The way out of the maze: Use overseas strengths
Cost cutting, new cars are keys to the turnaround effort
 | David Sedgwick is editor of Automotive News. |
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General Motors announces a huge loss but assures investors that its turnaround plan is on track. The company closes assembly plants, eliminates thousands of jobs and shakes up its product lineup.
Is anything different this time? Yes, maybe, but investors can't be blamed for feeling skeptical. GM lost $18 billion in the first six months of 2008 — a huge loss that cannot be pinned solely on a soft market.
Three years ago, CEO Rick Wagoner made a big bet on GM's full-sized trucks. He accelerated the redesign of the company's full-sized pickups and SUVs. And he assumed that they would generate the bulk of North American profits.
It was a perfectly natural assumption at the time, given the moderate price of gasoline. Remember that other automakers — such as Toyota — also bet on big trucks. But when gasoline prices skyrocketed, Toyota maintained momentum with its hot-selling Corolla, Camry and Prius.
GM's cars couldn't match them.
So is it lights-out for GM? Not if the company can make full use of its overseas assets. As the price of gasoline rises, American motorists will embrace European-style small cars, compact minivans and perhaps diesels.
The Opel Astra already is on sale in the United States as a Saturn vehicle. Moreover, GM is moving fast to equip its cars with small, fuel-efficient turbocharged four-cylinder engines.
And GM's new halo car — the Chevrolet Volt — will embody the company's commitment to better fuel economy when it debuts in 2010.
But first things first. GM will have to weather its cash-flow crisis over the next two years or so. In July, Wagoner announced plans to cut costs by $10 billion and raise $5 billion in cash.
General Motors will:
• Eliminate 5,000 salaried jobs, or 15 percent of the North American white-collar work force, by November. That's in addition to previous announcements of plans to cut 19,000 jobs.
• Consider all options for Hummer, which could range from a new product lineup to the brand's sale or termination.
• Suspend its dividend and reduce capital spending by $1.5 billion.
• Kill plans to introduce a new line of large rear-wheel-drive cars.
• Raise up to $7 billion by selling assets.
If GM cuts costs — and if its European-style cars are well accepted in America — what, if anything, can derail its turnaround? Barring war in the Mideast, the company's biggest foe is incrementalism.
The company seems more comfortable following trends than creating them. A case in point is the Toyota Prius, the hybrid sensation that goaded GM to develop the Volt. But in an unpredictable market, halfway measures could bring GM's turnaround to a grinding halt.
In Dearborn, Ford CEO Alan Mulally is gambling his company's future on Ford's European lineup. He plans to introduce six European models to the United States, and he is converting four truck assembly plants to produce those European cars.
Three years ago, Wagoner guessed wrong on big trucks. Does he have the gumption to make another bet? GM's second century is riding on the outcome.
You can reach David Sedgwick at dsedgwick@crain.com.
