Feds Told GM To Drop Pontiac Or No Bailout, Lutz Says

[RangerM]

Feds Told GM To Drop Pontiac Or No Bailout

 

 

When General Motors shut down Pontiac, it left a lot of enthusiasts wondering why. It was primed with a lineup of powerful, rear-wheel drive models, and seemed like it had a bright future ahead of it. It turns out that GM killed it on government orders, according to former GM Vice Chairman Bob Lutz.......

 

The Feds basically wanted to get GM down to Cadillac and Chevrolet. They said, "you don't need all these brands. You need one prestige brand, and one mass-market brand." And we said "well we can't get rid of Buick because Buick is important in China, and if Buick becomes an orphan in the United States then the Chinese are no longer gonna be interested in it." And the Feds said "Fair enough, but everything else goes." We said well we'd also like to keep GMC. They said "well, GMC is basically just like Chevrolet," and we said "that may be true, there may be a lot of shared components, but GMC has an entirely different image, a different customer base, and people are willing to pay different prices for a GMC, and here's the profitability," and the Feds said "whoops, okay, keep GMC."

So now we had Buick, GMC, Cadillac, and Chevrolet, and then, I wanted, badly wanted, to keep Pontiac, because Pontiac was on its way back, and it had been mismanaged for a number of years, you know, with 'rebuild excitement,' and the excitement was only in the plastic body cladding, mechanically there was nothing about Pontiac in the 90s that would make your heart beat faster. And with the solstice and solstice coupe, and with the Pontiac G8, which was a great car. We were embarked on a strategy of making pontiac different from the rest of GM in that Pontiac wouldn't get any front wheel drive cars, they would all be rear-wheel drive, and the next G6, was going to use the architecture of the Cadillac ATS, it was going to be a 3-series sized rear-wheel Pontiac, with basically the Cadillac ATS 'de-premiumized,' obviously, a lot of the cost taken out, but still fundamentally that architecture.

That was going to be the next G6, and I think we could've moved Pontiac away from every other American volume brand and really started positioning it as attractive US alternative to some of the, and obviously at much lower prices than the european rear-wheel drive cars, but the Feds said "yeah, let's just, how much money have you made on Pontiac in the last 10 years?" and the answer was "nothing." So, it goes. And, when the guy who is handing you the check for 53 billion dollars says I don't want Pontiac, drop Pontiac or you don't get the money, it doesn't take you very long to make up your mind.

But I think it is a shame, Pontiac was on its way back, and it was killed before it, before the plant could really sprout blossoms, you know, it was well on its way. So, I agree with you, I think Pontiac was a great, wonderful history, mismanaged for a number of years in the 80s and 90s and it was clearly on its way back, and we were starting to see a very good customer base in solstices and especially in the G8, which was favorably compared in a lot of road tests to the BMW 5-series, people would say dynamically the car is as good and it's more powerful and way cheaper, but that was too bad. but you can't go through Chapter 11 without some really harmful effects.

 

 

He who has the gold makes the rules. Somebody remind me why they aren't (weren't) Government Motors, again?

[twintornados]

Every car he referred to in the Pontiac lineup can just as easily be brought forth as a Buick or a Chevrolet. There were drawings and plans for a Chevrolet based Solstice called Sting Ray....and the rear drive G6 on ATS architecture could have become a Chevrolet Chevelle or Buick Skylark or Gran Sport....as for GMC, they could have easily folded them into Chevrolet truck division and streamlined their SUV's to the remaining three divisions...but, it is done...GM got the bailout and is now recovering...

[akirby]

And that was exactly the point - you could have made the same vehicles with a Buick or Chevy badge and still saved the cost of Pontiac as a separate brand. I don't buy the GMC thing though. It's not a question of whether it's profitable or not - I'm sure it is. But would it be more profitable with just Chevy. I refuse to believe that the majority of GMC buyers would not opt for a Chevy equivalent especially with an added Denali trim.

[akirby]

And don't fall into the govt control thing here. If a bank had been providing the bailout loan they would have done exactly the same thing. You don't give money to a bankrupt company without demanding changes to ensure they don't repeat the mistakes that caused the bankruptcy in the first place.

[aneekr]

It's not a question of whether it's profitable or not - I'm sure it is. But would it be more profitable with just Chevy. I refuse to believe that the majority of GMC buyers would not opt for a Chevy equivalent especially with an added Denali trim.

 

In other words, the same dynamic regarding the Ford brand versus Lincoln.

[sullynd]

I buy the GMC argument, at least for the Denali line. It's not an alternate to Cheby, it's an alternate to Cadillac. I know GMC owners who would not buy Cadillac as it's too bling, or Cheby because it's too plebeian. Will be interesting to see how the higher end Chebys compete with the Denali and Ford trims.

[AlRozzi]

Neither focusing on one brand nor having multiple brands is necessarily an incorrect product strategy. The key to branding strategy lies with robust product differentiation. Done properly, multi-branding is profitable. Consider all the cigarette brands, yet, tobacco is tobacco. A car is a car.

[RangerM]

And don't fall into the govt control thing here. If a bank had been providing the bailout loan they would have done exactly the same thing. You don't give money to a bankrupt company without demanding changes to ensure they don't repeat the mistakes that caused the bankruptcy in the first place.

A bank would not have had the same powers as the Federal Government.

[twintornados]

 

In other words, the same dynamic regarding the Ford brand versus Lincoln.

A more apt analogy would have been Ford to Mercury...but since Alan convinced the Ford Family to shutter Mercury instead of wasting more resources in a consolidating market, the point is moot. Lincoln will slowly move upward after years and decades of neglect...had in not been for PAG, my belief is that Lincoln would be years ahead in development ....thank you Jack nASSer...

[akirby]

In other words, the same dynamic regarding the Ford brand versus Lincoln.

New Lincolns are not rebadges, so no, it's not the same dynamic.

[akirby]

A bank would not have had the same powers as the Federal Government.

Of course they would. We're talking about conditions of a bankruptcy loan. If the bank didn't think their current brand strategy was going to be profitable and ensure the loan would be repaid they wouldn't make the loan. GM had the option of not accepting the money, same as a bank loan. You want a loan? Here are the terms. Take it or leave it.

[jpd80]

GM did this to itself.

Had GM ben wise enough to control its own destiny, it wouldn't have needed the government's help

or its insistance on survivability plans involving elimination of brands and key project funding.

 

And on Mercury,

I would sooner see an elevated Ford brand complete with high series Titanium trim gaining good profits

than see the money spent on another round of "near Ford" Mercury products that sell in Lincoln like volume.

[RangerM]

Of course they would. We're talking about conditions of a bankruptcy loan. If the bank didn't think their current brand strategy was going to be profitable and ensure the loan would be repaid they wouldn't make the loan. GM had the option of not accepting the money, same as a bank loan. You want a loan? Here are the terms. Take it or leave it.

There was a lot more going on than just telling GM they had to ditch Pontiac. A bank might have said to GM they need to streamline their brand structure it its terms, however I do not believe the bank would have taken it upon itself to dictate that dealerships be closed. Nor would a bank have any power to alter bankruptcy law. It's also doubtful that a bank would have accepted unsecured equity (ie. stock) as a guarantee.

Edited October 27, 2013 by RangerM

[akirby]

That's the difference between a loan and a bailout. But if having too many brands and overproducing is what caused the bankruptcy thn you better believe a bank would demand those kinds of changes in exchange for the loan. They'd be stupid not to.

[nruggiero]

GM needs to be thinking about trimming more fat.

[twintornados]

GM needs to be thinking about trimming more fat.

I would hope that when "Old GM" was flushed down the toilet at bankruptcy and "New GM" emerged...newly written dealership agreements were instituted that gave the company more flexibility to shutter a remaining brand...I understand completely the importance of Buick and it's position in North America and overseas (aka China)...but GMC? If all GMC dealers were just given Chevrolet Truck division vehicles to sell, I don't think it would take a negative hit since those former GMC owners would just end up buying higher trim Chevrolet trucks to replace them. The handful of stand alone Buick/GMC stores could easily be re-branded as Buick/Chevrolet Truck stores...most of the dealerships are all Chevrolet/Buick/Cadillac/GMC combi-dealers anyway.

[nruggiero]

I would hope that when "Old GM" was flushed down the toilet at bankruptcy and "New GM" emerged...newly written dealership agreements were instituted that gave the company more flexibility to shutter a remaining brand...I understand completely the importance of Buick and it's position in North America and overseas (aka China)...but GMC? If all GMC dealers were just given Chevrolet Truck division vehicles to sell, I don't think it would take a negative hit since those former GMC owners would just end up buying higher trim Chevrolet trucks to replace them. The handful of stand alone Buick/GMC stores could easily be re-branded as Buick/Chevrolet Truck stores...most of the dealerships are all Chevrolet/Buick/Cadillac/GMC combi-dealers anyway.

Watch what happens to Buick when Lincoln launches in China.

 

The Chinese will fall in love with Lincoln's five star dealership/customer experience and product that will make them forget all about Buick.

 

GM might have to be renamed "Chevrolet Motor Company".

[sullynd]

If all GMC dealers were just given Chevrolet Truck division vehicles to sell, I don't think it would take a negative hit since those former GMC owners would just end up buying higher trim Chevrolet trucks to replace them.

I'm sure the Chevy dealership across the street would be fine with that, right?

[jpd80]

Watch what happens to Buick when Lincoln launches in China.

 

The Chinese will fall in love with Lincoln's five star dealership/customer experience and product that will make them forget all about Buick.

 

GM might have to be renamed "Chevrolet Motor Company".

Yes, I have a feeling that Lincoln's customer experience is going to be a big hit with Chinese consumers.

Edited October 28, 2013 by jpd80

[akirby]

I'm sure the Chevy dealership across the street would be fine with that, right?

 

What's the difference whether they're selling a Sierra or a Silverado - they're already competing with each other with the exact same vehicles.

[silvrsvt]

Neither focusing on one brand nor having multiple brands is necessarily an incorrect product strategy. The key to branding strategy lies with robust product differentiation. Done properly, multi-branding is profitable. Consider all the cigarette brands, yet, tobacco is tobacco. A car is a car.

 

It doesn't cost 100's of millions of dollars to put tobacco into a new box or different shaped paper to smoke it either. IMO GM still has far too many brands for its own good. All GMC and Buick are doing are limited the earnings potential of Chevy branded products.

 

 

 

In other words, the same dynamic regarding the Ford brand versus Lincoln.

 

Not at all...like stated before, Ford doesn't have spend extra on trim pieces for a mercury model any more since the Ti models are more or less Mercury replacements. Not to mention the higher end/nicer models also allow Ford to charge more for models on the lower end and doesn't force them into stripper models any more

[grbeck]

If Mr. Lutz's account is accurate, then the federal government did GM a favor.

 

Sorry, but Pontiac had been a dead brand walking for years.

 

I'm skeptical that all of those new models would have revived Pontiac. Note that the Cadillac ATS has been having a tough time going up against the BMW 3-Series and similar competitors. I doubt that people would be flocking to a cut-rate Pontiac version, given the lousy image Pontiac had earned over the past 20 years. (It's also worth remembering how many GM cars sounded great as ideas and were underwhelming in real life.) Contrary to Mr. Lutz's assertions, neither the G8 nor the GTO sold all that well. (The G8 should have been sold as a Chevrolet, wearing either the Caprice or Bel Air monikers.)

 

If you had mentioned "Pontiac" in 2008, most people either thought of the ugly Aztek or Grand Ams and Sunfires with acres of cheesy cladding.

 

Pontiac's glory days lasted from 1959 through roughly 1971. Throughout most of its history, the brand was simply a larger Chevrolet with tweaked styling. There is no need for such a brand in the 21st century American automobile market. GM should concentrate its efforts on making Chevrolets more desirable.

Edited October 28, 2013 by grbeck

[RichardJensen]

There was a lot more going on than just telling GM they had to ditch Pontiac. A bank might have said to GM they need to streamline their brand structure it its terms, however I do not believe the bank would have taken it upon itself to dictate that dealerships be closed. Nor would a bank have any power to alter bankruptcy law. It's also doubtful that a bank would have accepted unsecured equity (ie. stock) as a guarantee.

 

Wait, guys, go back and take a look at the article:

 

According to Bob-----------------------who is HARDLY a disinterested party in this.

 

Anyway, according to Bob, the government said, "You have to get rid of GMC, Buick and Pontiac"--------and GM managed to talk them into just getting rid of Pontiac.

 

So, how, again, is this an example of the government going off the rails and making GM destroy wonderful things? It seems to *me*, that the government was quite reasonable in all this, and that GM made the decision to FIGHT for Buick and GMC, and NOT Pontiac.

 

Furthermore, that assumes that Bob's account of this is accurate, and I am highly, highly doubtful that this is the case. I think that Lutz is not above lying to further his image in the same way that the sea is not above the sky.

 

And finally, to RangerM's and akirby's points:

 

Everything you say is completely irrelevant: GM's only option for survival was a government bailout. So it is utterly pointless to talk about what a bank 'would have done', as there was no bank capable of sinking how many billions in GM.

 

Oh--one more thing--bankruptcy law *wasn't* changed for GM. Bankruptcy judges have a *wide* latitude, and the judge in this case certainly exercised it.

Edited October 28, 2013 by RichardJensen

[RichardJensen]

Also, this is yet another example of GM and GM alums shifting the blame for their own recklessness.

 

Now, we're to believe that the death of Pontiac was *not* a result of decades and decades of poor management of the company, it's a result of the evil government.

 

Just like how the horrible little turds that were the J-cars were the fault of Japanese currency manipulation.

 

And how GM's catastrophic market share loss was because of how much they were paying for retiree Viagra.

[akirby]

Agreed, but my point was that by demanding that GM restructure their business including getting rid of brands and dealerships the Government wasn't doing anything that a bank would not have done in the same circumstance. It wasn't the Government being heavy handed per se but rather a financer ensuring that their debtor had a solid business plan to return to profitability.