GM mulls R&D cuts

Oct 30, 2008 (Pittsburgh Post-Gazette - McClatchy-Tribune Information Services via COMTEX) -- GM | Quote | Chart | News | PowerRating -- General Motors' future product development spending in 2009 and 2010 will be restricted to products with the highest priority -- small cars, crossovers and similar vehicles -- officials at the company say.

An Automotive News report said GM was postponing almost all of its product development spending and programs to save as much as $1.5 billion during the next two years. GM officials said the story was exaggerated.

"Clearly, we are not eliminating all spending for product development in those two years. But we do need to balance what we spend with business conditions. We have to be prudent," said company spokesman Tom Wilkinson. He suggested that the story may have originated from the auto industry's beleaguered suppliers, which are struggling and finding it hard to obtain credit.

"Suppliers are jumping at shadows because everybody's cutting back, and the tendency here in Detroit is for every rumor to get completely blown out of proportion," Mr. Wilkinson said. "To some degree, the tone of a news story like this is inflated by the level of emotion in the supplier community. If you could dial the tone of all this down a couple of notches, you would be safe."

But company officials do say that GM is carefully evaluating its product development programs.

"We will continue to align our resources behind the highest priority vehicle programs -- these are the ones that support our global growth and maintain our leadership in fuel economy and advanced propulsion systems [such as plug-in hybrids like the Chevy Volt]," Mr. Wilkinson said.

"If you look at the U.S. market, the highest volume is in mid-sized cars and crossovers. Small cars are important, too, but those other two areas are ones that any manufacturer would want to focus on."

If GM did decide to cut back nearly all of its product development expenditures for the next two years, it could make the company less competitive and cause investors to look elsewhere to put their money, analysts agree.

"It's not ever a good time to cut back on research and development funding, especially in a hotly competitive industry like the automotive industry. Other companies would surely move forward and pass you," said Jack Nerad, editorial director of Kelley Blue Book.

If the Automotive News story were true, said Peter Morici, a University of Maryland business professor who follows the auto industry, "It shows that either they are trying to demonstrate to the federal government that they really need some money, or they are so broke that they can't compete anymore."

As for investors, said Mr. Nerad, "If I tell people that I'm not going to develop new products over the next couple of years, I, as an investor am less likely to invest my money in that company.

I'd put my money with a company that had a more robust R&D program ahead of them. It absolutely would affect share prices of GM stock"

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