 2008 Automotive News - July 21, 2008 - (Page Intro) Automotive News - July 21, 2008 - Gray sky, not blue; store values wilt (Page 1) Automotive News - July 21, 2008 - Gray sky, not blue; store values wilt (Page 2) Automotive News - July 21, 2008 - Lincoln's big crossover (Page 3) Automotive News - July 21, 2008 - Truck for the times? Oklahoma pickup gets 37 mpg (Page 4) Automotive News - July 21, 2008 - Truck for the times? Oklahoma pickup gets 37 mpg (Page 5) Automotive News - July 21, 2008 - 3 years later, Mitsubishi, UAW resume contract talks (Page 6) Automotive News - July 21, 2008 - 3 years later, Mitsubishi, UAW resume contract talks (Page 7) Automotive News - July 21, 2008 - A vote for the Volt (Page 8) Automotive News - July 21, 2008 - A vote for the Volt (Page 9) Automotive News - July 21, 2008 - Hyundai: Genesis gives brand a new beginning in luxury (Page 10) Automotive News - July 21, 2008 - Hyundai: Genesis gives brand a new beginning in luxury (Page 11) Automotive News - July 21, 2008 - Why don't we drive diesels in the U.S.? (Page 12) Automotive News - July 21, 2008 - Why don't we drive diesels in the U.S.? (Page 13) Automotive News - July 21, 2008 - Leno was right about U.S. cars (Page 14) Automotive News - July 21, 2008 - Leno was right about U.S. cars (Page 15) Automotive News - July 21, 2008 - Toyota recalls Siennas, disputes safety issue (Page 16) Automotive News - July 21, 2008 - Toyota recalls Siennas, disputes safety issue (Page GM1) Automotive News - July 21, 2008 - Toyota recalls Siennas, disputes safety issue (Page GM2) Automotive News - July 21, 2008 - Telematics connects with consumers (Page 17) Automotive News - July 21, 2008 - Telematics connects with consumers (Page 18) Automotive News - July 21, 2008 - Telematics gets no respect — the word, that is (Page 19) Automotive News - July 21, 2008 - Tapping mapping for an extra eye on the road (Page 20) Automotive News - July 21, 2008 - Pay As You Drive insurance tracks cars to trim costs (Page 20A) Automotive News - July 21, 2008 - Pay As You Drive insurance tracks cars to trim costs (Page 20B) Automotive News - July 21, 2008 - Pay As You Drive insurance tracks cars to trim costs (Page 20C) Automotive News - July 21, 2008 - Subscribers, sponsors may fund telematics services (Page 20D) Automotive News - July 21, 2008 - Subscribers, sponsors may fund telematics services (Page 21) Automotive News - July 21, 2008 - Linamar buys Visteon plant (Page 22) Automotive News - July 21, 2008 - Picture this (Page 23) Automotive News - July 21, 2008 - Fisker turns to Finnish firm to make first hybrids (Page 24) Automotive News - July 21, 2008 - Canada sales slip 5.6% in June (Page 25) Automotive News - July 21, 2008 - Canada sales slip 5.6% in June (Page 26) Automotive News - July 21, 2008 - Canada sales slip 5.6% in June (Page 27) Automotive News - July 21, 2008 - Canada sales slip 5.6% in June (Page 28) Automotive News - July 21, 2008 - Canada sales slip 5.6% in June (Page 29) Automotive News - July 21, 2008 - Canada sales slip 5.6% in June (Page 30) Automotive News - July 21, 2008 - Canada sales slip 5.6% in June (Page 31) Automotive News - July 21, 2008 - Dealers (Page 32) Automotive News - July 21, 2008 - MPG now! Automakers race to boost efficiency (Page 33) Automotive News - July 21, 2008 - GM goal: Big small-car profits (Page 34) Automotive News - July 21, 2008 - Denton's out, Leuliette's in as Dura CEO (Page 35) Automotive News - July 21, 2008 - Denton's out, Leuliette's in as Dura CEO (Page 36) Automotive News - July 21, 2008 - June output falls 13.8% (Page 37) Automotive News - July 21, 2008 - Chattanooga: A good site better (Page 38) Automotive News - July 21, 2008 - Chattanooga: A good site better (Page 39) Automotive News - July 21, 2008 - Chattanooga: A good site better (Page 40)
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