The Oldsmobile Experiment: Closing a Brand

Oldsmobile is intentionally misspelled here as "Olsmobile".

For years industry analysts have warned: US carmakers support too many brands.

But substantial barriers to closing out a brand exist, builders have a lot to consider when culling a brand.

Chopping historic brands like Plymouth, Oldsmobile, Buick, Mercury, or Pontiac would mean plant closings, layoffs, dealer buyouts, and inventory liquidations.

Nobody volunteered to go first.

We can learn a good deal about the modern car business by examining General Motors closure of Oldsmobile.

When GM axed the Oldsmobile brand a few years ago Olds was the longest surviving make of auto in US history.

As the decision was made sales were a still respectable 289,000 cars and light-trucks. But the marque was a consistent money loser.

But by the turn of the century, Oldsmobile was a seriously lame brand. Decades of underinvestment had deprived Oldsmobiles of distinct identities, what remained was pure badge engineering.

Olds had outlived its usefulness as a stepping stone to higher status, along with very similar Pontiac and Buick.

In late 2000 GM announced it would phase out Oldsmobile over the coming four years. And it took all those years to shut Olds down: legal implications of buying out the dealer network in the middle of a binding contract are substantial. Many states have franchise laws which give franchisees the upper hand.

Car dealers, often in the business for three generations, resist pressure to go out of business.

General Motors offered Oldsmobile dealers a settlement package.

GM was stuck, under dealer franchise agreements, buying back parts, cars, and some service department tooling.

Many dealerships sued, claiming their losses exceeded GM's offer.

An Oldsmobile showroom renovation program, instituted by GM just a couple years prior to the closing, cost many dealers millions.

The legal tangle may drag on for years.

And to mollify dealers, the company paid them $3,000 per vehicle sold in the last full year.

Plants that had built Oldsmobiles were left underutilized.

Most important, Olds market share was lost and has not been recovered.

Now the industry uses "Oldsmobile" as a verb;

"Hope Mercury doesn't get Oldsmobiled."

"A drive by Oldsmobiling."

Olds as a Test Case

I see the Olds debacle as an experiment by GM.

They have more than just high wages, retirement, and health care promises hanging around their neck.

General Motors has to accommodate, coordinate and plan for a bloated stable of brands and models. Chevrolet, Saturn, Pontiac, Oldsmobile, Buick, GMC, Cadillac, Saab, Isuzu, Suzuki, and Subaru are involved in product development. The costs of duplicate marketing, trim duplication and tooling for badge engineered dupli-cars are a significant inefficiency.

The tally for closing Olds totaled around $1 billion. Now executives industry-wide have an idea just how drawn-out, costly and stressful such terminations can be expected to be.

Nobody appears to be volunteering to go next.

Nobody Wins

Industry executives learned much from the Oldsmobile experiment.

Olsmobiles won't be the last to disappear, it's just that in the future the process will be more subtle and the costs will be shifted to other players more carefully.

Dealers, suppliers, and consumers must be forced to absorb more of the costs of future "going out of businesses" fire sales.

Brands slated for elimination will be starved of new product. Although 2004 was to be Oldsmobile's last year, the last new Oldsmobile model was the badge-engineered Bravada SUV introduced in 2002.

GM lost big money, some dealers lost bigger money. But the biggest losers were consumers who bought an Olds after 2000, many of whom had not heard about the phaseout.

Consumers buying dying brands assume the risk of inferior product and weak after sale support from builders and dealerships who are looking to exit the business or brand.