GM'S REAL AUDIENCE

Cadillac CTS Coupe After spending much of yesterday and this morning going over analysis of GM's big financial results and even bigger forthcoming CEO change from Ed Whitacre to Daniel Akerson at the end of this month, we feel that a key component has not been fully addressed. Yes, we understand that as GM readies itself for its IPO filing later today or early next week, there will be much dissection of the merits and actions of the ‘New GM’ in an attempt to identify its worth and value at this critical cash-raising juncture. After all, if this IPO goes according to plan, GM will raise just enough money to move the U.S Government from majority to minority stakeholder, and that would be a stellar achievement just 12 months or so since the managed bankruptcy process and emergency funding of 2009. However, any discussion of GM's value ultimately will have to consider how they are now being perceived and accepted by a previously skeptical marketplace. Deservedly, over the last decade or so, the average U.S. buyer was not interested in a GM product unless they got a "smoking deal" on it. This was a pattern fostered and supported by none other than GM itself. The product was being built with a "what can we get away with" or "what will make us the most money" perspective, rather than “what does the market demand,” and therefore the only sure way to move the metal was to offer deep discounts or fire sales. This created a pattern of unprofitable "feast or famine" sell-through and depressed resale values. Now that GM is building new and redesigned vehicles being well-accepted by the marketplace, they are on the road to turnaround.

For example, vehicles like the Chevrolet Equinox, whose 2008 model had a 40 percent 36-month residual value according to Kelley Blue Book, is now a much more desirable vehicle with the 36-month residual value for the 2010 model-year Equinox at 46 percent. The ‘New GM’ has learned valuable lessons from hard and smart men like Bob Lutz and Ed Whitacre, and now seems dead-set on building and selling vehicles that actually make sense to the U.S. buyer. And, this is before even considering the financial impact of the company’s huge success and hard lessons learned in the growing and aggressive Chinese market. As we learn more about GM's expected IPO filing and even consider buying a few shares of the ‘New GM’ ourselves, it is important to stand back from the Wall Street and Board Room bluster and get a feeling on how this new company is treating its customers. With this statement, we are not referring to traditional "customer or dealer service," but rather a deep sense that the vehicles in GM's future will hit the market's moving targets. Sure, not all will be as successful as the LaCrosse or CTS at earning new attention for previously stale brands, or the Camaro or Malibu for reinvigorating traditional Chevrolet "bang for the buck." But if the sense is that GM’s new CEO stands tall with the ‘New GM,’ and together they are not willing to fall back into old bad habits, this market could be ready to see some of the best that GM has yet to offer. James Bell, Executive Market Analyst Kelley Blue Book’s kbb.com