GM Emerges from Bankruptcy with Leaner Look and $50 Billion of Government Loans

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Researched by Industrial Info Resources (Sugar Land, Texas)--After being battered like a pinball for the last several years, General Motors Corporation (OTC:GMGMQ) (GM) (Detroit, Michigan) finally has time to take a breath. Decades of mismanagement, constant strife with workers and suppliers, and more recently, the downturn in automotive sales in the United States had forced the country's largest automaker to seek governmental aid and eventually file for bankruptcy protection. After only 40 days under bankruptcy protection, GM emerged Friday with a new leaner look, a revamped management philosophy, new ownership and $50 billion of additional governmental loans.

The changes at the "new" GM begin at the top. Ownership of the company has changed dramatically under the agreement worked out during bankruptcy proceedings. The U.S. government, with a 61% stake in the struggling automaker, now maintains the controlling interest in GM. The United Auto Workers union (Detroit) is the second-largest shareholder with a 17.5% portion of the company, while the Canadian government owns 11.7%, and bondholders of the "old" GM hold the remaining 9.8% stake.

GM is restructuring its management style and making cultural changes as well. Within the company, 35% of the management positions will be eliminated at GM, representing 450 executives. An additional 4,000 white-collar job cuts will also be cut. GM is launching a webpage titled "Tell Fritz," named after CEO Fritz Henderson, that will enable vehicle owners as well as the general public to share concerns, ask questions and put forth praise directly to upper management at the company.

While GM intends to pay back the $50 billion of government loans before 2015, the company is also changing the focus of its assembly and sales operations. For decades, GM has relied on trucks and SUVs to provide the bulk of its sales revenue. Under the "new" GM, which may also include a name and logo change, the focus will be on producing vehicles that the consumer actually wants, rather than those that provide the largest profit margin for the automaker.

What this all will mean to the existing GM plants is unknown at this time. GM has already closed several plants and announced additional closures--14 in total--that will occur over the next few years as the company trims operations. The real question is whether additional plant closures will be necessary as the "new" GM aligns itself to this new image and philosophy. The answer is probably yes, which would mean additional job cuts as plants are closed and operations are consolidated. GM has announced that it will bring production of a subcompact vehicle to Michigan in the near future, potentially saving one of the aforementioned plants that was scheduled to close.

GM will retain four brands, Chevrolet, Cadillac, Buick and GMC, while continuing with efforts to sell Hummer, which is allegedly being purchased by a Chinese heavy-manufacturing company; Saturn, going to the Penske Group; Saab, being sold to a consortium of luxury automakers in Europe once it emerges from Swedish bankruptcy courts; and its Adam Opel GmbH unit in Europe. But will this be enough? Within the four remaining brands are many duplicate models, and while these may carry different names, they are essentially the same vehicle. GM will need to take a closer look at all of the models that are continuing production to determine if they are all truly necessary.

GM still has a long road to returning itself to a profitable entity. Simply making management changes, some executive and white-collar cuts, and changing ownership is certainly not going to be enough to bring back the most important thing that has been lost--consumer confidence. GM will be focusing on smaller vehicles in the near future, hoping that with the wild changes in gas prices, Americans will be interested in making the switch to smaller, more fuel-efficient vehicles, but this is still a gamble. In the meantime, GM will need to execute a massive marketing campaign aimed at assuring current and future vehicle owners that the "new" GM is not the same as the old company.

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.