Henry Phish

Foreign and Emerging Markets

While I can’t claim to be an expert on foreign markets by any stretch of the imagination, when creating an article about GM’s New Pitch, at least touching on the subject seemed like a no-brainer. Unfortunately, there is so much information out there, and GM is such a large company, that I couldn’t even begin to talk about all of the assets and activities and subsidiaries and export hubs because it would take me a good month just to get one article up, and my readers about a week to read it.

As it were, here are some of the highlights:

With the U.S. economy in a downturn, much attention has been given to overseas assets and sales, where the industry wide slump is not so noticeable.

For instance, GM just opened a new plant in India that has been charged with developing new models as well as continued production of small cars and SUVs.

India is being eyed as a future hub for export of small cars to places such as the United States.

“The company will invest half a billion dollar in India over next seven years to keep the growth momentum. A good part of this will go into the development of new models, including a small car next year, and upgrading the existing ones that will result in a new Optra in 2010,” said Karl Slym, president and managing director, General Motors India, at the launch of its utility vehicle, Tavera Neo 2. Maruti Suzuki India (MSIL)

Further, GM has begun to position itself in foreign markets such as China, Russia, and Brazil where sales growth is encouraging. Russia for instance is expected to see sales growth of 10 to 15 percent annually and sold 523,000 vehicles last year alone.

As stated in one article:

Asia, Europe and Latin America are now the bright spots on GM’s balance sheet, with the company selling more cars overseas than it does in the US. “Asia is front and center in terms of strategy and future direction,” said John Bonnell, director of forecasting in Asia for J.D. Power & Associates. “Their big success story is in China.” Much of Asia remains the home turf of Toyota and other Japanese manufacturers. Although General Motors has increased its market share in Asia, by its own calculations, to nearly 7% from 5.9% in the last three years, its sales remain small compared with North America, where it still makes one out of every five cars sold. But GM’s smaller stature in Asia and the lack of any legacy costs of pensions and health care have allowed the company to be more nimble. Using technology from Asian partners, GM is aggressively marketing itself as a producer of smaller, fuel-efficient cars. In Thailand, GM has also benefited in the last decade from its partnership with the Japanese truckmaker Izuzu, which provided engines for GM pickups and gave it access to suppliers.

Honestly, I couldn’t have said it better myself.

Part 5 - Conclusion, Restructuring, and Goals

While this isn’t a news piece about GM specifically, it demonstrates why recalls, as well as a good track record in quality, are so important to consumers.

Recalled Tire Valves Cause Serious, Even Fatal, Accidents

Product Recalls - Ouch that Hurt

So in the last week or so, GM had a recall for 944,000 vehicles for a window washer fluid issue that posed a fire hazard.

As stated in the article:

GM is aware of three fires caused by this problem, two of which were in the company’s own test fleet vehicles, GM spokesman Tom Wilkinson said. The company is not aware of any injuries caused by the problem.

What a product recall this soon after the announcement of the Volt and the Cruze, restructure talk, a brand new marketing campaign, and everything else that’s been in the news and media in the last few months is that we want our customers back, and we’ll go the extra mile to get them. There’s a definite thought process behind all of this, and it wreaks of marketing, but at the same time you can see that GM is turning a corner here.

They have a year before the Cruze is released in Europe, and much like Ford, many of their mainstay vehicles are just now being updated with pre-existing technology to run more fuel efficiently. Trucks and higher priced cars continue to be hurt by gas prices and consumer spending. Current small cars such as the Aveo and Cobalt are temporary solutions, but GM needs to make them work, and at a low price point these vehicles offer customers a cheap alternative to the more expensive foreign models.

The recall itself is a simple installation of a fuse to shut off a circuit board in the event of a malfunction, but this simple act is an instrumental factor in maintaining GM’s respectability in the eyes of the consumer; it holds the company accountable.

GM can benefit a lot by building themselves up as an American brand with a face, that’s something that foreign companies can’t do really well in this country, and it’s something that can keep the American consumer coming back to GM despite it’s issues.

Part 4: Foreign and Emerging Markets

I’m still not sold on pickup trucks as an investment strategy, but Ford has a lot of history with the product, and people seem to love them, especially in the central United States. As it were, my brother used to have a Ranger, and he loved it even though it handled lousy and ate all his gas money…go figure. The F-150 is a little more stylish.

Ford’s announcement that it has plans to use a new fuel efficient engine in it’s F-150 by the year 2010 (same year as the Chevy Volt test fleet) is big news. The EcoBoost engine uses turbochargers and direct injection of fuel into the cylinder to boost engine performance. And truthfully, this announcement is nothing less than a Godsend for the ailing carmaker…we’re talking nothing short of a miracle for a company that specializes in trucks.

According to one article:

…the EcoBoost can deliver V-8 power with a V-6 engine, or six-cylinder power with a four-cylinder engine, Hinds said. The engine will offer truck buyers better gas mileage with improvement in torque and in horsepower at higher engine speeds, he said.

Apparently the engine is being broken in with the new Ford Flex and Lincolm MKS.

As it is, the one problem I’ve got with a green engine in a pickup is customer adoption…which Ford has though of as well:

Hinds said Ford’s strategy for producing more environmentally friendly vehicles, in the short term, involves incorporating existing technology in more of its car and truck models. He said the company will continue to make the F-150 with a V-8 engine, as well, to cater to those buyers who may not be comfortable with the EcoBoost technology at first. He would not specify what the split of EcoBoost-to-V-8 engines might be.

None the less, this is great news for Ford and truck owners everywhere.

New Products and Old Standbys

So now, with the announcement a couple of weeks ago that GM is building a new small car, the Chevrolet Cruze, a new iron has been cast into the fire.

As stated on CNNMoney.com:

“Particularly at GM, they’ve always viewed their small cars with disdain,” said Ed Kim, an analyst with industry marketing consultants Autopacific.

With rising gasoline prices, GM executives have said in the past that American consumers should be willing to pay a little more for a nicer-looking, better-driving small car.

Think the Honda Civic; a car that everybody wants to own and that never goes on sale and you kind of get the picture.

Harking back to an article I wrote about Toyota a few months ago discussing Solid State Marketing, the Chevy Cruze fits the mold perfectly. Solid State meaning: giving consumers a product with a high sex appeal and less breakage.

This method of marketing appeals to both new car buyers and used car buyers alike in that it is much less wasteful than many current marketing strategies. The cars themselves maintain a significantly higher value than many other automobiles, and this translates to higher values for used car dealers at the time of trade in as well. Further, you maintain brand loyalty for their next car, as well as a built in sales pitch for an up sell later on in life.

…ultimately, the key idea to take away here is that customer demands have driven the market, and what the consumer wants is something that fits their lifestyle.

While it can’t be argued that GM is trailing Toyota and Honda in it’s quest to create the perfect small car, GM is gaining ground. With the worlds first fully electric car in the Chevy Volt entering full production in 2011 and the announcement of the Cruze to begin selling stateside by 2010, GM looks to be a trendsetter in making an innovative product that makes people excited, a key note that could lead to big sales for automakers and consumers alike.

Just a few thoughts on roadblocks along the way:

One of the big issues I’m recognizing is that cars in their first and second years of production tend to be lemons…and lemons have been an issue that has plagued GM in the past.

When I bought my Saturn ION in it’s first year of production, I was subject to two recalls as well as a bum radiator, and a hood release cable that snapped in two while I was trying to fill the coolant tank…lets face it that’s an issue. As it were, I missed work twice that year because of my car; that’s two times too many.

GM hasn’t had a car that racked up reliability points like a foreign manufacturer since the Saturn S series, and that is a serious consideration on every ones mind when buying a car.

The European test fleet in 2009 is going to be instrumental in working the bugs out, and trust me they are going to need it if they want this car to perform anything near the age old, and trusted, designs that Toyota and Honda put out year after year.

Another issue I see is the flood of similar cars in the marketplace. While GM hasn’t released price points, or even MPG specs on the Cruze yet, the car faces stiff competition. In order for this car to win market share, it needs to be able to display it’s credentials and go toe to toe with foreign car makers…not just close…toe to toe.

With the new 2009 Cobalt coming out this fall, reviewers are rating the car as just south of the Toyota Corolla in almost every performance criteria…the difference in cost being about a thousand dollars more for the Corolla. Even the 2009 Yaris fares better for a couple of hundred dollars more. We need to expect more from the Cruze, better interiors, better performance, better quality, and better gas mileage if it’s going to compete.

Finally, consistency. These cars need to consistently be able to perform and attract attention. Buying American is alright as long as I can brag about my car a little, and that’s what American cars have been missing for years…bragging rights. Other than the Mustang and the Malibu I can’t even think of a car that GM makes without thinking I’ll bet Honda/Toyota can do one better…and that’s the crux of the problem as I see it.

Part 3: Product Recalls - Ouch that hurt

Update: The crossover lines have become a popular commodity these days as they have begun eating away at the market shares of cars, minivans, and sport utility vehicles. This week, Chevy released the Traverse, a brand new crossover vehicle with a five star crash test rating and a 24 MPG fuel efficient engine. At 24 MPG, the vehicle is nearly as efficient as a mid-sized car, which is important, since the honest truth of the matter is that anything less than 24 MPG highway is a dinosaur. Chevy also touts a safety conscience five star crash test rating, which fits the family friendly profile, as well as a starting sale price of $28,000, well within the range of middle income America. While I still want to see an independent review of the car itself, the Traverse, like the Flex at Ford, is the right idea coming out of a company that has been hurting up till late. Hopefully, the market is there to meet it.

Layoffs, Restructure, and the Big Loan

An article from 2005 stated this about GM:

General Motors Corp. (GM), the world’s largest automaker, said Tuesday it is restructuring its engineering and design operations to better leverage global resources, accelerate product development and, ultimately, reduce expenses.

“GM’s future success in the global automotive marketplace will depend heavily on our ability to fully leverage our broad and deep resources, especially in the critical area of product development,” GM chairman and chief executive Rick Wagoner (search) said in a statement. “These changes will accelerate our efforts to get more great cars and trucks to market faster, to provide more value to our customers and to increase our global sales.”

These days, with the release of plans for the Volt and subsequent redesigns of their product line, downsizing their truck production, expansion into foreign markets such as Europe and China, the fruits of their labors are finally being realized.

Catching up to the present day, GM has released follow up plans for their restructuring process that includes:

1. Further salaried headcount reductions in the U.S. and Canada in the 2008 calendar year
2. The elimination of health care coverage for U.S. salaried retirees over 65, effective
January 1, 2009
3. No new base compensation increases for U.S. and Canadian salaried employees for the
remainder of 2008 and 2009
4. No annual discretionary cash bonuses for company’s executive group in 2008
5. Reducing truck capacity by 300,000 units by the end of 2009
6. Reducing and consolidating sales and marketing budgets
7. Holding engineering spending in 2008 and 2009 at 2006-2007 levels
8. Cutting 2009 capital expenditure plans to $7.0 billion from $8.5 billion
9. Significantly reducing spending for non-product programs
10. Taking aggressive actions to improve working capital
11. Suspending future dividends on common stock, effective immediately
12. Raising $4 billion to $7 billion through asset sales and financing activities

In the last few months, GM has aggressively tried to meet these requirements.

-With the public press release last week concerning GM’s early retirement package for 9000 workers in which a plan was stated to make 20 percent cuts to their salaried work force. Strategic closings are not unheard of in the industry as a whole. It’s almost a given that there may be some downsizing, though GM has gone through several plant closings in the last few years, so this may limit the impact.

As it were, company officials this week gave autoworkers at its metal stamping plant in West Mifflin, near Pittsburgh, an update on plans to close that 58-year-old facility by the end of the year, said Rick Mismas, shop chairman of the UAW Local 544.

-Other moves to cut costs can be seen in the proposed sale of GM’s Hummer subsidiary, which has seen sales plummet 40 percent this year, and while lucrative in the past, has fallen on hard times with rising gas prices and consumers love affair with more environmentally friendly vehicles such as cars. While proceedings have been slow, a sale of Hummer would be a boon to their bottom line.

-The dividends were suspended which should create more liquid cash for new product development.

-Advertising for major events such as the Academy Awards have been all but done away with, though advertising as a whole seems to be at an all time high. I’m seeing nothing but GM on television and the internet these days. The employee discount program even has me looking at a GM, and I have a Camry.

-Finally with the announcement of the Chevrolet Cruze, the restructuring of a plant in Lordstown, OH to produce it, and the announcement that GM is asking for $50 billion in federal loans to build more fuel efficient cars, it’s obvious that big things are happening in Detroit.

The $50 billion dollar loan is an interesting side note as far as the US government is concerned, since support of American interests in business has been a high priority with them in recent years …especially with Bush in the presidency. Now is a pivotal time for American manufacturers, with foreign car makers a few steps ahead; without support and a solid plan they could easily falter. I, however, just don’t see that happening. I think they’ll get the money they ask for…most of it anyway.

So what does this say about GM?

GM is backing up what it says it is going to do, and while downturns in the market can’t always be anticipated, they’ve laid out a plan and are sticking to it. They are consolidating their dollars and moving funding toward research and production. The only thing they are lacking is a surge in public support for their product…something that looks to be on the horizon if things hold true to form.

Part 2: New Products and Old Standbys

For additional info see:
GM Profitable Again by 2010

Here’s a neat ad depicting how Google Earth is expected to look by the year 2020. I have no doubt it will probably look a lot better than this…and will obviously work on my phone with my GPS.

While I was surfing the net I came across an article about the differences between Googles search engine and other major search engines such as Yahoo or Microsoft. Nearly everyone is familiar with the Google superiority difference in their searching algorithm, but the take of this blog author was a bit different, that being: Google doesn’t want you.

The basic gist of the article is that while most other major search engines trap you at their site through countless clicks, Google simply takes you to your destination and leaves you.

That being said, sites such as this one and others use Google Adsense and Google Adwords to bring dollars to their site, so Google never really goes very far. If anything, Google has simply given more power to their content providers to drive their advertising for them, and it’s this sense of ownership…and honestly greed…that really gives Google that edge.

Google encourages people to use their service by being the best at what they do, and we in turn use their advertising because we expect like results.

When it comes down to it, Google is just the biggest and best independent publisher of them all, and as much content as Yahoo and Microsoft can create by themselves, it’s the individual content providers that matter more in the big picture; to them, perception is everything.

I found a good article on the New York Times site that shows how add campaigns for home loans have changed over the years. It’s interesting to see how the campaign evolves with changes in the economy, going from sales of second mortgages to people in dire financial straits to home equity loans for upper class types needing money for home improvement or a better car. The ads themselves change quite a bit as well, moving from more practical advertising model that sells the direct benefit of the product to more sympathetic better life advertising. It just goes to show how customer needs and an expanded demographic have, over time, changed the marketplace.

Home Equity Frenzy Was a Bank Ad Come True

General Motors new concept, the highly touted and electric plug-in compatible Chevy Volt, has begun to ramp up it’s ad campaign in recent weeks. I’ve seen articles on the internet, television commercials, and a plethora of videos on youtube. The car is set to roll out full production by 2011.