Is there a light at the end of the tunnel for General Motors?  The Harvard Business School faculty weighed in..

Robert D. Austin, Associate Professor:

When I worked in a U.S. auto company in the mid 1990s, we were doing many of the right things. But often, when we ran up against the really tough problems, when we started to feel the real pain associated with real change, we pulled back. We were so profitable then, it was hard to muster the will to make the hard choices.

Nancy F. Koehn, James E. Robison Professor of Business Administration:

Beginning in the mid 1920s, GM staged an astounding victory against Ford Motor Company. Alfred Sloan, Pierre Du Pont, and other GM executives placed a series of important bets on what American consumers wanted (different makes, models and prices; cars that were status symbols and identity holders as well as transportation sources) and they did so with careful, consistent attention to what the competition was—and was not—doing. As company leaders rolled out this daring strategy, they also created an organizational structure and culture developed to support a multi-product, vertically integrated enterprise. By the mid 1930s, GM’s market share had risen to 42 percent while Ford’s had fallen to 21 percent. And General Motors had laid the groundwork for decades of industry dominance, offering “a car for every purse and purpose” and pioneering the multidivisional structure that became one of the signal achievements of the modern corporation.

In this context, it is interesting to consider the root causes of General Motor’s decline, which has been under way for 30 years. Although there are many factors that contributed to the company’s long, slow bleed, the three fundamental issues are management’s consistent failure to do the very things that made the business so successful initially.

    * First, pay close attention to what is happening to consumers’ lives in the context of the larger environment—not only their stated preferences, but their hopes, dreams, wallets, lifestyles, and values.
    * Second, keep an equally close eye on the competition.
    * And third, understand how a company’s structure and culture relate to its strategy. Use all this understanding to place innovative bets. This is what the early leaders of GM did. And this is what several generations of executives—beginning in the 1970s with the first oil shocks and the entrance of Japanese imports—have consistently failed to do.

It has been a failure of leadership as astounding and momentous (and ironic) as the company’s early achievement.

Another 1,600 workers at three General Motors Corp. factories will be laid off indefinitely over the next few months as the company tries to control its inventory amid a worsening U.S. sales slump.

About 700 workers at GM’s pickup truck plant in Pontiac will be furloughed starting Feb. 1, while another 500 at the Detroit-Hamtramck sedan factory will be laid off starting Jan. 12. In addition, 400 workers at a two-seat sports car assembly plant in Wilmington, Del., also will be out of work starting Dec. 8.

During the layoff, workers will get close to full pay and benefits through supplemental pay and state unemployment. After 48 weeks they go into a jobs bank in which the company pays 85% of their salaries, plus benefits. Within two years, the workers could lose pay and benefits if they don’t transfer to another plant. tsk tsk…

If fuel is warm when it’s delivered to a station, it’ll still be warm when it’s sold a few hours later.

Some people say it’s better to buy your gasoline first thing in the morning, rather than in the heat of the day. That’s because gasoline, like all liquids, expands when heated. The basic facts are correct, but the advice is not. Gasoline does expand and contract a little depending on its temperature. When gasoline rises from 60 to 75 degrees F, for instance, it increases in volume by 1% while the energy content remains the same.

Filling stations typically store their gasoline in underground tanks, where the temperature variation during the day is much less than in the air above. The result is that the temperature of the gasoline coming out of the fuel nozzle varies very little, if at all, during any 24-hour stretch at any particular station.

A 15-degree difference, for example, would result in a one-percent gain in volume. Or, just a few cents difference on the first gallons pumped — not enough to change your schedule or routine in chasing costs, especially if it might increase your fuel consumption in the pursuit.

The market for sport utility vehicles is starting to look a lot like the housing market, spreading pain to consumers, automakers and dealers. Just like hapless homeowners, countless car owners are now “underwater,” driving vehicles that are worth less than the balance on their car loans. And just like desperate homeowners, the sellers of S.U.V.’s are having to painfully cut asking prices.

Dealers normally spend this time of year raking in some of their biggest profits and breathlessly promoting Detroit’s newest models. Instead, they almost cannot give S.U.V.’s away.

Automakers are offering discounts of $10,000 or more on some S.U.V.’s just to get rid of them, so dealers have space to stock more of the fuel-efficient cars consumers are clamoring for. On average, new sport utility vehicles sold for 20% below sticker price in July.

Do Your Own Math!

Car salesmen are masters at leading people down the wrong financial road with misleading numbers. Whether buying a car or a tank of gas, it is easy to be distracted by the numbers in large lettering on the signs. But always think about the difference between the total amount of money in your pocket before and after the transaction. That sounds obvious, but consider these common examples where numbers send the consumer off in the wrong direction.

Buying A Car: Dealers have found 0% financing offers to be one of their best marketing tools. The idea is to distract buyers from looking at used cars by making it appear that they will save money financing a new car. But if you look at the fine print, almost all 0% financing offers are in lieu of a rebate.

Auto manufacturers have created other complicated offers in place of rebates to distract buyers. Before you agree to exchange your rebate for gas you will need to do an extensive mathematical analysis of your driving habits, gas buying, and most importantly all the complicated rules and restrictions attached to the offer.

Buying Gas: If you focus only on the numbers shown on the signs you might pay more. Before you set off on a trip to the station with the lowest price, think about the total cost.

Let’s do the math. If you drive 5 miles out of the way to purchase gas in a car that gets 20 miles per gallon, that 10-mile round trip will burn 0.5 gallons. If you drive that distance to pay $3.95 per gallon to fill a 15-gallon tank, instead of paying $4.00 at your local station, you only save 75 cents. But your trip to save $0.75 will cost nearly $2.

Extended Warranties: The reason for pushing service contracts is that the money spent on them is pure profit for the dealer. Extended warranties on cars typically have deductibles and exclude many parts — usually the parts most likely to fail.

Despite what the salesperson says, if you do the math you will usually find that cash is your best bet.

According to a recent study by the California Integrated Waste Management Board, 73% of California drivers change their oil more frequently than required. This same scenario no doubt repeats itself across the country. Besides wasting money, this translates into unnecessary consumption of $100-a-barrel oil, much of it imported.

It’s been a misconception for years that engine oil should be changed every 3000 miles, even though most auto manufacturers now recommend oil changes at 5,000, 7,000, or even 10,000 mile intervals under normal driving conditions.

For several years, automakers like General Motors, BMW, and Mercedes-Benz have installed computerized systems that alert drivers via an instrument panel light when it’s time to change oil. Greatly improved oils, including synthetic oils, coupled with better engines mean longer spans between oil changes without harming an engine. The 3000 mile interval is a carryover from days when engines used single-grade, non-detergent oils. So no need to change every 3,000 miles for modern cars.

Americans drove around 4.5 billion fewer miles in April compared with the same month last year, marking the lowest mileage clocked on US roads for the month since 2003. The Federal Highway Administration (FHA) said in its monthly report that the number of vehicle miles driven in the United States fell by 1.8%, to 245.9 billion, based on preliminary data from the state highway authorities across the United States.

In May, the thrifty Honda Civic became the best-selling vehicle in America.

The Honda Civic became the best selling vehicle in America - car or truck - and both it and the Honda Accord outsold the once-invincible Ford F-150 pickup trucks.

Among the world’s automakers, Honda has long behaved as if the world is indeed running out of all kinds of resources, including oil. Its relentless focus on thrift and conservation, which seemed like eccentricities 20 or 30 years ago, today make Honda the leader of the environmental pack.

While the Detroit Three plus Toyota were getting hammered on the showroom floor in May, with sales down anywhere from 4.3% for Toyota to 27.5% for General Motors, Honda posed a stunning 15.6% sales increase.

Rocket science this isn’t. They aren’t making any more oil so, over time, you had to figure it was going to get more expensive and more scarce. So why weren’t other manufacturers able to see the road ahead as well as Honda?

1. They got sidetracked by the easy profits available in big SUVs and pickups. During the 1990s, the last golden age of the American auto industry, the combination of cheap gas and high-profit big vehicles seduced automakers into believing the good times would never end.

2. Honda’s tightly-knit corporate culture and long time horizon made it uniquely able to wait for events to move in its direction, rather than chasing fluctuations in the marketplace.

3. The other automakers became distracted by their own corporate imperatives. Nissan compounded its problems by starting its own passenger car horsepower race. The Detroit Three, at times, seemed to get their jollies by reviving models from 40 years ago — Mustang, Challenger, Camaro — because of the short term jolt they got in the marketplace, rather than formulating any kind of long-term strategy for a resource-constrained world.

Car Buying Is Easy If You Have The Right Resources

With car sales expected to be down this year, many dealerships will be desperate for any sale they can get, says Danny Chan, CEO of AutoBrag.com, a car-shopping comparison Web site that compiles price data from no-haggle dealerships. The slow conditions could prompt many of them to accept better deals as they struggle to keep their doors open, he added. But even though dealers might be hungry to make a deal, don’t expect that they’ll give in to your offers without a fight.

If you’re considering the purchase of a new car, you’ll need to prepare before browsing the show floor. Here are five tips on how to get a good deal on your new set of wheels:

1. Hit The Internet
The Web has a wealth of automobile information that can help consumers know how much they should be paying for a car and what deals they can get. AutoBrag.com tells consumers how much cars are selling for at actual no-haggle dealerships, and shoppers can use those quotes during their negotiation. Deals can also be found by expanding your online search to dealers beyond your immediate area. Even if the best deal is states away and the automobile needs to be transported to you, it may be worth the hassle.

2. Know What You Can Afford and Your Loan Options
Before negotiating, it’s also important to know exactly how much you can afford. But don’t max out your budget. Experts also advise not extending the term beyond the standard five years to bring monthly payments down. More manufacturers and dealers are now offering 7-year car loans; for a $20,000 car, the loan would rack up an additional $5,335 in interest.

And investigate loan options before hitting the showroom. Often, credit unions offer favorable automobile financing, Chan said. If opting for dealer financing, make sure you know what interest rate you should be paying before signing, he said.

3. Consider Older Model Years
When the 2009 models come out and 2008 cars are still on the lot, the older new cars can be bought at a decent discount for good reason — their age will cause them to depreciate faster. Two months before the release of the 2009 Toyota Camry, the 2008 model was being sold to consumers for an average of 5.32% below the manufacturer’s suggested retail price, Chan said. But during February 2008, when the new model was released, the 2008 model was being sold for an average 10.39% below MSRP.

4. Negotiate Before Incentives
Get down to a good price before adding an incentive, even if adding a manufacturer’s rebate pushes the price below invoice. In fact, keep all the transactions separate — negotiating the price before the financing and the trade-in value. You’ll often get the most for your vehicle if you sell it yourself. But if you decide to trade in your old vehicle, use the Internet to learn what it’s worth. You can simply ask AutoBragBlog.com for your used car value.

5. Don’t Cave To Pressure
It’s a buyer’s market, so don’t be intimidated and be aggressive in your negotiating. If the salesmen won’t budge and you can’t get the price you want, be prepared to walk away and try another dealership, Chan said. He also recommends not paying for extras such as paint protection; dealers often put a huge mark-up on this extra, and you may be better off having it done somewhere else.

GM Posts Record US Automotive Loss of $38.7B for 2007

General Motors Corp. reported a $38.7 billion loss for 2007 on Tuesday, the largest annual loss ever for an automotive company, and said it is making a new round of buyout offers to U.S. hourly workers in hopes of replacing some of them with lower-paid help. GM won’t say how many workers it hopes to shed, but under its new contract with the UAW, it will be able to replace up to 16,000 workers doing non-assembly jobs with new employees who will be paid HALF the old wage of $28 per hour.

Go shopping for a Dodge Ram, and you may find a $4,500 factory incentive awaits.

On top of that, it’s likely a dealer will give you an all-smiles, deep-discount price that’s lower by thousands more. Despite these inducements, Rams are languishing on lots. Jonathan Banks, senior director of the Automotive Leasing Guide, says that excess dealer inventory is a leading indicator that it’s time not just for more incentives but possibly a price cut.

Good thing, because the Dodge Ram is among the most egregiously overpriced cars in the U.S. Rounding out the top five: 

1.) Dodge Ram 1500
2.) Mercury Grand Marquis
3.) Ford’s F-150
4.) Dodge Durango
5.) GMC Envoy.

Here’s a slideshow of the 15 Most Overpriced Cars.

If it’s done anything, it’s made me never, ever want to buy a Chevy.

Who hates those Chevy commercials because of their song “Our Country,” by John Mellencamp? According to Newsweek, everybody hates it. Mellencamp’s melancholy anthem have become so ubiquitous that they’re driving sports fans to distraction. Chevy thinks the campaign has been a success, and are actually making more “Our Country” commercials, despite heavy criticism from people who are sick of the song.

The company used Bob Seger’s “Like a Rock” for 11 years, helping drive up truck sales 61%. Chevy spokesman Terry Rhadigan is aware of the negative buzz but has no plans to throttle back.  When it comes to building awareness, experts say, nothing succeeds like excess—even at the risk of overkill. Just great!

The Expert Service Problem

A few years ago, an economics graduate student named Henry Schneider drove his dad’s old Subaru station wagon up to Montreal. He had heard about a Canadian consumer interest group that had done undercover investigations of auto-repair shops, and he wanted to try a more academic version of its experiment. He handed the Subaru over to the mechanics working for the group, the Automobile Protection Association, for a complete inspection. They found that it had a small hole in its exhaust pipe, a blown taillight and several other relatively minor problems. Mr. Schneider took careful notes. But he also did something that no ordinary car owner would do. He asked the mechanics to show him how to mess up the car in a couple of serious but obvious ways.

They taught him how to loosen the battery cable (which can prevent a car from starting) and how to suck out coolant (which can leave an engine vulnerable to overheating). Armed with this knowledge, Mr. Schneider drove home to Connecticut and undertook a devilish little test. Schneider is trying to answer a question that has occurred to pretty much all drivers who have ever been given the unsettling news that a car needs more repairs than they had expected: Does it really? Or is the garage just looking to make some extra money off me?

Over the next few months, he took the Subaru to 40 garages, loosening the battery cable and draining some coolant before each visit and telling the same story, “We bought the car recently, and we should have had it looked at before we bought it, but we didn’t. It hasn’t started a few times. Can you check that out?” He also asked for a thorough inspection.

In most of cases, consumers aren’t sophisticated enough to make an independent judgment. That’s why they went to the expert. Economists sometimes refer to this situation as an “expert service problem,” because the same expert who is diagnosing the flaw is the one who will be paid to fix it. Anytime you call a plumber or roofer to your home or anytime you visit a doctor or dentist, you’re at risk of having an expert service problem.

Schneider’s results: Only 27 of the 40 garages did mechanics tell Mr. Schneider that he had a disconnected battery cable, the very problem to which he had pointed them by saying his car didn’t always start. Only 11 mentioned the low coolant, a problem that can ruin a car’s engine. 10 of the garages, meanwhile, recommended costly repairs that were plainly unnecessary, like replacing the starter motor or the battery. In all, only about 20% of the garages deserved a passing grade.

The Big Question: How can you be sure you’re not getting swindled? For an expensive repair, a second opinion makes sense, but it will be hard to know which garage to believe. Schneider noticed no performance difference between garages that talked him through what they found and less forthcoming garages. Until some savvy entrepreneur starts a garage-rating business, the best solution may be the oldest one: asking for a recommendation from someone who is knowledgeable enough to distinguish between good service and bad.

You can’t kill an electric car you can’t catch

Tesla Motors is a car company that’s both decades ahead of its time, and a year behind schedule. Soon, it will become clear which is more important to Tesla’s long-term future, and the future of the disruptive ideas the company represents. For those who somehow missed the blizzard of publicity that has swirled around this company for the past 18 months or so, Tesla (www.teslamotors.com) is a Silicon Valley start-up, bankrolled by some of the same people who brought you the Internet boom of the late 1990s. The company’s stated ambition is to develop over the next several years a full array of electric cars. Many influential leaders of Silicon Valley’s “clean tech” green-technology movement see Tesla as an icon of the broader effort to make big money by unshackling the U.S. economy from petroleum.

Tesla’s first model will be a $98,000 electric roadster, developed around the architecture of a Lotus Elise, that uses 6,831 lithium-ion batteries similar to those used in laptop computers, a patented electric-motor system, and a highly sophisticated package of controllers and software to deliver an exotically attractive car that zaps from standstill to 60 miles per hour in under four seconds and can travel up to 245 miles on a single charge. Tesla isn’t planning any traditional advertising, but if it did, one slogan could be: “You can’t kill an electric car you can’t catch.”

Tesla recently told potential customers that it can no longer guarantee delivery of 2008 models. Newcomers to the waiting list might well get 2009s. Tesla’s Big Idea was to start with an electric car that appeals to the id, not the superego. From the start, co-founder Martin Eberhard says he wanted a car that could outrun a Porsche in a 0-60 trial, and would go 250 miles on a charge. The production Roadster will hit the under four-second target for the 0-60 dash, and will get very close to the original goal on range.

Tesla so far has raised $105 million from venture-capital firms and Chairman Elon Musk, the PayPal founder who was a ground floor investor. That’s a lot for a tech startup, but it’s chump change in the auto industry, where car programs with century-old, conventional technology can easily cost $500 million to $1 billion.

How did they pick the name Tesla? Tesla is named for Nikola Tesla, the godfather of alternating current and radio who nonetheless died poor, in part because his weirdness wound up obscuring his genius. In recent years, Tesla has become a patron saint of Silicon Valley.

Honda Makes Stylish Attempt With Hybrid CR-Z

Hybrids can be muscular and stylish, too. That’s the message Honda hopes to send at this month’s Tokyo auto show with its new gas-electric hybrid sports car CR-Z. The vehicle has maintained “the essence of the sports car” while still delivering good mileage and less pollution, he said.

Hybrid vehicles tend to be bulkier than sleek sports cars because of the size and complexity of the hybrid systems, which include a battery, motor, engine, converter and other parts. They’re usually not known for their torque, acceleration, handling and innovative design. The CR-Z comes with a new hybrid system developed by Honda whose breakthroughs allowed designers to get around such restrictions to achieve its lean cutting-edge look. The model will be on display at the biannual Tokyo Motor Show, which opens to the public Oct. 27 in the Tokyo suburb of Chiba.