General Motors: Wait Till Next Year

Do you think General Motors (NYSE: GM  ) can follow ancient rival Ford (NYSE: F  ) and turn itself around with a world-class product onslaught?

The question of whether GM can raise its product game to match or beat Ford, Toyota (NYSE: TM  ) , Honda (NYSE: HMC  ) , and the rest of the world's best is the big question. For GM and its investors to succeed, there's really only one right answer.

But right or wrong, it's an answer we might not have for a while.

A bridge year ... or two, or three
GM had a respectable presence at last week's North American International Auto Show media days, where the Chevy Volt won a major award and the new Chevy Sonic and Buick Verano were shown to general acclaim.

But it was the words of GM executives like CEO Dan Akerson that said the most about the state of GM's turnaround. While the company is on solid ground in terms of things like its balance sheet and production capacity, it's no secret (at least not to Fool readers) that GM lost a lot of product-development momentum during its downhill slide into bankruptcy court.

Akerson acknowledged as much this week, saying on Tuesday that GM had "lost roughly a year in terms of development" and that 2012 and 2013 would be "more pivotal" for the company from a product perspective.

It might be even longer.

Big holes remain to be filled
How "pivotal" will these new vehicles be? Absolutely critical to GM's success in North America, I'd say. Consider the products in question:

  • The trucks. With big margins and huge sales totals year after year, this line of products (which includes the Chevy and GMC pickups and full-size SUVs like the Tahoe, Suburban, and Cadillac Escalade) is arguably the company's most important. The current trucks still sell well, but they're starting to look tired next to fresher products from archrivals like Ford -- and replacements are probably two years away.
  • The Malibu. Chevy's bread-and-butter midsize sedan won critical acclaim when it was first launched, but has since become something of an afterthought in buyers' minds, its thunder stolen by the hot-selling Ford Fusion. I'm sure Chevy dealers would love a competitive new version, but they're not likely to get it this year -- and maybe not next year, either.
  • Cadillac. Here's GM in a nutshell: The Cadillac CTS sedan and SRX crossover are strong products that are selling well -- but where's the rest of the lineup? Answer: Under development. The Escalade will be refreshed with GM's other big trucks. The big Cadillac DTS and STS sedans are absolutely ancient, but their replacement, the XTS, is still a year away -- and I suspect the XTS may be just a stopgap model, with the real big Cadillac not arriving until mid-decade. The brand has needed a smaller version of the CTS for years, something to compete directly with BMW's hot-selling 3 Series, but again, it's at least a year away.
  • Greener cars. The Volt is here, and it's pretty good, but where's the rest? Where's GM's plug-in hybrid? Where's its answer to the hybrid Fusion and Camry? And its application of greener technologies to the products it does best -- trucks? You know the answer: on the way, but not for a while.

GM's turnaround is still unfolding
The takeaway here, in a nutshell, is that while GM's finances (and, I'd argue, its labor relations) are already in better shape than they've been in decades, its product story is still emerging. GM may sell more vehicles in China than in the U.S. now, but its home country is still by far its most profitable market -- and GM's growth here is likely to be limited while it gets its product act together. Shareholders (full disclosure: I'm one) who are hoping for a Ford-like renaissance will need to be patient while the product story unfolds.

Want to stay on top of GM's turnaround? Add the company to My Watchlist to find all of the Fool's analysis on the General's ongoing return to glory.

Fool contributor John Rosevear owns shares of GM and Ford. General Motors is a Motley Fool Inside Value selection. Ford is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 19, 2011, at 6:31 AM, deepwateraudio wrote:

    I own 600 shares of GM. The lack of movement is starting to bore me so I may sell and put my money in something with more short term up trend

  • Report this Comment On January 22, 2011, at 11:11 PM, Bokonon22 wrote:

    John,

    Great article. I agree for the most part. However, I think you're forgetting the elephant in the room -- VW. The German car maker is the 3rd largest in the world and plans to become the biggest by 2020 -- a goal that seems fully attainable when you look at their lineup. Consider the group's largest players: VW, Porsche and Audi. There isn't a dog among them.

    Not only does each have a stellar product line, with a strong reputation for quality, but they're among the most innovative companies in the industry today. Look at VW's development of clean diesel with the BlueMotion line, which includes some of the most fuel efficient cars made, and Audi's development of the double-clutch gearbox -- which was first implemented by VW as DSG and is now favored among manufacturers across the globe.

    Further, though each company is a powerhouse of innovation on its own, together they create a perfect storm by sharing new technologies among the brands. For instance, Audi's Quattro all-wheel-drive system has trickled down to the group's every-man VW brand as 4motion. (They're identical.) Expect this development to ramp up now that Porsche is part of the mix.

    Most important though, is the brand's reputation for build quality. VW in particular has the uncanny ability of making a $20,000 car feel like it cost $60,000.

    What's held VW back? the high costs of exporting a full lineup to the US. Though it's made sense for their high end brands, these costs have kept the lower margin VW from bringing a full range of options (like adaptive dampers, which are available on the GTI in Europe) and diesel vehicles (like the Polo BlueMotion, which attains 70 mpg) to the states. But that will change as VW ups production in Mexico and in the US. When that happens, VW will offer the most feature-rich cars for under $30,000. Or, an A4 at Jetta prices.

    In short, when VW can bring a more complete lineup to the US market, the game is on.

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