General Motors was wrong about future

By Warren Brown

It seems such an obvious error in hindsight.

General Motors four years ago convened a global product seminar in Fayence, France. It was a grand affair meant to display the breadth of GM’s automotive competence in vehicles large and small ... and “small,” in this case, included some cars that could be considered “micro.”

I was one of a score of international automotive journalists in attendance. I was stunned. I had never before seen this GM. On display were a bevy of tight, cute little automobiles — Opel Corsa and Astra models, little Opel Zafira town wagons. A few of them were powered by diesel engines.

A small GM car with a diesel! I could barely contain myself. I became a nuisance, the guest who would not shut up, the guy who wouldn’t go away. I asked every GM executive I could grab: “Why aren’t you guys offering these models in the United States?”

The answers were many but amounted to none at all. I understood.

The United States in 2004 remained a truck-happy market swilling cheap gasoline. GM’s troubled North American business depended heavily on those trucks. Americans loved trucks. Why confuse the market and waste money bringing in little European cars?

America is not Europe, the thinking went back then. America is a big country with long highways and big people who like their space. Europe is a collection of small countries with little streets and people who have learned to live in tiny, tight-knit communities. Americans are willing to pay for big trucks that get a few miles per gallon. Europeans are willing to pay big bucks for little cars that get many miles per gallon.

Soaring oil prices

That was the thinking ... before oil prices soared way past $100 a barrel and U.S. gasoline prices rose beyond $4 a gallon for regular unleaded.

Thus, the conventional wisdom nowadays is that GM, Ford and Chrysler made a mistake by not having introduced more small cars into the U.S. market several years ago before fuel prices began their meteoric rise. If so, they are not alone in that error.

All major car companies, including Toyota, hesitated in bringing their most fuel-efficient cars to an American market that was demanding ever larger doses of horsepower. Average vehicle horsepower — combined for cars and trucks — rose from 102 in 1981 to 166 in 1996, according to the Environmental Protection Agency. Current EPA estimates put that figure at an average 210 horsepower.

Toyota played both sides of the fence in that market. On the side where the publicity and the buyers were greener, Toyota made headlines, but not money, with its gas-electric hybrid Prius car. But the same Toyota was just as rambunctious as the domestic companies in its pursuit of big-truck dollars.

The difference in outcome as measured in current reality, in which Toyota is better-positioned to serve a small-car market, is that Toyota had substantially more financial leverage than GM or its other U.S. rivals. That meant Toyota could take financial risks on models such as its Prius and the U.S. introduction of its little Yaris car while continuing to make apparent sure-money bets on big trucks.

When the truck market backfired, Toyota was hurt. The company poured hundreds of millions of dollars into a Tundra pickup truck that floundered in the market. But what hurt Toyota practically crippled a GM that, until recently, had forgotten about selling competitive cars in the United States.

Some people look at that GM error and think they see something else — a company incapable of getting its act together, one that isn’t competitive product versus product. That is a misreading of reality.

I remember that day in Fayence, that grand display of GM’s product ability. And when I think of that, I am not disheartened by GM’s current litany of challenges and troubles. I know that there is a car company in there, somewhere