Wednesday, January 18, 2006

GM Ignores The Market Place

It’s auto show season again and the major players are not doing very well, particularly GM and Ford. I find GM the more perplexing of the two since it has decided to ignore what’s going on in the world.

GM has decided to invest more money into SUVs. Yes, that’s right. Those are the vehicles that require a fuel based umbilical cord. Has anyone at GM noticed the price of gas lately? North America is finally feeling what Europe has known for a long time. Gas is expensive and the price is not going down.

In a recent edition of the Toronto Globe and Mail, there was an article about how consumers are now reconsidering vehicles like SUVs for more fuel efficient options. In that same paper, GM says it’s going out on a limb to be the only player in the SUV space even though other manufacturers are working on more fuel efficient offerings. GM said that fuel efficiency was dramatically improved on newer SUVs but admitted that it was only relative. The SUVS still require large amounts of fuel.

GM wants to be a player and own a particular market segment. The reason that no one is staying in that space is because there is less demand than before and that fuel prices will only go up in the future. That market segment is shrinking.

The only way they can survive this logic is they build an SUV that gets 40 miles to the gallon. Otherwise, GM you’re toast. Business metrics says give the consumer what they want and you will do well. Don’t and you might not be around another day. Someone at GM will do well on their performance measures in a year or two down the road. We’re number one in SUV sales! Looks great, right? Not if you take into account that you only sold five vehicles and that tooling and other infrastructure costs were in the billions!

When I originally wrote this GM announced that they are lowering prices. The article states that GM sales dropped by 5% despite the employee discount plans offered last year. Lowering prices for products that people don’t want will only hurt the company even more.

GM, go back to your sales and production history and determine what products sold well. Determine the features that consumers wanted. Do some more market research and determine what consumers will likely want in the next few years. Build a platform that allows you to tool up quickly based on customer wants. You have the platform. You displayed it at the car show several years ago but I don’t know if it ever made it into the marketplace.

If you are an investor, my suggestion would be to run, don’t walk away from this company. Or, short the stock. GM is not using business metrics combined with accumulated knowledge to make sound business decisions.


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