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How does GM get out of this mess without a trip through bankruptcy court, which could conceivably lead to a breakup of its storied brands? The company's problems run so deep that only a major overhaul could do the job--and then only if a smooth road lies ahead. Wagoner is getting plenty of advice about how to fix things, from cutting GM's $1.1 billion stock dividend to demanding deeper wage-and-benefit cuts from hourly workers. A confrontation over labor issues is looming, in fact, since GM's contract with the United Auto Workers (U.A.W.) expires in September 2007. Until then, Wagoner seems to be gambling that the company can stay afloat via a series of tune-ups, ranging from having workers bear more health-care costs (annual savings: $3 billion) to eliminating weak models and launching redesigned SUVs and pickups next year--and praying that high gasoline prices don't bog down the plan. Plenty of skeptics believe Wagoner's plan is too limited. "If you have an earthquake and a building falls on someone's leg and he's stuck, you amputate his leg," says Jim Matheson, a management professor at Stanford University. "That's what GM has done." Analysts say GM needs to downsize far more dramatically. Here's what auto experts believe GM will have to do to fix itself:
•INVEST IN THE FUTURE
It may sound obvious that GM needs to sell cars that people want to buy, but that's at the top of Wagoner's list of challenges. Wall Street is uneasy over GM's production plans, heavily weighted toward light trucks at a time when consumers are veering away from gas guzzlers. The overreliance on big vehicles is partly a result of bad luck. GM execs have admitted they never anticipated gas prices rising as fast as they did during the hurricane season, when a gallon of gas cost more than $3 in some regions. Yet GM relied for years on its SUV sales for profits--and underinvested in cars--which seemed smart until the bottom fell out. Says Meyers: "They made a mistake to go with the big guys." Goldman Sachs cites GM's launch of models like the 2007 Chevy Suburban as a "key negative" in Wagoner's turnaround plan, with the market for large SUVs expected to slump 8% next year. GM promises that the new models will be 10% more fuel efficient, be laden with more luxurious interiors and feature a smoother ride.
Meanwhile, GM is playing catch-up in the hot market for hybrids because it has been losing sales to Toyota and Honda. The Japanese companies began developing hybrids in the '90s, when Detroit scoffed at the technology as economically unviable. "GM's reasoning with hybrids was, Why bother when trucks are selling?" says Matheson. Toyota put hybrids on the market even when the company knew they wouldn't make money right away. "Detroit doesn't think that way," Matheson says. Both GM and Ford are coming to market with their first hybrid models, while Toyota and Honda are already selling second generations.
•CUT A NEW DEAL WITH WORKERS