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Analysis: GM Needs to Focus on Improving Products

STEVE INSKEEP, host:

To get one perspective on GM's effort to recover, we've called auto industry consultant Maryann Keller, who's on the line.

Good morning.

Ms. MARYANN KELLER (Auto Industry Consultant): Good morning.

INSKEEP: Is GM right to think that it can save itself by making the company smaller?

Ms. KELLER: Interesting observation. I think you have to put it into perspective. General Motors has gone through this kind of restructuring that involved elimination of workers and plant closings at least four or five times in the last 20 years. So it's part of the process. It's a necessary result when market share falls, as it has for General Motors because it's adjusting its capacity both in people and facilities to what's happened in the marketplace, but it is in and of itself not an action that, you know, takes a company forward. It's a response to the fact that, you know, it doesn't need these people and it doesn't need these factories.

INSKEEP: It's acknowledging the problem rather than fixing the problem.

Ms. KELLER: It's acknowledging the past, yes.

INSKEEP: Now the company has complained about its health-care costs, as we heard in Jim Zarroli's report. The figure was given $1,500 a car. What if anything would make GM's health-care costs any worse than anybody else's?

Ms. KELLER: Well, just what I've said. The fact of the matter is that when General Motors lays people off, as they have repeatedly in the 1980s and 1990s through plant closings, they do not go away. They've often gone through early retirement and then into the retiree pool because General Motors has had a very old work force and it's aged over the last 20 years since the company has not been expanding and adding new workers. And, hence, you've got a situation at General Motors which is much worse than at any auto company with two and a half retirees per active worker. The ratio at Chrysler is, like, 1:1 because it hasn't had quite that same outflow of workers into the retiree pool relative to the active work force in recent years.

So, you know, health-care costs were negotiated. Health-care benefits were negotiated through various union contracts, but obviously when the company negotiated them, they never foresaw a time when their market share would be 25 percent and they would have such a shrunken work force carrying the burden of these costs. So to an extent, they are unique to General Motors only because of General Motors' 15- or 20-year history.

INSKEEP: Which underscores what you said about this elimination of jobs just being a response to a problem and maybe not a solution because we were just told in that report that some of these people won't be fired, they'll be retired...

Ms. KELLER: Well, most of them will be retired.

INSKEEP: ...and so their health-care costs will still be on the books.

Ms. KELLER: Exactly. Because Rick Wagoner was specific and said, `This is through attrition.' Well, attrition means that they get old enough to take retirement and then they become part of the retiree pool, drawing pension and health-care benefits from the company.

INSKEEP: Now might GM be able to pay all of these costs a little better if it was making better cars?

Ms. KELLER: Oh, of course. I mean, the secret here since this is a fixed cost is to spread those costs over more units. If--you know, it's $1,500 a car based on today's production. If they sold twice as many, it'd be $750 a car. It might not seem so burdensome at that point, but GM has had a dual problem of shrinking and putting workers into the retiree pool and having to pay them and at the same time not generating the revenues on the--you know, in its primary business of selling cars to actually support that cost.

INSKEEP: Well, why have they been so bad at coming up with models that the public really wants to embrace in the way they did in the past?

Ms. KELLER: General Motors has been focused in the United States on big SUVs and big pickup trucks. I mean, that's been their product strategy for a long time. It worked as long as gas was cheap, but gas is not cheap and General motors is having a very hard time absorbing the blow of higher gas prices. They really have not paid attention to fuel economy technology, nor have they paid attention to developing crossover vehicles which are similar to SUVs in many ways, but which have better fuel economy. They've just been very late to the party and that's probably their primary problem today in the marketplace.

INSKEEP: And in a couple of seconds, they've also been late on hybrids, haven't they?

Ms. KELLER: They disavowed hybrids and preferred to invest in hydrogen, but that's, you know, a decade away at best. And so, you know, here again is another example of General Motors placing too many eggs in one basket and then sort of hoping that the environment would cause people to continue to want to buy these giant SUVs and it's not.

INSKEEP: Auto industry consultant Maryann Keller, thanks very much.

Ms. KELLER: Mm-hmm. Thank you.

INSKEEP: Maryann Keller speaking after General Motors proposed plans to eliminate 25,000 jobs.

You're listening to MORNING EDITION. Transcript provided by NPR, Copyright NPR.