After a long bout of denial, General Motors (NYSE: GM) is finally facing the music. The automotive giant's problems are manifold, but in confronting them, the company is offering some cause for optimism.
GM reported earnings a couple weeks back, and the results left most investors cold. Heavy incentives (that recently got heavier) and losses in Europe are taking their toll. And the company has been slow to wake up to consumers' interest in fuel economy.
By now, Detroit's incentives addiction is widely known. How to escape from the margin-crushing effects of the incentives trap? DaimlerChrysler (NYSE: DCX), although by no means perfect, offers a surprisingly simple solution to this vexing problem: sell cars that people really want to buy. The company has sold more than 77,000 of its 300 sedans since April, without major incentives.
For its part, GM has been daring in its styling at its Cadillac division, and sales of those vehicles have been encouraging. But many other segments remain tired. In a bid to change this state of affairs, the company plans to invest $3 billion in its long-suffering Saturn unit to give those vehicles a much-needed makeover. Models in the works include a roadster, a new sedan, and a new sports utility vehicle.
On the fuel efficiency front, GM is finally, tentatively, introducing hybrids, even as its Detroit rival Ford (NYSE: F) rolls out its Escape nationwide and Toyota (NYSE: TM) plans to sell 100,000 of its Prius models (or, as Fool contributor Rich Smith put it, "Prii") in the U.S. in 2005. GM is also introducing a more fuel-efficient Hummer, the Hummer H3 (hey, it's a start).
Finally, General Motors is tackling its problems in Europe. The 12,000 layoffs the company plans are a painful yet necessary measure if the firm hopes to restore its competitiveness on the continent.
In short, GM's problems aren't likely to go away overnight. But the sleeping giant has been awakened, and that alone is reason for hope.
Fool contributor Brian Gorman
is a freelance writer living in Chicago. He does not own shares of any companies mentioned here.
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