When Does GM (GM) Get Too Small To Survive

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The press is reporting that GM (GM) is preparing to give the government another restructuring plan which comes on top of several versions or partial versions that it has produced since first asking for federal funds last December.

The new program will call for radical cuts to the size of the company and the number of brands it supports. It will also cause the number of car dealers that the No.1 US car firm has to contract.

According to Reuters, “The accelerated restructuring plan to be announced by Henderson will also be filed with the U.S. Securities and Exchange Commission, allowing GM to proceed with an offer to exchange debt owed to bondholders for equity.” So the action will put pressure on creditors and the UAW, which faces losing more member jobs and some benefits for its retirees.

The question about GM is when does the company become too small to be able to survive? Three years ago, it had 25% of a domestic light vehicle market that produced 16 million unit sales a year. Sales this year may only be 10 million cars and trucks, and if GM cuts products and manufacturing capacity, its market share could plunge, perhaps to 15% or lower.

One of GM’s major competitive advantages against large international auto company competitors was the breadth of its product line. It had cars and trucks for almost every segment. Although some of the products lost money, it could match Toyota (TM) car-for-car and truck-for-truck in every major market in the world.

GM’s restructuring will make it look more like Honda (HMC) or Chrysler in terms of the cars it can offer consumers. That will hurt its chance of being competitive with Ford (F) and Toyota which, in turn could push its market share down further and undermine its capacity to develop and manufacture new models as the car market recovers.

In other words, GM could get so small that its prospects of surviving in an increasing competitive market place will simply slip away.  As Chrysler has shown, having 10% of the American car market is a potentially untenable position

Douglas A. McIntyre