With bankruptcy looming, a new GM begins to emerge

• Source: China Daily
• [16:16 June 01 2009]
• Comments

Smaller costs after bankruptcy should help the companies make money even though compact cars carry far smaller profit margins than pricey SUVs. But there remains a risk that gas prices will remain low and the cars won't sell, blowing up the automakers' new business models.

The UAW deal moves billions in retiree health care costs off GM's books, giving a union-run retiree health care trust 17.5 percent ownership of a post-bankruptcy GM. The trust will take on health care costs for retirees next year. Higher health care costs alone account for a $1,500-per-car cost gap between GM and Japanese vehicles.

But just cutting labor costs won't be enough to save the company. It also has been working to streamline its engineering and design, as well as standardize many parts so they can go into multiple models.

"They've already made huge progress," said Laurie Harbour-Felax, president of a consulting company that studies competitive cost differences between automakers. "The problem is you can't see that because revenue died, because nobody's buying cars."