Monthly Archives: November 2006

GM not finished with turnaround

GM’s president for North America announced yesterday that GM is not finished with it’s turnaround yet. Despite buying out over 34,000 employees with an early retirement offer, plus every other cost-cutting strategy they can think of (short of trimming millions of dollars from executive salaries), the job isn’t quite done. Now, I don’t know which is more remarkable: that people think this is news or that it took the North American president to figure it out. This seems to be one of the biggest “Duh” news stories ever. They had a net loss of $1.7 billion in the third quarter alone and that loss represented a $1.7 billion improvement over the same quarter of the prior year. This means that if a miracle happens and GM does as well over the next four quarters as it has done in the last four, they may make no money at all this time next year! (Actually, they really did have some income in 2001 through 2004, but not as much as they lost in 2005 all by itself.)

edit: In another cost-saving announcement, GM has just announced that they are going to buy parts from Turkey. Happy Thanksgiving to the 30,000 Turks who will soon be working for GM.

It seems that all they are able to do is lay off workers and trim costs as a way of making a profit. To me this implies that they are dying, although slowly. (Actually, GM is so big I expect it will die eventually but continue to operate for a few years beyond that out of sheer ignorance and bulk.) Rather than continuing to make vehicles that people can not afford to purchase or operate (the average Suburban gets as much as 19 mpg), as well as vehicles that people don’t seem to want to buy, you would think that they would decide to make fuel-efficient cars that people would buy. They continue to slide in popularity and market position slowly but inexorably towards oblivion. They focus on the higher margin vehicles (the SUVs) in a blind expectation that they could possibly sell enough of these so that the profit on them would counter the effects of selling fewer cars in total. It’s basic supply and demand economics, people. When the supply of a product is really low, it’s possible to sell them (if the quality is there to some degree or the desire to buy is there) for a high price. Ferrari and Aston Martin and Lotus do this. Even Jaguar can do it although they remain plagued with quality issues because the desire to buy is still there.

However, when the stock lots are full of the darn things you really have to sell them at a loss to move them. Or you offer zero percent financing again and pray. The sad part of this is that the people who are making the decisions that are driving GM towards the brink of failure are not paying for their mistakes. They’re still driving home in their top-of-the-line Caddies and Vettes. And they are still living in mansions. (And please don’t think I am picking on GM. I could just as easily have chosen Ford or Daimler-Chrysler. If it wasn’t for Mercedes, Chrysler would probably be in worse shape.)

Suppose Rick Waggoner, the Chairman and CEO of GM, had to pay GM $1 million for every $10 million the company loses next year? (Ummm. Do the math here. $1.7 billion divided by $10 million is $170 million. That’s what I call an incentive!) That would be an incentive, wouldn’t it? Unfortunately, the number of executives that would accept a job with negative incentives instead of positive ones is probably limited.