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GM needs radical reinvestment

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Kai Ryssdal: Remember back when the government lent GM and Chrysler all those billions of dollars and got stock in return? The president promised his administration would be a hands-off owner. I don’t recall any such promises from Congress, though. Today the House is considering a bill that would force the two car makers to reopen the thousands of dealerships they’ve closed over the past couple of months. Commentator Dan Neil says GM in particular needs to re-think a bunch of things.

DAN NEIL: The worst idea I’ve heard this week is GM CFO Ray Young’s suggestion that GM could start paying down the debt owed to the U.S. government with the proceeds from an IPO as soon as next year. Because the capital market and shareholder expectations were soooo good to GM before.

I have a better idea. Whatever money GM has or makes in the next decade, it needs to plow back into the company, into product R&D, engineering, battery technology. Call it radical reinvestment. Because ultimately, if GM cannot turn around its product portfolio, the taxpayers money is toast anyway.

I get it. GM wants to convey an image of company reborn and revitalized company, GM 2.0. That’s why they’ve put those fresh-faced kids Bob Lutz and Fritz Henderson out there. And the Obama administration is desperate to shed itself of so-called Government Motors. The problem is GM’s current products aren’t that great, and the cars and trucks in the pipeline were all penciled out by the highly unreformed, prebankruptcy GM. In other words, GM has a long shadow of mediocrity to escape.

To win back old customers and entice new ones, the image-challenged GM needs to overcompensate. I recommend the Lexus strategy. In 1989, Toyota’s luxury division launched the spectacular LS400 sedan for about $37,000. It was obvious that Lexus was losing money on the cars, but it established the brand and created legions of fans. Today, Lexus is the biggest luxury brand in the U.S.

Like Toyota, GM needs to forget about making profit in the short run, and concentrate on making great cars and trucks. Any politically driven effort to repay the U.S. Treasury early will only send GM back to the miasma of short-term, cost-cut product planning that landed them in bankruptcy in the first place.

With great product, all can be forgiven, even debt.

RYSSDAL: Dan writes on cars, and a whole lot of other stuff, for the Los Angeles Times.

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