GM Must Start Using Brands More Effectively, Says Wagoner—Interview

GM Juggles its Brands...

The question should not be "does GM have too many brands?" but "how can GM use its brands most effectively?," insisted Rick Wagoner, Chairman and Chief Executive Officer (CEO) of General Motors (GM) in a recent interview with Global Insight. The original question that was posed to him at the Geneva Motor Show in Switzerland was a fair one—managing a total of 12 brands all over the world, one of which (Chevrolet) has completely different connotations and brand values depending on which side of the Atlantic Ocean you are has not so far proven to be an easy task. Given that GM has not posted a full-year profit since 2004, it would be also be reasonable to surmise that GM has not been overly successful in this strategy.

In North America, GM has the eight light vehicle brands of (in alphabetical order) Buick, Cadillac, Chevrolet, GMC, HUMMER, Pontiac, Saab and Saturn to deal with. Until recently in Europe it had the slightly easier task of juggling its mainstay brand Opel, with its Swedish unit Saab and South Korean arm Daewoo, in addition to Vauxhall which is the U.K. nameplate for Opel. GM then complicated matters by changing the Daewoo name to Chevrolet, which was a particularly risky strategy given that the old Daewoo, new Chevrolet cars in Europe could not be more different to the traditional U.S./global idea of a Chevrolet. Around this time, GM also decided to reintroduce Cadillac to Europe, as well as introducing the Corvette brand (which in the United States is not a separate brand in its own right, but a series of models sold by Chevrolet) and HUMMER. Around the rest of the world, GM sells a mixture of these brands, in addition to Holden which is sold only in the Asia-Pacific region.

...With Varying Success

The situation, therefore, is complicated and while some parts of the company's multi-brand approach have been successful, others have not. For example, in Europe, Chevrolet cars are now selling as fast as GM can make them. In 2007, Chevrolet's European sales jumped by more than one-third compared to the previous year to 475,000 units, which GM is ambitiously hoping to raise to the one-million mark by 2015 (see Switzerland - Europe: 5 March 2008: Geneva Motor Show 2008: GM Looking to Double Chevrolet Europe Sales by 2015). At the other end of the scale, Cadillac's re-entry into Europe has been hugely disappointing, with just 4,500 sales in the region last year, the bulk of which were in the exploding Russian market, as Western European buyers have so far shunned the brand. This is in sharp contrast with the bullish claims made by GM four years ago upon the regional relaunch of Cadillac. Back then, Western European sales targets of between 10,000 and 20,000 were mooted for 2010, with over one-quarter of those intended to come from the United Kingdom (see Europe: 23 November 2004: Taking the Quirky Approach - Cadillac's Re-Entry into Europe). In 2007, just 344 Cadillacs were registered in the United Kingdom, according to Global Insight's database.

Could a New Distribution Structure Solve the U.S. Problem?

Despite the issues that undeniably exist in Europe, it is GM's brand strategy in North America that attracts the most criticism. At least in Europe, stagnant sales in Western Europe, which is a problem faced by almost all carmakers and certainly not exclusive to GM, can be masked by burgeoning demand from Russia and other nearby growth markets. North America has no such shield.

"The good news is that GM has a lot of well-known brands," says Wagoner. "The bad news is our history and the fact that we've got eight distribution channels which has lead us to do not great things to build the distinctiveness and value of some of those brands. So now we need to double back and fix the latter and optimise the former."

His solution is to halve the number of retail channels GM operates in the United States. "We've got to get a line on distribution," he says. "Many people believe that if we've got eight brands then we must have eight different distribution channels. We don't. We’re moving to a model which would have four different distribution channels and several of them having multiple products in them."

"In that context," he continues, "you have to ask how many products you've got to offer per brand. Most people think you've got to offer eight to ten products, but you don't if you put them in multiple channels." For example Wagoner says that in the future, GM will cut down on the number of different models it sells, by offering "relatively few" Pontiac and Buick models, although those that are on sale will be "quite distinctive", meaning that GM will not have to "chase volumes on them."

Meanwhile, Cadillac will be GM's "premium lead" in the United States, Wagoner says, "but Saab and HUMMER would be offered as sort of sister brands in the same luxury channel."

New Cadillac Product Needed in Europe

Meanwhile, when Global Insight asked Wagoner if he has been disappointed with the reception to Cadillac in Europe, the answer was a hesitant no. "You have to be realistic when it comes to the European luxury market," he explains. "Luxury car buyers do not whimsically shift from one product to another because it costs a thousand dollars less."

Wagoner then concedes that part of the problem still lies with Cadillac's European product offering. "We've got to have products that fit the mainline demand and obviously our Cadillac line-up by virtue of our history tends to be on the larger and more expensive side, especially from a taxation policy point of view. I think we would have liked to have grown faster but I said from the beginning that we have to be patient about this."

"As we get more new products that offer more diesel engines for example, and which are all in right hand drive, I think we can build a good volume base. Ultimately, to get some significant volumes we're going to need something smaller than the current offering in Cadillac, so something like that is going to be key to really upping the volume. Stay tuned on that." Wagoner declined to give any more detail on this new, small Cadillac but said that it would not be as small as the future compact Saab model, which will be called the Saab 9-1.

Outlook and Implications

The truth is of course that GM's problems run far deeper than its convoluted brand strategy, but the complicated set-up has not helped it in its quest for profitability. All too often in the past, and as is still the case today, GM's own cars are competing against each other in segments of the U.S. market in which many of its rivals offer a single model. A recent Wall Street Journal (WSJ) article noted how Toyota, with its popular Camry midsize sedan, outsells all four of GM's equivalent offerings, the Chevrolet Malibu, Buick LaCrosse, Pontiac G6, and Saturn Aura. Toyota sold 473,000 Camrys in the United States in 2007 whilst combined sales of GM's four models in the same segment totalled just 386,000 units. And that was after GM had embarked on the first round of the streamlining of its brand portfolio.

GM has also made some questionable decisions regarding its overseas brand strategy. For example, how many millions of dollars the carmaker has spent to date trying to establish the Cadillac brand in Europe is anyone's guess, even though Toyota's experience with Lexus should have taught it that the region's fiercely loyal premium and luxury car buyers can not be convinced out of their German cars easily. If the equivalent investment had been made in developing a third model for GM's existing European premium brand of Saab, which already has a distinct and respected heritage in Europe, the struggling Swedish brand, whose "flagship" car is now in its 11th year of sales, could perhaps have sold ten times as many extra cars than the 4,500 Cadillacs that were sold in Europe last year.

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