Missing Innovation in GM’s Impala
12 December 05
On 22 November,
General Motors announced its long-awaited restructuring plan. The
company will close all or part of a dozen North American facilities and
lay off 30,000 workers.
Many people feel
that even these actions will not be enough to keep General Motors from
bankruptcy. GM bonds are rated as junk, and the company’s market
capitalization of $12 billion is 3 percent of General Electric’s and a
bit below that of Coach, the luxury handbag maker.
There are many
contributing factors to General Motors’ current predicament, ranging
from employee health care costs to restrictive union contracts. This
update will focus on the costs of missing innovation, as embodied in the
Chevy Impala.
Recent reviews
of Chevy’s redesigned Impala highlight the consistent and notable lack
of new technology in this core product. At a time when Ford has
declared innovation to be its top priority, the innovation that’s
missing in Chevy’s Impala results in lower sales and profits for this
popular automobile.
The 2006
Chevrolet Impala
The Impala
represents the core of Chevrolet, which is GM’s core brand. It is GM’s
largest selling passenger car, with annual unit sales of about 290,000
vehicles. This makes it the third most popular car in the United
States, after Toyota’s Camry and Honda’s Accord.
First introduced
in 1958, the car has been redesigned for 2006. Yet, according to a
recent review in The New York Times, the design and layout of its
basic operating systems are more than fifteen years old:
Ø
While
Toyota and Honda redesign their basic frame and chassis every four
years, the new Impala is built on GM’s W-car architecture, which has
been the foundation for many of the company’s midsize cars since 1988.
Ø
The
Impala’s basic engine is a redesigned pushrod V-6. Toyota and Honda (as
well as most European automakers) have stopped making the pushrod
engines. Instead, they favor the overhead-cam design. But the
overhead-cam engine is more complex and more expensive. It’s not
offered for the Impala.
Ø
The
Impala comes with a four speed automatic transmission, while most
competitors offer five or six speed transmissions. The extra speeds can
improve both acceleration and fuel economy.
Chevy executives
defend their technology choices as appropriate. They will provide
performance-based rationales for maintaining a basic design that is
almost 20 years old. The pushrod V-6, for example, incorporates new
technology. When it comes to the W-car architecture from 1988, Chevy
management sees older as better.
“The [W-car architecture] has been
around for years … it has had very good crash ratings … Frankly we are
proud of it.”
Andy Byerly, vehicle performance manager for the Impala, in The New
York Times
Automotive
technology has made significant advances since 1988. Because its basic
design hasn’t changed in almost twenty years, fewer of these advances
are reflected in the Chevy Impala than in its competitors.
As a result,
Chevy can’t charge the prices that its more innovative competitors can.
On a per-pound basis, Chevy has to sell the car at a significant
discount.
As the chart
shows, the price per pound of the Impala is about 15 percent lower than
the price per pound of the Camry, and almost 25 percent lower than the
price of the Honda Accord. (These calculations are based on the MSRP
list price of the six cylinder versions of each vehicle, and don’t
reflect the additional discounts that Chevy dealers often offer to
attract sales.)
Since all auto
companies have about the same cost for raw materials, such as steel or
subcomponents, the lower per-pound price for the Chevy Impala translates
into lower gross margins.
It’s
easy to see how Chevy product managers can find themselves in this
position. Major changes to engines or architectures are both more
expensive and more risky than the incremental tuning that predominates
in Chevy’s new Impala. As Chevy executives
postpone major new platform design efforts
in order to save money in product development, the company falls
further behind its more innovative competitors.
As
a result, it has to charge less for its product.
The years of missing innovations in
the Impala translate to lower prices and profit margins for Chevrolet.
More
Information:
1.
The
New York Times
review of the
2006 Chevrolet Impala is
here.
2.
For a
history of the Chevy Impala, see the Wikipedia entry
here.
3.
Thanks to
Harvard Professor
Kent Bowen for suggesting the price per pound measurement.
4.
I’ve done
a few updates on General Motors and innovation. Recent ones touched on
GM’s research into
electric vehicles, and the disappointing trajectory of
Saturn.
