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A tale of 2 GMs
While its cars idle on U.S. lots, GM is selling vehicles like hot cakes overseas. What gives?
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| GM chief Rick Wagoner has acknowleged that the automaker's longevity poses unique challenges. |
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| Automaker offers to buy out its entire U.S. hourly workforce. |
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| GM is no longer the clear leader in global auto sales. |
NEW YORK (Fortune) -- What's wrong with this picture? As it revealed in its financial report earlier this week, General Motors lost $1.5 billion before taxes in North America last year, continuing a string of heavy annual losses. In its home market, under the eye of its top executives, GM is continually getting shellacked.
Yet in Far Eastern countries like China and India - Asia Pacific in GM speak - the automaker made $744 million. Sales in China alone rose 22 percent in 2007. And GM hit the jackpot in the region it calls LAAM - Latin America, Africa, and the Middle East. Booming sales in Brazil and Venezuela, and strong results in South Africa and the oil-producing countries generated $1.3 billion in profit. In last year's fourth quarter alone, LAAM's revenue rose more than 50 percent and earnings before tax multiplied five fold vs. the previous year.
Is there something in the water overseas? Why can't GM be as successful at home? Could it be one of those cases where familiarity breeds disrespect Perhaps. Like Jerry Lewis, GM (GM, Fortune 500) seems to stand taller outside the United States than it does at home. But there is something more important going on as well, and it is a matter of age.
GM traces its roots back to 1902 and the creation of his self-named car company by David Dunbar Buick. It was organized as a company exactly one hundred years ago. By comparison, GM didn't get started in China until 1992.
As CEO Rick Wagoner has said on occasion, age creates entanglements - and nowhere is that more apparent than at North American operations. GM North America was assembled in the early 20th century from several dozen separate auto manufacturers and parts companies that weren't fully integrated until a few years ago - a process that itself required more than 20 years. No such unification is needed in Russia or Venezuela. These are young operations that have not been burdened with mergers or acquisitions.
History carries with it outmoded ways of doing things. GM is still dealing with the residue of organizational structures that were created 80 years ago. If GM were starting over again with the 23 percent of the U.S. market, would it still be marketing vehicles under eight different nameplates? No. 2 Toyota (TM) makes do with three. What's more, long-established business partners become difficult to dislodge. GM maintains supply agreements with traditional suppliers like Delphi (DPHIQ, Fortune 500), even when it might be more efficient to source overseas. GM doesn't need the same number of dealers it had in the 50s and 60s, especially in declining regions of the Northeast and Midwest, but it can't get rid of them because of restrictive state franchise laws.
GM recognized the United Auto Workers in the 1930s and allowed the union to assemble a remarkable array of rights and privileges in the fat years, including pay for no work (the jobs bank) and the best health insurance coverage outside the White House. Even with the new contract negotiated last year, it won't be until 2010 before GM can reap the full benefits.
Most importantly, demand is mushrooming in many of the overseas markets where GM is doing well. That's not true in North America. A rising tide lifts all boats. So GM can probably has a lot to learn from its overseas operations about how to make money. But the old habits and obligations that have attached themselves over the years like so many barnacles are difficult to dislodge and continue to slow it down.
Besides, starting over with a clean sheet is more difficult than you might think. Back in the 1980s, then-chairman Roger Smith conceived of Saturn as a totally new-from-the-ground-up auto company. Under the Saturn brand, GM created a new manufacturing process and a unique union relationship, streamlined dealer body and even devised a new way of selling cars called no-haggle pricing. Today all that is left of the Saturn revolution is the Saturn name. One reason is that old GM never cottoned to the way that Saturn was doing things. The same may be true of international operations.
GM outside North America already produces 54 percent of GM's unit sales and 40 percent of its revenue. But it could be a long time - how do you spell "never" - before its ways of doing things make their way back to Detroit. 
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