View Full Version : Who Says GM Is Dead?

05-15-2006, 09:37 AM

When General Motors asked Bob Lutz to revive its product line in 2001, the thinking was that if anyone could do it, he was the man. The charismatic, brash ex-Marine fighter pilot had led the development at Chrysler of such hot cars as the Dodge Viper and PT Cruiser, and he wasn't shy about criticizing GM for cranking out the dullest metal in Detroit.

Many Americans have come to share that view, thinking of GM as a rusted, doomed giant that will never recover from decades of bad cars and better foreign competition. President George W. Bush said as much in JanuaryDetroit needs to build "relevant" cars. (Message to GM: Forget about a bailout.) But now that Lutz is looking at things from inside GM, he's telling a different story--and has some evidence to back it up. He likes to reel off the names of new GM models earning solid reviews, notably the Chevy HHR, Buick Lucerne and Saturn Sky. GM has made enormous leaps in quality too, so Lutz bridles at the notion that its vehicles don't stack up. "I can't find words that can be printed in a family publication to express my opinion of that view," he says in his office in downtown Detroit. "Our No. 1 problem is the perception gap."

If perception is reality, here's one Lutz might like: Wall Street is warming to the idea that GM isn't dead yet. After losing $10.6 billion last year, the company reported a first-quarter profit of $445 million, its first quarterly gain since 2004. Much of that was due to accounting optics and GM still lost $503 million in its North American auto operations. But in recent weeks the stock has rallied 42% from its 52-week low of $18.33. "There's more optimism than there was a month ago," says analyst Brian Johnson of Bernstein Research, noting "glimmers of hope" in strong sales of GM's new full-size SUVs despite high gas prices. Merrill Lynch and Deutsche Bank have raised their ratings on the stock, citing evidence that GM's cost-cutting plan is on track. "This is a salvageable situation," says David Cole, chairman of the Center for Automotive Research. "It's a crisis, but that's the good and bad news. Absent a crisis, I don't think they'd survive."

<font color="blue">Decades of downsizing have turned GM into a retirement home with a car factory in back. Every active U.S. employee supports 3.2 retirees and surviving spouses, amounting to "legacy costs" of about $1,500 per vehicle and wiping out profits on all but the priciest models.</font color> Yet that dismal state also makes CEO Rick Wagoner's plan fairly straightforward: shrink GM to a defensible market share. Then wait for the retiree costs to go down, around 2010, as GM vets increasingly qualify for Social Security and Medicare. To bridge itself to 2010, GM is shedding factories and workers, offering buyout packages to its entire North American hourly workforce. It is also raising cash by unloading assets like a 51% stake in its GMAC finance arm, scheduled to be sold to a private equity firm, Cerberus Capital, for $14.1 billion. "We've made big moves in every area," Wagoner told TIME, adding that GM has "no plan, strategy or vision to utilize bankruptcy" to restructure.

3 more pages here (http://www.time.com/time/magazine/article/0,9171,1194041,00.html)

Fran Crimi
05-16-2006, 05:46 PM
GM has made enormous leaps in quality too <hr /></blockquote>

Why has it taken them so long to figure this part out? Amazing.