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Has General Motors Made a U-Turn?

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By RedneckRoleModel
October 19, 2007

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Are we witnessing, right now, one of the great turnarounds in American industrial history? The more I study General Motors (NYSE:GM), the more I am convinced that this is happening. I've always known it was possible; two years ago, I was predicting a great renaissance for GM by 2012, but I also predicted that it would have to go through bankruptcy to get there. It's still early, but Rick Wagoner may have succeeded in reversing GM's course without recourse to Chapter 11.

Why do I think GM is turning around? Lots of reasons:

1.) The cost structure is falling into line with the Japanese competition. Everyone has read about the new contract with the UAW, featuring a VEBA for post-retirement health care, defined contribution retirement plans, and a two-tier labor cost structure. With the majority (I think it's 60%) of the GM work force eligible for buyout in the next few years, GM could find itself with a labor cost structure no different from what Toyota, Nissan, and Honda have in their US plants.

2.) Far greater productivity: At the beginning of the decade, it took Toyota something like 21 hours to produce a vehicle (all these numbers are off the top of my head). They now do it in like 18.6 hours. GM, at the beginning of the decade, was at 29 hours; now it takes them just under 20 hours. The gap is much narrower than it was. And many GM plants now can make vehicles based on more than one platform.

3.) Far greater quality. GM caught up to the Japanese and German cars in initial quality and long term cost of ownership several years ago. Most people don't believe this when they hear or read it, however, because GM continues to lag in fit and finish and quality as perceived by drivers. This too is now beginning to change. The entire line up of Saturn and Pontiac present a level of excitement and quality that I've never seen before from GM. And the automotive press is doing veritable back-flips over the upcoming Chevy Malibu, which some are saying can be a legitimate challenge to the Accord or the Camry. GM ceded the market for mid sized sedans decades ago, while leading the market only with certain of their SUVs and with the Corvette, a unique car that simply cannot be copied by foreign rivals. If they now can re-conquer the mid size sedan market with higher quality and higher fit and finish in the Chevy and Saturn market, they could take back a huge chunk of the North American market. And they may be able to make a profit doing so.

4.) Potential for technological leadership: GM appears to be serious about the Chevy Volt. If they can bring it to market on time, and if they can beat Toyota's plug-in hybrid to market, they have a huge opportunity. Personally, I would be very tempted to buy a sexy, green, American-made car that didn't pollute. GM has a further opportunity to expand on their thought leadership in biofuels by making the Volt a flex fuel car. I love the idea of a car that doesn't run on any petroleum products at all.

This is all just conjecture now, and there are plenty of ways the GM can screw up. But the pieces are all there. The balance sheet will be healed in just a few years. The labor cost structure will be reasonable, and unlikely to get out of control ever again. The cars are starting to appeal to the emotions of human beings, not just to the demented cost-cutting impulses of Alamo and Avis.

I'd love to hear what everyone else thinks. Is this real, or am I smoking something?

Best,
Redneck