GM finally wises up

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For the past five months, since its former CEO addressed Congress and asked for aid for the first time, GM (GM) has been chopping costs based on the domestic light vehicle market producing 12 million units in sales. That was never a realistic number. So far in 2009, the run rate of sales is under 10 million.

GM's new management has finally come to the conclusion that it will have to cut costs to match revenues for the lower sales figure. Even with union and creditor support, getting expenses down based on the reality of domestic vehicle purchasing trends is the only way GM will stay out of bankruptcy.

According to Bloomberg, GM is wising up. The news service writes, "The new plan may require GM to complete many of the reductions in models and dealers planned by 2014 as early as next year, allowing earlier plant and job reductions."

The plan carries one very large risk. When U.S. car and light truck sales do begin to improve, GM will have taken a tremendous amount of its manufacturing capacity off-line. That means it may not be able to gear up quickly to take advantage of new sales potential. That, in turn, could give the firm's Japanese rivals an edge because they do not have to gear back at the same pace that GM does.

GM is damned if it does and damned if it doesn't cut production capacity by next year.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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