January 8 2008: 3:49 AM EST
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Wagoner's overhaul (pg. 2)

By Alex Taylor III, senior editor

Getting the word out

Although GM is building snazzier vehicles, getting the message to buyers has been a struggle. In Wagoner's view, GM's reputation has not caught up with reality. "I think it takes a fairly long time to build a brand or change the image of a brand," he says. "It does not turn from day to night. I'd say there is more to be realized in front of us than behind us." Customer loyalty is a key measure of success; last year Toyota was No. 1, with 65 percent of buyers trading in a Toyota for a new one, with Chevrolet at 56 percent and Pontiac at a dismal 28 percent, according to a J.D. Power survey. But Wagoner has made impressive progress. Before he took over North America, customers listed rebates and incentives as the No. 1 reason to buy a GM vehicle. Today exterior styling is the biggest selling point.

As GM raises its standing among retail buyers, it will get a big payoff from reducing sales to rental-car fleets. The practice of offloading excess production at wholesale prices to Hertz, Avis, and others had been eating at GM for two decades. Under the old UAW contract, workers were paid whether they built cars or not, so GM overproduced and dumped its excess on airport rental lots. When the used cars were resold four to six months later, they competed with sales of new cars. During the past two years, though, GM has been able to shrink sales to rental fleets by 180,000 units, to 600,000 in 2007 (or 14 percent of GM's domestic production), without significantly eroding its total market share. Chief financial officer Fritz Henderson contends that the rental business has now reached "equilibrium," in other words, its value in building awareness of GM products outweighs its impact on resale values and new-car sales.

GM has been busy revamping its model lineup, to the point where it takes a car buff to keep up with the names. In the past two years, it has eliminated some 15 nameplates, including such familiar ones as Pontiac Bonneville and Buick LeSabre, and added seven. But so far it has been unable to move the needle in the 25 top metro areas in the U.S., where urban car buyers represent an influential market segment.

It won't be a pickup truck that will change the game in those towns. That job calls for a sleek sedan, which is why the 2008 Chevy Malibu is a critical measure of GM's sex appeal. Troy Clarke planted the flag early when he declared, "Malibu is the most important launch in the history of General Motors." Not only must the new Malibu improve on the dismal performance of the old Malibu, but it also marks the first big test of whether GM can recapture car sales lost to import stalwarts like the Toyota Camry and Honda Accord.

The whole process of building and marketing the new Malibu was different for GM. This time, instead of waiting almost until the launch date to decide how to promote the car, Chevy brought marketing experts in at the beginning of the car's development to decide what features were important to buyers. A new attention to design details make the Malibu look more elegant and refined than previous versions. That's no coincidence. The previous Malibu, introduced in 2004, "came out with a thud," says Brian Nesbitt, the 38-year-old head of North American design. Back when it was conceived, he says, the design staff reported to engineering - producing predictable results. Now, says Nesbitt, designers sit alongside engineers at meetings of the North American strategy board. The Malibu's complex instrument panel, which is tricky to assemble because of its many individual pieces, probably wouldn't have been approved under the old system. After the new car hit the market, retail sales - propelled by saturation commercials on NFL games - were up 40 percent in November compared with a year earlier. Cars were selling after only seven days on dealers' lots (the average is 60 days).

Up next: A car you recharge

Along with improving GM's product lineup, Wagoner has strengthened the company's ability to cope with rising energy prices and environmental issues. Preoccupied with wringing the last dollar of profit out of its SUVs and pickups, GM got started late in hybrid passenger cars, especially compared with Toyota and Honda, which were both selling gasoline-electric hybrids by 2000. When he was running the North American unit, Wagoner redirected capital spending and engineering resources for the development of more fuel-efficient vehicles. Now GM can claim leadership in one promising field: plug-in hybrids. By late 2010, GM expects to introduce a four-passenger car called the Chevrolet Volt, powered by lithium-ion batteries. It is designed to run on those batteries for 40 miles, enough by far to satisfy the commuting needs of most Americans. Unlike hybrids currently on the market, the car will be capable of being recharged overnight when plugged into a household current and carries a small gasoline engine on board to recharge the batteries while underway, giving the Volt a theoretical range of 640 miles.

While Wagoner has North America moving in the right direction - GM cut net losses from $4.6 billion in 2006 to just $400 million in the first three quarters of 2007 - he admits to frustration. "[If] I would have told you [a decade ago] that we would be pretty much head-on competitive [with Toyota] in labor productivity, very competitive in cost, doing products that are being acclaimed as these are, and have made a health-care breakthrough, I think you would probably have written that we would be highly profitable. And so you say, 'How does that feel?' I think that's a little disappointing."

What GM needs to complete the turnaround is a stronger U.S. auto market. Annual vehicle sales have been running below the expected level of 17.2 million units for the past two years, and 2008 is expected to be the worst sales year in a decade. But that could translate into pent-up demand at the beginning of 2009 for some 3.2 million vehicles, since consumers won't delay the purchase of new cars indefinitely. Some GM executives expect the market to turn as early as the second half of 2008. If Wagoner has learned anything, it's to be bold and then to be patient. "The moral to the story is that there's very little that you can't accomplish, but a lot of these things take time. Which isn't an excuse but is a statement that you'd better get on the path, because these things don't turn on a dime." If GM can just stay on the path through the next patch of bad weather, we may finally be able to tell the comeback story the world's been waiting for.

REPORTER ASSOCIATE Lisa Bergtraum contributed to this article. To top of page

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