Saturday, July 11, 2009

GM Tries to Make It As a Startup

The new General Motors Company now owns all the old General Motors businesses. It has billions of dollars in startup money. It employs thousands of the top designers and engineers in the automobile industry. And it has to get up to speed quickly before its money runs out.

That’s why the new company’s first big promotional push — for the 2010 Camaro — has drawn such a massive groan from observers. It’s not that the throwback “muscle car” isn’t a good move for GM. It’s a design with a history, and GM dealers are taking thousands of advance orders from drivers jumping at the chance to replace their aging Camaros from years past. It will be good for dealers’ cash flow. But once you get past the initial rush, Camaro is a niche car that will never appeal to the broader public. With a price typically around $30,000 and fuel efficiency between 16 and 29 mpg, for a car only big enough to carry two average-sized adults, it is pretty far removed from the car that people buy because they have to. In a time when most car buyers are buying cars only if they have to, and this will get worse before it gets better, GM has to start staking out a position with “the car you need” if is to have any hope of generating the volume of sales it needs to break even and stay in business.

Fritz Henderson, the president at the new General Motors Company, assures us this is something they think about every day, but thinking is not enough. The company probably has less than two years to actually introduce those cars, and sell millions of them, to keep its factories open. Most auto startups have just one factory to keep busy. GM has set the stakes much higher than that. It’s a lot like the game of double or nothing that killed off its predecessor.

This time, though, it is not GM’s fault. Politics is to blame. Senators and representatives want to keep the factories open in their states. Heck, they want to keep all the dealers open. It’s the same way they fight to keep military bases, not because the bases matter to the military, but because they matter to the cities they represent. GM, having painted itself into a corner, had to go along with these political compromises to get the political support it needed to fund its new post-bankruptcy startup.

My fear, though, is that in the process of helping to set up the new GM, the new owners have set the bar too high for a startup company. Usually, a new company is doing spectacularly well if it brings in $1 billion in revenue in its first year, but GM may need 100 times that just to keep operating. No new company has ever recorded anywhere near $100 billion in revenue even in the best of times, and 2010, when the new GM has to deliver, is likely to be one of the worst economic years in living memory. And so, unless the new GM can pull off a miracle, it is not this recently completed bankruptcy, but the next one, that will determine GM’s future.