General Motors’ announcement that 35,000 more workers have agreed to accept buyouts or early retirements, on top of earlier cuts, may still not be enough, according to leading US analysts.
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“GM and Delphi appear to have crested an important hill on the road back to profitability. However, the path is far from straightforward as Delphi still has to negotiate contracts with its remaining UAW workers and GM has now to fill a skills shortage and arrest its falling market share, but the potential for both companies to emerge leaner and more focused appears brighter in the news,” Global Insight analyst Paul Newton said in a research note.
Newton said, in the short term, the issue of losing large numbers of skilled, experienced workers at the same time will undoubtedly affect quality and efficiency and, though GM has been hiring temporary workers and training them up in recent weeks, this will not be sufficient to bridge the inevitable skills gap.
“That aside, this element of the restructuring plan is pressing on ahead of plan and will undoubtedly please the financial community. The next step will be to negotiate a favourable labour contract deal with the UAW and GM will, for the first time in decades, have control over its fixed labour costs that will enable it to align better with the competition.
“How to arrest GM’s market share decline is the next obstacle. The planned and current reduction in staff and production capacity will better align the manufacturer with its current reduced market share, but with that forecast to fall below 24% this month, the company needs to arrest this decline to prevent further cuts into the future. For this to happen, GM needs some big product hits, and it is in this area that it has staked a huge amount on its new full-size truck range, coming to market as fuel prices hit record highs.
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By GlobalData“If GM scores a success with the new GMT 900-based truck range, the latest of which, the Chevrolet Suburban, was unveiled this week, it will pave the way for the full recovery of the automaker and the unhindered roll-out of its product and brand marketing strategy.
“If the trucks stutter and stall, GM will indeed be pressed again to make further cuts to overheads and put off development of much needed models. The balance is fine, but appears to be swinging GM’s way with greater momentum than before.”
Standard and Poor’s Equity Research’s Efraim Levy told The Associated Press (AP) that GM still faces increasingly strong competition from Asia and higher petrol prices that push consumers away from buying more profitable sports utility vehicles to smaller, less profitable cars.
At the same time, an uptick in incentives and discounted financing promotions from competitor DaimlerChrysler could drag GM into offering counterproductive promotions, Levy told the news agency, as he maintained a “sell” rating of GM shares on Tuesday, as did Banc of America’s Ronald Tadross, who warned GM probably won’t be able to afford to such a restructuring again.
He noted that, in the past, the positive effects of similar restructuring programmes have been largely erased by increased market share loss but this time, he told AP, GM may not have the cash to start another restructuring programme.
The Associated Press noted that Tadross raised his price target to $15 from $10 on the news that GM had reduced its workforce count, but advised investors to be wary of the stock.
