News Column

Is General Motors Back?

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What a difference a year makes.

Last June General Motors was staring into an abyss. Fast forward 12 months and the company has repaid around $8 billion of debt and just announced its first quarterly profit in almost three years. So yes there's been a recovery.

But it's been a rollercoaster ride for GM shareholders and employees, and for scores of the company's Hispanic dealerships, which have experienced all the ups and downs of their corporate parent.

"As GM goes so do we," says Raymond Palacios, president and owner of Bravo Cadillac Hummer, in El Paso, Texas, and sister dealership Bravo Chevrolet Cadillac, in La Cruces, New Mexico.

"GM's experience has had a definite impact on our business, there's no doubt about it. We're joined at the hip."

And that's suddenly a great place for dealerships to find themselves now that GM's fortunes have taken a major upswing.

Under the protective Chapter 11 umbrella, the former auto titan set about pulling itself back from the brink. The company embarked on a series of cost-cutting measures and other restructuring that included factory closures, shedding jobs, selling assets and a massive shake-up at management and board level.

Tom Henderson, who specializes in sales and marketing trends at GM communications, says a key part of the restructuring was the reduction of GM's eight brands to just four. Mr. Henderson says the turnaround and much of the momentum being generated is a result of taking all the existing resources, "cutting through the clutter" and focusing solely on those four – Chevrolet, Cadillac, GMC and Buick.

GM and its Dealerships

Judging from what's transpired inside Hispanic dealerships, it looks as if the GM mothership and its dealerships are being lifted by a tide of consumer acceptance.

GM is providing products consumers want and marketing support, while the dealerships are ramping up retail sales. A case in point is Mario Murgado, president and CEO of Miami Automotive Retail Inc., which does business as Brickell Buick GMC, who says his first quarter results are up 80 percent over 2009.

Even last year, one of the worst on record for many dealers as they wrestled with plunging revenue – upwards of 20 percent in many cases – Mr. Murgado managed to eke out a modest earnings increase of 2.6 percent and keep staff numbers steady at around 100.

This year his revenue is jumping off the charts: January up 31 percent; February up 17 percent; March up 375 percent. "We've gained market share," he says, adding that the trend continued into April with a jump of 82 percent.

It's the same story elsewhere. Mr. Palacios says in the first four months of this year he has seen double-digit increases throughout his operation, including the sale of new Chevrolets and Cadillacs, compared with last year.

Mike Shaw, president of Mike Shaw Automotive, which includes dealerships in Denver and Colorado Springs selling Chevy, Buick and GMC, thinks full year revenue for 2010 could be 15 to 20 percent ahead of last year.

Mr. Shaw, who owns six dealerships across the country, reckons those figures could be higher but for "an across-the-board shortage of inventory" from GM. "They haven't cranked it up and it's hurting our sales," he says. "We're all missing sales."

Hot Sales and Production

Those shortages partly reflect GM's burgeoning recovery strategy for tighter inventory control. Company spokesman Mr. Henderson says sales are up for each of the last seven months and jumped 31 percent for the first four months of this year.

Still, he acknowledged supply problems and says GM is increasing Equinox and Terrain production in Canada while adding third shifts for Chevy Traverse and other mid-sized SUVs in Michigan, at GM's pick-up plant in Indiana, and for the Chevy Malibu and Buick LaCrosse in Kansas.

Ivette Dominguez, owner and president of Alpine Buick GMC, in Denver, believes 2010 is definitely turning around as the improving status of GM begins to trickle down to the showroom floor.

"We're seeing new clients in the showroom and people changing to GM brands," something Ms. Dominguez attributes to a better public image for GM and its products. Bottom line: first quarter revenue was up about 75 percent.

Last year auto dealers were spinning their wheels in a sluggish economy, unable to find much traction in the face of high unemployment and a tight credit market in which banks were reluctant to finance new cars and trucks.

Today dealers say unemployment remains a negative issue even though the rate appears to be leveling off. However, they say credit restrictions have eased and a crucial third factor has emerged: an uptick in consumer confidence.

"The American consumer is a great consumer," says Mr. Murgado. "And consumer confidence is coming back." Mr. Palacios echoes that sentiment and believes there's now more confidence in GM and more faith in the auto industry.

Market Demand is Reversing

But something else is at work here too. A recent Wall Street Journal story about a Commerce Department report on surging retail sales saw this as a sign of demand, held in check by the recession, finally spilling over into the marketplace.

"I think there's tremendous pent-up demand," says Mr. Shaw, noting that people have been keeping cars longer so that the average age is rising. "I think that demand is going to be released gradually, right through the next five to six years."

Ms. Dominguez, who employs about 50 staff at Alpine, is equally optimistic. She reckons consumers really held back last year and now they're ready to "get out there and spend some money."

One other factor coming into play may be old-fashioned loyalty. Mr. Murgado says GM has been going through some of the toughest times in its incredible history.

"Americans love an underdog story," he says. "They love GM and have a lot of loyalty."

Mr. Henderson says that loyalty is well placed given the increasingly high quality of GM products. He said between 2007 and 2009, the company reduced warranty claims by half and recall costs by 75 percent meaning, among other benefits higher residual and resale values for buyers.

But dealerships are also repaying GM brand loyalty and rewarding new clients with special deals and all sorts of additional service perks. For example, Alpine offers a 100,000-mile or six-year warranty while Brickell provides $3000 worth of free services over five years.

GM's New Image and Management

One way GM's new image is manifesting itself is by people switching brands. In Miami, Mr. Murgado describes the popular Buick Enclave as "one of our best conquest vehicles" as it reels in previous owners of Jaguar, BMW, Mercedes and Lexus.

Similarly, he says the Buick LaCrosse, after its complete makeover, is now a world-class vehicle with all the European features, enabling it to woo customers who might otherwise have considered the BMW 5 series, Lexus 350 or Mercedes E class.

Something else that's putting a spring into the step of Hispanic dealerships is their renewed faith in the leadership of GM, starting at the top with new chairman and CEO Ed Whitacre.

Ms. Dominguez, who represents the western region on GM's national Minority Dealer Advisory Council, was impressed by Mr. Whitacre when he attended a recent council meeting. Now she's looking forward to hearing from two other new executives – Mark Reuss, president of GM North America, and Joel Ewanick, a former marketing guru with Hyundai and Nissan, who's now vice president of U. S. marketing.

"I like the new management line-up," says Ms. Dominguez. "I hear a lot of good things about them and I think GM now has in place a good team who are able to make decisions."

The New Product Line-up

Above all, what's really revving up Hispanic dealerships are GM's vehicles which dealers say have never been better.

"At the end of the day, it all comes back to product," says Mr. Palacios. "That's what drives GM."

Mr. Palacios, whose two dealerships employ about 150 people and who has begun hiring again as sales pick up, is bullish about the latest Cadillacs in his showrooms.

"Cadillac has been a leader in technology and luxury for decades," he says.

He's confident those standards are being upheld by the likes of the CTS -- "a phenomenal seller that hits all demographics" – and the crossover SRX – "a utility that drives like a car."

Mr. Palacios says customers cannot find better than the Escalade for luxury utility while he's also excited about the high performance CTS-V sedan and the sporty CTS Coupe, both expected out around early August.

Mr. Shaw especially likes the new Buick Regal and Chevy's high-performance Camaro ("very, very hot"), and is looking forward to the launch of the Camaro convertible which he expects next year. The Camaro has other admirers too – Mr. Palacios describes it as a "phenomenally beautiful vehicle" with great power and efficiency.

Other Chevys that Mr. Shaw reckons are well worth a second look are the award-winning Malibu and the Equinox, a midsize crossover SUV with improved fuel efficiency and plenty of room for five.

The Equinox is one of the cases where he has been unable to source enough new vehicles to keep up with demand, though GM is responding by ramping up the supply chain in Canada.

Mr. Shaw also likes the line-up of GM's heavy-duty pickup trucks, including GMC's Sierra and Chevy's Silverado, especially the 3500HD. This truck has earned glowing reviews including this comment from the auto Web site "When you're talking really serious workhorses, a Budweiser Clydesdale has nothing over the 2010 Chevrolet Silverado."

From his GMC product line, Mr. Murgado singles out the Terrain SUV, the rugged Yukon, Sierra trucks and the crossover Acadia which he says seats up to eight and offers the utility of an SUV while functioning like a car.

Ms. Dominguez says GM has tremendous products in the pipeline and on the ground.

She's excited about a promotional program in Denver this summer in which GM will showcase the latest models at major sports events, festivals and popular gathering places like Starbucks.

After the Regal's great reviews, she believes it will be "revolutionary for the brand" and she's equally enthusiastic about another consistently best-selling Buick, the Enclave, a "very appealing, very stylish" combined SUV and family car.

In addition, two upcoming releases are eagerly awaited by GM dealers and customers alike: Mr. Henderson says the fuel-efficient Cruze, expected to get up to 40mpg on the highway, is due out in late summer and the electric Volt around November.

The Stimulus Worked

The government bailout of GM was a controversial move and Mr. Shaw, for one, believes it hurt the public perception of GM, "especially truck buyers ... they didn't like it." He also thinks the move was "absolutely required." Otherwise, he says, GM and Chrysler would have gone bankrupt with massive unemployment that would have magnified the recession. "The problems would have been astronomical."

Other dealers agree. "I'm a conservative and a capitalist and I didn't want it at first," admits Mr. Murgado. "But (otherwise) it would have been a catastrophic situation. I feel 100 percent confident GM will pay back all the money."

Mr. Palacios says the bailout, though far from ideal, was necessary to keep GM afloat.

He believes the government money averted what would have been a catastrophe for the auto industry and the U. S. economy. Ms. Dominguez puts it more succinctly: "Without the GM bailout, I don't know if I'd be here today."

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