The largest automaker in the US continues it’s death spiral. And it really is sad to watch. An internal memo which leaked recently states that GM is desperate to reduce “structural costs” and is looking to jettison a large portion of it’s salaried US workforce. Reports suggest GM wants to “right-size” as many as 50% of current employees. Which is a curious move at a time when vehicle structures are changing at an unprecedented pace and the vehicle market is evolving rapidly Decimating your ability to innovate and develop new products seems counterproductive at a time like this, to say the least. But General Motors doesn’t really have much of a choice given it’s financial state. The sad truth is…. GM doesn’t have too many workers to be competitive. It has too many retirees. By promising lavish pension plans to previous generations of workers, GM burdened itself with a huge fixed cost for many years to come. It made sense when GM was a gigantic corporation with massive amounts of revenue and all of it’s competitors were in the same boat. Back then, GM’s pension costs could be spread across many millions of vehicles. Today, that is not the case. GM’s share of the US market has been reduced from ~50% to only 17%. Foreign competitors without GM’s huge fixed retirement costs have already chased them out of the car market. GM stopped making passenger cars well before the big EV push. They couldn’t make any money on them. The only vehicles GM could still sell and turn a profit on were big heavily-optioned SUVs where the extra cost baked into GM vehicles isn’t such a large percentage of the selling price. GM seems to be counting on Federal subsidies and regulations to make them viable in the new electric vehicle space. Without the Feds propping them up going forward, it is hard it come up with a business model where GM remains viable.
GM has already been bailed out once by the Federal government. And Barak Obama and the Democrats made sure GM’s unionized retirees did not have to share in the restructuring pain. But with GM continuing to wither and shrink, the next big crisis seems inevitable. There is little GM can do any more to avoid it. The decisions that are sinking one of the largest corporations ever to exist were made decades ago. General Motors should serve as a cautionary tale. Don’t assume your current business model can last forever. And, that which cannot continue on… won’t.
