GM makes more products that are desirable to US auto consumers than any other company, including Toyota and Honda, but they also make a bunch of products that are only marginally desirable.  They make great products, but their cost structure is such that they cannot be profitable at their current size.

There is a very profitable GM contained within the current edifice. However, getting from the GM of 2008 to the GM of 2010 is going to be very difficult.

Right now, the most out-of-line costs arise from labor contracts, particularly their health care and retirement benefits.  Significant strides were made in the UAW contract of 2007 which will bring savings, but most of those will not appear until 2010.  For example, there is still something of a Jobs Bank in their contracts, and that is completely inexplicable to most Americans. I discuss this also below.

The biggest single excessive cost factor is health care costs, which result in a cost of production that is much higher than in other countries. The pure wage cost of American auto workers is no longer out of line; it is actually less than that of a German worker.  But health care costs are hugely higher in the US, and there are also labor costs embedded in the Jobs Bank and work rules.

American auto workers – including unionized UAW workers - have the productivity to compete internationally, provided that auto companies are paying them for their actual work making cars. What they don’t have is the productivity to make cars, plus carry the health care, Jobs Bank, work rules, and legacy costs.