IMI Magazine

News: Analysis

 

Farewell to Ed, the turnaround king

On the surface, it seems odd that Ed Whitacre, GM's chief, has announced his decision to step down after just 14 months. Under his watch, the corporation looked set to become once again a free-standing pillar of the global motor industry.

Positive developments included a long overdue rationalisation of marques, the introduction of attractive new models, repayment of more than $8bn in government loans and, more recently, the announcement of a second consecutive quarter of profitability.

Indeed, such has been the progress since GM emerged from bankruptcy protection in July last year that it's seeking up to $20bn from investors to reclaim a stock exchange listing. The notion of major financial institutions underwriting an issue of this size in the motor industry, let alone for GM, would have been dismissed as moonshine just a few months ago.

So how will potential investors react to GM's fourth leader in less than two years? After an illustrious career in the telecommunications industry, Whitacre was parachuted into GM to steady nerves and provide a new direction. However, at the age of 68, it was never his plan to stay too long and the reason for departing now in favour of Dan Akerson - head of the Carlyle investment group and seven years his junior - is to ensure that any questions over the management succession are resolved before the corporation makes a further move towards flotation.

The irony is that GM's courtship of financial backers is likely to go better without the man who has done so much to make it an attractive suitor.

'Warranty Wars' hots up
After a number of far reaching developments - such as Chevrolet's 5-year promise and Kia's 7-year pledge - 'warranty wars' has moved up a notch with GM introducing a 'lifetime warranty' in Europe for new Opels and Vauxhalls.

Though few buyers, least of all fleets and businesses, will keep their vehicles long enough to derive the full benefit, there's no question that GM's initiative will force rivals to re-examine their new vehicle cover.

By mid-2011 it's probable that 5-year warranties will be the absolute minimum, and that carmakers will be seeking to emulate the 'add-ons' which accompany the Chrysler offer (free servicing, MoT test warranty and roadside assistance) to entice buyers into franchised dealers' showrooms and then, crucially, keep them loyal to their workshops.

It's not yet clear whether the Vauxhall offer will automatically extend to second and any subsequent owners during the 100,000-mile warranty. For first-time owners, a condition of cover is that they make an annual visit to a Vauxhall dealer for a free inspection. In many cases, this will probably lead seamlessly into a paid-for service.

Though motorists may welcome these initiatives, there are negative implications for vehicle manufacturers and their dealers when it comes to sustaining new and used sales. After all, with new cars losing around 50% of their value during the first two or three years, many private car owners in possession of an extended warranty will surely be tempted to run their vehicles for longer, perhaps until they fall apart.

Have dealers got the heart to win minds?

Franchised networks are being presented with the chance to exploit new income streams by their manufacturers. Recent examples include Peugeot's plans to establish a nationwide car rental business at its dealerships and Mazda's aim to boost the take-up of vehicle insurance in the showroom through offering a new line-up of branded products.

 It's hard to fault the logic behind these moves. For years there have been attempts to turn dealers into 'one-stop shopping' experiences for all things motoring. And with so much uncertainty currently swirling around prospects for new and used vehicle sales, coupled with a growing assault on servicing and repair work by the independent trade, franchised networks need all the help they can get in their struggle to generate revenue and profits.

The burning question now is whether franchised outlets have the necessary acumen to extract the maximum advantage from these new ventures. For despite intensive efforts over many years to improve customer satisfaction through, for example, more staff training and codes of practice, the industry still has a long way to go before winning the hearts and minds of consumers.

Electric subsidy will need even more charge

Vehicle manufacturers committed to adding electric and plug-in models to their ranges over the next couple of years will be hugely relieved by the government's decision to retain the £5,000 grant for car buyers choosing to make a low carbon choice. Scheduled to take effect from the beginning of 2011 for an initial 15 months, the subsidy seemed an obvious candidate for cancellation amid the public spending cuts.

In the event, the government had little choice over the matter if the UK is to realise its ambition to become a centre of excellence for electric and hybrid vehicles. In particular, Nissan would have regarded any policy reversal as a betrayal after its commitment in Sunderland for the Leaf electric model.

Although generous, it's uncertain whether the largesse on offer will be sufficient to entice a worthwhile number of consumers towards plug-in hybrid and electric alternatives. A sticker price of around £28,000 (before the grant) for the Leaf and equivalent models from other manufacturers would have made the electric car proposition a non-starter. With the £5,000 discount they merely become extremely expensive for what they offer compared with conventionally fuelled vehicles.

What's needed is a dramatic fall in manufacturing unit costs which can only come from rising volumes and higher demand. This suggests that continuing and increasingly generous government subsidies will be a pre-condition of kickstarting the electric vehicle revolution.

Is Lotus losing the plot (again)?

These are exciting times for Lotus as it prepares to reveal four new models, including a foray into hybrid and electric territory, at the Paris Motor Show in early October. Even so, it's impossible to ignore a rising level of concern among Lotus aficionados as management signals its intention to move upmarket with the aim of competing in the supercar segment against the likes of Ferrari and Porsche.

Concern is heightened by the perceived strength of existing supercar producers as well as the impending arrival of McLaren.

Lotus's only other attempt to move upmarket and desert its roots as a producer of affordable sports cars with raw driving appeal took place in the 1970s when the Elite and Eclat replaced the Elan and Europa. This turned into a disaster that almost spelt the end. Equilibrium was restored only when the company returned to its pedigree by launching the no frills Elise which, despite dating from 1996, is still regarded as one of the most delectable driver's cars currently on the market.

In other words, Lotus abandons its traditional customer base at its peril. Anyone who's attended the annual Lotus Festival (organised by Club Lotus) cannot fail to be aware of the passion, enthusiasm and blind loyalty that the marque engenders. As the Elise has proved, there is thriving demand for mid-range sporting cars for which many are prepared to pay a premium price in exchange for something special.

Arthur Way