The One Eyed King

Last year at the Society of Automotive Analyst briefing, the speaker form Deutsche Bank Rod Lache said, “we’ve lost one whole automaker” due to overcapacity, “we just don’t know which one”.  As Chrysler is being subsumed into Fiat, might that odd man out be GM?  That’s a harsh possibility, but industry overcapacity might be the key to understanding the future.

Moving forward for GM, what are its likely scenarios?  One is that the Government tries to sell its stake, and conducts an IPO, which is snapped up by an eager public.  Another is that with little interest in an IPO, the shares and/or management is hived off to a competitor.  Perhaps the Kerkorian scenario of Nissan-Renault-GM will eventually come to fruition.  The last one is that insufficient interest will exist in the market as a whole or among other auto firms and “Government Motors” soldiers on until there is change in the heart of the administration or that administration is changed.

If there’s been a re-alignment to a “new normal” of a sub-fifteen million unit annual sales rate, than clearly the game of musical chairs leaves one firm standing in the end.  What will happen?  When it comes time for the government to sell its GM shares, the market will come to a judgment of whether or not the firm’s capacity has a place at the automotive table.  My feeling is that efforts to shrink the market due to public policy as well as other market shifts will make floating GM stock highly iffy.  If pressed, the Government may sell off at a huge loss, but the heart of the investor market will resist investing in auto industry overcapacity.

That leaves the Government the option of shopping around GM’s brands and assembly prowess to other firms.  Few other companies might have the stomach for GM’s market appetite.  Strength through acquisition is a management fad that doesn’t carry credence these days, so GM’s strongest possibility may lie in an alliance similar to the one created for Nissan-Renault.  Candidates might include Ford (not bloody likely), VW (if still on the hunt for growth via acquisition) or Hyundai (always ambitious).

If a buyer or partner cannot be found, then “Government Motors” will lurch on as long as the public purse will support it.  For how long?  It depends on the government’s goals and the public’s taste for auto industry ownership.

Current interim CEO Ed Whitacre of GM has signaled that while not a “car guy”, he is still in charge and will run GM as well as he can until a permanent CEO is named.  It’s probably better that Ed’s in charge, as industry czars Ron Bloom and Steven Rattner seem to be public policy wonks rather than Titans of Industry.
 
In the end, GM has limited options.  It may return as a publicly traded company, on its own two legs, as long as the industry as a whole bounces back to provide GM adequate volume given its declining market share.  It may survive as a partner to some international cabal of automakers, similar to Chrysler’s arrangement with Fiat.  If a partner can be found, this scenario has a lot going for it.  Lastly, there’s the “Ryder/PIE” alternative, where investors take a look at industry capacity, then look at sales levels, and then back to capacity, and make a judgment that GM’s continued existence is not a necessary component to their view of the future.

That’s what happened to Ryder/PIE, which was a shame and a personal loss for me.  Despite my youth and inexperience, in my three-year stint I had gained a good reputation in the company, with customers and in the industry.  I even edited the AIAG’s monograph on Just-in-Time transport, writing a good deal of it. So, “yes”, I “wrote the book” on Just-in-Time.  I could easily have imagined switching ambitions to B2B sales and the transport industry.  But ill luck, and poor management, struck, and my life went on to another direction.

Two things need to happen for GM.  Internally, they will have to acquire a management with at least one eye open, and not blinded by ambition, careerism, egotism and hubris.  This is the culture change so often mentioned.  The hiring of industry “outsiders” aids in this process, as they are likely to bring a fresh perspective, but they might be as likely to bring the sort of blindness endemic to their own world.  We see this in government-dictated moves at GM thus far (must have ownership stake, must close Pontiac, must drop dealer count, must build tiny cars, must stiff bondholders, etc., etc.).  Externally, the market will have to rebound sufficiently for there to be room for GM at the table, whether or not GM’s own house is in order.

There are those who will say that, simply, GM just needs to put more emphasis on product, and that good product is the key to auto industry health.  It is true that, unlike Chrysler, GM’s new product pipeline has more in it.  With new products like the Volt, GM’s ability to come up with new product is self-evident.  On the other hand, so does everyone else.  Ford is trying to meet, and beat, Toyota’s and Honda’s five year product replacement cadence.  VW is aiming for the heart of the American market.  Hyundai and Kia continue with more and improved product line-ups.  Nissan has shown sales resilience of late as well.  Tactically, new product is a requirement.  Troops must have ammunition.  But strategically, GM will have to sell itself as an ongoing enterprise, and the GM culture and its financial results will be under scrutiny as well as its ability to crank out interesting products and sell them through a committed dealer body.

In short, is there a king for GM with at least one good eye?  And will he or she be able to guide the GM people into a land of sufficient bounty for them to survive?  It will be the stuff of legend and myth, one way or another.