GM: Silence Is Golden

GM’s fairly new CEO Fritz Henderson did not get his job as recently as the car company’s chairman Ed Whitacre did, but neither has been in his current role for even a year.

Each man has begun to make a public mark, probably to the detriment of GM and its primary shareholder, the US taxpayer.  The most visible thing Whitacre has done is appear in GM’s television campaign marketing its new customer satisfaction program. Henderson was quiet until the last few days. He may wish he had stayed that way.
Henderson has been on a tour to talk to the press and analysts about why GM is doing better and how its new models will keep its market share in the US at close to 20%. The chances of his company keeping a fifth of the market are low. GM has killed too many brands like Pontiac. The sales of people loyal to those nameplates may well go to GM’s competition.

The highlight of Henderson’s comments is that he expects light vehicle sales to pick up in the US next year. GM believes that total domestic sales this year will be between 10 million and 10.5 million. The No.1 American car company expects that number to rise to 11.5 million or 12 million in 2010. “By any historical measure, we’d say 11 1/2 to 12 million is a terrible year but obviously coming out of 2009, it would be welcome to see an improving trajectory.” But, 2010 may not be nearly as good as Henderson expects.

The “cash for clunkers” program gave US car sales a brief and sharp lift in late July and early August. That lift pulled a number of sales forward in the year. September numbers are likely to be dreadful. Most analysts believe that figures for this month will be at an annualized rate of only 8.8 million vehicles. It is nearly impossible to remember a year when the total was that bad.

“Cash for clunkers” may not just have pulled sales from September. Consumers who were not planning to buy a car for several months probably took advantage of the chance to get as much as $4,500 from the government to purchase the vehicles last month. GM has made the fate of the industry for 2010 even worse. Its program called “60-day Satisfaction Guarantee” lets buyers get a new Chevy, Buick, GMC or Cadillac and keep it for 30 days. The buyer can bring it back within 30 days of that if he or she is not happy. The critical part of the program for 2010 sales is that the GM program ends on November 30. That makes it very likely that GM will sell a large inventory of vehicles it would not have sold otherwise in the next two month. Some of those sales are would have been much more likely to happen next year.

GM is actively borrowing sales form 2010. That may help the company for the next quarter, but it makes Henderson’s comments about a rise in overall domestic car sales to a level as high as 12 million all the more improbable.

Henderson would be wise to run the company and let Whitacre take the heat.

Douglas A. McIntyre