General Motors (GM) is in a real vise. Daily reports about its negotiations with the Treasury Dept. to get more funding and avoid bankruptcy have battered its image. But internally, executives worry that if they try too hard to deflect the bad news—such as spending a big chunk of money on an image campaign—the public will view it as squandering U.S. tax dollars.
Countering the bad publicity will be critical. GM can keep cutting costs and wrangling with its union and creditors to cut some $30 billion in debt. But the company won't recover without boosting sales, which have sunk amid a withering economy and a maelstrom of bad publicity.
For now, the company is trying to send out bits of news about new technology that its engineers are developing. It is advertising new models. And GM is sending employees and dealers into the blogosphere to defend its honor.
But since the company has cut advertising even for cars, experts say the PR strategy is unlikely to work. They say GM needs to be more aggressive and lobby consumers directly, especially since it has some strong new models to brag about. "They have to make the case that they make fabulous cars, and for that reason the company is worth saving," says Mike Sitrick, a crisis public relations expert in Los Angeles who has handled more than 200 bankruptcy cases.
Tarred by Bankruptcy
If that's the goal, GM has a lot of work to do. A survey done by Gallup says 30% of buyers wouldn't buy a car from a company that is in bankruptcy.
Little wonder then, that GM's sales are down 51% during the first two months of the year, while the rest of the U.S. car market is down 39%.
With cash burning, GM has not been able to blitz newspapers and the airwaves in an effort to clear the gloom around the company. GM slashed this year's marketing budget "significantly," says Harris. Just last year, the company cut its budget for advertising and promotions in North America by $336 million, according to GM financial statements. Its ad budget had typically exceeded $2 billion a year. Says Sitrick: "When you're not advertising, what does it say?"
A big image push is not feasible. Harris says the cost of a big national push would be prohibitive and it could even spark a backlash among the citizenry. As demonstrated by the furor over AIG's bonuses, every move by companies receiving government help is being put under a microscope.
Bad Image Among Baby Boomers
Of course, there are less expensive ways to go. GM plans to engage the public with social media tools like Twitter and Facebook and different automotive and "green" blogs. The advantage, Harris says, is that GM's employees can engage consumers, put a personal face on the situation, and get feedback. "We want to go where they are and where they talk to us," Harris says. But he concedes that "it's going to take three to five years to have an impact."
That's a long wait for a company that's short on time. In the meantime, things will get worse before they get better. Baby boomers especially think American cars have lower quality and are less prestigious, says Eric Noble, president of The CarLab, an auto industry consulting firm in Orange, Calif. "They're seen as having walked away from relevant product."
That's really the problem GM and the other U.S. carmakers need to solve, Noble says. GM, Ford (F), and Chrysler have been trying for years to turn around those perceptions, and that was when they had money to spend. Now there's no money, and no quick way to do it. Some of GM's newer products have gotten strong reviews and have commanded better pricing than predecessor models. Says Noble: "They need to keep putting out cars like the Chevy Malibu and Cadillac CTS."
GM has started trumpeting some of its victories in quality surveys just as Ford did over the past two years. When Buick tied Jaguar for top honors in J.D. Power's annual initial quality study earlier this month, Rick Spina, GM's vice-president for quality in North America, went on Twitter to talk about it. That's one way GM is trying to reach out, though many of the respondents to Spina's posts seemed to be other GM employees.
New Crossover SUVs
The company will spend a bit more as it launches key vehicles in the coming months. The Buick LaCrosse, Chevrolet Camaro, Chevy Equinox, and Cadillac SRX crossover SUVs are all coming to market this year. They are essential to four of the brands GM intends to keep. They will get some ad money.
To really get the word out, GM may need to go further. When furniture maker Wickes went into bankruptcy in 1985, Sitrick says, the company did consumer research and found that its lower prices led consumers to believe its products were poor quality and bottom-of-the-barrel. So CEO Sanford Sigoloff pulled an Iacocca. Remember how the former Chrysler chairman told consumers that if they found a better car than his, they should buy it? Sigoloff offered a five-year warranty on furniture and said in the company's ads that if consumers found a better product after buying one of his, he would refund their money. Sales shot up in the first month, Sitrick says.
GM plans no such big splash. Any payoff from its limited image efforts are likely to pay off months from now, after the Treasury has decided whether GM should get the additional $16.6 billion it wants. That means it will be a long road back for the battered company.