From Mr GM himself, Rick Wagoner's view on GM Options

[Rob Hood]

From the WSJ.

Rob

A Portrait of My Industry
By RICK WAGONER
December 6, 2005; Page A20

DETROIT -- Since mid-October, General Motors has announced plans to cease production at 12 North American manufacturing facilities and eliminate 30,000 jobs by 2008; trim $1 billion in net material costs in 2006; and, in cooperation with the United Automobile Workers, reduce GM's retiree health-care liabilities by $15 billion, or about 25%, for an annualized expense reduction of $3 billion.

The reason for these dramatic actions is no secret: GM has lost a lot of money in 2005, due to rapidly increasing health-care and raw-material costs, lower sales volumes and a weaker sales mix -- essentially, we've sold fewer high-profit SUVs and more lower-profit cars. What is less clear is why things turned sour so fast for GM, as well as for other American auto makers and suppliers. To put it another way, why are so many foreign auto makers and suppliers doing well in the United States, while so many U.S.-based auto companies are not?


* * *

Despite public perception, the answer is not that foreign auto makers are more productive or offer better-quality or more fuel-efficient vehicles. In this year's Harbour Report, which measures manufacturing productivity, GM plants took three of the top five spots in North America, including first and second place. In the latest J.D. Power Initial Quality Study, GM's Buick and Cadillac ranked among the top five vehicle brands sold in America, ahead of nameplates like Toyota, Honda, Acura, Nissan, Infiniti and Mercedes-Benz. And GM offers more models that get over 30 miles per gallon (highway) than any other auto maker.
In fact, this kind of operating performance makes GM's recent financial performance all the more frustrating. The fact is, we're building the best cars and trucks we've ever built at GM, our products are receiving excellent reviews, and we're running the business in a globally competitive manner. Outside of North America, we're setting sales records. In fact, for the first time in our history, we will sell more cars and trucks this year outside the United States than inside, aided in no small part by our market-leading performance in China.

So why, fundamentally, are GM and the U.S. auto industry struggling right now?

Intense competition, for one. The global auto business grows tougher every year, and we accept that. Our ability to compete has made us the world's No. 1 auto maker for 74 consecutive years, and we're fighting hard to stay on top.

Beyond that, our performance in the marketplace has not been what we've wanted it to be. While we've been strong in truck sales, we've been weaker in cars, and, yes, the recent surge in gas prices hurt sales. While we've led in technologies like OnStar, we've lagged in others like hybrid vehicles. Rest assured, we're working hard to address the areas where we lag. Simply put, we are committed to doing a better job of designing, building and selling high-quality, high-value cars and trucks that consumers can't wait to buy. No excuses. We will step up our performance in this regard.

But competition and marketplace performance are not the whole story. To fully understand why GM and the U.S. auto industry are struggling right now, we have to understand some of the fundamental challenges facing American manufacturing in general -- challenges well beyond the control of any single company.

There are those who ask if manufacturing is still relevant for America. My view: You bet it is! Manufacturing generates two-thirds of America's R&D investment, accounts for three-fourths of our exports, and creates about 15 million American jobs. And the auto industry is a big part of that, accounting for 11% of American manufacturing, and nearly 4% of U.S. GDP. Together, GM, Ford and DaimlerChrysler invest more than $16 billion in research and development every year -- more than any other U.S. industry. And GM, alone, supports more than one million American jobs.

So what are the fundamental challenges facing American manufacturing? One is the spiraling cost of health care in the United States. Last year, GM spent $5.2 billion on health care for its U.S. employees, retirees and dependents -- a staggering $1,525 for every car and truck we produced. And the figure is going up again this year. Foreign auto makers have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries their governments fund a much greater portion of employee and retiree health-care costs.

Some argue that we have no one but ourselves to blame for our disproportionately high health-care "legacy costs." That kind of observation reminds me of the saying that no good deed going unpunished. That argument, while appealing to some, ignores the fact that American auto makers and other traditional manufacturing companies created a social contract with government and labor that raised America's standard of living and provided much of the economic growth of the 20th century. American manufacturers were once held up as good corporate citizens for providing these benefits. Today, we are maligned for our poor judgment in "giving away" such benefits 40 years ago.

Another factor beyond our control is lawsuit abuse. Litigation now costs the U.S. economy more than $245 billion a year, or more than $845 per person. That's more than 2% of our GDP. No other country has costs anywhere near this level. And the perverse thing is that, in many cases, the majority of courtroom settlements go to the lawyers and other litigation costs, not to the injured parties.

Another major concern is unfair trading practices, especially Japan's long-term initiatives to artificially weaken the yen. A leading Japanese auto maker reports that for each movement of one yen against the dollar, it gains 20 billion yen in additional profitability -- or nearly $170 million at today's exchange rate. No wonder Japanese auto makers have noted their recent record profits were aided by exchange rates. And no wonder the U.S. trade-balance deficit continues to grow by leaps and bounds.

There are other issues, of course, but my point is this: We at GM have a number of tough challenges that we must and will address on our own -- but we also carry some huge costs that our foreign competitors do not share.

Some say we're looking for a bailout. Baloney -- we at GM do not want a bailout. What we want -- after we take the actions we are taking, in product, technology, cost and every area we're working in our business today -- is the chance to compete on a level playing field. It's critical that government leaders, supported by business, unions and all our citizens, forge policy solutions to the issues undercutting American manufacturing competitiveness. We can do this. And we need to do it now.

Mr. Wagoner is chairman and CEO of the General Motors Corporation.

[KeithO]

Replace "GM" with "big steel company of your choice" and it reads like letters from the CEO's of steel companies 10 years ago.

I work in the steel industry and watch the demise and it looked alot like the airlines more recently and now the auto industry. We will all pay for this via taxes, primarily through the Pension Benefit Guaranty Corp (PBGC).

I disagree that the pension agreements from years ago weren't mistakes. The evidence had to be there and management and the union still agreed to terms that were not fiscally responsible. They look alot like the gov't-run pyramid scheme called Social Security - only the people who got in early got a good deal.

Litigation could probably be better handled but I think it is a red herring in the text that is easy to get people to agree on.

You will see the same crap with the Japanese in any industry. If you've done business in Japan (as I have in addition to 20 other countries), the first thing that you notice is that there are no American cars on the roads and few European cars. Japan is a closed economy and only open for export. The last time I was there, it was to agree a way to license one of our products in Japan via a Japanese company since we can't sell directly into Japan. I went through a series of 2 meetings - I ended the first one because it became clear that I wasn't there to explain our technology to their engineers - I was expected to give them enough information to duplicate it. In my second meeting with their upper management, I made it clear that they would never get the detailed design documentation as part of the license agreement and the meeting was ended shortly thereafter. Japan is very good at serving their national interest. The only reason that their impact will be less and less over time is their neighbors to the west - China.

This is an unfortunate trend in the US economy and the automakers won't be the last to experience it.

[00 SS]

He did touch, briefly, on the one issue that I think is real. They don't currently build cars people want. They hold On-Star up as cutting edge technology, but I specifically would not buy a car that had it. The fact is, most of the cars, and trucks, are average and boring. The few that aren't are way too expensive. I do believe they are competitive in all the areas he lists, but they need to be better if they want to regain market share. In short, they used to build cool cars at a reasonable price and they need to start doing that again.

[KeithO]

I do agree that they are making decisions on what cars to make and sell based on accounting a little too much. As much as I liked the GTO in principle, they made it too heavy and it was too expensive. When I saw the first commercial for the new Impala SS a couple of months ago, I looked at my wife and said, "hey, it looks like they finally built a car that I would want to own". I did a little research and found that the V8 Impala SS is fwd. End of any interest.

[marka]

Howdy,

We recently bought a new Honda Civic.

GM (and Dodge) flat out didn't build a vehicle we wanted to buy as a daily driver.

GM (and Dodge) needs an "economy" car that is comfortable, built well, has reasonable performance (read, tight handling, not more power), and which gets awesome fuel mileage.

GM doesn't have _anything_ that even comes close to that.

Dodge has/had the neon, but it severely fell down on comfort.

We bought the Honda (also looked at a Corolla) even though it cost $5k more than the Neon. I seriously doubt the Civic cost $5k more to build than the Neon however...

Automakers are going to need to understand that buyers who can afford to buy what they want (within limits) are now looking at things like fuel mileage to make that decision. They need to start making smaller nimbler cars that have something over the standard economy car, and charge appropriate prices for them (i.e. charge more than the "economy" car).

The other GM problems... I'm not particularly qualified to have an opinion. However I did just hear on the news that in response to Delphi's struggle for survival, the union has told its members to prepare for a strike.

Yeah, _that'll_ help.

Mark

[trackbird]

Automakers are going to need to understand that buyers who can afford to buy what they want (within limits) are now looking at things like fuel mileage to make that decision.

Actually, buyers who can afford what they want don't give a rats butt about gas mileage in many cases. There are those who will buy a 50K Caddy SUV if it got 3 mpg (which it almost does).....then, there are the rest of us. (IMG:http://www.frrax.com/rrforum/style_emoticons/default/wink.gif)

[marka]

Automakers are going to need to understand that buyers who can afford to buy what they want (within limits) are now looking at things like fuel mileage to make that decision.

Actually, buyers who can afford what they want don't give a rats butt about gas mileage in many cases. There are those who will buy a 50K Caddy SUV if it got 3 mpg (which it almost does).....then, there are the rest of us. (IMG:http://www.frrax.com/rrforum/style_emoticons/default/wink.gif)

Howdy,

You're missing my point.

The market is changing. Buyers who can buy what they reasonably want (which includes me), _aren't_ buying gas guzzling huge SUVs any more. The higher gas prices have 'woken them up' to some extent.

Hybrids are getting to be an "in" thing to have. Good gas mileage is getting to be an "in" thing to have.

It doesn't matter that the actual dollar difference isn't all that much between 20mpg and 35mpg for the average driver (12k miles/year at $2.30/gal == $592/year), its the _perception_ that counts.

Heck, look at comments on some of the racing lists to see what I mean... Folks aren't going as far to the events because of higher fuel prices. Do the math... The higher fuel prices result in a _very_ small increase in the actual costs for the weekend, yet folks all the time are saying things like "with the higher fuel costs, I won't be doing as many far away events".

That's a main reason that GM is seeing a dropoff in big SUV sales, which was about their only advantage in the industry. With that market changing, they (and other companies) need to retarget their products and do it right quick.

The buyer they all need to be concerned with isn't the $50k (or whatever) Escalade buyer... Its the Explorer / Suburban / Expedition buyer. Folks are getting out of the SUV craze... And whoever has figured out where they want to go the best is who is going to survive.

Mark

This post has been edited by marka: Dec 7 2005, 05:30 PM

[bubba353z]

I have to agree with Marka on his accessment....

I bought my Civic in 99, as a replacement for my 87 Corolla FX-16 (boy I loved that car.... but I digress). The only options I had for a small, economical car were:

Toyota Corolla
Ford Escort (Mazda version)
Chevy Cavalier (or equivalent)
Dodge Neon

If the Corolla would have had a nicer interior design, I might have been swayed to stay with Toyota - but I wouldn't have given the other three the time of day.

My wife has a 2000 Grand Prix - nice car, but if we were buying again today there would likely be a Camry / Accord on her side of the garage.

Build it well, make it look nice, and charge a fair price. That will sell cars.

BTW - I was able to visit the Corvette assembly plant, during my last vacation. I didn't see anyone working particularly hard, during the tour. If all GM plants operate like that, then I see why they are in so much trouble.

[Unbalanced Engin...]

Part of the problem is healthcare, part is the legal system, but I would argue that the largest part is that Americans don't care where things are made. They also don't really care about quality (even though they give lip service to it). What Americans care about is cost. The only reason the general public is interested in a hybrid is because of the recent increase in gas cost.

That fact was driven home during a recent trip to Australia. In Australia people seem to care about where things are made and also seem to realize that if they purchase things made outside their country it WILL have an impact on their economy. Advertising and labeling of products that are made in Australia are very prominent. People in this country don't give a rats ass where something is made as long as it is cheap. I don't see a way out of our current predicament long term unless that changes.

Jason S.

This post has been edited by Unbalanced Engineering: Dec 7 2005, 05:47 PM

[bsim]

In short, they used to build cool cars at a reasonable price and they need to start doing that again.

Chevette
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When did they ever build 'cool' cars, other than the Corvette and (with the exception for a few years) Camaros?

Novas and Chevelles of the 60's/70's were the grocery getters of the day. Maybe what we think of as 'cool' cars, are the beefed-up muscle cars that people had modded?

Then, as Rick states, we didn't have the lawsuits we have today. A company could actually over power a car, and not worry about getting sued because grandma did a smokey burnout over hill and dale, and ran into a drugstore on her way to pick up Depends.

We're all car guys (and gals) here. We don't understand that there are actually people in this world that go to a dealership and say "what do you have for $XXXX?". They don't do research, they don't care about speed or handling. They want a true 'machine' that will perform the needed task of moving them and their stuff from point A to B - and get this - with NO emotional attachment whatsoever. Strange but true. And believe it or not, there are more of them than us. That's the basic idea behind "halo cars". A Corvette in your lineup brings traffic to the dealership, and you sell tham a bland grocery getter.

The new Malibu is a good car (not that 'Classic' POS), the HHR smokes a PT Cruiser, the Impala is a great freeway ride, and the CTS is plain awesome. But no one knows that. In my opinion, I think what we're seeing in today's buying cycle is that a majority of people actually buying cars these day still has lingering efects of the late 70's to mid- 80's memories (or their parents taught them) regarding the horrible quality of products ALL of the US manufacturers put out.

They've made up a ton of ground, but Mr. Majority General Public won't come in, since he thinks a Camry is more reliable than a Buick Regal, and Mr. Minority Enthusiast won't come in since that Impala is FWD. Doesn't matter what the product is at this point due to the percieved nature of the cars produced.

So, all the big manufacturers are screwed this way. Especially since you can't compete dollar to doallr because of cost required to build at home. Interesting to me that labor forced a number of changes "for the working man", trying to provide a "living wage", but in the end formed the basis for America to be on an un-even playing field during this 'globalization". Who's doing well? The already rich 'leaders', and the working man gets screwed again - can't get a good job 'cause it got sent off to Mexico, and can't afford even a Civic on McDonalds wages.

[sgarnett]

a weaker sales mix -- essentially, we've sold fewer high-profit SUVs and more lower-profit cars

That is in itself a problem that is becoming more pervasive. Many companies in many industries seem to think that the secret to big profits is to invest in and push customers towards buying big-ticket, high profit models. Then they are perpetually surprised that "the mix was wrong".

Now, when was the last time any of us went out seeking a lower bang for the buck? Sure, some have more disposable income than others, but nobody goes out hoping to spend more for less.

Very few of us bought the f-body because it was our ultimate dream car (though I happen to really like the 4th-gen body and cockpit comfort). We bought them because they offered a lot of performance for the dollar. I really haven't been looking for new ways to spend more money on less car.

There's also some absurd bundling going on. For instance, on my 2001, I wanted traction control. That meant I had to have a leather interior. What does one have to do with the other functionally? Nothing, it's just a blatant example of trying to "sell up". As a customer, I always resent the heck out of stuff like that. It makes the whole process frustrating. And yes, I did get the leather anyway (along with other premium options), but "pre-owned" instead of new.

Personally, I think a lot of companies need to start building their business model around the products people actually want instead of the products they wish we'd buy.

[00 SS]

Chevette
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I alway liked the older Monte Carlo's and Park Aves. You happened to pick the dreggs of the '70's in your list. But there were a few other nice cars other than the Corvette and Camaro.

When did they ever build 'cool' cars, other than the Corvette and (with the exception for a few years) Camaros?

Novas and Chevelles of the 60's/70's were the grocery getters of the day. Maybe what we think of as 'cool' cars, are the beefed-up muscle cars that people had modded?

Then, as Rick states, we didn't have the lawsuits we have today. A company could actually over power a car, and not worry about getting sued because grandma did a smokey burnout over hill and dale, and ran into a drugstore on her way to pick up Depends.

Funny!! I almost fell out of chair when i read that.

Yes, the old chevelles and Nova's were mostly grocery getters, but they had muscle car versions. And even in grocery getter form had some style and were as good and usually better than the competition at the time. Look at the Mustang. It's one of the only car left on the market with standard v6 and an optional v8. Sales over all are quite good, but how would they look if only one or the other was available?

[trackbird]

Howdy,

You're missing my point.

Mark,

I really wasn't missing your point so much as thinking about some of the GM statements I've seen in recent months. Such as one that said that they expect to sell 750,000 SUV's this year. They claim that there will always be a core market for 3/4 million SUV's, but they are not gaining new SUV customers. Maybe the article I saw was a typo, but if they are selling 750,000 SUV's a year, then that is your group who can buy what they want and will (and are not concerned about mileage).

I agree that middle class America is voting with their wallets (I wasn't really disagreeing with you about that). And, they are voting Japanese/Korean/etc.

I'm amazed that hybrids are moving in this country. I spoke to a Honda Insight owner one day as I walked out of work and I asked her "would you do it again?". She said "no". Between batteries that kept needing replaced, bad battery connectors, and her less than advertised mileage (she said she was getting about 47 mpg, her old corolla got 43 and didn't have problems with running out of battery when going over the mountains to KY and TN, etc). I think people are buying these things with unreal expectations (or they really are using them to get around town only). Once the $2500+ battery pack goes bad, I bet they will consider gas motors again.....

Maybe I'm just cynical. My driveway holds one American car (built in Canada) and a German car (built in Mexico). Hmm.....

[marka]

There's also some absurd bundling going on. For instance, on my 2001, I wanted traction control. That meant I had to have a leather interior. What does one have to do with the other functionally? Nothing, it's just a blatant example of trying to "sell up". As a customer, I always resent the heck out of stuff like that. It makes the whole process frustrating. And yes, I did get the leather anyway (along with other premium options), but "pre-owned" instead of new.

Howdy,

This is an area where the import guys are _terrible_ in comparison to domestics... For instance, on a Honda Civic there are something like four different models, and you get to choose the interior and exterior colors. That's it. Toyota is a little better, but still most of their options are grouped.

Want an external temp display? You gotta buy an EX. You can't get it on an LX, no matter how much you'd like to.

In some ways, as a consumer, this makes the process easier btw. For me, I'd rather be able to pick and choose individual options, but "joe carbuyer" seems to want things simple.

And this is an area where the domestics could have an edge, if they'd start building cars people actually wanted.

Somewhat unrelated to that... How are Dodge & Ford doing in comparison to GM? Dodge seems to have vehicles designed by people that "get it" by and large... No, they don't have a Neon for someone like me (wants good gas mileage & comfort), but otherwise they're pretty with it... Is that translating into financial health for them?

Btw, by and large most import cars cost more than most domestics in the same categories... How in the heck does that match up to "Americans will buy anything if the price is right, made in the USA or not"? I think the real problem is that right now Joe Public has it firmly in their heads that domestic cars are of an inferior quality. The only way that's gonna change is if domestic manufacters start building cars that are _better_ than the imports... Either better in specification for the same price, equal in specification for less price, etc. And they'll need to do it for a while before perceptions will shift enough to matter.

Mark

[marka]

Howdy,

Oh yeah...

When in the hell is GM gonna pull their head outta their ass and realize that "Performance" does not equal "horsepower"??

Why couldn't they have made a decent handling version of the cavalier? I'm not talking huge money here, I'm talking about springs/bars/struts/wheels. Make a $1.5k "performance suspension" option...

Similarly, why not make a version of the GTO that doesn't weigh a billion pounds, has manual cloth seats, etc. etc.? We looked at buying a GTO... Despite all that power the car felt about the same as our '93 BMW 325is in the acceleration dept (couldn't really compare the handling dept... The 325 wasn't very stock there. Though the GTO felt pretty floaty / disconnected).

I.e. make "halo" option packages... Get the enthusiast in the showroom and then let the enthusiast sell your cars for you.

I dunno what GM's problem really is... Caddy seems to "get it". The corvette guys seem to "get it"... But GM would do well to realize that there are a hell of a lot more folks that can afford $20k to $30k cars that want fun cars to drive. And "fun" doesn't just mean "more power" and it doesn't mean "can't be practical".

Mark

[pknowles]

Maybe I'm just cynical. My driveway holds one American car (built in Canada) and a German car (built in Mexico). Hmm.....

My Camaro is the only non-American built car right now; 02 Camaro built in Canada, 97 C2500 built in MI, and the new addition to the family 98 Civic EX was built in OH.

The new Malibu is a good car (not that 'Classic' POS), the HHR smokes a PT Cruiser, the Impala is a great freeway ride, and the CTS is plain awesome. But no one knows that. In my opinion, I think what we're seeing in today's buying cycle is that a majority of people actually buying cars these day still has lingering efects of the late 70's to mid- 80's memories (or their parents taught them) regarding the horrible quality of products ALL of the US manufacturers put out.

I agree with this. A lot of people believe Honda's will run forever and a Buick might make it 75,000 miles; doesn't matter if it's true or not; people believe it. Over the summer of this year I got a new Malibu as a rental car when I was out in KS. I have to say that was a great car for what it was. I couldn't believe the power they got out of that little ECOTEC; I had to look under the hood to check if it had the V6. Not really the kind of car I would buy, but it was a nice car that drove well. I never would have given it a thought if I hadn't gotten one as a rental.

This post has been edited by pknowles: Dec 7 2005, 07:40 PM

[bsim]

but it was a nice car that drove well.

Right! Which would be perfect for 80% of the car buyers in the market. But: (IMG:http://www.frrax.com/rrforum/style_emoticons/default/dry.gif)

I never would have given it a thought if I hadn't gotten one as a rental.

Exactly. That's the domestic manufacturers problem - how to get "Toyota" people to give a thought to their "domestic" cars. (IMG:http://www.frrax.com/rrforum/style_emoticons/default/mad.gif)

[bsim]

Yes, the old chevelles and Nova's were mostly grocery getters, but they had muscle car versions.

Actually, those 'muscle car versions', were the identical car with a big-block. As someone stated above, that won't fly in today's market. Cars should turn and stop too...

BTW, I forgot to mention the Cobalt SS - GREAT Civic fighter. But what pimple faced kid wants a GM nowadays? They'll be thought of as behind the times! (IMG:http://www.frrax.com/rrforum/style_emoticons/default/mad.gif)

[rmackintosh]

What scares me about that statement is that they seem to be following a typical American trait....."...blame things OUTSIDE your control for your fate...."....not MY fault...

He touts GM's "numbers" on reliability and economy and seems to say "... hey, look at what we've done.....its not OUR fault people aren't filling their driveways with GM's..." Then he touts ONSTAR as a technical acheivement along the lines of Hybrids...plueeeze. NOBODY buys a car BECAUSE of ONSTAR. (IMG:http://www.frrax.com/rrforum/style_emoticons/default/blink.gif) You can't count something like that as leading the industry UNLESS, it is a hot item that people actually want! He talks of how great all the new cars are, but NOBODY is buying them....at least in numbers to "save" the company.

Sure, health care, and unions are killing the company to a degree....but they are dealing with that now....and the BETTER STAY AGGRESSIVE ON THAT FRONT....but the weak cars remain....

BUILD CARS PEOPLE WANT.......

[nape]

BTW, I forgot to mention the Cobalt SS - GREAT Civic fighter. But what pimple faced kid wants a GM nowadays? They'll be thought of as behind the times! (IMG:http://www.frrax.com/rrforum/style_emoticons/default/mad.gif)

If I could afford a "brand new" daily driver, one of those would be at the top of my list other then the 18" wheels on the '05s. With the new '06s, they have a non-supercharged SS with 17" wheels.

It's totally buyer perception on my part, but I don't want the additional maintenance price of 18" tires. It's probably negligable, but it's what I immediately though when I saw the 18" wheels. Not to mention that I'd probably bend one a year on the crappy Chicago roads.

I think some of GMs newer cars have merit, but it's going to take a while for buyer perception to change.