GM Comes Roaring Back

Jan. 25--A year ago, General Motors Corp. was facing tough questions about its future.

Analysts and the media were working on GM's obituary after sagging sales in 2005 and the company's seeming dependence on gas-guzzling trucks and SUVs.

The imminent arrival of the 2007 Toyota Tundra was supposed to be another nail in GM's rapidly assembling coffin.

What a difference a year makes.

Today, GM is charging out of the North American International Auto Show in Detroit with a trunkful of momentum. The company won awards for North American Car of the Year for the Saturn Aura and North American Truck of the Year for the redesigned Chevrolet Silverado.

While Toyota was unveiling its massive CrewMax version of the new Tundra in Detroit, Chevy was showing off the new Volt, a plug-in electric car.

Although GM's recent resurgence seems sudden, it's a change that has been several years in the making.

"Part of the impression out there is you got a great show and you have a couple of months to prepare for it," said Chris Preuss, director of global product communication for GM. "A lot of the momentum that we saw at the Detroit show has been going on for the better part of a couple of years. We've been on a product renaissance." Leading that has been Bob Lutz, GM's vice chairman and head of global product development. He took over that job in April 2005, and analysts see his influence in all that's positive for GM.

"It's the Lutz effect," said Rebecca Lindland, analyst with forecasting firm Global Insight. "It's his basic understanding that you can't let the accountants run the place. (GM) is not an accounting firm. It's a design-driven industry, and he's really been aggressive about getting designers back to the forefront. He has made them fearless." That fearlessness led GM to do away with its old system, in which its global divisions focused on developing products for just their region of the world. GM North America focused on North America. GM Europe focused on Europe. The same was true for GM Asia/Pacific and GM Latin America.

That system led to stagnant automobile development. Preuss said the company relied on the children and grandchildren of loyal GM customers, yet a lot of those people looked to Japanese automakers.

GM found a life preserver in the late 1990s with its full-size SUVs and pickups. The big, profit-generating vehicles (along with cheap gas at the time) helped GM build its profit margin and increase its market share. But the reliance on those vehicles backfired. GM eventually produced too many and ended up discounting heavily to sell them.

"The North American mindset was mired in the past," Preuss said. "We were living off the reputation of the brands. We got into a lot of bad engineering and driving for profit. We created quite a deficit for ourselves that we're going to be working out of for quite some time. It took some time to earn our way into the position we're in, and it's going to take us some time to earn our way out." Jack Nerad, executive market analyst and executive editorial director at Kelley Blue Book, said he never thought GM was about to fall into a death spiral. But the company still has a long way to go to shake off the perceptions of poor quality that have been building for years, he said.

"I think they're doing the right thing," Nerad said. "They're putting the money where it shows -- in the interiors. Look at the Saturn Aura and the Chevrolet Malibu, and their finish is good. They're to the point where their products are pretty much on par and have some advantages over the Japanese." Nerad touted GM's decision to have the different global operations work more as affiliates than separate companies. That led to sedan designs from Europe. Rear-wheel-drive cars are being born in Australia from GM's Asia/Pacific operation. North America is responsible for the luxury vehicles, trucks and full-size SUVs.

Globally, GM has been a solid performer, thanks in large part to its success in Asia. The opening of the Chinese market has helped GM maintain at least 6 percent growth globally.

It was largely flagging market share in North America that led to questions about the company's viability, especially in light of the gains made by Japanese competitors -- Toyota in particular.

Toyota is forecast to surpass GM as the world's largest carmaker as early as this year. It may even surpass GM in total vehicle sales. But Toyota's growth has come at a cost as recalls have increased.

The company that made its reputation on well-made, dependable products has had to answer some tough questions about its quality control. In 2006, it recalled more than 800,000 vehicles in North America. It recalled 2.2 million in 2005. In 2004, Toyota recalled fewer than half a million globally.

Already this year, Toyota has issued a recall of more than half a million Tundra pickups -- not any made in San Antonio -- and Sequoia SUVs.

GM on Wednesday announced its own recall of 98,000 Chevy Cobalts.

Though the recall is a fraction of Toyota's, GM knows it has to do better if it wants to change perceptions about its quality and maintain the momentum it has generated.

"Being good enough isn't going to work for GM," Preuss said. "It isn't good enough for any of the domestics. If you're going to go out into those segments and provide a good, reliable, middle-of-the-road vehicle, Toyota and Honda are always going to be the default choices because of their default quality reputations. We have to overperform to win people back." And Kelley Blue Book's Nerad said he thinks that can happen. Even though GM doesn't have the market dominance it once had, it is still the world's largest automaker.

"They can command a share of voice that others can't simply because of size," he said. "I'm still very positive about the way General Motors is moving. They're shooting at a moving target that is moving up generally. They're smart people who have the resources. And they're getting some buy-in from the American public as more people sample their products."

ONLINE

www.gm.com

www.globalinsight.com

www.kbb.com

www.emunds.com

www.Toyota.com

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