GM, Finally Restructured, May Not Be Saved

GM’s most valuable assets have finally been sold to a company controlled by the federal government. A judge approved the transaction early today. The “new GM” should be out of bankruptcy court and fully operating in a few weeks.

GM may be free of most of its credit and labor obligations but it still has a very reasonable chance of failing and burning through all of the money the federal government has invested.

GM is behind most of its large competitors in product development. It has been hurt by a constant restructuring process that has pushed out huge numbers of its engineers and designers and left most of those who remain looking for more stable work. Ford (F), which has not had to go through a similar process, has been launching small cars at a rate that seems to be one a month. June domestic auto sales numbers show that the Ford formula is working.

The world’s most stable car companies, led by Toyota (TM) and Honda (HMC), have launched new generations of  hybrids. These are now the best selling cars in Japan and are likely to do extremely well in the US. It may take GM two or three years to catch up to the latest versions of “green” automotive technology.

June car sales were good, but they still show that American vehicles sales are running at about only ten million a year. The figure is likely to cause continuing losses at all of the auto firms doing business in the US, but GM has a second problem. Ford and GM’s Japanese rivals are certain to gain market share because GM has shuttered several brands, including Pontiac, and hundreds of dealerships. The largest US car company’s sales may be too small to support its stripped down cost structure.

GM may have been saved, but it may only be for a year or two.

Douglas A. McIntyre