Image: GM Chief Executive Daniel Akerson
JASON LEE  /  Reuters
“GM has to start acting like a consumer-driven, not engineering-driven, company," says CEO CEO Daniel Akerson. "We sell a consumer product — our can just costs $30,000.”
By
msnbc.com contributor
updated 3/25/2011 10:45:04 AM ET 2011-03-25T14:45:04

Last fall, the road ahead looked smooth for General Motors.

Just over a year since it sank into government-run bankruptcy, a leaner, meaner automaker relisted its shares on major world stock exchanges, bursting back onto the investment scene with the world’s largest initial public offering.

But just four months later some industry observers are expressing concern that the company's  new driver, CEO Daniel Akerson, is unfamiliar with the car market terrain and could steer GM into a ditch.

Critics contend Akerson, a former telecommunications executive, is surrounding himself with agreeable subordinates from similar backgrounds, focusing too much on cost-cutting and relying heavily on incentives, such as rebates, to artificially inflate sales at the expense of profits and brand image.

Adding to the concern: The sudden departure this month of GM’s finance chief Chris Liddell after barely a year on the job. Liddell shepherded GM through its record $23 billion IPO last November, and his departure renewed concerns about GM’s stability and performance that many analysts had credited the automaker with having put behind it in recent months. The company has had four chief executives in the past two years.

“I’ve seen this movie before, and it doesn’t end well,” longtime Detroit adman Peter Delorenzo said his blog, autoextremist.com.

Things have certainly looked upbeat for GM of late.

In the opening months of 2011 sales of GM’s cars and trucks have surged, as the company grabbed market share from its rivals, according to sales data from J.D. Power and Associates. That would appear to bode well for the company’s future, and with it, the potential for U.S. taxpayers to recover the remainder of their investment in the company.

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But some have questioned how those sales were made, and competitors have complained over GM’s tactics. They say the use of sales incentives such as rebates to grab market share is a shortsighted tactic whose use is worrisome coming from a company now led by an industry outsider.

GM has added hefty incentives to its cars since the start of the year, offering big rebates to current owners of GM cars, no-penalty early trade-ins for currently leased GM cars and bigger rebates for users of the GM credit card. The result has been a U.S. market share of more than 21 percent, higher than the company has had in years.

“We don’t see any upside to incentives,” said Eric Lyman, director of residual value solutions at Automotive Lease Guide, the industry authority on residual values.  “It is manipulating the market and lowering the cost of your vehicles, which lowers the resale value of your used vehicle in the market,” he said.

That is the primary concern noted by George Pipas, spokesman on sales analysis for Ford Motor Co.  “the focus becomes on the deal rather than the product,” he said  “It clearly does have an adverse impact on resale value.”

GM declined to respond directly, but supplied text of a March 1 conference call with analysts by Don Johnson, vice president of sales operations. “Price or incentives alone do not fully explain a 70 percent retain increase and a gain of almost three full share points,” he insisted.

But the word in the industry is that sales slumped in March once the incentives expired. “The metaphor that has been used is like drug addition,” said Pipas.  “If you depend on it to move sheetmetal it is not so good.  Then your customers depend on it.”

Some industry veterans worry that Akerson’s unfamiliarity with carmaking -- he had a long career as an executive with Nextel and MCI -- is leading GM to repeat mistakes it made when it was headed from 1992 to 1995 by Chairman John Smale, previously president and CEO of consumer products company Procter & Gamble.

Smale's hand-picked North America president Ron Zarella championed the launch of the Pontiac Aztek, a dismal-selling SUV whose laughable styling brought it to a quick end.

Akerson similarly has appointed outsiders to some top jobs including the recent announcement that Dan Ammann will take over as chief financial officer April 1. Ammann came to GM from Morgan Stanley’s investment banking group. Akerson also has installed former Sprint Nextel executive Linda Marshall to head GM’s OnStar division.

As GM’s CEO, Smale put forward the belief that GM’s cars could be packaged and sold just like P&G’s consumer goods, with the differences largely in the packaging and marketing. The result was a product line of nondescript cars -- the Aztek notwithstanding -- drained of both cost and customer appeal.

In an echo of that past, Akerson recently told the Wall Street Journal that a GM car was just like the can of Diet Coke he was drinking during the interview.

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“It’s a consumer product,” he said. “GM has to start acting like a consumer-driven, not engineering-driven, company. We sell a consumer product -- our can just costs $30,000.”

Industry insiders with a memory of the 1990s immediately blasted this view as a return to Smale’s failed strategy to commoditize a product for which a strong emotional connection is important to drive sales and to cultivate brand loyalty.

“The only difference between GM then and GM now is that this is a company that has only recently emerged from the abyss of bankruptcy, one that can ill-afford a single misstep brought upon by misguided leadership, even though it has the most competitive lineup (of vehicles) it has had in decades,” Delorenzo said.

At the time of his departure from the company last year, former vice chairman of product development boss Bob Lutz recalled the mess he found upon joining GM in 2001:

“Product development was all folded in organizationally with brand management,” he said. “This was done by John Smale, who believed that you could use the principles of the consumer products business in the automobile business, which has been tried before and it simply does not work.”

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An emphasis on cost and speed of product development rather than on product quality and customer satisfaction resulted in cars no one wanted, Lutz said.

Under Lutz, GM won numerous car awards such as the North American Car of the Year for the Saturn Aura, Chevrolet Malibu and Chevrolet Volt, while cars like the Cadillac CTS, Chevrolet Corvette and Buick LaCrosse have won plaudits from magazine reviewers.

Additionally, transaction prices -- the actual sale price of GM’s cars and trucks -- climbed by $4,000 as the result of an additional $1,000 of manufacturing cost, said Lutz, making customers happier and the company more profitable.

Now Akerson says speed and cost are the aspects on which he will concentrate, telling the Journal that “during World War II, GM produced tanks and equipment within four years. Why should it take four years to put a car out?”

Reuters contributed to this report.

Explainer: Ten leaps forward in car technology

  • Image: Three-point seatbelt
    Volvo
    Volvo’s Nils Bohlin invented the three-point seatbelt in 1959.

    English physicist, mathematician and astronomer Sir Isaac Newton once famously wrote — with perhaps a touch of false modesty — that “If I have seen a little further it is by standing on the shoulders of giants.”

    Thus has the car industry incrementally improved from its primordial horseless carriage beginnings to the magic carpet ride of today’s almost incomprehensibly complex machines with their raft of safety, environmental and convenience devices adding to the basic transportation function.

    Here are 10 of the car industry’s most important technological changes.

  • 1886 Benz

    Daimler AG

    It all began with Karl Benz and his construction of a self-propelled, three-wheel vehicle powered by a single-cylinder 0.75-horsepower engine using a leather belt and two bicycle chains to transmit power to the rear wheels.

    However modest this beginning, with its exposed engine parts and whirling bits menacing anyone who examines it too closely, the 1886 Benz launched the industry and was the foundation of today esteemed Mercedes-Benz brand. (Maybe the leather upholstery was an early clue to the company’s luxury intent?)

  • 1912 Cadillac with electric starter

    Image:
    GM

    The electric starter — invented by Charles Kettering at his Dayton Engineering Laboratories Co. (Delco) in 1911 — became standard equipment on Cadillacs in 1912, paving the way for all cars to feature electric starters. This accelerated the industry standardization of gasoline internal combustion engines over steam and electric designs. It also put more women behind the wheels of cars because prior to the electric starter they tended to avoid using difficult-to-start, hand-cranked cars.

  • 1914 Ford Model T

    Ford  /  Wieck

    Introduced in 1908, the Model T was just another low-end car from the multitude of regional manufacturers in this country. In 1914 Ford separated itself from its rivals and became (for a while) the world’s largest industrial concern as the result of the Model T’s assembly switching from small teams of craftsmen assembling each car to a moving assembly line of unskilled workers each contributing the same small bit to every car on the line. Construction time to build each car plunged from 12 hours and 30 minutes to 93 minutes, and the car’s price fell from $690 to $360, while annual sales mushroomed almost ten-fold and Ford doubled workers’ salaries to $5 a day.

  • 1930 Motorola car radio

    Motorola

    Next time a boom car rattles your windows at a stop light, think back to the days before Paul and Joseph Galvin developed the first commercially available car radio in 1930.

    The Motorola car radio overcame a host of challenges, including electrical interference, finding space in the car for the bulky radio components and making the radio durable enough to survive the pounding of primitive roads. The popular 5T71 radio debuted at the Radio Manufacturers Association convention in Atlantic City, N.J., following a demonstration drive from Chicago to prove its durability.

  • 1940 Oldsmobile Hydra-Matic transmission

    GM

    Today few new cars are sold in the U.S. with a manual transmission and a dwindling portion of the population even knows how to use one. We can credit this dismal state of affairs to the invention of the automatic transmission and its debut in the 1940 Oldsmobile.

    The original Hydra-Matic automatic transmission offered benefits in terms of efficiency that surpassed subsequent designs, but that approach was abandoned in pursuit of smoother gear changes, which were more important to drivers. The company touted the ability to navigate stop and go traffic and to park without stalling the engine as the automatic’s primary benefits, and those features continue to drive the technology’s appeal today.

  • 1946 Michelin radial tire

    Michelin

    Until Michelin developed the radial, tire design had evolved little from the dawn of the car industry. The radial moniker refers to the direction of the reinforcing belts, which are turned perpendicular rather than running parallel to the direction of travel as in bias-ply designs.

    The benefits include a more stable footprint, reduced fuel consumption, longer tread life and better handling. The near-absence of any kind of maintenance or attention required led the government to mandate tire pressure monitors in cars because drivers had long since stopped checking the condition of their tires.

  • 1959 Volvo three-point seat belt

    Volvo

    Volvo engineer Nils Bohlin invented the three-point seatbelt in 1959. The belt appeared in the automaker’s cars that year, and within a decade the belts were mandatory equipment in all cars sold in the United States.

    Bohlin’s background was in aviation, where he developed ejection seats, so he understood the necessity of securing the torso and not just the pelvis as the lap belt had done. The elegant simplicity of his solution is confirmed by the inability of newer seat belt designs to displace the three-point seatbelt 50 years on.

  • 1972 General Motors air bag

    GM

    While air bags didn’t become commonplace in cars until the 1990s, GM conducted a large field test of 1,000 1972 Chevrolet Impalas equipped with experimental air bags. Between 1974 and 1976, the company offered the world’s first production air bags in its cars, with the first appearing in a 1974 Oldsmobile Toronado. Though the company was prepared to build 100,000 air bag-equipped cars a year, only 10,321 were sold over three years despite a reasonable price of between $180 and $300 for the option.

    The Insurance Institute for Highway Safety confirmed the robust construction of the early system by testing two of the old cars in the 1990s. Neither car ran and even the radio and clock didn’t work in one, but the air bags still deployed perfectly in the institute’s crash lab.

    “What’s important to remember at this point is that the air bags GM put into those early cars worked fine,” wrote IIHS president Brian O’Neill in a 1993 letter to the New York Times.

  • 1995 BMW and Mercedes-Benz electronic stability control

    Mercedes-Benz USA

    These premium carmakers battled to be the first to introduce an electronic stability control system that automatically stabilizes a car in the event of a slide. Though these expensive V-12 models were the first to feature stability control, they quickly verified the technology’s value with significant reductions in crashes. Subsequent studies showed that stability control-equipped cars are about one-third less likely to suffer a fatal crash, a result that encouraged the U.S. government to mandate stability control for all cars starting in model year 2012. The real safety advantage of stability control is that in contrast to seat belts and air bags, which mitigate the damage that occurs in a crash, stability control prevents many crashes from happening in the first place.

  • 1996 OnStar telematics

    GM  /  Wieck

    In our increasingly connected wireless world, the notion that the car should connect to a network over which it can share information may seem like an obvious development. But it was less obvious in 1996 when GM’s OnStar division was launched, using analog cellular telephone technology to send information to drivers and to automatically report crashes.

    Today other carmakers have their own telematics services and each month OnStar is now responding to 2,300 crashes, 10,000 requests for emergency assistance and nearly 30,000 requests for roadside assistance.

Video: Bob Lutz on automakers

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