Two weeks of turmoil at General Motors ends with a disturbing hit at possible brand cut JASON STEIN | Automotive News Posted Date: 3/28/05 Robert Lutz was a little apprehensive about delivering a speech to Wall Street analysts last week. "What an opportunity to get into serious trouble," General Motors' vice chairman told the audience at a Morgan Stanley conference in New York. Lutz promptly did get into trouble, unleashing a tempest when he talked about phasing out one of GM's venerable car brands. It capped a stormy week in which the 73-year-old executive was the company's lightning rod. In fact, it was a pretty tough fortnight for General Motors - one that began with a profit warning and production cuts. The company struggled to come to grips with escalating problems. Last week alone: Lutz scared dealers by calling Pontiac and Buick "damaged brands." The Zeta rear-wheel-drive North American product program was canceled. Salaried employees were offered buyout packages. GM floated a health care proposal to the UAW. "It was a tough week for all of us at GM, and there are certainly challenging times ahead," Gary Cowger, GM North America president, admitted at another New York event. Lutz said at the Morgan Stanley conference: "If one of GM's troubled brands, or one of the brands that has been undernourished for many years," fails to turn around, "then we'd have to take a look at a phaseout." 'Damaged brands' In response to a separate question at the conference, Lutz called Buick and Pontiac "damaged brands that suffered from years of harvesting" with very little reinvestment. He later added: "What we've got to do is keep the brands we've got and go where the positive momentum is. (GM Chairman Rick Wagoner is) always insisting on this. He says, 'Look, let's not squander all of our resources on trying to overcome negative momentum. Let's put the resources where we've got positive momentum, which is basically … Cadillac, Hummer and GMC and, increasingly, Saturn." Lutz's comments in New York had phones ringing off the hook in Detroit. Dealers were up in arms about the possibility of a brand going away. GM sent out an e-mail to dealers in an effort to put them at ease. Mark LaNeve, GM's vice president of vehicle sales, service and marketing, told Automotive News that there are no plans to kill - or any ongoing discussions about killing - any of GM's eight brands. But he said product plans for Buick and Pontiac are being refocused as GM continues to mold its Buick-Pontiac-GMC dealerships into one distribution channel. "We hope at some point that there is little segment overlap among the three brands," LaNeve said. "We will have some, but it should be highly differentiated." As of Feb. 1, GM had 784 Buick-Pontiac-GMC dealerships - 22 more than at the same time last year. By contrast, GM had 198 stand-alone Buick dealerships, 110 stand-alone Pontiac stores and 245 Pontiac-GMC stores. LaNeve says GM realizes it doesn't have to deliver an "A-to-Z portfolio" to each franchise within the Buick-Pontiac-GMC dealerships. "We can tighten and focus them," LaNeve said. "I would rather have four or five great Pontiacs or Buicks than eight undistinguished products. That's the way we're trying to drive the business." Bob Bakshi, a California multipoint dealer and a member of GM's national dealer council, says Buick and Pontiac have been starved for product. "There's only so many divisions that they can get product to every year, and Pontiac and Buick didn't get that for the last couple of years," Bakshi says. "That's what (Lutz) was trying to say. He unfortunately used the word 'damaged.' I wish he used the word 'underperforming.' " Change hurts Pontiac, Buick The cancellation of plans to build rwd vehicles off the Zeta architecture adds more uncertainty at Pontiac and Buick. Both brands stood to inherit multiple sedan, coupe and convertible Zeta models over the next three years, according to supplier and industry sources. The altered plans for Zeta will delay a series of launches in 2008, including a flagship sedan for Buick and performance vehicles for Pontiac. Meanwhile, GM sources say if sales don't improve in March and April, the company could cut up to 28 percent of white-collar workers in certain departments. Some employees have until April 1 to accept buyout packages. GM also is pressing UAW employees to accept the same health benefits as its U.S. salaried workers. Lutz gave analysts at the Morgan Stanley conference a sign that GM plans to ask the union for help. "Our salaried employees have one of the absolute best health care plans in the world. The UAW hourly health care plan is way richer than that," Lutz said. "What has got to happen is we've got to get to a point where all employees - salary and hourly - have the same health care benefit. That would mean huge sums of money for us." Cowger, who spoke at the International Motor Press Association breakfast last week in New York, said: "There are lots of reasons for our tough start to 2005: an intensely competitive market, the tough pricing environment, pull-ahead sales into the last quarter, rising interest rates, legacy costs, skyrocketing health care costs." And none of those problems is going away. March came in like a lion for GM and was going out like one, too. In fact, the whole year is starting to look pretty ferocious.