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To stay big, GM thinking small

WILMINGTON, Del. — General Motors Corp. officially blew up its old business model Tuesday, closing four pickup truck and sport utility vehicle factories, announcing a new small car that could get 45 miles per gallon and shedding 10,000 jobs in the process.

But it remains to be seen whether the world's largest automaker can sell enough cars to make money in a shrinking U.S. market and stay ahead of the bill collectors.

GM's moves, which come after a series of restructuring measures since 2005, are the result of a huge shift in U.S. consumer preferences for small cars and crossovers during the past two months.

"We at GM don't think this is a spike or temporary shift," chief executive Rick Wagoner said. "We believe that it is, by and large, permanent."

The automaker now will have to parlay its strong overseas sales and the lower North American costs into a profit by selling cars in the $15,000 to $20,000 range, half the price of its high-profit SUVs and pickup trucks.

"The new cars, they tend to price those accordingly," said Pete Hastings, senior analyst with Memphis-based Morgan Keegan & Co. "They tend to make money, just not as much money compared to the nice margins on the SUVs and large trucks."

Hastings is confident GM can pay bills and make money with its new North American cars, but that will be hard unless the U.S. economy recovers.

"I don't think they can get to profitability quickly if the economy stays where it is," he said.

Since 2005, GM, Ford Motor Co. and Chrysler LLC have announced the shutdown of 35 plants, according to Sean McAlinden, chief economist with the Center for Automotive Research in Ann Arbor, Mich. Along with 35 additional closures at GM and Ford's chief suppliers, Delphi Corp. and Automotive Components Holdings LLC, the total hourly and salaried jobs eliminated comes to 149,000.

In that same period, foreign automakers have built or announced plans to build five U.S. assembly plants, McAlinden said. In 2007, foreign auto companies employed 113,000 people in the United States, a number McAlinden projects will rise to 152,000 by 2011.

GM numbers

$3.3-billion losses in first quarter

28 percent drop in sales in May

19,000 workers will leave GM this year under early retirement and buyout offers

Plants affected

What closes: pickup and SUV factories.

What they make: Janesville, Wis. (makes Chevrolet Tahoe and Suburban SUVs; GMC Yukon and Chevrolet, GMC and Isuzu medium-duty trucks); Oshawa, Ontario (Chevrolet Silverado, GMC Sierra pickups); Moraine, Ohio (Chevrolet TrailBlazer, GMC Envoy and Saab 9-7 midsize SUVs); and Toluca, Mexico (Chevrolet Kodiak medium duty trucks).

Expected savings: $1-billion per year by closing the plants; when combined with earlier measures, GM by 2011 hopes to save $15-billion over 2005 costs.

Also coming

Small car: Starting in mid 2010, at a factory in Lordstown, Ohio, that now makes the Chevrolet Cobalt. It will be powered by a 1-liter to 1.4-liter four-cylinder gasoline engine to be built at a factory in Flint, Mich.

To stay big, GM thinking small 06/03/08 [Last modified: Monday, November 1, 2010 10:17am]
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