CMO firing was just the beginning of GM's problems

When it comes to sales and marketing problems, GM’s firing of worldwide marketing chief Joel Ewanick the beginning of this month was just the tip of the iceberg, according to reports surfacing August 13 and 14.

$659 million to trash brand equity

The proximate cause of Ewanick’s ouster, you may recall, was his negotiation of a $659 million sponsorship deal to put the Chevrolet bowtie icon on the backs of soccer team Manchester United’s uniform jerseys. Most Man U fans live in countries where Opels and Vauxhalls and Holdens, not Chevrolets, are sold.

This was one step in what Daily Caller blogger Mickey Kaus calls “General Motors’ plan to displace the venerable and respected Opel brand in Europe with a new Chevrolet ‘global’ brand.”

Automotive News editor-in-chief Keith Crain agrees with Kaus’s contention that this plan “really is as insane as it seems.”

“[I]nstead of trying to fix” the money-losing Opel brand, Crain wrote yesterday, GM will trash “decades of strong [brand] recognition with Europeans,” which, he adds will take decades for the Chevrolet nameplate to establish:

People who know the car business realize how difficult and expensive it is to establish a brand in a market, particularly an American brand that is an import to Europeans…

GM got rid of some pretty strong car brands in North America, including Pontiac, and is starting from scratch to introduce Chevrolet in Europe. GM will spend billions of euros to establish a new brand and dealer organization when it already has the well-established Opel and Vauxhall brands.

GM should allocate that money to fixing Opel rather than trashing a strong existing brand.

GM needs good car people and European finance folks to figure out what Opel needs and then do it. It would be more productive and less expensive than starting another brand in Europe.

Cooking the books?

One of the cardinal sins that allegedly cost Ewanick his job was using irregular accounting practices — dividing the cost of the Man U sponsorship among several different marketing budgets — to conceal its humongous total.

If so, he was perfectly in line with standard accounting practices, GM-style.

In calculating its second-quarter earnings announcement, says the National Legal and Policy Center, GM also resorted to some accounting tricks — some on its own and some abetted by its largest shareholder, the United States government.

In the wake of disappointing May car and light-truck sales which caused Citigroup and Deutsche Bank AG analysts to lower demand estimates, GM pushed extra full-size pickups out to dealerships, just so they could count the unsold inventory as revenue. “GM said inventory of its full-size pickups…climbed to 238,194 at the end of June, a 135 days’ supply, up from 116 days at the end of May,” Bloomberg news reported.

This “huge” supply is more than twice as much as normal, says the NLPC’s Mark Modica. “[T]he accepted norm is a 60 day supply. The trick here is that GM records revenue when vehicles go into dealership inventories, not when actually sold to consumers.”

He also quotes Kelley Blue Book’s Alec Gutierrez, who stated, “They’re (GM is) likely going to have a relatively high [number of] days’ supply of trucks moving forward and they’re already placing some pretty aggressive cash incentives on the hood. It’s going to eat into their profit margins…”

Modica also highlights some moves GM’s largest shareholder made to artificially increase sales and earnings:

We now learn that government purchases of GM vehicles rose a whopping 79% in June…The discovery of the pick-up in government fleet purchases… comes just weeks before GM announces its second quarter earnings. Overall fleet sales (which are typically less profitable than retail sales) at Government Motors rose a full 36% for the month, helping to drive decent sales improvements year over year…

The upcoming earnings announcement by GM is, politically, the most important to date. The pressure is on Government Motors to appear financially strong as this may be the last earnings report before November elections and sets the stage for how “successful” GM is.

46,000 recalls in two days

Speaking of government fleet sales (though, in this case, state and local governments), the New York Times reported that

  • General Motors is recalling about 36,000 Chevrolet Impala police cruisers because of a suspension failure that could cause a driver to lose control
  • …G.M. said the car’s lower-control arm may fracture and affect the steering… [and] added that this failure could result in “sudden changes” in vehicle handling, and “particularly at higher speeds the driver may not be able to control the vehicle and a crash could occur.”

That was yesterday’s news.

Today’s is that “General Motors is recalling more than 10,000 full-size [Chevrolet Express and GMC Savana] vans in the U.S. and Canada because the fuel filler pipes can rust, leak and cause fires,” the Sacramento Bee reports.

Greatly exaggerated

“GM has now achieved 10 consecutive quarters of profitability,” CEO Dan Akerson proclaimed, “which is a milestone the company has not achieved in more than a decade.”

And back in January, the CEO of GM’s largest shareholder proclaimed in his State of the Union address, “On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen…Today, General Motors is back on top as the world’s No. 1 automaker.”

Like the rumors of Mark Twain’s death, both claims are, shall we say, slightly exaggerated.

Even back then,  Politifact noted:

  • GM’s sales number is based on sales by both GM and its joint ventures in China, which aren’t wholly owned subsidiaries.
  • Toyota, which hasn’t yet reported results for the full year, had to grapple with an earthquake and tsunami in Japan and floods in Thailand. So GM’s main competition saw its production and sales decrease…GM’s No. 1 spot is a stretch in a year when GM also benefited from challenges faced by its key competition.

Bloomberg adds that:

  • The first-half U.S. market share for GM, the largest U.S. automaker, fell to 18.1 percent from 19.9 percent a year earlier, according to researcher Autodata Corp.
  • GM in 2011 regained the title of the world’s largest automaker by sales after natural disasters in Asia curtailed Toyota’s production of vehicles and parts…Toyota’s worldwide sales surged 34 percent in 2012’s first half to 4.97 million, ahead of GM’s 4.67 million, putting the Toyota City, Japan-based automaker on pace to regain the top spot.

“GM has lost almost two full points of U.S. new-vehicle market share since last year,” Rich Thomaselli wrote in Advertising Age, “and its first-half sales were only up 4% at a time when the U.S. auto industry as a whole was up 15% from January through June, compared with the same time period a year ago.”

Pyrrhic success

It gets worse, especially if you’re a taxpayer.

“In a monthly report sent to Congress on Friday,” yesterday’s Detroit News reported,

the Obama administration boosted its forecast of expected losses [on the GM bailout] by more than $3.3 billion to almost $25.1 billion, up from $21.7 billion in the last quarterly update.

The report may still underestimate the losses. The report covers predicted losses through May 31, when GM’s stock price was $22.20 a share.

On Monday, GM stock fell $0.07, or 0.3 percent, to $20.47. At that price, the government would lose another $850 million on its GM bailout.

The government still holds 500 million shares of GM

Today, GM closed down $0.26 a share more, adding $1.3 billion to taxpayers’ losses in just one day.

So if GM’s enjoying success, it’s either invisible or of the sort that caused the ancient Greek general Pyrrhus to exclaim, “Another such victory, and we shall be utterly ruined.”