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By killtheump
December 3, 2009

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After expressing my reservations about Ed Whitacre based on my opinion of his former company, AT&T, I see some of his comments and plans published in today's Wall Street Journal. For subscribers of WSJ here's a link. For the rest of you, I'll summarize the key points.

Whitacre is clearly focused on market share. As a Ford guy that gives me both comfort and cause for concern. This road has been traveled by Ford and GM many times before, and it is my feeling that, if you're focused on market share gains, you're taking your eye off the ball. GM has more pressing problems, and Fritz Henderson made note of the biggest one shortly before leaving. Product quality at GM is slipping, and you'd better make that your number one priority to have any chance of getting to number two.

Priority 1A needs to be profitability. Too often American auto companies have sacrificed profits by producing too many cars and having to push them out with incentives like 0% financing and rebates. This is a vicious cycle that's very tough to break, and you'll never get there by setting unrealistic goals for market share. It also comes with hidden consequences. When you put big discounts on cars it wreaks havoc on the residual values of your previous models. It raises the total cost of ownership for customers, and saddles your finance arm with losses on leased vehicles being returned.

One of the best things Alan Mulally has done for Ford is getting it out of this type of planning. He aligned manufacturing capacity to the market, and it has returned Ford to profitability. The longer it takes GM to become profitable, the longer they will remain cash flow negative and be continue having the government dictate how they will run the business.

What scares me about this is the prospect of perpetuating huge vehicle discounts. Historically, when GM or Ford resorts to these measures eventually all three American manufacturers wind up following suit. If you've got products that excite people and have a reputation for holding up the market share will begin to take care of itself.

Doug