GM's Ronald Zarella: Don't Look for More Brand Cuts
A lot of rumors about General Motors have been floating around ever since the company decided to phase out its Oldsmobile line. Is more downsizing in the offing? Not according to Ronald Zarrella, president of GM's North American operation. On Jan. 9 at the Detroit Auto Show, Zarrella sat down with Business Week Detroit correspondent David Welch and Business Week Online contributing editor Thane Peterson to discuss the company's plans. Here are edited excerpts of their conversation:
Q: One of your big competitors, DaimlerChrysler, has decided to reduce the size of the Chrysler operation because of weak sales and excess production capacity. GM has excess capacity, too. Where do you stand on that? A:
Q: One of your big competitors, DaimlerChrysler, has decided to reduce the size of the Chrysler operation because of weak sales and excess production capacity. GM has excess capacity, too. Where do you stand on that?
A:First of all, we don't intend to shrink the business. The decision we made with Oldsmobile, for example, was made so we could strengthen and grow our other brands. The whole question of growth is a function of your product portfolio. Three years ago, we recognized that trucks were going to continue to grow. We're behind and had been behind for a number of years. One of the sources of our lack of profitability relative to our competitors was that we were at 45% [of sales from] trucks and truck derivatives. Ford is approaching 70%, Chrysler is over 70%. Those are the parts of the markets that are growing.
Q: Are you guys done cutting out brands? A:
Q: Are you guys done cutting out brands?
A:In terms of divisional brands, yeah, we're done. People keep coming back and saying: Why don't you bag Buick, too. The fact is Buick is a very profitable business. It's got the most loyal customer base in the business. It's often talked about, that the age level [of the customers] is very high. Well, that's O.K. Someone's got to sell to those customers. They love Buicks. As long as [that level] doesn't increase by one year every year -- and it's not -- those folks have a lot of money, and their needs need to be served. They're served exceptionally well by Buick. We've also got a very strong dealer base with Buick.
Q: What about the GMC brand. I've heard that there have been more than idle discussions within GM about dropping the GMC brand. A:
Q: What about the GMC brand. I've heard that there have been more than idle discussions within GM about dropping the GMC brand.
A:I don't know who you're having those dicussions with, but they're obviously so far out of the loop that it's not even close. Our plan with GMC is to start differentiating more and more from Chevrolet. This "authentic professional grade" positioning is a unique positioning. And GMC in some cases will have completely different products from Chevrolet. We have big plans for GMC.
[Overall] we've had a massive effort to get competitive, if not dominant, in trucks. We're starting to do that. We've got a new half-ton pickup. It has better than 45% of the market. We were uncompetitive with heavy-duty trucks. Ford really dominated heavy-duty and particularly the diesel side of the market. We had 2% of the diesel market. Now, we've got a new diesel that's getting rave reviews, with dealer orders that go way into the future. We think we can get as much as 30% of the diesel market. That's a 380,000-unit market that we had no position in. So, we think we're building a dominant position in pickup trucks.
In new, large sport utilities, by all acclaim we have by far the best products. We're picking up market share. We had lost share when Ford came out with its Expedition, and we gained it back last year. We're coming on strong.
Q: But with the economy slowing and fuel prices up, will people still buy those big trucks? A:
Q: But with the economy slowing and fuel prices up, will people still buy those big trucks?
A:The old Blazer and Jimmy models were really too small. We weren't competing with the [Chrysler] Grand Cherokee and the [Ford] Explorer, and we were leaving a lot of [profit] margin on the table as a result of selling at a discount. We've now got products hitting the market in the first quarter that we think are very competitive with those [rival] products. So, we're pretty confident with our truck lineup.
We're getting paid a premium in almost every case for our products in the truck category. The decision we've got to make is: Do we want to cut down that premium to pick up some market share? That's a function of how the rest of the business goes.
Q: And how is the car business going? A:
Q: And how is the car business going?
A:We've got the Avalanche that we start to produce in March. Every time we put that thing in a clinic [for customers to evaluate], it looks better and better. We've currently got 100,000 [annual unit sales] in our business plan. It looks like we can blow through that. The Buick Rendezvous looks strong. Dealers are clamoring for it. We're already taking orders for it, and we don't even start making it until April.
Q: How confident are you that Cadillac is getting back to that 200,000-plus units per year in sales and really taking on BMW, Mercedes, and Lexus? A:
Q: How confident are you that Cadillac is getting back to that 200,000-plus units per year in sales and really taking on BMW, Mercedes, and Lexus?
A:If that's your benchmark, we're not far off 200,000 unit sales now. But we've got to do better than that. I absolutely love [Cadillac's new Caterra] product. We're taking a direction that's unique and uniquely Cadillac.
Q: What will happen to the Oldsmobile Aurora? It's a nice looking car. A:
Q: What will happen to the Oldsmobile Aurora? It's a nice looking car.
A:We'll sell it as long as Olds dealers can sell it, and either figure out a way to change it to fit another product category or we'll drop it.
Edited by Thane Peterson
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