The worst is over for GM

Whistling in the dark graveyard?
The worst is over for GM http://money.cnn.com/2007/01/11/news/companies/pluggedin_taylor_gm.fortune/index.htm?postversion 07011209
NEW YORK (Fortune) -- In its 99-year history, no year at General Motors was worse than 2006. It started off with talk of bankruptcy following a $10.6 billion loss for 2005, got worse as GM was forced by shareholder Kirk Kerkorian into alliance negotiations with Renault-Nissan's Carlos Ghosn, and ended with renewed talk that GM soon must relinquish its position as the world's Number One automaker to Toyota.
But while GM (Charts) is still on the critical list, it is at least sitting up and taking nourishment. It is making money everywhere in the world except North America, has taken a massive bite out of its cost structure, and is getting a positive buzz from its newer cars and trucks. One top GM'er bragged that German and Japanese auto executives at the Detroit auto show last week were sliding underneath some of GM's models to get a closer look.
2007 will present its own challenges, with slower sales expected and the United Auto Workers contract expiring in the fall. But in an interview at the Detroit auto show with Fortune's Alex Taylor III and other journalists, a feisty Chairman and CEO Rick Wagoner expressed a surprising amount of optimism.
What will you do if Toyota (Charts) passes you in worldwide sales this year?
If we are sitting here next year and I've lost, I'm not going to like that. [But] we're not giving this thing up just because somebody got a calculator for Christmas and punched in the numbers. This is going to be a dog fight. We're going to give up sales that don't make money, so we are not going to act like a company that is going to be drunk and disorderly. But it doesn't mean we have to lose the game because of one player.
One year does not a battle make. If we lose, we lose, but we're going to keep fighting them.
What were your biggest accomplishments in '06?
The basic move on structural cost is a big one. We started that process in '05, when we were at 34 percent of revenue. We said we wanted to get to 25 percent by 2010. We are relatively farther along on that [29 percent -- 30 percent] , but we need to do more work on our cost disadvantage here. We made a nice step on health care, but we haven't fixed it by any stretch.
How are you coming in increasing GM's revenue?
The revenue side has a longer tail on it. From a product perspective, if you are enhancing the products that you execute, the more you execute at higher levels, the more momentum you get. There is an image aspect of that too, which, by definition, has a delayed fuse on it.
A little more subtly, but just as important, is the sales and marketing strategy. Initially it costs you sales and costs you revenue, but there is no question that what we did last year [reducing marketing incentives] was the right thing. Over time we expect it to yield us more revenue - I hope I don't get too old waiting for that to happen.
What is the value of higher residuals? It shouldn't take from today to tomorrow to realize it, but it shouldn't take two years to realize it, either. What is the value of less incentives and longer warranties? We obviously believe the longer warranty has value, but it doesn't play from one day to the next.
How long do you expect your turnaround to take?
I think it is pretty long runway on the turnaround. People ask when is the business profitable and our objectives have to be much bigger than that. It is not an issue of can you make a nickel - that doesn't do anything for anybody. We need to get good profit and then it is very important that we generate good cash flow.
We need cash flow to invest in the future and pay the shareholders a fair return, and cash flow to rebuild the balance sheet. We've taken a lot of the cash on the balance sheet to restructure the business and build up a strong liquidity position. Over time and this is a long way out, get the credit rating restrengthened. So there is a lot of work to do.
-- Rule of thumb - Never attribute to malice that which can be adequately explained by stupidity
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http://www.thetruthaboutcars.com/?p )51
After this downbeat conclave, Rabid Rick launched yet another charm offensive. Schmoozing with Fortune Senior Editor Alex Taylor III, Rick revealed the home team's latest defense: stop nickel and diming us! "People ask when is the business profitable and our objectives have to be much bigger than that. It is not an issue of can you make a nickel - that doesn't do anything for anybody. We need to get good profit and then it is very important that we generate good cash flow." So now we know: making a nickel isn't much better than losing $10.6b.
Jim Higgins wrote:

http://money.cnn.com/2007/01/11/news/companies/pluggedin_taylor_gm.fortune/index.htm?postversion 07011209

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GM needs to hack their infrastructure (model choices, # of dealers, manufacturing capability) way down. If I ran GM, I'd make wide ranging structural changes in the company. I'd mostly keep the existing brands (to keep brand loyal customers coming back, you know the type of people who ALWAYS buy a brand new Buick every 4 years or a brand new Chevy every 4 years). But I'd have less models, and have the same models (same sheetmetal even) sold by various brand dealerships. Like, instead of having Chevy sell Impalas and Buick sell LeSabres (same sized cars), I'd have ONE identical design for both cars, with the only difference being the emblem/car name/grille style, but with the same sheetmetal/engineering/chassis/mechanicals. I know they do this sort of, already, but there still are many differences that add up to increased costs for GM, and also there are too many models.
Also, eliminating Buick and just calling those models "Cadillacs" might be wise. I'm sure the brand-loyal Buick owners wouldn't mind switching to Cadillac if the models/prices are still about the same, esp. since Cadillac is the more prestigous marque. I don't think the Cadillac marque would lose prestige if Buicks were to be folded over into it. In the 80's, GM stuck the Cadillac badge on a Cavalier (Cimmaron).
To sum up, I'd have like 7-8 car designs that are sold by all the GM dealerships -- same sheetmetal on ALL the cars, 3 or 4 engine choices. Less manufacturing capabilities, less dealers. Also, I'd diversify GM's transportation offerings into environmetally friendly transportation products like mass tranist/busing, electric vehicles, alternative fuels, hybrids, and transportation devices like Segway scooters.
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If carried too far, you won't sell either. Sure, the number of models has to be decreased but calling a Chevy a Buick won't sell at Buick prices. The Caprice/Roadmaster was a bit of a flop. Being ugly did not help either.

Well they did eliminate the Olds division and the Bonneville - LeSabre model is now the Lucerne - DTS so they are heading that way. There is definitely some prestiege attached to some of the marques and if they are not distinctive enough you won't get the premium dollars for them. There is nothing very distictive about Caddy these day either. You can't easily tell the 30k models apart from the 60k models. If I'm going to drive a $60,000 car, I want people to know it.
Even the low end models today are far more technoligcally equiped if not more luxurious than the top models of the last century.
As for dealers, many GM showrooms do have two or three brands now. Our local Pontiac - Buick dealer sells the identical cars under the different names but he says there is almost no crossover. If a prospect walks in the door looking a Pontiac, they have no interest in buying the same car with Buick nameplates. Perhaps they needs some new brands?
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