How General Motors Got Stuck in Reverse

General Motors is a huge, complex organization, and when huge companies get in trouble, they're not easy to fix. Seeking to restore profitability, General Motors recently announced it's cutting 30,000 factory jobs and closing nine plants in North America. Sad to say, what GM needs is not a surgeon but a miracle worker.

The hard facts about GM's predicament are by now well known. The company says health care makes up $1,500 of the cost of each vehicle produced. GM is the largest private purchaser of health insurance in the country, footing the bill for 1.1 million workers, retirees and family members. Most are retirees, the very people with the highest health care expenses.

The UAW is offering some givebacks on health care to reduce GM's costs. But the savings won't change the big picture, which has lately become an unnerving canvas of red ink. That's why the automaker is shuttering factories and slashing its North American workforce by more than 25 percent. So what does the market make of all the bloodletting? GM's stock fell the day of its announcement. The fact that these layoffs will hit factory workers so hard — and yet still won't satisfy Wall Street — reveals the extent of GM's troubles.

Through much of the 1990s, GM held its own financially, thanks to the tremendous popularity of sport utility vehicles. U.S. automakers can earn $10,000 or more in profit from the sale of a big SUV, compared with a few hundred dollars when they sell a car. So GM followed the money. That worked fine for the company as long as gas was cheap and Americans felt they couldn't do without their Suburbans and Trailblazers.

But the profits generated by SUV sales always masked a substantial threat to GM. For years, GM has been losing the competitive race on its home turf to Toyota and other Asian carmakers. Even the SUV boom couldn't reverse that momentum. A generation ago, it was rare in some parts of the country to see a foreign-made car. As recently as 1989, Detroit still had 77 percent of the U.S. auto market.

How things have changed. In October, Asian automakers captured 40 percent of the U.S. market, with GM, Ford and DaimlerChrysler holding on to just 52 percent. Making matters worse for GM: With gas prices high, consumers are opting for fuel-efficient cars like hybrids or smallish crossover SUVs rather than tank-like gas guzzlers

What can U.S. automakers do to win back customers? Appeals to "buy American" get more complicated when Toyota, Honda and Nissan build vehicles in Tennessee, Kentucky and Alabama, and General Motors buys parts from China. So if the call to patriotism doesn't sell cars like it once did, what's under the hood becomes even more important. While GM products have been getting better marks lately for quality and reliability, Japanese vehicles are still perceived to be somewhat better. And unless that changes, it's hard to see how GM can shift out of reverse.

Uri Berliner is NPR's business editor.

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