Thursday, April 26, 2007

GM vs. Toyota

Big news in the auto industry this week: Toyota surpassed General Motors in global volume. Of course, we have seen this coming for some time. GM has been losing market share for decades. Fortune magazine writer Alex Taylor III has some interesting advice for GM in an article titled "Dead Brands Walking." He argues that GM has far too many brands, and that they should shut down Buick and Pontiac, sell Hummer and Saab, and convert GMC into a commercial truck brand. He advocates maintaining Chevy and Saturn as the mainstream brands and Cadillac as the high-end, premium brand. Taylor suggests that GM should note the success of Toyota and Honda, each of which does not maintain a large stable of brands. He puts forth a persuasive argument. When GM created its family of brands many decades ago, they each stood for something different in the mind of the consumer, and the brands sold cars at different price points. Over time, however, the brands came to overlap a great deal, as GM designed a new model and simply slapped superficial modifications on the basic design so as to sell the same car under several different nameplates. Why did they do this? Cost savings! Efforts to improve efficiency led to the use of common parts, and ultimately, common platforms for multiple brands. While these efforts reduced GM's costs, the consumers no longer could identify the distinct meanings of the brands. The images of each brand blurred together. In short, then, GM needs to re-think its longstanding strategy of maintaining a large brand portfolio. Interestingly, however, GM executives have been focused on two other issues for the past few years: driving down costs and improving quality. These two initiatives are surely worthwhile and necessary, but GM failed to address a much larger question: What should our strategy be? It means little to drive down costs and improve quality if one hasn't thought carefully about how to competitively position one's products in the market. If GM intends to transform itself, it ought to re-think its strategy first, and then figure out how to align the cost structure to support that strategy.