When the United States was attacked on Sept. 11, 2001, Enterprise Editor Dave Guilford was an Automotive News reporter covering General Motors.
Ten years ago, the Sept. 11 terrorist attack on the United States thrust General Motors into the midst of efforts to keep the national economy from crashing.
GM's response -- the much-praised Keep America Rolling campaign -- was fantastically successful. But it might have been too successful, luring GM into a sales strategy that proved to be a dead end.
Ten days after the attack, GM began advertising its simple, remarkably effective, incentive program. Keep America Rolling offered 0 percent financing across GM's lineup. Within days it was clear that the program was a winner.
But GM's triumph had a mixed legacy that became apparent only a few years later. For GM and much of the industry, Keep America Rolling began an era of winning sales with dramatic, expensive incentives.
That doesn't discount GM's positive role post-9/11. In the days immediately after the attacks on New York and Washington, traumatized Americans stopped most discretionary buying and quit shopping for cars.
Officials in the Bush administration called on automakers to help restart the economy.
Retired GM executive Bill Lovejoy, then group vice president for vehicle sales, service and marketing, says Americans were fearful about follow-up attacks.
"You didn't know what was going to happen," Lovejoy recalls. "You didn't know if this was part of a continuum."
Dealership traffic reports were dismal, he adds.
In Lovejoy's view, GM's offer clicked with consumers eager for reassurance. Other automakers followed suit, and the seasonally adjusted annual sales rate for October that year soared to 21 million units. The economy regained momentum.
But within GM's executive ranks, the incentive push took on broader significance. Hemmed in by high costs, GM executives believed that they had found a winning formula: By using incentives to hit high production levels, they could meet their monthly nut and eke out a profit.
GM drew criticism from industry rivals and Wall Street analysts as it kept up the incentive barrage. Finally, CEO Rick Wagoner responded.
Speaking at an industry event in January 2003, Wagoner bluntly told critics to "stop whining and play the game. Looking at GM, we're going to do what's best for us."
Why did the tactic appeal to GM? Analyst Maryann Keller says GM's contracts with the UAW in the 1990s sharply increased labor costs, particularly for pensions and health care.
Also, the Jobs Bank program, in which laid-off UAW members received 95 percent of their pay, effectively had turned hourly labor into a fixed cost. Rather than close excess production capacity, GM figured it might as well pay the workers to build cars and generate cash.
"The incentives morphed into a need to produce cars because fixed costs were at such a high level," Keller says. "They had to cover those fixed costs."
The problem, Lovejoy says, is that artificially high production flooded the market.
"You're trying to run the business to keep the plants running as much as you can," he says.
"What happens is production gets out of whack with retail sales."
John Casesa, a former auto analyst who is now senior managing director at investment banking firm Guggenheim Securities, says aggressive incentives bought GM some time.
But they didn't save GM because executives weren't attacking core problems such as legacy costs.
"Keep America Rolling was part of an aggressive strategy to deal with the variables that management felt that they could impact, like quality, [purchasing] costs, globalization," Casesa says.
"However, the biggest factor impacting GM's future was its massive legacy liabilities, which turned out to be much greater than what they could get out of operations."
