Is GM Out to Kill Ford or Chrysler?
Forty years ago, GM’s market dominance became a political issue and some politicians in Washington questioned whether it was good for the country and consumers to have so much power concentrated in a single auto company. GM management lived under a threat of the company being broken up into smaller pieces. There is little doubt that GM was careful about being seen or acting as a predator that could snuff out a competitor even though it clearly had that ability.
That part of GM’s history was forgotten as the company struggled with a declining market share and eroding profit margins since the 1970s. For the last 20 years General Motors was in the unenviable position of being a higher cost assembler than either Ford or Chrysler. Then it sealed its fate by designing boring and sometimes strange looking niche cars that appealed to no one. In this environment Ford and Chrysler had it relatively easy and neither company understood what could happen to them if the giant ever woke up. GM set prices based on its high costs while its smaller domestic rivals could match those prices on a product portfolio that included a few more attractive models. That resulted in record profits for Ford and Chrysler in the mid-1990s while GM’s falling share took the brunt of competition from foreign rivals.
I often asked previous Ford and Chrysler managers if they appreciated how vulnerable they were. They never matched Toyota in costs, quality or product development efficiency so their relative success in the market was linked to GM’s inability to compete. I don’t think either company understood that their record earnings were as much a function of GM’s failure as to their own efforts. No management wants to admit that it has fattened its profits on the unintentional mistakes of its rivals. But that is in fact what happened. Now both companies are paying the price for failing to become world class when they had the chance.
Whenever Rick Wagoner hears criticism of GM’s incentive campaign he responds with appropriate sarcasm about the “whiners.” Incentives have cost GM a pile of money and no one was impressed with second quarter profits that were a function of GM China and the mortgage refinancing boom in the U.S. In spite of the lack of profits from automaking, GM is intent on protecting its market share to cover its high fixed cost burden. Complaints from its competitors that are really pleas to lower the incentive level are falling on deaf ears.
The net effect on the industry might be the demise of Ford or Chrysler but no one should blame GM as they would have four decades ago.
The foreign brand share of the U.S. market continues to increase in spite of the huge domestic brand incentives. In the face of this competition, GM has been able to hold onto roughly 30 percent of the market, the target it set for itself a few years ago. Even though GM’s behavior clearly has immediate adverse consequences on Ford and Chrysler, no one is going to call for measures against GM when it is defending about half the share it once controlled. GM’s awakening means that any share gains by foreigners will result in losses in penetration for Ford and Chrysler.
The U.S. marketplace is the epicenter of a fight for survival and Ford and Chrysler are on notice that GM won’t show any sympathy to them. GM is fighting for its own survival and if that means raising the ante to stay in the poker game, so be it. The competitive tables have turned and neither company can count on GM to make product mistakes or lower the incentive decibel level to spread the pain of market share losses among three companies. Ford and Chrysler need crisis management that vaults them ahead of the competition that now includes GM. Maryann Keller is a veteran auto industry analyst and author of the books “Rude Awakening: The Rise, Fall and Struggle to Recover at General Motors” and “Collision: GM, Toyota and Volkswagen and the Race to Own the 21st Century.”