General Motors Death Watch 13: Steady as She Goes

Robert Farago
by Robert Farago

'We aren't going out of business in the next six months.' After yesterday's stockholder meeting, GM Chairman Rick Wagoner faced reporters and jokingly predicted that his company will last until November– just in time for the long-delayed launch of the new Pontiac Solstice. The irony would be delicious if there weren't so many diners at the table. GM's continuing slide threatens the financial future of hundreds of thousands of shareholders, workers, suppliers, dealers, even the Seven Million Dollar man himself. And yet Wagoner's "big idea" to revive The General's declining health is a sham.

While Wagoner unveiled a five-point plan for GM, the headlines focused on plant closures and screamed "GM to slash 25,000 jobs!" The Chairman's committment to downsizing was a guaranteed spin winner. You know the drill: American manufacturing jobs are disappearing. It's a crisis! Something must be done! Equally important from Wagoner's POV, there's a market-pleasing corollary: times are tough, but GM is taking tough action. News of the move sent GM's share price (which has lost over 50% of its value in recent times) up fifty cents.

The truth is less dramatic than Wagoner would have us believe. As Daniel Howes of The Detroit News pointed out, GM is currently shedding between five and six thousands workers per year through 'normal' attrition. GM will lose 25k jobs by '08 simply by continuing its present course. Lest we forget, it still has to pay out full health care benefits. And deep-sixing entire chunks of GM's workforce hasn't stopped the rot thus far. Since 1990, The General has closed six assembly plants, trimmed 117,065 hourly workers and decommissioned 14,296 bureaucrats. So much for magic bullet number one. Next round: new product.

Wagoner pledged to speed-up new vehicle development and invest another billion dollars in the process. A billion bucks is lot compared to most people's savings, but the extra money only brings GM's R&D budget up to $8b a year– compared to Toyota's $15b. While no one could criticize GM for trying to create vehicles people actually want to buy, there's disturbing news from the engineering front lines. GM recently scuppered its rear-wheel-drive program and the replacement for the Northstar V8 is rumored to be at least four years away.

It takes The General over two years to get a new machine off the drawing board and into production. At best. 'Speeding up' the introduction of new product sounds good on paper, but any greater rush to market could mean more Solstician holdups and/or quality issues. The General's immediate future depends on what Wagoner and his team hath wrought in the last five years. If GM's PT Cruiser wannabe bombs, if their new full-sized SUV's and trucks tank, well, there's not much GM can do about it in the short term.

Other than offer incentives. Which Rick plans to cut. Bullet three: eliminate discounts by "streamlining" GM's dealer structure, improving sales in metropolitan areas, loading vehicles with more standard features and advertising vehicles closer to their "actual" retail price. Is it me, or does this sound like firing blanks? It's not the kind of strategy I'd depend upon to shift 1.2 million unsold vehicles (and counting). Surely, the only way to eliminate discounts is to build the right product for the right cost, and then sell it at a price that generates enough profit to stay in business. Most of the other guys seem to get it.

Of course, most of the other guys don't carry health care costs that equal $1500 per vehicle. Bullet four: renegotiate the UAW's contract. Hmmm. So why hasn't Wagoner formerly requested re-opening their contract? Anyway, how are those "intense discussions" going? 'We have not reached an agreement at this time, and, to be honest, I'm not one hundred percent certain that we will,' Wagoner said at the shareholder meeting. 'If we can't do that we'll have to consider our other options."

Such as importing more parts from China. This is the final round in Rick's gun. Although it didn't get nearly as much media attention as the nominal job cuts, the Chairman's announcement that he'll reduce costs by replacing UAW-made parts with Chinese parts is big news. Given that GM is now manufacturing cars in Slave Laborland, the clear implication is that GM could move more production overseas. It's not a bad idea, financially, but it ain't gonna help if and when GM tries to play the patriotic card.

And there you have it: too little, too late. For whatever reason, Wagoner couldn't bite the bullet. He couldn't lop off dying brands. He couldn't go nuclear on the UAW's costs and practices. He couldn't reinvent GM. The ship is sinking, but as far as Wagoner is concerned, it's steady as she goes.

Robert Farago
Robert Farago

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  • William William on Apr 01, 2023

    I think it's important to understand the factors that made GM as big as it once was and would like to be today. Let's roll back to 1965, or even before that. GM was the biggest of the Big Three. It's main competition was Ford and Chrysler, as well as it's own 5 brands competing with themselves. The import competition was all but non existent. Volkswagen was the most popular imported cars at the time. So GM had its successful 5 brands, and very little competition compared to today's market. GM was big, huge in fact. It was diversified into many other lines of business, from trains to information data processing (EDS). Again GM was huge. But being huge didn't make it better. There are many examples of GM not building the best cars they could, it's no surprise that they were building cars to maximize their profits, not to be the best built cars on the road, the closest brand to achieve that status was Cadillac. Anyone who owned a Cadillac knew it could have been a much higher level of quality than it was. It had a higher level of engineering and design features compared to it's competition. But as my Godfather used to say "how good is good?" Being as good as your competitors, isn't being as good as you could be. So, today GM does not hold 50% of the automotive market as it once did, and because of a multitude of reasons it never will again. No matter how much it improves it's quality, market value and dealer network, based on competition alone it can't have a 50% market share again. It has only 3 of its original 5 brands, and there are too many strong competitors taking pieces of the market share. So that says it's playing in a different game, therfore there's a whole new normal to use as a baseline than before. GM has to continue downsizing to fit into today's market. It can still be big, but in a different game and scale. The new normal will never be the same scale it once was as compared to the now "worlds" automotive industry. Just like how the US railroad industry had to reinvent its self to meet the changing transportation industry, and IBM has had to reinvent its self to play in the ever changing Information Technology industry it finds it's self in. IBM was once the industry leader, now it has to scale it's self down to remain in the industry it created. GM is in the same place that the railroads, IBM and other big companies like AT&T and Standard Oil have found themselves in. It seems like being the industry leader is always followed by having to reinvent it's self to just remain viable. It's part of the business cycle. GM, it's time you accept your fate, not dead, but not huge either.

  • Lorenzo Subaru had the ideal wagon - in 1995. The Legacy Outback was a straight two-box design with rear quarter and back windows you could see out of, and was available in brown with a 5-speed manual, as God and TTAC commenters intended. It's nice they're not raising prices, but when you've lost the plot, does it matter?
  • Bkojote Remember a month a go when Cleveland wanted to create a more walkable Cleveland and TTAC's 'BIG GOVERNMENT IS THE PROBLEM' dumbest and dullest all collectively crapped their diapers? Here's the thing- look on any American highway and it's littered with people who don't /want/ to be driving or shouldn't be. Look at every Becky on her phone during the morning commute in her Tucson, look at every Brad aggro driving his 84 month loan GMC. Hell look how many drivers nowadays can't even operate a headlight switch. You expect these people to understand a stoplight? In my neighborhood alone 4 people have been rear ended at lights from someone on their phone. Distracted driving over the past 10 years has spiked, and it's only going to get worse unless Becky has an alternative, because no judge is going to pull her license when 'she needs it to get to work!' but heaven forbid she not check fb/tiktok for 40 minutes a day.
  • Scott Shouldn't the The Italian Minister for Business be criticizing The Milano for being too ugly to be Italian?Better use of resources doing that....
  • Steve Biro Frankly, while I can do without Eyesight and automatic start-stop, there is generally less B-S with Subarus in terms of design, utility and off-road chops than with many other brands. I just hope that when they adopt Toyota’s hybrid system, they’ll also use Toyota’s eCVT.
  • The Oracle These are all over the roads in droves here in WNC. Rarely see one on the side of the road, they are wildly popular, capable, and reliable. There is a market for utilitarian vehicles.
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