Is General Motors Doing Enough? Can Rick Wagoner Bring the Company Back?

Once again today General Motors CEO Rick Wagoner announced some major changes aimed at turning things around at the company. GM has had growing losses each of the last three years, and many are beginning to wonder about the company's ability to continue to operate. Given these very real concerns Wagoner said today that the company would suspend the dividend paid out to stockholders, the first time that this has happened since 1922. It will also sell numerous assets to try to raise $15 billion in the next 18 months. Wagoner also said that management payroll will be cut by 20%.

Wagoner made it clear that these moves are completely necessary to avoid bankruptcy. The company must raise capital now or it might be left with no other choice later on.

I think many on Wall Street believe that Wagoner is certainly trying to cut costs, as he must, but is this really a long-term fix? It seems that General Motors continues to believe that once the auto industry gets out of its current slump that the company will just start humming along again and regain its place at the top of the auto market. Many, including myself, wonder if the changes being made now aren't more of a band-aid than a real solution. The company right now needs a complete overhaul. The company is getting beaten up badly by Toyota and Honda in innovation, and innovation is the real answer in the long run. General Motors is now scrambling to design the best hybrid cars on the market, but will it be too late? The Toyota Prius has already gained market leader status and Toyota shows no signs of slowing down.

This isn't to say that Toyota, Honda, Ford, and all of the other automakers aren't experiencing significant problems, they are. The problem for General Motors is, it appears that their problems are more long-term problems than the others. General Motors U.S. market share has now plunged to a paltry 21%, but the company continues to say that it will hold there. We have heard this before, when the company said it would level off at 33%, then 30%, and so on.

General Motors has a multitude of problems. Their benefits costs are clearly eating them up, they are losing market share each month, and they even are beginning to have liquidity concerns. Wagoner and the board at GM is wise to cut costs, but it should think twice before stopping at just these moves, or it might not have another chance.

Sources:

"Rick Wagoner tries to catch a falling knife- and fails" Fortune Magazine, Alex Taylor III