GM Death Watch: It Ain't Gonna Happen!
I have been enjoying reading the news these past few days,
perhaps in a perverse sort of way. Pundits and prognosticators
are all forecasting the pending doom of the world's largest
automaker as if the approaching layoffs and restructuring are
signaling the venerable automaker's end. Certainly, GM has some
problems - big ones - but the company isn't likely to go away or
even file for bankruptcy. The news isn't all that it seems to be
on this subject either...GM will survive and likely thrive in
the decades ahead.
Okay, I am not crazy. Could GM go away? Of course, as could any
poorly managed company. Yes, executives are overpaid and so are
union workers. There...I said it. GM has been taking it on the
chin from Asian automakers for three decades now and their U.S.
market share continues to dwindle. Still, it isn't doomsday for
the general. Far from it. Here are some things that I believe GM
is attempting to do to as they restructure.
Reduced Legacy Costs - GM won an important battle with
its unions to force workers and retirees to pony up more money
for their share of rising healthcare costs. Before you cry
"foul" most Americans are paying heavily for their health
insurance, while most autoworkers pay little or nothing.
Reportedly, GM's legacy costs add $1500 to the price of every
vehicle. Hardly a way for any company to compete, right?
Divisional Trimming - GM axed Oldsmobile and is,
supposedly, looking at whether Pontiac or Buick should go next.
Saturn looks safe, primarily because of the division's excellent
dealer network while Chevrolet is the household name for so many
car owners and is, therefore, untouchable. Cadillac is once
again doing well and is competing effectively against Mercedes,
BMW, Lexus, and Infiniti. Cadillac easily outsells rival Lincoln
more than 2 to 1.
Captive Imports - I mentioned in a related article that
China's Chery Automotive Company will be importing a line of
vehicles to the US commencing in Summer 2007. With a starting
price as low as $6995, there is no way that GM can compete with
them. Neither can Ford, Toyota, Honda, or Nissan for that
matter. So, what is the option? Import one or two ultra low
priced lines of cars from Korea via the company's Daewoo
division. Currently, the $9995 Chevy Aveo is the low price king
in the US. This Daewoo built model is being overhauled and the
new model should arrive in the US in about one year. Expect the
price to drop as GM prepares for Chery's onslaught.
Expect GM to pressure their unions for further give backs as
American highways are soon flooded with cheap Chinese imports.
Operational Spread -- The US auto market is the most
lucrative in the world. Expect GM to strengthen luxury brands
including Cadillac and Hummer as many of these vehicles bring in
profits of ten thousand dollars or more per vehicle. Gas prices
are coming down and America's thirst for profitable trucks and
SUVs has hardly been quenched. Still, look for GM to do a few
hybrids, add some more diesels, and continue researching
hydrogen production.
Union members should be alarmed by all these looming
changes. Cutbacks will happen but they will only be wider and
deeper if union opposition remains so strong. Yes, the unions
could kill off the general, but that would be suicide for the
workers. Better to pick whatever battles you can win and hope
for the best.
The general isn't dead and it hardly is dying despite everything
you read and hear [personally, I believe GM is beating the
"we're getting clobbered" drum to squeeze out more give backs
from the unions]. Globalism is changing the way business is done
and it would do all of us good to wake up to that fact...like it
or not.