Decisions on the Coast Will Decide GM's Fate

The fate of General Motors lies in the states of California, New York and Florida. These are the trend-setting markets. And it’s here where Asian and German cars dominate.

Thick, black smoke pours out of the chrome tailpipes, the engines thunder and the gigantic tires dig into the pavement. A shudder goes through the whole vehicle, a final rearing up, and then the battle has been won. The monster moves forward and the crowd cheers wild.

In the little town of Earlville, Iowa, vehicles like the Chevrolet Silverado, Dodge Ram and GMC Sierra are still duly worshiped. Once a year at traditional truck-pulls, their proud owners can demonstrate what these trucks have under the hood. The rules are simple: whoever pulls the heaviest weight wins. And the guys here don’t even bother starting with anything less than ten tons.

Here in America’s heartland, the automobile world is still in order. Cars are good if they’re big and powerful. And, of course, they’re good if they’re made in America. Detroit’s Big Three still have a market share here in excess of 60 percent. If the future of General Motors were to be decided here, there would be no worries. But reality looks a lot different: whether GM survives or not will be depend on America’s coasts. Its fate will be decided in California, New York and Florida.

The battle for survival won’t really start until GM emerges from bankruptcy proceedings and returns to the market in a few weeks or months. Then it will have to prove itself in the marketplace. What good will all the government’s billions do if the taxpayer doesn’t trust his own country’s car companies? What if he decides to buy a Toyota, Honda or Mercedes?

Sure, GM will sell some cars in China and India and with a little luck they might even turn a profit in those markets. But the world’s most important car market will remain North America. If GM loses the battle in that market, there’ll be no hope even if they make profits overseas.

The contest for domestic sales will be decided precisely where the foreigners are competing the most successfully. On America’s coasts, foreign car companies already have a combined 70 percent market share. The bankruptcies of GM and Chrysler will only accelerate that trend over the coming months.

The formidable weight of the coastal states is due to their economic strength. The more people earn, the more money they have to spend on cars. It’s no coincidence that manufacturers of high-end cars have their dealerships almost exclusively all along the two coasts.

In addition, it’s general knowledge that market trends begin on the coasts and gradually spread to the rest of the country. Technological advances come predominantly from the west coast and socio-political developments from the east. Because the automobile industry is faced with upheavals on the technical and social levels at the same time, the old automobile heartland in the Midwest feels threatened from two directions.

The fact that many residents in coastal cities tend to think less traditionally and are generally more influenced by Europe doesn’t exactly make GM’s situation any easier. But the idea that GM and Ford can just copy the products of their European branches won’t be enough. Both U.S. giants have to get back rapidly into the fray and then forge ahead with their own developments, but neither company has yet to show even preliminary steps in that direction. In order to make significant progress, they need more time and more capital; both are in short supply at the moment.

WITHOUT A NEW IMAGE, GM DOESN’T HAVE A CHANCE

As proof of its technological innovation, GM proudly trots out the Chevy Volt. The electric car is supposed to hit the market by the end of 2010, but many are skeptical that it will be ready by then. Even if the Volt were on showroom floors tomorrow, GM wouldn’t have made much progress because the Volt already has two glaring weaknesses that will harm its sales success: its price and image.

Lacking significant governmental subsidies, the Volt is just far too expensive compared to traditional gasoline-powered models. In order to get people to buy it, GM will either have to make it particularly beautiful, particularly sporty or especially trendy. But the developers seem to have no interest in either a beautiful or a sporty image.

Success for GM is now dependent on what sort of public image the nationalized automaker will have. It’s entirely possible to successfully redefine an old shopworn brand so that it attracts customers away from even strong competition. The German firm Audi proved that. The company correctly recognized future trends as early as the 1980s and changed its entire lineup accordingly. They were proven right by their eventual success, but it took 10 years to get there.