Chevy Malibu Problems Epitomize GM’s Struggle

Government MotorsGeneral Motors is now approaching its fifth year of existence since emerging as a new entity as a result of the 2009 auto bailouts which saw taxpayers fund a bankruptcy process to the tune of $50 billion. Much has been debated about the “success” of GM since the controversial government-orchestrated restructuring. While GM management recently announced a dividend in an attempt to ensure investors of financial stability, a more telling indicator of the likelihood of future profitability may be found through an analysis of how competitive the company’s vehicles are.

Let’s face it; it should not be that hard for a corporation to look good to Wall Street after receiving an influx of $50 billion to its balance sheet along with the removal of creditor liabilities. But just how well are the company’s cars selling and what is the prognosis for longer-term sustainability? A closer look at the best-selling, mid-size car segment may give a clue as to how well (or not) GM has been competing.

The Chevy Malibu is GM’s mid-size offering. The car goes against strong entries from other auto makers, primarily (in order of 2013 sales) the Toyota Camry, Honda Accord, Nissan Altima, Ford Fusion and Hyundai Elantra. The Malibu comes in at 6th place for 2013. In fact, Toyota sold twice as many Camrys as GM sold Malibus in 2013.

It may seem difficult to analyze the politically-charged data and hype that either promotes or condemns the company still known as “Government Motors” to many. The reality is that the auto sector isn’t all that difficult to figure out. Manufacturers have to build quality cars at the lowest cost to succeed. GM’s inability to do this in the past led to their first bankruptcy. Based on how the Malibu has fared, GM shareholders may have cause for concern that GM has not solved the underlying problems that plagued the previous version of the company.

Getting back to the Malibu, Car and Driver magazine did a comparison test of the 2013 model. The Malibu placed last in a comparison of six cars. Fortunately for GM, the Nissan Altima and Ford Fusion were not included in the comparison or the Malibu would have ended up in eighth place. According to the review, lows for the Malibu included, “Cramped back seat, least trunk space, numb steering, heavy, resists fast transitions.”

A comparison of the Malibu to other vehicles in its class can also be found on Edmunds.com. When compared to the universally acclaimed Camry and Accord, the Malibu displays an invoice cost higher than both cars. The implication is that it cost GM more to build a car that is inferior in perceived quality. Compared to the high-value and well-reviewed Hyundai Sonata, the Malibu comes in at an invoice price of over a $1000 more.

Logic would dictate that if GM offers a car (in this case the Malibu) that cost more to build than vehicles that are equal or superior in quality, higher incentives will have to be offered to persuade consumers to buy the car. It does not take a Wharton Business School graduate to realize that this is a recipe for failure in the corporate world.

Perhaps the government-inspired management at GM has put too much focus on money-losing “green” vehicles, like the Chevy Volt, while losing sight of the importance of building high-value vehicles that mainstream consumers want. Maybe the higher labor costs and UAW obligations are making enough of a difference at the margin to put GM at a disadvantage in a very competitive field. Or, it just might be that the old way of doing business at GM just hasn’t changed all that much.

The 2009 Obama Auto Task Force team that dictated the GM bankruptcy process was headed by an allegedly corrupt hedge fund guy in Steve Rattner. Rattner’s successor, Ron Bloom, had union ties and once stated, “We did it all for the unions.” What was noticeably absent from the team were auto industry experts. That absence may come back to haunt GM if the billions of dollars spent by taxpayers to save the company end up being squandered by a corporation that still does not seem to be building cars that offer the best value to consumers.

Mark Modica is an NLPC Associate Fellow.