Dead brands walking

Now that it is Number Two, GM has to rethink its strategy, says Fortune's Alex Taylor.

By Alex Taylor III, Fortune senior writer

NEW YORK (Fortune) -- The news that Toyota has finally passed General Motors in global sales is about as surprising as John McCain finally announcing he's running for president. But now that it is officially Number Two, it is time for GM to perform some long-overdue surgery on its brand portfolio. Age has taken its toll, and GM is overdue for a face lift.

In some ways, GM (Charts, Fortune 500) is still built for the size it was 50 years ago. In the United States, GM's market share is half of what it used to be but it sells seven brands - two more than in its heyday. Toyota (Charts), by contrast, gets by with only three brands: Toyota, Lexus and Scion.

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Despite its shrinking market share, GM has always argued that there is value in its broad brand portfolio. Consumers want choice, and having a variety of brands allows GM to segment the car market more finely than its competitors. If GM eliminates a brand, it fears losing long-time buyers.

But there is a big cost to maintaining all those nameplates. Buyers increasingly demand uniquely engineered models that are costly to develop. Multiple brands mean multiple expenditures for marketing, advertising and distribution. Still suffering from negative cash flow, GM simply has too many mouths to feed.

So GM should adopt a template similar to Toyota's. Keep Chevrolet where it is - the volume brand that is the heartbeat of America. Maintain Cadillac at the top of the market and expand its product offerings with derivatives of the popular CTS. And continue to use Saturn, with its dedicated dealer channel and loyal buyers, as the brand for import intenders.

Plenty of excess baggage remains. Here are my recommendations:

  • It is past time to perform euthanasia on Buick. Successive waves of new models haven't moved the needle on sales and it is unlikely that the new Enclave crossover will make a big difference. For nostalgia buffs, the Buick brand can soldier on in China, where it is uniquely beloved.
  • Pontiac should get the same treatment, though without the Asian escape hatch. Its boy-racer image is dated and GM's one-time excitement division has deteriorated into a regional blue-collar brand. In a world that increasingly is going green, there is little upside for its testosterone-laced pavement rippers.
  • Whatever noble intentions GM had for Hummer, they have been permanently damaged by the greenhouse gas debate. Hummer should be sold to whomever winds up with Jeep after Chrysler is broken up. More Jeeps fall off the truck on the way to the dealer than Hummer sells in a week.
  • Turn GMC into a commercial truck brand. As gasoline becomes more expensive, there won't be enough traffic in personal-use trucks for GMC to share with Chevy. There are lots of opportunities with huskier trucks that a player with GM's scale could exploit in the business-to-business market.
  • Say goodbye to Saab. With its perpetually tiny volume and high-cost European manufacturing base, Saab has defied GM's efforts for nearly two decades to make it consistently profitable. The success of Japanese sport-luxury brands Infiniti and Acura has made Saab irrelevant.

GM has been down this road before when it killed Oldsmobile. Compensating Olds dealers was expensive but, in the end, nobody really missed the brand. Other U.S. manufacturers have some soul-searching to do, too. Ford (Charts, Fortune 500) needs to take a hard look at Mercury, and the Chrysler brand may not survive a change in ownership, now that Automotive News has disclosed that nearly half of Chrysler's sales go to fleets. Like Plymouth, DeSoto and Packard, these are nameplates for customers who scarcely exist any more

There may yet be a silver lining in this cloudy forecast. Detroit has mostly lost the baby boom generation, but may have an opportunity to capture their children. Analyst John Wolkonowicz of Global Insight is convinced that since these young Gen Y buyers will never shop the brands their parents did, they may boomerang back to domestic nameplates. What GM and the rest of Detroit have to do is clear out the dead brush and concentrate on brands that still have growth potential. Top of page