GM sheds bankruptcy risk - now comes the hard part

By David Bailey and Kevin Krolicki - Analysis

DETROIT (Reuters) - By pledging to cut $10 billion in costs, General Motors Corp (GM.N) has convinced investors and creditors that the immediate risk of bankruptcy has faded.

After touching 54-year lows, GM shares have rallied by 45 percent this week, and the cost to insure the top U.S. automaker's debt against default has eased.

Now comes the hard part: convincing millions of U.S. consumers to take another look at its more fuel-efficient passenger cars as the company attempts to break its reliance on the fast-sinking market for trucks and SUVs.

"They need to make a transition, but that isn't going to happen overnight, and the transition is going to be difficult," said Standard & Poor's equity analyst Efraim Levy, who expects GM to lose money in the U.S. market through 2009.

Analysts credit GM with taking important steps to revive its car lineup under product czar and Vice Chairman Bob Lutz. For instance, some analysts regard the company's redesigned Chevy Malibu as the best mid-sized sedan on the market.

Malibu sales have risen 31 percent and selling prices for the new car are up by several thousand dollars on average.

But Toyota Motor Corp's (7203.T) flagship Camry still outsells the Malibu by an almost 3-to-1 ratio. Honda Motor Co (7267.T), the only major automaker to post U.S. sales growth in the first half, sells more than twice as many Accords.

And that highlights a lingering risk with the latest, sweeping restructuring plan GM has unveiled.

The question remains: Can GM can cut thousands of management jobs and refocus smaller marketing and capital investment programs on the highly competitive passenger-car business while retaining its leading share of the overall U.S. market?

As part of its plan to free up $15 billion in cash by the end of next year, GM has cut its truck production by 300,000 units over that period, slashing output of slow-selling, big vehicles like the Chevy Silverado pickup and the Tahoe SUV.

Those reductions, which hinge on quicker closures for four North American truck plants, amount to almost 8 percent of GM's sales last year.

But GM has also assumed it can hold its U.S. share at 21 percent. To do that in a flat or slumping market, it will have to lure customers from entrenched rivals like Toyota and Honda.

JUST HIT HOME RUNS

GM executives say they understand the pressure they face.

"This is not the time for niche vehicles," Lutz told reporters this week. "We can't afford to hit singles and bunts. We need triples and home runs."