News From the Auto Industry

Even Rick Wagoner, the company’s youthful and energetic CEO, has failed to stop the rot. In fact he’s contributed to the problems, having been a prime mover in the disastrous failed alliance with Fiat that cost GM $2bn earlier this year.

The company is haemorrhaging money. It reported a net cash outflow of $3bn (pounds 1.57bn) from its automotive business in the first quarter of 2005, despite earlier forecasting a positive cashflow of $2bn for the year. Now it won’t give any forecasts at all.

At least GM has made positive steps elsewhere. Wagoner swallowed his pride and paid Fiat $2bn to get out of a deal signed in 2000 that could have seen GM forced into buying Fiat’s ailing car division (and taking on $6bn of debt), but the company has gained from this potentially disasterous situation. The big bonus is that GM now has access to Fiat’s excellent diesel technology ” something that it, unforgivably, lacked. Quite how GM Europe’s product planners didn’t notice that every other car sold on the Continent was a diesel simply beggars belief, and gives an indication of how deep-rooted was the malaise within the company’s European division.

Tackling this issue is crucial for GM’s future. The company’s healthcare costs have risen by $1bn to more than $5bn this year. Negotiations with the unions are scheduled for 2007 ” but GM doesn’t have that long. The unions are reluctant to play ball, so GM might take unilateral action, removing healthcare benefits from its staff simply because it cannot afford to pay for them.

It’s difficult to pin down what has gone wrong. Like Rover, the General has been in steady decline for a long time. While Rover’s problems are a combination of weak management, underfunding and multiple changes of ownership, GM’s seem rooted in its own stifling bureaucracy.

Quality: GM is back on the right track. It boosted its J.D. Power Initial Quality score 19.4%. That placed it second of the U.S. Big Three in quality improvement, behind Ford. Even so, with a score of 94 problems per 100 cars, GM comes in 11th on the survey, which again is led by Toyota with 60 defects. (Honda is a close second, with 61.) While GM is far better than the 110 defects it posted last year, it is still far below the industry average of 81.

GM’s truck problem number of 101 defects-per-100 also lags well below the industry average of 92 defects. Toyota, Honda, Nissan and Ford, respectively, place above GM. Toyota leads with 71 defects per 100 trucks. Consequently, we gave GM an A for improvement, but remind it the fight’s far from over.