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.
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