Will GM Keep Sputtering?

Over the past several months, General Motors (NYSE: GM  ) has made major strides toward wellness. Specifically, the agreement with the United Auto Workers on health-care cuts was a big step forward, and the restructuring will help. Though painful, these actions were essential to ensure GM's immediate survival. But the more important question is whether management is taking the right steps to make the company a winner in the long term. A couple of recent news items are enough to plant some serious seeds of doubt.

The first piece of news was GM CEO Rick Wagoner's announcement last Friday that he anticipates improved revenue for 2006. Wagoner is staking next year's growth on new full-sized SUVs and trucks, but the reason for his optimism is unclear. Yes, the new vehicles will be more fuel-efficient, but Wagoner himself has remarked that since large-SUV buyers have bigger incomes, fuel economy isn't such a big issue for them. Better mileage doesn't seem likely to translate into a lot more sales.

OK, then, what about the new vehicles' better ride? True, some consumers stopped buying large SUVs because of their less-than-comfortable handling, but it's far from clear that they will switch back to big SUVs now. After all, since SUV sales peaked, a whole new segment of crossover vehicles has sprung up to cater to drivers looking for bigger vehicles with more car-like rides.

Another troubling sign came from The Detroit News, which reported that GM will stop making its 20-cents-per-$1 matching contributions to 401(k) plans. On the face of it, this is hardly unreasonable. After all, it's no secret that GM is hurting, and white-collar workers should be willing to accept the sacrifice.

The problem, though, is the implementation of the change. In April, GM cut 401(k) matches from 50 cents to 20 cents. With management now eliminating the company contribution entirely just a few months later, the appearance is that cutbacks are being implemented haphazardly, and it suggests that management does not have a clear vision but is simply making up cuts as it goes along. In addition, cutting the contribution twice, rather than just once, probably has a more negative effect on what is surely already low employee morale.

There's no doubt that the changes afoot at GM will help get the company back on its feet. But it's not clear that the current management can make the automaker thrive.

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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.


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