General Motors, Decline and Fall,

1980 – 2009

William Sundwick

Founded in Flint, Michigan in 1908, the corporation that ushered in the automobile age in America and came to dominate the nation’s industrial economy by the 1970s, declared Chapter 11 bankruptcy just after celebrating its centennial.

What happened?

In 1980, journalist/folklorist Ed Cray published his history of that corporation, Chrome Colossus: General Motors and Its Times. GM then held a 46 per cent share of the domestic U.S. auto market. Cray notes it had been over 50 per cent in the early to mid-1960s, inviting threats of anti-trust action from Congress, amplifying anger at GM manufacturing decisions concerning safety and lethargic pursuit of emissions reduction. The Boards of Directors in those days were confident they could ride over these assaults. They were right -- so long as sales and employment were strong and stock valuation high. I certainly felt no insecurity growing up as a teenager in a Flint GM family!

But there was an unseen threat building, starting in the 1970s, which should have foretold a deepening challenge to GM’s place in the automotive market.

It came from Japan, with its much younger automobile industry looking toward export markets, not just in the U.S., but around the world. The first Toyotas and Datsuns appeared on the West Coast in the late 1950s. A curiosity at first with little penetration even in California. But that penetration grew and went nationwide by the mid-70s. GM management did recognize that there was something peculiarly competitive about Japanese manufacturing. They sought to learn more about it via partnership with Toyota. NUMMI (New United Motors Manufacturing, Inc.) was formed in the early ‘80s at a closed GM plant in Fremont, California (since sold to Tesla). It produced both Chevrolets and Toyotas side-by-side on the same assembly line.

But NUMMI failed to change “The General.” What General Motors couldn’t understand was that the secret of Japanese manufacturing, and growing preference of U.S. consumers, had nothing to do with efficiency of the machinery in the plant. It was not the “culture” of employees (the old GM workers were rehired in Fremont). Instead, it was mainly the culture of management. The Fremont plant was run differently from other GM assembly plants, following the Japanese model. But apparently, corporate management failed to notice a fundamentally different job design. Workers in Fremont rotated among many different jobs, rather than simply tightening the same bolt every day for an eight-hour shift on thousands of cars.

GM had advance warning of this problem from the wildcat strike at Lordstown, Ohio in the early ‘70s – where sabotage led to slowdowns and generally low production quality of the new “import killer” small car launched there, the Chevrolet Vega. Production rates were punishing, workers took it out on the product. Yet corporate management took no notice. After the “experiment” at NUMMI, Japanese style “relational management” never spread to other plants. The Vega’s design was considered flawed, too, not merely its manufacturing quality. General Motors could not see its employees as anything more than cost centers, whether hourly and salaried engineers. The public could see the effects.

“Corporate culture” has become a popular trope over the last thirty years. It probably had its origin in the sad story of General Motors’ decline. The corporation had its beginning in the early days of the automobile, in an environment analogous to how we thought of Silicon Valley in the 1980s. It was where entrepreneurial ventures based on engineering advances were the foundation of economic growth. Billy Durant, the founder of the corporation, was the embodiment of that entrepreneurial, risk-all, American myth that surrounded figures like Steve Jobs in later times. Durant’s genius (some would call it recklessness) was his willingness to take a chance on a bevy of garage tinkerers he met in Michigan. The first of them was Flint mechanic David Buick, struggling with his own version of a horseless carriage. His Buick automobile was the brand that started General Motors. Durant, however, did not build the GM corporate culture. The myth of that industrial spirit was, instead, created by Alfred P. Sloan. Sloan led an ever more centralizing corporate Board through the 1920s and 1930s. The stable of brands assembled by Durant and his early associates had all been managed independently at the engineering and production level. They always had shared technology and parts, but Sloan made them mere “divisions,” subservient to the General Motors Board of Directors, directed jointly from Detroit and Wall Street. Sloan was the archetype modern corporatist.

Sloan organized the corporation around profit centers and marketing concepts. Any original ideas for products or engineering had to clear rigorous financial hoops – the “bean counters.” The overwhelming strength of the industrial engine this strategy created caused General Motors to be perceived as a key factor for allied victory when World War II came. Its then-president, William S. Knudsen, became FDR’s head of the War Production Board.

But, after the war, that old, inherently conservative, midwestern corporate culture returned -- unable to focus its marketing on anything but the ego-enhancing product differentiation that Sloan had pioneered starting in the 1920s. The five automotive brands that GM successfully hawked during the postwar years (Chevrolet, Pontiac, Buick, Oldsmobile, and Cadillac) were distinguished mostly by size and flash – what would today be called “bling.” All were built on a similar platform with more engineering in common than unique. Chevrolets and Cadillacs were built during the period to be fundamentally the same, different enough only to make a convincing argument that the higher-priced brand was somehow “better.” This was, of course, illusion – manufacturing standards and quality control were identical at all GM plants.

GM corporate culture could not grasp the reason for the increasing success of Japanese imports through the 1970s and ‘80s. It was not their cars’ designs, but a combination of several factors. There was the above-mentioned relational style of management in plants (and with suppliers); the uncomfortable fact that legacy costs were low at the much younger Japanese firms (not as many retirees collecting pensions and benefits); and, yes, a less risk-averse product-planning style, greater willingness to take chances on new designs without the relentless bottom-line calculations, the Wall Street side, that dominated GM decision-making. It was the old company, Toyota the young company!

When the UAW chose to strike General Motors in 2007, the walkout lasted three days. But three days lost production was not enough to change GM’s ways. Market share in the U.S. by then was down to only 20 per cent, a far cry from thirty years earlier. The public had caught on, even if management had not. GM was a global enterprise, but European market share was declining as well, and China was just getting started. South American (primarily Brazilian) operations were significant, but not on the scale of North American or European. When Wall Street was hit by the 2008 crash, the General finally took off his stars and filed for Chapter 11 bankruptcy in 2009, the corporation’s 101^st anniversary. Only a massive U.S. government bailout saved GM from liquidation.

Arising from the ashes, the “new” General Motors, General Motors Company, LLC, promised to be leaner and better – not necessarily meaner. But global market share, even after selling off subsidiaries, and shuttering brands (Hummer, Opel, Pontiac, Saab, Saturn, others), has not revived over the ensuing decade. By 2019, U.S. market share had eroded even further, to about 17 per cent. Had the General learned anything?

CEO Mary Barra has flirted with new products, especially electric vehicles, and claims the company will transition completely to EVs (well, 70 per cent by 2040), but we’ll see. The plug-in hybrid Chevy Volt was discontinued in 2019, with no replacement named. Lordstown, site of the painful wildcat strike decades earlier, was not reconfigured, but closed – then sold to a start-up who will manufacture all-electric pickup trucks there soon. Will the GM Cruise Division, formed to manufacture autonomous vehicles at its Hamtramck plant, ever see the light of day?

If I were a prudent investor, I would not buy GM stock.

Selling an Old Name to a New Demographic

Cadillac’s “Break Through” Campaign and the GM Malady

William Sundwick

Picture, if you can, the typical Cadillac of the 1990s. It was probably a De Ville or Fleetwood Brougham. Big, posh, a veritable land yacht. There was the elegant little Allante sports car and, by 1999, the Escalade truck, but nobody at Cadillac had discovered how to market these aberrations to the Florida retirement community consumer, the demographic best understood at the time.

Cadillac needed to discover younger buyers – boomers in their fifties, not the retirees of the “greatest generation” purchasing what might be their last car. The target customers were buying BMWs, Volvos, Mercedes, then Audis. Why? There were many reasons, but marketing was a big one.

General Motors was, indeed, beset by some deep structural problems in the nineties. Fixed costs (both labor and capital equipment) were eating into profits. And, a series of strategic decisions beginning in the sixties had the effect of hollowing out the engineering pool needed for product innovation. Reorganizations, especially the BOC-CPC structure of 1984 (Buick-Olds-Cadillac/Chevrolet-Pontiac-Canada), exacerbated the decline of both quality and engineering creativity.

But, it was the gradual disappearance of its traditional customer base that was the Cadillac brand’s specific problem – it was an actuarial issue. Cadillac buyers may have been drawn to the brand going far back into their collective memories. But, frankly, they were dying off. The affluent younger greneration in their fifties and early sixties, whom Cadillac needed, was underwhelmed by Cadillac’s “standard of the world” slogan, dating from the 1910s. The Cadillacs they saw now belonged to their parents’ cohort.

Boomers were getting press in the nineties and aughts because they seemed to have a very different ethos than the generation before them. They were cast as a “Peter Pan Generation” –  refusing to grow old even in middle age. They were attracted to the edgy, the independent, the counter-cultural. Their classic rock music had stuck, their fitness fetishes caused gyms to sprout on every corner, and women were now as likely as men to be in the appropriate economic strata. These led to clear preferences for smaller, more agile, cars. Many boomers were now reaching the level of personal financial resources that Cadillac marketing was pursuing.

Enter the “Break Through” campaign – its first TV spot was at the 2002 Super Bowl. Rumors had been circulating in the advertising world of an undisclosed princely sum that Cadillac had paid for the rights to a 31-year-old Led Zeppelin song, “Rock and Roll.” It became the centerpiece for an advertising campaign that would last five years before it was finally pulled. There were several TV commercials featuring the song, which became indelibly associated with Cadillac, even among those aficionados who knew the song previously.

The new, naughtier, image that Cadillac was trying to create was not all smoke and mirrors. GM revamped the product line in serious ways – with the small CTS sedan, an entirely new platform for the larger STS, and in 2003, a Cadillac “Corvette,” the XLR.

Both Robert Plant and Jimmy Page thought the licensing terms fair. It was the first song they had ever licensed for a TV commercial. It may have been the first time ANY song from the “classic rock” period was licensed for a TV commercial.

There were other fronts in the campaign besides the music and TV commercials. The automotive press was regaled with track competition for Cadillac models (last seen when Cadillacs competed at Le Mans in the early fifties). The CTS-V, with its supercharged Corvette V8, was dubbed “world’s fastest production sedan” after besting all competitors around the Nurburgring Grand Prix circuit. Indeed, it set a record for lap time at that German course in 2008.

More of the edginess theme could be found in the well-publicized preference among professional athletes for a Cadillac truck – the Escalade. Escalades became synonymous with African-American “bling.” All these things -- the music, the racing, the urban flash – helped boost Cadillac 2003 sales figures by 16 percent.

Cadillac was beginning to reacquire some of the panache those of us old enough to remember the fifties had formerly associated with the make. Too bad for GM that the rest of their lineup didn’t receive equally successful marketing campaigns. Oldsmobile, for instance, died with a whimper at about the same time – its “not your father’s Oldsmobile” campaign had fizzled a few years earlier.

Was it the cars, or was it just that music, that brought Cadillac success? Let’s look at the cars. Compared to Cadillac’s competitors at the time, BMW clearly had the greatest following, and prestige.  Lexus was a little stodgy, Audi was yet to hit its stride, and Mercedes was sharing BMW’s strength with a slightly older demographic. Lincoln was already a non-entity as a competitor. The BMW customer was the “Break Through” campaign’s target. Cadillac’s CTS sedan was intended as a 3-series killer, the STS was squarely aimed at the 5-series, and the DTS would continue to aim at the geriatric crowd (and some Mercedes models). Escalades were aimed at an American high-end urban demographic, not averse to trucks – a market never penetrated by the Germans or Swedes. Volvo still made most of its sales in its lower end models (more Buick than Cadillac?). Lexus saw itself straddling that demographic, too. For the first time in recent memory, Cadillac’s lineup seemed competitive.

Teutonic engineering and style was what Cadillac tried to copy. The precision, the authority, the innovation, styling that was solid, yet sleek, and a sterling reputation for quality. These were BMW’s claims to leadership in the luxury segment. Unfortunately, the paucity of engineering talent at GM forced Cadillac to settle for marketing an image of engineering innovation, and revamped styling,. The reality was still lacking – speed, as in the staged Nurburgring event, would have to substitute for solid engineering.

 The initial boost from the campaign began to wane after the first year. There was a second Super Bowl commercial in 2003. The scene was a New York subway train with advertising posters for Cadillacs from the fifties as the train moved through time to today, and through the windows we could see the current Cadillac line. It may have been too urban-oriented for the Zeppelin sound track. Nevertheless, Cadillac stuck with the campaign, and the music, until 2006. It was succeeded by the “Life, Liberty, and the Pursuit” campaign, with more of a country flair. But, that campaign was less successful, perhaps due to a lack of affluent buyers in the target demographic.

The urban orientation seen in the 2003 spot was a signal that future Cadillac marketing would become much more focused on the upper-middle-class professionals who live in large metro areas. It was probably inspired by the continued success of the Escalade and the growing concentration of wealth in cities.

So far, however, this new focus has not paid off. Cadillac sales are again in the doldrums. Perhaps moving Cadillac brand HQs to New York’s soho neighborhood will inspire new strategic thinking. Except that nobody in New York buys cars!

Is the corporation the problem? Could it be that General Motors just can’t decide where Cadillac belongs? GM market share has been increasing over the last couple years, but no thanks to Cadillac – it’s seems mainly driven by Chevrolet now, and newer crossovers from GMC and Buick.

GM’s 2009 bankruptcy forced another realignment. The “new GM” would be much leaner, freed from onerous UAW contracts, and could raise up some bright young engineering talent within its ranks. The new focus would be on technology – both manufacturing and car design. It’s noteworthy that plug-in hybrids and all-electrics are now being developed by GM faster than anybody else in the U.S. market except Tesla. Cadillac, for its part, is seeking to unveil a more extensive semi-autonomous driving package than any other domestic make. Coming soon.

The new marketing target for Cadillac is Generation-X. They are as different from their boomer parents as the boomers were from their parents. Gen-Xers still value independence and edginess, but are less concerned with social status than their elders, more pragmatic. They are less easily intimidated by group pressure. And, they are financially less secure than their elders – worrying about how to pay for their kids’ college!

All this may lead them to make more conservative choices in cars. A new marketing campaign for GM’s luxury brand could be a serious challenge for that old Cadillac crest. We’ll see if the current urban focus is the correct one.