GM still studying $100,000 Cadillac, hoping to boost market share, Cowger says


By AUTOMOTIVE NEWS


http://www.autoweek.com/images_content/2004_05/cowger.jpgThe president of GM North America says he will keep wearing the pin until GM hits 29 percent market share in the United States. Then, he says, he'll get a "30" pin.

But GM's light-vehicle share dipped last year, from 28.6 percent to 28.3 percent. And although GM has become a leaner, more productive organization, it is still battling in a crowded, hyper-competitive market. Cowger discussed GM's challenges with Automotive News Editorial Director Peter Brown and Reporter Dave Guilford.

After the first quarter, what are you seeing for the industry for this year and for your market share?

We're still hanging in at about 17.3 (million sales) for '04.

Counting mediums and heavies?

Yeah. You know, the first quarter, we were up a tenth, and the goal still is to be up year-over-year. That's what we're looking for. Tough market out there. The (first-quarter) GDP growth came out at 4.5 percent. That's pretty good.

What are you seeing happening to net price?

We're not talking about net pricing any more, but as you saw in the first quarter, we're still seeing a lot of pressure on pricing. It's still negative net pricing out there when everything is in. That just shows you the competitiveness of the marketplace out there, because everybody is in - foreign, domestic, European, Japanese - with incentives.

As the economy gets stronger, there's no sign of relief on price pressures?

At least for us, they're mitigating. As I've been saying since the end of last year, you're not going to see these tremendous increases in incentives. For us, it's a combination of our new launch vehicles carrying much less incentives than the older cars, and you hopefully will continue to see this pickup in the general economics. So both of those, in my opinion, will have a mitigating effect on this continual increase in incentives. Now having said that, we're moving into the summer sell-down period where everybody throws their maximum incentive package out there.

How are your dealers doing on ordering for the build-out?

Pretty good. We've got a couple segments where it's been tough, and we've adjusted schedules accordingly. I have a scheduling meeting every month and we take a look at order inflow. We usually get that corrected before you have a big problem. Our inventories are at about 1.3 million, but they're skewed heavily to trucks, and if you're going to be heavy anywhere, particularly going into the spring and summer selling season, it's nice to be heavy on trucks. We just continue to set more and more volume records on trucks.

Do you have a committee that's looking at how to optimize pricing?

We've always had a committee that looks at that. We have a code name for it.

What's the code name?

I'm not going to tell you. It's so secret I couldn't tell you (laughs). They look at value optimization, revenue optimization, all the factors in the marketplace on where do you spend, how do you spend incentives most effectively. We look at that all the time. I review what these guys are coming up with weekly.

The GM theory has been different from the Ford theory.

I think you know we don't count things the same way. That's why we've quit trying to compare because we just have a different formula.

Our theory ever since Keep America Rolling was the more clearly definable and understandable the incentive is, it's clear to everyone to the dealer the consumer. We try to keep the message clear and unambiguous.

Even if sometimes you're leaving a few dollars on the table?

No, we can go in and make adjustments regionally. Even if we do that, we try to make that message very clear.

People forget that the incentive picture out there before September 2001 was a mess. It was model by model, brand by brand, and not just for us - basically out there in the marketplace. What we found is this simple compelling message does resonate better in the marketplace because it's more easily understood. In general, we try to favor that. But having said that, you can still optimize around that.

To come back to the market share goal, the goals the last couple of years were clear - just be ahead of where you were the year before. Last year after the first quarter that became very difficult, if not impossible, to obtain.

Well, at the end of the day, we missed by 59,000 units. That's pretty close. But to just be north is the goal. Would we have liked to have those 59,000 units? Yeah, I would have. But I would say that's in the ballpark. This year our goal is to just be north.

The goal is to be north of last year, or north of where you were two years ago?

Be north of last year.

"29" is clearly still on your lapel pin

"29" will be there until we hit "29," and then I'll probably buy a "30."

The other thing that is obviously happening is we rolled out 13 new products in '02 and 16 last year and 29 this year, 13 of them all-new. As more and more of your product portfolio becomes brand-new, gotta-have products, and many of them in segments where we weren't competing - SRX, Equinox, Malibu Maxx, those kinds of things - as that momentum builds up and that incrementality builds up, that's going to help. It helps not only with the abatement of incentives, it helps with the lift of share. So some of it's just a time-based thing. We did not have the (Silverado) crew-cab short-bed half-ton out there. Now that we've got Oshawa (Ontario plant) converted for that, the turn rates on that thing are twice what they are on the other trucks.

When you look at Colorado, Canyon, Equinox, you don't get that volume instantly. That volume has to, number one, get into the distribution channel, and, number two, you have to ramp these plants up. Then you finally start building inventory. But on some of these things, it's hard to build inventory.

It looks like your truck sales are on fire, and the bigger the better. Your big trucks in particular are really doing well. What are we going to expect to see from the car side of the business? How do you get out of being in the low-margin commodity business on the car side?

You've gotta go in there segment by segment. Luxury is doing well. Cadillac is just on fire. Had a great year last year, up 16 percent, up over 16 percent retail in the first quarter, and it's having a great April. You've got the CTS, and we're coming out with the STS. You've got the Impala, and the Malibu is really starting to get ramped up. The areas that we really need the help is in Buick, of course, and we've got the LaCrosse that's going to hit this year, so that'll be a big boost for Buick. Buick we've got in good shape with the Rainier and the Rendezvous, and now we've just come out with the Rendezvous Ultra, so that's kind of a repeat of the Cadillac story where we had the Escalades coming in and then we followed with the cars. So Buick gets the LaCrosse this year and next year they get the LeSabre (replacement). Help's on the way there.

With Pontiac, the Grand Prix just keeps gaining momentum. Arguably, we think, the GTP Comp 4 is one of the best, if not the best, front-wheel drive performance cars out there right now. The GTO is doing extremely well. I was just with a group of dealers that are really pleased with the way that that's taking off. Then we've got the G6 coming, the Grand Am replacement - huge, huge positive clinic data on the G6. So Pontiac's getting filled out, Buick's getting filled out. And (for) Saturn we're going to have three new entries in three new segments. Help's on the way everywhere. But today, as you say, the car segment itself is under a lot of pressure - not just for ourselves, but for all of the segment.

For Malibu you had projected 250,000 units. I know Maxx has just started.

Maxx is just ramping up.

But do you see yourselves on the glide path to get to that level? It was like 13,000, 14,000 last month.

Obviously, it's not going to get up to that kind of level this year. I think we've just gotta see. I never put out a 250,000 number, maybe Chevy did, but I would say that when you look at Malibu, Malibu Maxx, we've gotta give Maxx a little more time out there to see how it's going to pull. But it's like the Grand Prix. It just keeps gaining momentum every month. So, we'll see. I mean the product is doing very well when you look at the J.D. Power scores, when you look at everything. And it's doing well with very little incentives, compared to what it's selling against. Because it's sitting on a showroom floor, selling against an Impala and a Cavalier that have $3,000 or $4,000 on them, and it's carrying about $1,000. So that's part of the equation.

In 2006, Saturn is going to be full-line, or almost full-line. Are we going to start looking at Saturn as another normal GM division?

Saturn always will have a special place for us. Our commitment is stronger than ever. But Saturn has always been about not only great cars, which, quite frankly, we let get too long in the tooth, but it's also been about the selling experience and the customer satisfaction. Saturn has led that for a long time, and service satisfaction. Last year I think they won the gold on both. What we've got to do is not lose that piece of the Saturn equation, and we won't. What we need to do is fill its product lineup back with great cars. We let the S car just go too long out there. We've gotta broaden its appeal and reach to different segments, and we've said that. The Vue's going to get a big brother. We're bringing in the van that they've not had before. That's a good fit for the Saturn base. Saturn still brings in people that 70 percent of them, their second choice is a non-GM car.

Do you expect that it will still be a conquest division as it approaches full line?

I think so. That's stayed fairly consistent over the years.

Just for comparison, what would Pontiac or Chevrolet be?

I don't have it off the top of my head, but much, much less than that.

As you clarify the positioning of divisions like Pontiac and Buick, I can come up with a one-sentence definition of what they mean. For Saturn, I can't quite do that. What is Saturn's personality?

We're going to give Saturn much more of an import-intender look, a European flair if you will. That's Saturn's niche. The Saturn brand still brings in a lot of non-GM intenders, conquest people. They will continue to do that. What we have to have is compelling vehicles.

Is there a Sloan-type price hierarchy? How does Saturn fit into that? Because I see Saturn as being right in the middle of the Chevy territory.

The differentiator is the customer base you're going after. Chevrolet brings in a lot more loyal GM intenders. I think that's going to change with Chevrolet as the Malibu, the Maxx, the new Cobalt come out this fall. I think you're going to see a lot of people re-thinking in those segments what their choices are.

Is there still a Sloan system?

Well, Chevrolet is clearly the value system. Cadillac we have said, is going up. You're not going to be able to buy a Cadillac in the United States for under $30,000. With the Sixteen (2003 concept vehicle), what we tried to show how is, way up is up. The XLR is basically sold out, no incentives, at $75,000.

Chevrolet has always been about volume and value, but you still have a tremendous spread in Chevrolet. When you look at Suburbans and Tahoes, you're getting a lot of Chevrolets up over $30,000. Pontiac, we have said, will be your affordable BMW, great performance at reasonable prices. Buick is American luxury.

So yeah, I think you're starting to see a spot in the portfolio for each brand and getting them separated back out, and then having very distinct family brand cues and styling.

If Saturn is for import-intenders, where do they go when they leave Saturn?

That's why you broaden the appeal of Saturn and you broaden the range. That's what our channel strategy is all about, so we keep people in the family and move them to other brands if they have a need for something that's currently not in that channel. I mean, look, this channel's going to be pretty broad. When you get to the six entries, you're going to be able to go all the way from a roadster to a full-sized big brother to the Vue. So you're going to have a broad range to move around in the Saturn brand.

On the subject of channel strategy, Pontiac-GMC and Buick are related, but it's a little fuzzy from our point of view to see where they are related and where they aren't. Can you elaborate on that?

When you look across the three showrooms, you try to not have any products that are purely competing with each other. We've got about 55 percent of our dealers on channel strategy out there now, which is something that we've said we wanted to migrate to over a period of time. Then you just make sure that the entries are complementary of each other.

Do you want Pontiac-Buick-GMC stores?

You don't necessarily want them all on the same floor, but you want to see the channel be Pontiac, GMC and Buick. Then the ensuing entries would be very complementary of that channel strategy.

So what are you encouraging your dealers to do?

To get on that kind of channel. If they're going to line up with different distribution points, to have Pontiac, GMC and Buick.

So if I've got Pontiac and GMC, and the Buick guy wants to retire ...

I would encourage you to go check that out.

Would you encourage me to have them co-located?

That all gets to area demographics and where the points are. That becomes, do we have the best location, which is the other part of the channel strategy. Not all of it is just getting aligned on brands. The other part of it is getting in the optimum locations. Given that we have a legacy system with our distribution like we have with many other things, we find ourselves in locations that either populations have grown away or are no longer the optimum that they may have been 30 years ago. So part of our strategy on distribution is to make sure that we help get these guys in the right location.

Are Saturn and Saab moving more into the GM field structure?

Saab is still being fundamentally managed out of Europe. What we're trying to do is help them everywhere we can, on distribution points, on back-office kinds of things. But Saab has its own distinct kind of brand location and image.

So they won't become a GM division in the same way that Saturn is?

No. Not current thinking.

For most of the 1990s, the mantra at GM was "run common." Is that still the main focus?

"Run common, run lean," as Jack (Smith) would say. Yeah, that's still the focus. What running common does is it drives a lot of things. It drives the ability to be flexible, it drives the ability to leverage General Motors' size and purchasing power, particularly on the equipment and process side, the manufacturing side. With global architectures, it allows you to get the parts that the consumer doesn't see much more common, and then differentiate everything the consumer sees and interfaces.

I think we're really starting to deliver on that promise. Just look at the Epsilon, from the (Opel) Vectra to the (Saab) 9-3 to the (Chevrolet) Malibu to the (Pontiac) G-6. Completely different. Products completely different feel, ride and handling, the whole thing. You'll see more and more of that. That's because of Jack's getting down to one manufacturing organization, one engineering organization, where you'll really be able to leverage the size. And, by the way, we're not the only one doing it. There's a lot of people out there using common architectures today.

I was out at a Saturn product event at Milford, and Lori Queen talked about there being 800 new part numbers in the 2005 Saturn Ion, and boy is it going to be better. My thought was that Toyota and Honda would not do that - they redesign a car and use a lot of common parts even in the redesign, and more or less fix it for four years. GM has always had a tendency to make a lot of changes as they go, which strikes me as not lean.

Hopefully what you saw on the Ion was big changes on the interior, big changes helping those areas that consumers have told us quite frankly, need improvement. It's not a big change in the architecture. The architecture is doing well. But when you make color changes, when you make changes to the interior style and graphics, that drives a lot of parts numbers. We watch that very closely.

Is there any trend at GM to make fewer mid-cycle changes?

We've always looked at what is the value of a mid-cycle change. If you have an obvious failing, whether it's a content issue or a feature issue or even a performance issue, you want to remedy that. But this idea of just having a mid-cycle enhancement for its own sake, the data I look at say those don't pay off very well.

Are you doing anything differently?

Yes, we are.

You're being ...

What I just said. We're looking at if a product's out there that has obvious feedback that "this is a shortcoming," and we agree, then we'll remedy those kinds of things. But to just say, every third year you're going to have a mid-cycle enhancement, we're thinking much differently on that today.

Obviously, what it means is less changing. We want to do less changing. We want to have engineered solutions that basically stay the same. You may have to tweak them one way or another, but the engineered solution itself remains the same.

You've talked about getting into more nontraditional marketing. How do you assess things like 24-hour Test Drive, Hot Button, and the Cadillac drive event at the Marine base in Orange County?

We've got that, and we've got Auto Show in Motion. The 24-hour Test Drive has been hugely successful for us. We've had over a million hits on the Web site, we've had 680,000-plus test drives, and we've sold about 234,000 off that. That's like a 34 percent close rate.

That's almost going in perpetuity now?

Yeah, we just keep extending that. What we have found out perceptually is that people's attitudes before and after change significantly.

We can measure that very well on Auto Show in Motion, because when they come into that, we do a survey on what their perception is on our products and our quality. They go drive the cars of their choice - and these are basically all non-GM intenders - and when they leave, we've seen 30- and 40-point shifts in their attitudes toward the products. What it tells you is that the most effective thing to do is to get people to experience the product. So overnight test drive, Auto Show in Motion, the Cadillac event out in California are all doing just that. The problem is, how do you get that to more people, quicker?

Do you do an East Coast location for that Cadillac Drive Summit thing?

What we're doing is looking at how we tweak Auto Show in Motion that we take to 30 cities and get more specific product days. So we're doing a lot of things, experimenting with Auto Show in Motion right now.

You ask about Hot Button - Hot Button drove a lot of traffic. I think we had 2 million-plus pushes on the button, but it didn't close a lot of sales. But it did get a lot of people on the showroom floor, which was what we were after. Hopefully our dealers got a lot of names of people coming in to push the Hot Button.

We didn't think it would be a big closer, but it worked on a lot of levels. January and February are very slow months in the dealerships, so we got a lot of new faces in pushing the button. We continue to try to roll out the story and the value of what OnStar is all about. Our new advertising campaigns that are out there, understanding of OnStar is going up almost exponentially, and by the way, with it is the retention rate. We're north of 60 percent now, and climbing.

When we went out with Batman (advertising), I wasn't really sure. It got you an idea that here's a new brand or some technology in a car. It didn't help me on what it really did. The other problem is, if you didn't have an accident, thank God, you didn't really experience what OnStar can do for you. We've added features along the way that we now have a way to communicate what they can do, the unlocking services. The personal calling is another one that is just going through the roof.

So what this did was get you in the showroom, look around visually, say wow, (it's a) different showroom than before, I didn't realize Chevrolet had 10 new products. Then it gets you in the car, you can see the quality. You push the button and the price you pay is you have to listen about OnStar from its diagnostic services to personal calling to safety and security, all of those sorts of things.

In general, I would say Hot Button worked and got people in the product.

Any way to measure long-term if those people are coming back?

Well, that's what we're doing.

Do you have an early read on that?

It's too early to read on that. But that's the right question.

So 24 Hour Test Drive is a permanent program?

We continue to look at it. It's like everything else. I think everything has its half-life. You just have to watch and see, as long as the activity is as strong as it is on the Web, as long as people are showing up at this rate, we'll keep looking at it.

How does this affect traditional media advertising?

When you look at the mix for a mass marketer, there are many more choices than before for getting that message out. Clearly, we have been shifting. If you ask if we are buying more television, the answer is yes, we are, but we're moving it into different locations.

Less network TV, more cable?

Well, that has its ups and downs. It depends if you're in a launch on a high-volume car. The (broadcast) networks provide you means to do a lot of different things.

What about the "Road to Redemption" advertising?

"Road to Redemption was the first installment of an ongoing dialog between General Motors and our customers. It will be much more of an advertorial kind of event as opposed to a sell. What we want to do is talk about issues, and the first one was the road to redemption, that our quality has improved. It was a way to get people to really understand the metrics and why we're saying the quality is so much better. Then we've moved on to other things, like right now we're running the "Magic Bus," hydrogen power.

You mentioned when you introduced this that there's a block out there where you're not on their consideration list, and you're trying to get at that.

Right, non-GM intenders. I have not seen the data on that. But this is much more of a long-term kind of dialog. Month after month, year after year, people read this. It's like the "Magic Bus," where 232 buses basically save us the same amount of fuel as about 8,500 small car hybrids. It gets you to start thinking about that's why our philosophy on hybrids has always been start at the big end, where the percent fuel economy affects big amounts of fuel, and then work your way down. Whereas others, because they developed the hybrids for their own markets and then brought them here, wound up having the hybrids at the small end. We're just trying to get people to think about that.

There is no magic silver bullet out there. There is a matrix of technical solutions for problems that are caused by externalities - price of fuel, regulations. If you're a full-line producer that has a Cadillac and a Chevrolet, that's why you need to have all the technologies out there. That's why we're never selling one silver bullet. We make 2 million diesels a year. We understand that diesels work in markets where they can work. We're going to make a million hybrids available by the '05-'06 time frame.

Are we going to see diesels in mid-market GM cars and trucks?

You'll have to find the technological solution, which we have people working on, or you're going to have to change the regulations. Our next set of regulations are four times as stringent as the new regulations Europe just put into effect this year. There are some that say maybe they will change the regulations. If they change the regulations, that's one of these externalities.

Isuzu is about to be a GM division that has a product range consisting of two GM trucks. Do people cross-shop you and Isuzu?

I think there's probably very little interplay between us and Isuzu. Their volume is small. What we try to do is support them here with what they say they need.

You don't care that they have a sport-utility that's much the same as yours?

That's the whole thing of flexible architectures. Can you dial in much different character? I think when you see and drive the Saab 9-7x, you will say, that is a Saab. You know, the Camry drives the Lexus 330. Are those much different vehicles? I think so. So we can do the same thing. It's the execution.

Is Cadillac any closer to the $100,000-plus super-luxury vehicle?

That is a product that we definitely want to do. It is not an approved program yet, but we are definitely working on such a vehicle. But it is not an approved program.

If you were a betting man ...

It is not an approved program (laughs). It is something that we all want to do.

The Buick Velite concept car stirred up a lot of excitement. What are the Velite's chances?

Clearly what we're trying to show there, like we did with the (Cadillac) Sixteen, is the direction that Buick's going in. I feel good about that. I feel good about the reception that it got. I think we're getting our platform strategy lined up where it's starting to make a lot of sense where we can drive those kinds of derivatives. So I'm feeling good about Velite, or a Velite-like vehicle.

Hummer sales are substantially down this year. Is that a cause for concern?

They're not substantially down. We had a tremendous pull-ahead at the end of last year and we're just launching the SUT. I think you'll see that volume start to come back up as the H2 SUT gets out there. It takes that rather large profile and really changes the proportionality. It gives you a lot of flexibility on use and much more of a militaristic look, back to the H1 SUT. No, I think the Hummer brand's doing very well. And when the H3 hits, that's where you'll drive a lot more volume, when you get it down in size and price.

On the Lambda architecture, can you say any more on how it will be used? In particular, how truck-like can it get?

Well, I don't think we've ever officially announced a Lambda architecture.

I've been hearing about that being used for a more truck-like application. Could there be a pickup on that nonexistent architecture?

I would say that on this nonexistent architecture, that may be a road too far right now, the way we're thinking about it.

How would you assess the state of your supplier relations?

I think it's improving. Can we improve it more? Yes. I think our suppliers continue to do a better and better job on quality. We're cutting our supplier "spills," as we call it, which is a defect coming in from a supplier that affects assembly build or a recall. We're cutting them in half every year for the last three years. Everything that I see is moving in the right direction. There is a lot of pressure out there on price and competition. That's going to always be a natural conversation between us and our suppliers, but I'm feeling better and better about it. We're working with them more, getting them in earlier in the development process.

Last October, a lot of suppliers were talking about the 30-day cancellation clause. How often has that been used?

None that I know of.

I've heard of some from a reliable supplier.

(We) can get a hold of Bo (Andersson, GM vice president, worldwide purchasing), but none that I've heard of. It doesn't make any sense. It's not in our best interest to let somebody tool up and be in the middle of a launch, which you'd have to be, and then cancel them. From a practicality standpoint, that's not the way that you would solve the problems anyway. My guess is very few, if any. But we'll check.

I've been told of some, but I have no idea whether it's a couple...

Well, let's find out.

... or a lot.

Or zero.

It's not zero if the supplier who told me he was ...

When I talked to Bo about it, I said, have we ever had an example of it? So I have a different database than you do. But we'll find out.

The last of the product-line brand managers have gone away. Is there someone who is the voice of the customer?

Absolutely. You've got the whole vehicle line executive structure that has marketing and advertising input. Marketing sits in on a product development council. You've got the voice of the customer coming through in clinics and design everywhere. No one has eliminated anything. We've enhanced the voice of the customer, particularly on the brand side. What makes a Pontiac a Pontiac? What makes a Buick a Buick? What makes a Chevrolet a Chevrolet? Not what makes a Malibu a Malibu. We have defined that the brands are Chevrolet, Pontiac, Buick, Cadillac, not the specific models.

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