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April 8, 2005
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New Models, Health Care Concessions Seen As Keys to GM Revitalization
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Cadillac's 2005 models were a highlight of the recent New York Auto Show.
The financial viability of General Motors is of intense interest in Bay City and the Saginaw Valley, with GM's new products, overseas sales and cost-cutting efforts leading the hit parade.
GM recently revised first quarter and calendar year earnings estimates, predicting a loss of $1.50 per share in the first quarter and calendar year loss of $1 to $2 per share, citing "significant challenges in North America."
Agreements with labor unions on health care concessions and employment reductions are a key part of structural cost reduction moves, according to GM Chairman and CEO Rick Wagoner.
GM is reportedly pinning its hopes for financial success in the coming year on the Hummer H3, (Pontiac) G6 coupe, Pontiac Solstice,(Chevrolet) HHR.
Several new models in recent years have not lived up to expectations, distressing executives, stockholders and employees alike.
Top GM economic strategist Paul Ballew was in town a few weeks ago at the Tri-County Economics Club, giving some hard facts along with cheerleading about the financial condition of the nation and the company. (See "GM Spokesperson Paul Ballew," MyBayCity.com, April 3, 2005.)
Eyeing the "big picture," prices of new vehicles, apparel, appliances, telephones and computer software have been declining, Mr. Ballew pointed out. "Three sectors that couldn't be more screwed up" include education, cable television and medical care, along with local phone service and food, he said.
Health care costs are out of control, and will remain that way, until the consumer directly controls those costs, he commented. Health care costs GM about $6 billion a year.
GM vice chairman Bob Lutz has been quoted in Automotive News as saying: "We've got to start doing business on a sustainable, long-term basis," citing dependency on products, the foreign currency exchange rate and fuel prices. Mr. Lutz is global product development director for the automaker.
GM is reallocating resources to higher-volume vehicles and killing off plans for its rear-drive Zeta vehicles, according to Mr. Lutz. The future of rear-wheel vehicles at GM is in doubt, although now their emergence is just delayed, he said.
GM is hopeful about its large crossover vehicles, front wheel drives a little smaller than full-sized SUVs. They are lighter and more fuel-efficient, Mr. Lutz says. It is much easier to convince an American buyer to buy a U.S. truck than to buy a U.S. car for some strange reason, he said.
Mr. Ballew pointed to GM's development of hybrid utility vehicles, which he said are "leading the industry in fuel economy." The firm recently delivered hybrid GMC Sierra trucks to the Army and to the City of Fort Wayne, Indiana.
"We are making a long-term move away from the internal combustion engine and toward fuel cells," said Mr. Ballew, noting: "we are now closer to solving the storage problem." Mass production of such vehicles is "coming pretty fast," he said.
The firm also will be spending "more than tens of millions of dollars more on advertising," hoping to reclaim market share and profitability.
He pointed to hopes for more business in China, Korea and Europe, commenting:
Although China has high tariffs, markets there are far more accessible than ever, Mr. Ballew said. GM has the second biggest sales of any automaker in China and is solving the problem of repatriating earnings, he said. "By the end of the decade the Asian market will be as large as North America for GM," he predicted.
Mr. Lutz said: "The market share is growing again, and, frankly, looking like we are doing better financially in Europe. Latin America has returned to profitability and probably going to exceed our expectations. So there is more to General Motors than just North America."
Regarding cost-cutting, Lutz said: "The UAW always works with GM when it comes to working on efficiency, working on safety and working on quality. We couldn't ask for a better partner. Where we are going to have ongoing conversations is on the whole issue of health care costs. We have an outstanding health care plan for salaried employees. We have a different one for UAW members. If we had the same health care plan that the salaried people have for the UAW people, it would represent substantial savings to the company." Industry insiders said the UAW appears willing to give concessions on health care benefits because they know it may be critical to job preservation.###
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