GM Brings Restructuring Problems into 2010

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Researched by Industrial Info Resources (Sugar Land, Texas)--General Motors Corporation (GM) (Detroit, Michigan) spent most of 2009 in the news. Beginning with GM begging Congress for bailout relief at the end of 2008 and ending with the government's takeover of the company after its bankruptcy, it is fair to say that the last 18 months have not been kind to the automaker. Even as things began to look better for the beleaguered automaker in the latter half of the year, the board of directors decided to perform a major shakeup of the company's leadership, ousting the CEO. As we enter 2010, GM continues to face numerous significant problems with its restructuring plan.

GM saw sales drop 30% in 2009, while its major U.S. competitor, Ford Motor Company (NYSE:F) (Dearborn, Michigan), avoided bankruptcy and saw its sales surge at the end of the year. As if the domestic sales problems were not bad enough, the Asian automakers took control of the market in 2009, increasing their market share from 44.6% in 2008 to 47.4% in 2009, ending the dominance of the "Big Three."

The problems for GM continue to mount. While bankruptcy buddy The Chrysler Group LLC (Auburn Hills, Michigan) has revealed its restructuring plan, including its decision to begin assembling Fiat SpA (Italy) vehicles in the U.S. to increase sales, GM has been very quiet about how it will climb back into the saddle and reclaim its position as the dominant American automaker. Fiat is Chrysler's new owner.

Once of the reasons GM fell last year was poor decision making at the corporate level. The executives that were making the operational and product decisions for decades made poor choices, resulting in sales dropping. While most of those executives have been removed, there is evidence that they left behind a business plan that simply does not make sense.

GM recently announced that it has put its Janesville, Wisconsin, plant on notice that the facility may be re-opened to produce sports utility vehicles (SUV). At a time when gas prices are beginning to creep up and when the focus of the sector is on smaller, more fuel-efficient vehicles--preferably those using alternative fuels--how can GM focus on SUVs, which Americans have shown they do not want to buy?

While GM has trimmed its lineup of vehicles in recent months--eliminating Pontiac, Saturn and Saab when they could not close deals to sell the brands, and selling off Hummer to a Chinese company--the company has opted to maintain brands that are redundant. Essentially every vehicle produced under the GMC brand is also produced under another brand with a different name. GMC tends to be the higher-end models, models that have all the bells and whistles, while the other vehicles being produced under the Chevrolet or Buick brands are base models with upgrades available that would make them the equivalent of the GMC model. Yet, GM has no intention of dropping the GMC brand.

At a time when less is more and smaller is better, GM appears to be ignoring the direction most automakers are taking and is moving off on its own path. These types of decisions are among the reasons that GM was forced into bankruptcy last year. The only saving grace for the automaker may be that the federal government is its majority shareholder and can put a stop to nonsensical decisions before they get out of control.

GM executives have maintained that the automaker is close to being profitable again and will be able to repay taxpayers the billions in bailout money that they were given. However, their announced decisions, coupled with flagging sales that are not showing any signs of significant improvement, appear to indicate that the company will not be capable of such lofty heights within the next few years and may face more problems down the road.

GM has pinned its hopes of profitability on total vehicle sales in the U.S returning to pre-recession levels. While this could happen in the future, the likelihood of it happening in 2010 is slight. Consumers are guarding their money tightly, and banks have not yet loosened their lending practices. Until those two factors change, there will not be a significant boost in automotive sales in this country, which means that GM will not be capable of returning to profitability as soon as it expects.

While the optimism is welcome, it needs to be balanced with the realization that dreaming of profitability will not make it come true. GM is going to have to continue to make major changes throughout 2010 if it wishes to remain competitive and if it wants to fight its way back into the lead in U.S. vehicle sales. The landscape of the American auto sector has changed, possibly forever, and GM needs to wake up and realize that business as usual will not get it done.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.