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R.I.P. Saturn, Saab and Pontiac?

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GM may drop popular nameplates to secure bailout, stay alive.

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General Motors (GM) may sell or drop its Saturn, Saab and Pontiac nameplates as part of the effort to secure a $12 billion federal loan. Earlier, the automaker had dropped the Hummer in response to declining sales and rising gasoline prices.

A final decision on putting the brands out to pasture hasn't been made, Bloomberg reports.

Reducing the number of brands may allow GM to sharpen its image and better target its advertising. The company will present its plan to Congress on December 2nd, where it will underscore its ability to repay the loan. A hearing is scheduled for December 5th and Congress may vote on the issue as soon as December 8th.

For its part, GM may run out of cash by January if it doesn't receive the capital injection.

But cutting the number of models offered won't be enough to save it. The automaker must also reduce debt levels and labor costs for retired and active members of the United Auto Workers Union.

Reorganization under Chapter 11 bankruptcy protection may be the best way to solve the company's long-term structural problems, but CEO Rick Wagoner has rejected this notion and is seeking the bailout. Meanwhile, the Wall Street Journal reports that some of the failing automaker's board members are willing to consider bankruptcy. This could trigger internal bickering when unity of purpose is needed.

Domestic automakers have consistently lost market share to imports -- especially Toyota (TM) and Honda (HMC) -- and many in Congress fear the industry will vanish without federal aid. GM et al. now grab about 48% of the domestic market, a decline of nearly 20 points since the beginning of the decade.

With luck, the loans will allow US automakers to retool and develop new cars, including hybrids and fuel efficient models that will compete with the imports.

The first round of loan guarantees, if they happen, are likely to be a down payment and the automakers are almost certain to come back for more. Union contracts are a serious impediment, and it's difficult to see how Detroit can compete in the global economy as presently structured.

The Democratically-controlled Congress is unlikely to chip away at union protections and may place more mandates on the industry. This would create the worst of all possible worlds: Fleets essentially designed by lawmakers that have little or no experience in the private sector - and sure as hell aren't auto designers.

If so, the bailout would be money down the rabbit hole and would do nothing to strengthen General Motors, Ford (F) or Chrysler in the world market.

No positions in stocks mentioned.
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