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The Future of GM: Time to Bite the Bullet

 Corporate executives like playing a game that I call “King for a Day.” They quiz automotive industry experts to inquire what they would do if they had the reins of a major corporation for one day.

 Corporate executives like playing a game that I call “King for a Day.” They quiz automotive industry experts to inquire what they would do if they had the reins of a major corporation for one day. A popular topic of discussion is General Motors. Of course, most of the changes required to turn an organization around take months and years to complete. But it’s fun to play.

Like a close family member in need of correction, an “intervention” is needed before corporate raiders like Carl Icahn, Kirk Kerkorian or Rupert Murdoch swoop in to feed on this plentiful company and its valuable assets.

After years of stalemates and brief skirmishes, several clear battle lines exist within GM’s internal struggle for profitability, efficiency and global competitiveness. With a clear strategy, executed to perfection, GM can avoid being chopped into pieces by corporate raiders or further devalued by Wall Street. After years of taking its production suppliers to task on pricing, quality and delivery, GM needs to examine other avenues to increase its overall profitability.

Battle #1: The Products

GM’s myriad of non-descript cars, trucks and minivans are losing market share at an alarming rate. The automaker’s current product lineup lags far behind Honda, Toyota, Ford and DaimlerChrysler, according to recent clinic results. According to some of these external clinics, consumers complain of “plastic” interiors, questionable materials usage and poor design execution when compared side-to-side with competing models.

The Volkswagen Beetle, Audi TT Coupe, Honda Odyssey and Nissan Xterra are design “home runs” that GM should use as prime examples of excellent design execution. With very few design “hits” in its own portfolio, GM should actively recruit the brightest stars from European and California design studios and let them have free reign over product design and execution.

Battle #2: The Unions

As we enter the 21st century, the role of labor unions is quite different than at their inception. With UAW labor rates in the $18-$25/hour range and generous benefits packages, GM is under intense union pressure to maintain these labor rates, increase worker job security and provide a high-level of worker satisfaction—or else. The threat of union strikes, and the associated severe financial damage, are the reasons that little movement has been made on workforce profit improvement.

The first approach should involve a co-developed business realignment plan involving the associated unions and GM’s labor relations boards. A new tier of wages/benefits for new employees (in the $10-12 range), flexible job security provisions based upon corporate profitability, and individual employee performance reviews are desperately needed items. The old tier of employees could be unaffected by this new contract for new GM blue-collar employees.

Without this type of restructuring, the automaker will not be able to be a profitable entity over the long term. A fundamental change is needed to increase the company’s competitiveness in the new global marketplace. Without this change, a very bloody battle could ensue involving transferring total vehicle assembly to outside suppliers and transforming GM to a sales/marketing entity instead of vehicle assembly company. A transformation of this type would eliminate thousands of high-wage union jobs. Negotiation is the preferred avenue for all parties involved.

Battle #3: The GM Dealer Body

After resisting efforts to consolidate and streamline its dealer base, GM is re-evaluating ways of increasing profits through its distribution channels. The advent of Internet car buying and the eventual industry shift to direct-price negotiation (vehicle manufacturer direct to the consumer rather than through new car dealers) is leading many industry experts to spell an end to car/truck dealerships as we know them today.

Instead of being the point of sale, dealers may evolve to become vehicle delivery and maintenance organizations. With millions of dollars invested in each GM dealership, dealer owners are sure to put up legal roadblocks and lobby Washington hard on this fundamental industry shift. Dealer consolidation is needed and more corporate profits can be realized from direct sales to consumers, instead of through traditional dealerships.

Battle #4: Internal Global Strategization

During the past few years, GM’s competitors have moved swiftly and gobbled up prime properties in the global automotive market. Ford scooped up Volvo and Land Rover (pending approval), and deepened its stake in Mazda. After its stunning merger, DaimlerChrysler has taken a controlling interest in Mitsubishi and is on the prowl for more acquisitions in Asia and Europe.

GM countered these moves by engaging in a limited stock swap deal with Fiat that has many industry analysts puzzled: Why a partial share when a full-fledged acquisition was expected? More puzzling is the strategic fit: Why Fiat? Many of Fiat’s car lines in Europe compete directly with GM’s Opel division.

Although Fiat is strong in the emerging markets of Eastern Europe and South America, other acquisition targets presented GM with better product line and regional opportunities. The automaker has taken deeper stakes in Suzuki, Fuji Heavy Industries (produces Subarus) and Saab, but its overall global plan seems to be lacking in regard to its overall product lineup and regional market strategies. Too much competition between GM’s internal divisions and a lack of synergistic opportunities are the prime reasons why these recent moves don’t make sense.

GM’s next acquisition targets should be Daewoo and BMW.

Battle #5: Salaried Workforce

As the largest corporation in the world, GM’s total workforce is in excess of 388,000 people. A large percentage of the costs associated with this workforce is layer upon layer of white-collar bureaucracy. The elimination of GM’s internal product redundancies and the associated related layers of management could streamline its corporate ranks. It is not a popular concept by any stretch of the imagination but a necessary evil, given the slimmer profiles of Ford and DaimlerChrysler when compared to GM’s organizations.

In order to expand its global market share and increase its overall profitability, drastic measures are called for. By 2010 GM should:

• Have consistent global market and product strategies in all regions.

• Be selling all of its vehicles via direct interface with the consumer.

• Deliver superior vehicle maintenance service to consumers via its revamped dealer organization.

• Consolidate its brands to core vehicles and market segments—stop competing against itself.

• Have a slimmed down but competitive salaried/hourly workforce with industry average wage and benefits packages.

But that’s just one person’s opinion…or is it?

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