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Friday, August 11, 2006

GM Wises Up

Stocks: (GM)(F)(DCX)(TM)

Three pieces of news came out of GM in the last couple of days, and two of them would indicate that the big car company has decided to change its ways in light of the current economic and consumer environment.

The first tidbit is the BMW, DaimlerChrysler and GM will put $1 billion into a joint venture to build better hybrid technology than Toyota has. Toyota's hybrid cars, popular with the "green" buyers and fuel-efficient customers in the US, have done very well at retail. The new tech has a battery powered motor along with a regular gas engine. The engine will be available in big SUVs like the Tahoe, in 2007. The project has been going on secretly for over a year.

At the very least, the development of a new hybrid shows that GM is serious about fuel efficiency, especially in its larger, gas guzzling SUVs. GM now has the opportunity to sell these vehicles, once very popular with some consumers, in a configuration that saves gas.

The second word out of GM is that it will scale back production of SUVs, acknowledging that its inventories of the beasts could grow too large and consumers move to smaller vehicles that use less gas. According the the Wall Street Journal, the day's supply of some of its SUV is running as high as 89 days. A supply of 60 days is more attractive to prevent the need to discount to clear out inventory. The cutting of production is an acknowledgement the some of GM's most profitable vehicles are not selling well, but it is better not to build vehicles that have low demand that to manufacture them and let them gather dust.

The third bit of news is that GM will re-introduce the Camero muscle car in 2008. Since the car gets about two miles per gallon, that annoucement is puzzling. but GM must have its reasons.

As a post script, it should be noted that both Delphi and GM have stated that takes between the auto supply company and the union are going well. A strike by the UAW against Delphi would shut GM's North American production capacity.

GM's stock continues to trade well, espcially in contrast to Ford's, and one can see why based on hard but smart decisions being made by GM management. The stock continues to hold North of the $30 mark on a 52-week high/low of $35.38/$18.33.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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