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.