How Much Deeper and How Much More will GM and Ford Have to Cut to Right Size?

Implications: GM, and Ford, are the victims of too much focus on the American market, for far too long, at the expense of the world market. GM, and Ford, must continue to shift away from, and write down production and assets focused on truck and SUV production. How much will GM and Ford have to give up, to survive?

Analysis: GM's announcement of lay-off's and extended plant shutdown's is further sign that GM is making the hard decisions "the morning after" the hard party of intensive focus on light trucks and SUV's. Truck and SUV production at eleven facilities producing these products is either being slowed, halted, or shuttered all together. Ford is announcing similar reductions at their facilities.

If there was one huge miscalculation made by GM and Ford, that was pouring decades of capital investment, product and component engineering, and product development capacity into  inefficient powertrain technology, in truck based products, meant soley for the US market. Both companies had to recognize that the huge profits being generated by these products were not sustainable over the long term, but were too blinded by customer demand and financial validation of their short term focus. Now, it is a race against time to survive.

Expect to see for the remainder of 2008 and perhaps all of 2009, continued lay-off's, production reductions, and hits to the financial performance of both companies. What we are seeing regarding buying trends for trucks and SUV's will not stop, much less reverse. I don't expect to see a positive quarter for many more to come. On top of this will be continued negative results from the Financial arms of GM and Ford as SUV's and trucks come off lease, and are sold at firesale prices.

The real trick will be if GM and Ford can continue to generate the cash needed to sustain a new product development wave, a global product focus, alternative powertrain technology, and increased regulatory compliance requirements.

Expect to see GM sell Hummer to an Indian automotive company, and to eventually make a decision regarding the future of Saab. Also, expect to see decisions made if both Saturn and Opel brands are needed, and if Pontiac is truly needed in addition to Chevrolet. And with many factories occupying prime real estate in metropolitan areas, expect to see aggressive marketing and sales of GM plant sites as brown field real estate. All of this will be needed to generate cash.

Ford will make similar decisions about Volvo, currently with several Chinese suitors among those interested. Also, they have many plants outside the Detroit area that would make attractive brown field sites for developers.

Finally, Ford and GM must seriously consider strategic alliances with other global OEM's in order to share research, development, supplier development, and manufcturing costs. Without this piece, long term survival will be doubtful.

At the end of the day.....a few years...... I expect a much smaller GM and Ford to emerge as proper sized, globally focused, moe flexible, and more open to proper partnerships and alliances. This is the only way to survive as an automotive company in this day and age.