8 Changes GM Needs to Make

Last weekend, the administration forced General Motors Corp. (GM) CEO Rick Wagoner to resign (the CEO was "anti-bankruptcy"), and gave GM 60 days to put a viable restructuring program in place. Bondholders must share more of the burden, and a "structured" bankruptcy could occur. The government will provide funds to GM in the interim period, and funds are being set aside to back up warranties.

GM's presented "plan" would not make the company viable even if the economy recovered. Lately, 7,500 more employees have accepted buyouts.

Let me discuss what "CHANGE" is needed. The new CEO should be nothing more than an interim CEO:

"CHANGE" 1 -- The new CEO must hate SUVs and have a passion for AFVs (Alternative Fuel Vehicles). This CEO should be willing to allow a $30,000/vehicle tax on SUV's to price them out of the market and use this to subsidize AFVs by at least $20,000 per vehicle. It's time to make SUVs extinct and turn the Chevy Volt and other AFVs into rolling iPhones.

The time to focus on 35+ MPG cars is now and not when gas goes to $5/gallon.

"CHANGE" 2 -- Allow consumers to deduct auto interest and the government guarantee auto loans for selected high MPG cars and AFVs. If consumers want gas guzzlers, or cars with non-American parts content over 25%, they cannot deduct their interest and must rely on crippled banks for financing. In other words, they are relegated to the used car market.

"CHANGE" 3 -- File bankruptcy now and take the UAW to the Supreme Court. Eliminate all pension and health care benefits just like the Japanese transplants do. This will lower car costs dramatically. Tear up all supplier contracts, particularly with flowback companies such as Delphi.

Settle liabilities and debts for pennies on the dollar. Think of the US Government as a DIP financer, not an owner of GM. Hopefully, this will keep GM from becoming the AIG of Main Street.

"CHANGE" 4 -- Get creative with marketing. Copy Hyundai's (HYMLF.PK) "return the car if you are unemployed" program. They are having great success and their sales are up in the US.

Separate the dealerships from the rest of the company and allow them to service their own markets creatively and independently. Guarantee all parts and service for existing and future GM car owners.

"CHANGE" 5 -- Get global. Get a CEO who has lived in a foreign country. The growth is in India and China, whose sales were up 20-25% in the past month. China is now the largest new car market in the world. Start forging alliances with producers in Europe and Asia that can help tap into these foreign markets and ultimately be buyers for the Big Three when markets improve.

"CHANGE" 6 -- Rick Wagoner is only the first management change. There should be at least 50-100 of the top people following as well. Replace them with people with non-automotive backgrounds who can think creatively. Auto innovation is occurring in Silicon Valley, not in Detroit.

"CHANGE" 7 -- Implement tariffs and quotas to protect these companies in the short run and force producers such as Toyota (TM) and Nissan (NSANY) to make all their vehicles in the US. They will hire displaced workers from the Big Three.

"CHANGE" 8 -- Focus on key brands and do them well. This includes the Chevy (Malibu, Cobalt, Trailblazer, Silverado, Impala, Tahoe, HHR), GMC Sierra, Pontiac G6, Saturn Vue. Get rid of all other brands and models. They lose money and are a drag on the company.

Overall, these 8 steps will be needed to make this "CHANGE WE CAN BELIEVE IN."

--Paul Raman, CFA

Comments

[jdavis45:]

I am constantly amazed by the self appointed experts who prescribe a treatment for GM. While Mr. Raman's advice to "focus on key brands" is valid, his list of key brands reveals a lack of knowledge of the auto industry and of GM in particular. GM has two healthy brands; Chevrolet and Cadillac. Every GMC that is sold is one less Chevy. GMC is the ultimate redundant. Keeping Pontiac makes even less sense. If Mr. Raman had ever driven a G6 he would not recommend keeping it. The G6 is an example of the bad cars that no one except a rental company would ever buy. The only Pontiac that should be retained is the Vibe (really a Toyota Matrix) that should be rebadged as a Chevy. Buick may have a role to play as a lower priced alternative to Cadillac, but that is debatable. Mr. Raman's suggestion to keep the Saturn Vue (an Opel product) is interesting. The question is how you retain a dealership network with one product. Saturn has the most unique product line in the GM stable. Importing high mileage, excellent models from Opel (or building them in the US) makes sense. It is sad to see that most people, inside and outside GM, are quick to right off Saturn. That may just be typical of the problem. The insiders can't see the trees for the forest and the outsiders can't see the forest for the trees.

Apr 01 07:45 AM

[UScarGuy:]

I agree with most of what you (Paul Raman) say, except number 7. Putting tariffs and quotas on Toyota, Nissan, or any other foreign manufacturer is one of the reasons we got into this mess. We need to keep competition high in order for GM (read Ford, Chrysler, et. al.) to be competitive on the world market, not only in the US. As you said, the largest growth is coming in China and India. So, why give GM a monopoly (or a watered down version thereof) in the US only to weaken them in the future??

Apr 01 07:57 AM

[LaMancha:]

Nearly all these suggestions reflect a basic ignorance of the industry in general; GM in particular; economics; law; finance; and anything else that is relevant to solve the problem. I have rarely seen any commentator be so far off base. Punitively tax what people want to buy? More government guarantees and subsidies? Supreme Court? Screw everything and everybody? Get the government in the parts and service business? Fritz has lived on at least 4 continents. How do you get more global than that? Protective trade barriers? Even in its monopoly days, GM never had all brands profitable all the time. Yes, they need to be better, but most of this guy's suggestions are off the charts.

Apr 01 07:57 AM

[User 386789:]

Does this guy even know what is going on? Let's take a look:

Change 1: The CEO has to keep the company bringing in some money, so trying to force consumers to buy cars they don't want is not a winning strategy. How about getting a real National Energy policy instead?

Change 2: Nothing to do with GM, but something the government would have to institute.

Change 3: They were already working with bondholders and the union to get this done. If the bondholders would have agreed, the union would have followed and the original conditions of the loans would have been met. Obama is now trying to force the bondholders to agree by threatening bankruptcy.

Change 4: Hey, finally something constuctive! Of course, since this is done, you earn a point. As for the dealerships, state franchising laws are crippling GM, so this is largely out of their control.

Change 5: So, the fact that Wagoner was in Brazil doesn't count? Also, you do realize that GM is one of the largest foreign automakers in China? You do know that they just opened a new plant in India and have an engineering center there? Try to get your facts straight before spouting such nonsense.

Change 6: There will be more changes, but you do not want a bunch of outsiders who know nothing about the industry. You want a mix of outsiders and people with strong automotive experience.

Change 7: Something else that GM can't control. Look to the government to level the playing field with other nations.

Change 8: Somewhat correct. They need to pare down their brands, but you neglect to mention that this is a huge cost. Oldsmobile cost between $4-$5 billion to shutter, so there is a huge cost associated with this. Once again, dealer franchising laws in the individual states makes this a time consuming process.

Here's an idea, learn something about the industry before publishing this nonsense.

Apr 01 08:05 AM

[k45:]

Probably the only management worse than Detroit's is Washington.

Government subsidizing/taxing distorts reality (the ethanol scam anyone?) and ends in long term disaster.

Insisting (via outrageous tax manipulation) that people buy what they don't want is a disaster.

Apr 01 08:51 AM

[drowe:]

This article has to be an April Fools joke!!!

Apr 01 09:10 AM

[drowe:]

This article must be an April Fools joke!!!

Apr 01 09:13 AM

[Jim Carpenter:]

Wow, I wish I could come up with something stronger than "moron" for Mr. Raman. The average sweeper in a GM plant is more qualified to give advice than this fool.

change 1 - yes, that's the way to make a company more profitable ... stop making the stuff that brings in the most profit! If people wanted high mileage cars, they would buy them. They don't. Have some buyers subsidize others? When there is no buyers of SUVs because of (artificial) high prices, who will pay the subsidy?

change 2 - Just a government subsidy. We don't need more socialism.

change 3 - Japanese automakers in the US don't pay health benefits? Nonsense! Tear up supplier contracts? GM suppliers are also suppliers to Toyota, Honda, Ford, Chrysler, Hundai, BMW, Nissan, and every other car maker in the USA. Yes, screwing your suppliers makes for a nice, warm, business relationship.

change 4 - LMAO!!! "Get creative" by giving away cars! Yes, the surefire road to profitability ... giving things away for free! And the poor moron doesn't realize that GM doesn't own any dealerships.

change 5 - Get Global? Does Mr. Ramon know how to read? GM is #1 in China. GM has production facilities in every industrialized country already.

change 6 - Yes!!! That's how to efficiently run a company, put in management that knows nothing about the product! Hey, here's an (equally moronic) idea ... let GM and Intel swap managers! This would bring in "fresh" ideas to both industries! We all know fresh ideas are much, much better than good ideas. Works for the government.

change 7 - Smoot-Hawley. 'nuff said. Mr. Raman must like worldwide depressions.

change 8 - LMAO!!! Omg, I don't know what to say. I guess Mr. Raman has never seen a GM ad.

I have a "change we can believe in". Send Mr. Raman back to kindergarten. And have him change a tire, and open the hood on 1 car. It's sad that someone like Mr. Raman has access to any type of soapbox.

Apr 01 09:59 AM

[User 386890:]

Great aprils fool he is!

GM NEEDS ONE MAJOR THING.. Seperate each division into individual corps. and let the real competition begin

by the way GMC should go. period. buick needed 2 smaller cars - starting at $ 18K

chevy should have 2- 3 more small cars. as well as saturn ...

Apr 01 10:33 AM

[rafine:]

Get global? GM owns Opel!!! How about the media and government recognizing that fact. If the government just let GM bring in these Euro cars without modifications, wouldn't that have spared us all a lot of angst? Has GM even made this point during all of its time on the hot seat in front of Congress? Where is the media on all of this? Weird, weird weird. If I were a consipacy theroist, I would say this is deliberately engineered to fail.

Apr 01 10:37 AM

[James E Gam...:]

Mr. Paul Raman is the kind of man who has put this nation in the financial mess we are facing. His comments are facist, socialistic, and approaches communism. Why is he even given space in a reputable publication. The purpose of our federal government is to "protect and defend" the citizens of the United states as specified by our constitution. The federal government has no right to micro-manage any corporation. The only legal role of our government is to protect the rights of General Motors shareholders, employees, and retirees. Existing federal bankruptcy regulation are sufficient and it is the duty of federal judges to inforce these laws and regulations without prejudice or preference. Just like citizens, corporations are legal entities and are protected by "equal justice under the law".
Congressmen and people like Mr. Raman should sit-down and shut-up and let the legal system do its job. It is time for General Motors' overpaid lawyers to present their case to the federal bankruptcy court...James E Gambrell

Apr 01 11:18 AM

[lumpy_jacket:]

The Vue is not an Opel product. The Trailblazer was euthanized 3 months ago. Rolling iPhones? The Sillycon Valley conceit gives me the chills. If you're so smart, join Tesla and make it commercial.

On Apr 01 07:45 AM jdavis45 wrote:

> I am constantly amazed by the self appointed experts who prescribe
> a treatment for GM. While Mr. Raman's advice to "focus on key brands"
> is valid, his list of key brands reveals a lack of knowledge of the
> auto industry and of GM in particular. GM has two healthy brands;
> Chevrolet and Cadillac. Every GMC that is sold is one less Chevy.
> GMC is the ultimate redundant. Keeping Pontiac makes even less sense.
> If Mr. Raman had ever driven a G6 he would not recommend keeping
> it. The G6 is an example of the bad cars that no one except a rental
> company would ever buy. The only Pontiac that should be retained
> is the Vibe (really a Toyota Matrix) that should be rebadged as a
> Chevy. Buick may have a role to play as a lower priced alternative
> to Cadillac, but that is debatable. Mr. Raman's suggestion to keep
> the Saturn Vue (an Opel product) is interesting. The question is
> how you retain a dealership network with one product. Saturn has
> the most unique product line in the GM stable. Importing high mileage,
> excellent models from Opel (or building them in the US) makes sense.
> It is sad to see that most people, inside and outside GM, are quick
> to right off Saturn. That may just be typical of the problem. The
> insiders can't see the trees for the forest and the outsiders can't
> see the forest for the trees.

Apr 01 03:32 PM

[Pstoneki:]

As someone who actually worked within both the US and foreign auto industry, I think some of these ideas are spot on. Some are way off.

Change 1: Taxing SUVs (or, at least vehicle with their engine size) to death actually would work and has been done in many other countries. I also agree that this should be done as soon as the US car companies can turn there product lines around.

Change 2: Won't work - people already pay a slight premium for many imports and that hasn't stopped them from buying them.

Change 3: This would be a bad idea overall but at least it would help trim the inflated number of auto suppliers.

Change 4: GM and Ford have implemented their own creative marketing plan, which I think is a good idea. Dealerships already have freedom and parts availability is guaranteed. Not change needed.

Change 5: Done.

Change 6: I strongly agree. My guess is that in 50 years few if any of the existing auto manufacturers (beyond Toyota, VW, and Mercedes Benz) will still exist as stand alone entities. I wouldn't be surprised if Sony, Samsung, Mitsubishi, Fuji, and some Chinese players are the dominate players.

Change 7: VERY bad idea

Change 8: Good concept, wrong vehicles. Chevy Spark, Chevy Cruze, Chevy Malibu, and Chevy Impala (with wagon and hatch back versions), Chevy HHR, Saturn Vue (under Chevy brand), Chevy Traverse, Silverado, Suburban, Corvette. Maybe the Cadillac CTS and a much improved DTS. Everything else gone from the US. Buick would live on in China.

Apr 03 01:38 PM

[Pstoneki:]

The Saturn Vue is an Opel design - the Opel Antara.

Apr 03 03:30 PM