Whither GM?

World's biggest automaker , General Motors, seems to have hit bad time, big time. Close on the heels of its mounting struggles to remain profitable come the accounting problems which has sent its stock-price plunging even further. In a major restructuring move today, CEO Rick Wagonor, has announced that GM will cut 30,000 jobs over next three years , 9% of its total global workforce. GM's list of problems is long. A bloated workforce, huge retirement and pension costs, decline of its profit-making SUV unit because of rising fuel prices, intense competition from Japanese auto makers particularly Toyota, bankruptcy of its spin-off Delphi and most recently its accounting woes. No wonder GM's credit is in the junkyard and markets are rife with speculations of GM filing for bankruptcy in a year or two. If that happens that will be a huge blow to this once icon of american capitalism. In fairness though, all is not completely lost, GM's insurance arm GMAC is still one of the most profitable companies around and GM's cash hoard ($ 19 Billion) is more than its market-cap ($13 billion). GM can still bounce back because of its solid financials and if the management shows some foresight.

At a big picture level, GM's problems are an indicative of troubles big companies face when they grow just too big and are not nimble enough to respond to changing market forces. GM's and infact American auto industry's problems are reminiscent of Steel industry's woes and more recently the airline companies . The story is familiar, GM has been unable to compete in a globalized world where it has faced intense competition from smaller but much more efficient and innovative foreign companies. Its base has eroded siginificantly even on its home-turf in the US where Toyota has gained significant market share at the cost of GM and Ford. GM completely lost out in the passenger car-market and is far away from responding to Toyota's hybrid challenge. GM's flagship unit SUV has fallen on hard times as rising fuel prices have slowed the sales of gas-guzzling behemoths. In today's globalized world, big companies have found to their dismay that they are unable to compete in terms of price with smaller companies and now are even falling behind in quality. In an intensive competitive globalized world, bigger is not better, infact it may be worse.