GM Shrinking Itself, Cutting Jobs to Survive whille Toyota Plugs On

The banking sector isn't the only industry that is getting clobbered. American car manufacturers are getting hammered because of high oil prices, a consumer shift out of SUVs, and a general sales slowdown. So what is there to do? Cut.

The banking sector isn't the only industry that is getting clobbered. American car manufacturers are getting hammered because of high oil prices, a consumer shift out of SUVs, and a general sales slowdown. 

GM CEO Richard Wagoner outines the steps the company will take to try and survive.  Yes, you heard that right.  Mighty GM is now fighting for its life.  After thirty years of absolutely woeful management, the companies can no longer hide from their poor decisions. 

The video lets you hear it right from the horse's mouth but I'll outline what some of those cuts will be:

  • Worker layoffs and reduction of benefits.
  • Suspension of dividend.
  • Asset sales - Hummer, that gas guzzling monstrosity is up for sale but will anyone want to buy it?
  • Reduction of manufacturing capacity - plant closings.
  • Reduction in capital expenditure - this is what the company spends to plan for the future.
  • Reduction in sales and marketing.

Basically, the company is shrinking itself in a desperate bid to survive the auto downturn.

Curious, I wanted to see how the other big automaker, Toyota is doing.  They are dealing with many of the same market conditions and have made some mistakes.  They overramped production of their Tundra heavy truck.  Truck demand is not coming back anytime soon and this was a costly move.  They also haven't been able to produce enough Prius hybrids and there is a six month waiting list.

But they didn't go off and buy gas guzzling hummer.  And they planned for a day when gas prices would begin to rise. 

The stock prices say it all.  GM's 52 week high was $43.20, hit less than a year ago in October 2007.  The stock is now trading at $9.93 for a 77% loss. 

Toyota's 52 week high of 126 was from July one year ago.  Since then, its stock has fallen to 88.50, or a 30% loss.

30% isn't great but it's a lot better than a 77% loss and the possibility of being insolvent.  I've said it before but all you need to do to determine the health of GM is look at their cars on the road.  I don't know anyone who would voluntarily buy a GM car over a Japanese or German car.  And that's the core problem of the American auto industry. 

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

Your code to embed this article on your website* :

*You are allowed to change only styles on the code of this iframe.

Comments

  • JRodgers

    July 16, 2008

    It seems to me, as you mentioned, that nobody in the entire industry, including the leading German and Japanese manufacturers really anticipated the oil spike that we have seen. GM and Ford were just more exposed than anybody else so they are going to need to fight for their survival now. Daimler got rid of Chrysler just in time because they were not producing efficient vehicles. Toyota, Nissan, BMW and VW will fair best of the major manufacturers because they were building the most efficient cars in the first place. They too will not escape this oil crisis unscathed.

  • Sam Cass

    July 16, 2008

    @JRogers - Yes, you are right. But the Big Three made no attempt to diversify out of gas guzzlers. Instead, they bought Hummer. It's the same every time. The Big Three are caught unprepared and the Japanese take more market share.

  • «
  • Page 1 of 1
  • »
Add your Comment