Is General Motors Stalling Out?

It's hard to tell whether General Motors (NYSE: GM  ) has just stalled or is careering toward a wall.

Whichever is occurring, the company, in a program that CEO Rick Wagoner calls "a plan to win," rather than simply to survive, is undertaking some draconian measures to try to fend off the automotive grim reaper. And it's all taking place against a backdrop of U.S. auto sales that have plummeted amid skyrocketing gasoline prices.

With its fortunes in tatters, the company announced on Tuesday that it will cut its number of salaried workers, its production, and its dividend. It'll also borrow $2 billion to $3 billion as it tries to weather the downturn in the U.S. market. The ultimate objective is to raise about $15 billion, an amount it hopes will sop up losses and reverse the fortunes of its North American operations.

The company will cut its truck production by 300,000 units, double the expectation of just a month ago. And it'll trim the ranks of its 40,000 salaried employees, mostly through initiatives. The objective there is to lop about 20% from salary costs in the U.S. and Canada.

GM isn't, of course, the only car company that's making draconian changes in the face of a near-market crash in the U.S. Only Honda (NYSE: HMC  ) and Hyundai of the bigger carmakers reported that their sales grew last month, and for Honda, it was by only a single percentage point. Last week, Toyota (NYSE: TM  ) , which is gaining steam on GM and Ford (NYSE: F  ) for global car sales supremacy, announced that it would shut down U.S. truck and SUV production and begin making its Prius hybrid here.

Sales of the Prius fell by 34% in June at precisely the time that buyers are looking for more efficient vehicles. The culprit? Toyota failed to keep up with demand for the vehicle, which gets about 46 miles to the gallon. So you have to wonder why the company is just now starting to turn out the model in our country.

As for GM, whether it's Bear Stearns, an IndyMac, or potentially other formerly strong U.S. institutions, we now seem to be living in a time when downward slides are awfully hard to reverse. So good luck to Wagoner and his minions. But Fools, there are lots better places for your shekels than the shares of automakers that suddenly seem unbelievably cheap.

For related Foolishness:

GM is down to a single star with Motley Fool's CAPS participants. You can let us know here how you'd rate it.

Fool contributor David Lee Smith doesn't own positions in any of the companies mentioned above. He does encourage your comments. The Fool's disclosure policy runs like a finely tuned Ferrari.

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  • Report this Comment On July 15, 2008, at 4:10 PM, gmlover wrote:

    Why is it anytime something happens to one of our Automakers,You writers could care less? If you hate to see America win so much, Why not move to Japan? I get so sick and tired of the way the media views the big three it makes me sick? When did you last drive a GM product?????? Do it then try to bash us!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • Report this Comment On July 15, 2008, at 5:06 PM, mattieb36 wrote:

    I agree with gmlover. GM is facing temporary economic headwinds in the face of its product-led turnaround. The media is jumping on the GM-bashing because the American public apparently enjoys reading this fodder.

    In the past 3 years GM has addressed its structural problems, namely high union wages and post-retiree health care benefits. Unfortunately, GM won't realize the full cash flow benefit of these moves until 2010. 60% of GM's sales are in more profitably structured international markets. The company has made great strides in reaping the benefits of a global manufacturing base by applying its platforms across markets. Additionally, in late 2006 GM engineered the timely sale of a 51% stake in GMAC. The company recognized the need to focus on fuel-efficient vehicles. 18 of its 19 products in development are cars or crossovers. Indeed, oil prices have increased significantly in the past year and people won't be using home refinancing proceeds to purchase vehicles. Again, these are cyclical macro issues, not an indication that GM is a permanent failure. GM's product portfolio has improved dramatically in the past decade in terms of design and reliability.

    From a financial standpoint, most of GM's debt has maturities far into the future, so creditors won't be clamoring for prinicpal payments for a while. The company has quickly responded to turbulent economic times to bridge its funding requirements until 2010, when the benefits of its landmark UAW agreement fully kick in.

    Chrysler will go bankrupt because it has two real systemic problems. 80% of its sales are domestic and 70% of its sales are trucks and SUV's.

    In 2010, I firmly believe that GM will earn $4/share. See you fools in late 2009 when GM is trading in the 40s+. I'd appreciate any fact-based, articulate response to dispute my claims.

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