Friday, May 1, 2009

GM's sales Plummet but Headlines turn it into a Positive

Ford announced today a larger than expected drop in its April sales. Sales were down over 30 percent. GM's sales also dropped over 30 percent but CNN's website has a headline that reads, "GM Posts Better-Than-Expected Sales." Is this an insane headline for a 30 percent sales decline or is it just me. Sure it was projected that sales would drop more than 35 percent but that shouldn't justify a celebration. Let's inflate our projections so we can beat it every time! It's a full proof plan until you run out of money...oh wait, GM ran out of money months ago. Major changes need to take place within the auto industry. They need to reevaluate their business model to align it with the future US and global market. GM's US auto sales will not return to the 2007 peak of 15.1 million units. Many experts predict sustainable auto sales for GM will be around 11 to 12 million units. Plants need to be closed, dealerships need to be closed, and advertising needs to become more aligned with the new sales numbers, revenue and profits. GM's US sales are expected to be around 8 million units this year. Here's where the real rant begins....i've been thinking about this for a couple days now. If GM or any company for that matter has become too big that they can not handle an economic downturn, no matter how big or unseen it is, isn't it part of the price they pay for being that big? Put another way, when a company becomes huge it benefits from economies of scale, better credit terms that smaller companies don't get to enjoy. On the other hand, a smaller company benefits from the fact that it is nimble enough to cut costs quickly or contain debt exposure easier or even change the product line quickly to meet the changing market needs. So, with this being said, why is the government (ie. you and me) paying for a behemoth of a company to stay afloat when we didn't see any of the real benefits of it's size (Japan made more reliable and cheaper cars for years).


I had an economics teacher once tell me that one of the US's most powerful economic tools is our labor forces mobility along with our ability to retrain and integrate our workforce into new fields of work. The old idea of a single job for your entire life is a distant memory. Today, the average person spends only 4 years at a job. Compare this to Greece where they spend an average of 13 years at a single job. With this being said, why is there such a fear that we won't be able to integrate the thousands or even tens of thousands that would lose their jobs with a GM bankruptcy?

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