GM - Discounting to Maintain Sales Volume
I'm sorry - but what the hell is going on at General Motors (GM:NYSE)? They are heavily discounting prices to increase sales. When the only thing you can rely on to increase sales is a large reduction of prices, your business is truly in big trouble.
There is no skill in dropping prices to reduce sales. For example, I have no expertise in the large petroleum sales industry. I do not have any contacts, don't know the players or the competition, don't understand the product line, and the truth be told, I am not the greatest salesman in the world either. But, without any talent, I could walk into that industry tomorrow, with a dramatic reduction in prices, and capture a huge portion of the sales. Of course, the company I worked for would probably go broke, but it literally takes no skill to drop prices to increase sales volume.
Based on my previous article, we have already determined that GM has some of the lowest gross profit margins in the industry. Decreasing prices will further reduce those already weak numbers.
GM has also announced a reduction of work force, which is standard, when a company is losing money. Although 20% of their workforce is a huge number, this probably still leaves them with excess capacity. Just decreasing costs will not make a business profitable. Since your profits can never be larger than your sales, just decreasing headcount and other related costs will allow you to go down hill more smoothly, but down you will still go.
GM's bonds are in junk status, it is time to set forth a bold new future, a thousand points of light, don't ask what your company can do for you… etc.. They need to make major announcements and they need to do so soon. They need to raise prices and raise margins. They need to trim weak products and introduce bold new ones. They need to introduce cars that use less fuel, they need to be a leader, not a follower.
Sounds like they need a turnaround artist, and they better hire him soon. They are literally asleep at the wheel and do not realize how quickly they can completely fail. This is the same type of problem that occurs in companies large and small. Management underestimates their problems and reacts too slowly with measures too small to make a large enough course correction. How many failed businesses could have been saved if their owners/executives reacted swiftly and boldly?
Wake up GM, or you may find yourself slumbering forever….
If you or your business find yourself in similar circumstances, make some bold moves and large course corrections while you still have the opportunity. If you find yourself lowering prices in order to maintain sales volume, then your slide down the tubes may be happening faster than you think.
posted by Cliff Rayman @ 4:04 PM
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