July 31, 2012 at 4:06 PM ET
GM's horrible week may get more horrible.
The week began badly for the world's No. 1 automaker with the unexplained ouster of its global marketing chief. Barring a late July surge, GM is expected to report July sales numbers on Wednesday that lag behind its chief rivals. And on Thursday it will announce what is widely forecast to be dismal profit numbers for the second quarter -- largely reflecting the maker’s ongoing problems in the free-falling European car market.
Complicating matters, GM’s recent problems have been magnified by its unintended and unwanted role in the 2012 presidential campaign. Though it was the former Republican President George W. Bush who launched the bailout of the struggling maker -- and rival Chrysler -- in late 2008, it was his successor, President Barack Obama, who took that effort to the next, far more costly level. To critics, “Government Motors” is a symbol of the administration’s perceived failures.
“Other than Europe, there isn’t one definitive problem, just a myriad of small problems” plaguing GM, said Rebecca Lindland, chief analyst with IHS Automotive. There is no doubt this will be a tough week, though she insisted critics should be cautious about overstating the maker’s problems.
Things got off to a bad start on Sunday, when the automaker was hastily forced to confirm rumors it was forcing out its global marketing chief Joel Ewanick after barely two years on the job. Though the departure was billed as a “voluntary” resignation, spokesman Greg Martin fanned the flames when he followed up by telling reporters, Ewanick “failed to meet the expectations the company has of its employees.”
Whether that was a gross dereliction or simply the failure to clear a multimillion-dollar partnership with British football team Manchester United with his bosses is uncertain. But the summary nature of the ouster was all the more intriguing considering GM CEO Dan Akerson complimented the 52-year-old executive as a “glass-breaker” just two weeks earlier.
Those who believe the problem was the GM system, and not any ethical violation by Ewanick, fret that the ouster speaks volumes about the company’s inability to change despite the palliative of bankruptcy.
Others say the only thing that really matters is judging the body of Ewanick’s work. There’s no doubt he was a game-changer, scuttling long-term ad agency relationships, pulling out of the Super Bowl commercial extravaganza and publicly chiding Facebook days before its flawed IPO by yanking GM’s $10 million ad account.
But the latest series of GM ads, notably including those running during the much-watched Olympics, have received negative to lukewarm feedback. And the more significant measure, market share, shows that GM has dropped from 19.9 percent of the U.S. market during the first half of 2011 to just 18.1 percent this year, only 3.7 points ahead of resurgent rival Toyota.
“He was disruptive,” said Lindland, “but disruptive doesn’t mean positive results.”
While nearly two-thirds of GM’s unit sales now come from abroad, the U.S. market remains a critical contributor to the bottom line. GM has been growing, on the whole, but not nearly at the pace expected.
On the positive side, the newly updated Chevrolet Malibu nearly caught the midsize segment leader Toyota Camry last month. Other models, such as the Chevy Cruze and a range of Buick models, have been lagging badly.
“The good news is that they’ve got some great products coming,” said Joe Phillippi, of AutoTrends Consulting, but due to the delays fostered by the 2009 bankruptcy GM’s product replacement program is two years behind schedule. Key models, such as a replacement for the critical Chevrolet Silverado and GMC Sierra pickups, still aren’t ready.
Europe needs new product
New product is something GM clearly needs in Europe too. The automaker nearly gave up majority control of its German-based Opel subsidiary following the 2009 bankruptcy, reversing its decision to sell to a Canadian-Russian consortium at the last minute. It was a move CEO Akerson has recently hinted might have been a mistake.
Despite anticipating 2011 would see GM Europe break even, it instead lost $700 million. That could grow to $2 billion this year, the company recently warned. If that happened it would mark 13 consecutive annual losses for the region.
The European auto market is in free-fall and GM is by no means the only maker losing money there. Continental losses contributed largely to a 57 percent drop in Ford’s second-quarter earnings. Ironically, were it not for U.S. partner Chrysler’s strong North American showing, Fiat would have posted a major loss this week as key national markets across Europe collapse as several nations struggle with a growing debt crisis that has pushed some eurozone countries into recession. Even mighty Germany's ecoonomy has been affected.
Nonetheless, observers believe Opel’s problems are broader and stem from weak product and a lack of brand identity. That was something Dave Lyon was intending to address as the new head of design for the GM subsidiary. But Lyon also tendered his resignation in recent days for unspecified reasons.
The 43-year-old, credited with penning several recent successes for GM, is just the latest in a fast-spinning revolving door that has seen a number of other senior executives leave the company. That includes Tony Posawatz, head of GM’s electrification program – which covers the critical Chevrolet Volt. And an assortment of European execs, including GM Europe CEO Karl-Friedrich Stracke, have been unceremoniously ousted or demoted.
That puts Vice Chairman Steve Girsky in the hot seat. The former Wall Street auto analyst is, at least for now, overseeing day-to-day operations in Europe. Girsky is racing to come up with a turnaround plan likely to include job cuts and plant closings. Given European sensibilities and the power of its unions, those moves likely will take several years to phase in.
While this is not likely to be a week Akerson, Girsky and other GM managers will want to repeat, analyst Phillippi said there’s plenty to be positive about. The maker remains number one in China, now the world’s largest auto market, although even there the torrid double-digit sales pace of recent years has slowed substantially.
Phillippi believes a few more “home runs,” like the Chevy Malibu and the new Cadillac ATS could drive renewed momentum for GM. And, he noted, the maker emerged from bankruptcy with most of its debt cleansed and with “a dramatically improved cost structure.”
Asked in June how far along GM has come, CEO Akerson responded, “We’re probably 25 percent of the way there.”
It wouldn’t take much, proponents say, including a bit of an improvement at Opel, to suddenly make GM look good.
That’s something Akerson and company can only hope for. Rumors suggest the GM board is running out of patience as the maker’s stock dips to its lowest level since GM’s 2010 IPO. So is Washington. The U.S. Treasury still owns 26 percent of the company and that puts GM in an uncomfortable spotlight.
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