It is not 1876, and GM (GM) CEO Rick Wagoner does not have long blond hair. But, Mr. Wagoner is in mortal trouble and there may not be much he can do about it. He is Custer on the great plain.
GM, following a move by Ford (F), is planning to cut a lot more costs and a lot more people, poor souls lost to the ghosts of high gas costs and a faltering economy. According to The Wall Street Journal, "GM is preparing to announce further restructuring measures aimed at reducing costs and conserving cash amid a deep downturn in U.S. truck sales."
For those not paying attention, truck sales are not coming back. The most successful franchise that Detroit had over the last decade is gone and it not likely to reappear. Pick-ups and SUVs have tremendous profit margins, but their sales depended on sub-$2 gas. It may be a very long time before gas passes below $3 again.
Wagoner and his peers believed, and fairly so, that if they took billions of dollars of operating expenses out of their North American operations, they could get margins closer to the Japanese. The Big Three bargained hard with the UAW, closed plants, laid off white collar workers, and squeezed suppliers until their brains leaked out of their ears. All of that worked.
What Detroit did not expect was a cruel inflation in the price of crude, one which robbed them of the benefits of cost cuts and put them back on the critical list where they sat three years ago when their expense structures were much too high.
Wagoner should have taken out more costs two years ago. That is 20/20 hindsight, but, if someone can be done without today, it is hard to see why they should have been kept on the payroll at all. But,GM could be making an awful mistake by cutting its capacity, both in terms of manpower and production, to the point where it cannot benefit much from a recovery in the market, which could be several years away.
The single largest issue for Detroit now is whether GM and Ford can stay independent. Their plight looks more and more like the one facing the airline industry. Some consolidation may be the only salvation. VW and Honda (HMC) may end up owning some or all of the domestic car companies.
Nothing good lasts forever, and it seems that forever is now.
Douglas A. McIntyre