Monday, February 16, 2009

GM Time To Pay The Piper

Today GM is starting to build some of the best cars in the company's history. The Cadillac CTS, Chevy Malibu, Pontiac G8, Chevrolet Corvette and the Chevy Silverado pickup are the best vehicles that GM manufacturers. Each of these vehicles is extremely competitive in it's class. I have driven each and they are impressive cars in driving dynamics, style, design, engineering etc. It appears that they may have turned the corner in realizing that they have to compete not only here in the U.S. but worldwide.

My issue with the American manufacturers has been a management issue. GM management traditionally has chosen to build cars as cheaply as possible. Which means that they would put a minimum number of dollars into product development, use parts that were as cheap as possible and then anticipate that Americans would continue to buy them like they always did.

Unfortunately, Congress in all their wisdom allowed every country in the world to compete here. Therefore, Americans realizing that there were better cars out there started purchasing Japanese cars due to the improved reliability. Then Americans discovered the European cars based upon driving dynamics and superior safety.

So here we are , tomorrow GM and Chrysler will turn in a restructuring plan to the Treasury department. Apparently, they will not report to a new Car Czar but an inter agency task force headed by Treasury Secretary Timothy Geitner and Economic Council Director Lawrence H. Summers.

GM now has to answer to Uncle Sam! It is time for some hard decisions! GM has to cut the number of models, currently GM has 60 models which average 50,000 sales a piece. Many of the models are almost exact duplicates ie. Buick Enclave, GMC Acadia and Saturn Outlook crossovers. GM has not had the money to to market all it's vehicles nor the development dollars to improve the existing models.

GM also has four times and many dealers as Toyota in the U.S. They have to supply all the different dealers with products which they can no longer afford to do. Dealers are protected by state franchise laws. When GM shut down Oldsmobile a few years ago, GM had to pay dealers $1 billion in settlements.

Then we have the issue of the United Auto Workers and the Canadian Auto Workers unions which have generous contracts for wages, healthcare and retirement benefits. The unions have been working with the auto industry so I will have to commend their management. But, this is a make it or break it situation!

Bottom line - GM will have to undergo major financial surgery! Eventually, I anticipate that GM and Chrysler will be put into a government sponsored bankruptcy. GM will probably survive but will exit bankruptcy a smaller more efficient manufacturer. Chrysler's fate does not look very promising!

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