Old GM In the Shredder

Stripped of its Once-Mighty Vitals, what remains of General Motors Corp. is in the shredder like millions of GM cars over its 101-year history.

Those scrapped vehicles were recycled and lived on, but no one knows their ultimate fate. The same might be said of GM in bankruptcy, but nearly everyone agrees the auto maker will emerge leaner than an anorexic super model and meaner than, well, a junkyard dog.

It also will become a dwarf when compared with its long-held status as the global auto industry's giant. There'll be no more fighting with Toyota Motor Corp. to be the world's No.1 auto maker, and GM even may have difficulty keeping pace with the likes of the Ford Motor Co. and Volkswagen AG.

Under the proposed bankruptcy plan, the U.S. and Canadian governments will own 72.5% of “new GM”. The United Auto Workers union will control a 17.5% chunk and bondholders a 10% stake. Those owning or having options on old GM's outstanding shares are expected to be wiped out.

That's why Vice Chairman Bob Lutz, who retires at year's end, sold some shares recently for a paltry, considering his presumed net worth, $130,000. He says he had counted on options, “worth very large sums,” to provide for “a comfortable retirement.”

“All I did was take the last crumbs off the table,” he says.

Ordinary stockholders could sympathize with him.

Although he'll be departing, Lutz is convinced a downsized GM with a clean balance sheet; fewer dealers, plants and people; UAW concessions; higher quality and an emerging lineup of more competitive and high-mileage vehicles will be well-positioned to capitalize on a sales revival.

In its proposals for government loans, GM maintains it can make money on the 12.5 million units it forecasts for the U.S. market in 2010, or about 3 million above the current level. Lutz sees GM returning to Blue Chip status within five to six years.

“There's no better time to transform and restructure,” he tells the Automotive Press Assn. “The recovery will come, and GM will be at an advantage.”

“Incredible” is an overused word, but it aptly describes the fall of GM, which for decades was the industry's most profitable and technologically advanced auto maker. Words such as “juggernaut” and “swagger” were commonly found in stories about the corporation. Add “arrogant” to the list, as well.

GM's mistakes have become industry lore, with less said about its contributions, including its stalwart role as a major supplier of trucks, planes, tanks and munitions for national defense starting in World War I.

GM may have given too much to the UAW over the years, but the wages and fringes it provided hourly and salaried workers arguably served as the primary builder of the now-shrinking U.S. middle class.

Beginning in the mid-1960s when it owned exactly 50% of the U.S. light-vehicle market (now reduced to a 19.3% share), GM was all-too focused on keeping Wall Street happy at the expense of its core operations and products.

History shows GM has restructured every few years since 1984, when it formed two big car groups — Buick-Oldsmobile-Cadillac, and Chevrolet-Pontiac-GM Canada, without settling on a workable strategy. Later it tried brand managers to beef up marketing, but soon abandoned that approach.

While competition stiffened, GM downplayed car design and settled for mediocre styling that buyers shunned.

Lutz shook up product development when he arrived nearly eight years ago, and GM since has been catching up. But even Lutz concedes the auto maker faces a tough task in overcoming a solidly entrenched perception problem. A bankruptcy only makes that worse.

GM also has had far too many starts and stops. It purchased Electronic Data Systems and Hughes Electronics in the 1980s but eventually unloaded both. It launched a parade of new vehicles only to drop them within a few years. It got into electric vehicles early but pulled the plug and now is scrambling back in with the Chevrolet Volt coming next year.

And then there is Saturn, which aimed to finally become the answer to Japanese small cars. It began life in a new plant with a new engine and had initial success, but once again GM neglected the product side until recently.

Oldsmobile, the oldest continuously produced U.S. car dating to 1902, also moved ignominiously into history when GM killed the brand, building the last model in April 2004 and leaving 3 million Olds owners in the lurch. And now Pontiac is set to follow Olds onto the scrap heap.

Meantime, GM has shed numerous other operations, including its locomotive division. And in 1999, it spun off its components division into a new company called Delphi Corp., which has been in bankruptcy for several years and remains a drag on GM. The auto maker still relies heavily on Delphi for parts and continues to carry some financial obligations related to the supplier.

GM's Adam Opel GmbH subsidiary in Germany also is broke and for sale, a startling development that could all but wipe out GM's once-strong position in the big European market. Saab Automobile, which GM has owned outright since 2000, is being sold to Koenigsegg Group AB of Sweden.

Ironically, Fiat SpA, among final bidders for Opel, earlier forced GM to fork over $2 billion to get out of a parts purchasing-powertrain-equity partnership that turned out to be another of the auto maker's biggest gaffes.

After its headlong retreat, the surviving GM will have four brands — Cadillac, Chevrolet, Buick and GMC Truck — in North America; Asia/Pacific operations, where it has built a strong position in China; and Latin American operations.

With the U.S. Treasury plunking down $50 billion of taxpayer cash to make GM viable, it seems unlikely that Uncle Sam will remain a silent partner. Pressure from the Obama Admin.'s automotive task force already is reshaping the auto maker, starting with replacing its CEO and current board of directors and slashing its dealer network 30%.

The hope is that through all the machinations to come, GM will begin to focus unfailingly on what made it the world leader for decades: Cars and trucks that excel in every respect.

As for Wall Street? If GM is chastened by its tumble, perhaps a wall of shame should be erected on Wall Street, whose antics precipitated the recession and shares at least some of the blame for GM's predicament.

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