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GM's past and present collide in sibling rivalry

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From the Los Angeles Times

GM's past and present collide in sibling rivalry

The sharply styled, highly promoted Malibu is outsold by the similar-sized but simple, uninspired Impala. Which one will survive the struggling automaker's restructuring?

By Ken Bensinger

February 16, 2009

For a year, General Motors Corp. has been singing the praises of the new Chevrolet Malibu, voted the 2008 North American Car of the Year by auto writers and billed by GM Chairman Rick Wagoner as "the finest midsized car this country offers." To promote its launch, GM spent nearly $250 million on advertising, dubbing it "the car you can't ignore."

Meanwhile, GM has been quietly making and selling a similarly sized and priced sedan: the Chevrolet Impala. GM hasn't run a national ad for the full-size Impala in three years, scarcely mentions it in news releases or conference calls with Wall Street analysts, and made little hay about its winning Fleet Car of the Year three years running.

Yet last year, for every two Malibus that GM sold, it delivered three Impalas. Unpromoted, hardly noticed, the humble Impala finished the year with 265,840 sales, making it the best-selling U.S. sedan and the No. 8 vehicle by volume in the country, outselling even the Dodge Ram pickup by a wide margin.

On Tuesday, GM will submit a restructuring plan to the Treasury Department, a document that is supposed to explain how it intends to reduce debt and cut costs and prove it merits further government financial support beyond the $9.4 billion in federal loans it has already received.

Exactly how the federal government will assess plans offered by GM and Chrysler remains uncertain. But Sunday, Obama administration insiders said there no longer were plans for a "car czar" to oversee restructuring. Instead, an interagency task force was in the works that would include two senior presidential advisors.

Treasury Secretary Timothy F. Geithner and National Economic Council Director Lawrence H. Summers will oversee the across-the-government panel, a senior administration official told the Associated Press on Sunday on condition of anonymity.

Even with more help from Washington, industry experts question whether cost-cutting and debt reduction will be enough to save GM. They say the outsize company has deep-rooted structural problems, with too many dealers, too much production capacity and too many models, leading to cost problems that destroy any chance of making a profit.

The Impala and the Malibu, which sit next to each other in many Chevy showrooms, provide a window into those problems and how difficult saving GM really might be.

"Symbolically, these are cars that separate the old and new General Motors," said Jesse Toprak, senior analyst at Edmunds.com. "If they want to change the way they do business, the Impala may have to go away. But how do you turn your back on a car that sells so well with so little effort?"

Old versus new

If the Malibu -- a sharply styled car developed to do battle with the Toyota Camry and Honda Accord and change the automaker's public image -- represents the new GM, the Impala would seem to be a dinosaur, left over from the bad old days when GM cars were known as rolling rust buckets.

Built in Canada on a 20-year-old platform, the current Impala debuted in late 2005 and was designed to rival vehicles like the Toyota Avalon. With a simple, uninspired interior and unflashy design, it has been described by reviewers as conservative, cheap and bland. GM executives have said they purposely designed it as a car that wouldn't turn heads.

Indeed, its generic styling, 29-miles-per-gallon highway fuel economy and user-friendliness (buyers can even choose bench or bucket seats) make it popular with police, car-rental companies and other commercial customers.

Ed Peper, general manager of Chevrolet, said more than half the Impalas GM sold last year were part of so-called fleet sales, compared with roughly 20% for the Malibu. He calls the Impala "very profitable," even though fleet sales are often made at a discount and can put pressure on retail pricing.

Yet when the Impala does make it into dealership showrooms, the car it competes with most directly appears to be the Malibu. Data from the website Edmunds.com shows that as many as a third of Impala owners thought about buying a Malibu, far more than any other car.

And although the Impala's sticker price is more than $3,000 above the Malibu's, the two vehicles sell for nearly the same price after incentives -- between $19,000 and $22,000 -- according to data from J.D. Power & Associates. Considering that the Impala offers more trunk space and headroom, many consumers choose the bigger car, dealers say.

"They probably would have been able to sell many more Malibus if not for the Impala," said George Peterson, president of the research firm AutoPacific. He argues that vehicles like the Impala overextend GM's resources.

A study AutoPacific released last week shows that GM's 60 models averaged fewer than 50,000 sales apiece last year, compared with an average of 102,000 for each of Honda's 14 models.

To become a profitable company, he argues, GM should eliminate more than two dozen models and half of its U.S. brands. "They have too many products, and some shouldn't exist," Peterson said.

Difficult decisions

Making such cuts, though, is no easy task. GM has more than four times as many dealers as Toyota in the U.S., and they pressure GM to supply a wide array of vehicles.

"It would be a problem for me if GM didn't offer both the Impala and the Malibu," said Pete Johnston, owner of a Chevrolet and Cadillac dealership in Paso Robles, Calif. "I like to have a full line to sell."

To satisfy its dealers, GM has spent decades building up a huge manufacturing infrastructure, with dozens of factories producing models that often, like the Malibu and Impala -- not to mention the similar Saturn Aura -- tend to cannibalize one another's sales. GM produces essentially identical vehicles under different nameplates, such as the Chevy Silverado and GMC Sierra pickups and the Buick Enclave, GMC Acadia and Saturn Outlook crossovers.

The automaker employs tens of thousands of union workers in its plants, with contracts that provide generous healthcare and retirement benefits and, in many cases, pay employees even when their plants are idled. Laying workers off, moreover, requires negotiating with the United Auto Workers and Canadian Auto Workers.

Those fixed labor costs can lead GM to overproduce vehicles, forcing it to sell them, cheaply, into fleets or offer high incentives at dealerships; the Impala had cash-back rebates of more than $4,000 at times last year, according to Edmunds.com.

And because of the enormous capital investment in tooling and engineering required to prepare a plant to produce a specific vehicle, converting plants to make other models is a nonstarter in the current economy.

Reducing GM's distribution network, meanwhile, is just as tough, because dealers are protected by state franchise laws. When GM dropped the Oldsmobile line a few years ago, it cost the automaker roughly $1 billion in payouts to dealers.

With revenue falling dramatically in recent years, GM doesn't have the resources to market all of its vehicles at once, as with the Impala, or to invest in keeping them up to date.

Chevrolet's Peper said the company would not redesign the Impala until it launched a new Malibu, which means the current Impala could be a decade old before it's replaced. Yet selling such outdated cars, a practice GM has fallen into in the past with models like the Cavalier, can have disastrous effects on a company's image.

The result, said Rob Kleinbaum, who worked at GM for a decade and has consulted for the company for 15 more years, is a "self-perpetuating cycle that's very damaging to the company."

But the massive costs involved in getting out of that cycle, Kleinbaum said, drive management to keep doing the same thing. "They face extremely hard choices about the future of the company, and they have historically chosen not to make a choice."

Now, with the company's future in doubt, GM has begun to show signs of change.

In the first restructuring plan GM submitted to Congress in December, the automaker discussed reducing its dealerships and focusing on just four of its eight U.S. brands. Both Hummer and Saab are on the block, and Saturn may soon be as well.

If the company can implement those cuts, experts say, it will be a step in the right direction. But some doubt that current management can make all that happen and whether it will be enough.

The automaker's U.S. sales were down 23% in 2008, the company lost $21 billion through the first nine months of last year, and it hasn't turned a profit since 2004.

"Unless they totally restructure from top to bottom, I mean throw out everything, GM will fail," said Dan Gode, a clinical accountant at New York University who has studied the carmaker's business model.

In the short term, GM's lifeline will have to come from Washington. Meanwhile, GM continues to crank out Impalas and Malibus.

"They have so many children," Peterson said. "They can't afford to keep feeding them all."


Copyright 2009 Los Angeles Times

If you really want to make people safe drivers again then simply remove all the safety features from cars. No more seat belts, ABS brakes, traction control, air bags or stability control. No more anything. You'll see how quickly people will slow down and once again learn to drive like "normal" humans.

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