GM Faces Uncertain Future, But Won't Seek Bailout

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General Motors is still the world's largest car manufacturer, despite losses of more than $1 billion in the first quarter of 2005. GM is unlikely to declare bankruptcy anytime soon. But it still has to turn itself around — and it can't depend on Washington to bail it out. This report is the second in a series on the U.S. auto industry.

STEVE INSKEEP, host:

General Motors is trying to manage its struggling business. This week we've been examining the challenges facing GM, which posted losses of more than $1 billion in the first quarter. GM has been losing money in its core business, selling cars and trucks in North America, and there are only a few ways for the struggling automaker to return to profitability. NPR's Jack Speer reports.

JACK SPEER reporting:

GM's predicament has people asking some uncomfortable `What if' questions right now. What if sales continue to slide? What if GM's market share keeps eroding? What if things don't turn around?

Jim Owers is a professor of finance at Georgia State University.

Professor JIM OWERS (Georgia State University): These are all signs that they need to have a dramatic and coordinated change of strategy.

SPEER: With nearly $20 billion in cash on hand, GM isn't headed to bankruptcy court, not anytime soon, anyway, but industry watchers are a lot more worried than they were even a few months ago. Standard & Poor's was well aware of GM's cash hoard when the rating agency downgraded the company's bonds to junk status recently. And yesterday, Fitch, another big ratings agency, followed suit. They acted because GM's obligations to its employees and retirees are so great that without a turnaround, that cash would disappear pretty quickly.

Brian Johnson is a research analyst at Sanford Bernstein. He says while the automaker has shrunk in recent years, its obligations to current and former workers are still huge.

Mr. BRIAN JOHNSON (Sanford Bernstein): It starts with the fact that GM once employed 600,000 people as recently as 1980 in the US, many of whom are retired now. So it's simply what happens when the demographics of a work force that is far larger in the past than it is today catch up with you.

SPEER: GM expects to spend $5.6 billion on health-care coverage this year, the majority of which goes to retirees. Pensions are another worry but not an immediate one. In recent bankruptcies at US Airways and United Airlines, pension plans were terminated and then transferred to the increasingly strapped federal agency that takes over failed retirement plans, but GM's pension programs are currently fully funded, so it's unlikely they would create any additional burden. Even so, Georgia State's Jim Owers says there's concern about where the auto giant is heading.

Prof. OWERS: What we see here is a cumulative effect of both management and employees in the past striking deals that were, by any reasonable extrapolation, unsustainable.

SPEER: Despite GM's steady loss of market share, it is not asking for any direct help from Washington. That may be because GM executives are confident about their turnaround strategy, or perhaps it's because they know what the answer would be.

(Soundbite of voices)

SPEER: Sitting in his office with a view of Pennsylvania Avenue, Thomas Boggs is the consummate Washington, DC, power broker. Cigar in hand, he talks about how, in 1979, he helped convince a skeptical Congress and the White House that helping Chrysler was in the national interest. He believes the chances of a similar aid package being approved in Washington today are virtually nil.

Mr. THOMAS BOGGS: The time that the Chrysler bailout was being debated, virtually no major US company, particularly no major US icon company, had gone bankrupt. Now you've had a lot of companies go bankrupt, very big companies go bankrupt, so there's no real fear factor like there was in the late '70s.

SPEER: And there have been other changes as well. Today many foreign automakers have plants in the US that provide tens of thousands of jobs. Those foreign-car companies have also captured a larger share of the US market. But critics say the US automakers themselves are also partly to blame for their plight. For now, GM has said it will work to fix its problems on its own. The question is whether the company can do that in a competitive environment that has changed dramatically.

Jack Speer, NPR News, Washington.

INSKEEP: We're going to continue our look at the car industry tomorrow with a visit to Alabama's new Hyundai plant.

This is MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE (Host): And I'm Renee Montagne.

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