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General Motors' image could keep the brakes on sales

Turning around consumers' perception of the automaker as it emerges from bankruptcy protection poses a huge challenge.

July 10, 2009|Jim Puzzanghera and Martin Zimmerman

WASHINGTON AND LOS ANGELES — Less than six weeks after filing for protection from its creditors, General Motors Corp. is expected to emerge from bankruptcy today as a leaner, greener company but saddled with doubts as to whether it can turn a profit for its new owners, the American public.

Amid speculation that GM will change the blue in its classic logo to green to highlight its environmentally friendly rebirth, the company will have a tough time turning its bottom line from red to black, analysts said. Vehicle sales have plummeted worldwide because of the global recession. And GM's image, already battered after decades of declining quality, has been further damaged by its plea with the government for billions in taxpayer money to keep it from the corporate scrap heap.

"It's impressive that they got through bankruptcy that quickly," said Karl Brauer, editor of auto website "But . . . when it takes you three or four decades to tear down a car company's image, it takes more than 39 days to bring it back."

Wooing back U.S. auto buyers is the largest challenge facing GM, analysts said.

Consumer researcher J.D. Power & Associates reported last month that the quality gap between U.S. automakers and their foreign rivals is as small as it's ever been.

"The problem is that the American public isn't ready to believe that, and that's the most important issue that GM faces," said John Wolkonowicz, an analyst at IHS Global Insight. "How do you bring consumer perception in line with the reality of what a GM product is today?"

In the 1950s and '60s, about half the cars sold in the United States carried a GM nameplate. The company's dominance waned as consumers migrated to foreign makes. Through the first six months of this year, GM's U.S. market share shrank to less than 20%. The world's largest company as recently as a decade ago, GM will emerge from bankruptcy smaller in every way.

The restructuring will allow the automaker to dump most of its onerous debt load -- it entered Chapter 11 with $176 billion in liabilities and will exit with just over $48 billion in debt.

But GM also is cutting 21,000 salaried and hourly jobs by the end of next year. It will close 13 plants and is pulling out of its joint venture with Toyota Motor Corp. in Fremont, California's last auto factory. GM has struck deals to sell three of its brands -- Hummer, Saturn and Saab -- and has pulled the plug on Pontiac. And the company is severing ties with 2,400 of its 6,000 dealers.

The path was cleared for GM to shed most of its debt and many unwanted assets when a Bankruptcy Court order approving the sale went into effect Thursday over the objections of some creditors and small labor unions.

"No sentient American is unaware of the travails of the automobile industry in general and of General Motors . . . in particular," U.S. District Judge Lewis A. Kaplan wrote in denying the request to halt the sale while appeals were filed. "As the Bankruptcy Court found, GM will be forced to liquidate -- with appalling consequences for its creditors, its employees and our nation -- unless the proposed sale of its core assets to a newly constituted purchaser is swiftly consummated."

The longtime symbol of U.S. capitalism will emerge as a ward of the state, at least temporarily. The Treasury Department, which has poured $50 billion into the company, now owns 60.8% of it. The Canadian government, which provided $9.5 billion, gets an 11.7% stake. And the retiree healthcare trust of the United Auto Workers union now owns 17.5% of the company in exchange for forgiving about $10 billion in debt.

As he pushed GM into bankruptcy June 1, President Obama vowed the government would not get involved in the company's daily management. The administration plans to sell its stake eventually after the new GM goes public in 2010.

The effect of government ownership will be clear this morning as Chief Executive Fritz Henderson and incoming board Chairman Edward E. Whitacre Jr. announce further changes, including an expected cut in white-collar jobs. Henderson took over this spring after the Obama administration forced out former CEO Rick Wagoner. And the administration's auto task force helped select Whitacre last month.

Wolkonowicz of IHS Global Insight thinks Henderson should unveil a dramatic new consumer initiative today, such as an extended warranty program or a free service plan, like the one offered by BMW.

"They need to announce something spectacular that says, 'Thank you, America, for hanging in there with us,' " he said.

GM is particularly weak among consumers in their 20s and buyers who live outside the Midwest, where most of the company's plants are.

"The buyers on the East Coast and West Coast have a different perception of GM than they do of the other automakers," said Dave Cutting, senior manager of North American forecasting for J.D. Power. "GM has to connect with those buyers as well."

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