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Get Moving, GM
By Brian Gorman
June 5, 2006

May was another rough month for General Motors (NYSE: GM), as its U.S. sales declined 16%. The company's problems have been building for years, so there's no quick fix in the offing. Still, there appears to be one relatively quick, low-cost move the automotive giant could make to help its recovery.

Despite GM's sales drop, there were some positive notes. Consumers are actually responding favorably to the firm's new lineup of SUVs, even as DaimlerChrysler (NYSE: DCX) and Ford (NYSE: F) struggle in this segment. Another area, sports cars, is also showing strength. Pontiac Solstice roadsters are sitting on dealers' lots an average of just 13 days, while the new Saturn Sky roadster, based on the same platform, is getting snapped up after an average of just two days.

Admittedly, the roadster market is very small, especially compared to SUVs. Still, recent news suggests that GM has an opportunity to squeeze more from this segment. Vice Chairman Bob Lutz recently noted that the firm is considering boosting capacity for the two roadsters, since demand is far outstripping supply.

At the moment, GM plans to build just 20,000 Solstices and 10,000 Skys annually, but Lutz estimates demand for the Solstice alone is 35,000 a year. At the same time, the GM executive wants to be sure not to flood the market for the cars, according to Automotive News.

A major production boost would require a sizable investment, but according to an industry source, the cost of making two or three extra vehicles per hour at the plant where the cars are made might be "nominal." The plant currently builds 6.5 vehicles an hour, which works out to 155 a day. Assuming that this schedule is supplying the current plan of 30,000 cars, adding two more cars per hour would raise annual production by 9,474 units. At $20,000 per car, that's almost $190 million more in annual sales that don't require costly incentives.

If GM can raise production quickly without a big investment, it's hard to see why it wouldn't do so. Lutz's concern about not saturating the market is understandable, but 9,000 more cars a year hardly constitutes a flood. In its current position, GM has to get the most from the winners it has.
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