Jamie Lincoln Kitman -- Why Are We Losing the Best of GM?

By Jamie Lincoln Kitman
Sunday, June 14, 2009

With all the rubbernecking surrounding GM's bankruptcy, you'd think that more time would have been spent considering the most critical part of the deal -- what's left. Which of GM's famous brands are being kept, which are being thrown out and which are being sold? Many won't know that these questions have already been answered by top GM executives and the White House automotive task force. Fewer still will realize that the decisionmakers have erred badly, succumbing to the same mix of internal power politics, protectionism and aversion to engineering risk that set GM on its downward spiral almost 50 years ago.

There's a reason why finding buyers for the carmaker's German Opel division and domestic Saturn brand has been easy: They're the most promising divisions GM owns. Getting rid of them was dumb and pretty much seals the company's fate.

It's no wonder that sophisticated investors have stepped up: racing legend and Smart car distributor Roger Penske in the case of Saturn and billionaire Canadian auto parts magnate Frank Stronach planning to buy Opel. For Americans -- each one of us now fractional shareholders in the new "GM Lite," thanks to the government's 65 percent stake -- the question is: Why are we letting them go? (The case for selling Hummer, also on the block, makes better sense.)

The underlying politics are clear. In a prepared statement, the United Auto Workers said that if GM is going to receive government assistance to facilitate its restructuring, it should be required to maintain the maximum number of jobs in the United States. The union, which now owns 17.5 percent of the company, has accepted huge job cuts and lower pay and has agreed not to strike until 2015. It may think it is receiving its just due by opposing Opel's inclusion in the new GM. Except that we have seen the limits of this strategy.

When Chrysler went hunting for federal loan guarantees in the late 1970s, it was prodded by the UAW and subsequently required by the government to sell all its European assets. That left it a local, not a global, manufacturer, vulnerable to heavy suffering in domestic downturns and to a ham-handed takeover by Daimler, culminating in its bankruptcy.

For GM, junking Saturn represents opportunity lost. Creating the brand in the late 1980s gave the firm its only great post-Vietnam-era marketing success story. A make that appealed to people who didn't like Detroit's constant horsepower and styling wars, Saturn may not have been "a different kind of car," as its colorful advertisements had it, but it did attract a different kind of customer, one GM had lost to the likes of Toyota and Honda. Educated and reasonably affluent, these customers wanted to buy American again, yet a remarkable 87 percent didn't know that Saturn was part of General Motors. That was part of the plan.

GM invested tens of billions in Saturn, and lost plenty. The cars weren't very good, but paradoxically, customers didn't care, and they helped build a brand with a great reputation. That Saturn, the partially baked brainchild of departing GM chairman Roger Smith, lost money was a demerit, but the cause of its infirmity is a matter of record: Internal corporate politics and the hostility of GM's existing domestic brands undercut it from the get-go, with other more powerful divisions, such as Chevrolet, making sure that Saturn was starved of the resources necessary to field a good enough or large enough lineup to meet the 500,000-cars-a-year sales target that would have made the division profitable. "Chevrolet never understood why they weren't given the money" Saturn got instead, one of its engineers, long since working for Honda, told me.

Nonetheless, thanks to ingenious, homey advertising by San Francisco's Hal Riney & Partners, the same folks responsible for Ronald Reagan's "Morning in America," Saturn parlayed the same model for 13 years (an eternity in automotive development circles) into a product consumers loved. So committed were Saturn loyalists that tens of thousands of them ventured to the company's modern factory in Spring Hill, Tenn., each summer to celebrate their astonishing good fortune with Saturn's employees and their fellow owner-pilgrims.

For the billions GM invested, for Saturn's well-regarded dealers and the priceless customer loyalty it established, as well as for its very environmentally friendly profile (Saturn was the first GM division to sell its own hybrid), Penske can just say "Thanks!" The $100 million to $200 million he'll pay GM for the company is small potatoes compared with what GM has spent or what it is losing -- a domestic brand that is seen as caring and green and not as bad old GM.

Yet depressing as this loss is, the sale of Opel -- for a mere 567 million euros ($792 million) -- is worse, even catastrophic. Unlike Saturn, which in recent years had been stripped of even the modest independent engineering capacity it once possessed, Opel is GM's powerhouse engineering division. Purchased in 1929 to give the company a foothold in the German market, it has grown since the 1960s into one of GM's best-selling and best-respected divisions. It's easily the most technically proficient. Opel has designed and engineered GM's best small and medium-size cars for decades, the sorts of machines a new and responsible GM ought to spend more time thinking about for this country.

Today, Opel is not only the progressive face of GM in Europe and Russia, it has been at the forefront of much of the firm's best engineering in the area of alternative -- hybrid, hydrogen fuel cell and battery electric -- power trains. And following its sale, Opel's engineering team will for the most part remain in Germany. America's love affair with GM's Corvettes, Cadillacs and SUVs notwithstanding, Opel and that team, forged in the crucible of the hyper-competitive European market, today constitute the best, most exciting part of GM overall.

Excise the Opel-derived Chevrolet Malibu and much of the Saturn range (Opels in all but name), and you've deleted the best mainstream cars GM offers in America. Take Opel out of the mix, and you've suddenly charged its North American engineering team -- the people who gave us those rolling punchlines, the Hummer H2 and the Pontiac Aztek, once voted the world's ugliest vehicle -- with building the cars of the future.

In a sign of its understandable ambivalence about letting go, GM hopes to retain 35 percent of the company's shares. But the combined 55 percent interest of Stronach's Magna Corporation and its investment partner, Russia's Sberbank Rossi, will severely limit any GM role going forward. Just to be sure that it doesn't come back to bite it again, GM has insisted as a term of the sale that Opel be barred from marketing its cars in the United States or China.

So why are we giving Opel away?

Extreme poverty never makes for the best long-range financial decisionmaking. What congressman really wants to go back home after having sat by while taxpayer dollars got packed off to Germany? (Just look at the hoops Barney Frank is jumping through to save 80 GM jobs in Massachusetts.) What American union boss wants to see American jobs lost in favor of German ones? And why should American GM executives argue for the salvation of people they may barely know, when the job they save may not be their own?

Sadly, none of this is an excuse for not admitting the truth about GM: Its potential salvation is in Germany. And we -- because after all, it's our company now -- let it get away.

Jamie Lincoln Kitman is the U.S. editor of Top Gear Magazine and the 2009 National Magazine Award winner for commentaries that appeared in Automobile Magazine.

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