CEO Watch Rick Wagoner and General Motors get ready for the post S.U.V.'s era
With consistently rising gas prices, General Motors' CEO, Rick Wagoner, announced drastic cuts in production of S.U.V.'s and pickups on June 3, and geared up plans for smaller cars and engines.
With consistently rising gas prices, General Motors' CEO, Rick Wagoner, announced drastic cuts in production of S.U.V.'s and pickups on June 3, and geared up plans for smaller cars and engines.
Rick Wagoner, said G.M. will stop production at four North American assembly plants (in Janesville, Wis. and Moraine, Ohio, in the U.S., one in Ontario, Canada and one in Toluca, Mexico) that make S.U.V.’s and pickups by 2010. These production cuts will cost jobs to an estimated 8,000 workers at these plants. G.M. and its CEO were not willing to provide any details about the near future of the workers affected.
While announcing the changes, Mr. Wagoner said, in the New York Times, $4-a-gallon gas prices had forced a "structural shift" by American consumers away from large vehicles into more fuel-efficient cars.
"These prices are changing consumer behavior and changing it rapidly," Mr. Wagoner said before G.M.’s annual meeting in Wilmington, Del. "We don’t believe it’s a spike or a temporary shift. We believe it is permanent."
While Ford already reduced its pickup and S.U.V. production last month, the drastic cuts at G.M. seem to be closing a chapter in the American auto industry, emphasizing the radical transformation of the automotive landscape in the past few months.
In the meantime, small cars and hybrids, that use less gas than S.U.V.’s, are taking over the streets, with the Honda Civic and Toyota Corolla ranking as the two top-selling vehicles in the United States in May.
Chronicle of a Death Foretold
G.M. unveiled its latest restructuring on the same day that it reported that its United States sales plunged 27.5 percent in May. Following the same downhill path, Chrysler's domestic sales also dropped by 25 percent last month.
But the day of reckoning for the XXL S.U.V. and its 14-miles-per-gallon fuel consumption has been coming for some time.
"At the peak in 2002, G.M. sold 600,000 full-size S.U.V.’s, but they’re on pace this year to sell less than 250,000 of them," said David Healy, an analyst with Burnham Securities, in the New York Times. "And the nails in the coffin are getting screwed down a little tighter."
Rick Wagoner said that the closing of the plants was a "difficult" decision and added it was unlikely any of them would receive new products to stay open.
"These moves are all in response to the rapid rise in oil prices and the resulting changes in the U.S.," he went on.
G.M. hopes to counter the increasing drop in S.U.V. sales by increasing car production and accelerating the development of more fuel-efficient models. G.M and its board also approved production of two new small cars and gave the green light for production of the all-electric Chevrolet Volt by 2010.
The Volt, which will be powered by batteries coupled with a small gasoline engine, is the centerpiece of G.M.’s will to develop alternative-fuel vehicles. Mr. Wagoner said. "We believe this is the biggest step in our industry’s move away from our historic, virtually complete reliance on petroleum to power vehicles."
Over all, G.M. is slashing 700,000 vehicles out of its North American annual production capacity. By reducing capacity to 3.7 million vehicles a year from the current 4.2 million, the dominant automaker expects to save $1 billion on top of a target of reducing costs by $5 billion by 2011.
But even with the cuts, Wagoner declined to predict when G.M., which lost $3.3 billion in the first quarter this year, will become profitable in North America, bearing in mind that this occurs after a staggering $38.7 billion loss in 2007.
The plant shutdowns were announced days after G.M. said 19,000 of its hourly workers had accepted buyouts or early retirement packages.
G.M. is drastically changing its strategy on the fly in the face of increasingly tough economic conditions.
Industry analysts expect overall vehicle sales in the United States to fall below 15 million this year, the lowest point in more than a decade and far below the peak of 17.4 million in 2000.
Silencing Hummer
The decision to conduct a "strategic review" of the Hummer brand underlined the painful fate G.M. is facing.
Rick Wagoner said the review of the brand could result in "a partial or complete sale" of Hummer. And in a humbling admission that the S.U.V. era is all but over, G.M., Detroit’s leading automaker, said it was considering selling the gas-guzzling Hummer brand it once regarded as a pillar of future growth.
That is a far cry from the ambitious goals that G.M. had for Hummer when it acquired rights to the brand nearly a decade ago.
Once considered a brand with global potential, the monster-sized Hummer has become a symbol of the decline of the large, big-gulp gas-consumer S.U.V.
So far this year, Hummer sales have fallen 36 percent to 14,000 vehicles.
