Is GM Headed for Another Reckoning?

[Ming]

GM Headed for Another Reckoning?
Jim Burt
2005-03-15
www.thecarconnection.com



General Motors said Wednesday that it will lose $855 million in the first quarter and will earn as little as $600 million for the whole year in 2005. That news prompted Wall Street analysts to initiate sell orders on GM stock, driving shares down almost 14 percent to $29.06, a new 52-week low and a level it hasn't seen in 13 years.

GM is beset with further losses at the North American automotive operation, and a market-share decline that is proving resistant to higher incentives, new models, or marketing gimmicks. GM's market share was down more than two points, compared with the same period a year ago, through February to 24.9 percent - its lowest level since a strike shut the company down in 1998. Making matters worse is the fact that about one-third of that share is to rental-car companies and "program" vehicles to employees, retirees, suppliers, and family members of all three groups - sales that bring in little if any real profit. Each one-percent drop in market share is worth about $1 billion in lost profit.

GM is reportedly looking for another $2 billion of fixed costs to cut this year. That could come in the form of workforce reductions and plant idlings or outright closings, with a corresponding one-time charge that it would incur to pay off workers.

The crux of GM's problems: too many workers churning out too many vehicles because of the United Auto Workers' stranglehold on GM, namely the inability to close factories and eliminate workers to better match GM's natural market share; the refusal of the union to pay some of its own healthcare premiums; too many brands under the GM roof demanding capital investment in new vehicles and marketing costs. While GM has been improving quality, its poor brand images do not allow it to charge the prices that Toyota, Nissan, and Honda can with their better images.




"We continue to believe GM's products are overpriced (relative to the Japanese brands) by 10 percent to 15 percent due to weak resale values," says Ronald Tadross of Bank of America, who has a "sell" rating on the stock, and lowered his price target on the company to $23 from $27.

Aside from tepid sales of new models, GM is also hurt by the falloff in sales of big SUVs, which have supported the otherwise losing proposition of selling passenger cars in North America. "We continue to believe GM is in a precarious position given lower GM North America production volumes, especially related to its highest-profit platform, GMT800 (full-size trucks); the challenging pricing environment; and less profitable mix (more cars/less trucks)," said Joseph Amaturo, analyst for Caylon Securities. "We do not expect modest improvements from automotive operations outside North America to offset these domestic headwinds. Amaturo added, "We remain confident that possible credit rating downgrades and a dividend cut are in the company's near-term future and will only add insult to injury."

GM CEO Rick Wagoner said in January that he is not looking to eliminate another sales division after closing Oldsmobile. Analysts, though, say that GM could eliminate Buick or Saturn and probably Saab, and have a more profitable 20-percent market share, which is the share level that seems to fit the trajectory of the company these days. Wagoner is reluctant to sacrifice the "shelf space" of those brands in the marketplace, nor does he necessarily want to be remembered as the CEO who shrunk GM. That level of share would require the UAW to face the reality that the days of $90,000-plus a year for line workers and paying no healthcare premiums are over. But don't count on any of that without a big fight if GM tries to push any significant reform before the next union contract is negotiated.



FULL Article Here: http://www.thecarconnection.com/inde...5&article=8301

[Hotspur]

Its been coming for 30 years. Top brass has been warned by every conceivable means. Welcome to the big leagues GM. Did you think you were entitled to special treatment? It's time the shareholders took action and removed the board members and the top senior people...

[goblue]

This seems to be a fairly unbiased, accurate assessment. Something big and painful is going to happen soon.

One area he is dead on in is the pricing of vehicles. Every new model is overpriced, some up to 3 or 4 K.

GM incrementally improved the new models, but with the exception of Cadillac - did nothing style wise, or at the minimum, mechanically bold. Dropping OHV 6 cyl engines, pushing up deployment of the 6 speeds, making onstar and stabilitrak standard now, side airbags across the board, 5 year warranties on all powertrains, not just aveo and cobalt. Things like this are what needed to happen. When I saw the 3800 in the Lacrosse (and especially Lucerne) and the 3.5 in the G6 with a 4 speed, I felt right then these vehicles would not be a hit. GM needed lots of positive press, and the status quo - incremental improvement doesn't cut it. GM caught up with its interiors to average, for instance, not good enough to change perception.

[SSrevolution]

Yup, Its a shame isn't it? Look o the bright side. GM is spending unfathomable amounts of money revamping their lines and are continuing to spend as we speak. So that is why they will only gain so little. I wont beat around the bush though, this is pretty bad. BTW look who is at the helm of all this! Capitan Lutz! Come on guys show your support! Let Lutz go! Let Lutz go! FIRE HIM NOW BEFORE IRREPERABLE DAMAGE IS DONE!

[Swahili]

This is disheartening. I almost don't really have anything to say other than it's upsetting to the General in a bad way.

The crux of GM's problems: too many workers churning out too many vehicles because of the United Auto Workers' stranglehold on GM, namely the inability to close factories and eliminate workers to better match GM's natural market share; the refusal of the union to pay some of its own healthcare premiums

This seems to be taking the life out of GM. On one hand, the union seems to be protecting jobs which is good in that sense. But in the other, GM is supporting a lot of people through employment and healthcare costs that are driving it into the ground. Where does someone find the balance of maintaining a fair level of employment and staying profitable?

driving shares down almost 14 percent to $29.06, a new 52-week low and a level it hasn't seen in 13 years.

I think in another article it was stated some analysts predict that share price could be cut in half. That's a huge blow to the reputation of the company on Wall Street. It's going to have to go way down before it can come back up.

Analysts, though, say that GM could eliminate Buick or Saturn and probably Saab, and have a more profitable 20-percent market share, which is the share level that seems to fit the trajectory of the company these days. Wagoner is reluctant to sacrifice the "shelf space" of those brands in the marketplace, nor does he necessarily want to be remembered as the CEO who shrunk GM.

Again, on one hand I can sympathize with Wagoner not wanting to be the one to cut Oldsmobile, then Buick, Saturn and maybe Saab, but if this action is needed and he doesn't follow through, he could be remembered as the one who lead GM to filing Chapter 11. It's not a good situation. I do think that GM has too many divisions, but I'm not sure I could say which ones should be cut and why. Cadillac, Chevrolet, and Pontiac are mainstays though and after that, well, the deicision is ultimately up to Wagoner.

[SSrevolution]

Hey goblue! O-H-I-O! Ohio State for Big Ten football champions 2005 and 2006!

[Swahili]

Originally Posted by SSrevolution

BTW look who is at the helm of all this! Capitan Lutz! Come on guys show your support! Let Lutz go! Let Lutz go! FIRE HIM NOW BEFORE IRREPERABLE DAMAGE IS DONE!

I'm not sure I'm able to see how Lutz is responsible for this? How long has he been with GM compared to how long GM's market share has been decreasing? Vehicles deisgned solely and wholly under him aren't out yet, if I recall correctly. Besides, I don't think he has the freedom of choice he wants or currently needs to do the job to his 100% full potential.

[casket_demon]

The damage was already done with the less than lackluster products (cars Impala,Monte Carlo, Cavalier,Sunfire,Ion) being pumped out 4 years and years. Plenty decent cars were killed or pushed in2 a coner so that the "mainstays" could live on. Blaming soley Lutz isn't going 2 change anything, getting rid of just a finger on a broken hand is still going 2 B broken. As long as GM keeps on shoveling out the S-H-I-T (A division up until recently had 2 cars?!?!?!?,over priced cars $75k ZO6?!?!, when the last one was $60k) GM is going 2 have 2 eat it and like it.

[Hotspur]

Can't fault Lutz, he was to little to late. Time is not on GM's side. Customers are not impressed by product alone. They are impressed by cars that excel year after year after year. That's really when a car becomes "gotta have". Like Camry/Accord or 3-Series. The Cobalt is a good car, but expect a sales surge after its number 1 in its class for 5 years in a row. GM's been swinging for fence... Sorry, times up! Oh well, there is a great Audi for sale down the street...

[lio45]

"As for its new-product turnaround, most of the models designed to attract new customers - the Chevy Cobalt, Pontiac G6, Buick LaCrosse, and GM's new minivans - aren't attracting much attention even with beefy sales incentives. Meantime, GM is suffering from comparisons with Chrysler, which is reaping huge profits from being able to sell a hot Chrysler 300C sedan and Dodge Magnum wagon virtually without incentives."

That's not surprising.

And it's easy to forecast the same for the '06 Impala and Lucerne.

[Ming]

GM can't keep giving in to UAW demands that make it uncompetitive by forcing it to keep selling vehicles like the Blazer (and look what great PR that just gave them). Until the day arrives when GM brand dealerships are allowed to offer a full-line of modern, attractive, and relevant products that people want, and not so many image-killing products that GM must sell, due to old factories pumping out outdated product for GM's almighty "fixed costs", GM will remain in a world of hurt and shrinking market share.

More Cobalt, less Blazer-like product that has long outstayed its welcome GM, please.

[nailhead425]

Originally Posted by Swahili

Again, on one hand I can sympathize with Wagoner not wanting to be the one to cut Oldsmobile, then Buick, Saturn and maybe Saab, but if this action is needed and he doesn't follow through, he could be remembered as the one who lead GM to filing Chapter 11.

The sad truth is GM is alot like an aging loved-one whose body is being ravaged by diabetes. As poor circulation necessitates slow, painfull amputations, so GM is cutting out extraneous divisions to save the core body.

I'm nearly convinced that fewer models is the key, with more identifiable differences between divisions. Given platform sharing and community parts bins, I'm not sure that will work either.

[slowinthefastlane]

If you're going to take a loss, then you may as well take a big one. Wall Street isn't going to react much worse than they already are.

For the sake of the future, GM's got to take every one-time expense and forward them to the money-losing quarters. Now is the time to get tough with the Unions, shut down the divisions, take one-time restructuring costs, do buy-outs, and anything else that costs money. Now is also the time to cut the sticker prices and get rid of the rebates.

The best thing they can do is take the medicine now, no matter how bad it tastes. They're already being punished. It won't hurt that much more. The upside is that when their back on their feet, the following quarters will have huge profits. Wall Street will like that. Wall Street doesn't really care about market share, if you're profitable.

Personally, I think they should kill off GMC and Saturn. The resources there could be merged into Chevy. Ford doesn't seem to need two divisions to handle truck sales - they just offer a wider variety of trim levels. Then, adopt Saturn's way of doing business in Chevy dealerships. Saturn was a nice experiment, but I think it's time to close it down.

[SSrevolution]

I know I cant only blame this on Bob Lutz but look what has happened since his short tenure has started.
-Caprice was retired in 96 surrendering the police car market 100% over to Ford
-Camaro/firebird was murdered handing the market 100% over to Ford
-Chevy has no rear drive cars besides the Corvette right now surrendering the fruitful growing market over to Chrysler.
However I do like some things since his regime started.
-The revolution that will put GM ahead in the future
-Corprate styling (oh wait everyone hates that)
So no Lutz isnt totally at fault, all the suits, figureheads, and designers need to be fired. Sorry I'm a little bitter.

[SSrevolution]

BTW I have to get off of here. It is 11:20pm here eastern standard time I'm tired. CYA tomorrow.