Novice Investing - GM Needs Some Fixing

Date: Monday 01st 2008f December 2008 04:21:27 PM

GM Needs Some Fixing - 11/11/2005

By: Novice Investing Staff

General Motors Corporation (GM) is ailing. That is old news. It has been that way for decades. Toyota and Honda had been kicking their tail for a while now. GM tried to maintain their market share here in the US. It tried really really hard. 0% financing, employee discount plan, putting a GM logo on every vehicle it owned, you name it. But still, Toyota is still more efficient. It costs them almost $ 2000 cheaper to produce a car. Meanwhile GM's average selling price is $ 3500 less than Toyota. You do the math. Toyota prospers, GM doesn't.

Its stock has been hovering near 13 years low. It is burning cash this year and it has done that for a couple of years now. Can GM stop the burning? We are not very confident about that. Several steps need to be done to get GM to stand right again.

First in line is its cost structure. It costs the company $ 500 Million a year to pay for its 5000 idled workers. Simple math shows that it costs $ 100,000 per worker. It is a rarity where some generous corporation like GM was giving away $ 100,000 for every person that does not work ! We realize that this deal was done in the past but apparently, GM made a very bad deal. The company needs to fix that and other burdens such as pensions cost and health care liabilities fast.

The next thing in line is to boost its average selling price. $ 3,500 per vehicle is a lot of money, especially if you are selling as much as GM. The best thing for GM is to stop relying on rebates and discounts to get customers into the dealers lot. Introducing a lot of new quality models would help. Furthermore, changing customers' perception of GM's image will do a lot of wonder. We are not really sure how GM can do that. Hopefully, the smart people at GM can figure this out. It is a tough road ahead.


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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding General Motor Corp. (GM) or any other securities.

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