GM's Rebirth Begins Now

David Olive
Toronto Star

In the weeks leading up to the expected bankruptcy of this century-old icon, majority sentiment in the U.S., and to a lesser extent here, has been hostile about rewarding a chronically incompetent enterprise with a taxpayer-funded bailout.

So should Washington, Ottawa and Queen's Park pony up some $60 billion (U.S.) to finance GM's restructuring under bankruptcy?

Yes. A humbled GM can change.

Post-bankruptcy, a leaner and much healthier GM will continue to put bread on the table for tens of thousands of employees, about 4,000 suppliers, and several thousand dealership employees that often are the business mainstay in small-town North America.

GM remains the U.S.'s biggest manufacturer, still a powerhouse of engineering and technological breakthroughs, most visibly with its all-electric Chevrolet Volt. GM is America's biggest purchaser of information technology.

Entire states in the industrial Midwest and Canadian cities such as Oshawa, Oakville, Windsor and St. Catharines rely on GM and its employees for an outsized portion of their property and income-tax revenue.

All of which is moot, if GM is ultimately destined, as many believe, for the scrapyard in the sky. Somehow, I don't think so.

GM will emerge from bankruptcy with only one-quarter or so of the debt it held earlier this year.

GM's hourly wage costs, after enormous concessions by the Canadian Auto Workers and the United Auto Workers, are now in line with wage rates at "transplants" – the U.S. and Canadian factories operated by foreign-based automakers. The UAW has given up its right to strike until 2015.

GM will have cut its fixed costs to levels enabling it to compete on price with foreign-based rivals.

CEO Fritz Henderson told reporters last week,"We will come out of this rid of some of the historic legacy costs that have been dragging us down for the last 20 years or so," Bob Lutz, GM vice-chairman, said in a Thursday speech. "We will come out of it with an all-new focus on product development."

In an off-the-record briefing of reporters that same day, an Obama administration official said: "GM should be highly, highly profitable given the new cost structure that is being put in place, given the vast reduction of liability that has been achieved."

Fact: "Auto companies rarely die," CEO Henderson reminded reporters last week.

He's not whistling in the dark, having overseen in the past few weeks the drastic makeover of GM that critics have demanded for decades. And he's right – out of national pride, France, Germany, Japan, China, Russia and others routinely subsidize profit-challenged local automakers.

Focused on just four brands rather than eight, Buick and GMC will no longer be deprived of new-product development funds. For the first time, Buick will have close to a full line of models. And GM will have a $1.3-billion annual marketing budget for each of Chevrolet and Cadillac, double the current ad spend, and close to what Toyota commits to its namesake and Lexus brands.

That's crucial, because GM quality and reliability have vastly improved in the past decade (Buick typically tops or is near the top of J.D. Power quality surveys), but GM has lacked the money to tell that story to potential customers that first turned away from GM decades ago. A clean-slate GM has a decent shot at winning customers among Gen Y motorists (ages 22 to 32).

At 70 million people, that group is larger than either Gen X or the baby-boom generation.

Certainly GM has the J.D. Power- and Consumer Reports-acclaimed vehicles for making converts, including the Chevy Malibu, Impala, HHR and the Cadillac STS sedan.

One of the nice things about not being No. 1 is that rivals aren't all gunning for you. With half the market, GM had the most to lose over the past three decades. Now everyone from Kia Motors to Ford Motor Co. will have Toyota in their sights, instead.

And Detroit has a spokesman in Barack Obama, who at a news conference two weeks ago sang the praises of the Ford hybrid parked in his Chicago garage.

"A year or two of Obama emphasizing the restructured GM and Chrysler," U.S. marketing consultant Dennis Keene told Business Week recently, "which he has staked his reputation and taxpayer money on, and you could start to see Gen Y take a lot more interest in these brands and looking at them in a new light."

Alluding to some of the unexpected roles he has taken on as President, Obama joked at the annual White House Correspondents' Dinner a few weeks ago that Car & Driver had named him its "CEO of the Year."

We can only hope.


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