TrueDelta

A few days ago Chrysler presented their five-year-plan to journalists. The associated new ads have gotten most of the attention, because they, well, could be better.

But other aspects of the plan are more worthy of attention: Best coverage of the Chrysler’s Five-year Plan.

It’s worth noting that the Fiat and Chrysler lines have very little overlap, so each company will be able to fill out its line by working together. New engines sound promising. Chrysler has a new V6 in both naturally aspirated and twin-turbo variants. A larger, 6.4-liter Hemi V8 good for about 450 horsepower is also on the way (but needed?). Fiat will provide four-cylinders and fuel-saving technology.

What remains unclear is why anyone will buy the upcoming products. Hopefully this will become much clearer when the products arrive.

They automotive press is increasingly fond of claiming that Toyota is going down the same path GM went down. But words are cheap.

Did Toyota overexpand their production capacity just in time for a severe market downturn? Absolutely. But a single major strategic miscue does not inevitably lead to long-term decline.

The real thing to pay attention to is not Toyota’s current profitability, but how they react to their problems.

First off, do they react to problems by claiming that they aren’t really problems, or by attempting to fix them? GM has for decades tended to opt for the former. Toyota, in contrast, readily admitted that it had made some mistakes and that it needed to fix these ASAP.

Second, if a solution doesn’t work, do they give up, or make another attempt? GM, time and time again, has poured billions of dollars into “breakthrough” solutions, only to ball them up (or let them die on the vine) when these solutions don’t initially succeed. Toyota, in contrast, has a record of trying over and over. They’re on their third Lexus GS, for example. Keep at it, and they’ll eventually have one that wins over BMW owners.

The key isn’t avoiding mistakes, but learning from mistakes, and not giving up. So far, Toyota seems to still be learning, and persisting. So I do not believe it will go down GM’s path.

I keep reading over and over, most recently in today’s Automotive News, that GM needs to tell the American public that it “is not the company that screwed them in 1978.” The claim: the cars that turned millions of people away from GM were decades ago, and that GM is unfairly being punished for the sins of long-retired executives and employees.

As much as I’d like to see GM recover, this annoys me. I tend to get annoyed when people try to make something true by repeating it over and over. They read it somewhere, so it must be true, right?

The reality: GM’s cars are much better than they were, but they often aren’t as good as they should be. Based on responses to TrueDelta’s Car Reliability Survey, the oft-mentioned 2008 Chevrolet Malibu was the exception, not the rule, among GM’s recent new product launches. The 2007 Aura, the 2007 Lambdas, the 2008 VUE, and the 2008 CTS all launched with two to three times the average repair frequency.

This said, an extra problem or two in the first year or three isn’t what scares away potential buyers. Based on the emails I receive, many people want to know how a car will hold up for years after the warranty ends. So neither IQS nor VDS is going to carry much weight with them.

In the long-term, if GM’s cars hold up then its reputation will improve. But this could take a decade or more.

In the interim, GM needs to more firmly and comprehensively stand behind its products, to remove risk from buyers’ minds. As I’ve suggested before, they could do this by stating that they’ll cover the cost of any common problem for the first 100,000 or even 120,000 miles. The “old GM” wasn’t just a matter of the number of problems the cars had. How the company treated owners with car problems was at least as significant. Currently customer assistance is provided out of warranty on a seemingly arbitrary case-by-case basis. This does nothing to instill potential buyers with confidence in the company.

GM isn’t unusual in this regard–this sort of “customer care” is the industry norm. But GM needs buyers more than other car companies do. If GM truly is a different company now, providing clearly defined, comprehensive customer care would be a good way to prove this to the car buying public. Talk alone shouldn’t be sufficiently convincing, and probably won’t be.

GM is asking car buyers to wager that its quality has improved. But is GM willing to put its (U.S. government-provided) money where its mouth is, and bet on itself?

Following GM’s Chapter 11 bankruptcy filing today, the Internet has been flooded with explanations of GM’s decline. Here’s mine…

Nearly everything wrong with GM can be traced to one source: GM’s senior management has long acted as if it should make all important decisions, and that everyone else involved–middle management, workers, suppliers, dealers–should simply execute their orders.

This essentially tossed a lot of product, market, and manufacturing knowledge that, if effectively applied, would have yielded better, cheaper to produce cars.

It also led to zero-sum thinking all around, where all parties felt they were fighting GM’s senior management, and so pushed for as much as they could get.

This was especially the case with the union. Back in the 1950s GM’s leadership and the UAW struck a deal: in exchange of having no say in how the product was made, the UAW would receive high levels of pay and benefits. In recent decades, GM has forced the UAW to make some concessions. These times, the profits that later followed went towards bonuses, dividends, and acquisitions. They did not go into the product. So why should the UAW make concessions?

Real change will come to GM only when its senior executives admit that they need to forge true partnerships with all of the parties involved, with better cars a shared goal. Since bankruptcy is being used to push through a bunch of unilateral decisions, this hasn’t happened yet.

The first time I heard that GM was going to split off its European operations, I was shocked. Opel has been part of GM for 90 years. Over the past decade they’ve worked hard to create a globally-integrated organization, and GME has provided the platforms for GM’s compact and midsize cars. How could they so easily get rid of such an integral part of the organization?

At first glance, GM simply needs the cash. But they’re not divesting of their operations in Korea, China, Australia, or Latin America. Only those in Europe.

So, is GM’s poor financial condition simply providing a cover for a divorce that many people on both sides of the Atlantic have been wanting anyway?

It wasn’t too long ago–the 1990s–that Opel’s management was on the verge of mutiny. Was that rift never fully mended? Was all of the talk of a truly global orgnization just that, talk?

It’s not enough that Opel might want to split from GM. It seems that, even after 90 years, Opel has never really identified with the corporate parent. Nothing new here.

What is new: the willingness of Detroit to let Opel go.

One piece of the puzzle: Latin America and especially Asia are growing markets. Europe is not.

Another: it probably costs more to develop a car in Europe than anywhere else in the world, and it certainly costs more to make a car there. European unions are also no fun to deal with.

Then there’s the matter of need. Now that GM has GMDAT in Korea for small cars, and a increasingly capable product development organization in China, do they feel they no longer need (or even want) Opel?

It doesn’t seem that long ago that General Motors was pouring billions of dollars into Cadillac in a bid to make it a world-class luxury car brand that might once again deserve to call itself “standard of the world.” Now, with GM on the verge of bankruptcy, all signs point to a full scale retreat. Assuming GM pulls through, I wouldn’t be surprised if GM eventually killed or demoted Buick, then moved Cadillac into Buick’s “near luxury” position much like Ford has been doing with Mercury and Lincoln. Among the many casualties of GM’s meltdown, this one might be the saddest.

Cadillac’s bid met with an early success. The 2003 CTS’ angular styling might have polarized opinions, but it was distinctive and grabbed the market’s attention–in a good way. Reviews of the CTS’ performance suggested that, if GM persisted, it could offer world-class driver’s cars.

Unfortunately, other Cadillacs of this generation failed to do nearly as well. While I was interviewing people inside GM’s Design Center in 1999, designers in the Cadillac studio were trying to decide whether the planned crossover should have proportions more like an SUV–the direction Lexus had gone with the RX–or more like a wagon. They opted for the latter, perhaps thinking that the resulting lower center of gravity would appeal more to enthusiasts. Bad move. Combine these proportions with a BMW-like price, and the 2004 SRX failed to sell.

The 2004 XLR roadster was sharply styled, but under-engineered, insufficiently luxurious, and (like the SRX) over-priced. GM somehow convinced itself that it could price its cars like their leading competitors from the start–a bad move. Both Toyota and Hyundai have recognized that new entries must start low. If they sell, then you can raise the price. There wasn’t much sales potential with this one, regardless.

The biggest failure of all was the 2005 STS. The CTS had carved out a spot vis-a-vis the BMW 3-Series and Mercedes C-Class. Could the STS now do the same against the 5-Series and E-Class? No, no it couldn’t. The car’s styling didn’t work, partly because GM lost its nerve and tried to tone down the original theme (which might have been even less attractive, but outsiders never saw it). The interior also wasn’t nice enough to compete against the German midsizers.

Offering hyper-expensive supercharged STS-V and XLR-V variants was little more than a distraction. If the basic product isn’t a winner, adding power isn’t going to make it a success.

Vice Chairman Bob Lutz’ desire to offer a production version of the super-large, super-powerful, super-space-inefficient, $100,000-plus Sixteen? At the time this seemed like a loss of focus. Now it seems downright ridiculous.

At any rate, Cadillac’s advance stalled, then reversed when the 2005 STS died on the brand’s Cemetary Ridge. In the aftermath, GM couldn’t decide what to do next. Plans to replace both the STS and DTS with a large rear-wheel-drive luxury sedan wavered, then died. The V8 that would have powered this car was also canceled.

Yes, the redesigned 2008 CTS has deservedly been a hit. But you can’t base a luxury brand on one $35,000 car.

The real harbinger of the future: the 2010 SRX. Based on a front-drive platform and loosely related to the new Chevrolet Equinox, this car could have been a Buick. Cadillac’s target has clearly shifted from the Germans to Lexus and Lincoln.

The latest rumor: Cadillac will get a front-drive midsize sedan, to be priced between the Buick LaCrosse and the CTS. This car’s interior should be at least as roomy as that of the CTS, making their relationship unclear. Think Lincoln when the LS and Zephyr were together in the showroom.

I think it’s clear which two models will represent Cadillac’s future, and which one will be a relic of its final bid for glory. Only one question remains: what will replace the current DTS? Another large front-driver most likely–but using what platform?

Odds are that, following Ford’s lead, the Cadillac and Buick channels will be merged, then Buick will be phased out or shifted downmarket to make room for a near-luxury Cadillac range.

Want to remember Cadillac at its final triumph? Buy a 2009 CTS-V.

Word is that GM will announce the demise of Pontiac next week. Not really a surprise for anyone who’s been reading the writing on the wall. But nevertheless a sign that those in charge of GM’s destiny are more interested in appearing to be doing something than in actually addressing the core weaknesses of the car manufacturer.

Why is so much attention focused on GM’s brands? Because, like the CEO, they’re what outsiders can see and at least superficially understand. The real problems are both less visible and less easily comprehensible.

As some within GM have long recognized, a wide array of brands could be a major competitive advantage. When you have multiple brands to work with rather than just one or two, each brand can be tightly focused, and thus be more meaningful than a brand that must be all things to all people.

So why didn’t GM prosper? Because they failed to provide each brand with distinctive, desirable cars. Instead, every brand attempted to be all things to all people. Why? Partly because distinctive products cost more to develop than badges alone, but also because each brand had its own dealers, and each dealer wanted one of everything.

This problem was addressed a few years ago, when Buick, Pontiac, and GMC were combined into a single channel. This should have freed up Buick and Pontiac to pursue tighter foci. Pontiac’s focus was to be enthusiasts—for real this time. Bob Lutz announced that every future Pontiac would be a rear-wheel-drive performance-oriented car. Three models, each with two or three bodystyles, would have been sufficient: the Solstice coupe and roadster, the large G8 sedan and (planned but canceled) wagon, and a smaller Alpha-based coupe, sedan, and (possibly) hatch. No other mainstream brand offers a compact rear-wheel drive sedan, or focuses so tightly on enthusiasts. An Alpha-based Pontiac could have been a big winner.

So, maybe GM had finally figured out how to realize Pontiac’s potential, only to have gas prices shoot up and then have the bottom fall out of the market.

If the new plan was going to succeed, then why couldn’t they raise the funds to execute it? Because at this point lenders have no faith that GM can successfully execute its strategies.

This doesn’t change one key fact: killing brands does not address GM’s historical inability to consistently create distinctive, desirable cars.

Back in 2001 I provided GM with a critical analysis of their current product development organization and a strategy for creating distinctive, desirable cars. The executive summary can be found here:

Executive Summary of Report to GM

There’s still no sign that substantial changes are being made to the GM organization. They’ve replaced the CEO and they’re reducing the number of brands. This treats the symptoms rather than the disease. How this course of action generally turns out: the surgeon (wielding a cleaver in this case) cuts and cuts and cuts until the patient dies.

The Presidential Task Force on Autos released it’s New Path to Viability for GM and Chrysler. The administration has concluded that GM can come back strong after a restructuring, but that Chrysler must link up with someone else, specificially Fiat. So far, so good.

The problem:

“The new GM will have a significant focus on developing high fuel-efficiency
cars that have broad consumer appeal because they are cost-effective, have good performance and are
reliable, durable and safe.”

There’s a similar emphasis on fuel economy in discussing the products Chrysler will get from Fiat.

What’s with the fixation on fuel economy as the solution? These companies, especially GM, did not fail because their cars’ fuel economy is not competitive. Aside from a brief recent blip, car buyers are not heavily basing their buying decisions on fuel economy. TrueDelta operates a
real-world gas mileage survey. When people focus on fuel economy, we get more traffic. From this perspective, we’d love people to be fixated on fuel economy. Fact is, while some car buyers are, most are not.

If McDonald’s was in danger of going under, would the solution be limiting its menu to salads?

Washington clearly wants to believe that the only reason Americans aren’t buying more fuel efficient cars is that Detroit doesn’t offer them. This simply isn’t the case. McDonalds offers salads, and GM offers fuel-efficient cars. Bottom line is that most people simply aren’t buying them.

Force these companies to offer only highly efficient cars, and unless gas shoots up in price these companies will fail.

Just announced: due to pressure from the Obama administration, GM CEO Rick Wagoner will soon resign.

Personally, I don’t fault Wagoner, at least not more than I’d fault any conventionally-minded CEO. The problem wasn’t Wagoner per se, but the typical American way of doing business: decisions from the top when those with the most knowledge are much lower in the organization, rotating executives so often that they rarely have the knowledge and relationships necessary to do a great job, and so forth.

I’m not very hopeful that any new CEO will change these fundamental aspects of GM. But I’m ready to be surprised.

Operating TrueDelta, it would be in my interest to assert that Consumer Reports’ results are incorrect. But I’ve never made this argument, nor do I believe that their results are generally incorrect. Instead, I’ve repeatedly found that people’s interpretations of Consumer Reports’ results are often incorrect. A current example could have serious consquences…

In a recent Detroit Free Press article, a leading automotive journalist writes that Chrysler’s “dismal showing” in Consumer Reports’ latest reliability ratings “raises serious questions about Cerberus’ management of the automaker it acquired in 2007.” An industry consultant concurs, wondering what Chrysler gained from all of the changes it claims to have made last year to improve quality.

Both have misread Consumer Reports’ results.

It is true that Chrysler does poorly in Consumer Reports’ latest results, and worse than it did in the previous set of results. But what both the journalist and the consultant don’t realize is that the results are based on a survey conducted nearly a year ago, and are no different than the reliability results Consumer Reports first released last Fall.

Consequently, any improvements due to Cerberus’ management would not show up in these results, but would instead show up in the next set of results, in October. Note that there isn’t a single 2009 Chrysler product in the current results, and the 2008s were introduced before Cerberus could have had any impact.

The likely reason for this misperception: Consumer Reports publicizes these results as “new,” even though the reliability data on which they are based were mostly collected in April 2008.

Normally this long lag between the time Consumer Reports collects its data and the release of the Annual Auto Issue doesn’t have huge consequences. It simply results in people buying cars without knowing how these cars have been performing for the last year or so. But in Chrysler’s case, this misperception could provide fatal. These people won’t be the only ones to reach these conclusions after reading Consumer Reports’ latest press release, not by a long shot. Washington might do the same.

Unjustly so? This would depend on whether or not Cerberus has improved Chrysler’s product reliability. With prompt updates four times a year, TrueDelta’s research process could answer this question–except that few members have been buying 2009 Chryslers. Many dealers probably still have 2008s on their lots.

Even so, we do have results for the 2009 Dodge Journey, which happens to be the only new product introduced since Cerberus started making changes.

So, how is the Dodge Journey faring? Not well, with a reported repair rate of 136 repair trips per 100 cars per year, about 2.5 times the average.

This provides some evidence that Cerberus’ changes aren’t working. But this evidence is far from conclusive. The Journey was introduced just a few months after Cerberus took over. And it’s just one model. In other words, even with the most up-to-date car reliability data it’s probably too soon to render a verdict on Cerberus’ attempts to improve Chrysler’s product reliability.

We’ve been asked why it matters that TrueDelta’s car reliability information is, on average, over nine months ahead of the information provided by other sources. The plight of the domestic auto industry provides the most significant answer yet. These companies are fighting for their lives. They continue to have trouble selling cars because of lingering perceptions, sometimes well-founded, more often not, that domestic cars are unreliable. If these companies are making improvements in the reliability of their products, getting awareness of this improvement to the public up to fourteen months months earlier could make the difference between surviving, and not surviving.

While these companies don’t deserve to survive indefinitely simply because it would be costly in the short run to have them fail, they do deserve to have their products evaluated based on the most current information possible. TrueDelta’s Car Reliability Survey is uniquely designed to provide this information.