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GM Throws In The Towel To High Gas Prices

Tuesday, 3 Jun 2008 | 9:25 AM ET
General Motors
AP
General Motors

You live by the sword, you die by the sword.

In GM's case, the sword is the SUV and pick-up truck, long the most profitable and popular models in GM's line-up.

Now however, they have become a lead weight dragging down the company's bottom line. And with GM now expecting high gas prices to stick with us, the world's largest automaker is trying to get lean and green.

It's closing 4 truck plants in North America (2 in the U.S.), revieing what to do with its HUMMER brand including a possible sale, and going full steam-ahead producing the electric/gas hybrid Chevy Volt. These are costly, but necessary moves for GM. Are they the right moves? Absolutely.

The plant closings are prudent. If gas remains at high levels, there will be fewer and fewer buying trucks and SUVs. Sales are down 17.3 % this year, and may not get much better the rest of this year. With 4 fewer plants, GM will save roughly a billion dollars. More importantly, it will reduce the number of SUVs sitting on dealer lots in the future.

Reviewing HUMMER is also a smart move. Yes, you can argue that it's one of only 3 GM brands with clear identity and cache (Cadillac and Chevy being the others), but HUMMER is sucking wind. Sales are down 29% this year, and with their heavy frames, HUMMER's are the ultimate gas guzzler in a world going leaner and greener.

Which brings up GM's approval to build and sell the Chevy Volt. The electric/gas hybrid could be a game changer when it comes out in 2010 and GM wants to beat competitors on the electric car front. From what I've seen of Volt, its potential is enormous and GM is smart to try and capture that potential as soon as possible.

GM Meeting Feedback
A reaction to GM's plans to accelerate its focus on smaller cars and crossovers, with CNBC's Phil Lebeau

All of this comes on a day when GM's sales for May could show the company move dangerously close to falling below 20% market share in the U.S.

The numbers come out later today. As of right now, they don't add up for GM, which is why it's going through another round of cuts.

Questions? Comments? BehindTheWheel@cnbc.com

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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