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General Motors seizes chance for a fresh start

The automaker's bankruptcy filing will free it from crushing financial burdens. But critics wonder whether it can return to profitability.

June 02, 2009|Ken Bensinger and Martin Zimmerman

NEW YORK AND LOS ANGELES — General Motors Corp.'s historic bankruptcy promises to turn more than $50 billion from taxpayers into a fresh start, allowing the struggling giant to again become an engine for the U.S. economy.

Freed from its most crushing financial obligations, GM hopes to rediscover profit in the century-old profession of building and selling autos.

But with the government poised to own 60% of GM, there was increased criticism Monday that President Obama had committed far too many taxpayer dollars, most of which may never get repaid, to a company lacking an answer to its most profound problem: how to get more car buyers to choose its cars and trucks.

GM executives plan to twist the firm's substantial woes to its advantage, using the government-backed restructuring to rework its balance sheet: shedding dealers and vehicle brands, eliminating employees and plants, selling overseas units and learning to live with a smaller market share.

The big question is whether that formula adds up to a return to profitability -- or simply delays the company's eventual collapse into insolvency.

GM will lack the heft to vie for the crown of the world's largest auto company. It may not even remain the biggest automaker headquartered in the U.S., where it once accounted for more than half of all cars sold. Rival Ford Motor Co. may slide into that spot while GM struggles to regain its financial footing.

"GM will be trimmed down in almost every respect," said Michael Robinet, a vice president of consulting firm CSM Worldwide. "And they're not using scissors. They're using a hatchet."

Bankruptcy will leave lost jobs, diminished benefits, depleted investor portfolios and sacrificed dealerships in its wake. And because GM is effectively playing with the house's money, the automaker is bringing the entire nation along for the ride.

It also will test the president's political mettle. Obama came under attack from Republicans, who dubbed the company "Government Motors," and even some Democrats for taking such a big stake in a company whose global market share is sliding.

"We are acting as reluctant shareholders because that is the only way to help GM succeed," Obama said in a national address.

Despite marking the end of an era in the story of American industry and a low point for the storied automaker, GM executives characterized the bankruptcy filing as a once-in-a-lifetime chance to start anew.

"This is a remarkable opportunity for us," GM Chief Executive Fritz Henderson said during a news conference at New York's General Motors Building, where it now occupies only parts of two floors. "This allows us to permanently address problems that we have not been able to address before today."

Critics of the plan worry that for every change GM's restructuring promises to engender, it carries as many risks and leaves many questions unanswered. Most strikingly, some said, is that it doesn't address how GM -- as well as Chrysler, which is also in Bankruptcy Court -- will convince Americans that its cars are worthy of the prices commanded by automakers such as Toyota Motor Corp.

"None of this is going to fix the lack of willingness among Americans to pay more for these cars," said Susan Helper, an economist at Case Western Reserve University. "Much more important than a whiz-bang balance sheet turnaround is for GM to effect fundamental change."

GM will sell or discontinue four of the brands it sells in the U.S. -- Pontiac, Hummer, Saturn and Saab. Pruning these marques, which accounted for 17% of the 2.9 million cars and light trucks GM sold in the U.S. last year, would leave the automaker with Chevrolet, Cadillac, Buick and GMC to stock its North American showrooms.

Among the new vehicles the automaker hopes will get the new GM off to a strong start are the redesigned Buick LaCrosse sedan; the SRX crossover and CTS sport wagon from Cadillac; the GMC Terrain and Chevy Equinox crossovers; the Chevy Cruze, GM's new global subcompact; and the reintroduction of the classic Chevy Camaro muscle car.

The Chevy Volt, an extended-range gas-electric hybrid, may not be the game-changer GM hopes. Expected to list for $40,000 when it hits the market next year, the Volt may be too pricey for many buyers looking to save on gas costs -- a conclusion reached by Obama's auto task force.

The company is in talks with Toyota about the future of their Bay Area joint venture, GM's last manufacturing facility in California. Henderson said GM wouldn't be making any more vehicles in the Fremont plant once the Pontiac brand is jettisoned. He said no decision had been made on whether GM would have an interest in the plant going forward.

GM's blue-collar workforce in the U.S. will shrink to 38,000 by 2011. That would be down from about 61,000 in 2008 and a peak of 400,000 in 1985. GM's dealer ranks are already being slashed, with a goal of downsizing its roster of more than 6,000 dealerships to about 3,600.

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