Should General Motors Sunset Buick and GMC?

by | Oct 8, 2019 | automotive industry

Streamlining is in order?

I believe General Motors (GM) should go on a diet, a major diet. Even having four brands, this is too many. In case you’re wondering if this is an anti-GM article, it’s not. Growing up, I was a GM fanboy and learned as much as I could about it. I grew up with Chevys, Cadillacs, and Buicks, so I bled General Motors. I think GM should focus on just 2 brands. This wouldn’t be much different from how Toyota and Honda are structured (Toyota is for the mass-market and Lexus is the luxury brand, Honda is the mass-market brand and Acura is the luxury brand).

General Motors, one of the ‘Big Three’ American automakers, has been firmly embedded in automotive history almost from the beginning. Founded in 1908, General Motors bought automakers, Oldsmobile, Buick, Cadillac, Oakland (later Pontiac), and then later, Chevrolet under one umbrella. In the 20s, it innovated ‘planned obsolescence’ by making design changes every year, making it more enticing for consumers to get the ‘latest and greatest before they would otherwise.

Source: Report on the Motor Vehicle Industry, Federal Trade Commission, 1939

What if All Auto Brands were Made in the Same Factory?

How Auto Dealers Might Address the Way Consumers get Around in the Future

GM gets bigger…and then smaller

General Motors also mainstreamed building its cars on similar platforms in each of its brands but selling them with different trims, features, and price points. This worked well and helped GM maintain a large market share throughout much of the mid to late 20th century. This wouldn’t last long. Japanese automakers mounted fierce competition during the 70s and 80s. GM responded with the Saturn brand in 1985. By the 90s, GM had become this huge, unwieldy organization that did business in the areas of financial services, defense aerospace, and computer services.

Data source: Knoema

After selling off much of the non-automotive-related businesses in the late 90s, GM bought Saab and Hummer. It also put some money into Fiat, Subaru, and Suzuki. Things didn’t get better. After a few years of lackluster growth, GM killed off Oldsmobile in 2004. In 2008, Toyota became the world’s largest automaker. In 2010, two more of its brands ended up on the chopping block: Pontiac and Saturn. This left GM with Buick, Chevrolet, Cadillac, and GMC.

In a consumer environment where buying a new car is no longer an important part of the ‘American Dream’, people are increasingly preferring to be driven around in a stranger’s car or buy used vehicles. In this environment, it won’t take long for the red ink to flow. In 2017, GM lost nearly $4 billion. That year, Mary Barra, GM CEO said that the company would be overhauled. Part of this overhaul resulted in GM selling money-draining European car companies and introducing all-new crossover SUVs. The overhaul paid off: GM made $8.1 billion in 2018.

Why Should GM Get Smaller?

Toyota and Honda have done a great job of being profitable with just two brands each. “A volume brand and a premium brand can get the job done. Toyota has proven that,” said Karl Brauer, editor in chief of Edmunds.com, “Cadillac, Chevy, done.”

This might make some Chevy and GMC truck owners angry: there is essentially NO difference between the two trucks beyond minor styling and trim offerings. Chevy is positioned as the mainstream/volume brand and GMC as the premium brand. Pricing has become closer between the two brands over the years. If GM were to streamline its offerings, I believe Chevrolet and Cadillac should be the remaining brands.

Why keep GMC, when Chevy would do? Here’s an example of how close Chevrolet and GMC vehicles are, based on price:

Data source: General Motors

When looking at the number of GM brands, models, and average sticker prices, and comparing this to Toyota, there are some interesting takeaways:

  • The average price of Chevrolet trucks and GMC trucks differ by $1,550.
  • GM only has 6 more models than Toyota (this includes Lexus) (56 vs 50)
  • The average price of all GM models is $35,705 compared to $43,797 for all Toyota models.
  • There are almost as many Lexus models as there are Chevrolet models (25 vs 27) One-third of the Lexus models are hybrid versions.
  • Chevrolet (volume brand) models come in with a higher average price than Buick (a near-premium brand), $33,393 vs $32,597, and both are less than the average price of GMC models ($35,111).

From 2005-2019, GM’s biggest sellers, Chevy trucks, vans & SUVs, and GMC, while essentially selling identical vehicles, couldn’t be any different when it comes to the number of sales. GMC Sierra sales averaged about 36% of Chevrolet Silverado sales. In comparison, GMC Canyon sales were 30% that of its cousin, Chevy Colorado. This suggests that many buyers see that the two brands are similar and decide to buy Chevy because of slightly lower price points. Based on sales data of the last five years, GMC vehicle sales are projected to remain flat over the next five years, while Chevrolet truck, van & SUV sales are projected to increase by about 26%.

Data source: GoodCarBadCar

Data source: GoodCarBadCar

Data source: GoodCarBadCar

Buick sales dropped about 74% between 2017 and 2018. Half of its models saw sales declines between Q3 2018 and Q3 2019 (an average 38.36% decline). The models which saw sales increases during the same period were the Enclave, Encore, and Envision. These models saw an average sales increase of 20.46%. Buick sales between Q3 2018 and Q3 2019 declined by 17.9%.

Data source: GoodCarBadCar

Data source: GoodCarBadCar

Were Oldsmobile & Pontiac Popular?

If you’re thinking Pontiac, Oldsmobile, and Saturn must have been ‘bad brands’ with terrible cars. You’d be wrong. In fact, these brands could hardly be considered sales laggards. Although between 1996-2010, Saturn, Pontiac, and Oldsmobile sales trended downward, this was true with just about any brand leading up to the great recession. During this period, Saturn sold an average of 226,000 cars each year, Pontiac sold about 439,000 cars and Oldsmobile sold 196,000 every year.

Data source: CarSalesBase

Saturn sold about 50,000 cars less per year than Buick’s 274,246 cars between 1996 and 2018. Pontiac sold about 44,000 fewer cars per year than GMC’s 482,671, during the same period. Even Oldsmobile, the brand that probably suffered the worst overall sales figures for a while, sold an average of more cars per year than Cadillac (196,000 vs 180,000).

Data source: CarSalesBase

Data source: CarSalesBase

So, sales were not the biggest factor in shuttering these brands. One of the things that helped make GM into the world’s largest automaker also became its liability. Consumers increasingly found GM’s business model of offering basically the same vehicle across each division, a turn-off. The sales started reflecting this dissatisfaction.

For example, one reason why Pontiac got the ax, is because it was essentially Chevrolet with sportier packaging. Oldsmobile was too much like Buick but less luxurious, but more so than Pontiac. GMC is basically an upscale Chevy truck, van, and SUV brand, and Buick is essentially a ‘near-luxury’ brand similar to Chevy ‘with Cadillac aspirations’. So, my proposal to kill off Buick and GMC isn’t too far-fetched. If GM could ax Pontiac, a brand that many consumers were passionate about, and one that sold relatively well, General Motors could certainly kill off GMC and Buick.

What if All Auto Brands were Made in the Same Factory?

by | May 27, 2019 | automotive industry

In the past decade, we’ve seen the death of General Motors divisions Oldsmobile and Pontiac, Chrysler’s division, Plymouth and Ford’s Mercury. Within those brands were iconic cars such as the Cutlass Supreme, Firebird, and Barracuda. In a world where auto sales are falling, demand for transportation is increasing. All opinion-makers want to blame Millennials for ‘killing’ yet another industry, I believe the automotive industry has not adapted to the changing world as much as it should have. Millennials are a generation that votes with their wallets. If it doesn’t make sense to do, they won’t do it.

People love cars, even the process of buying a car has improved immensely as dealerships have adapted quite nicely to the digital age and buying habits, but owning a car have become too cost-wieldy for younger consumers. When adding in insurance, fuel, and maintenance costs, it doesn’t make sense for a generation with heavy student loan debt to purchase a car that they’ll only need 5% of the time. This brings to light something Bill Gates said at Comdex years ago: “If GM had kept up with technology like the computer industry has, we would all be driving twenty-five dollar cars that got 1,000 miles per gallon.”

What wasn’t said in response to Bill Gates’ comment, but was made into a joke was “Yes, but would you want your car to crash twice a day?”

The joke goes further. We’d have to deal with the following if Microsoft built cars:

  • Every time they repainted the lines on the road you would have to buy a new car.
  • Occasionally your car would die on the freeway for no reason, and you would just accept this, restart and drive on.
  • Occasionally, executing a maneuver would cause your car to stop and fail and you would have to re-install the engine. For some strange reason, you would accept this too.
  • You could only have one person in the car at a time unless you bought Car95 or CarNT. But then you would have to buy more seats.
  • Apple would make a car that was powered by the sun, was reliable, five times as fast, twice as easy to drive – but would only run on 5 percent of the roads.
  • The Apple car owners would get expensive Microsoft upgrades to their cars, which would make their cars run much slower.
  • The oil, gas and alternator warning lights would be replaced by a single “general car default” warning light.
  • New seats would force everyone to have the same size butt.
  • The airbag system would say “Are you sure?” before going off.
  • If you were involved in a crash, you would have no idea what happened.
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Ride-Sharing and Consolidation in the Auto Industry

Lyft and Uber recently had highly anticipated IPOs and although their share prices fell below initial expectations, don’t think these platforms are going away. There are millions of riders across the globe who depend on these ride-sharing companies. It’s only a matter of time when Lyft and Uber and the smaller platforms work out the pesky details of contractor vs employee and how to be profitable and not lose customers. Auto manufacturing companies, in the meantime, continue to be under pressure amid falling sales. As of this writing, Fiat Chrysler Automobiles is seeking to merge with France’s Renault, which would make it into the third-largest automotive manufacturing company in the world after Volkswagen, and Toyota.

Some are calling this a ‘move of desperation’, I differ to think that. I believe it’s a move to first bolster bottom lines, then be able to take advantage of economies of scale, and thereby, save money. The money saved could then be used in electric and autonomous vehicle research. In this coming world, auto dealerships could adapt to become less brand-centric and more of a transportation provider portal. This would not be much different from how retail stores operate. Target or Walmart carries a variety of brands and items which are mostly differentiated by pricing.

Auto manufacturers have a long history of collaboration and this would most likely continue. With many trends coming together in the automotive industry, we may something even more game-changing than mere collaboration and merging. What about a new manufacturing platform that would utilize more 3-D printing, one in which all brands would have access to build their vehicles. Also, automotive manufacturers might build cars using a standardized chassis. A brand would simply attach its car body to the chassis. This could especially work with electric vehicles. Manufacturers could defray costs by teaming up with third-party chassis builders, and they could focus strictly on the car body design, features, and options. This would streamline the manufacturing process and spread costs among all brands. Brands would still have the ability to customize their specific options and trims to their particular offerings.

I am no automotive manufacturer. This is just an idea. I am sure an automotive factory designer could bring up a multitude of reasons why this might not be viable or the intricate processes of manufacturing vehicles can’t be adapted to this model.

How Auto Dealerships Might Address the Way Consumers Get Around in the Future

by | May 6, 2019 | automotive industry

A Brief History of the Personal Automobile

Although Americans soon dominated the automobile industry starting over a century ago, the automobile was born in France and Germany in the late nineteenth century. Karl Benz, Nicolaus Otto, Gottlieb Daimler, and Emile Levassor refined the automobile, laying the groundwork for the consumer market. Wilhelm Maybach is credited for designing the 1901 Mercedes, the first modern automobile, for Daimler Motoren Gesellschaft.  

After Henry Ford’s innovative assembly line production became a standard, the automotive companies saw increased economies of scale in manufacturing and a subsequent rise in middle-class consumer demand.  By 1913, the U.S. produced 485,000 of the 606,000 or 80% of the motor vehicles produced worldwide. In the 1920s, Ford, General Motors and Chrysler became known as the ‘Big Three’ automotive companies. By 1925, 75% of all automobiles were bought using credit. This solidified the American economic habit of buying expensive consumer goods on credit and fueling the rapid expansion of the automobile industry. By 1927, Ford stopped making the Model T, after selling 15 million units with a price reduced to $290.

GM innovated the concept of ‘planned obsolescence’ in the 1920s and 1930s. The goal was to ‘encourage’ consumers to trade in their car for a more expensive car by using major design and option updates every three years. The mantra at GM was “the primary objective of the corporation was to make money, not just to make motorcars.” This change in strategy had a direct impact on competition between Chevrolet and Ford, with Chevrolet rising over Ford in the low-priced market, and GM dominating the U.S. market 43%, to Ford’s 22% and Chrysler’s 25%.

After the industry pivoted manufacturing to meet the demands of the military during World War II, production for the consumer market rose after the war to meet the growing worldwide demand. The late ‘40s to the late ‘50s was the golden age of automobile production. During this time, American suburban areas experienced major expansion, fueling the beginning of the sprawling metro areas we live and work in today. 

American car companies sold a record 12.87 million units in 1978. But by 1982, American-made car sales had dropped to 6.95 million, owing to imports increasing their market share from 17.7% to 27.9%. Japan became the world’s leading auto manufacturer in 1980, a position it holds in 2019. By 1980, over 87% of American households owned at least one automobile and 51.5% percent of households owned more than one. While most Americans own a car, which has been a standard in the American Dream dynamic, getting around and mindsets behind car ownership are slowly changing. There are some who think the age of personal automobile ownership is in the beginning stages of the end.

The Beginning of the End of Personal Automobile Ownership

Automobile sales have only increased by about 3.3 million or 23.6% or .087% each year between 1990 and 2017. This is against an increase of 67 million people of car-buying age (35% increase or 1.3% each year during the same period. The car-buying age population growth rate was about 15 times that of the car sales growth rate. In fact, the former VP of GM said “We are approaching the end of the automotive era”.

Car-Sharing/Ride-Sharing Platforms

In 2000, two Boston women Antje Danielson and Robin Chase started Zipcar, a car-sharing service. The service allows short term car rentals. It was easy to use and for the user that only needed a vehicle for a couple of hours, the cost was between $7-$12 per hour and with no requirements to have insurance or refueling when returning the car. Car-sharing didn’t start with Zipcar. You’d have to go back to 1948 in Zurich Switzerland when a housing co-op offered a car-sharing service for its tenants. In the ‘70s and ‘80s, large-scale car-sharing operations operated in Switzerland and Germany. StattAuto, a German car-sharing service was successful and made the path to opening a similar service easier in the U.S. Carshare Portland was the first car-sharing service in the U.S.

The car-sharing model saw successes in major American cities, with many operators coming in to follow the trend from U-Haul, Hertz, Avis, and Enterprise among them. By late 2012, Zipcar had 80% of the U.S. car-sharing market and half of the worldwide market with 730,000 members sharing 11,000 vehicles. By 2020, worldwide car-sharing revenue is expected to rise to $6.2 billion and 12 million members according to Navigant Consulting. This expansion is fueled mostly by generational mindsets about car ownership and increasing costs to own a personal vehicle. 

Although ridesharing goes as far back to 1605 with the launch of a horse-drawn carriage taxicab service, most people associate modern ridesharing with the arrival of Uber in 2010 and Lyft in 2012. These smartphone-enabled platforms have revolutionized the car service industry and overall have negatively affected taxicabs’ bottom lines. These platforms offer a few benefits such as more efficient ride-ordering and cheaper service. For example, one five-city study found that Uber drivers utilized their vehicles at higher capacity rates than taxicabs. This is mostly due to its larger reach, more efficient ordering and pricing methods and the platform doesn’t have to wrestle with taxicab regulation inefficiency.

E-scooters and e-bikes can be thrown in the mix of transportation options for American cities. They are most helpful in providing ‘last-mile’ connectivity for transit users that still have a significant distance to walk after getting off a train or bus. Uber and Lyft are most likely the number one reason that driving-age teenagers are opting not to get their driving license.

Ridesharing User Sentiment on Buying a Car – Source: Statista

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Ridesharing Usage & Projections 2017-2023 – Source: Statista, Nov. 2018

Some car manufacturers are offering car subscription services in a bid to address millennials’ and gen z’s embrace of subscription services such as Spotify, Ipsy and Blue Apron. This is similar to what happened with the music recording industry. Twenty years ago, consumers owned music on cassette tapes, vinyl, and CDs. This model was disrupted in a relatively short time as music media went from the physical to the cloud. Consumers didn’t take long to adjust to this new way because as long as they were able to listen to their favorite songs, it became less important how they did it. While car subscription services are too new and tend to be on the pricier side of transportation options now, this will undoubtedly change as price points decrease as they scale up users.

What’s the Future of Getting Around?

The one question that has remained constant during the past 200+ years is ‘how will I get from point A-Z?’  Transportation, like music a decade ago is becoming less about owning the vehicle than just getting around no matter how. Early automobiles were sold directly to the consumer or through several channels such as department stores, direct mail or traveling salespeople. The franchise dealership became the almost exclusive way to sell new cars in the U.S. This system requires that dealers accept a quota of cars specified by the manufacturer, must pay cash on delivery, maintain service facilities as approved by the manufacturer and only sell only a certain new car make.

The dealer is guaranteed sales territory and may receive manufacturer financing or advertising assistance in return. Dealerships haven’t been consistently happy throughout the dealer-manufacturer relationship and have complained to their respective state legislative bodies throughout. This culminated in legislation and a federal statute in 1956 to protect dealerships from arbitrary actions by car manufacturers. Automakers tried to return to the early days of direct selling to the consumer in the 1990s when the internet became consumer-friendly with the advent of the World Wide Web. American automobile dealerships lobbied state governments to block this practice and subsequently prohibit manufacturers from owning dealers through subsidiaries. Car manufacturers can sell directly to consumers in Europe and South America via the internet in limited quantities.

Automobile dealerships are at a point where auto selling is slowly transforming into the business of transportation or transportation ownership type consulting. In a world where millennials and gen z consumers are sharing, streaming and renting, ownership as a major goal in service and product attainment will most likely see decreasing consumer attainment behaviors. This puts the auto dealership in a great position to be at the forefront of this inevitable consumer habit change. Automobile dealerships already have the physical and virtual infrastructure to transform into a transportation consultant business model.

How Does the Transportation Consultant Business Model Work?

A transportation consultant is merely a former automobile dealer (which only sells or leases new and used vehicles) which is transformed into a place where a consumer is provided with more options of how to get from point Y-Z. This business model can offer to include slow-selling models as part of their own car subscription service. They can offer car-sharing services. They can even offer discounted rates to ride-sharing drivers along with special buying, leasing or car-sharing rates to the riders of the ride-sharing drivers that received the discounted rates. In this future, the transportation consultant would not be bound by manufacturing brands but would become much like transportation ‘department stores’ offering transportation services and options.

They could even offer a grand subscription service that partners with ride and car-sharing, a car subscription service, into one service which offers full seamless transportation options. For instance, a consumer can sign up for a service costing $800 a month. Within this service, the consumer can use a certain vehicle for 100 hours each month, use Uber or Lyft. Basic service and insurance would be included. As the month progress, an app would subtract the amount used from the user’s account based on the method of transportation. The consumer would always know how much transportation dollars they have left.

Arbitrary numbers were used, so if this futuristic transportation consultant scenario were to become a reality, the financials would have to be worked out to meet the needs of both consumer and transportation consultants in a balanced way while considering marketability and profitability. The whole dealership way of doing business would have to be changed at the state level to allow for this new way to offer transportation services.

Sources:

Automobile History

OVERVIEW: THE CARSHARING TREND

Wikipedia

The Ridesharing Revolution: Economic Survey and Synthesis-Brookings Institute

Automotive industry-Encyclopedia Britannica