Rough Road for General Motors (Editorial)

After being king of the hill for so long, it’s hard to imagine all the problems plaguing General Motors Corp.

In late November, the automotive giant announced that it was cutting 30,000 jobs before 2008 and shutting down nine manufacturing plants and three service and parts operations so it can cut production capacity by 1 million vehicles. The plan will allow the company to make $7 billion in cost reductions by the end of 2006.

The sad thing is that it has to make such drastic moves to avoid bankruptcy.

Think you have problems? Just look at GM.

Its share price reached an 18-year low recently. Its bonds are rated junk.

How did things go so wrong? There’s been a lot of speculation.

Even as the company was raking in record profits during the ’90s, sales were declining and it was losing market share. It used to sell half the vehicles sold in the U.S. Now its market share is only around 25 percent to 26 percent.

It was making bad decisions on design, and quality was not the top priority. The focus seemed to go to finance and marketing.

GM spent its capital on developing big sport utility vehicles — a market now in decline with higher oil prices — and it misread the appeal of hybrids. It’s hard to imagine that GM could have botched more decisions.

So far this year, the company has lost $3.8 billion. It made a deal with the United Auto Workers Union that trimmed $1 billion a year from its health care costs. With all the cutbacks that GM has made, it now pays three retirees for every active worker. Now it’s about to add another 30,000 to that heavy load. GM has the world’s largest pension program, extending benefits to more than 600,000 workers, retirees and their surviving spouses.

To add to the possible woes of GM, its former parts operation, Delphi, has filed Chapter 11. If it seeks to overturn its labor contract, labor will strike, hitting GM hard.

If GM declares bankruptcy, although that probably won’t happen, consumers might back off from buying GM products, making matters even worse.

GM officials have talked of selling off a large stake in its profitable finance subsidiary, General Motors Acceptance Corp. Because GM’s credit rating is so low, it’s making for higher borrowing costs at GMAC, which could cut GMAC’s earnings by $1 billion as a result of higher interest costs.

GM’s plans could affect P.A.M. Transportation Services Inc. of Tontitown and J.B. Hunt Transport Services Inc. of Lowell, tucking companies that do a lot of hauling for GM.

Superior Industries of Fayetteville supplies wheels to GM. And General Motors dealerships across the nation could be affected by all the negative publicity.

Ironically, the bad news for GM could mean good news for Arkansas’ efforts to land an auto plant from an Asian manufacturer. While GM is reeling, Toyota, Nissan, Honda and Hyundai are expanding in the U.S.

GM’s problems are not unlike the problems other industries, such as steel and the airlines, have faced. All are heavily unionized with great pay and good benefits.

But the costs of funding pensions and health care to countless thousands of retired workers and trying to meet the competition from overseas has so far proven undoable.

Talk about being between a rock and a hard spot. GM faces a rough road ahead.

Ford Motor Co. faces much the same situation. It also has announced large cuts. Altogether, the automotive industry — manufacturers, suppliers and dealers — has shed more than 100,000 jobs this year.

And, of course, all the lost jobs and plant closings affect retailers, restaurants, real estate and other businesses, especially in the towns they’re located in, but also here in Arkansas.

Automotive manufacturing has long been the backbone of the U.S. economy. Is it possible to recover from a broken back?