MAY 2006 :: COVER STORY : AUTOS

Lost in Transmission
How GM's Bosses Misjudged Consumer Tastes

By Lee Hawkins Jr.
Staff Reporter of The Wall Street Journal

General Motors is struggling under a financial burden created by monumental pension and health-care obligations. But it's also having a hard time persuading Americans to buy its cars. One reason: GM's bureaucracy has for years failed to connect with the tastes and expectations of consumers outside the company's Midwest base.

In December, for example, GM ran a series of ads across the U.S. showing Cadillacs being driven in snow. The decision to do so was made by executives in Detroit, where on Christmas Day, temperatures were just above freezing. But the ads also ran in Miami, a vibrant car market where GM has bombed for the past 15 years. Christmas morning temperatures there were in the high 70s.

In heavily Hispanic Miami, GM started bilingual advertising much later than its rivals. Some of the ads it did run were duds. One ad for Saturn wooed Miami's mostly Cuban Hispanic population by showing a woman in a Mexican dress in front of the Alamo.

Today, GM has a paltry 13.8% of the retail market in South Florida, a slide it is now trying to reverse. The problem is repeated in the U.S.'s rich coastal cities where Japanese and European auto makers first set up dealerships in the 1970s and 1980s.

'Little Silos'

In cities such as Boston and Los Angeles, GM is not a big employer and, unlike in the Midwest, few people get employee or supplier discounts or have personal ties to the company. In these cities, GM scores well below its national market share of about 26%.

GM employs 325,000 people world-wide, almost as many as the population of Miami itself. At various times there have been as many as six layers of management between top executives in Detroit and those in the field. GM's general manager for the Southeast has 38 teams reporting to him, overseeing relations with the region's 1,400 dealers.

In addition to these geographic units, the company is divided along functional lines, with global groups overseeing areas such as marketing, product development and human resources. It's a system that's confusing even to insiders. Midlevel employees often feel as if they have two bosses. Marketing ideas get lost as they bounce between departments.

"We are a large company and we are all working independently to make things happen," says Sonia Green, a GM executive charged with helping revive the company's image and sales among Hispanics in Miami. "Unfortunately, we all work in little silos."

In Miami, GM is in third place, behind Toyota and Ford. None of GM's vehicles are among the top 15 vehicles registered in the greater Miami area, according to J.D. Power's Power Information Network. GM cars that sell well in Miami tend to be low-volume models, such as the Hummer H3 and Pontiac Solstice sports car. Only about 6,000 Solstices have been sold since the car was launched in August 2005.

In an interview last year, GM Chief Executive Rick Wagoner said it was critical that GM halt its slide in big coastal cities such as Miami. He recently praised GM's dealer network and product lineup and reiterated the company's intention to focus on these key markets. "We are pleased with the initial results from our efforts, and encouraged about the prospects for even more success," he said.

In early 2005, Mr. Wagoner flew to Miami for a "state of the business" briefing from a group of regional marketing managers. The presentation showed how GM lost about 11 percentage points of market share among Hispanics in South Florida between 1990 and 2000, even as the local Hispanic population grew to encompass 60% of Miami's population. Mr. Wagoner was surprised that the decline had gone unchecked for so long.

What some executives in the room didn't say was that many people locally held the Detroit headquarters responsible for the company's collapse in Miami. Local dealers and managers saw the decline firsthand but say their appeals to Detroit for help fell on deaf ears, a problem that was repeated across the country.

U-Turn on Escalade

In the late 1990s, Cadillac's national dealer council, which was then headed by Miami dealer Ed Williamson, asked GM to build a luxury Cadillac SUV to compete with growing sales of Land Rovers and Ford's Lincoln brands. Miami's dealers could see the popularity of these big vehicles among urban buyers.

But at GM headquarters, the idea of a Cadillac SUV was dismissed. "Only a small number of luxury SUVs over $40,000 are sold," Ron Zarrella, then president of GM North America, told The Wall Street Journal in 1997. "We'd never make any money on it."

GM did an about-face after Lincoln replaced Cadillac as the U.S.'s top-selling luxury brand. GM rushed out the Escalade, which became a massive hit, and to the surprise of GM, a status symbol among rap stars.

"There were lots of things [GM] wouldn't talk to us about," Mr. Williamson recalls. "We'd do all these things and get the engineers in to talk about what we could do to make the cars better, but it was like hitting a brick wall."

Mr. Williamson says that is changing now that GM is committing itself to reversing its fortunes in cities like Miami.

One of Ms. Green's first jobs was persuading the company to use something trendier for the Miami market than Cadillac's advertising theme song, Led Zeppelin's "Rock and Roll," which was a hit in the early 1970s. "We never thought that Led Zeppelin was appropriate," Ms. Green says. "There are a lot of things that may not be appropriate in Miami." Instead, Ms. Green lined up Daddy Yankee, a Puerto Rican recording artist known as "The King of Reggaeton," to do a series of bilingual commercials for the launch of the Chevrolet Cobalt, a trendy compact. Reggaeton, a hot phenomenon, is a fusion of Caribbean and dance music.

David Borchelt, general manager of the Southeast region, says GM's retail sales volume in South Florida rose 8.4% in 2005, compared with the year earlier, mostly due to newly launched GM vehicles.

GM managers in Miami say they are feeling optimistic, in part because they can now talk directly to Detroit. "The whole organization is flatter than it used to be," says Doug Stevens, a sales manager in GM's Southeast region who has worked for GM for 32 years. "When I started out, there was no chance that I would have talked to the CEO or the vice president of sales and marketing."