Tuesday, November 15, 2005
Forbes has some interesting analysis about GM and why they feel (or at least the author of the piece feels) that GM will not go bankrupt. I think the piece is well written and well thought out. I agree entirely with all the points except one. The author feels that GM would merge with another company if bankruptcy were near like Chrysler did. I do not believe this could happen. For one Chrysler was very profitable when Daimler bought them, though their stock price was low, or at least lower than Daimler's at the time. For another, I don't think any car company has the means or the inclination to merge the massive empire that is GM into their own portfolio.
GM is basically an American company with some small subsidiaries in all parts of the world. These subsidiaries, including its entire European division, essentially are unimportant to the company's bottom line. GM lives and dies by how its American division does. If that division does poorly, then the company does poorly. If it does well the company does well.
Unfortunately its American products are awful. In virtually every market segment they compete in they are the worst in that segment, or at best runner up. That is not to say they don't make reliable, safe or affordable vehicles. On the contrary. Their vehicles are often some of the safest most reliable and affordable vehicles on the road. However they are almost always the ugliest.
GM's problems are cultural, I am convinced of this. As a company they reflect American culture very well. They are capable of making fantastic high end small volume cars like the Corvette and their Cadillac lineup. When it comes to appealing to the masses, they are miserable. In many ways they have become a reflection of American society as a whole. They have forsaken the middle class buyer to foreign companies, and have tried to make a profit on the fickle upperclass. It hasn't worked.
For a while they could get away with appealing to a customer base that wanted solely big and powerful. THat customer base, the SUV buyer is dying and will soon be dead. In its place is the sedan buyer, and GM is simply not ready for this new kind of customer.
I have tried to keep abreast of GM's future product plans for the next year. I find most of the vehicles they are producing for the upcoming year to be inadequate. And I am being told by their highest executives that these upcoming products are the result of intense effort. IF that is the case, GM is doomed.
The new trucks they are planning are made for a market that simply does not exist. A shrinking market is always more competitive than a growing one. The full size SUV segment will only be left to highly discerning customers who will want the best deal or the best vehicle. GM SUVs are not those. They don't have the best mileage and while they have improved aesthetically, it simply isn't enough.
Almost all the vehicles GM produces that are competent in any way have low mileage. All of the Cadillac lineup is competitive, but none of these vehicles are fuel efficient. The Corvette is fuel efficient for a sports car, but in the grand scheme of things is hardly efficient at all. The Solstice is a start, and a bold entry into a market dominated by only Mazda. However GM immediately has set about competing with itself by spending millions of dollars creating the Saturn Sky, which will now be a new competitor against the Solstice. The Solstice and Sky alone or together will easily outsell the Miata, because they are simply better looking. And the market for fuel efficient sports cars is set to grow by leaps and bounds. But this will hardly be able to save the GM empire.
GM produces no FWD sedans of any strength at all, except possibly the Aveo which probably has low profit margins because of its size. They produce no hybrids, no diesels, nothing with a technological edge.
In short the company has nothing on the horizon that can save it. But it also, like the Forbes article says above, has considerable money stocked up. And when it sells GMAC it will have a lot more.
What does this all mean? GM will eventually go bankrupt. It just won't for probably another few years. But it will happen unless radical change occurs. And that change is not coming any time soon.