GM of the Future: Much Smaller and Actually Profitable

Markham Lee profile picture
Markham Lee
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In light of some of the recent news on NYSE:GM I figured it would be a good time to clarify some of my comments around GM needing to become more efficient to survive, because they could easily be misconstrued as simply advocating for more cost cuts.

Despite all of the posturing around new restructuring plans, the fact remains that GM's basic strategy (for the last 9+ years) has been to do the following when they get into trouble: cut costs, lay off workers and slash prices/offer incentives in an effort to maintain market share/sales volume. The problem with this strategy is that all of these activities arguably cancel each other out, in that they're cutting costs while simultaneously slashing revenues at the same time.

The other issue is that when GM was losing money in '05 (for instance), why didn't they institute some of the more recent (and more drastic) cost cuts, attempt to drastically restructure their debt, etc.?

Answer: GM wasn't really trying to change their entire business model to one that is a better fit for the market, they were simply trying to find the cost savings that would enable the company to survive until things "got better".

See the difference? At the moment GM seems more focused on trying to find a way to keep the old model alive than they are on trying to build a new model altogether. Management needs to confront the reality that the market can no longer support the old way of doing business.

Simply put, if Honda (HMC) can be profitable with less than 1/2 of GM's market share, then the only thing stopping GM from being profitable is its business model.

However getting there means a significant mental paradigm shift in terms of moving from thinking in terms of saving

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Markham Lee profile picture
10 Followers
Markham Lee is a Seattle based Management Consultant who typically works with technology companies and start-ups. His analytical strength is in looking beyond the usual thinking to discover root causes and solutions that others may have missed. His investment approach is to utilize his consulting experience, evaluate the quality of the underlying business, and couple that with a value investor's approach in order to determine if the stock is a good buy. Markham maintains a blog at http://www.analyticalwealth.com (http://www.analyticalwealth.com) where you can find additional business and economic commentary.

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