Tuesday, 10 June 2008

Company Focus – GM – Humm(er)ing the Wrong Tune

At this critical juncture for GM, we decide to spend a moment considering conjecture of the industry rumour-mill.

The ongoing macro-headwinds highlighted at the recent GM investor's meeting raised the spectre amongst executives and observers that GM may need to take more drastic action than simply awaiting (the present far of promise of) a North American economic uplift. Worse than expected unemployment figures (5.5%) [although theoretically conducive to reduced interest rates] and the $140 p/b record oil price created by the 3 dimensions of continued Asian demand, OPEC's restricted supply and accusations of market speculation, plus the 1 in 10 home re-possessions have dramatically de-stabalised the consumer-base; as witnessed in painful 2008 US TIV figures.

Investors obviously see GM, operating over-exposed to the dismal climate, with a poor product mix and and what seem far-off promises of new technology managing to save the day. Although Wagoner et al have stipulated that much of the new product portfolio addresses consumer concerns and will act as the agents of change, investors are understandably jittery and are looking for greater corporate structural change possibilities to ensure the turnaround happens.

As we recommend in our last post, beyond the schedules closures of under-utilised high cost plants, GM needs to seriously assess how to deal with its remaining tangible and non-tangible asset-base. And critically seriously consider division disposal options. As suspected this call simultaneously came from the investor floor. But Wagoner, Henderson, Lutz and all GMNA management must resist reactionary investor demands for what at first appear as obvious and 'easy pickings' for division disposals.

We are of course talking of HUMMER.

Newspaper articles such as the FT's Weekend are already proffering headlines such as “RIP HUMMER”, and of course, given the brand's military roots, the truck platform bases, appalling fuel efficiency and latter-day accusations of it being a near automotive anti-christ, the apparent raison d'etre to seems all to sensible; especially given the interests of TATA and Mahindra, who both appear to be in a battle to become India's seminal 4x4 producer.

investment-auto-motives firmly believes that time should be taken to ensure that the “baby is not thrown out with the bathwater”. Notwithstanding reactionary investor calls and gleeful opportunistic buyers and present-day 'out of kilter' positioning, GMNA should first take the time to properly assess the potential for massive brand expansion across all vehicle (size) segments, ranging from the H3 down to even City Vehicles.

It makes sense to translocate manufacture to India, obviously for the H1 & H2 assembly lines, but we feel the brand itself should be retained and licensed to interested parties.


Because no automotive brand has come to the fore in such a short time as HUMMER, and it is more than simply a out of step fashion brand from very recent yesteryears. Importantly, in an automotive consumer world (set within an ever more fearful social climate) the fundamental aspects of inferred - and engineered – personal security and assertiveness are marketing jewels. These elements are part of what's allowed Land-Rover and Jeep to spread into the mainstream with 'capable' small SUVs and X-overs, and all 3 brands could if managed properly go far further. Critically, as we've seen with City Luxury cars, small size does not detract from the central brand value. Remember everything is relative and even with its off-colour military Gulf 1 & 2 and Iraq connotations the US consumer sees HUMMER as a quintessential American brand in the Chevy, Ford or Harley Davidson mould.

The past and present isn't the future. If it were Land-Rover & Jeep would have become extinct decades ago. Ironically, HUMMER possibly has more sales potential than many of the 'lost' GM stable if the product 'stretch' is executed well.

And beyond psychological linkage to 'personal security' and 'assertiveness', HUMMER exudes 2 more critical cognitive enablers for today's multi-mode, high demand buyers; whether rural, suburban or urban: 'character' and 'functionality'.

The hard-edged, verticality and box-like styling with shallow glass apertures would dramatically differentiate within the mainstream offering and it would dramatically improves internal packaging, (a much needed element as vehicles decrease in size). But perhaps most favourable is that such boxyness has been seen as cutting edge by Generation Yers since its inception in radical vehicles such as the Scion xB, Honda Element and Nissan Cube (to be brought to the US in electric form). And of course Chrysler's upcoming Hornet.

Exploiting this avenue, and re-interpreting it America's own, would be a major coup de gras for 'The General', and the showcasing of the HX concept (to be seen in the Film Transformers 2) demonstrates that the brand is looking to be the ironically post-modern, 21st century (authentic) Jeep [CJ/Wrangler].

[NB. Post-Modernism heralds re-invention of the original...creating a constructued more visually authentic version than the original. See 'Simulacra' work by the philosopher Umberto Eco].

Thus 'The General' has effectively started the helicopter drop of HUMMER into premium mid-size activity vehicle territory to take on the likes of Toyota's re-invented FJ. We believe the path is clear to effectively head-off the Japanese invasion in 'cult' mainstream vehicles, and so we implore GM investors, from Kirk Kerkorian to the institutionals to ensure that HUMMER is used to pay effectively 2 dividends – in India and the US.

So, sell the HUMMER H1 & H2 production lines, allowing the US Defence Department dramatic savings in future procurement, but:

- Retain advanced HUMMER Military IPR
- License the brand to TATA, Mahindra or other
- Explore brand stretch into all mainstream segments
- Use the intrinsic assets of: 'Character', 'FUNctionality', 'Security' & 'Assertiveness'

HUMMER took the desert (by) storm, it can also take the freeway, boulevard and car-park.