Death By Starvation
Jerry Flint, 06.14.05, 6:00 AM ET
Just suppose a car company wanted to shut a division. Pretend for a moment that it is General Motors and the chief executive has decided to close down Buick. Would he hold a press conference and say this:
"I want to announce that we are closing Buick. I admit that my management and my predecessor did a terrible job. The dealers are swell, but we couldn't come up with cars that people really wanted. So we're throwing in the sponge and are shutting down Buick over the next 12 months. Any questions?"
You'll never hear that statement. Every dealer seems to have a son-in-law who is a lawyer, and they sue when their franchise becomes worthless. When General Motors (nyse: GM - news - people ) announced at the end of 2000 that it was killing Oldsmobile, it was most generous in its settlements with the dealers.
Back in 1964, Studebaker announced it was shutting its car plant in South Bend, Ind. They were really exiting the car business. But Studebaker said it would keep assembling cars at a Canadian plant as long as people wanted them.
I asked my good friends at Studebaker why keep Canada going? They explained that it was a legal strategy. By keeping production going in Canada, they could say they were offering cars, but when no one bought them, it wouldn't be their fault. They would then shut the Canadian plant because of lack of orders, and this would protect them against lawsuits. Sure enough, in two years the Canadian plant was shut.
So there's a legal strategy. I recall how Plymouth was starved for product before it was killed a few years ago. Four cylinder cars, which should have been Plymouths, were called Chryslers.
And look at what's going on with Buick:
A vice chairman talks about "damaged" nameplates and hints it's possible that some could go. That means Buick.
A Buick-Pontiac-GMC truck dealer group is set up. The dealers are to sell all three makes. Thus, if Buick does go down, this dealer body can still sell the other brands. So dealers will have a tougher time winning lawsuits.
The Zeta project for the rear-drive cars that everyone knows Buick needs was killed. And we hear that the Rendezvous sport utility vehicle, which currently accounts for 21% of Buick sales, is headed for the graveyard. GM just gave away $2 billion to get out of a bad deal it made a few years ago with Fiat. At nearly the same time, the official spin from GM's press machine is that the once-planned U.S. offshoots of the Zeta line were just too expensive.
The truth is that Buick sales are already in a steep slide, and the division has killed far more models than it is adding. In the last year, it dropped the Park Avenue, Regal and Century sedans. The new Terraza minivan is on the endangered species list. Buick will probably sell 250,000 vehicles this year, which is be less than what Oldsmobile sold when it was given the death sentence.
What's does Buick have to offer customers?
The new Buick LaCrosse (replacing Regal and Century cars) came out last fall. It is a decent car, but fully loaded it stickers for $32,000 and is up against great competitors. Year-to-date, Buick sold 34,420 copies of the LaCrosse versus a total of 40,938 Regal and Century models in the same period last year.
Coming this fall is a new larger car, called the Lucerne, which will replace the discontinued Park Avenue and the soon-to-be-discontinued LeSabre. The Lucerne looks attractive, and it will offer a V-8 option. But my guess is that GM will overprice the Lucerne, a common GM practice on new models, and its sales won't match the two cars it's supposed to replace.
Another issue: the Lucerne is front-wheel-drive but most luxury and near-luxury competitors have rear-wheel drive or all-wheel drive. So it's just hard to see where this car will stand out in combined showrooms that also sell Pontiacs and GMC vehicles.
GM has excuse for everything. We've been told that the vice chairman's comments shouldn't be interpreted as a threat to Buick, and there's no plan to kill it; that a replacement for the Buick Rendezvous is coming, and that combined Buick-Pontiac GMC dealers are a good way to cut costs and to keep dealers from adding foreign brands. We're told that GM's new marketing strategy, designed to weed out look-alike vehicles and create unique lineups, will help make those combined dealerships a success. More cutbacks are also supposed to be the answer. In early June, GM Chief Executive Rick Wagoner announced additional plant closings are coming and a 25,000 reduction in its workforce (a sixth of GM's U.S. total--mostly by attrition) over the next three years.
Buick sells twice as many vehicles in the U.S. than Saab sells globally, but GM seems more interested in keeping Saab alive --with rebadged Subarus and Chevys--than in saving Buick.
If there is any Buick leadership, I can't find it. One previous head of Buick went off to sell hardware, another left to sell cheesecake. Through all the recent strife, I am not aware of a single Buick man standing up, holding a press conference or making any fighting statement about saving the division.
I remember a few years ago, when the leadership at Ford (nyse: F - news - people ) was determined to kill Mercury, it was starving it of product while officially denying there was a plot to kill it. Fortunately William Clay Ford Jr. stepped in, tossed out the Ford chief executive and, among other things, ordered that Mercury be saved. Mercury sales are now climbing.
Buick was the rock upon which General Motors was founded, the first part of what became the greatest automaker in the world. It has loyal customers and excellent dealers.
Maybe GM's leaders do not plan to kill Buick, but if they aren't, they are giving a misleading impression.