GM's recovery depends on winning over car buyers

"Establishing an adequate level of profitability throughout a car portfolio that has historically been priced at a significant discount relative to competing models from Asia will be a difficult and long-term undertaking," Moody's Senior Vice President Bruce Clark said in a statement. "GM will likely face a sizable cash burn until it gets this part of the equation right."

GM has also bungled previous attempts to win over car buyers. The company rolled out its Saturn brand of small cars in 1990 to fight the imports. While the models developed a loyal following, analysts believe the brand has never made money.

GM's old business model of making money on trucks and SUVs and losing it on cars was leading the company to disaster, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

But recent cost-cutting through global engineering and manufacturing and the historic lower-cost labor contract reached last year with the United Auto Workers have given it the means to change.

GM, he said, will have cut $4,000 to $5,000 from the cost of an average vehicle between 2005 and 2010, when the UAW contract takes full effect, allowing it to plow more money into better-quality cars.

"Now you have enabled them to be profitable across all vehicle segments," Cole said. "In a sense, it's really a reversal of a death spiral, and that's what they were on."

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