Friday, July 18, 2008

General Motors Near Bankruptcy: An inside Job

Led by a management that could never see the future of automobile manufacturing, and a labor union that would never let go of the past, General Motors is once again near bankruptcy. Its stock price is at a 50 year low and the company is shutting plants and cutting health-care costs in an effort to stay alive. The once great automotive giant sells only 23% of the cars bought in this country. And, in view of the circumstances surrounding General Motors closing of plants, there is a possibility that Toyota could overtake it in 2008, but most likely sometime in 2009.

In order to increase its liquidity by $15 billion, General Motors warned of more tough times ahead. Broad cutbacks include a 20 percent reduction in payroll for salaried workers, elimination of health care for older white-collar retirees, and suspension of G.M.’s annual stock dividend of $1 a share. The company also will slash its salary costs by 20 percent by the end of the year through buyouts, early retirements, attrition and possibly layoffs. G.M. has about 40,000 white-collar workers in the United States and Canada. In June GM will cease production at four North American assembly plants that make S.U.V.’s and pickups by 2010. Apparently the management of General Motors has finally discerned that high gasoline prices will not go away. So the company that made its reputation on big, powerful cars and trucks will refocus on building smaller more fuel-efficient vehicles.

It's not just about the kinds of cars the General Motors manufactured. It's also about the quality, or lack of it, of the vehicles they produced. Each year when Consumer Reports comes out, the most highly rated vehicles in terms of performance, and most certainly reliability are generally Hondas and Toyotas along with other foreign cars. General Motors cars with a few exceptions have lagged far behind. The issue is not whether quality cars can be built in America, because they certainly can. The Toyotas and Hondas we drive are built in plants in America. Classy BMWs are built in a plant outside of Spartanburg South Carolina. General Motors will have to rescue itself. Let's hope it can.

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