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GM in need of product appeal for turnaround

In an industry  where "product is king," General Motors Corp. is in dire need of attractive new vehicles to rule the road, analysts say, mostly dismissing a move by the ailing auto giant to cut jobs and close plants plants to save billions of dollars a year.
/ Source: Reuters

In an industry  where "product is king," General Motors Corp. is in dire need of attractive new vehicles to rule the road, analysts say, mostly dismissing a move by the ailing auto giant to cut jobs and close plants plants to save billions of dollars a year.

The world’s largest automaker on Monday said it will cut 30,000 North American manufacturing jobs and close 12 operations as part of a broader restructuring plan.

“I don’t think the cuts are enough, but it’s not a matter of whether they are enough or not, it’s a matter of whether or not the company will create the culture of innovation GM needs to pull the company out of a tailspin,” automotive expert Charles Fleetham said.

GM has been struggling with high health-care and commodities costs, loss of U.S. market share to foreign rivals and stalled sales of large sport utility vehicles due to high gasoline prices.

This year alone, the carmaker has lost $4 billion while its shares have bled more than 40 percent of their value.

GM’s new 2007 models include a new Chevy Tahoe, a new professional grade GMC Yukon and Yukon Denali and a new Cadillac Escalade -- all four are big SUVs and will be rolled out in the first quarter of 2006.

“The overall product mix for 2006 is reflective of the short-term thinking of GM,” Fleetham said. “GM’s overall offerings are more representative of the 1999 mindset than the needs of today. The consumer of 2006 has environmental concerns, is mindful of fuel economy and is more style-conscious.”

GM did not return calls for comment.

Standard & Poor’s on Monday warned that its ratings on GM will remain on credit watch, citing ongoing concerns over GM’s lost market share; the sales and pricing outlook for GM’s products; and the adequacy of GM’s strategies for improving its cost position.

Some optimism
Bob Lutz, vice chairman of global product development, last year said the goal was to turn around GM’s struggling car business by ensuring that the vehicles it builds are “best in class” and capable of competing with the most desired products anywhere on the road.

“The Japanese really built their quality reputation on small cars,” Jim Sanfilippo, an analyst with consulting and research firm Automotive Marketing Consultants Inc., said.

“Conversely, the U.S. makers struggled with small cars, built atrociously uncompetitive cars for many years and lost two to three generations of consumers. That’s not going to be easy to undo.”

GM’s new models, to be launched in 2006 and 2007, include new crossover vehicles -- car-based sport utility vehicles, which are lighter and less fuel-thirsty than their truck-based counterparts -- in the GMC, Buick and Saturn brands.

“This will be a big positive because there is a migration taking place from traditional SUVs to something that has the same feeling but is not as big. It provides a destination for all the defectors who don’t want SUVs anymore,” Sanfilippo said.

“I think the products for 2006 are quite strong,” Michael Robinet, vice president of global vehicle forecast at CSM Worldwide, a consulting and research firm, said. “If we can keep fuel prices at $2 a gallon, I think GM will float to the top of the SUV and full-size pick-up market,” he said, referring to GM’s profit centers.

Still, Goldman Sachs analyst Robert Barry on Tuesday said an onslaught of new products from Asian automakers over the next few years will pressure GM and could prevent it from getting the wheels back on its money-losing North American auto business.

“A painful cycle of restructuring, waning profitability and further restructuring is likely to characterize GM’s future,” he said.