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Would splitting up GM cripple the automaker?

In less than six months, GM went from insisting on its integrity to gladly embracing the idea of tearing itself in half. What would a good GM/bad GM structure look like?
/ Source: The Big Money

OK, triangulate this. Last year, before it became abundantly apparent that the Detroit automakers would need a federal bailout to survive the spring, General Motors’ then-CEO Rick Wagoner declared that bankruptcy was not an option. Later, he said bankruptcy might be an option. Then, viability plans were submitted and rejected only to have Wagoner publicly fired by the president of the United States.

Now, Wagoner's replacement, Fritz Henderson, has quickly become the front man for a "quick and surgical" GM bankruptcy — probably outlined by auto task force member Steve Rattner — that would split the company into a "good GM" and a "bad GM." So there you have it: In less than six months, GM went from insisting on its integrity to gladly embracing the idea of tearing itself in half.

Good GM would be made up of the company's most competitive brands: Chevrolet, Cadillac, GMC, and possibly Buick. Bad GM would consist of the alleged clunkers, to be sold off later: Hummer, Saab, Pontiac and Saturn.

On paper, it sounds reasonable. Around the Renaissance Center in Detroit, GM's headquarters, there have been rumblings for a decade that GM should do something like this: dismantle itself as a holding company and shed some of its divisions, emerging not as a firm that was designed during the pre-war period to embody the might and majesty of vertically integrated manufacturing but as a leaner, more agile outfit that can duke it out with the Japanese and the Germans on its home turf.

As plans go, however, the Jekyll-and-Hyde, Good GM/Bad GM scheme isn't particularly visionary. Rather than transform GM into an aggressive global competitor, it's liable to turn the General into a cripple. And if all goes according to the current, widely anticipated plan, it will be Chevrolet's fault.

Here's the basic problem: As GM has restructured over the last 10 or 15 years, it's stuck to the idea that Chevy should be an all-purpose entry-level brand that's meant to offer a car for everyone. The division currently sells 17 different vehicles, from the lowly Aveo compact to the high-performance Corvette (which many actually consider to be an independent brand within the GM universe). Chevy is also home to the Silverado, GM's player in the hypercompetitive, highly profitable full-size truck market, where this pickup and Ford's F-150 (among several other, lesser models) duke it out to capture 2 million customers per year.

Back when GM ruled the world, the idea was that you bought a Chevy, then you moved up to a Pontiac, then an Oldsmobile, then a Buick, and finally you arrived at the pinnacle of the GM brand ladder, lordly Cadillac. Not long after, you were measured for a pine box. It was cradle-to-grave branding of the most ambitious sort.

But now, once you get past Chevy, GM's brands are more niche-focused, and they all have fewer cars and trucks to sell. Pontiac is a performance brand. Buick continues to exist mainly because it's the key to GM's China strategy. (In 2004, Buick sold seven models; now it sells three.) GMC is a pure truck brand. Hummer is sui generis, Saab is a goner, and Saturn carries the DNA of innovation and provides the closest thing GM has to a hip, youth brand.

The Good GM/Bad GM bankruptcy would exaggerate a brand crisis in this matrix of products. As the years have worn on, GM has found it increasingly difficult to move customers from Chevy to Cadillac. Toyota, by contrast, has no difficulty graduating consumers from its core brand to its Lexus luxury division. Likewise Honda with its Acura division. The leap from a Chevy Malibu or Impala to a Cadillac CTS introduces too much cognitive dissonance. This can be blamed on the smart decision, undertaken in the early 2000s, to rescue Cadillac after years of brand dilution and recast it as a family of exotic vehicles.

This put Caddy in a league with Mercedes and BMW and pushed it past the more bland offerings from the Japanese luxury marques, but it also created Planet Cadillac – a bling-bling realm that implicitly excluded the typical Chevy schlub. It was impossible to argue with the sales numbers, however: They rose 16 percent in the first year of Caddy's reinvention under general manager Mark LaNeve, and by the middle of this decade, they were higher than they'd been in a decade.

Making matters worse, with the exception of Corvette, Chevys aren't particularly remarkable cars. The Malibu was named North American Car of the Year in 2008, but that was an anomalous accolade. When the rubber meets the road, it's hard to see why it gets to be lumped in with the Good GM brands. As a car writer colleague of mine once pointed out, Saturns are way better. Obviously, the conventional thinking is that GM needs a volume brand. But does it really?

A far better Good GM/Bad GM bankruptcy would create a company that looks less like Toyota – or Ford – and more like BMW (which has until recently been one of the few carmakers worldwide to manage steady profits). In other words, a luxury/performance automaker, rather than a company that tries to sell a car to everybody (in North America, at least). In this analysis, Chevy would be sold, certain Pontiac and Buick models would be turned into ... Cadillacs, Corvette would become a truly stand-alone high-performance brand, and Saturn, with its modest lineup, would hang around as the entry-level brand. The point is that GM would cease to be a cradle-to-grave company and become a carmaker that sells to more specifically targeted buyers.

There would be pain in this arrangement. GM might be forced to exit the full-size pickup market, a near-heretical concept. It might finally have to drop ever-shrinking Buick as a North American brand. It would sacrifice its flag-waving, red-state core, to which it directs much of its Chevy marketing. But the payoff could potentially be immense: GM would no longer be thought of as a company that sells a lot of bad cars and a few good ones. The experience of a GM automobile would be defined by the copious pleasures of sitting in a Cadillac Escalade, surrounded by burled wood and leather, not the joyless compromise of driving a Chevy Cobalt, encased by cheap plastic and vibrating sheet metal. The thrill of 0 to 60 in less than six seconds in a Pontiac G8 GT sedan, or less than four in a Corvette.

An organization such as this would of course mean a smaller GM, but that's going to happen regardless, although a GM restructured from the top down, starting with Cadillac, would be smaller than a GM restructured from the bottom up, preserving Chevy. In the short term, North American production would take a hit and have to be made up by Ford, the Japanese, and newer arrivals from Korea. Factories would be idled or closed, and the UAW would have to accept a new reality. But in the end, a more vigorous and profitable GM would be worth the pain.

As for the Chevy Volt plug-in hybrid, the spiritual successor to the much-lamented EV1, well, why does it have to be a Chevy? In fact, why does it have to be divisionally branded at all? So that Chevy can sell 18 different cars? Why not just call it the Volt and let every GM dealer sell it, thus preparing the ground to adapt its technology (already sub-branded as "Voltech") to all GM's vehicles?

If the government and GM go the other route and put everything behind Chevy, the new company will set itself up for a major challenge with more affluent and discerning customers. Yes, GM may get a lot of people into Chevys. But when it comes time to buy a newer, snazzier car, they won't have anywhere to go; it's not like a Malibu owner is going to switch to a GMC SUV before jumping to a Caddy. More likely, they'll go with a Lexus, Acura, or Infiniti. GM will then be compelled, in the parlance of the car-selling business, to "conquest" them to Cadillac-win them over in the same way that an army conquers coveted territory. As you might imagine, that's a costly marketing proposition.

Bankruptcy, however it's structured, should be an opportunity for rebirth. General Motors has needed to become a very different company for 40 years. History has presented it with a golden opportunity to do just that-to truly become the Cadillac of carmakers, not the company that just wants to sell you another Chevy.