Why No More General Motors Brands Are Likely To Follow Hummer
October 14, 2008

By Dale Buss

General Motors has been trying to peddle a suddenly outmoded Hummer brand for several months now, so far with no takers. But ask Mark LaNeve, GM's North American sales vice president, if the company would like to put any of its other ailing brands on the auction block, and get a bristling response.

"Why should one of mine go away?" he asked. "There are lots of brands that we outsell. Why doesn't one of them go away?"

And while LaNeve's remark came before the recent buzz about GM-Chrysler merger talks, it's even more apropos in light of the possibility that two of the old Detroit Big Three could merge their brands as well as their operations. GM's brands would be largely likely to survive any such combination, while most of Chrysler's would likely disappear.

The consensus of industry pundits mulling the brand architecture of any potential GM-Chrysler combination is that Jeep would be the only surviving brand from the existing Chrysler stable, with GM attempting to bolster it into something that it once hoped for Hummer -- but couldn't accomplish.

"Look at the volumes that the Jeep brand generates on an annual basis relative to Hummer, which has remained very narrow in its appeal," said Joseph Phillippi, president of Auto Trends Consulting, in Short Hills, New Jersey. Moreover, he and others said, Jeep has lots of unrealized potential to grow as an international brand.

It wouldn't be the first time that a competitor focused solely on the Jeep brand and chucked the rest of its parent company. In 1987, Chrysler acquired a majority share of American Motors Corp. from Renault mainly to access the Jeep brand, quickly junking AMC's Eagle car brand.

Now, it's widely assumed that the Dodge and Chrysler brands wouldn't comprise enough equity to make the cut at a combined GM and Chrysler.

Dodge's truck specialty could be subsumed by a GM brand (although it's possible that Dodge, rather than GMC, might survive as the lone all-truck brand).

And while the Chrysler Town & Country is a formidable premium entry in the minivan segment that Chrysler created, GM easily could excise the minivan platform and redeploy it -- and then jettison a Chrysler brand that never really has had a distinct identity over the decades, at least in comparison with the company's other brands.

For the Defense

But while a GM-Chrysler marriage doesn't seem to be on the front burner for an industry that is lurching from one crisis to another this year, LaNeve and his colleagues do have to reckon with continuing questions over the brand lineup they have to work with now.

He brings up Pontiac, for example, as the remaining brand in the GM stable "that everyone questions," and then rolls out sales data. The Pontiac brand sold nearly 203,000 cars this year through August. True, that was down 17 percent from a year earlier.

But instead of conceding a thing to the critics of GM's brand strategy, LaNeve ticked off a handful of the many brands that Pontiac still outsells by far.

"It's twice as big as Scion," he noted. There's also Volkswagen, Mini, Mazda, Subaru, Suzuki and other brands, all still eating Pontiac's dust. "I'm a smart-ass when I say it, but I don't hear people questioning those brands. As far as I'm concerned, we don't need them.

"Spreading resources thin is a fair question," he continued. "But the issue isn't solely, 'Does GM have too many brands?' There are too many brands in the market, period."

Imperative To Slash?

Such is the passion that automotive brands arouse when their future is brought into question. For a variety of reasons going beyond today's marketplace exigencies -- including historic loyalties, production strategies, internal politics and dealer investments -- car brands possess a ton of inertia and are very difficult to kill even when there's a clear business-school case to be made against them.

But existential challenges to brands keep arising. They killed Plymouth and Oldsmobile years ago. Plymouth had outlived its usefulness as an entry-level marque for a parent company, Chrysler, that didn't sell enough cars to support both Plymouth and Dodge lineups. And GM snuffed out Oldsmobile after trying for decades to sort out its modern raison d'etre compared with Pontiac and Buick.

Today's vehicle marketplace presents a strong rationale for accelerated brand consolidation in the industry, including shifts in sales shares, the demands of developing new models more quickly, and the huge costs of supporting a brand with marketing. Any mega-merger, such as GM and Chrysler, obviously would magnify such logic.

"It's not just advertising the brands but also the cost of developing manuals and parts and training for all the brands," Phillippi said. "There are so many bits and pieces involved in putting a unique car on the showroom floor, it adds up to really serious money."

For such reasons, concluded branding guru John Grace, "It's a right time to totally reinvent automotive brands, so you're going to see radical change. The auto companies have to be more willing to recognize the need for change and get to it more quickly," said the president of Brand Taxi, in Greenwich, Connecticut.

GM Under the Microscope

Ford's Mercury brand is the usual first target for such doubters. "This is the time," Grace said, "when brands like Mercury are going to go away."

But no manufacturer continues to be dogged by such questions as much as GM -- even after the company's decision earlier this year to shed a Hummer brand whose larger-than-everything persona no longer was suitable for an OEM that is scrambling to adjust to an era of expensive gasoline and heightened environmental awareness.

Everything about the big picture GM sees these days seems to urge its leadership to consider seriously the possibility of jettisoning or folding other U.S. brands. There's the market leader's drastic deterioration overall market share to modern historic lows -- 21.7 percent of the domestic market through midyear, though it's recovered somewhat in recent weeks.

There's the requirement for GM to overhaul its entire product line and manufacturing network to favor smaller, lighter vehicles for all of its brands. There's the need to slash billions in marketing expenditures as the economy reaches low ebb and traditional advertising media, especially television, no longer get the job done as they used to.

That's the set of facts that already led GM to bite the bullet on Hummer, LaNeve conceded.

"The part of the market that's been most severely impacted in 2008 -- and that has been a three-year trend -- is the truck market," he said. Four of our eight existing brands sell body-on-frame trucks. It's only logical to say in that kind of environment, where we believe much of the market shift we've seen is permanent: Do we need four of our brands selling trucks?"

Seven Times "No"

GM's answer was "no," of course, and so Hummer remains resolutely for sale. But company leadership has decided to circle the wagons around its other brands despite the fact that GM's U.S. market share has dropped inexorably over the last 20 years and still shows no long-term signs of leveling off. In 1991, it stood at 36.2 percent; last year, it was 23.9 percent.

"It's reasonable that people would ask" whether GM plans to fold other brands too, LaNeve said. "It's never bothered me."

But here are seven reasons why, in the view of LaNeve and others, GM will hold on to its other remaining brands:

1. Hummer is unique: It is the only GM brand that "could be fairly easily separated both from a dealer point of view and manufacturing," said David Cole, chairman of the Center for Automotive Research, in Ann Arbor, Michigan.

2. Two are too valuable: As today's linchpins of what remains of the overarching GM brand strategy first conceived by Alfred Sloan, Chevrolet and Cadillac are very secure. Chevy is the industry's biggest brand and carries GM to the mass market. Cadillac has reestablished itself as the premier domestic luxury brand.

"All the big players in the world have a foundational brand, and a luxury/premium brand, and in our case we've made it clear that they are Chevrolet and Cadillac for us," LaNeve said. "It also helps that they're increasingly global brands."

3. Focus of new products and marketing: LaNeve asserted that the pipelines of most of GM's remaining brands are filled with exactly the kinds of higher-mileage vehicles that the market shift will demand in the near and medium-term future.

"Eighteen of our 19 upcoming new models are cars or crossovers," he said. "And if you look at our performance back a couple of years, our share in each one of those segments has grown marginally. We've lost a couple of share points because we're mixed in so heavily with trucks. It's very evident what kind of vehicles we needed to develop for all of our brands, and we've been doing that."

Similarly, LaNeve said, GM has to make sure it's allocating its marketing resources more wisely among all the brands that it wants to continue to support. And right now, there are at least two aspects of that necessity that are fairly easy to stick with: taking more advantage of digital marketing media compared with traditional outlets, and hammering home a fuel-economy message in every way possible.

4. Lessons from Oldsmobile: GM got rid of Oldsmobile several years ago because it had become superfluous for a sensible brand architecture that barely could accommodate both Pontiac and Buick. The brand had been relatively robust as recently as 1999, when GM sold 352,000 Oldsmobiles. But in 2000, GM announced it would phase out the brand. In 2003, its last high-volume year, only 126,000 Americans bought Olds vehicles. And GM produced its last Oldsmobile in spring 2004.

GM executives have learned two indelible lessons directly from their Oldsmobile experience.

First, caveat dealers. While GM knew it would have some issues to work out with dealers who had individually invested millions of dollars in their Oldsmobile dealerships, most of them over decades, it wasn't prepared for the legal firestorm that hit when GM deep-sixed Oldsmobile. Some have estimated the lode at a total of more than $2 billion in writeoffs and settlements; GM never has provided a figure. "They were spooked by what it cost them to eliminate Olds," Phillippi said.

The huge difficulty of dealing with legacy dealership networks, of course, would be one of the biggest detriments to any GM-Chrysler combination -- although such a combination could give the surviving company reason to provide more impetus behind the Big Three's efforts to pare poorly performing dealers over the last several years.

Second, in eliminating Oldsmobile, GM voluntarily sacrificed volume in the hundreds of thousands of units, partly in the expectation that its other brands would recover much of those. Buick, for example, had the most overlap with Olds, so the expectation was that many former loyal Olds buyers simply would switch to Buick.

The problem: "They gave up all that volume," Phillippi said, "and it never went anywhere else inside the GM organization. That got them scared." Buick sales, for example, most recently peaked at 432,000 units in 2002, but then declined to 337,000 in 2003 (Oldsmobile's last full-volume year), to 241,000 in 2006, and to 187,000 last year.

5. Three are too intertwined: GM has learned how to inoculate three of its remaining brands -- Buick, Pontiac and GMC -- against irrelevance by using a new marketing and manufacturing strategy. It has reorganized the three into one highly interrelated cluster of three brands.

They share more manufacturing capacity with one another than do any other GM brands; for example, both Buick Enclave and GMC Acadia, the popular crossovers, are built on the so-called Lambda platform at GM's assembly complex in Lansing, Michigan.

Similarly, GM has marshaled dealers into outlets for all three, instead of individual, brands. They can draw from Buick's lineup that focuses on midsize sedans, Pontiac's sportier and smaller cars and crossovers, and GMC's larger SUVs and pickup trucks.

"They're really a single brand with three different names," Cole said. "With flexible manufacturing, they can do stuff that they couldn't have dreamed of before. And while GM still has too many dealers overall, they don't necessarily have too many dealers of any one brand. So taking out any one brand doesn't necessarily make any sense now."

LaNeve agreed. "We run it as a single portfolio of three very narrow lineups. You put the three together, and the product line is about the breadth of a Nissan."

6. Globalism has changed things: Each of the brands in GM's current U.S. portfolio is coming in increasingly handy because of the accelerating globalization of the auto business, LaNeve said.

Buick, for example, has proven popular in China, where GM's expansion is thriving; and Chinese designers are starting to influence the styling of future Buick models for the U.S. market.

While it began a generation ago as the all-American "import fighter," Saturn has evolved over the years into GM's European-style brand of fuel-efficient vehicles -- and remains GM's flagship when it comes to distribution-system structure and dealer-customer relations. And though many critics have said Chevrolet can accomplish in the U.S. market everything that Saturn purports to, the ongoing integration of Saturn's lineup with that of Opel, the company's leading brand in Europe, will help GM continue to build a case for preserving Saturn.

"Over time," LaNeve explained, "the Saturn lineup will very closely mirror Opel and will have much more of a European-premium type of pricing and go-to-market strategy compared with Chevrolet -- which will be much more expressive and American in nature."

Even Saab, the Sweden-based GM brand that sold only 33,000 vehicles to Americans last year, makes more sense for the U.S. market when viewed through a global lens.

"Saab is home-rooted in Europe, and we're basically a sales arm for Saab in the United States, so it's a bonus having it," LaNeve said. "It's not taking away resources from any of the other brands in the way I run my business here in North America."

And while Saab has been a loss-maker for quite some time, it's on the verge of launching an almost top-to-bottom lineup makeover. And Saab anchors GM in the "global premium market" that, GM COO Fritz Henderson told Just-Auto.com, is "one of the fastest-growing segments" in the world. GM's customers globally "are looking at smaller packages and four-cylinder engines, [and] turbocharging," Henderson said. "Saab meets those requirements -- that's the DNA."

Saab's customers are "highest income, highest level of education," Henderson continued. "I think it's worthwhile for us at GM to try to make [Saab] a success."

7. Realignment of executive responsibilities: Last spring, GM realigned its U.S. marketing and field operations more strongly to support this overall brand strategy. It created four retail channels: Chevrolet, Premium (including Cadillac, Hummer and Saab), Buick-Pontiac-GMC; and Saturn.

Among other moves, GM nabbed Mark McNabb to head the Premium channel. He was senior vice president of sales and marketing for Nissan North America and corporate vice president of Nissan's Infiniti luxury marque.

The new structure, LaNeve explained, boosts accountability because each of the four managers is responsible to deliver on the profitability and other financial results for the brand. In turn, that gives them freedom to try some new gambits to maximize the value of the products and brands under their control.

For these reasons, LaNeve and his colleagues continue to resist suggestions that GM eliminate some brands. And he'll throw some other reasoning into the mix as well.

"Nestle has 4,000 brands around the world," he quipped. "Is there a better number for them? Probably."

In any event, LaNeve concluded that GM watchers "could debate it one way or another. But Toyota has three; Ford has four or five [brands]. Chrysler has three. How do you choose to go to market? I don't believe it's how many brands you've got -- it's how you manage them."

PHOTOS:

1. Hummer H3.

2. Pontiac G8 ST slated for 2010.

3. Oldsmobile Aurora flagship, circa 2001.

4. All Saturn models, such as latest Astra, earmarked as Euro challengers.

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