SUICIDE WATCH FOR GENERAL MOTORS?

Is General Motors so aged and diseased that the company should be put on suicide watch?

This may sound like a bit hysterical, but maybe not, if you look at the company from a historical perspective.

Companies are like humans. They are born. They grow. They ultimately reach middle age, then start their inevitable declines into sickness and death. Many are interred in some corporate boneyard; others wither and weaken until consumed by stronger, healthier enterprises.

AT&T, once affectionately known as Ma Bell, was until 1985 the bluest of blue chip stocks. The company was so stalwart and dependable that its stock was judged to be the safest of investments for pensioners, widows and children. But a mere twenty years later, AT&T had become so sickened and weakened that Verizon, one of its predator children, had gobbled up what remained of its mother.

“Big Steel,” once led by gigantic U.S. Steel and Bethlehem Steel, is now so shrunken and enfeebled by old age and osteoporosis that it hardly shows on the corporate landscape. U.S. Steel is a light gray shadow of its former might, and Bethlehem has been buried in an obscure corner of the corporate graveyard. Only youthful mini-mill operators like Nucor have been robust in recent years.

General Motors had a chancy infancy, being born before World War I, then falling into bankruptcy before being rescued by the banks, DuPont and managerial genius Alfred Sloane. The company grew spectacularly as an adolescent in the 1920s, overtaking Ford to win leadership of the industry. Although badly hurt during the Great Depression in the 1930s, the company managed to survive handily as a young adult. World War II turned the company from cars to tanks and trucks, which helped the U.S. war effort substantially and generated substantial profits for General Motors. The company went on to feast on the incredible pent-up demand for autos and trucks created by the war. Led by the design genius of Harley Earl, the company quickly won over a 50 percent share of the North American auto market. With Ford and Chrysler in trouble, the Justice Department and the Federal Trade Commission attempted to break General Motors into two pieces: Chevrolet, which had 25 percent share of the market, and all the rest. The company marshaled its political might and beat back the trustbusters with a defense that suggested that neither piece could survive on only a 25 percent share of the market.

By the 1970s, General Motors had reached a gray, conservative middle age. Gone was the managerial genius of Sloane. Gone was the flamboyant creativity of Harley Earl. Gone were the entrepreneurial general managers who had created Cadillac, Buick, Oldsmobile, Pontiac and Chevrolet. Instead, the company was ruled by an executive committee of engineers and finance men sitting in the plushly carpeted but deathly quiet offices on the fourteenth floor of the great headquarters building opened in 1927. Design, quality and marketing ingenuity had disappeared. Germany and Japan were invading. Ford and Chrysler were reviving, although the latter flirted with bankruptcy every ten years. General Motors continued to lead the industry by capitalizing on its two remaining strengths: size and prestige imagery. But the oil shock of the ‘70s caused the company to downsize its cars, which destroyed the historical large car imagery of Cadillac, Buick and Oldsmobile. From that point on, GM grew sick, as it became squeezed between bloated costs and shrinking market share. As it grew slower and weaker, GM began to lose increasing market share to Toyota, Nissan, Honda, Volkswagen, BMW and Mercedes.

As of February 2005, General Motors commands only a 24 percent share of the North American market, a share that the company once claimed was too low for survival.

Almost half of its factories are either out of work or engaged in producing money-losing vehicles for rental car companies, business fleets and employees.

Five of the company's car brands lost sales in 2004, a good year for industry sales.

The company's North American operations will produce a negative cash flow of over $2 billion in 2005.

GM cars have so little appeal that the company is forced to offer huge discounts to the consumer. In 2004, discounts were nearly $4,000 per vehicle. Worse yet, three new car designs are being sold with discounts ranging between 10 and 20 percent off their sticker prices. When your newest cars carry such huge discounts, you are committing suicide by design.

General Motors' deep new car discounts result in depressed used car prices when compared to the used car prices of comparable cars made by Toyota and Honda. This disparity in resale value further damages the reputation of GM cars.

With eight major brands and over 80 individual product offerings, the company has spread itself too thin to offer proper advertising and promotional support for any given brand. How many people have even heard of the new Pontiac G6, the new Buick LaCrosse or the new Chevrolet Cobalt? This is known as suicide by insignificance.

Companies, like people, incur increasing health care costs as they age. A perfect storm of declining employment, a rapidly expanding pool of retirees and rising healthcare costs has burdened GM with health care costs which average over $2,000 per vehicle sold.

A recent financial analysis of the auto industry warns that both General Motors and Ford are “capital destructive,” which is economic jargon for “throwing good money after bad.” Conversely, Toyota and Honda were rated “capital constructive.”

General Motors stock has declined over sixty percent in just five years.

Company bonds are nearing the “junk bond” levels.

While the company still has about $23 billion in cash, that kind of money tends to disappear quickly when spending billions designing new cars which are incapable of generating sales and profits.