GM Goes Lean to Stay Ahead of Toyota

By Jennifer Yousfi

General Motors Corp. (GM) Tuesday announced a series of cost-saving measures aimed at fighting waning domestic sales fueled by a weak U.S. economy and the soaring cost of fuel.

“We are responding aggressively to the challenges of today’s U.S. auto market,” GM Chairman and Chief Executive Officer Rick Wagoner said in a General Motors company statement announcing the cuts.

“We will continue to take the steps necessary to align our business structure with the lower vehicle sales volumes and shifts in sales mix,” he added, “We remain committed to bringing to market great products that target changing consumer preferences for more fuel-efficient vehicles.”

The struggling GM is being forced to make sweeping changes as it continues to lose market share to its Japanese-based competitor, Toyota Motor Corp. (TM). The measures announced Tuesday are the latest in a string of desperate moves by GM to try to maintain its slim lead on Toyota, its closest global rival.

The most recent changes include eliminating an unspecified number of salaried positions, mainly through natural attrition and offers of early retirement. GM will also discontinue healthcare benefits for older retirees, pursue the sales of some of its brands, and eliminate its quarterly dividend.

All told, GM predicts the measures will generate an additional $15 billion in capital by the end of 2009.

“Today’s actions, combined with those of the past several years, position us not only to survive this tough period in the U.S., but to come out of it as a lean, strong and successful company,” Wagoner said.

Wall Street analysts saw bolstering GM’s capital position as a top priority, but a full-recovery for the automotive giant is tied to the U.S. economy.

“We have to see better demand for automobiles, for cars and trucks, in order for the liquidity crisis to be put to bed,” Tim Ghriskey, chief investment officer at Solaris Asset Management in New York, told Reuters. “They’re burning through about $3 billion in cash a quarter. The cash drain has to stop at some point or GM has larger problems.”

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Comments

[hoffman23]

2 major thing to focus on with GM. First, the overseas business. It's going gangbusters and trading in strong currencies. 60% of their business is overseas. And second, they are selling their high MPG vehicles like hotcakes. they have redirested all their high MPG vehicles to the US and will be leading the industry within a year. The difference in this company is that they use to react to issues in years. Now they react in WEEKS! This is the new GM. Only the idiot analysts look at the company's leadership as if it was the old days. Buy now and make money.

[paulk8756]

It's good to hear an American company is working hard to turn things around! (...Or, more likely, most of them are, and we just never hear about it from much of our "fair and balanced" news media.)

[quick]

hoffman, I hope you're right about GM! I think if they can get the Volt released on time in 2010 and not have too many major problems with it, that's going to help them immensely! I'm already saving up money to buy one!

[UtterlyDisgusted]

GM is finally doing what it should have started doing 2 years ago is serious way. Forget about who is #1 and focus on profitability.
They still need to do more, including consolidating brands and dropping some dealerships.

[Joey]

GM spends over three billion dollars on advertising. They should cut at least 50% of it and use some of the funds to pay off their debt.

[User 169775]

What I want to know is, if GM is making money "like gangbusters" overseas, why do they still effectively have negative equity (more debt than the value of the entire stock float)?

Unless GM can get back into positive equity territory, remember the stockholders are going to be the ones left holding the bag if things don't improve.

Not only do I want to see them have at least 2 consecutive profitable quarters, I also want to see the debt load decrease below equity value before I would consider buying any GM stock.

[adan]

get us a volt car, at or under $10,000, nicely equipped, and i'm in

[User 169775]

Not gonna happen. Bob Lutz has already said the Volt will cost $40,000 at least: www.autobloggreen.com/.../

The really scary thing for GM is, at about the same time Toyota will be coming out with its 3rd-generation plug-in Prius with about the same capabilities as the Volt (40 miles on one complete battery charge), and the 3rd-gen Prius is expected to cost around $30,000.

[User 25255]

Yeah, but the Prius is ugly

[User 169775]

The General Motors EV1 was ugly too, even more so than the Prius.

And the EV1 could have prevented GM's current predicament had they developed it further.

[Mister Jimmy]

The Prius and the Volt have several major differences. The Prius has a nickel-cadmium battery and utilizes its gas engine to power the drive train at higher RPM's. The Volt will have a more-powerful lithium-ion battery and its gas engine ONLY re-charges the battery. It could conceivably never need the gas engine if no more than 40 miles are driven on a single over-night charge. Not so with the Prius, which is NOT a true purely electric car like the Volt.

[User 169775]

Wrong.

The 3rd-generation completely-redesigned Prius coming in 2010 will have Lithium-Ion batteries just like the Volt, with similar capabilities-- 40 miles on one charge.

You don't expect Toyota to rest on its laurels, do you?

That's what got GM in trouble in the first place.