Decisions, Decisions

Car customers like a bargain, but they aren't stupid -- they want the best car or truck, period. Too often, GM compromises on engineering so that its models can go into selected plants to keep up production volume. Example: GM's Hummer H3 SUV, which comes out later this year. Designers wanted this new, more compact Hummer to have the wide, aggressive stance that distinguished its bigger siblings, the H1 and H2. But to make the five-passenger truck cost-effective, GM trimmed its width by about six inches. That way it could use the narrow truck platform that hosts the Chevrolet Colorado and GMC Canyon small pickups. The decision saved engineering dollars and will help max out volume at the Shreveport (La.) plant, which is struggling because the two trucks have missed volume targets. But the pickup platform can't accommodate GM's vaunted I-6 truck engine, and auto enthusiasts are already grousing that the H3 may turn out to be underpowered.GM's Kowaleski responds that the H3 will have adequate power and increased fuel mileage. He adds that GM increased its capital spending to $8 billion this year and that the company's plan includes taking vehicle platforms, engines, and parts from around the world and using them to quickly and cheaply hit growth segments. He says: "Would you like to have as much as Toyota spends? Yeah. Do we? No. So we have to be smarter."But clearly, GM also needs to decide what it does well, focus its resources on that, and scrap the rest. Wagoner's plan seems to be to engineer a soft landing, paring some of the company's onerous legacy costs and, most likely, closing down some plants. But he isn't oblivious to the problems. At a meeting with mid-level managers last December, Wagoner described the strategy of engineering cars to use up production capacity as a "legacy cost," says one manager who heard the presentation. He says that when Wagoner introduced GM's corporate controller to walk through the company's challenges, he added: "After this, some of you may wonder why you still work here." And Wagoner has been moving methodically on a plan to merge Pontiac, Buick and GMC showrooms. Once the 1,500 or so dealers have all three of those brands, it should be easier for him to trim redundant models and focus the brands more sharply.But Wagoner will be hard-pressed to get enough relief on medical costs, at least before the scheduled contract negotiations in 2007. The Center for Automotive Research (CAR) in Ann Arbor, Mich., estimates that GM could save at least $1.2 billion a year just by closing the gap in co-payments and deductibles between different kinds of employees. A single, salaried worker pays at least $100 a month toward health costs, while hourly union workers pay no premiums and only a $5 co-pay on drugs. But so far, the United Auto Workers leadership has shown no sign that it's willing to reopen a contract that still has two more years to run. When GM's Group Vice-President for labor relations Gary L. Cowger suggested synching up the union and nonunion plans, UAW Vice-President Richard Shoemaker quipped: "If GM wants to give the salaried workers the same health-care plan we have, we're happy to share."In theory, Wagoner doesn't need the union's help to chop his bloated car brands. He just has to pay a lot of money. Plenty of outsiders have called for GM to kill at least one division, with struggling Buick and Pontiac the leading candidates. But look at how much money GM had to pay for its 2000 decision to eliminate the smaller Oldsmobile unit. It was obligated under dealer franchise agreements to buy back parts, cars, and some service department tooling. And to keep dealers happy, the company paid them $3,000 per vehicle sold in the last full year. The final bill for closing Olds came to about $1 billion. It left plants that made the cars underutilized, and cost GM market share.