Wednesday, December 13, 2006

How General Motors supercharged a vital truck launch

Tuesday, December 12, 2006
How General Motors supercharged a vital truck launch
Engineers beat clock to ready pickups 3 months early
Bill Vlasic / The Detroit News

DETROIT -- The marching orders came down from the top management at General Motors Corp. in March 2005.

With GM burning through cash and facing unprecedented losses, the No. 1 U.S. automaker needed a shot of product adrenaline as soon as possible.

It was Vice Chairman Bob Lutz who put the challenge to Gary White and the 20-person team responsible for the next generation of GM's full-size Silverado and Sierra pickups due to arrive in 2007.

"Could we pull this ahead by several months?" Lutz asked. "Tell me the reasons why it can't be done. Then tell me what it would take to make those reasons go away."

GM had already accelerated the development of its new large SUVs. White, a GM North America vice president, knew the pickups were even more critical to the company's turnaround prospects.

"We can do it," White said. "It's like conducting the orchestra. Everybody is just going to have to play the song faster."

In one of the most concerted efforts to fast-forward a product in its history, GM rolled out the new Chevrolet Silverado and GMC Sierra pickups in early November -- a full 13 weeks ahead of schedule.

With the new pickups in showrooms early, GM now has a fighting chance to actually make money in North America in the fourth quarter of this year -- something the troubled auto giant has not accomplished since 2004.

Moreover, the success of the new pickups could be a watershed event in GM's long road back from its devastating $10.6 billion corporate loss in 2005.

While GM is rooting out $9 billion a year in North American structural costs by slashing jobs and closing factories, the company badly needs hot, new products that don't require expensive incentives to sell.

The pickups are GM's top-selling vehicles, and traditionally its most reliable source of profits. Analysts estimate that a brand-new model can earn anywhere from $5,000 to $10,000 in profit per vehicle -- and GM needs that boost now like never before.

"The trucks have had to carry a lot of weak sisters on the passenger-car side for a long time," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "The new models are crucial to the turnaround."

Officially, GM executives decline to comment on how soon the company's core North American operations will be back in the black. But in an interview with The Detroit News, Lutz conceded that pickup profits are essential to hitting that elusive target.

"I would say pickup trucks would be a major player in any profitability scenario for General Motors North America," he said.

Remaking America's truck

With their sculpted good looks, meticulous interiors and industry-leading fuel economy, the new Silverado and Sierra are, in Lutz's biased opinion, "the best truck that's out there right now."

But the full-size pickup segment faces a tough economic environment in the months ahead. The volatility in gas prices, combined with a slump in housing starts, is expected to take a toll on pickup sales in 2007.

"We see the full-size pickup market dropping off by 4.7 percent in 2007 from the 2.56 million units projected in North America this year," said David Terebessy, an analyst with the auto research firm CSM Worldwide.

CSM said GM will sell about 1 million full-size pickups in North America this year, or 39 percent of the market. Ford Motor Co. ranks second with 36 percent, followed by DaimlerChrysler AG with 16 percent, Toyota Motor Co. with just under 5 percent and Nissan Motor Corp. with 3 percent.

However, Toyota will gain considerable ground in 2007 with the introduction of its larger, redesigned Tundra pickup built at a new assembly plant in Texas.

Terebessy said the new Tundra could nearly double Toyota's share of the full-size pickup segment in its first year on the market.

While GM and Toyota will go head to head with their new pickups, Ford and DaimlerChrysler's Dodge division will fight back with heavy sales incentives on their older models.

"You have two new products coming out and that tends to take share from the other players," said Terebessy. "While Ford's model is older, that's when automakers tend to raise the incentives to keep competitive."

Introducing a new model in a hypercompetitive segment can reap immediate financial rewards. Currently, GM is offering cash rebates of $4,000 to clear out inventory of its 2006-model Silverados and Sierras.

By contrast, the new 2007-model pickups will likely sell at full sticker prices for several months to come. With each sale generating profits of up to $10,000, the new pickup could be the impetus to restore GM North America to profitability.

Restoring profits at home

Making money in its home market represents more than a financial goal for GM Chairman Rick Wagoner and his executive team. It would also be a much-needed validation of Wagoner's leadership and turnaround strategy.

"There is still a lot of unease about GM's ability to get the business fixed in North America," said John Casesa of the automotive investment firm Casesa Shapiro Group.

Casesa called the new pickups "the most important products in a long time" for GM and "immensely important" to cementing the automaker's comeback.

Still, he said a successful launch of the Silverado and Sierra is only a start in the revival of GM's product portfolio. Just as crucial are the introductions next year of GM's new "crossover" vehicles and revamped versions of the Chevrolet Malibu and Cadillac CTS passenger cars.

"I'd be very surprised if the success of the new pickups will be enough to sustain profitability in the North American business," he said. "GM is already strong in trucks and needs to perform in growing segments like crossovers."

However, the new pickups rolling off the assembly lines in Fort Wayne, Ind., and Oshawa, Ontario, are like the cavalry arriving when the battle hangs in the balance.

Since early 2005, GM has endured a losing streak that ranks among the ugliest in automotive history.

Delphi Corp., its largest supplier, went bankrupt. Tens of thousands of blue-collar workers were paid to quit the company, casualties of GM's shrinking market share. Kirk Kerkorian, one of GM's major shareholders, challenged Wagoner's leadership by pushing GM -- unsuccessfully -- to consider an alliance with foreign rivals Renault SA and Nissan Motor Co.

By pulling the launch of the pickup -- code-named the T-900 -- forward by more than three months, GM underscored the urgency of its condition. No single product means more to its bottom line or to healing its battered corporate psyche.

"What it means is that we are going to build and sell tens of thousands of T-900s this year that would have been (older models) with a high incentive level," said White. "From a profit standpoint, that's just a huge difference for us."

Embracing risk

The decision to fast-track the pickup was a radical move for a company known for its regimented, risk-averse culture.

But in early 2005, GM's senior executives were bracing for disaster.

"We didn't know quite how bad 2005 was going to be," said Lutz. "But we certainly knew that our profitability was going to be negative, and we knew that GM North America was under incredible pressure."

Initially, management ordered the development of GM's new full-size SUVs -- the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade -- moved up by six weeks. Then Wagoner upped the ante by asking if the pickups could be done even faster.

Thirteen weeks may not seem like much in the context of the 30 months required to bring a vehicle from clay-model concept to the assembly line. But with dozens of product programs delicately synchronized in the organization, pushing up a project as large as the T-900 was almost unheard of.

"It would have been a lot harder if (the trucks) didn't share a lot of common parts with the SUVs," Lutz said.

But the organization had to make on-the-fly adjustments to accommodate the pickups' revved-up schedule.

Functions such as durability analysis, quality checks, crash-testing, and emissions and safety compliance are "gated" within the GM system -- meaning products in various stages of development are rigorously scheduled for their turns in the testing labs.

Because the pickup push was ordered directly by the powerful North American Strategy Board headed by Wagoner and Lutz, the waters parted whenever the pickup needed to clear another checkpoint.

"It's kind of like when you go to Disneyland in a wheelchair," Lutz joked. "You always get to go the head of the line."

Hitting every target

White's team had to ensure that no matter how fast the T-900s moved through the system, no shortcuts were taken. "If we ever missed one of the quality targets in a part, we stopped the whole process," he said.

Suppliers prepared for quicker, just-in-time deliveries. The five pickup assembly plants -- three in the U.S. and one each in Canada and Mexico -- retooled on the fly and launched aggressive training programs for their assembly line workers.

The fast pace extended to GM's sales and marketing divisions. Hundreds of Chevrolet and GMC dealers were flown to special two-day seminars across the country to be briefed on the selling points of the new models.

GM broke new ground in offering different configurations designed to appeal to the broadest range of customers. There were three cab styles, eight power-train combinations and five distinct suspension packages.

An avalanche of new features were added to differentiate the GM models from the competition -- side-curtain air bags in the roof, standard OnStar navigational systems, larger DVD video screens, even heated windshield wiper fluids.

"We benchmarked every area of every competitor, and even anticipated as much as possible the Toyota Tundra and tried to go as much as possible beyond that," said Lutz.

Early returns are strong

The final effort came in the advertising component, when GM's ad agencies cooked up stirring, patriotic-themed TV and print ads featuring new music by heartland rocker John Mellencamp and a memorable tag line: "This is our Country. This is our Truck."

The new Silverados began hitting showrooms in small numbers last month, with a limited supply of 4,900 models selling in November.

Early returns have been strong from the first buyers.

"I wanted to get one right away because of the all improvements," said Jack Frost, a landscaper in Flint.

"It has everything from the heated seats to the mirrors that fold by pushing a button."

By February, GM will be churning out Silverados and Sierras at full volume from five plants. The expected sales blitz should buoy GM's profits considerably in the first half of 2007.

But how long can the pickups carry the fortunes of the automaker, particularly when they lose their new-vehicle luster and Toyota storms the market with the Tundra?

"For the next six months, the conditions will be as good as they can be for GM and they should do sensational," said Casesa. "After that, things will get very tough again."

You can reach Bill Vlasic at (313) 222-2152 or

© Copyright 2006 The Detroit News. All rights reserved.


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