Alex Taylor III, over at Fortune Magazine, has floated the old balloon that GM (GM) has too many divisions. Pontiac, Cadillac, Buick, Hummer, etc.
Taylor’s fundamental point is this: "Multiple brands mean multiple expenditures for marketing, advertising and distribution. Still suffering from negative cash flow, GM simply has too many mouths to feed."
His story is an extremely fine case of the victory of fantasy over analysis.
On his list: "It is past time to perform euthanasia on Buick. Successive waves of new models haven’t moved the needle on sales and it is unlikely that the new Enclave crossover will make a big difference. For nostalgia buffs, the Buick brand can soldier on in China, where it is uniquely beloved."
Fine. Does Buick make a profit as a brand? Or does it loss money? In a company with a number of operating units, how is that measured? Can its production be taken off line without affecting production of other brands, or will some plants have to cut back their hours of operation? If GM eliminates a couple of brands, will the UAW go along with job cuts in the Fall negotiations?
Alex doesn’t like Pontiac either: "Pontiac should get the same treatment, though without the Asian escape hatch. Its boy-racer image is dated and GM’s one-time excitement division has deteriorated into a regional blue-collar brand. In a world that increasingly is going green, there is little upside for its testosterone-laced pavement rippers." Pontiac is performing poorly, but GM’s costs to shut it down may be huge due to dealer buyouts and lay-offs of employees who work on the brand. There is also no guarantee that closing Pontiac will not change the financial dynamics of other brands. A number of components, including engines, are often common across GM divisions. There is some economy of scale here, but Fortune does not address that.
It would be like closing one or two of the big magazines at Time, Inc. which owns Fortune. It may seem like a good idea, but someone has to show how it makes financial sense.
Douglas A. McIntyre
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