Tuesday, November 22, 2005

GM – What Were You Thinking?

General Motors announced yesterday that they are laying off 30,000 employees as part of a measure to curtail costs due to GM’s abysmal sales record. GM is hurting. Hurting bad. They lost billions of dollars last year. The company might not even be salvageable.

Dealerships have to be hurting as well. Some Buick dealerships were reporting sales of only four units per month. Basic economics says if your prices are already rock bottom and you are selling only four units per month then something has to break.

Why is this happening all of a sudden? Why does GM have to shut down so much in one gargantuan swoop? Don’t they measure things? Didn’t they realize a long time ago that cars simply weren’t selling?

Sales is the most basic and yet most important of all the metrics! It’s the king – ruler of all metrics – the penultimate – the metric that all others aspire to be. What did we sell this quarter compared to last quarter? What are our strongest product lines? What were the weakest lines? What kinds of products are people buying? Are we cross selling services or other products? Do we have any dogs (no point in making them if we’re not selling them)? Who are our strongest partners? What parts of the country are selling the best? Who’s buying our products? I could go on and on and on.

GM might have known something was up when they started to introduce employee pricing. Sales were slow so they had to do something. That employee discount was a dumb idea right from the outset. How are you going to recover from cheap prices? It’s easy to lower prices – everybody likes that. But once you lower them, it’s very hard to raise them back up again. Competing on price is one of the least effective ways of making a sale or even staying in business. You might gain some short term market share but if I purchased a GM vehicle on an employee discount, you can bet I would expect that discount forever.

Setting a price for a product or service is clearly important and non trivial. The company may want to maximize profits or market share. But selling on price alone is one dimensional and likely does not address the real concerns of why cars aren’t selling. Did GM look at demographics? What about features like gas mileage, warranties or customization? Scorecarding of buyer behaviors could be used to ascertain likes and dislikes. This information could then be sent out to production so changes can take p[lace quickly. Selling more of what people don’t really want will just create a lot of cheap used GM cars in a few years time.

I wonder if GM’s suppliers were measuring orders for parts and services? Such a big customer can make or break a supplier. If GM continued to produce cars regardless of sales, then there’s a really big problem with the way they manufacture vehicles.

How can GM recover? Let me ponder on that and talk about it another day.


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