Dead brands walking
Now that it is Number Two, GM has to rethink its strategy, says Fortune's Alex Taylor.
NEW YORK (Fortune) -- The news that Toyota has finally passed General Motors in global sales is about as surprising as John McCain finally announcing he's running for president. But now that it is officially Number Two, it is time for GM to perform some long-overdue surgery on its brand portfolio. Age has taken its toll, and GM is overdue for a face lift.
In some ways, GM (Charts, Fortune 500) is still built for the size it was 50 years ago. In the United States, GM's market share is half of what it used to be but it sells seven brands - two more than in its heyday. Toyota (Charts), by contrast, gets by with only three brands: Toyota, Lexus and Scion.
Despite its shrinking market share, GM has always argued that there is value in its broad brand portfolio. Consumers want choice, and having a variety of brands allows GM to segment the car market more finely than its competitors. If GM eliminates a brand, it fears losing long-time buyers.
But there is a big cost to maintaining all those nameplates. Buyers increasingly demand uniquely engineered models that are costly to develop. Multiple brands mean multiple expenditures for marketing, advertising and distribution. Still suffering from negative cash flow, GM simply has too many mouths to feed.
So GM should adopt a template similar to Toyota's. Keep Chevrolet where it is - the volume brand that is the heartbeat of America. Maintain Cadillac at the top of the market and expand its product offerings with derivatives of the popular CTS. And continue to use Saturn, with its dedicated dealer channel and loyal buyers, as the brand for import intenders.
Plenty of excess baggage remains. Here are my recommendations:
GM has been down this road before when it killed Oldsmobile. Compensating Olds dealers was expensive but, in the end, nobody really missed the brand. Other U.S. manufacturers have some soul-searching to do, too. Ford (Charts, Fortune 500) needs to take a hard look at Mercury, and the Chrysler brand may not survive a change in ownership, now that Automotive News has disclosed that nearly half of Chrysler's sales go to fleets. Like Plymouth, DeSoto and Packard, these are nameplates for customers who scarcely exist any more
There may yet be a silver lining in this cloudy forecast. Detroit has mostly lost the baby boom generation, but may have an opportunity to capture their children. Analyst John Wolkonowicz of Global Insight is convinced that since these young Gen Y buyers will never shop the brands their parents did, they may boomerang back to domestic nameplates. What GM and the rest of Detroit have to do is clear out the dead brush and concentrate on brands that still have growth potential.