Pontiac Solstice Forum banner
1 - 2 of 2 Posts

Mod Emeritus
7,468 Posts
Discussion Starter · #1 ·

USA Today said:
Troubled GM plans major tuneup

By James R. Healey, Sharon Silke Carty and Chris Woodyard, USA TODAY

General Motors (GM), staggering from its worst quarterly loss since 1992 and barely keeping its U.S. market share above historic lows despite big rebates, is putting a recovery plan into gear, but it won't disclose goals or lay out a public timetable.
When GM brass stands before shareholders at the annual meeting in Wilmington, Del., on Tuesday, executives will be able to share some specifics, but the undertone will be, "Trust us."

GM says the people who need the information have it. "We have very, very aggressive and specific targets on what we want to do," says Tom Kowaleski, GM vice president in charge of global communications. "The board is fully knowledgeable of what those are and is fully supportive."

This much GM has said:

• It will consolidate dealerships, push down sticker prices closer to what people actually pay, get new models to market faster and continue conferring with the United Auto Workers union on ways to cut medical costs that it says are equivalent to $1,500 per vehicle.

• It won't eliminate any brands, seek Chapter 11 bankruptcy protection, or bring in a ruthless outsider to slash and burn as necessary to restore profits quickly.

It might not be enough. GM seems like "the little Dutch boy putting his finger in the dike," says Dan Gorrell at auto research company Strategic Vision.

A lot rides on whether, and how fast, the world's biggest automaker bounces back.

It could mean higher prices for cars and trucks, for instance, if GM finds that elusive path away from the industry's most generous sales incentives, which have eaten deeply into profits.

Beyond that, GM is responsible, directly and indirectly, for 1.1 million jobs and accounts for 1% of America's gross domestic product. Nearly all of the steel that GM uses in its U.S. factories — 98% — is from U.S. steelmakers. Its dealer network is the biggest, contributing uncounted dollars to local economies. The automaker spends more than $5 billion a year on medical care for current and former workers and their families.

Any scheme that shrinks GM or slices the profit-eating incentives would echo loudly through the auto industry and perhaps send ripples through the entire U.S. economy. If GM gets too much smaller, Kowaleski notes, it simply won't be big enough to keep supporting its 600,000 retirees and 400,000 active workers and families.

Signs of trouble

GM has been losing market share for years and struggling to earn profits commensurate with its size. What puts its troubles into sharp focus now, on the eve of the annual meeting with shareholders, are three developments:

• A first-quarter loss of $1.3 billion on its core business: making and selling cars and trucks in North America. Overall, GM reported a net quarterly loss of $1.1 billion. It said that earnings this year might be as much as 80% lower than it had forecast. It told Wall Street it no longer would give earnings guidance because market conditions are so uncertain.

• An unexpected bid May 4 for 4.95% of the company by billionaire Kirk Kerkorian, who already owns 3.89% of GM's stock. Kerkorian offered $31 a share, an 11.6% premium on the $27.77 closing price May 3. Kerkorian's bid could be the sign of an activist shareholder unsatisfied with the company's performance and willing to meddle. But Kerkorian's Tracinda investment company said it wants the shares merely as an investment. GM shares closed at $30.93 Friday.

• Bond downgrades. GM's debt is now at junk-bond status, which makes it more expensive for the company to borrow money. It has to pay higher interest rates to compensate investors wary of what seems a riskier proposition.

"I don't think there is any silver bullet," says Gerald Meyers, crisis-management expert and former CEO of American Motors. "They're not going to get out of trouble overnight." Meyers thinks there's more right than wrong at GM but also says the problems are so severe that it might take something as radical as government intervention of some sort to fix them. He and other GM-watchers don't foresee anything that dramatic.

CEO Rick Wagoner, who has assigned himself to fix the money-losing North American operations, declined to be interviewed for this story. Whatever his approach, Wagoner is unlikely to make a dramatic, symbolic gesture to emphasize the depth of the problem and give employees a rallying point.

Kowaleski says the CEO won't promise to work without pay until profits return, as Ford Motor CEO Bill Ford recently did. Nor will he promise to quit if he can't turn GM around by a specific date, as Carlos Ghosn did in 1999 at then-failing Nissan Motor.

GM sees itself as the victim of macro forces, not bad management. It believes it is in trouble because of high health care costs; unfavorable currency exchange rates that it says give Japanese makers a cost advantage of $2,000 to $5,000 a vehicle; the cost of defending against what it sees as frivolous and frequent lawsuits; and an unwieldy and overlapping dealer network.

The automaker acknowledges that it should have more exciting products but adds that those already are in the pipeline and just need to get into showrooms at a faster pace the next few years.

What GM has said

Comments by Wagoner earlier this year plus remarks by other GM executives and interviews with top GM spokesmen paint this picture of the get-well prescription:

•Consolidate dealerships. Buick, Pontiac and GMC brands would be sold together. That would allow GM to cut duplicative products in three to five years. For instance, there'd be no need for both Pontiac and Buick to have minivans. GMC and Buick wouldn't both need SUVs. That should reduce development and marketing costs and make the brands more distinctive. "We believe very strongly we don't have too many brands," Kowaleski says. "We have too many products within the brands."

Cadillac, Hummer and Saab also would be combined. They might continue to be sold from separate showrooms, but those would be owned by the same dealer, and service could be handled at a central facility also owned by that dealer.

Chevrolet would remain alone because its product line is broad enough to support that. Saturn, about to get several new vehicles to sell, would remain separate, too, to capitalize on its good reputation.

•Change pricing. Hoping to back away from what has become a disastrous rebate war that it started in 2001, GM will price vehicles more closely to so-called transaction prices — the amount the buyer pays once rebates are taken into account. GM thinks that lower sticker prices would get its cars and trucks on more shopping lists, even if the automaker still has to sweeten the deal with an incentive.

That's a tough transition. "If you start putting money in the glove box, the customer's going to keep looking in the glove box," Meyers says. "There's almost no way out. It's something close to dope."

Indeed. GM just said that until July 5 it will give all buyers the deep discounts it gives employees.

GM's 0% financing, begun after the Sept. 11 terrorist attacks, is what triggered the current fire-sale climate. "It is the most tactically successful event you could imagine and strategically the most destructive force they could have brought down on themselves," Meyers says.

•Hustle. The automaker already has accelerated the launch of important truck redesigns and hopes to set a brisker development pace generally.

GM says its next-generation full-size SUVs are coming to showrooms early next year, about a month sooner than planned. Versions of those SUVs for all the brands that will sell them will be in the market about seven months after launch, GM says, instead of the two years it took last time.

New-design, 2007-model full-size pickups, GM's best-selling vehicles, will be in showrooms several months ahead of schedule. And new versions of GM's midsize SUVs might be out in time for the '07 model year instead of '08, as had been planned.

GM says it will pull ahead those and other models by spending $8 billion this year and next, instead of $7 billion, mainly on North American product development.

But GM habitually is "two trends behind," says Kevin Tynan, senior auto analyst for Argus Research. In this case, it's cranking up the truck rollout as high gas prices have turned buyers to thriftier vehicles. "GM comes out and says, 'We're going to lose (money) in the first quarter but spend $8 billion on product.' I'm saying, 'Well, that's great, but what were you doing last year?' Just because you throw a number at it doesn't mean anything."

•Spend less on health care. GM says its hourly workers pay 7% of medical and drug bills. Salaried GM workers pay 27%, and GM's math says the U.S. average is 32%.

"If they could get the union to buy into the salaried plan, it would save GM a bundle," says Wes Wildman, a Chicago-based labor lawyer, consultant and educator who has followed GM and the United Auto Workers union for years. "But that's highly improbable. It's almost impossible for the union to do something like that" without inviting other automakers to demand the same and making it tough to restore the benefit later.

Automakers' contracts with the UAW aren't up for negotiation until 2007, and midterm changes are rare. Still, GM says, it's working hard with the union to find places to compromise.

GM also promises to cut back low-profit sales to daily rental fleets. The automaker says those account for about 24% of its sales now.

It plans to globalize the manufacturing of all vehicles that use a similar chassis, or platform. For example, GM one day could build Swedish Saab 9-3 sedans at the U.S. Chevy Malibu plant if currency exchange rates made that sensible.

And it says it knows what the hot market segments will be the next few years and will emphasize those products, mainly the increasingly popular crossover SUVs that ride better and use less fuel than truck-based, traditional SUVs.

All of those steps, and continued emphasis on cost-cutting, Kowaleski says, "will make North America (auto operations) profitable again."

Auto-industry expert John Paul MacDuffie, associate professor of management at the University of Pennsylvania's Wharton School, notes: "It was not long ago that GM's annual reports said no change in strategy was planned for the next year. They've felt they were on the right track. Maybe now will there be deeper questioning of that"

1,570 Posts
Won't disclose the plan?
Just you wait and see?
It's not our fault, the world's out to get us?
Rushing product??
No, the CEO won't work for free or put a deadline on his success?

The ship is sinking.
The rats have left.

Leave the deck chairs alone, stop blaming the result of bad piloting on iceburgs, understand that you're not un-sinkable, and get everyone to plugging the holes!! :brentil:
1 - 2 of 2 Posts
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.