Crunch time at GM
Three reasons why Mark LaNeve has the second toughest job in the car business.
NEW YORK (FORTUNE) - Even with its encouraging first-quarter earnings report, GM still is up to its neck in alligators. So if you think your job is demanding, be glad you aren't Mark LaNeve, head of North American sales and marketing for General Motors (Research).
At a time when GM's financial woes are splashed on front pages all across the country, LaNeve has to convince people to buy GM cars and trucks. If chairman and CEO Rick Wagoner has the toughest job in the business, then LaNeve has the second toughest.
He hasn't been doing well. GM, which a couple of year ago had visions of grabbing 29 percent of the U.S. market, finished March at 23.5 percent. That's down more than two full percentage points from a year earlier -- equivalent to one and a half assembly plants of production.
LaNeve is putting the best face on the shrinking share. In an interview, he said, "We're trying to run the business in a way that is profitable for us and for our dealers and is sustainable at that level. We were pumping money into the market with incentives and, as a lot of people pointed out, those were short term gains."
But the deck is stacked against him. Three factors are at work that make any upturn in share all but impossible.
1. Kicking the incentive habit
Since 2001, GM had been bribing customers to buy its cars with ever-increasing market incentives. Now it is trying to kick the habit by cutting sticker prices with everyday low prices.
Trouble is, companies like Chrysler (Research) are still in the incentive game and customers still prefer to shop the deal rather than the car. To jump-start sales, GM will have to cut prices even further -- or go back to incentives.
2. Kicking the fleet sales habit
Selling vehicles to rental car companies is an easy way to boost your share numbers. Trouble is, you've got to buy those cars back six months later and then resell them as used, which undermines your new-car business.
GM's been promising to kick the fleet habit for years, but sold a stunning 30 percent of its production to corporate and commercial customers in the first quarter. LaNeve claims GM's non-fleet or retail sales are going up but nobody is going to believe him until automakers start separating wholesale from retail results when they report sales. That will happen about the same time the Detroit Tigers win the pennant.
3. Buyers who are upside down
New car shoppers whose trade-in has a negative value - they owe more money on it than it is worth - are known in the trade as "upside down." They have to come up with more cash to cancel the installment debt on the old car before they can out and buy a new one. At Chevy, Pontiac and Saturn, more than one-third of the buyers are upside down, according to JD Power.
The introduction of zero percent financing a couple of years ago made the problem worse. Dealers added on a few thousand dollars to zero-percent loans to take care of buyers who were upside down. The effect was to push the debt forward so those buyers are still in the hole today. LaNeve says GM plans to help dealers bail out these tough-to finance customers -- probably by piling even more installment debt on them.
Even if LaNeve were able to cope with these problems, there is no way he is going to look good this year because of tough comparisons. GM's sales shot off the charts last June when it introduced employee pricing for everyone, and they stayed strong for several months. Now that GM has sworn off incentives, guess how its numbers are going to look when June 2006 is compared to June 2005?
LaNeve talks a good game, but he might as well write this year off. GM is getting what it deserves. It has been gaming the market for years with fleet sales and incentive gimmicks, all the while contending that there would be no long-term ill-effects.
It was betting that its brands would revive, and stronger products wouldn't need special support. But the competition moved even faster, so GM has continued its slide. LaNeve would have to be superman to make up for two decades of bad habits in the course of a couple of months.
Plugged In is a daily column by writers of FORTUNE magazine. Today's columnist, Alex Taylor III, can be reached at firstname.lastname@example.org.