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The Honolulu Advertiser
Posted on: Tuesday, July 8, 2008

At least $10 billion needed for GM to turn itself around

By Frank Ahrens
Washington Post

Hawaii news photo - The Honolulu Advertiser

Unsold 2008 Suburbans sit at a Chevrolet dealership in Castle Rock, Colo. The company yesterday said it may sell brands, cut white-collar positions and speed introduction of small cars from other markets.

DAVID ZALUBOWSKI | Associated Press

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WASHINGTON — General Motors needs cash. Lots of it, and fast.

The struggling Detroit automaker, clinging to its slim sales lead over Toyota, needs at least $10 billion to fund the company until a projected return to profitability in 2010, analysts say. The company is beginning to reap the rewards of labor concessions given in the 2007 contract, but those may not meet the company's cash needs, analysts say.

GM said yesterday that it believes it has "sufficient liquidity and financial flexibility to meet its 2008 funding requirements," spokeswoman Renee Rashid-Merem wrote in an e-mail.

But what about next year?

One possibility bouncing around Wall Street is splitting sluggish GM North America from its growing international division and spinning off the latter in an initial public offering.

But even though GM is considering a number of options — including the possibility of further layoffs and delaying capital expenditures — such a split-up/spinoff is not even on the table, said a source close to the company who spoke on the condition of anonymity because internal discussions are under way.

Another cash-raising scenario has GM selling off some of its eight vehicle brands: Chevrolet, GMC, Pontiac, Saturn, Buick, Cadillac, Saab and Hummer. GM said last month that it will explore a sell-off of the gas-guzzling Hummer line.

But if GM tried to sell one or more of its legacy brands, such as Buick or Cadillac — which could raise billions in cash — the process would be much harder than selling Hummer.

"They are woven together in a fabric," said David Cole, chairman of the Center for Automotive Research. "Trying to take a chunk out of the fabric is pretty difficult to do."

In other words, the days of being a "Buick man" or a "Pontiac family" might be over for many U.S. car buyers, but not for GM.

For the better part of the past century, when GM owned as much as 50 percent of the U.S. auto market, customers were GM lifers. A young man was introduced to GM with his first car, often a sporty Chevy. As he aged and advanced in status, he moved up the GM ladder, trading in his Chevy for a Pontiac, then Buick, Oldsmobile and, once he had reached the rarified air of upper-middle management, a Cadillac.

Other GM customers would pick a brand, say, Buick, and buy nothing but Buicks, bad-mouthing Oldsmobiles and Pontiacs, not knowing or caring that, under each brand's signature chrome, they were much the same car. (For a long time, however, each division produced its own engine, which increased brand loyalty. When soaring Oldsmobile sales in the 1970s led GM to substitute Chevrolet engines for the beloved high-performance Rocket V-8 engines, GM took a public relations hit from Olds loyalists once they discovered the difference.)

Because of GM's century-long back story, each of its legacy brands is a nearly inseparable element of the auto giant's DNA.

More practically, however, Cole said that GM has been successful at globally integrating its operations in recent years — something that equally troubled Ford Motor is trying now, though it lags behind GM by three to four years.

Such integration streamlines operations, spreads costs around, reduces redundancy and draws on global expertise. For instance, GM's Chevrolet Malibu is designed in Europe by Opel, also owned by GM, making brands harder to unwind from each other.

Further, Cole said, GM needs money now. Discontinuing auto lines — as GM did in 2004, when it reached the end of a long phaseout of its venerable Oldsmobile nameplate — does not produce immediate savings.

Finally, shutting down entire auto lines creates a logistical and expensive headache for dealers, which GM discovered with the Oldsmobile.

The sale of a GM brand to a foreign automaker may not be out of the question, Cole said.

For instance, some of GM's brands are doing much better abroad than at home. The Buick has been a big hit in China since its introduction there a decade ago, appealing to the growing luxury market, Rashid-Merem said. Cadillac sales are growing in China as well, she said.

The closest thing to untouchable GM brands are the Chevrolet and the Cadillac.

GM has identified Chevrolet, its biggest-selling brand, as its "global foundation" and the high-profit Cadillac as its luxury brand, Rashid-Merem said.

Shares of GM closed up 12 cents at $10.24 yesterday. GM stock has lost nearly 90 percent of its value since 1999 and is trading lower than it has since the 1950s.