General Motors Tries to Please Wall Street With Bad Decisions

Chevy minicars designed in South Korea. Bring ’em over here! (Image:

From Bloomberg:

General Motors Corp., buffeted by a U.S. sales collapse and three years of losses, suspended its stock dividend, cut salaried payroll by 20 percent and proposed selling assets to raise at least $15 billion in the next 18 months. A 20 percent reduction in cash costs for salaried workers and eliminating the 25-cent quarterly dividend to save $800 million are part of $10 billion in operating expense cuts, GM said in a statement today. The company will raise $4 billion to $7 billion through asset sales and new bank loans.

GM also will cut health care for U.S. salaried employees older than 65 as of Jan. 1, 2009, with offsetting increases to pensions, eliminate cash bonuses for executives and make other changes. The cuts in benefits and the salaried headcount reduction will save about $1.5 billion in 2009, GM said.

GM isn’t considering bankruptcy and doesn’t plan to eliminate vehicle brands beyond a possible sale or shutdown of the Hummer line of sport-utility vehicles. GM’s 16 percent U.S. sales decline through June has exceeded the industry’s 10 percent fall. Sales of pickups, SUVs and vans – -the vehicles most affected by rising gasoline prices — are down 21 percent in the period. The company relies on light trucks for about 60 percent of its U.S. volume.

I have a couple of remarks on GM’s announcement.

1) Reverse cost-cutting priorities. Execs are steering GM’s wobbly ship. Cut their pay and bonuses first, giving them a chance to signal their loyalty and commitment to GM. I bet a few of them would stick around.Cut some management positions in the process–with all those layoffs, there won’t be as much to manage.

2) Drop a couple of brands. GM owns 8 brands–how much money does it really make off of Buick, for example? Hummer is just the beginning if GM really wants to avoid bankruptcy.

3) Be tougher on the United Auto Workers. I read somewhere that non-college educated manufacturers can make around $80,000 per year. Why can’t GM put its foot down with UAW and demand they either accept lower pay or get booted? If it’s a contractual issue, get a good lawyer.

4) Do not freeze engineering budgets. Lay off engineers who can’t be put to use in fuel-efficient/alternative fuel car R&D, but motivate the rest with the money saved by cutting executive pay.

5) Increase supply of electric and hybrid vehicles so that costs go down. Promote the heck out of them to bring up demand.


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  • John K

    Looking at the vehicles pictured, GM’s best bet for them may be to revive the Geo brand and position them against Toyota’s Scion. Beyond that, good points.