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GM Emerges from Bankruptcy

Just a few weeks after General Motors (GM) filed for Chapter 11 Protection, the company has announced its emergence from bankruptcy, leaner, refocused, and positioned to better compete in the global automotive marketplace.

The “New GM,” the moniker company executives are employing, will focus on three core areas: customers, cars, and culture. Specifically, GM will get back to the business of building great cars and trucks and serving customer needs, putting the emphasis on its strongest assets, and streamlining the organization on a global basis to enable faster decision making.

"Today marks a new beginning for General Motors, one that will allow every employee, including me, to get back to the business of designing, building and selling great cars and trucks and serving the needs of our customers,” said Fritz Henderson, president and CEO, on July 10. “We are deeply appreciative for the support we have received during this historic transformation, and we will work hard to repay this trust by building a successful new General Motors.”

At the core of that strategy is a plan to build stylish, high-quality, fuel-efficient vehicles that customers want—and getting them to market fast, Henderson said. Some aspects of this campaign are already under way. As an example, GM cited the early response to the Chevy Camaro relaunch as well as the success of models such as the new Chevy Equinox, Cadillac SRX, and Buick LaCrosse. Later this year, the Cadillac CTS Sport Wagon and GMC Terrain will debut, followed next year by the Chevy Volt (the company’s first extended-range electric vehicle), Chevy Cruze, and Cadillac CTS Coupe. And it’s not just North America. GM cited the Chevy Agile, now launching in Latin America; the Chevy Cruze and Buick Excelle in the Asia-Pacific region; and in the new Opel Astra in Europe.

GM also has moved aggressively to develop a full range of energy-saving technologies, including advanced internal combustion engines, biofuels, fuel cells, and hybrids. The New GM is also taking steps to make advanced battery development a core competency. Furthermore, the company announced its intention to build a new small car at a plant in Orion Township, Mich., which will not only add to GM's growing portfolio of fuel-efficient cars but also restore approximately 1,400 jobs in the process.

"The success of our recent launches and the exciting new vehicles and technologies we have in the pipeline are evidence of our ongoing commitment to excel at everything we do,” Henderson said. “Our goal is to make each and every General Motors car, truck and crossover the best-in-class.”

To speed day-to-day decision-making, two senior leadership forums, the Automotive Strategy Board and Automotive Product Board, will be replaced by a single, smaller executive committee, which will meet more frequently and focus on business results, products, brands, and customers.

Edward E. Whitacre, Jr., who oversaw the creation of the new AT&T, will serve as chairman of a GM board with a number of new directors. Henderson will continue as president and chief executive officer, working closely with Whitacre. He also will take responsibility for GM's operations in North America, eliminating the GM North America president position.

Bob Lutz, the company’s long-time design chief, has agreed to join the new GM as vice chairman with responsibility for all creative elements of products and customer relationships. Lutz and Tom Stephens, vice chairman, product development, will work together as a team, partnering with Ed Welburn, vice president of design, to guide all creative aspects of design.

Leaner, Meaner

In the U.S., the new GM will be a far leaner company. By the end of 2010, the company will operate 34 assembly, powertrain, and stamping plants in the U.S., down from 47 in 2008, and capacity utilization is expected to reach 100% during 2011. Overall U.S. employment will decline from about 91,000 at the end of 2008 to about 64,000 at the end of this year, creating a company sized to respond quickly to changes in the market, while still retaining the global scope necessary to develop world-class products and technologies.

In that spirit of lean, GM will also end its regional operating structure, moving decisions closer to the customer. This eliminates the regional president positions and the regional strategy boards. Nick Reilly will be named executive vice president of GM International Operations (GMIO), which will be based in Shanghai. GM is also removing layers of management—reducing the number of U.S. executives by 35% and overall U.S. salaried employment by 20% by the end of this year.

More importantly, the new GM will begin with a much stronger balance sheet, including U.S. debt of approximately $11 billion, which excludes preferred stock of $9 billion. In total, obligations have been reduced by more than $40 billion, representing mostly unsecured debt and the VEBA trust fund that provides medical benefits to UAW retirees. The stronger balance sheet and lower break-even point will allow the new GM to reduce its risk, operate profitably at much lower volume levels, and reinvest in the business in the key areas of advanced technology and product development.

Not to be lost in this major initiative is the role of GM’s dealership network. The manufacturer’s core brands (Chevrolet, Cadillac, Buick, and GMC) will have a total of just 34 U.S. nameplates by 2010. This emphasis on fewer, better entries will enable the new GM to put more resources into each nameplate, resulting in better products and stronger marketing. In May, the company accelerated its dealer consolidation efforts, with the goal of reducing the number of GM dealers in the U.S. from 6,000 this spring to approximately 3,600 by the end of next year. Despite the scale back, GM estimates it will still have the largest dealer network in the U.S. Furthermore, the company noted, GM dealers have committed to continue to improve the total customer experience for GM customers.

Therein lies the challenge. Industry observers say the company has to reverse years of decline and start winning back U.S. car buyers who have fled to competitors over the past several decades. GM currently holds 19.6% of the U.S. car market, down from nearly 30% at the start of the decade.

Sources: General Motors, BusinessWeek (“GM Gets a Fresh Start,” July 14, 2009)

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