Comeback Hype: GM Still Isn’t Ready for the Market

Almost flat broke, rescued just in the nick of time, a magnificent recovery and now the Initial Public Offering. It’s a story dear to America’s heart but it has just one flaw: GM has neither the necessary strategy nor the right vehicles for success.

Hollywood would have been hard pressed to come up with a better script for the return of General Motors. From top dog to near ruin and now back in triumph. That’s the American way. But just as in the movies, much about General Motors is pure illusion. The company is a long way from deserving the public clamor its stock is generating. The comeback claim is premature. The company has yet to prove its crisis is over.

The crisis was caused by GM’s flawed model policies and its unshakeable belief in its own invincibility. GM was the world’s biggest car manufacturer for decades. The company became complacent and slow. Detroit began catering exclusively to the American consumer, producing strictly for the U.S. market; first came the muscle cars, then the pickup trucks and then the other gas guzzlers. The rest of the world had long since weaned itself from its addiction to horsepower. America didn’t catch on to that until demand for its products finally collapsed.

In bankruptcy the company jettisoned much unneeded baggage, sold off its unprofitable brands and reduced its debt. Those are all things for which investors reward companies. But investors don’t decide the company’s future. Customers do, and GM doesn’t have much to offer them — at least not outside North America. The company’s palette includes no economy cars and they also lack a realistic electric vehicle strategy.

The company hung on to its blind love of big pickup trucks, but those have no future. Even though they may be contributing to company profits right now, the reality is they’re closeout sale items. Due to increasing global demand, the price of oil will continue upward. GM’s two main competitors, Toyota and Volkswagen, have long since captured the small economy car market in America and it will take considerable time for Detroit to again become competitive in that area — assuming that’s even possible.

Reliance on the domestic market is another GM strategy weakness. North America is the only market where General Motors shows any strength; in many other locations, the company limps along at the rear of the pack. That’s true in Europe as well. GM’s German daughter Opel is a cause for serious concern to management despite all its rehabilitation attempts. The venerable company is still in the red and seen by management as a ball and chain. Opel is trying to refurbish its image with the new Ampera electric model, but the Ampera is unlikely to become a box office hit overnight: costs are too high both for manufacturer and consumers.

The company needs a new strategy to keep its ambitious German and Asian competitors in check. Continuity in personnel matters is also necessary. The company went through three CEOs in just a few years. Dan Akerson, CEO number four, has to be given the breathing space necessary to justify investor enthusiasm because they are the ones betting on the American industry icon’s golden future. One can only hope that the car builder’s comeback script isn’t just a figment of Hollywood’s imagination.