GM’s Top Salesman LaNeve Sees the Glass Half Full
December 10, 2007

By Dale Buss

DETROIT -- Oil prices were surging to near $100 a barrel. The housing downdraft was whacking economic optimism with each new report. General Motors’ sales were in the process of dropping by a double-digit percentage. And GM bean counters were putting the finishing touches on a quarterly statement that would yield an industry-record quarterly loss.

But still, it was a good November for Mark LaNeve, GM’s vice president of vehicle sales, service and marketing. That’s because he was seeing a bunch of other numbers, too -– the ones that showed significant and sustained upticks in the company’s market share, consumer purchase consideration of GM vehicles, product-quality scores and even the equity of GM’s brands.

And ever the salesman, LaNeve was touring the country, hitting 14 cities for meetings with 40 GM dealers and ladling out the Kool-Aid with the help of a 10-slide PowerPoint presentation that told the story of GM’s comeback and sounded a rallying cry as 2007 was nearing a close.

“We’re getting a lot of stability in the fundamentals,” LaNeve told AutoObserver shortly after his barnstorming tour, “so that when the market improves, we’re well positioned to push through on the other side. We’re going from surviving to winning. We’ve done a lot of the dirty work, and in a tough environment.”

Some industry trackers are agreeing with LaNeve. “Definitely,” says Jesse Toprak, Edmunds.com’s executive director of industry analysis, “GM currently is in the best position of any domestic automaker in terms of where they are in their turnaround plans and product mix.”

Adds Art Spinella, president of CNW Market Research, “On a relative basis, GM is looking like they finally have their act together.”

Of course, LaNeve’s pep talks were overshadowed a bit in mid-November by GM’s announcement of the $39-billion loss. The mammoth financial hit mostly was attributable to a tax-related accounting maneuver, which eventually could be recovered if the company posts three consecutive years of profitable quarters.

But some on Wall Street interpreted the charge as an indication that GM’s situation was worse than they’d understood.

Then the company got caught up in the subprime-mortgage mess through its 49 percent owned GMAC subsidiary. GM’s stock fell by 39 percent through November 20 from its three-year high of $43.20 in late October, immediately after it announced an epochal new labor contract with the United Auto Workers union. And Moody’s Investors Service lowered its credit-ratings outlook for GM to stable from positive. Investors voted too: GM shares fell more than 6 percent the next day.

Moreover, GM’s sales cramped somewhat as the year began to wind down. November sales dropped 11 percent compared with a year ago, which GM blamed on continuing reductions in daily rental sales and softening industry demand. Consequently, the company said it reduced its planned first-quarter 2008 production to a level 11 percent below first-quarter 2007 actual production.

Plus, when you’re GM, you’re never out of the woods unless it’s 1960. LaNeve and other GM executives concede that there’s no guarantee the company will continue the relatively minor progress it has made so far. There remains huge global overcapacity in the auto business, and economic fundamentals around the world have become shakier. If the U.S. economy alone deteriorates significantly, then all bets are off not only for GM but also for the entire industry.

But LaNeve’s personal forecast calls essentially for the U.S. industry to come in at about a 16.2-million-unit annual sales pace for the second half of this year, down from about 16.8 million in the first half of 2007 and from 17.2 million sales for all of 2006. He sees the low-16s pace continuing through the first half of 2008 as the nation crawls out of its economic woes and then strengthening to the high-16s again in next year’s second half.

And for now, the uncertain backdrop hasn’t prevented GM from making significant progress in important measures of its relationship with consumers. They’re the type and magnitude that suggest GM really might have turned the corner with American car-buyers, after about a quarter-century of recognizing many of its problems but proving unable to turn them around.

Here are the half-dozen building blocks of LaNeve’s argument that GM has entered a new era of sustainable improvement:

Products are better. GM has launched a series of new products over the last two years that are considerably more intriguing to consumers than their predecessors. The overall strategy and all of the products themselves finally bear the full imprimatur of Vice Chairman Robert Lutz, who joined GM six years ago to take over as product-development czar.

These winning new GM offerings include the entire Saturn lineup, the Lambda-platform crossover vehicles including the Buick Enclave, new full-size Chevy Silverado and GMC Sierra pickups, new Chevy Tahoe and GMC Yukon full-size SUVs, and the new Cadillac CTS midsize sedan. And already, there are signs that the just-introduced, new-inside-and-out Chevrolet Malibu compact will be joining this roster of good-news producers.

“It’s really encouraging,” LaNeve says of the products. “All of them have been critically acclaimed. And we’ve gained retail share with every one of these products.”

Quality of GM products has improved strongly enough, and consistently enough, that it now has become a clear advantage to the company rather than just a wash, as a few years ago, or a heavy liability as it remained even a decade ago. J.D. Power & Associates’ closely watched customer-satisfaction ratings, in fact, have Buick, Cadillac and Saturn ranked among the industry’s top six brands, and none of GM’s brands is ranked below the industry average (though Toyota, Ford and Chrysler brands are).

And LaNeve claims that GM is far from an also-ran in turning “green” as well. Its Chevy lineup boasts improved fuel economy across the board, for example; GM is bringing out more hybrids; and there’s the possibility that it may soon announce a decision to produce the Volt, a plug-in hybrid.

The best illustration of consumers’ rising perceptions of GM products is a chart that LaNeve used in his dealer presentation that lists the changing reasons consumers buy GM. In both 2003 and 2004, according to company research, the top reason cited by GM purchasers was “rebate/incentives,” with “value for the money” ranking as the No. 2 motive in each of those years. Apparent consumer indifference to GM’s products per se was indicated by the fact that “exterior styling” placed fourth among reasons for purchase in 2004 and, by 2005, had dipped to fifth place.

What a difference two years can make. By 2006, “exterior styling” had surged to first place in GM customers’ reasons for purchase, and it has kept first place this year. By contrast, “rebate/incentives” faded to fifth place in 2006 and has dropped off the top-five chart completely this year.

During this year’s first quarter, GM purchasers were citing these top five motives in order: “exterior styling,” “value for the money,” “fuel economy,” “dependability/reliability,” and “dealership sales experience.” Each of the top four, in fact, echoes something about the desirability and quality of GM’s products in consumers’ eyes.

Market share is inching up. Not surprisingly given the improvement in GM’s lineup and in consumers’ perceptions, the company’s market share is trending up as well. And while much was made earlier this year of Toyota’s finally exceeding GM in overall global unit sales, the fact is that, since the first quarter, GM has retaken a slim edge over Toyota in worldwide volume.

A gradual resurgence in the U.S. market has been a significant reason. “Our overall [U.S.] retail market share has been remarkably steady over the last 28 months,” LaNeve notes. It has inched upward since mid-2005, in fact, to 22.9 percent as of October. And over the last three months, GM’s share actually has risen to around 25% percent, up a full percentage point from a year ago.

The biggest reasons are GM’s outstanding performance in segments of the SUV business. GM’s share of the large-SUV market has risen to about 79 percent lately from just around 70 percent a year ago. And GM now has a 23 percent chunk of the crossover market, up from only about 10 percent a year ago.

But in the car market, GM has fared worse, with its share falling south of 15 percent for the last few months after holding at above the 15 percent level for most of the last two years.

Retail pricing has firmed. GM finally has gotten a hook into its labor-cost situation with the new agreement reached with the United Auto Workers’ union after a two-day strike in October -– a pact that the union since has basically replicated with Chrysler and Ford. Among other things, the accord will allow GM finally to dial back some of the built-in escalations in labor costs that had threatened its very survival.

But on the other side of the profit-and-loss equation, GM already was improving its pricing. More desirable products have certainly enabled that. Even more important has been GM’s determination to wean its buyers off of the vicious cycle of rebate anticipation that began in 2001, when the company’s huge incentive program helped keep the American economy humming post-9/11, and 2005, when the company delighted buyers by offering them same-as-employee discounts.

LaNeve used two sets of figures with dealers to drive home his point. The first was a graph showing the decline in GM’s per-unit incentive spending, depicting a huge drop-off from its peak of $4,197 in 2004 down to $3,097 for 2007 to-date; that compared with an overall industry peak of just $2,639 in 2004 and the industry’s $2,457 per unit so far this year.

The other set of numbers was the average transaction price. Since 2004, GM’s has risen by a total of 4.7 percent, while the industry average was 3.8 percent, and Toyota’s has increased by just 1.1 percent.

Daily-rental business is down. GM and Ford have made a concerted effort lately to restructure their participation in the fleet business, particularly daily-rental vehicles purchased by Hertz, Avis and the other car-rental companies. Over the previous several years, GM had used fleet sales as a convenient outlet for keeping its factories humming, even though daily-rental companies typically were buying up base versions of vehicles that, in turn, would bring down the residual value of those models when they were sold at auction after their turns in rental fleets. The whole exercise hurt GM’s brands and its profitability.

But over the last couple of years, GM has made huge cuts in sales to the daily-rent business, whacking it down from more than 800,000 vehicles a year to the current level of about 560,000 to 570,000 annually.

“We’ve raised prices, and our partners have taken fewer vehicles,” LaNeve says. “So the economics of the business have improved dramatically.”

Brand health is improving. All of the above, of course, adds up to improving prospects for most of GM’s brands and individual models in both quantifiable and qualitative ways.

One of them is purchase consideration. “I’m seeing GM’s vehicles show up on shipping lists far earlier in the process than they have in 20 years,” says Spinella, whose Bandon, Oregon-based company tracks consumer attitudes toward automobiles.

When it comes to Cadillac, for example, LaNeve says that the new CTS and the always-popular Escalade are good product standards for the brand, though he concedes that Cadillac’s overall product line is “later in its life cycle.” Yet, LaNeve says, Cadillac needs a “good crossover” as well as “an expressive coupe to compete with Mercedes-Benz, BMW and Lexus.”

Chevrolet’s fortunes have been looking up thanks in part to the strong performance of its new truck products. And LaNeve believes that Malibu gives Chevy the first legitimate shot ever to at least take a bite out of compact-sedan buyers who have fixated on Toyota Camry and Honda Accord for more than a decade. If Chevrolet makes it on a buyer’s initial shopping list, Spinella says, about 40 percent of consumers now end up buying a Chevy, up from 25 percent just a couple of years ago.

Meanwhile, new models are raising Buick’s hopes higher than in some time. Maria Rohrer, Buick’s marketing director, claims that the Lucerne midsize sedan “stands right up to Lexus ES,” while the Enclave compares favorably with the Lexus RX. “There’s nothing stodgy about that vehicle,” she says. “All kinds of people are looking at Buick now in a fresh new way because of it, some of them from aspirational brands.”

And given that Buick just placed second (to Jaguar) in the J.D. Power rankings, Rohrer adds, “that speaks to our quality and image perspective. We’ve always had it but haven’t talked about it enough.”

Saturn’s brand reputation has risen more significantly and sharply than that of any other GM division. Given up basically for dead a few years ago, Saturn lately has benefited from a rededication by GM, an entire new product line and a burnishing of its once-trendy image. If a Saturn gets put on a first shopping list nowadays, CNW’s data shows, about 60 percent of consumers will end up buying a Saturn. “Those are Toyota-like numbers,” Spinella says.

Indeed, Saturn’s sales were up more than 10 percent in October over a year earlier. “If they keep going up 10 percent a year,” LaNeve quips, “That’s like compound interest. It could start to add up.”

Still, LaNeve concedes, continual strong growth by Saturn “will take a little longer than we thought.” November sales, for example, zagged down 17 percent compared with a year ago, though Saturn was still nearly 8 percent ahead for 2007 to date.

Moreover, the Saturn Aura sedan that was introduced in 2006 hasn’t taken off as GM had hoped. One reason, LaNeve says, is that GM didn’t spend enough advertising Aura; “We’ve corrected that.” And GM waited until this year to offer a four-cylinder Aura in a segment that sells 70 percent four-cylinders.

“Overall,” LaNeve explains, “we underestimated the time it would take to get consumers up to premium price points. The average Saturn now is about $27,000 versus about $20,000 before. That takes some adjustments.”

Some other soft pieces remain in GM’s brand architecture, as well. Among them is Pontiac. After a generation of trying to reclaim its traditional identity as the company’s sporty brand for the masses, of course, Pontiac remains -– to put it charitably -– a work in progress.

LaNeve’s goal is to finally bring the Pontiac brand to a place where consumers identify it with “affordable performance. We’ve got to find the right place for Pontiac,” he says. “And we’re determined to do it.”

Competitors have taken their best shot. One of LaNeve’s most compelling points is that GM is making this progress having already sustained long-anticipated body blows from the competition. For the past several years, while the Detroit Three continued to dominate the high-profit territory of trucks and SUVs, they saw steady incursion into those segments by Toyota, Honda and Nissan. Now, each of the Japanese Three have made major reaches into U.S. pickup and SUV markets and, indeed, have established a significant presence.

But while all major automakers have commenced slugging it out in those high-margin segments, GM and its domestically based counterparts no longer have to look over their shoulders at the prospect of some new market being freshly invaded. “Toyota and Nissan have already played their hands,” is the way LaNeve looks at it.

And it’s not as if the Japanese have just come in and taken over. GM, Chrysler and Ford have stood their ground in SUVs. And in pickups, of course, GM’s share is rising. Meanwhile, the Nissan Titan has disappointed. And even Toyota is having trouble getting traction with its Tundra full-size SUV. “Toyota is finding out that the pick-up market is hard to crack because only about 25 percent of buyers are appearance buyers,” Spinella says. “The rest have some kind of commercial intent, and Tundra doesn’t play well there.”

“We still need to defend trucks and grow cars,” LaNeve concludes. “There are a million complicated strategies embedded in those goals. But it’s really no more complicated than that.”

Photos by GM
1 - Mark LaNeve
2 - Cadillac CTS
3 - Chevrolet Volt
4 - Chevrolet Malibu
5 - Buick Enclave

Posted by Michelle Krebs at 4:15 AM under Analysis , Featured , GM , Personalities | Comments (2) | digg this | Seed Newsvine