What’s the Niche for GM? (Updated)

And, while I’m on the subject of General Motors, I wonder what market niche the Obama Administration thinks that GM will compete in? They clearly disapprove of light trucks and SUV’s, the area in which GM has been making most of its money lately.

It’s unlikely to be luxury cars, at least not for the near future. In that segment image is everything and that’s something that GM squandered 30 years ago. Cadillac used to rule that market. However good their current products may be it’s going to be difficult to push Mercedes, BMW, Lexus, and Accord aside.

It’s even less likely to be in mid-size vehicles. The best-selling car in the United States is the Toyota Camry and it’s an extremely competitive segment.

It’s unlikely to be sub-subcompacts. Tata Motors’s has lowered the bar in that segment so low with the $2,000 Nano that even with their more expensive Nano Europa some version of which I wouldn’t be surprised to see in the American market being sold through the dealer network they bought here.

It’s not going to be in Asia where India and China both want to be selling their own cars. Ford is well-established in Europe and it’ll be tough for GM to get a stronger foothold there.

I see no reason to believe that we’ll see the scalable mass production of electric vehicles or hybrids for the foreeseeable future. That’s been elusive for some time and there’s no Moore’s Law for batteries. The physics for batteries is different. The Volt is unsaleable without its subsidy from the federal government. It bids fair to be a wedge for rent-seeking rather than a gamechanger for GM. Besides, we don’t have the electrical infrastructure to handle millions of plug-ins.

The problem in the automobile industry is that manufacturers are building more cars than there are people to buy them. To change that dynamics you’ve got to open the market up to a completely new group of buyers as Tata is doing or squabble over the existing market segments, competing on the basis of price or features. That’s where GM has had its difficulties in recent years.

So, what niche will GM be competing in?

Update

One last point on GM. GM’s present problem is that the company is over-leveraged. Corporate management wagered a lost but the federal government is taking the position that GM is too big to be allowed to fail. The federal government can solve GM’s credit problems for the immediate future.

But it can’t permanently solve the company’s problems. Those have been built, stone by stone, IMO by bad management decisions made over a period of more than 30 years. They were unwilling to take risks and didn’t recognize how risky the moves they were making actually were.

The electorate will eventually lose patience with GM and, unless there’s a viable business structure in place, the company will fail. Better sooner than later. Our government should have the guts that the Swedish government has WRT Saab. They know their limitations.

As I’ve suggested before, subsidize the workers, not the company.

9 comments… add one
  • PD Shaw Link

    From the vantage point of the government, I don’t think there is a specific interest in keeping G.M. afloat. The big problem is that the Big Three are interconnected and G.M.’s failure would probably bring down Detroit. Also helping G.M., hurts Ford. And G.M. going into bankruptcy would hurt Ford, probably forcing Ford into bankruptcy because of competition with a business protected from creditors and the pressure their common parts suppliers would be under.

    The ideal probably is to close General Motor’s doors in a way that keeps Ford afloat. I don’t know how to do that, but putting your own man in charge of General Motors would be a first step. Only a CEO beholden to the government, and not his company, could be expected to help a competitor out.

  • To be honest, PD, I think that the Obama Administration needs to show its hand a little more than it has. The uncertainty is hurting as much as anything else.

    But my fundamental point remains: I don’t think there is a business plan under which GM will survive in anything resembling its current form. If that’s the case, then the Obama Administration really needs to signal that the plan is some sort of soft landing after the equivalent of bankruptcy. They’ve already signalled that they’ll prop the company up during bankruptcy.

  • PD Shaw Link

    The problem with the “B” word is that a succesful reorganization needs to attract private equity, or the plan will fail or the U.S. government will have to provide the equity through nationalization.

  • Roy Lofquist Link

    There is a major problem for all automobile manufacturers. Their business models are based on current volumes. The problem is that their products are lasting much longer. With the current financial uncertainties, which will have a long emotional hangover, people are going to hold on to their cars longer. Look for an equilibrium at about 11-12 million. That is not enough to sustain the number of makers in the market.

    Electric cars are dead, and always have been. The problem is the batteries. Lithium-ion is the only feasible solution because of energy density (Whr/lb). These batteries deteriorate 20% per year, even on the shelf. Thus, over a 15 year life you’ll need at least 5 batteries. At current costs this means $30,000 for batteries, not $6,000.

    And the answer is not economies of scale. Lithium is relatively rare and economically exploitable deposits (3 main ones) are in geographically and politically difficult locations. Greatly increasing demand will cause the cost to soar. I’ve seen no estimates of the elasticity of the price but costs will only increase.

  • Brett Link

    To give you an idea of what Roy’s talking about with the batteries, one of the largest sources of Lithium is in a Bolivian salt pan, and the Bolivian government has been making nationalistic noises for years about nationalizing any lithium-mining industry that springs up and turning it into another rent-seeking money machine for the government – which would help kill the market.

    I’ve heard (heard, mind you) that the actual market size for cars in the US is about 12 million, but that GM and the automakers are geared towards a market of 18-20 million that isn’t sustainable, because of years of cheap credit financing and the like that no longer apply. Assuming that’s true, even the successful car companies in the US (I’m looking at Ford, which is the best off of the Big Three) will contract significantly.

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  • Token Jew Link

    On a side note, I find it interesting that Hybrid sales have dropped sharply since the economy faltered and the price of gas went down. Seriously, in a time when EVERYONE needs to tighten their belts, what screwed up logic says “let’s buy a car that uses more gas!”?
    What do these people think is going to happen to gas prices as the economy recovers? Stay the same? Sure. Right. I have a really nice island for sale. You interested?

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