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LutzSpeak: GM's Vice Chairman Bob Lutz talks to AutoWeek

Posted Date: 7/12/05

When Bob Lutz, GM's Vice Chairman, asked to speak to AutoWeek , we we're happy to oblige. Lutz, who was recently asked by GM to focus exclusively on global product development, talked about a wide array of issues. From his biggest surprises about how world's largest automaker works to his view on marketplace perceptions, Lutz had plenty to say. Below are excerpts from his recent interview with AutoWeek.

AW: What’s been the biggest surprise for you?

Bob Lutz: The biggest surprises… there were two. One if the enormous capability of the corporation, the excellence and capability of the people really exceeds any of the car companies I’ve worked for. And that was unexpected, because I was facing it on the product market. I’ve also found that somehow that all of this capability was not optimally harnessed. Up to now, it’s sort of been weeks. The Regal or the Lacrosse, we threw out the original body style, but it was limited as to what we could change, and that was as much as we could change in fourteen months. Beginning with the Pontiac Solstice, obviously, which was almost the first order of business when I got to GM, Sky, HHR, certainly the new Malibu, the Buick Lucerne, all of these reflect my coaching of the team. I don’t do these cars, I never do these cars, but I’m like the coach who guides the team, I can’t play designer myself because I’m not much of an artist, but the role of management is that designers are basically artists, and any automobile company has a collection of designers that can adequately render automobiles. We have clay modeling solutions, but when I was at Chrysler, the best thing people would say to me was that I threw out the designers who did the K-Car, and I said, guess what, same designers, because designers are not the people who determine what you do, they basically execute senior management decisions. It’s like a symphony orchestra with a conductor, and the conductor may not be able to play a single instrument, but he can achieve interaction and harmony and the whole thing works better because he or she is there. I don’t design, but I can tell a good one from a bad one and I don’t like bad ones to happen on my watch.

AW: Is there is a crisis?

Lutz: Sure. But companies always seem to perform better when their backs are to the wall, you saw what happened to Chrysler. And in a way, it would have been better if General Motors would have gone through the same crisis as Chrysler, because we would have shed extra plants and people earlier. I am absolutely, totally convinced that we’re going to get out of it.

AW: Four years ago, when you were last here, you had just joined the company you had predicted that General Motors would be at 30 percent market share. What do you think it will be like in five years from now?

Lutz: I would be very happy with a stable and profitable 27 and 28 (percent), and if we work to achieve that, we would be performing better than any car company in the history of the planet that once had a dominate share in the market. I don’t know where the fiction ever came from that GM is a terrible company because we went from 50 percent to 28 percent share. Volkswagen used to be 60 percent of the German market. Now they’re 22 percent. During the days of Bauer, they were 70 percent of the Brazilian market, now they’re 28 percent. We used to have 60 percent of the Australian market, now we have 22 percent. As more and more and more competition comes in, much of it from lower-cost countries not burdened with non-automotive burdens that we are, losing a certain amount of share is almost inevitable. Unless we have a radical shift in exchange rates and the Japanese government stops helping the car companies, if we can hang on to 26 percent, 28 percent, and hang onto that share legitimately and not by buying subsidized leases, then I would consider that a significant achievement.

AW: I don’t want to get into a debate, but how many divisions are adequate to cover the market?

Lutz: You’re witnessing a situation where we somehow constantly get hammered. Meanwhile, at the same time, Toyota, has an uncalled brand in the Japanese market, and now they have Scion, which interestingly enough, when it’s convenient they count as part of Toyota sales, they have Scion, Toyota, Lexus, and Daihatsu, and I don’t know what else, but if you go to some place like the Caribbean, where all the cars exported are used Japanese cars. And you’ve got Volkswagen, Audi, Goldan, Bentley, Lamborghini, and I probably forgot one or two along the way. Now, let’s look at our brands. Chevrolet is our mainstream brand, cars and trucks, and we absolutely have to have it. I know you gave the Cobalt favorable write-ups, and you were right. It’s doing fabulously in the market. The dealers are asking for more cars and the inventories are low, and dealers see, for the first time in a long time, a younger brand of customer is coming into the showroom. People come in and ask for Cobalt. Chevrolet is the essential. Cadillac, no question, designed to take on Europe’s finest. We see continued growth, and we are experiencing year over year growth, and I think Cadillac is very clearly needed. The CTS with all its flaws is approaching its fourth year, it’s selling better than it did in its first year. We’re building an owner body there. We know what we have to do. Hummer, expandable brand. The H3 is off to a very, very fast start, by the way, Rich, H3 happened under my watch as well. The idea for the H3 year was there, but there was no exterior plan. Should we have a Wrangler equivalent? Something lower priced? Yes, I believe that’s one of the priorities. Then that leaves you mainstream brands of Pontiac and Buick, and while damaged is the unfortunate adjective we used, there hasn’t been an optimum product direction in those two brands, you could argue that when we say damaged we have to revitalize the brand and make it relevant to younger people. That’s what the Solstice and the G6 is all about. We saw that we have to make broad brands out of Buick and Pontiac. It’s got to execute that same silence, the same excellence of a BMW or a Lexus. When I say Pontiac should be more BMW, it should be into the niche of somewhat outrageous, aggressive performance. Will a Pontiac obtain a level of perfection of a 3-series? No. That’s Pontiac’s story. Buick will have trucks of all sizes and description, as well as sporty coupes. Saturn is a story in itself. It started off as a different kind of car company. That clearly didn’t work. The nice thing about Saturn is that Saturn has this enviable image for great customer relations. The trouble with Saturn was, we deliberately selected for Saturn a sort of facelessness in the literal sense. We decided they should have no face. We told ourselves, Saturn is for people who don’t really care about cars. They want a reliable vehicle. The problem with that is, I sort of wondered why Saturn attracted all of the rage. There was almost irrational dumping on Saturn. The whole concept of creating a car company without automotive appeal, where you’re selling an appliance, if that’s allowed to spread, what does that do to car magazines? You just hate a brand that’s not based on the love of the automobile. I digress. The thing with Saturn is you could... we asked ourselves… why do we have to pick between great cars and lousy dealers and great dealers and uninspired cars? What would happen if we put the two together? We wanted to draw people in from other brands, and that combination was the Saturn outlook… the Sky. The Aura. They were all done in a next-gen execution. We had the phenomenon that truly well-to-do people preferred being seen in a GMC instead of a Suburban. They were being bought by people who needed to demonstrate their wealth. It’s like the Yukon-Denali buyer as opposed to the Escalade. The Yukon-Denali buyer has more money than the Escalade buyer. So those are basically the brands now, what do we do with them? We did eliminate one brand, Daewoo. And everywhere outside Korea, Daewoo is now Chevrolet. We are experiencing a rapid growth of the Chevrolet brand in Eastern Europe, mostly thanks to small Korean cars like the Aveo. As it grows it opens up the market for our U.S. products, small pickups.

You give a strong brand reputation over here. The importance of the brand is much more important here, and much weaker down here. If you have a very strong brand, marginal design is passed through. The Honda Element is strong. It is not a whole lot better than the Aztec. On the other hand, if the Aztec had come out as a Toyota, people would have bought it. The Honda Ridgeline – it’s a cute little truck, they spent very little money. It was well-accepted. Strong brands can get away with semi-weak styling and design. We need the compelling design to get people to buy it, and it really takes a car like a G6 coupe or a Pontiac Solstice to get people into a Pontiac showroom. And I’ve gotten a lot of e-mails from people who said they would never set foot in a Pontiac showroom, except the Pontiac Solstice pulled them in. The same thing happened with the Dodge Viper. The average ownership of another Chrysler product was 1 in 10. Five years later, among Viper buyers, it’s 5 in 5. A lot of the Viper owners never been to a Dodge dealership, but now they’re buying a Dodge pickup, a minivan, a Neon for their daughters. The board of directors want to know why everything these guys do is a hit, and everything we do doesn’t do as well as it should. It’s brand consideration and it’s overwhelming. It takes superior styling to become a brand that can do what it likes. You can’t do all the cars like the Chrysler 300, because as soon as there’s a second or a third, that ceases to become interesting. The basic premise of that, if it’s not attention-getting or different, it’s going to have a hard time. I think given… there’s an interesting phenomenon, if you look at successful vehicles, the really great, truly successful designs are all retro things. The Ford Mustangs, the Volkswagen New Beetle, the Chrysler PT Cruiser. And you can argue that even the Toyota Scion, which is a scaled-down Japanese car. All of the retro statements do well. And if we were to do another Pontiac GTO, it would probably be much closer to the original. I don’t think we should have called it something different. It is now exceeding its original projections. Almost 30 percent are in the Western region, and almost all of that is in the LA region. Saab has a good future, but the part of the future that had to be changed was operating Saab as an independent car company. It just made absolutely no sense, so you’ve probably seen the announcement that we’re establishing a Saab control center. It is sort of like the keepers of the Saab flame. They are making sure that whatever is done with Saab around the world is worthy of the Saab brand and consistent with the Saab principles. They’ve never really been totally able to develop their own cars. There will be a very broad line of Saab automobiles, some of them will actually be built in Sweden. There is no question that Saab automobiles will be the beneficiary of GM. This way, the execution of the cars is going to be more unique. It’s going to be a couple of years until this all rolls out. The 9-7 is off to a good start, much better than we might have feared, because it is genuinely a pretty good car. Everybody did a good job on ride, handling, steering. It’s so good in fact that Europe didn’t want it, but now the Europeans are clamoring for it.

AW: Could you walk us through your take on Fiat?

Lutz: I could, but I won’t because I’ll get myself in a lot of trouble, but I think what happened was the joint venture worked supremely well, just on the basis of procurement savings. I think what happened was Fiat just saw themselves in a more and more dire business situation, and we… the thought of us having to take over the whole thing was discouraging.

AW: Was one of those problems capacity, rationalizing pricing? And as you’re doing all these new cars… can we have some of that on the record?

Lutz: We’ve said that numerous times, it’s a mantra we keep repeating. The four pillars of GM are compelling products, a new way of going to market, continued cost reductions, a relief on the healthcare burden. The part of going to market, we do want to emphasize the greatest value of the automobile. We want to represent a compelling value for the customer. It’s especially important nowadays with worldwide coverage even on the Internet. A great number of shoppers today are going on the Internet to do price comparisons. All of these practices which when exercised long enough will have a serious impact on the profitability. I don’t think we have a lot of over-capacity. What we have is under-demand. I mean, if we had all our vehicles out there today were as compelling as the next generation will be, we wouldn’t have to lean on the market so much. We’re not the main offenders anymore. Some of our competitors are spending as much or more on vehicles that are not doing as well. Frankly, everybody’s in it now. It’s a reflection of a very, very tough international competitive environment and a lot of consumer choice, information. And yes, to a certain degree of over-capacity. Global over-capacity. And over time… Chinese domestic products, I don’t think that’s necessarily going to work. If you want to scare yourself about the future, go to the Shanghai Auto Show.
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