Ordinary Advertising

You probably don’t need me to tell you that General Motors CEO, Rick Wagoner, is in a world of hurt. Heading into the year, the company thought it would generate $2 billion in cash. By March, it was instead saying it would need to fork over $2 billion. (It must be nice to have a job where you can be off by $4 billion in just three months and still have a job.)

Of course, GM has about $20 billion in the till, so it can mess around like this for a few more years. And based on an article I saw in The New York Times this week that seems to be exactly what the company intends to do.

In an internal memo, Mr. Wagoner outlines how he plans to “fix” GM in North America: “deliver great cars and trucks”, “revitalize our sales and marketing strategy”, “intensify our focus on cost and quality” and “address the health care burden.” But nowhere does he say: do more extraordinary advertising.

Which strikes me as particularly peculiar insofar as the company has seen the benefits of better-than-average advertising on several occasions recently. Okay, laminating old Led Zeppelin tunes to Cadillac may not be breakthrough, but at least it’s attention-getting. And thanks to it, along with a radical design overhaul, Cadillac is doing better than it’s done in decades.

The Hummer advertising isn’t bad either, but GM is hardly going to escape its troubles riding on the back of Hummer sales. That’s presumably why the company plans to raise capital spending mostly for product development from $7 billion to $8 billion this year.

Which is fine, except GM and its shareholders will have to wait about 18 months to see how that pans out. Meanwhile, the company is also spending about $1.5 billion a year on advertising, the bulk of which is utterly ordinary. And that’s a problem that could be “fixed” in 90 days. I mean, when was the last time you noticed an ad for Chevrolet, Buick or Pontiac?

Why is the company so reluctant to employ the astonishing leverage that extraordinary advertising can provide? One hint may have been hidden in the same New York Times article where it was reported that:

“In part, G.M. was derailed by a strategy in the 1990s driven more by marketing than product development. As part of the boardroom coup, (that eventually brought Mr. Wagoner to the top spot) John G. Smale, who came from Procter & Gamble, was made chairman and a few years later Ronald L. Zarrella was brought in from Bausch & Lomb to be the top North American executive.”

Then, two paragraphs later the article quotes Barbara Lupient, a member of the company’s top dealer group, as saying: “Soap people and contact lens people don’t necessarily make good car people.” And maybe she is right.

But I fear the lesson GM took from this was if heavy-hitters from the consumer packed goods sector–where advertising is all-important–can’t solve our problems, then maybe advertising isn’t the issue. Unfortunately, the underlying logic here assumes a life spent at P&G or Bausch & Lomb is a life spent surrounded by extraordinary advertising, which we know is hardly the case.

GM’s advertising isn’t THE issue, but it’s an issue, and one that could be tackled in a matter of months. Shareholders can only dream the same could be said for the firm’s legacy health care problems.