General Motors is in a huge amount of trouble: It appears to have just enough cash to survive until the end of the year, with its future beyond that point in doubt. The company's stock has collapsed in value over the last year, and now there's talk of a merger with Chrysler.
First things first: There is no problem revenue can't solve. But GM faces enormous legacy costs -- the accumulated promises of many years that come due as former employees retire, draw pensions, and rely upon company health benefits. Those legacy costs are a huge matter: GM today supports the retirees of a much larger GM from yesterday, and those costs include two-thirds of the company's health-care expenses. It may be possible for GM to simply abandon some of its benefits for retirees -- either by passing through bankruptcy or by simply ceasing to pay for those benefits that were never legally contracted. But that would result in considerable human suffering (imagine how it would affect an 80-year-old retiree who spent an entire working lifetime at the company) -- and it could be suicidal for the firm if the automotive unions make the benefits the headline cause for a labor strike.
Abandoning those benefits would be unpalatable -- but continuing to pay for them may be impossible. In this sense, though, GM is far from being alone. Any company that pays for retiree benefits has an incentive to find a way to reduce those costs. And it is from this common incentive that we can derive step one for saving General Motors:
GM should cooperate with other firms to help curb the leading causes of death
At the moment, some of these firms are backing government intervention and socialized health care as a way to move the costs of health care off their private balance sheets and onto the government budget. But in addition to introducing the known problems with government-run health care, this approach would simply play a shell game with the costs, since the cost of health care would be extracted via new and/or higher taxes.
Instead, these firms ought to consider offering inducement prizes for finding actual cures for the leading causes of death. Americans, by and large, tend to die from heart disease and cancer, as well as illnesses and conditions like stroke, lung disease, and diabetes. Many of these cost enormous amounts of money to treat -- particularly in the late stages of life -- and rack up huge costs when encountered as chronic conditions as well. By pooling together to offer huge prizes for the solutions to these conditions -- and by finding better methods of prevention and treatment -- the companies like GM that now shell out lots of money to pay for the treatment could instead pay once to find the answers, and save over the long term.
Thinking this way, though, requires business managers and owners to think about the long term -- an inducement prize isn't a fix for next quarter's budget. But it may be a way to sharply reduce the health-care budget in five, ten, or twenty years. And it would seem reasonable to expect them to think about that kind of time horizon if there's any reason to save the companies at all.
Other steps that could save General Motors get back to the issue of making vehicles:
GM needs to rationalize its product lines
There was a time when a Chevy cost less than a Pontiac, a Pontiac less than an Oldsmobile, an Olds less than a Buick, and a Buick less than a Cadillac. There was a rational separation of products by price point and perceived consumer type. But the lines became so muddled with time -- with Cadillac producing SUVs and Pontiac making crossover vehicles that the company simply killed off the Oldsmobile line in 2004 since it no longer represented anything unique.
GM needs to rationalize its line -- each brand should occupy its own special price range, unique from all the rest. GM should bring back Oldsmobile and Geo, since both still have brand equity, and give them strong identities and unique price ranges as well.
GM needs to get in front of fuel issues
The company needs a simple mandate: One electric car per line (Chevrolet, Pontiac, Buick, and so on) by next year. Period. No more dawdling. The company knew how to make an electric car and did so with the EV1 all the way back in 1997. There's no reason to wait until 2010 for the company to have just one electric car in its entire lineup (the Chevy Volt).
On top of that mandate, GM needs to bring the average fuel economy of each of its lines up to 30 miles per gallon -- again by next year. Then it needs to raise that figure by two miles per gallon each subsequent year. It's not rocket science.
Over the long term, the company needs to start acting like it wants to be around in 2108. That's hardly how the place is being run today.