Think similarly but not as dramatically. Say Honda is selling a certain equipment level of Honda Accord for 20k bucks to the dealerships (sticker and such is of course higher but we're just looking at what Honda got paid for them).

Then let's say that their actual cost is 18,600 after all expenses (fixed and variable) are applied.

Well GM needs to make a car that competes with that 20k dollar Accord, but price it at 19,000 dealer pricing and give it a budget of 20,600 including all their costs - in other words plenty of room to avoid cutting corners and make a car that is undeniably superior to the Accord even if there may be certain other inherent disadvantages in the production model such as union vs non-union labor.

Will GM lose money? Of course. But they are already. Yes this would make them lose even more money for the short term, but the long term effects would be great if they can stick it out. It's kind of like a broad sweeping "loss leader" lineup of ALL 2007-2010 model cars (say maybe 4 model years or so to get the momentum going).

Why does this actually cost less than it may appear on the surface?
-Cars that sell themselves cost less to advertise
-Cars that are made well cost less in warranty repairs, recalls, lemon lawsuits, etc
-GM has a LOT of fixed costs such as healthcare and it has been said that they're designed from a production standpoint to only be profitable at 35% and above market share... they're barely over 30 right now (if they are at all... I know they were below it before this latest promotion)
-Cars that are made well retain resale value better and thus become easier to lease at reasonable monthly prices, plus it lowers the "true cost of ownership" for the few car savy people with enough foresite to consider the cost of depreciation and not just the price paid up front on their new vehicle

 

That's easy to say when you have no real interest in profit/loss as an outside spectator. Try that when your job depends on it. And I don't think that union labor and non union labor is even scratching the surface of complications at GM. GM would need a lot of changes before they could do something like that. I think that one day, if GM keeps doing what they have been, that they will be back to the top. Toyota can put up a good fight, but sooner or later they will run into problems as well. The auto biz is just very competetive and someone has to be on top and someone has to struggle. If GM keeps fighting the fight, they will have no problem competeing for a long time still.They arent going to lose money forever.

 

GM can either attempt to squeeze out a tiny profit by playing in certain hypercompetitive markets with an uncompetitive cost structure, or they can decide to play in more open markets where they can command a profitable price. An example of the first is trying to build a Malibu that's going to directly compete with the Accord and Camry, while an example of the second is something like the 300C or Mustang. Anyone wanna guess which approach is currently more profitable?

The Japanese didn't start winning market share in the US by going head-to-head with Detroit. I don't think that Detroit is going to win market share by going head-to-head with the Japanese. SUVs were actually a great example of how the domestic manufacturers can create a new market, but they got caught flat-footed and now they look lazy and stupid. Chrysler still owns the minivan market after 20 years, and the LX platform was a stroke of genius. I bet that GM makes a pretty penny on every full-size van it sells, and of course there's the Corvette which has outlasted the competition. So it's not like OEMs can't figure this stuff out once in a while; they just need to figure out how to execute unique ideas across the entire line-up.