GM will restructure, phase out suffering Oldsmobile division

chief Ronald Zarrella will make "an important announcement," GM spokesman Tom Kowaleski said late Monday. He declined to elaborate.

It wasn’t immediately clear how GM will implement a restructuring of Olds or what other moves might be announced. Last week, GM said it would cut North American first-quarter production by 14% in the face of bloated vehicle inventories and slowing sales.

The Oldsmobile marketing division itself is a relatively small operation, the remains of a company that 25 years ago was almost a self-contained car maker with factories, unique engines, and dedicated teams of engineers and designers. There are no GM factories that build only Olds products, so the impact on hourly workers could be relatively small. In addition, hourly GM workers have strong job and income protections that protect against layoffs.

Current Olds models include the Alero and Intrigue sedans, the Bravada sport-utility vehicle and the Silhouette minivan — all mechanically similar to other GM models. The top of the line is the Aurora, a luxury sedan that competes against European and Japanese luxury models.

Still, a move to dismantle Oldsmobile would mark the most dramatic step in Wagoner’s effort to accelerate change at the No. 1 auto maker. As GM’s earnings come under pressure amid a cooling economy in the US, its biggest market, Wagoner and his management team are under increasing pressure to stop the slide in its North American market share, and at the same time bring GM’s huge capital-spending budget more in line with its diminished sales.

While Wagoner has kept a low profile in public, he has combined GM’s huge car and truck engineering operations under one management; consolidated previously separate US marketing divisions, cutting 1,000 jobs in the process; replaced several key executives, including the chief financial officer; and pushed a massive technological overhaul to make GM an Internet-connected enterprise.

Observers and analysts long have called on GM to kill one of its six main marketing divisions, arguing that the structure was set up for the time years ago when GM controlled half of the US auto market and that it is too bloated for GM’s current market share of about 28%.

Still, dismantling Olds will be technically and emotionally difficult for GM and its dealers. Founded a century ago by automotive pioneer Ransom E. Olds, Oldsmobile is one of the oldest names in the American car business. The "curved dash Oldsmobile" produced from 1901 to 1907 was the first automobile to be produced on an assembly line, albeit a primitive one. It was Henry Ford and a team of Ford engineers that created the moving assembly line that transformed the auto business and manufacturing world-wide.

Over the decades, GM used Olds to premier several technology firsts, including chrome-plated trim in 1926 and the automatic transmission in 1939. In the mid-1970s, the Olds Cutlass was the nation’s best-selling domestic car, and in the mid-1980s the division still was one of GM’s strongest names, selling more than a million vehicles a year. But competition from Japanese and European automakers and a string of uninspired products put Oldsmobile’s sales into a long skid starting in 1987 and 1988.

Efforts to stop the slide, such as the "It’s Not Your Father’s Oldsmobile" advertising campaign, failed to persuade large numbers of younger buyers to stop bypassing the brand on the way to Honda and Toyota stores. This year, GM has resorted to tactics, such as offering cars for no money down and no payments for 12 months, usually associated with clearance sales at furniture or appliance stores rather than with a premium vehicle brand.

During the 1990s, when Wagoner was head of North American operations and later president, GM invested heavily in developing a whole new lineup of cars and trucks for Olds in an effort to woo younger, import-oriented customers back to the brand.

Though Olds officials insist the customers they did attract fit the intended demographics, those buyers came in limited numbers. In the first 11 months of this year, Olds sales were down 18.5% at 265,878, making it the weakest performer among GM’s full-line brands.

As Olds sales slipped recently, GM executives called for stepped-up marketing, noting that the division has some of GM’s best vehicles. Ad agencies are competing to handle a new campaign for the division that is scheduled to start next year.

GM executives also have been quick to point out that nothing is sacred and that all divisions must earn their way. GM doesn’t break out financial results for individual divisions, but Olds officials have said their division’s profitability is below where it needs to be.

Most of Olds’ more than 2,000 dealers have other GM franchises and sell a limited Olds volume. Some dealers have suggested GM might pair Olds with its Cadillac luxury division, which has struggled to hold off the competitive assault from such import competitors as Toyota Motor Corp.’s Lexus division and DaimlerChrysler AG’s Mercedes-Benz.

GM isn’t likely to kill off all the Olds vehicles, having invested heavily to develop cars and trucks that would compete with premium imported models. Top GM executives repeatedly have said Olds has some of the company’s best products.

Most of them are cars, however, and have seen slack demand among American consumers enamored of sport-utility vehicles and trucks. GM had hoped to charge premium prices for the Olds lineup, but the brand’s weakness meant the company has relied heavily on discounts to sell vehicles.

The restructuring comes just as GM completed overhauling the Olds lineup to eliminate the old-style cars aimed at older buyers. The last new model, a redesigned version of the Bravada SUV, is due early next year.

A phase out of Olds as a separate division would follow DaimlerChrysler’s decision last year to discontinue the Plymouth brand. The former Chrysler Corp. killed the slow-selling Eagle brand. Ford Motor Co. has maintained it intends to rejuvenate its Mercury brand, which is the weakest of the No. 2 auto maker’s lines, and is struggling in the same upper-middle price segment that Olds once dominated.