While it is impossible to divine the future of General Motors Corp. with precision, it is painfully clear that the automaker has reached the end of its natural life as an industrial powerhouse.
Whatever twists GM's story takes in the weeks and months to come, the automaker's many financial, political and other constituents will probably not allow it to vanish entirely. But it is impossible for the company to soldier on in its current form, a relic of the golden age of American manufacturing.
The good news is that for all the suffering GM employees, shareholders, dealers and creditors have already endured, the U.S. auto industry is still alive, if not altogether healthy. What's more, there is little reason to believe a properly restructured GM cannot compete as a vibrant player in that industry.
The great irony is that after decades of poor planning, management stumbles and shortsighted decision making, the final straw that pushed GM to the brink came largely from forces beyond the company's control.
Indeed, as recently as this summer, GM was winning high praise for management's plan to turn the company around.
The automaker had initiated a $10 billion-plus cost-cutting and downsizing campaign while also revamping its models and production lines.
To that end, GM secured a landmark contract with its powerful United Auto Workers union in late 2007 that called for the transfer of retiree healthcare obligations, a long-term albatross for the automaker, to an independent trust. That also allowed the company to buy out senior, higher-paid workers and replace them with newcomers earning lower wages.
The company's results still suffered as it worked through its restructuring, posting a $15.5 billion loss including charges in the second quarter of 2008. Heading into what appeared at the time to be a potential sales slowdown, GM said it would raise $15 billion in capital to help it outlast the doldrums and bridge the gap until 2010, when the healthcare trust and other savings associated with the new union deal are scheduled to kick in.
But as the credit crunch expanded through September and into October, it slowly became evident that those efforts would be insufficient. Economic uncertainty kept buyers out of dealer showrooms, and those who did decide to buy a vehicle found it more difficult to finance the purchase. GM reported October year-over-year sales declines of 45%, a figure GM executives called "unsustainably weak."
Making matters worse for the company is that two pillars of its plan to raise money collapsed with the markets: Up to half its $15 billion target was to be raised through mortgaging assets and other new borrowings that were suddenly not possible.
Meanwhile, potential buyers of assets GM had put on the block fled as they could not raise financing of their own or decided to hold tight to their cash.
Proof that this is not just a GM phenomenon is found in the troubles other automakers are experiencing. European carmakers are seeking bailouts from their own governments. Japan's Honda Motor Co. Ltd. is cutting production at its North American plants. And even that company's chief rival, mighty Toyota Motor Corp., saw its debt rating cut in late November, the automaker's first downgrade in 10 years, on fears that the slump in car sales would drag down earnings.
Of course, on a practical level it matters little who or what is to blame for this latest downturn. That GM is on the brink of bankruptcy while Toyota, Honda and even Ford Motor Co. are merely weathering severe sales slumps is the result of years of mismanagement and poor choices that have produced a company ill positioned to compete, at least for now, in the current marketplace.
GM, through bankruptcy, congressional mandate or out-of-court action, needs change. It must abandon Alfred Sloan's venerable vision to be all things to all people, dump operations that cannot compete and become a smaller, more focused automaker.
But for all that is wrong with GM, it is easy to lose sight of what is working. The automaker through October has sold nearly 2.6 million vehicles in the U.S., outpacing all rivals, and for the first time in a generation can boast accolades including Motor Trend's car of the year, J.D. Power and Associates' highest quality midsize sedan and, by 2009, 20 models rated to get more than 30 miles per gallon.
The company in the U.S. could likely shed its Buick, Pontiac and perhaps even Saturn nameplates, devoting its resources and marketing budgets to middle-market Chevrolet and luxury Cadillac in much the same way that rivals sell as Toyota and Lexus, Honda and Acura and Ford seems to be coalescing around its namesake brand and Lincoln.
Some of those extraneous brands, most notably Saturn, could be sold, with an automaker from India or China as a potential buyer as the means to ease their inevitable entry into the U.S. market. Buick, which has been lagging in the U.S., remains popular and profitable overseas. Buick could be dismantled domestically while continuing to compete in China and other overseas markets where it has enjoyed success.
A slimmed-down, perhaps renamed Chevy Inc., would be a potent
competitor in a range of categories, including trucks and sport utility
vehicles (which, despite criticism over their fuel consumption, remain
a much in-demand cash cow when gas is below $4 per gallon), midsize
sedans and vehicles carrying next-generation technologies such as its
much ballyhooed Volt electric car. What is over for GM are its days of
competitive dominance, when it commanded half the U.S. market. Even
without its stumbles, the simple mathematics of an industry that has
gone from three large competitors to at least half a dozen makes that a
While Detroit and the Rust Belt states have been shrinking in recent decades, the auto industry as a whole has been growing in the U.S., with foreigners opening factories throughout the Southeast and introducing new products, like trucks and SUVs, to augment their traditional sedan-heavy lineups.
Perhaps GM will never match Toyota's formidable Prius hybrid, and it could conceivably give up on its futile 20-year effort to produce a minivan capable of competing with Dodge's Caravan or Honda's Odyssey.
Maybe GM, like IBM Corp., another business titan that had to reinvent itself, must raise the white flag in an industry it once dominated after being surpassed by younger, nimbler competitors.
Yet like IBM, if GM can shed the ego and baggage of its former self, it will likely find within itself the talent and resources needed to successfully remake the company.
The analogy is far from perfect -- GM obviously will not be retooled around software and services and IBM lacked the union and benefit burdens. But it is a reminder that even a dinosaur, if willing to adapt to a changing environment, can live on.