DECG50 has weighed in with an additional round of thoughtful analysis about product proliferation at General Motors in response to these (go here and here) posts.
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 five 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.
Also see ‘1965-68 GM big cars: The end of different strokes’
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 percent to 65 percent in 1964).
1973 Olds Omega and Buick Apollo. Click on ads to enlarge (Automotive History Preservation Society)
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.
— DECG50
RE:SOURCES
- wildaboutcarsonline.com (Automotive History Preservation Society): Pontiac Ventura (1973)
- oldcaradvertising.com: Chevrolet Nova (1973); Buick Apollo (1973); Oldsmobile Omega (1973)
- oldcarbrochures.org: Buick LeSabre (1973); Cadillac (1973); Chevrolet Caprice (1973); Oldsmobile Eighty-Eight (1973); Pontiac Bonneville (1973)
Indie Auto invites your comments (see below) or letters to the editor (go here). Letters may be lightly edited for style.
You’ve covered a lot of ground so I’ve needed to percolate on your comment. There’s nothing that you’ve said that I would strongly disagree with. It’s more a matter of emphasis.
For example, my impression was that when GM raised prices that the rest of the industry tended to follow suit. This is a fundamental problem with an oligopoly. During the 1950s GM didn’t seem all that hesitant to goose prices (I vaguely remember a Consumer Reports article complaining about it). Do you think that GM was more cautious in the 1960s, perhaps because of the threat of antitrust actions? Or greater competition from the imports in the 1970s?
Perhaps I’m showing my ignorance, but what was wrong with having costs a bit higher per unit if it translated into double the production of Ford and half of the domestic market? Certainly there were ways to squeeze more efficiencies from the divisions, but it could have been done with a scalpel rather than a chainsaw if a primary goal was maintaining brand equity.
The graphics I added to your comment when I front-paged it were designed to highlight that GM trafficked in small-car badge engineering before the first oil embargo. Meanwhile, the new-for-1973 mid-sized cars had completely unique sheetmetal. That presumably reflected GM’s spending priorities.
It would have been interesting if GM had invested earlier in higher-priced compacts, as you suggest. I’ll take a look at the sales data for the late-60s and early-70s to see how imports such as Mercedes and Volvo were doing. I suspect that their numbers only hint at the size of the potential market.
At least at this point I would place a bit less blame on the A-body for damaging the brand equity of GM’s premium-priced brands because of other factors such as the upscaling of low-priced brands (e.g., the LTD/Caprice) and increasing diversity of vehicle types. To offer a personal example, in the early-70s my parents decided that a camper van was a more versatile option than a big Pontiac.
I should go back and reread the part of DeLorean’s book where he writes about advocating for the downsizing of the big Pontiacs. To pluck a scenario out of the air, if he had succeeded in moving the entire big-car line onto a longer version of the A-body (in a similar vein as with the 1969 Grand Prix), that could have been a very smart move in a number of ways.
You may be right that GM was more cautious about raising prices in the 1960s because of the threat of antitrust actions, although I think this would have been more a concern if the strategy was across the board increases rather than scaled to expanding the Sloan ladder. The old Mercedes-Benz strategy was to add 10% more cost than the competition and charge 20% more for the privilege. I think GM could have invested in brand differentiation increasingly as one moved up the divisional ladder and charged an appropriate premium for it without necessarily incurring the ire of the DoJ, which was more focussed on overall market share. My speculation is that GM’s reluctance to raise prices in the 1960s would have come from two places: (1) failed efforts to charge up-market prices in the 1950s, and I’m thinking here of the Fleetwood Brougham and the Buick Limited; and (2) anticipation that Ford would rather increase production and capture market share than follow GM’s pricing lead.
This leads to your next comment about what would be wrong with higher unit costs if it translated into double the volume of the closest competitor. The problem is that although your gross profit may be higher, you are losing your competitive position over time as your competitor is able to reinvest capital for a greater return and thereby compound its earnings growth at a higher rate. This would tend to put pressure on your share price, which I think did happen to GM in the 1960s not just because of industry competition but because the market started looking towards other industries where compound returns were more promising. Donner, being a finance guy, would have been very alive to these issues.
You may well be right about upscaling of low-priced full-size offerings being more damaging to brand equity than the selling of A bodies by senior divisions. But I think that Chrysler’s decision not to sell intermediates through its premium brand until the mid-70s did enable it to charge somewhat premium prices for the Cordoba and LeBaron when they were introduced and to maintain a slightly higher price point over Buick and Oldsmobile in their full size offerings (at least in terms of MSRP) through the early and mid-1970s. And Chrysler was weak. A much stronger GM might have had even more success with the same strategy.
The DeLorean Grand Prix reference is interesting. It’s an example of exactly the sort of strategy I’m saying GM should have been following more generally for senior divisions — i.e. add cost and charge a premium for it.
All that makes sense. So if rate of return was the almighty god, then the question is how GM could have increased efficiencies without undercutting long-term brand equity. Were there plausible ways to do so, or would even the most brilliant and adaptive management team have failed that test because of insurmountable obstacles?
For example, it would seem inevitable that GM would have had to consolidate powertrain development to a significant degree because of the added costs of emissions control. By the same token, downsizing the corporate fleet led to greater use of unit-body construction and more space-efficient packaging — which could not help but reduce GM’s ability to offer its traditional stylistic differentiation.
In addition, the market had become very different from back in Sloan’s heyday. The rise of imports resulted in the public becoming more aware of how differences in quality of design, manufacture and customer service could be more satisfying than driving the latest styling fad. And the decreasing importance of passenger cars in favor of trucks, minivans and SUVs further blew a hole in traditional notions of automotive branding.
How could GM have maintained the brand equity of each of its six car and truck divisions under such a changed marketplace? What elements of Sloanism could have helped guide management? And what elements needed to change?
I don’t have terribly good ideas. However, I can suggest that GM didn’t help itself in a number of respects. For example, John DeLorean argued that consolidating production management led to increased quality-control lapses and labor unrest. I don’t think it was an accident that one of Saturn’s “innovations” was a stand-alone factory that experimented with a worker-management structure that went against the usual GM practices. If divisions had maintained their control over vehicle assembly perhaps different approaches might have been tried much earlier.
Another good aspect of the early Saturn was that the primary focus was on meeting practical needs, such as with no-dicker-sticker dealers. Imagine if in the 1970s and 1980s GM divisions started to pivot away from a primary focus on styling and marketing gimmicks. A Buick might have stood for something more than a certain type of taillight design.
But even if management made few mistakes, could they still have kept viable six vehicle brands through the end of the 20th Century? I suspect that at least some brands would still have needed to have been either pruned — or perhaps even better — downsized to boutique brands sold through a more integrated dealer network.
Chevrolet – Economy sedans and sports cars
Pontiac – High Performance sports sedans
Oldsmobile – Personal luxury coupes & luxury/sport wagons
Buick – Premium luxury sedans
Cadillac – Ultra-premium luxury sedans
Whether something like this could have been sustainable over a long period of time is difficult to say but it would also have required major dealer support and deft marketing to make it work. Would it translate to today’s truck/SUV dominated marketplace? I think so but I could see moving Buick and Cadillac upmarket a couple decades ago as a major issue for GM. Cadillac willingly gave up on being the “Standard of the World” to sell blinged-out Chevy Tahoes and Suburbans. We didn’t see Lexus, Mercedes, Audi or BMW giving up on their ultra-premium sedans. It’s all about building it to a price in Detroit.
Your idea would have worked up until say, the 50s-60s. Dealerships were much smaller and could survive on a niche market. By the 70s, this would require multi brand dealerships, and questioning the need for so many brands would come from another direction. Why would we need a Buick and and Oldsmobile when the only difference was the number of doors?
Well, I think contemporary VW Group provides an image of what this could have ended up looking like. VW does maintain something similar to the original Sloan ladder in its home market of Europe, with 5 fairly strong brands — from top down: Bentley (Cadillac), Porsche (Buick), Audi (Oldsmobile), Volkswagen (Pontiac) and Skoda (Chevrolet). It also has a couple of weaker brands in Seat and Lamborghini, but still. The main brands are collectively offering a range of crossovers which together arguably cover every purse and purpose. And they’re well on their way to doing the same in EVs. Perhaps you might say Bentley and Porsche are “boutique brands”, but I expect they are very profitable notwithstanding.
You are right that ending up at that kind of destination would have required GM management to shed some old ways in favour of new ones, particularly its path dependence on shared Fisher bodies on frame, and the need to realize greater economies of scale in powertrains in response to changing engineering requirements. But that takes me back to my original question about whether the Sloanite approach woudld ultimately have come to those conclusions. If you view GM corporate as a merchant bank for the divisions rather than a central organization dictating product outcomes, then you get 5 chances for someone to make the best investment proposal and show the rest of the divisions a new way to do business. And, as you said before, you avoid some of the mistakes made of investing in product that didn’t have a persuasive business case in the first place.
Another potential outcome of such an approach might have been to open the possibility of Opel becoming a global brand, with its own manufacturing footprint in North America. That could have been a way of addressing the GM corporate concern about single franchise dealers taking on import makes if GM didn’t offer them small cars to sell, which I understand is what prompted the proliferation of H bodies and the ill fated Cimmaron.
VW Group is an excellent example. Porsche has had so much success with its SUVs (and of course, sharing platforms with VW) that I would say they are much less boutique than in the sports car-only days. Bentley was certainly revived under VW Group and there is no reason why Cadillac could not have offered something that exclusive and prestigious to its lineup.
I really like your Opel idea. It could have worked in the US, Canada and Mexico. I can even see Opel manufacturing in Mexico, a LA VW. If I remember correctly, GM stopped importing Opels from Germany due to the unfavourable exchange rate at the time, only to build the T-Car (Chevette) barely a couple years later. It obviously never occurred to anyone at GM to turn Opel Mantas into premium compacts for North America. Nevertheless, I think it is still a great idea.
This is an interesting discussion. We do have to be careful when comparing GM’s decision to cancel “companion marques” in the early 1930s with the effort to placate dealers in the 1970s by giving each division a full range of vehicles.
In the early 1930s, dealer franchise laws were much different, and the corporation, not the dealer body, held the power in the relationship. GM thus had more more freedom to unilaterally cancel an entire brand.
Thanks in part to the heavy-handed actions of GM and others during the Ford Blitz of the 1950s, dealers lobbied for stronger franchise laws. They were successful, and today most franchise laws, which largely written at the state level, are tilted in favor of the dealers. Dealers also won the right to own another manufacturer’s franchise without GM (or other manufacturers) being able to automatically cancel their existing franchise. So the threat by Buick or Oldsmobile dealers to acquire a Honda or Toyota franchise if they didn’t get a subcompact was very real.
As long as GM maintained separate dealer bodies for each division, I’m not sure sticking more closely to Sloan’s principles would have helped in the long run. What the corporation needed to do was consolidate ALL of its brands at the dealer level, designate Chevrolet and Cadillac as the two most important brands, and then treat Buick, Oldsmobile and Pontiac as limited, “boutique” brands. But that would have been a massive – and hugely expensive – undertaking. There is also the challenge that GM is owned by shareholders, and top management would have to “sell” some massive structural changes to them that would have initially looked crazy. (Even in 1987, trying to sell this vision would have generated this response – “You’re going to turn Oldsmobile – a brand that has sold as many as 1 million units a year – into a boutique brand?! That’s insane!”) That would have been a challenge for Toyota leadership, let alone GM leadership in the 1980s!
In retrospect, GM lost a chance to make really major changes in the early 1990s, when it came very close to bankruptcy, and the board ousted Robert Stempel and a few other key executives (Lloyd Reuss comes to mind). Unfortunately, the new team essentially diagnosed GM’s woes as rooted in marketing issues, and the core problems were left to fester.
G.M.’s problems began in the run-up to the Fall, 1964 U.A.W. strike. With so many models within seven makes (two truck divisions), G.M. was vulnerable. (Why G.M. still has two light truck divisions and has Cadillac dealers selling Tahoes / Yukons and soon EV-pickups is a ridiculous waste of time and resources, in my opinion ! I awaiting G.M.’s announcement of the Corvette four-door crew-cab pickup truck !) The outcome of the strike should have been a wakeup call on the Fourteenth Floor that G.M.’s business was forever changed. A lot of people in the early 1990s wanted to blame Robert Stempel and Lloyd Reuss for G.M.’s failures at that time, but outside investor Ross Perot predicted what was brewing as early as 1985. G.M. needed to restructure (and not just G.M.A.D.) in 1966. The key fundamental business dynamics did not improve and by 1970, the next U.A.W. strike was a killer. Long-time Cadillac man James Roche was a decent man who tried to adapt G.M. to a nation of changing times, both in Detroit and on Capitol Hill. Ed Cole was a brilliant if not stubborn engineer. Both men were unwilling to broach radical change, which is why John Z. DeLorean became so frustrated and left. The smaller A-bodies proposed for 1973 might have alleviated the need for G.M. to introduce the re-engineered Nova variants later. G.M. should have been consolidating dealerships in the late 1960s and early 1970s. In my opinion, the dealer alignments should have been Chevrolet / Oldsmobile, Pontiac / Buick and Cadillac, with all dealerships (if they wanted to do so) able to sell trucks branded G.M.C. Small economy cars could come in two flavors: Chevrolet and a little more spiffy Pontiac. Chevrolet could still have its Corvette and a Camaro (like the Mustang), as well as an Impala. Pontiac would have its Tempest / LeMans, Firebird, its Catalina / Ventura and Bonneville. Oldsmobile would only have its Cutlass / Supreme, 88 and 98. Buick would have its Century / Regal and LeSabre / Electra. Cadillac would be the deluxe C-body and the proposed 1973 A-body for the Seville instead of the re-engineered Nova. The dealers would have hollered but if this had occurred in the time frame of the 1973 Arab oil embargo, the weaker dealers could have been bought out and G.M. might have avoided its series of crises in the late 1980s and 1990s. Further consolidation might have followed, but as my father learned in the brief time he worked in Detroit before his untimely death at age 46 (lung cancer), one did not broach unpopular ideas in the G.M. Building.