General Motors Searching For Forward Gears

It’s no secret that American automakers are in a tough spot; perhaps none more so than General Motors. The nation’s largest automaker stock is sinking, dipping under $10 per share for the first time in five decades.

Even with new models and idled plants, GM is still estimated to be losing a billion dollars every month. In the past, GM has relied on sales of trucks and SUVs which analysts say net profits of $10,000 per vehicle. With the rising cost of fuel, consumer demand has switched to smaller more efficient vehicles. However, the profit in small cars is not as significant as trucks, "We have better profits in trucks; everybody has better profits in trucks" says GM sales chief Mark LaNeve.

What is secret are GM’s self-repair strategies. Rumors of the sale of Hummer, cash assents of almost $24 billion, and credit means that GM could hold out for another year in its current situation. GM Chairman Rick Wagoner and most GM executives have declined to comment until a formal plan has been made public.

GM may have another card to play, courtesy of its international operations.; Sales in Europe, South America, and China sales are much stronger than domestic sales, with European operations witnessing a 2.8 percent growth in the first half of 2008. David Cole, director of the Center for Automotive Research suggests that borrowing against European operations could aid GM. "If they borrow against them, it would go a long way toward solving this cash-flow nightmare.&quot

The key will be investing those dollars to hunt for profit or at least immediately, breaking even. With a downturn in automotive sales, borrowing cash means GM and Wagoner need to find profit quickly, or this could be their last move.

Source: New York Times, Bloomberg