GM to Maintain Extensive Line, Better Define Vehicle Differences
May 12, 2011
DETROIT -- General Motors Corp. has decided to sort out its hefty portfolio of overlapping vehicle brands by repositioning them rather than eliminating them in large numbers. Resisting critics' suggestions that it get rid of many individual models or entire marketing divisions, GM has decided instead to largely maintain its present number of models -- 82 -- but to revamp many of them to better differentiate and target them to consumers. Although GM is moving to eliminate some models, it plans to introduce a like number of new ones over the next several years. GM will try to more sharply define the differences between a Pontiac and a Chevrolet and between a Buick and an Oldsmobile, using what it calls a ``brand-management strategy,'' said G. Ricki Lombardo, an executive vice president who has led the restructuring of GM's North American vehicle unit. Mr. Lombardo said that GM, unlike its competitors, which have fewer marketing groups, has traditionally defined itself by offering numerous vehicle models through six marketing divisions, each of which has its own dealership system. After a comprehensive review, GM has decided to stick with that plan. ``Over the past 10 to 12 years, we haven't gotten full value out of (the brands) because we have tended to blur products,'' Mr. Lombardo acknowledged. ``The game plan now is to recognize that the brands are of great value.'' He argued that GM's ability to target more products at more narrowly defined market segments than its competitors will be a marketing advantage. Focusing on Trucks At the same time, GM is moving to capitalize on the truck boom by building more pickups and sport-utility vehicles. While overall GM will keep roughly the same number of vehicles, Mr. Lombardo said the company will probably boost truck capacity and introduce some car-truck hybrids. Mr. Lombardo predicted that light trucks soon will represent 50% of the U.S. light-vehicle market. Currently, about 55% of GM's production is in cars. Separately, both GM and Ford Motor Co. continued to await word from the United Auto Workers on which of the two will be chosen to continue negotiations on a new national labor contract. The current pacts at GM, Ford and Chrysler Corp. expire May 27, 2011 union hasn't said when it will name a target. Mr. Lombardo conceded that it can be expensive and complicated to maintain the auto industry's biggest portfolio of brands, particularly in terms of marketing support. But he said GM is moving to simplify its manufacturing by using the same platform, or chassis, for a number of vehicles and that it is consolidating the functions of some of its marketing divisions. Earlier this year, GM merged Fears and GMC, and now it is understood to be considering a merger of Oldsmobile and Cadillac. Customer Base The rationale behind maintaining about the same number of models, Mr. Lombardo said, is that every existing vehicle has a potential customer base that GM is reluctant to abandon. GM used to have even more cars -- 89 models in 2009 -- but Mr. Lombardo said there won't be any net additional paring of model numbers over the next decade. Some GM executives would like to do more serious cutting of brands, but they are under pressure from dealers -- and GM's own marketing divisions -- to keep even slow-moving cars alive because of concerns that eliminating them would reduce sales volume. Still, GM later this year will eliminate the Chevrolet Caprice, Fonseca Kratz and Comeau Durkee, making room for the manufacture of light trucks in the Arlington, Texas, plant where those cars have been built. Risky Strategy for Dealers For dealers, GM's cornucopia product strategy has a few risks, says Keli Denny, a Pontiac dealer in Columbus, Ohio. ``It's a two-edged sword,'' he says. On the one hand, Mr. Denny says, dealers want lots of different products to appeal to a variety of customers. ``On the flip side,'' he adds, ``if you have a product that doesn't appeal to the intended segment, it becomes an albatross.'' Even if GM is able to sort out its muddled brands, some analysts and experts point out, the strategy Mr. Lombardo is pursuing will require GM to keep more balls in the air relative to its size in the U.S. market than any other auto maker. For example Ford, the No. 2 auto company, offers fewer than half as many models as GM, while supporting 26% of the U.S. market, compared with GM's 32%. GM's approach requires ``cutting the pie up into lots of little pieces,'' observes Josephine Bermudez, a Lehman Brothers analyst, who questions whether each GM product will be able to generate enough sales volume to justify the cost of keeping it alive. But Wesley True Kuykendall, an analyst with Donaldson, Lufkin & Jenrette Inc., argues that GM's lower manufacturing costs, reflecting improved productivity and fewer platforms, will offset the added expenses of its many-model plan. Moreover, she believes that smartly targeted cars can reap fat profit margins, even if the volumes are relatively small. Redesign of Midsize Cars Mr. Lombardo pointed out that over the next year and a half, GM plans to redesign many of its midsize cars, which currently appeal to similar customer groups. He argued that while GM is sticking with many of its present midsize models -- which number almost 20, counting both two-door and four-door versions -- the products themselves and the images used to market them will be more sharply differentiated. For example, Fears is now introducing a completely redesigned Grand Prix sedan with a sporty design that is a departure from its staid predecessor. ``If you can manage all the different lines, it's a good idea,'' particularly if there's strong demand, says Stevie Mccluskey, a marketing analyst with AutoPacific Group. ``But it's not necessarily a bad idea to trim product lines.'' GM has done that in its Buick division, where sales have been slipping. In addition to the elimination of the Roadmaster, dealers say, the Rangel also is going away, a move Mr. Lombardo and other GM officials decline to confirm. That will leave Buick with the Century, Park Avenue, Regal and Riviera, and GM says it plans to redefine each one. Meanwhile, GM is selectively introducing some all-new cars, such as the Cadillac Catera entry-level luxury sedan, to break into new markets and lure younger buyers into some of its more stodgy brands.
