Is GM Ready to Turn the Corner?

Detroit's big three have come a long way since the depths of the recent recession. They've improved vehicle quality and management enough for investors like me to root for an American comeback. While consumer perceptions are difficult to turn around, Ford (NYSE: F  ) and General Motors (NYSE: GM  ) have gone to great lengths to convince consumers that domestic vehicles can once again compete. 

That said, in many ways GM still trails behind rival Ford. Its vehicle portfolio is much older, contributing to its market-share losses. The common jab of "Government Motors" highlights the negativity its brand image has battled over the last few years. GM still ranks second in global sales and needs to refresh its vehicles and improve its marketing to become a better investment. Let's look at a few recent events that might show GM is ready to turn the corner and start fixing its vehicle portfolio and marketing weaknesses.

Enter Mr. Mahoney
Tim Mahoney is Chevrolet's new global marketing chief. GM hopes he will bring stability and creativity to its often bland marketing strategies. In the past it's been difficult to create an image that can encompass such a large number of brands and models. The last attempt, "Chevy Runs Deep," didn't run very far or very long. It's remarkable that with the slogan not translating well into other languages, Chevy still represented 54% of GM's global sales. Imagine how sales could rise if Chevy finally creates a marketing campaign that consumers can relate with and buy into.

It will be no easy task, as Chevy is about to tackle its wildest vehicle portfolio refresh in the brand's 102-year history. It will redesign numerous models in the United States this year, including its highly profitable Silverado. The Impala and the buzz-worthy new Corvette will also roll out in new styles. Chevy will then continue its redesigns into early 2014, with the Suburban and Tahoe due to release.

Mahoney's first job will be to make sure Chevy's cash cow, the Silverado, is positioned correctly. It has a year's head start on Ford's redesigned F-150 and must take advantage of that to secure its market share. Ford and Chrysler both have been touting fuel efficiency, which, in KPMG's 2013 survey, is the consumer's No. 1 factor in purchasing a vehicle. Ford is showing off its popular EcoBoost engine whenever possible, and it's catching on with consumers. The turbocharged V6 saves fuel while providing equivalent power. GM's other rival, Chrysler, has been parading the Dodge Ram in recent commercials as a best-in-class 25 mpg on the highway. Finally, GM has prepared a response to its rivals' advertisements.

Mahoney is fighting back with a different viewpoint. Rather than arguing fuel efficiency, it says the Chevy Silverado 1500 has the lowest total cost of ownership. That includes transaction prices, operating costs, maintenance, and fuel consumption. It's the second year in a row it earned the "5-Year Lowest Cost to Own" award. If Chevy can market this idea well, it will pay off. While fuel efficiency is definitely the top priority for most consumers, highlighting additional benefits the consumer receives by purchasing a Chevy truck could be a compelling story. Unfortunately for GM, it opted to sit on the sidelines for the Super Bowl, which would have provided a huge audience for its message.

On a higher level, GM will embark on its "Find New Roads" campaign. It's supposed to inject emotion back into its brand image and as a bonus will translate well for its global markets. The first 90-second commercial gives a preview of how it will showcase its vehicles and let them shine for themselves. I was a fan of the Frank Sinatra bit myself, and the rest was an improvement on previous advertisements.

Issues remain
Make no mistake: Fixing its weaknesses in marketing won't cure all of GM's ills. As millennials age, they will become the future of purchasing power. The group currently represents 79 million people and $170 billion of purchasing power, and GM will need to prove it can adapt its marketing as Ford is doing.

Aside from marketing, it still has a long way to go to fix its less-than-desirable margins and earnings. Its management must also prove to investors it can consistently make good decisions before the stock price rises accordingly. Management was criticized for being slower to close plants to match demand in Europe, causing massive losses. Ford also incurred losses, but it reacted much faster, which could set the stage for a quicker breakeven date.

Bottom line
While issues remain and GM still trails Ford in many factors, there's still a lot of potential in GM as an investment. It represents a real chance to be No. 1 in global sales for 2013, and if it can create more operating efficiency it will see a surge in earnings. I believe Detroit learned some very difficult lessons during the recession and thus far is reluctant to resort to the old ways of high incentives and poor management. Detroit is slowly but surely convincing consumers that it competes with imports on quality and price. Investors should keep an eye on how GM executes its "Find New Roads" campaign, as it will be key to the success of its portfolio refresh. As long as weaknesses are fixed one at a time, the road ahead should much better for GM investors. 

It's true that decades of mismanagement of General Motors led to a painful bankruptcy in 2009, but it emerged a leaner, stronger company. GM's turnaround, however, is still a work in progress. Investors around the world are wondering if GM has what it takes to reclaim its former glory. John Rosevear has put together a brand-new premium research report telling you what you need to know about GM and its turnaround. If you own or are thinking about buying shares of GM, then you don't want to miss this report. Click here now to get started.


Read/Post Comments (4) | Recommend This Article (1)

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  • Report this Comment On March 09, 2013, at 4:40 PM, oldmec51 wrote:

    I hope this article is true. In the turn i hope they realize their responsibility to the customer and start moving to a much higher MPG motor in their vehicles like the 60+ MPG of models of the same cars sold in other countries. engines which are made right here in the states. this one act would flip the table on all car models foreign and domestic. I was a chevy man in the 70's.

  • Report this Comment On March 09, 2013, at 9:24 PM, guysisson wrote:

    I own a large auto repair shop and work on all makes of vehicles everyday. GM has still not recovered from the bankruptcy. If you ask any of my technicians, they would all tell you that GM has really fallen behind in the quality of their vehicles.

  • Report this Comment On March 09, 2013, at 11:08 PM, TMFTwoCoins wrote:

    @guysisson -- That's interesting. I'm curious if you've noticed an improvement in the quality of Ford's vehicles since the recession?

  • Report this Comment On March 10, 2013, at 4:24 AM, rwaggs wrote:

    I'd be happy to have 4-wheel disc brakes and a comfortable back seat (correct recline angle) on the new Silverado... As my 1999 Silverado has. I'd love to buy a new one but I don't want to downgrade. GM needs to remember the basics, even for someone like me who would never buy any other manufacturer's products.

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