GM Faces Its Demons

[Ming]

GM Faces Its Demons
By Brian Gorman
October 25, 2004
The Motley Fool

After a long bout of denial, General Motors is finally facing the music. The automotive giant's problems are manifold, but in confronting them, the company is offering some cause for optimism.

GM reported earnings a couple weeks back, and the results left most investors cold. Heavy incentives (that recently got heavier) and losses in Europe are taking their toll. And the company has been slow to wake up to consumers' interest in fuel economy.

By now, Detroit's incentives addiction is widely known. How to escape from the margin-crushing effects of the incentives trap? DaimlerChrysler, although by no means perfect, offers a surprisingly simple solution to this vexing problem: sell cars that people really want to buy. The company has sold more than 77,000 of its 300 sedans since April, without major incentives.

For its part, GM has been daring in its styling at its Cadillac division, and sales of those vehicles have been encouraging. But many other segments remain tired. In a bid to change this state of affairs, the company plans to invest $3 billion in its long-suffering Saturn unit to give those vehicles a much-needed makeover. Models in the works include a roadster, a new sedan, and a new sports utility vehicle.

On the fuel efficiency front, GM is finally, tentatively, introducing hybrids, even as its Detroit rival Ford rolls out its Escape nationwide and Toyota plans to sell 100,000 of its Prius models in the U.S. in 2005. GM is also introducing a more fuel-efficient Hummer, the Hummer H3 (hey, it's a start).

Finally, General Motors is tackling its problems in Europe. The 12,000 layoffs the company plans are a painful yet necessary measure if the firm hopes to restore its competitiveness on the continent.

In short, GM's problems aren't likely to go away overnight. But the sleeping giant has been awakened, and that alone is reason for hope.

http://www.fool.com/News/mft/2004/mft04102506.htm

[mgescuro]

They forgot the big fat cloud looming over GM... the healthcare costs.

It really IS about time GM get its act together. I really believe that they are well on their way. Sure, Chevrolets dumba$$ styling is a hindrance, but if SSR and HHR are an indication, things are getting better.

I think we all need to realize that GM has had these troubles for about 25 years while management did absolutely nothing, essentially running the corporation into the ground.
It takes billions and billions of dollars and many years to turn around the company.

If GM is going to hack 12,000 jobs in Europe and consolidate operations, then so be it.
If GM is going to outsource production jobs in the US to Asia, then so be it. The rope is about to break with GM and UAW. It simply cannot go on.

I don't think hybrids are all that amazing. It's hype. THey are not much more fuel efficient that other cars in its class. I think GM's idea of hybrid + DOD is a smart move. Add Saab's trionic system... and you've got a winner. Or even Saab's new FFV is quite impressive.

[mjd1001]

As a corporation, maybe GM has to grow in Asia and downsize in America and Europe. Than means both Market share and jobs.

This would not be a popular thing among a lot of people, but that may be the direction they need to go to survive as a company.

[tgagneguam]

As much as I may agree with the sentiment of the above post from the Motley Fool, I cannot help but notice that the Fool is quite harsh with respect to GM, Ford, and DCX in general. Even compliments are paid in a back-handed way toward the domestics.

The general thought is simple: the domestic automakers are poor investments and generally are not a good pick for someone's portfolio.

[MCGARRETT]

North America is not the problem. Europe is.

Even though most of the people on this site drool all over all the European GM products, GM of Europe is constantly losing money, while GM North America keeps on making money on it's products inspite of huge incentives.

Chrysler has had a hit with the 300, but what about the Stratus? or Sebring? or the Neon, all those models have tons of incentives on them too, also notice that it's just the 300. what about the Magnum? Not to much hoopla around that?

GM North America is in doing great compared to Europe. Cadillacs are all selling well, there is a waiting list for the XLR, the CTS just keeps selling more and more, the STS looks poised to make a big impact in the premium sports sedan segment.

Chevrolet is re-eneregized and poised to take the crown as the best selling automobile make in the US for the first time since 1986. The Cobalt looks to be a big hit for Chevrolet, and there are possible rummors of a RWD Impala and new Camaro waiting in the wings.



Pontiac is getting a wave of new products, it's sales are up for the model year too, the GTO is getting more recognition and HP, Pontiac dealers are going to have a hard time keeping Solstices in stock at a starting price of $19,995, for the first time since the 1970's Pontiac is going to have a mid-size convertible car, the G6 convertible. The Grand Prix is getting a V8 for the first time since 1987. The Bonneville GXP seems to be sellign briskly and it paves the way for a new RWD Pontiac sedan waiting in the wings.

Buick is getting a 3 billion dollar investment that is promising to yeild a Cadillac-like re-birth of the division with a new V8 FWD sedan for 2006, a RWD V8 sedan and convertible for 2008, a revamped Rendezvous, and possible rummors of a return of the Grand National.

Saturn also seems to be getting a 3 billion dollar re-vamp that is part of a great expansion at Saturn which includes adding 80 to 100 new Saturn retail facilities starting in 2006, a new roadster, mid-size sedan and new 7 passenger SUV.

All in all General Motors global and North American market share were up for the last quarter.

[Laffer98]

If GM designs and build their cars in China, I will be the first in line to buy one if I can afford it.

[petervegas]

It is not only Europe. GM's car operations in the US have made very little money in recent years. All (or most) of GM's profits have come from GMAC.

[VivienM]

Originally Posted by petervegas

It is not only Europe. GM's car operations in the US have made very little money in recent years. All (or most) of GM's profits have come from GMAC.

Very little money is better than losing large amounts of money...

Besides, isn't that just the result of the way they account for incentives? E.g. if GM offers 0% financing on something, I think the car side of the business basically pays the interest to GMAC, so... that hurts the car profits and increases GMAC's profits.

[vdoh182]

GM should not abandon its market share, the financing profits from GMAC are the only thing keeping them afloat now, so they should try to retain thier large share, or at least retain the current volume with better products, and if it means incentives until the get those products, thats the way it has to be, for now. If the dont abandon their market share/volume when they finsih updating hteir products then they will have both GMAC's profits from the volume, their truck lines profits, and profits off their cars , and then they'd be doing great. But for now they need to keep up their market share to make enough money to develop the new products they are going to need, and once they have products that will sell without incentives, there will be no need to downsize their marketshare, in America, i dont think anything will work to make selling cars in euroe worth the effort. Even european companies rely on american sales b/c there is no money to be made in europes choked economies.

[goblue]

Originally Posted by mgescuro

They forgot the big fat cloud looming over GM... the healthcare costs.

Exactly.

[ackenda]

Even though most of the people on this site drool all over all the European GM products, GM of Europe is constantly losing money, while GM North America keeps on making money on it's products inspite of huge incentives.

i'm thinking the situation in europe is a matter of "it's all relative." in the u.s., the reputation of gm--irrespective of how valid a thought it is--is something like "mundane" "average" "ho-hum" "mediocre." that's the perception gm is fighting here. obviously cadillac and various individual cases are strong indicators of a trend in improvement, but there's a lot of work to be done in that world of perception.

then, unlike in europe, people will buy product from gm because it's gm. family tradition and whatnot. there's a big piece of your domestic profitability--call it patriotism or brand loyalty, whatever.

in europe, with the "higher" standards (for lack of a better term), gm is in the same perception boat, relatively speaking, but without americans to buy them regardless of perception. they're great cars by u.s. standards, but are not considered as continually and refreshingly leading-edge as their euro counterparts--even if it is a closer race.

[ackenda]

oh, and i also think gm is as profitable as it is (when that's proven to be a hard thing to come by in recent years) because of the ever-so-slow pace for rolling out new product combined with gm's notorious parts-bin sharing. it's a business matter of perspective...one that i don't agree with, but certainly a safe way to go.

[VivienM]

Originally Posted by ackenda

then, unlike in europe, people will buy product from gm because it's gm. family tradition and whatnot. there's a big piece of your domestic profitability--call it patriotism or brand loyalty, whatever.

Europeans are the same way, about the "national" brands. One thing that hurts is that Opel is considered German (then again, so is Ford, incredibly enough to a North American audience), and there is a lot of competition in the "domestic" German market, which lowers the amount of loyal Opel customers...

That, and I don't think Opel has a particularly good reputation out of all the German automakers, even in other European countries...

And what other European assets does GM have? Vauxhall is just the UK brand name for Opel, Saab has been in trouble and the no-longer-quite-so-new Epsilon 9-3 is far more targetted towards North American tastes...

[quinnp12]

at least they are admitting the problem now. the hard part, although we can all throw suggestions at it without getting anything done, is making it both economically beneficial to them without ruining something else.

[orkan013]

gm technology is so far behind japanies, japanies just make better cars that is why they dont have to use incetives to sell them