The GM Story

Key players: General Motors (GM), Rick Wagoner, CEO

Summary: GM just announced that it will eliminate 30,000 manufacturing jobs and close nine North American plants by 2008 as part of an effort to get production in line with demand.

Popular Brands: Corvette, Chevrolet, Buick, Saab, Cadillac, Hummer

Comments: The world’s biggest carmaker is giving in; firing people even in the light of wanting to safeguard the American Dream of retiring with fat benefits. The culprit: Asian competitors, namely Toyota and Honda, and several other woes which include:

1) Recent SEC investigation for accounting errors due to improperly booking credits from suppliers

2) High labor, pension, health care and materials costs

3) Sagging demand for SUVs, largely due to higher oil prices, and by bloated plant capacity

4) Declining market share, currently at 25%, larelgy due to competition from Asian automakers

5) Possibility of a strike at Delphi Corp., its biggest parts supplier, which filed for bankruptcy protection last month. GM spun off Delphi in 1999 and could be liable for billions in pension costs for Delphi retirees.

Hopefully, closing the plants will shave off some of that excess capacity and bring demand more in line with supply. However, I see cost cutting as only the beginning to address these problems. Competition with Asian automakers is going to kill GM if it does nothing about it. But what can it do? Change its business strategy and introduce more fuel-efficient crossover and hybrid vehicles? But even then it faces intense competition from the Japanese who are currently dominating the market and are ready to drop prices to safeguard their powerful position.

GM said the plan is to achieve $7 billion in cost reductions on a running rate basis by the end of 2006. This is going to show up in the books as a "significant" restructuring charge in conjunction with the changes and any related early retirement program.

Gotta love globalization!