Auto Bailout: GM May Axe Pontiac, Hummer, Saturn and Saab

Posted: Dec 01, 2008 10:27 a.m.

General Motors manufactures eight brands of automobiles. When executives of America's biggest automakers return to Capitol Hill carrying business plans explaining how they would spend the federal bailout they've asked for, the automaker may propose trimming itself to just four.

Bloomberg reports that the company "is studying whether to shed its Saturn, Saab and Pontiac brands in addition to Hummer, people familiar with the matter said. Selling or dropping brands would save money and reduce overlap as the biggest U.S. automaker struggles to avoid running out of operating cash by year's end, said the people, who didn't want to be identified because no decision has been made."

The move would leave GM selling just Buick, Cadillac, Chevrolet and GMC vehicles. 

Left out of the discussion so far is exactly what process GM would use to eliminate the overlapping brands. Autoblog comments, "The word ‘shedding' is used to describe what GM would do with Saturn, Pontiac, and Saab. But we don't know where and how they would shed them."  Selling the brands to other automakers isn't likely.  "With the state of lending and credit markets, it would probably be easier to buy a pterodactyl than get a loan to buy one of GM's brands. HUMMER's already been on the block so long it's about to get arrested for loitering."  Instead, GM is probably looking at simply shutting them down.

Analysts have believed for years that GM needs to shed some brands in order to survive, but the automaker can't simply shut down a brand without a massive infusion of cash.  Bloomberg points out, "GM agreed to eliminate the 103-year-old Oldsmobile brand in 2000 because of declining sales."

But eliminating Oldsmobile is believed to have cost the company over $2 billion -- money used to buy out dealer contracts and settle lawsuits filed by Oldsmobile dealers whose businesses were ended by the move.  As markets open today, GM's total net worth is just slightly over $3 billion, and the company is believed to have less than a one-month supply of cash on hand.

Policymakers considering the bailout must also note that shutting down brands would mean, as Autoblog points out, "some serious upheaval and tens of thousands of job losses," which is what the bailout plan is supposedly designed to prevent.

Eliminating overlapping brands, however, looks like a great idea to investors.  MarketWatch reports that GM shares " rallied during Friday's holiday-shortened trading session ahead of [this] weeks crucial meetings in Washington that could lay the groundwork for a federal bailout of the ailing auto industry."  The value of GM shares surged almost ten percent after they "caught buyers' interest on reports that the company is considering shedding its Saturn, Saab and Pontiac brands as part of its effort to cut costs and secure the government loans."  The company was already widely reported to be looking for a way to get rid of its stake in Hummer.

Colorado's Grand Junction Free-Press says that dealers who sell the cars "haven't received direction or assurance from the companies that make the cars on their lots." 

While the bailout debate goes on, automakers are trying to sell cars as fast as possible with deep discounts.  Research the best car deals with U.S. News' Car Reviews.