During its reorganization, General Motors should be able to shed about $12.5 billion (about 8.9 billion euros) in annual costs -- paving the way for possible profits, higher product spending and improved supplier health once U.S. vehicle sales recover to more normal levels, according to corporate documents and GM's Bankruptcy Court filings.
And in a better market with much-reduced vehicle capacity, GM could even eliminate almost $3,000 per vehicle in incentive spending, adding an additional $8 billion in savings when compared with the pre-bankruptcy GM, says Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.
The GM that will come out of Chapter 11 will need to burnish its brands to compete. GM's U.S. share has fallen from 22.3 percent in 2008 to 19.5 percent this year and is predicted to go as low as 18.4 percent in subsequent years.
But in Cole's optimistic scenario, the smaller GM, with a clean balance sheet and drastically reduced fixed costs, has a chance to prosper.
The savings in incentives could come when:
GM reduces its U.S. plants from 47 to 34 by 2010 as planned
Annualized U.S. vehicle sales return to about 13 million units from the current depressed levels of below 10 million.
Chrysler also is shutting plants and reducing capacity, measures that could reduce U.S. vehicle incentives in the coming months.
In 2008, GM sold nearly 3 million vehicles in the United States. Through May, the automaker sold just 772,733, putting the company in danger of missing the 2 million mark in 2009.
"There's huge overcapacity right now," Cole says. "You get 4 to 5 million units of Detroit 3 capacity out of the system and maintain incentive discipline, there's significant savings available."