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Wednesday, September 21, 2005

GM Stares Into the Abyss

I don't know what parallel universe GM is living in, but from where I'm at, I see high oil prices, a backlash against big SUVs, and a clamor for vehicles using alterative energy. In such an environment, GM apparently sees its salvation in, er, introducing new big SUVs. Despite automakers ladling on ridiculous "Employee Discounts" that do nothing but damage brand equity and depress resale prices, they've suffered a 10% decline in big SUV sales this year. Now, these new trucks may be vastly improved as GM says, but there's still that truckness to them. I'll spare everyone from a philosophical discourse on the metaphysical properties of these hulking behemoths and instead state the obvious: These aren't vehicles for the times. No matter how good they may be, the factors that fuelled this madness in the first place--low fuel prices, fad and fashion--have gone away.

On top of everything, domestic automakers have trained SUV buyers to expect sizeable discounts and consider sticker prices as a running gag. Vastly improved they may be, but I doubt whether GM's belief in these vehicles' superiority will be so pronounced as to warrant holding back from more "Employee Discounts". Once you frame expectations among consumers, they are difficult to remove. What's the score, then? GM's market value is less than that of its cash holdings, its bonds are garbage, and its parts supplier, Delphi, is on the brink of bankruptcy. The US government bailed out Chrysler long ago, but it might not have the wherewithal of doing so for GM since it's incredibly strapped already from activities like keeping afloat the airline industry and its sundry underfunded pensions. GM would break the public finances for good.

For all the similar difficulties it's facing, Ford is at least making a concerted effort to reorient its product line towards alternative energy vehicles. Unless GM comes up with better ideas than "saving" itself with a new line of hulking SUVs, this General might soon be consigned to the trash bin of history.

Posted by Emmanuel |

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