Monday, March 30, 2009

Making sense of GM and marketing

Did marketing play a role in GM's current status?

As one read the stories, the reasons cited by President Obama rest with operations: Fundamentally flawed. Not moving fast enough. Not enough concessions. Didn't meet the deadline. A business model doomed for failure.

“Year after year, decade after decade, we’ve seen problems papered over and tough choices kicked down the road, even as foreign competitors outpaced us,” Mr. Obama said in announcing his decision at the White House. “Well, we have reached the end of that road.”

The President's auto team produced a 5-page viability report that is the basis for a well-respected CEO to lose his job and set up the likely prospect that GM will be in bankruptcy. In a way, the President acted as a one-person board of directors or a very large shareholder (Think Carl Icahn).

So, how is it that one of the world's biggest corporations ended up like this? When a one-man board of directors issued a directive earlier this year ("shape up or else") and within weeks, the head of this country's fourth largest (ninth globally) company is gone for not living up to the terms of a loan?

What went wrong?

In Obama's view (and that of his auto team), hard decisions were not made and the ones that were made were bad. In Obama's view, the writing was long on the wall for this day. Somehow, everyone ignored the pending doom. How else can you explain how GM lost such market share and ended up in such financial straits? How else is it that an American manufacturer got nailed by Asian competitors?

Somehow, some of the best business minds in the world got it all wrong, stuck their heads in the sand and ignored the obvious. All that was needed was a near-depression economy to eek out the truth, to expose these bad decisions.


How much of GM's current state of viability is due to marketing? (This is, after all, a blog about PR and marketing).

Sure, there are critical operational issues, like the salaries of autoworkers. By extension, wanting a decent wage and benefits package are the reasons why so much of the goods we buy are made in other countries. But unlike a shirt or a toy, it's not that easy for a U.S. automaker to have all its products manufactured overseas and shipped back to this country.

There will be plenty of analysis on this one. For this column, we'll stick to marketing.

The basics rule of automobile sales is marketing. It begins with good design. Great car designers follow marketing trends and reports to figure out what will be attractive. Certainly, good manufacturing enters into the picture. One must believe that you're driving a well-made auto. But this is a feature that will be marketed, too, regardless of the actual "truth" of durability.

As GM's bailout money was being cashed, Business Week ran a great article that dissects bad business decisions. If I had to bet, someone on Obama's auto team read this article and used it as additional justification or the basis of their report.

What the article basically said was: Toyota and Honda tried harder to get customers.

Toyota and Honda had to build a car that consumers wanted. And, then, market the fact that it has better cars.

In reality, GM had and still has very good cars. But, Toyota did a better job at telling American carbuyers that its products were more attractive. Sure, Americans could tell subtle differences in style, like better placement of cupholders. (By the way, Chevy invented the modern cupholder). Honda had metal in areas where GM put plastic. Small appeals, really. The true success was in how Toyota and Honda convinced Americans these subtle differences were better.

I recall how this marketing campaign kicked into high gear in the 1970s. Remember the stories of how Japanese workers were a highly dedicated lot? Quality and care were their main focus, we were told. We'd read with envy about the "Japanese management" style and how executives at Toyota and Honda received paltry salaries compared to their American counterparts. Fascinating reading. But, nonethless, a marketing effort.

Meanwhile, the durability effort by American manufacturers was focused mostly on pickup trucks. GM and Ford locked themselves into an epic battle over whose pickup was tougher, more durable. It was an important effort because these trucks represented a huge profit area.

This all worked until $4-a-gallon gas prices, greenhouse gases and the green movement came along, followed by the worst economy since the Great Depression.

Meanwhile, the marketing effort by Japan had already made significant inroads to American carbuyers' permanent psyche. Decades of this "impression" that Japanese cars were made better led us to where we are today. Forget that American cars were just as durable. We now were convinced that things like "resale value" were important because that somehow indicated a more durable car, when in fact this measure had more to do with "marketability" than reliability. Through "resale value" we have all been given the "impression" that this car was more valuable than the next one. Mercedes Benz uses "high resale value" as a selling point to buy a new - or even a used - Benz. But ask a owner of a Benz built in the 1990s and you'll hear a lot of complaints about repairs. BMW and its "German engineering" will be an attractive status symbol to drive until the first repair bill.

Again, marketing strategies were at play to give carbuyers certain perceptions about the desirability of a foreign made car.

The sad part is that GM's new marketing efforts were just beginning to take hold. Veteran auto writers were actually touting the new designs and features of many GM lines, most notably the Chevy Malibu. One could get a Malibu with all the bells and whistles at the same price of a base model of a Nissan Altima without all the extras. And, the Malibu's warranty was longer. The Malibu was clearly the better car than the equivalent Japanese model.

Demographics also played into this. The "greatest generation" - those very patriotic "Buy American" types - are either dead or too old to drive. The younger carbuying set are more impressed by tricked out Japanese sedans shown in such movies as the "Fast and the Furious." The middle generation desires an Aston-Martin or Jaguar because that's what Agent 007 drives.

Again, marketing.

If there wasn't an economic downturn, GM likely would have turned things around on its own.

It is now easy to look back and determine that GM's decisions at the time (in the 70s, 80s) were bad. But at the time of those decisions, GM had very intelligent teams and executives. At the time, these decisions were well regarded. Now, everyone can look back and analyze the flaws. It's easy sport. And, there are plenty of white papers that have and will analyze the marketing mistakes.

Among the decisions that were made, the ones that "worked" were related to marketing. GM sold a lot of trucks because they knew how to market them. More recently, GM was gearing up to market a new electric car later this year. It already had a huge "buzz" for the Chevy Volt because of early marketing efforts.

How best to sell a car? Toyota's and Honda's decisions and strategies are not being questioned. And the end of the day (actually, three decades), they scored the marketing victory.

And now, with GM's total business model upended, it will be up to marketing to help keep this large automaker financially viable.

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