U.S. Auto Industry NeedsNew Business Model

On General Motors’ 100th birthday, its CEO is optimistic. Whether management’s feverish measures will be enough to save the company, however, remains questionable.

Rick Waggoner, CEO of General Motors, naturally exudes confidence: the worst is finally over, he says, looking above all at production.

That could well be true. GM, still with an annual turnover of about $170 billion, is the largest of America’s Big Three auto manufacturers. GM is currently in the midst of an aggressive reorganization and restructuring program. The question remains, however, whether that will be enough to ensure GM’s survival.

The American public’s abrupt turn away from large SUVs and pickup trucks, the company’s most profitable lines, caught the Detroit companies completely off balance and on the wrong path. Now they are feverishly trying to change their production palettes. On top of it all, they are suffering the effects of a price collapse in the used car market for gas-guzzlers. That has led to huge losses in the popular leasing market and it also restricts customers’ maneuvering room when they want to trade in their old vehicles for something new. Fuel efficient, but expensive vehicles that were seen as the industry’s hope are difficult to sell.

Waggoner is right about one thing: Detroit’s managers are diligently working to reduce labor and benefit costs, close or re-tool plants and to develop new models. Beginning in 2010, GM hopes to score big points with its electric car “Volt.”

In the end, however, the company needs a new and profitable business model, something that has yet to emerge. Even if the “Volt” is successful, it could be years before it becomes profitable.

For GM, that could be too long.