Trying to get GM back in gear
Executives can expect an earful at the automaker's annual meeting this week.
By Akweli Parker
Inquirer Staff Writer
At General Motors Corp.'s Wilmington assembly plant, workers are busy churning out nearly 100 preproduction versions of Pontiac's curvaceous new two-seater, the Solstice.
But they are only practice models - most will be destroyed at the crusher, or perhaps in movies, after testing. Street-legal versions are not expected in dealer showrooms until September or October, long after prime time for a warm-weather convertible has passed.
The Johnny-come-lately rollout embodies both the promise and the perils that lurk for GM as it struggles with competition, labor issues and unfortunate timing in an attempt to right itself.
At the company's annual shareholder meeting Tuesday in Wilmington, chief executive officer Rick Wagoner can expect to hear investors' gripes about GM's sales declines and the recent reduction of its credit rating to "junk" status. Management, however, can point to some coming improvements - among them, the Solstice and its forthcoming Saturn cousin, the Sky - plus GM's No. 2 ranking (behind only Toyota) in J.D. Powers' latest initial-quality study as evidence that a turnaround is at hand.
"They are already making midstream changes that are smart," said Jean Jennings, editor in chief of Automobile magazine. "I say give them a little breathing room to get their ducks in a row."
One hopeful sign, she said, is a brand restructuring that clearly positions Cadillac at the top, Chevrolet as its entry-level brand, and Saturn - once a quirky, economy nameplate - right beneath Cadillac as a "premium" brand.
Plus, there's GM's forthcoming line of smaller, "crossover" SUVs, a category gaining in popularity as high gasoline prices have sent sales of large SUVs plummeting.
"There is a lot of good news that will take a long time to get out," Jennings said.
Up to now, the news has not been good at all. GM lost $1.1 billion in the first quarter this year, and sales dropped 13 percent last month. GM's U.S. market share has eroded to 25.4 percent, from 27 percent a year ago. On Friday, the company said it would recall 300,000 Saturn L series cars because of problems with brake and tail lights.
And crucially, GM needs overhauling throughout its business to restore the company to good health.
One Hummer-size issue not likely to be resolved soon: GM's tug of war with the United Auto Workers to trim health-care costs through concessions in the UAW contract, even though it does not expire until 2007.
GM said it expected to pay $5 billion in health-care costs in 2005, up about $1 billion from the previous year.
"GM has negotiated itself into employee and retiree benefits it thinks it can't afford anymore," said Howard Flaxman, cochair of Fox Rothschild L.L.P.'s labor and employment law department in Philadelphia.
Whether the UAW gives in on anything, especially with so much of the clock left on the contract, depends on how dire the union thinks GM's situation is, Flaxman said.
"The union would be skeptical, short of some type of closure or bankruptcy," Flaxman said. And despite GM's junk credit rating, no one is talking about bankruptcy.
While industry observers say the Solstice and Sky by themselves cannot turn GM around, they can certainly help make people more passionate about its products.
At Pontiac, the company whose slogan was once "We Build Excitement," people are genuinely excited about the Solstice, which is seen both inside and outside the company as a possibly brand-transforming car.
The division could use a boost, as rumors circulated earlier this year that Pontiac, along with GM's laggardly Buick division, might disappear if sales did not improve.
Thursday, GM said it would significantly pare back the models offered by Pontiac, Buick and GMC to eliminate duplication and allow each brand to more firmly establish an identity: for Pontiac, affordable performance; GMC, rugged and durable trucks; and for Buick, class and sophistication.
Michael G. Cherenson, vice president of Cherenson Group, a Livingston, N.J., public relations and marketing firm, said GM had the right idea with the $20,000 Solstice, which he said was "hot" and could serve as Pontiac's flagship. GM executives, he said, should be telling themselves, "We need to make people feel good about driving."
GM stoked consumer demand by featuring the car on NBC's The Apprentice in April. Viewers had a chance to sign up online to buy the first 1,000 limited-edition Solstices.
The reserved slots went in 41 minutes, and more than 7,000 additional people have made deposits; they will get cars before the general public can buy one at a dealer.
"It's been heartening to have the kind of response we had," said Jim Hopson, a Pontiac spokesman. But for now, the company is trying to manage consumer expectations, in part by telling dealers not to promise any Solstices to people who walk in the showroom.
"Without dulling people's enthusiasm, we don't want them to get overexcited," Hopson said. "We got concerned people may get the wrong impression - that you can walk into a dealership in August and have 12 of these things to choose from."
The preproduction runs in Wilmington are meant to work out any kinks in the cars or the building process that could sink the car's reputation when it hits the street.
"The last thing General Motors needs right now is to bring out a car before it's ready to be brought out," said Jennings, of Automobile magazine.
"Their whole rejuvenation, their salvation, is in product" - that is, making new cars that people like.