Rightsizing GM:
> A reader writes:
> While I agree that GM fits the definition of a value stock it will only pay
> off if they can get their cost structure down to the level of Ford or
> Chrysler.
Correct.
> Should GM ever do this (and at times I despair) the growth in
> earnings would be out of this world even if Market share would dip.
Correct.
> However the only way that I see that GM can get its cost structure down is
> to have a massive downsizing which may be untenable from a PR standpoint.
> Somehow GM would have to commit some of the earnings growth to the
> unemployed etc along the lines of the John L Lewis Coal mine deals.
The post World War II period suggests that the forces of supply and demand are inexorable, and ultimately, irresistible. The "untenable from a PR standpoint" is already taking place in the former Soviet Union, China, Cuba, and, at long last, even Japan.
Thus, it is difficult to conceive that GM's management and the UAW are
in a position to resist these forces the way they could in the days of "Engine Charlie" Wilson and Walter Reuther.
> I disagree about the quality issue. I rent a lot of low mileage cars when I
> travel. The interior finish of GM cars is definitely below the Chrysler or
> Ford cars. There always seems to be a piece of plastic hanging below the
> GM dashboards and the trunk lining seems to be falling apart. May be
> dealer supplied cars don't have these problems but I know which cars I
> won't look at when it comes to replace my Toyota.
Duly noted. From what I read in the press, the quality improvements at GM have been uneven, but the "average" of GM's lineup approaches that of Ford. For example, Chevrolet's
continue to display the kind of unacceptable attention to quality that you have described. Whereas, Saturn has received grudging praise in the Japanese press, an unusual achievement for a
U.S.- made auto. Also, the Buick Regal and the Oldsmobile Cutlass, in particular, have reached very high levels of quality, largely because they eschewed innovation -- to the eventual detriment of market share.
Regarding the "hidden costs" (to the buyer) of innovation, I have read that Fords come off the line with great quality, but that often their whizbang innovations develop expensive-to-repair problems further down the road. For example, the windshield wiper motors cost $200 to replace. Considering that that is what a VCR costs, and that VCR's have to have high quality motors, more exotic problems are likely to have even more outsized repair costs.
Reynolds Russell
|
