Breaking Up is Hard to Do

Sometimes it helps to take a look at how companies in other industries are doing in order to give greater insight into one’s own.

Hummer, Saab, and Saturn may join Pontiac in automotive history

Hummer, Saab, and Saturn may join Pontiac in automotive history

In the automotive world, General Motors, which filed for and emerged from bankruptcy earlier this year, had announced plans to shed its non-performing assets and emerge as a stronger company.  GM has fairly experienced management at its helm yet its plan to dispose of these assets, which include Hummer, Opel, Pontiac, Saab, and Saturn, hasn’t turned out the way it planned, at least not so far.

One of the major stories this week was that tiny Koenigsegg Automotive was backing out of its deal to purchase Saab from General Motors.  Saab, which manufactured a mere 93,000 cars last year, nonetheless dwarfed Koenigsegg, which, with only 45 employees, turns out just a handful of high-priced supercars each year.  Publicly, Koenigsegg cited too many delays in closing the deal but I believe that Koenigsegg realized it might have bitten off more than it could chew with the proposed deal.

GM has had a stake in Saab for almost 20 years with direct ownership for 10 and Saab has a small but loyal following in the U.S.  Unfortunately, low volume car makers aren’t able to benefit from globalization so Saab’s sales in the U.S. suffered greatly at the hands of a devalued U.S. dollar.  Unless the Swedish government steps in, Saab’s fate could be liquidation.

Earlier this month, following months of negotiations with several potential suitors, GM announced it would keep its Adam Opel unit in Europe after agreeing to sell Opel to Austro-Canadian parts maker Magna International and Sherbank, a Russian company.  This stunned the German government, which had been lobbying for Magna, as well as union workers at Opel, after GM announced that manufacturing capacity across Europe will shrink by 25%.

In September, the Penske Automotive Group walked away from its deal to acquire GM’s Saturn division.  Penske had wanted to become a car manufacturer without actually producing cars (imagine that!) – and apparently company management came to its senses and realized that such an arrangement wouldn’t work since no competitor would want to make cars for them.

The deal to sell Hummer to a Chinese company has been delayed by months, despite a preliminary agreement announced in June.  The result is that, given the cloud over its future, no one is purchasing Hummers right now.

What went wrong?  Let’s look at what got GM into bankruptcy court in the first place.

GM’s problems started in the 1960s, when it began to stray from Alfred P. Sloan’s brand and pricing structure that had made the company successful.  From lowest to highest, the “ladder of success” as it was often called included Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac.  Under Sloan, these brands did not compete with one another and car purchasers could move up the ladder within the GM family as their economic status improved.  Starting in the 1960s, the differences that made each brand distinct began to fade and the change was epitomized by the introduction of the 1981 Cadillac Cimarron, a rebadged compact Chevrolet.

Hopefully, GM will learn from its more recent experiences and will look to its history and restore and build upon the differences that make a Chevrolet a Chevrolet and a Cadillac the “Standard of the World.”

Jonathan B. Spira is CEO and Chief Analyst at Basex.

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