A CEO's remit is to harness the economic conditions of the day to maximise the investment, growth and returns potential of his/her organisation. Even if that organisation be in a rather unconventional state of play (ie Chapter 11) and under alternative effective ownership (ie Government & UAW) in what is supposed to be a capitalist society that CEO must make coherent rational choices, especially so if s/he seeks to create long-term stability from what have been fragile foundations.
Thus few industry observers will fault Frederick Henderson for siting 'New' GM's proposed small car-plant in Orion Township – Michigan, given the state's contribution of $779m in tax-credits over the next 20 years, other local incentives totaling $102m and a federal pot of £130m for local worker training. But the present realpolitik, which obviously includes Washington's $50bn+ of bail-out financing, wasn't lost on Orion's peer bid-competitors in Spring Hill, Tennessee and Janesville, Wisconsin. The Republican representatives of those locales reportedly concerned by what they see as a misrepresentation of a winning criteria based on CSR attributes instead of pure business-case fundamentals. [NB. The reported criteria spans a diverse range of issues both CSR and purely commercial, thus it is suggested that it was infact the 'spun' PR reporting regards 'eco' & 'community' that provided the fuel for the fire].
However, investment-auto-motives believes that in the interest of pure economic theorum, that it must be stated that the Michigan siting of the small-car plant, although in the short-term an attractive package, is still highly questionable. That is unless 'New' GM can somehow radically change the economics of the traditional US car-manufacturing business which is inherently tied to incompatible global cost-competitiveness throughout the US-centric value-chained.
But with new Board under new Chairman (ex AT&T) Edward E Whitacre Jnr, consisting of primarily government overseers & UAW figures there is a heavy reliance on the know-how of 'old-guard' GM management that (with all due respect) are not known for radical auto engineering and production approaches. Thus the Board with all the best intentions appears caught between a business case that must parallel car-market reality (at 9.9m-10.1m SAAR) that necessitates lowest-cost approaches, and the inherent external & internal pressures of what is now effectively a state-run enterprise. Whilst Whitacre will have the strategic perspective of transforming New GM into something with 'Telco' form (ie product service contracts and bolt-on packages) the only real informed Board-member is Stephen Girsky (now a UAW representive) from the Rattner Task Force; given that he sat alongside Wagoner in years gone by, and best understands the shape and form of the global company. Given his dual-role experiences, he is the real power-player in the broad schema.
As stated the realpolitik cannot be under-estimated, but the fact that New GM proposes to manufacture sub-compact (B-class) segment vehicles in Michigan still seems concerning. Even given the new lower Tier 2 UAW wage-rates ($14-16.23 per hour) that arguably compete with Southern states' labour rates they do not compete with Asian rates. Nor is there the flexibility to compete in the future as the US Administration seeks to raise the minimum wage from $6.55 to $7.25; that 70c raise will in turn indubitably push 'semi-skilled' rates up by $1 or more, so widening the cost-gap between Michigan, its southern counterparts, and particularly Mexico and BRIC regions which are 'enjoying' deflationary pressures to improve their auto-industry cost structures.
[NB. It was for very good reasons that Chrysler decided to manufacture its proposed Hornet sub-compact in China with its JV partner Chery – now possibly TATA-Chery given FIAT's acquisition].
New GM's small car should look something akin to the 'BEAT' concept which won an on-line potential-buyers poll in 2007 is a segment-adjusted interpretation of the new-age Chevrolet aesthetic (as also seen with Volt) due for production release in 2010. That B-class platform named 'Gamma2' has been developed by GMDAT in Inchen, S. Korea so much of the development costs will have been born by the relatively buoyant Asian subsidiary. Thus we suspect that the programme cost has been divorced from the (heavily subsidised) production cost, and much of the high-value systems (esp electronics) will be sourced from S. Korea, so therefore producing a 'feasible' business-case for Orion's small-car on paper.
In essence, Orion is acting in the same manner as the notional transplant production facility, ironically its new owner (the US Government) able to leverage both the reduced cost of overseas engineering development and exploit the deflationary pricing resultant from the re-structuring of weak chaebols ongoing in S. Korea and the FX rate fall of the Won vs Dollar.
(The irony of a present centre-left US administration benefiting from global capitalism is not lost! But of course the tenants of Adam Smith's 1776 ideology is about the exploitation of regional core competences...so all to the good).
However, the fact remains that even with such 'priced-in' costs that make the small-car programme apparently workable, it is the very basics of the US Administration's fiscal and monetary policies (ie heavy stimulus spending plans combined with M3's “Quantitative Easing” that threaten the mid-long-term viability of the BEAT/AVEO to New GM vs foreign manufacturer's such as Toyota, Hyundai within the US.
For, investment-auto-motives is bearish on the mid-term, believing that any apparent new growth will infact be little more than an illusionary mixture of a (possibly heavily) devalued Dollar combined with spiralling price inflation initially created by artificial wage-price adjustment. That perception of growth (primarily in observed data sets) will neither be true 'demand pull' nor 'productivity push', but a consequence of today's pump-priming actions, that in turn could well choke the US economy, and so set it for a dreaded invisible 'L-shaped' future.
If and when such a scenario plays out, New GM may endeavour to add margin to the small car programme by resorting to Buick, Cadillac and even possibly GMC branded variants that will try an d piggy-back the luxo-small car trend that appeared after the Merc A-Class, Brabus Smart and continues with the Aston Martin (Lagonda) Cygnet based on the Toyota iQ [see last posting]. (The Buick version would sit under or replace the Buick Sail in China, that car possibly brought to the US so expanding today's limited 3 car vehicle range; with also a mooted 'Wildcat Gran Sport' inspired coupe as a halo vehicle).
Thus we are back to a replay of the economic circumstances of the 1970s which in turn prompted the invention of mid-size Buicks and Cadillacs that assisted group revenue at the time, but helped to diminish the brand equity of both once illustrious marques. Of course GM must now pay as much, and realistically more, attention to China's marketplace, so the US will increasingly become second fiddle with S. America on the other side of the regional product strategy sandwich.
At that point, GM will once again need to re-create itself again as a 'Brand Broker' and that is when we'll see the legacy of Edward Whitacre Jnr via new business modelling
That work will need to happen asap for in the meantime, if our economic conjecture* proves correct, the New GM is yet another phase of what is a long journey of transformation.
* Our fundamental yet academically undetailed economic conjecture parallels Prof Niall Ferguson's edict. In essence, that today's economic reality is best understood as a re-modeled hybrid construction of various past depression/heavy recession experiences. Thus is not a direct replay but involves different elements of various US (1930s/70s), European (1930s/70s), Japanese (1990s/2000s) and Asian (1990s) experiences and so requires a 'weighted basket' of countering policy reactions to suit.