GM: How Not To Regain Marketshare

Most people I've spoken with who have bought American -- or Korean -- vehicles recently have done so because of the value they represent for the dollar relative to their Japanese or German counterparts -- not because they're superior platforms from an engineering or design perspective. Given this, I'd reckon that most domestic buyers of American cars are fairly price sensitive since many of the purchasing decisions are cost based (versus buyers of foreign models which base their decisions often on other factors as well). I'm a perfect case in point -- even though GM offers a number of solid minivans for around $5K less than Honda and Toyota, I recently shelled out a significant premium for a Honda Odyssey given its engineering and design superiority relative to its domestic peers (e.g., engine management technology that enables the 2 ton vehicle to still get 27 MPG on the highway by shutting down half its cylinders).

If you're GM or Ford, this should dictate that low cost (or high value, depending on how you accessorize and bundle packages) should be the mantra of the day to build marketshare. But rather than cutting prices and focusing on profitable models, GM is raising prices in 2007 "to cover increased costs for steel and other commodities and materials," according to an article in Purchasing. "The price increases range from $60 to $425 per vehicle ... averaging about 0.5% per vehicle," Purchasing reveals.

In an article on the Reuters wire, GM blames the rises on "the need to recover a portion of our increased costs on things like steel, materials and other commodities that go into our products ... GM has warned that it faces a tough U.S. market and record-high commodity costs despite progress made under a sweeping restructuring." In case you're wondering how the situation is across the pot-holed town, Ford is not in much better shape, according to Supply Excellence.

I'll be the first to admit that commodity prices and volatility have gone haywire in the past 18 months. But passing the buck to price conscience consumers who are increasing turning to brands like Toyota and Honda over GM is not a sustainable strategy. To reduce costs, GM should focus on weeding out unprofitable lines and platforms, not to mention building tighter relationships with a more strategic set of suppliers. By pursuing these types of strategies, GM and its suppliers will be able to collaborate on joint margin improvement by suggesting and incorporating alternative materials. And GM's suppliers will be able to provide more tightly integrated assemblies and sub-assemblies prior to final assembly -- as they do for Toyota and Honda -- rather than providing individual piece parts for GM’s expensive union labor to snap together.

Jason Busch

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