In our discussion about market segmentation, DECG50 asked an insightful question: Would General Motors have been more disciplined if Alfred Sloan still headed the automaker in the 1960s?
“From what I understand, Sloan viewed GM corporate as essentially a merchant bank for the divisions,” DECG50 wrote. “They had to make the case for an investment from corporate, and that would either be granted or not based on the expected return.” Under that system, “corporate would simply not have supported compacts/intermediates among 4 divisions,” DECG50 speculated. And under this scenario, “Olds might not have had the Cutlass cannibalize the 88 as evidently happened. And one doubts Buick would have bothered with intermediates either.”
Even more provocatively, DECG50 suggested that “when smaller cars became a necessity for the more senior divisions after 1973, they would have been properly engineered as luxury models instead of ending up as badge engineered Novas.”
Sloan stepped down as CEO of General Motors in 1946 and died in 1966 at the age of 90 (Wikipedia, 2021). Thus, the most “realistic” counterfactual would be that he had mentored a series of successors with a greater commitment to continuing his basic strategy through the 1970s than the six men who did serve as CEO (Los Angeles Times, 2022).
GM struggled to find an alternative to size/price linkage
One of the most obvious ways that GM historically differentiated its brands was with size. With few exceptions, the larger the car, the higher it was in the automaker’s price — and prestige — hierarchy. Once domestic automakers began to offer cars that were below the “standard” size, the traditional hierarchy began to lose meaning.
The 1958-60 Ford Thunderbird was arguably the first rival product to seriously attack GM’s hierarchy of brands. In 1960 the four-seater performed the remarkable feat of outselling the top-end Buick and Oldsmobile despite its much smaller in size and distribution through mass-market Ford dealers.
Also see ‘1958-76 Thunderbird: The rise and fall of the Ford that shook up GM’
GM administered the next big hit against its hierarchy of brands by giving four out of five of its passenger-car divisions smaller cars in the early-60s. The automaker initially tried to maintain the pecking order of its brands through engineering advancements. For example, the first compacts from GM’s premium-priced Buick and Oldsmobile brands had then-exotic aluminum V8 engines. In contrast, the lower-priced Chevrolet Corvair was only offered with a six and the entry-level Pontiac Tempest was equipped with a four.
As Geeber noted, one problem with this approach was that “the unique technology used by each version raised costs and decreased profitability (without having any real demonstrable positive effect on sales). The 1964 A-bodies addressed that issue – and sold far better than their predecessors.”
A-body undercuts GM’s hierarchy of brands
You could still see echoes of the past in how GM differentiated its first A-body mid-sized cars. The 1964 Chevrolet Chevelle was the shortest of the bunch at 194 inches in length. The Pontiac Tempest, Oldsmobile F-85 and Buick Special were all roughly nine inches longer — which equated with their somewhat higher list prices.
This arguably posed three problems. First, although each A-body entry offered fully unique sheetmetal, you didn’t get more interior room as you moved up the price ladder — as occurred with GM’s big cars. That was because all A-body models had the same wheelbase (except for the wagons, where the Oldsmobile and Buick offered high-end models with a stretched wheelbase and taller greenhouse).
Also see ‘1965-68 GM big cars: The end of different strokes’
The second problem, as Geeber noted, was that “one could buy a Buick Special that was smaller and cheaper than a Chevrolet Impala (after decades of GM hammering home that increased size and price equated to increased prestige).”
The graph below shows how the list prices of all four of GM’s mid-sized cars significantly overlapped with those of the full-sized Chevrolet. This stood in contrast to GM’s big cars, where Pontiac, Oldsmobile and Buick had more substantial price differences with Chevrolet.
GM’s pricing hierarchy became even more confusing in the mid-70s, when Buick and Oldsmobile’s top-end mid-sized personal coupes were priced lower than their corporate siblings, the Chevrolet Monte Carlo and Pontiac Grand Prix. And as we have discussed here, by the end of the 1970s the price points for these halo models became strikingly similar. Why then the need for four entries, particularly as the personal coupe market declined?
Would Sloanism have better differentiated brands?
Let’s come back to DECG50’s argument that a GM still managed by Sloanist principles would have been more disciplined in its product-proliferation decisions. Might Buick and/or Oldsmobile have been denied smaller cars until the early-70s?
Potentially, although in the late-50s GM executives would have had to withstand enormous pressure from dealers who were panicked about the dramatic decline of the premium-priced, big-car market (go here for further discussion). That pressure would undoubtedly have increased due to the early success of Mercury’s compact Comet.
Then, in the early-70s, could GM have done a better job of giving its premium brands smaller cars that were distinctive? I suspect that this would have required executive management to better anticipate major increases in gas prices. With the collapse of big-car sales in the wake of the oil embargo of 1973-74, dealers quite rightly clamored for smaller cars — and quickly! GM responded by giving its premium brands a variety of badge-engineered compacts and subcompacts. This may have been expedient in the short run, but it established a bad habit that GM failed to break in subsequent years.
A big reason why may have been that the high cost of downsizing the automaker’s vast lineup of cars inevitably led to greater parts sharing. Even so, GM could have drawn more upon its foreign subsidiaries to give at least one of its U.S. brands more distinctive products. For example, Pontiac could have been reconfigured as GM’s import-fighter that offered U.S.-produced versions of German Opel, British Vauxhall and/or Australian Holden models.
Did GM allow itself to get stretched too thin?
Of course, bringing to the U.S. a foreign design would have been more costly than badge engineering a Chevrolet. So it is understandable — at least to a certain degree — that GM was so ginger about drawing from its foreign parts bin.
The bottom line is that even though GM had much deeper pockets than any of its domestic rivals, it may not have possessed adequate resources to adapt to the brave new world of the 1970s and 1980s. A Sloanist approach might have saved enough money to make the transition a bit easier. And maybe GM would have even avoided some major mistakes, such as the Corvair.
Share your reactions to this post with a comment below or a note to the editor.
RE:SOURCES
- Los Angeles Times; 2022. “GM’s history of CEOs.” Accessed Jan. 19.
- Wikipedia; 2021. “Alfred P. Sloan.” Page last modified Dec. 8.
ADVERTISING & BROCHURES:
- oldcaradvertising.com: General Motors (1955)
- oldcarbrochures.org: Buick Skylark (1964); Chevrolet Malibu (1964); Holden (1978) Oldsmobile F-85 (1964); Pontiac LeMans (1964)
- wildaboutcarsonline.com (Automotive History Preservation Society): Ford Thunderbird (1958)
A lot of this becomes clearer when you understand that GM’s customers are dealers, rather than consumers. As far as the local Pontiac dealer is concerned, if his sales are cannibalized from Olds or Chevy, that’s just fine with him. Although there was some platform sharing, especially among the BOP divisions, it made no real sense for each division to build engines within a few cubic inches of each other. This is economics 101.
Also, this may be a chicken/egg situation, but the dealerships grew massively in size during this era. I am old enough to remember when some dealerships were little more than storefronts. There was one such dealership like that where my father bought a new 1961 Corvair. I remember going through the area 30 years later, and I think you could see the dealership from space.
Well put. Pontiac went from annual sales of around 400,000 units in 1960 to over 900,000 in 1968 — and hovered in that realm multiple times during the next decade. That required quite a bit more dealer capacity. Those dealers had breakeven points, so if their sales fell too low — such as during the first oil embargo — they could lose their shirts. So whether they had distinctive compacts or subcompacts may have mattered less than having SOMETHING on their lots to sell.
Note that Pontiac’s dramatic growth during the 1960s was primarily driven by cars smaller than full sized. Oldsmobile’s situation wasn’t quite as extreme, but between 1962 and 1971 big cars saw their proportion of total division output drop from roughly 80 percent to only 50 percent.
Only with Buick did full-sized cars represent a steady majority of the brand’s sales throughout the 1960s (go here for further discussion). So Buick would have been the best candidate to not dabble in compacts or mid-sized cars. However, the division still generated only 60 percent of its sales from big cars.
Could Buick have made it through the 1960s by focusing exclusively on full-sized cars? If so, it would likely have had meaningfully lower sales and/or cannibalized the big-car sales of GM’s other premium-priced brands. Which may have penciled out best in the long run, but it would have required pretty different corporate thinking.
While reading Kim’s comment, I immediately thought of the post you referenced – “1965-68 GM big cars: The end of different strokes” and how increasing the size of the cars didn’t necessarily involve a corresponding increase of interior or trunk volume. Longer, lower, wider meant sitting in more reclined seats (ironically without adjustable backrests) while trying to navigate for parking spaces across far longer hoods and fenders. I love GM big car styling from this period and think it was second-to-none, but were cars of this size necessary? No.
GMs first gen mid-size cars did not need to get bigger, only more differentiated to avoid the overlap that eventually befell the corporation. As you pointed out, however, GM answered to dealers first, buyer’s second. Hence, you got cars like the Cadillac Cimarron. I doubt US that dealers would have done anything different had a Sloanian-style management system remained in place. They would instead have found reason to complain about being forced to sell products they didn’t want (as opposed to selling products the public didn’t want).
Here in Canada, where GM’s dealer network was basically structured as Chevrolet-Oldsmobile and Pontiac-Buick-GMC franchises (due to our smaller population), it made little sense to retail both a base Chevelle and an F-85 out of the same showroom, unless in 1964-65, you really wanted a V6, which was only available in the Oldsmobile. In 1966, F-85s came standard with the inline Chevy 6. Canadians didn’t get the mid-70s Vega/Monza-based Oldsmobile Starfire because it was redundant. Later on, however, they did sell the J-Car Oldsmobile Firenza (a name with a horrible history in Canada, btw) alongside Chevrolet Cavaliers. To me, that made no sense. There was virtually nothing to differentiate the latter vehicles and with brand loyalty fading fast, how would you expect a buyer in that market segment to justify spending more money on a Cava-Firenza? GM just didn’t get it, on either side of the border.
When Chevrolet debuted the Chevelle, they declared it ideally-sized, comparing it without irony to the popular ’55 Chevy, which it approximated in a number of dimensions. So, why the need for ever larger American cars when it was obvious as the 60s progressed that more and more sales were going to mid-size and smaller cars? A Sloanian system of management would also, I believe, needed to have permanently curbed that quest to build increasingly massive cars. As we can see though, even in 2022, trucks and SUVs continue to get larger and heavier; the upcoming electrification of American vehicles is only perpetuating the whole bigger is better syndrome. Where and when does it end?
We had the same dealer arrangement you describe in rural areas of Wisconsin back then. Cadillac dealers were rare, and usually partnered with Chevy/Olds.
Steve, thanks for furthering the discussion and for the data dive.
I accept that the Buick and/or Olds dealers would likely have pressured GM corporate for intermediates in the 1960s had GM corporate not approved them, but I don’t agree dealer pressure would necessarily have won the day. Let’s not forget that GM corporate successfully deprived the dealers of Viking, Oakland, Marquette and LaSalle cars during the Sloan era as market conditions dictated a reduction of model proliferation.
Also let’s recognize that lower volume doesn’t necessarily mean lower profitability for dealers. A Lexus dealership isn’t necessarily less profitable than a Toyota dealership even on lower volumes and a model range that covers fewer segments of the market. It’s a question of whether margin on sales gets traded for volume, which is the same issue as was facing GM corporate.
My read of the history is that what drove Donner and the McKinsey consultants he brought in to advise him was that return on invested capital had been declining across the industry, and this was affecting GM more than Ford and Chrysler because its more decentralized organization dictated higher capital investment per unit of output. So it seemed logical to them to force the divisions to pool engineering resources, to each maximize unit output, and ultimately to fold manufacturing into GMAD.
This was all logical, but with the benefit of hindsight we can see it was the wrong course. It isn’t possible to sustain 5 distinct brands with this setup, and in fact with this model you can probably only successfully sustain one mainstream brand and one luxury brand, something that Roger Smith publicly acknowledged early on in his tenure as CEO. With the benefit of hindsight, the right solution to the declining return on invested capital problem would have been to raise prices. After all, the 1960s was not only a decade of rising prosperity but also declining taxes on high earners’ income (the top marginal rate having been cut from 91% to 65% in 1964).
So much for the 1960s. I agree that the 1970s presents a greater challenge, but my thesis is that a better managed GM corporate would have invested in better engineered true luxury compacts, not because it would have been clairvoyant about the 1973 oil embargo and the energy issues later in the decade, but because the growth in Mercedes-Benz sales in the late 1960s would have provided upper divisions the business case for investment in such a car. There was a market for a smaller luxury car that was there to be exploited (particularly among women it was eventually recognized when the K body was approved).
The central problem with allowing the A bodies to cannibalize full-size sales from my point of view is the erosion of brand equity. You see that in the rapid compression of pricing differences among the B bodies during the 1970s. It simply became impossible for a Buick dealer to command more for a LeSabre than a Chevy dealer could command for a Caprice.
One item that keeping Sloan concept through the period should have resulted in was the supremacy of the divisional general managers. They had direct accountability for their brands performance. Instead what happened was the growth of a corporate level where direct accountability became more nebulous.