A 'New' GM Will Have Work Cut Out for It
Tuesday, July 7, 2009
The new General Motors hoping to emerge from bankruptcy this week will find itself mired in a weak car market, besieged by competitors vying to eat up its dwindling market share and pressed to change its corporate culture, all under the eyes of a strange new government ownership structure.
General Motors won permission from a bankruptcy judge late Sunday night to sell its most-prized assets -- including the Buick, Cadillac, Chevrolet and GMC brands -- to a new government-backed company, setting the stage for a historic restructuring plan that is at the heart of the Obama administration's overhaul of the ailing auto industry. And it will shed debt, dealerships, other brands and many of its former labor obligations in an effort to become a leaner, more effective competitor.
But analysts said the "new GM" will still have to deal with the same challenge as its century-old predecessor: Designing quality cars consumers want to buy at a price that will make the company profitable.
"Success is not just measured by cost cutting but by making a product that people want to pay for," said Sean McAlinden, chief economist of Center for Automotive Research.
"The easy stuff has been done now. Now comes the hard stuff," said Maryann N. Keller, an independent auto analyst and consultant. "From the moment that [GM chief executive] Fritz Henderson took over he had one job: To get the company ready for bankruptcy and get it through. That has nothing to do with designing or assembling or marketing cars."
The new GM will also be seeking to gain its footing in a highly competitive environment. U.S. auto sales are on pace to fall short of 10 million vehicles this year, the lowest level in more than a decade. And that has intensified the rivalry among struggling manufacturers.
Ford Motor, the only one of the Detroit Three to avoid bankruptcy, has been gaining U.S. market share. Fiat is breaking into the U.S. market through its new alliance with Chrysler and is angling to expand in China, where GM is strong; yesterday Fiat signed a $560 million joint venture deal with Guangzhou Automobile Group to build 140,000 cars and 220,000 engines a year. And Chinese automakers are also eyeing the U.S. market.
Meanwhile, Roger Penske, who has agreed to buy GM's Saturn dealer network, is expected to make a deal with a manufacturer that currently lacks outlets. "Whatever you flow through it will be something that wasn't flowing through it before," Keller said of the Saturn network. "What was GM's now becomes a competitor of GM."
The new GM will also have to overhaul its business model, which was built on a global platform that assigned design and engineering tasks for small cars to its South Korean unit, light trucks and crossovers to the U.S. operations, and midsize cars to its Opel unit in Europe. But in bankruptcy, GM gave up its controlling interest in Opel, raising questions about how GM will obtain critical design and engineering.
Amid the uncertainties that lie ahead, U.S. Bankruptcy Judge Robert Gerber gave GM the go-ahead to complete a deal that will allow it to emerge from bankruptcy. His ruling came despite the objections of more than 850 parties and after three straight days of hearings that ended just before the long holiday weekend. In a 95-page opinion, Gerber sided with lawyers for the Treasury Department and GM, who argued that the government-orchestrated restructuring plan was the only option available to save the largest U.S. automaker, once the crown jewel of American manufacturing.
"The only alternative to an immediate sale is liquidation -- a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates," he wrote. "In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing."
GM and the government hope to complete the sale transaction later this week, a source familiar with the matter said. That would be a major victory for the Obama administration, which recently completed a sale of Chrysler's assets to a new company led by Italian automaker Fiat. If GM is able to execute its sale this week, both automakers would have completed their trip through bankruptcy in about 40 days -- an unusually speedy process.