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Is GM Being Penny Wise and Pound Foolish?

Pulling its Super Bowl and Facebook ads will save money, but it could make it tougher to compete

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Then there’s social media. GM’s pullback from paid advertising on Facebook comes amid rumors that Facebook officials recently fumbled a presentation to GM by focusing on the value of its free pages. Although neither side has offered details of the meeting, a Reuters report said GM dropped Facebook ads because they generated only about half the clicks per page view compared with the average website and were less effective than Google‘s (NASDAQ:GOOG) AdSense.

But while GM has pulled $10 million in paid ads from Facebook, Ford and Chrysler are staying the course. Ford took a few jabs at GM in response — boosting its digital and social-media ad commitment and suggesting that GM just doesn’t know how to use new media properly.

Ford has found the social-media platform valuable so far, to the point of launching the 2011 Explorer exclusively on Facebook back in 2010. Chrysler also has said it has “no intention of following GM’s lead” by bailing on Facebook advertising.

The bottom line: GM’s massive marketing changes are either the beginning of a bold strategic direction or merely an illusion of movement aimed at assuaging the concerns of its largest shareholder — the U.S. government – in a presidential election year.

GM drove its IPO to the top in only a year, and the accolades it received were well-deserved. But in a global vehicle market that has become far more competitive, GM can’t afford to rest on its laurels.

Toyota (NYSE:TM) has rebounded from last year’s earthquake, tsunami and nuclear disaster to reclaim the title of the world’s top carmaker, which TM had yielded to GM last year. In the U.S., Toyota could pass Ford for the No. 2 sales spot as early as this month.

GM’s North American market share has also slipped, from about 20% in 2011 to 17 % last month. That’s not the direction the automaker or its shareholders want it to be heading in, particularly in light of the havoc Europe is wreaking on the entire industry right now. And an 8% U.S. sales decline in April came in against the backdrop of a 20% surge in Chrysler’s U.S. sales and only a 4.6% drop at Ford.

Sure, GM is dropping Super Bowl ads because it was blown away by the Chrysler Clint Eastwood spot. The Silverado ad — developed by the new ad team of Goodby, Silverstein — also apparently drove away customers toward Ford.

It’s hard to fault GM for taking a break from the Super Bowl after such a big failure in execution by its new ad team. But with GM launching 20 new vehicles this year –particularly the global launch of the Chevrolet Colorado midsize truck — it’s troubling to see GM lose out on such a prime venue to showcase its products.

With car sales hemorrhaging in Europe, ugly sales numbers in Brazil and the slowdown in China, North America is the bright spot for GM and its peers. At around $24.50, GM shares are down about 25% since March — a far cry from its $33 IPO in November 2010. With the U.S. government still holding 26% of the stock, which if sold today would lose the taxpayers more than $15 billion, there’s probably pressure for the carmaker to economize.

GM CEO Dan Ackerson may be willing to trade the top global sales spot for profitability, but you still need robust sales to deliver strong margins. GM faces a lot of obstacles in the short term, and as much as I like many of the company’s cars, I can’t get behind this stock right now.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/2012/05/is-gm-being-penny-wise-and-pound-foolish/.

©2014 InvestorPlace Media, LLC

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