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5 ways to fix GM

550 views 9 replies 9 participants last post by  Nathan Clarke 
#1 ·
From the Detroit Free Press:

5 ways to fix GM

March 1, 2006
BY MICHAEL ELLIS

General Motors Corp. faces some dire months ahead, and the choices it makes could either put the automaker on the road to recovery or on a path toward bankruptcy.

The automaker already has announced massive cutbacks to turn around from last year's $8.6 billion in losses, its worst results since 1992.
"We've got to continue to cut our costs. We've announced what we plan to do, now we have to execute it," GM spokesman Brian Akre said.
But experts doubt whether GM's cost-cutting plans -- which include idling a dozen plants in North America, cutting 30,000 hourly jobs and forcing white- and blue-collar workers to pay more for health care -- will be enough.

With the future of GM in question, the company has to show progress on some key areas over the next few months to convince doubters.
Here are the key ones.

1. Sell GMAC
Wagoner has said that selling a majority stake in the financial services unit is a top priority for the automaker. A GMAC sale could raise between $10 billion and $12 billion and help the unit grow in the future by cutting its borrowing costs.
Bottom line: GMAC would give GM up to $12 billion.

2. Fix Delphi
Nothing is more critical to turning around GM than avoiding a lengthy strike at Delphi Corp., the bankrupt automotive parts supplier that has angered its unions by proposing sharp cuts in wages and benefits.
A lengthy strike at Delphi could cause GM to file for bankruptcy in a matter of months, financial analysts who follow the automotive industry said.
"If it's a long, blown-out strike, GM files within four to five months because they've run out of cash," said Brad Rubin, senior credit analyst at BNP Paribas in New York.

A work stoppage by the UAW at Delphi would almost immediately force GM to shut down most of its plants in North America because of its reliance on Delphi's parts.

A strike would cost GM about $5 billion in cash per month, according to automotive analyst Himanshu Patel of JP Morgan. GM had $20.5 billion in readily available cash at the end of 2005, so a strike could rapidly deplete GM's reserves. Alternatively, GM could spend about $3 billion to avert a Delphi strike -- either by encouraging workers to retire early with buyouts or subsidizing Delphi workers' pay and benefits.

Bottom line: A strike would cost GM about $5 billion in cash per month.

3. Cut sales incentives
GM needs to stick with its new strategy of lower sticker prices and fewer sales incentives, even if it means slightly weaker sales, analysts said.
Lower incentives will break the feast-or-famine cycle of huge incentives, which had car buyers chasing the best deals over the past four years rather than focusing on GM's improved lineup.

Lower incentives also improve vehicles' residual value, the amount owners can expect to recover when they trade in or sell their used autos.
In January, GM cut the sticker price of its models by an average of $1,300. The average incentive for GM dropped to $2,779 per vehicle in January from $3,808 a year earlier, according to the Power Information Network. Over the next few months, GM could face pressure from other automakers and from its own dealers to raise incentives if sales falter.

"If they were to switch back to incentives, frankly, it would undermine everything they've done," said Tom Libby, senior director of industry analysis of the Power Information Network.

Bottom line: GM's average incentive dropped to $2,779 per vehicle in January from $3,808 a year ago.

4. Strengthen vehicle sales
The launch of GM's new full-size SUVs and pickup trucks this year is probably GM's most important vehicle launch in a decade, said Prudential Securities analyst John Murphy. They alone could contribute about $3.4 billion, or $6 per share, to GM's earnings, Murphy said.

But with gas prices above $2 a gallon and SUV sales slumping, the timing couldn't be worse for GM. "It's just the wrong product at the wrong time," said Shelly Lombard, a senior research analyst at Gimme Credit in New York.

Still, GM needs to hold its market share steady after years of decline, and faithful SUV and pickup owners have been waiting for GM's new lineup.
GM should sell between 138,000 and 145,000 of its Chevrolet Tahoe SUVs this year, without resorting to high incentives or less profitable sales to fleet customers such as rental car agencies, said Rebecca Lindland, an auto industry analyst at Global Insight.

For buyers turned off by higher gas prices, but still wanting roomy interiors, GM's new crossover SUVs arriving later this year could help sales. The new built-in-Michigan Saturn Outlook, GMC Acadian and Buick Enclave could help GM grab a growing segment of the market.
Bottom line: GM needs to boost sales of its new SUVs.

5. Show better financial results
Bottom line, GM has to stop burning through cash. Jerome York, billionaire investor Kirk Kerkorian's adviser who was named to GM's board of directors earlier this month, estimated that GM is running through $24 million of cash a day.

GM also needs to make headway on its cost-cutting programs, including the health-care concessions reached with the UAW last year. GM executives have said that they want to continue to work with the UAW on cutting costs, but progress before the current contract expires in September 2007 could be hard-won.

"It doesn't sound like the UAW is in the mood to be accommodating," Lombard said. "So it looks like GM isn't going to get any more relief on the cost side until 2007. If they don't get it then, this is going to be an ugly situation."
Bottom line: GM is running through $24 million of cash daily.

Other factors
Critical to GM's cost-cutting plans, the automaker has to win court approval of the health-care concessions won last year from the UAW which will save it $1 billion a year. GM also faces an ongoing investigation by the Securities and Exchange Commission into how it accounted for credits from Delphi and other suppliers. Fundamentally, GM needs to change from its old, confrontational style of doing business with its unions, dealers and suppliers, said Van Conway, a partner with the corporate turnaround firm Conway, MacKenzie & Dunleavy in Birmingham. "They have to look at doing business differently than they did in the past," Conway said. "You can't bully everybody everyday."
 
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#5 ·
Its 2006 for goodness sake.
So 6 speed automatics, 6 speed manuals, or 6:1 ratio coverage CVTs

Just imagine how much better the solstice would be with a 6 speed manual than the 5 it has now. 0-60 finishes in 2nd, 1/4 finishes in 3rd, top speed is achieved in 4th, how archaic, and to think of how much effort is being expended to fit the old 5L40 when the 6L40 would be far more rewarding to drive.
 
#6 ·
MikeW said:
Its 2006 for goodness sake.
So 6 speed automatics, 6 speed manuals, or 6:1 ratio coverage CVTs

Just imagine how much better the solstice would be with a 6 speed manual than the 5 it has now. 0-60 finishes in 2nd, 1/4 finishes in 3rd, top speed is achieved in 4th, how archaic, and to think of how much effort is being expended to fit the old 5L40 when the 6L40 would be far more rewarding to drive.
The 6-speed manual is coming next year. Moparman posted an article on it a few months ago.
 
#9 ·
MikeW said:
Its 2006 for goodness sake.
So 6 speed automatics, 6 speed manuals, or 6:1 ratio coverage CVTs
Since they barely have enough cash to prevent a strike, I doubt they can afford to start a technology war. But then again, that's the reason they're short on cash in the first place.
 
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