November 21, 2005
It's just another in a long string of bad days for General Motors (NYSE: GM ) . The auto giant finally let the hammer fall, and the figure released is big -- 30,000 employees will lose their jobs. The latest number represents an additional 5,000 layoffs over the initial 25,000 workers the company had indicated it would cut. In addition, GM will shutter nine plants.
GM indicated that the move is a step on the road to recovery because it will let the automaker cut costs and get production in line with demand. There's no doubt that GM needed the cuts. While Japanese rival Toyota (NYSE: TM ) struggles to keep up with demand, GM's plants run at 85% capacity. But GM won't get back on track with just a simple slash-and-burn strategy. If the American outfit wants to be competitive again, it desperately needs to attack one of its most pernicious problems: consumer perceptions.
It's no secret that General Motors has practically been giving away its products. But it may be more important to understand why it feels it has to offer such generous incentives. The reason seems to be that buyers just don't believe that GM's cars are worth as much as Japanese vehicles are.
The perception that American products are inferior is nothing new. In fact, for a long time, Japanese automobiles were manifestly better. But since the 1970s, American products have come a long way. Several GM offerings rank high on consumer quality surveys. Unfortunately, Japanese companies' long reign and ongoing leadership at the top of the quality pyramid has left a lasting impression in the public's mind. Even though it shouldn't neglect quality, GM can't expect to win consumers over by stressing its excellence in this area.
If GM wants to get back in the game, it needs to improve in the area for which American vehicles were once well-known: namely, style. DaimlerChrysler (NYSE: DCX ) has already shown how powerful a stylish car can be with its Chrysler 300. And GM has demonstrated that it can design its own excitement. At a recent visit to a Pontiac dealership, the new Solstice convertible was priced at $5,000 above the sticker price because folks are so desperate to have one.
But GM needs to produce bold cars like the Solstice for a much larger market before profitability returns. That will take a culture that embraces risk-taking in all divisions. Unfortunately, it's not yet clear that the company is ready to take the step.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.