After carefully considering the potential benefits of a GM – Nissan – Renault alliance, auto industry analysts have concluded that the deal makes about as much sense as Finnegan’s Wake. Well duh. Anyone even vaguely familiar with GM’s current crisis knows there’s only one thing the General needs right now: vehicles that people want to buy, at a price that makes the company a profit. This they don’t have. And guess what? Nissan – Renault can't give it to them. Even if Nissan and GM and Renault could work together (a completely preposterous concept), you’d see a second gen Chevrolet Camaro long before you’d see a hit product. No, there’s something else in play here…
To understand why this weird-ass multinational deal has progressed to the point where GM CEO Rabid Rick Wagoner and Nissan – Renault boss Carlos “The Jackal” Ghosn are headed for a Bastille Day chin wag, it's important not to "over think" it. The main players' motivations run the gamut from self-preservation all the way to greed, and back. To wit: the whole thing was started by a man who's lost a billion dollars on GM's shares. I don't know about you, but if I'd dropped a bil on a bunch of losers who refuse to institute radical change or even set targets towards profitability, I'd want to A) protect my investment from Chapter 11 and B) kick some ass.
From that perspective, convincing Nissan – Renault to buy up 20% of GM’s stock makes perfect sense. TTAC’s sources reveal that GM’s cash position is slipping well below $10b every month– perilously close to the $5b pad it needs to stay in business. Inventories are still up, and sales are still down. Kerkorian’s game of footsie with the foreigners would add $3b to GM’s kitty. That could be enough money to keep GM afloat until the end of the year, when cash from the sale of its GMAC finance unit finally arrives. At that point, GM would enter another one of those endlessly reoccurring “false dawns.” Kirkorian could sell off his stock at a profit and die in peace.
Analysts don’t see cash as a factor. They believe Kirk’s play was designed to replace Rabid Rick with the Jackal. It's an equally plausible scenario. Despite the fact that Rabid Rick's administration has been an unmitigated disaster, GM's CEO has displayed a unique talent for self-preservation. His message– slim the structure, stay the course– appeals to all of those GM's constituencies who have a vested interest in maintaining the status quo. Which is, of course, everyone other than Kirk Kerkorian.
To remove Wagoner, Kirk had to offer The Powers That Be a suitable alternative. You want a turnaround? Let's hire the only man on planet Earth who's already done the deed. The stock market responded to the possibility of Monsieur Cost Cutter taking the reins at GM with predictable enthusiasm. GM's Board of Bystanders reacted with equal predictability. After a due diligence conference call with Nissan – Renault execs, GM’s conclave of corporate co-conspirators charged Rick Wagoner with the task of further exploring a GM – Nissan – Renault alliance. The appointment assured a less than positive recommendation on the plan and a competitive entry in The Most Bizarre Business Meeting of the Year award.
GM’s Board quite rightly perceived Nissan – Renault as rapacious raiders, and sent their main man to defend GM against the barbarians at the gate. Never mind cover talk about corporate synergy. Nissan – Renault doesn't need GM's production facilities, technology, parts, platforms, dealers or office space. This is all about Carlos Ghosn desire to add another pelt to his collection. Wagoner's mob knows it, and they don't like it one bit. When Rabid Rick meets the The Jackal, one can imagine that it will be a pissing match the likes of which this industry hasn't seen since its earliest days. And then everyone will get back to work, as Kerkorian tries to find another stick that he can use to beat-up GM.
Only this deal has already inflicted tremendous damage on GM. TTAC's Deep Throat told me he took his car in for repairs over the weekend. The guy behind the counter asked if he'd heard that Nissan and Renault were buying GM. Remember when President Bush announced he wouldn't be bailing-out GM? Same thing: a clear message to America that The General is on the skids. Whether or not the Jackal replaces Rabid Rick, the mere possibility of a deal with Johnny Foreigner shakes already rocky public confidence in the world's largest automaker. The tipping point– where lowered sales makes people less likely to buy a GM product– just got closer. Like it or not, when next quarter's disastrous results are revealed, The Quiet Lion will be heard.
While I mostly agree with your perceptions of the financial ails of GM, I do not agree that GM needs to build cars that people want. They’ve been doing just that for a while now, but nobody has taken notice because they’ve all had their heads craned too far to the East to even want to give the (former) Big Three a chance.
I myself wouldn’t have given a nickel for anything from Detroit 20 years or so ago, but I was willing to wait it out.
My new car choice today would definitely come from GM’s performance line up and if I wind up being the last person in America who loves GM cars, I will also try to be the thorn in the side of those who don’t.
“Anyone even vaguely familiar with GM?s current crisis knows there?s only one thing the General needs right now: vehicles that people want to buy, at a price that makes the company a profit. This they don?t have. And guess what? Neither does Nissan.”
Not saying that I disagree with your other levels of analysis, but to say that Nissan doesn’t have products that people want to buy (without rebates) ignores the products Nissan has in its pipeline – namely the new Altima and G35, and to a lesser extent the Sentra, Versa, and Maxima.
That said, having Cadillac and Infiniti under the same umbrella orginization, does not make any sense. (G35 & CTS; M45 & STS, FX & SRX… are all aimed at the same demographics.)
SwatLax,
Great point. For all the other reasons this deal would be terrible long term strategy, I forgot about this one.
Think about it, guys.
One [of the many] aspects of GM’s problems is that all their models from their various makes compete directly with one another. Now you bring in another two makes to compete directly against under the same conglomeration. I don’t see Cadillac closing down the CTS, or Infiniti dropping the G35, so they compete against each other. I think GM has done a fine job of proving that strategy doesn’t work.
Besides, with things like competing models (and interests) I can’t imagine any business meetings going smoothly, as neither Reanult/Nissan or GM will be putting their interests aside. Sounds like it spells disaster.
GM simply needs to screw the bean counters and build cars that trump the competition in reliability and value, put a warranty that backs it up, and build cars that people will really want all the way across the board. (sorry Turbokat-they’re getting there, but not quite yet).
In my opinion, this deal would seal GM’s fate.
Deep Throat isn’t buying it. He says Nissan – Renault would buy bonds, rather than stock, if they wanted to a seat on the table after a GM bankruptcy.
He has it on good authority that Ghosn was really excited about using the link to repel Toyota’s world domination. I reckon that’s not right either– unless Ghosn has gone nuts, in that multinnational Gulf Stream V kinda way.
Anyone have an alternative theory for their interest?
Have to agree with SwatLax. I’m pretty sure slow Nissan sales are not a decline in their turnaround but the result of having lots of their major models being replaced right around the corner.
Nissan has all-new:
Versa, Sentra, Altima
Refreshed:
Maxima, Quest.
Basically their entire bread and butter lineup.
Infiniti has the all-new G35 coupe/sedan coming as well, which is their bread and butter car too.
There is a decline in sales momentum because people are waiting for the new models. If you like the existing models, you’ll get a great deal on them when the replacements come out, and if you like the new ones, they’ll cost about the same as the existing ones do now. A lot of people are out predicting doom & gloom for Nissan because of the downturn in sales, but let’s wait until the new models arrive and look at the numbers then, okay?
GM is too mysterious and screwed up for me to even think about for medium to long stretches.
However, I do know that Nissan is NUTS for not building a Maxima off the FM platform.
Imagine a decontented (ligheter) RWD-er competing with Camrys and Accords?
Plus, why on earth would anyone buy a Maxima over an Altima? Or a Maxima instead of a stripped G35?
and before you guys start in, my old roommate had a stripped G35 (cloth seats!) that she paid $27,000 for.
My theory: Its all about Ghosn’s ego…
Kerkorian has realized he f’ed up with GM: He should have gotten his 9.9% and shattered the company [1]: GMAC and perhaps 2 different car companies (the Winners: Caddilac, Hummer, Chevy and the Losers: Everybody Else), as 3 separate companies with a stock split arrangement. But his ego and need to initially be seen as a savior cost him, to the tune of a Billion dollars or so.
Instead, he tried to hold on and ride it out so he’s looknig for a bailout strategy, something which will pump the stock up enough that he can slip out without taking too big a loss. (He will take a loss, its just whether he will accept this).
Who catches Kerkorian’s eye, but someone with an even bigger ego than he has: Ghosn.
A GM-Renault-Nissan tie-up with be a disaster for Renault-Nissan, but would be a huge coupe for Ghosn’s ego. He’d be the mastermind of the huge deal, becoming top-dog on the biggest car-maker in the world.
Ghosn’s proven to be a somewhat reckless egomanic. Why else is he trying to run two car companies at once, and gunning for a third?
Why else did he persist in moving Nissan NA’s white-collar HQ from LA to Kentucky? [2]
Ghosn’s weakness is he believes his own brilliance, that “A good manager can manage anything”. And Kerkorian and York are taking advantage of it, in a grand pump and dump scheme. It wouldn’t suprise me if they even try to get some of the stock that Renault-Nissan purchases to be “bought” on the open market (rather than diluting), bought from Kerkorian…
[1] This is what I thought was going to happen when Kerkorian first got involved, as GMAC as a separate company would be worth far more separate than as part of GM.
[2] Hint, its not a huge cost-savings move when its only about ~1000 employees. At an extra infrastructure cost of say, $10k/employee/year being in LA, that would be just $10M/year of expense. Far less then Ghosn’s gulf-stream is going to cost flying between Paris and Tokyo. Far less than having the cream of the US employees jump simp. For these just happen to be the top tier experts in Nissan North America, who are happily jumping ship to Toyota, Hyunda, and everyone else who’s staying in LA.
Yeah. I once had a Maxima as a rental for all of 1/4 mile (the windshiled washer didn’t work, in the winter, so I changed vehicles). Yeah, just an Ehh big FWD car. Why would anyone get it over the Altima, Camry, Accord, etc?
I did consider the G35 sedan myself, but I fell in love with the utility of the Mazda6 hatch. The G35 is nice. $27k is about $4k off list, good price.
Why is Renault interested? Maybe Ghosn was able to sell to them the supposed synergies that Kerkorian has been talking about. Maybe they don’t want to piss Ghosn off by saying no. Maybe they want to get Caddy and/or Chevy on the cheap.
As nweaver said, I think this goes back to Ghosn. While many people see GM as a sinking ship, Ghosn may see it as his next conquest. He already has house wifes in Japan saying he is the second most desireable husband in the country, why not get more kids in the US named “Carlos”? His thinking is “What if I save it?” not “What if they file for bankruptcy under my watch?”.
Thank you Robert Farago for analyzing GM’s debacle for what it is – simply business. One that has been run into the ground for 35 years, and is going to have to pay the price for it’s sins against the car buying public.
FWIW, I have always found 99% of GM product to be insipid, souless, blue-light-special-quality ever since I was a kid in the early 70’s. I would also still prefer they got their collective manure together and survived. Unfortunately, they would have to set the way-back machine for around 1975 and get to building the cars that they could have.
There certainly is some market for a GM car, the problem is that market continues to shrink.
The razing and looting of GM is just another big-business transaction. This is what any good cold-blooded broker will tell you. Unless, of course, they own some GM stock too.
Johnny, you echo my sentiments exactly.
When I was in the market to replace my S4, I was looking at the G35 sedan. At the time I could have picked up a 6 MT G35 sedan for $29,900 (that was MSRP!). The 6 MT comes with 18-in. alloys, sport suspension, and leather. Nissan had just released the Altima SE-R at a sticker price of $29,500.
What in the hell were they thinking!? Releasing a direct competitor to the G35 at the same price as a G35……. However, the G35 trumped the SE-R in every category:
More power (300 hp for the 6 MT over 260 for the Altima)
RWD versus FWD
Styling
Interior quality
Dealership service
The people in the market for the SE-R would be the same minded people looking at a 6 MT.
I too wondered why the Maxima was based on the same platform as the ubiquitous FM platform. A RWD Maxima would be great. Unfortunately, it would be a serious competitor to the G35 line-up.
RF
Agree on the bonds – you’re more likely to get your money back if the company tanks than if you put it into the stock. Who would want stock in a company taking a dive? But that does raise a good question: what do you think is the value of the sum of the parts, relative to the value of the whole right now?
What is the deal with Kirk and the Jackal? I agree with your original thoughts that Kirk was looking for the board to wise-up, and try and entice the Jackal to come fix their company. I disagree that Kirk would have just attacked Wagoner to try and get him ousted. As bad as you think he is, I’m sure there are lots of people who could be worse. No, unless you have the guy you want standing next to the podium, you can’t knock down the guy who’s running “your” company…
Besides, it seems like GM needs more than a new captain… they need a whole new corporate culture and the fastest way to that is the end of this series.
Perhaps you’re right…
To back up your theory, remember that the UAW is pro-Wagoner; or, if you prefer, anti-Ghosn. (They know that The Jackal would stand up to their demands, whereas Rick will continue the great Detroit tradition of rolling over and playing dead.) In fact, Wagoner didn’t get where he is today without building a vast constituency within GM world.
Even so, how in the world could Ghosn run THREE companies? Why not just poach him and be done with it?
Deep Throat points out that Nissan – Renault could wait 'til GM went into Chapter 11 and buy ALL the stock for $3b. I stumped. What's in it for Nissan – Renault.
Seems to me that Nissan-renault are in the box seat and can take advantage of whatever cataclysmic debacle befalls GM – inclusing as, RF mentions, buying the entire train wreck for three billion. They have established the back and front channels. The front door is guarded by Rabid Rick- but ultimately this deal is going to be devious- and they’ll steal it from the back door.
Mr. Farago,
GM claims a huge loss from last year, this is true. But “me thinks” it’s GM’s accountants playing some funny tricks.
Seriously, tell us what makes you think they’re actually going to file for Chapter 11 though? You seem very positive that it’s only a matter of time before this gigantic, multi-national company, that takes in something to the tune of $200b in revenue every year, sells the most cars in the world’s fastest growing market (China), and has probably one of the most complex, storied and colorful histories with one of the largest fan bases for auto fanatics in the entire United States, is going to just file for Chapter 11 and sell off all of their assets for pennies on the dollar? You write this out as if GM has no other form of generating revenue other than it’s North American operations? Why do you think they’re so busy getting into China and the Far East? Because it’s fast growing, it’s cheap to build cars there and they know that they can make money there hand over fist, (which they’re doing on SUVs here too, even if the sales are down 25% or whatever, they just shut down the lines. They’re making tons on those things.)
Yes, they’re having some issues with the UAW, and now their largest private “investor” Kerkorian is being a total douschbag by trying to get Renault (the one to watch, remember the Le Car?????) to buy some of GM’s stock and perhaps take control of management (which I agree is an awful idea for both companies), but bankruptcy befalling a company that makes $55,000 Cadillacs for probably 1/3 that amount in total cost?? I have this feeling that GM is doing a lot better than what analysts and people that wish death upon them think.
Yes, I agree that as far as product is concerned, they still have a long way to go with some of their mainstream cars, and some of their entry level luxury cars. But whether you agree or not, from a practicality standpoint, most of their cars are indeed competitive with Toyota. The Camry does very little for me, and so too the LaCrosse does very little for me. Both are boring, but the Buick is more interesting.
It sounds to me like you just like the idea of GM going down so much that you’re fixated on all of the negative media and b.s. that all I have to do is open Business Week to find, and you’re tagging right along.
Oh, and the line about building cars that people want – well I’d definitely put some money down on a V-Series CTS if I could afford it, no questions asked. That car has some character, and from what I can tell, the new one is only going to be better. Moreover, if I had to pick between the new Camry and the new Aura, I’d take the Saturn any day.
Mr. Bob Miller:
Let me answer the question for you.
GM is going for Chapter 11 because of the shrinking market share. They had about 50% of American market share years ago. But it keeps getting smaller. It’s about 28% (if I remember correctly) last year and it will probably be 25% this year.
I don’t care about the appeal of their products and I don’t care about the deal between UAW and the management. If the market share is going down at this pace, I can assure you that GM won’t survive for another 2 years. All their pension costs do not scale down with the market share.
I can see that you like GM’s new offerings. But know that 1 in 4 Americans still hold that position and that group size is smaller every day.
Let’s see:
– GM’s market share is falling fast. Only a few years ago, their market share was 29%. That number is down around 23-24%, and falling.
– GM has too many branches. Just look at the entry level market. GM offers the Saturn Ion, Chevrolet Cobalt and soon the Pontiac G5. Why? The days of each branch offering something different and unique are long gone.
– GM has too many dealers. Just in a 10 mile radius of my house, I can count 5 Chevy deals, 2 Pontiac dealers, 2 Buick dealers, 3 Cadillac dealers, 2 Saturn dealers. In that same area, there is one VW dealer, two Toyota dealers, one BMW dealer, one Nissan dealer, one Honda dealer. Why have so many? Dealers aren’t going to bring GM lots of money if they’re competing with each other. In addition, state laws say GM cannot force them to close.
– GM has too many bad deals with the UAW. From job banks, to health care, to pensions, etc. Even the recent so-called health care giveback wasn’t so good. GM won’t make the money describe until 2011. They’re contributing $3 billion to a fund to help retirees pay for their medicine. Even their deal with the CAW has problems. In Canada, they don’t have to worry about health care, but they do have jobs banks and pensions. Both are in the current deal, which lasts until 2008. Next year, a new contract will be negotiated and some think the UAW will “wise-up” and accept a lesser deal. We’ll see, but the UAW has not yet accepted a lesser deal. In reality, the best GM can hope for is some roll-back of the jobs bank. They may try to shut down the lines, but they still have to pay the workers.
– Delphi. This is still hanging over their heads. If the UAW strikes, some people think GM won’t last more than a month or two.
– Debt rating. Just look at GM’s debt rating. Well into junk. Lenders don’t think GM is going to pay it’s debt back.
– Accounting problems. The SEC’s investigation into GM’s “accounting irregularities” still hasn’t completed yet.
– GM’s long time cash cow, the SUV, isn’t selling, like you said. Even if they make around $30,000 per Escalade sold, they’re losing money on pretty much every other vehicle sold.
– GM’s product. While GM has gotten better with their offerings, as a whole it’s pretty average. In addition, the perception of many car buyers is that GM is cheap. Whether or not the perception is a real description doesn’t really matter. As long as that perception is held, less and less people are going to buy GM. And it takes years for those perceptions to go away. The fact that they often have to resort to sales and gimmicks for sales only enhances that perception.
– GMAC. If GM weren’t in trouble, why would they sell the one part of the company that brings in profit each and every year? You can rightly say that selling their stakes in Isuzu, Subaru and Suzuki weren’t bad because, for the most part, they weren’t able to find synergies with them, but you can’t say that with the GMAC deal. And Cerberus can still walk away from the deal if GM’s debt rating falls further.
There are simply too many issues facing GM right now. To make money, GM needs to get leaner, in terms of product offerings, dealers, brands, and workers. Many of these can’t be corrected unless they file for bankruptcy, certainly not the dealers, brands, and UAW issues.
Well, we all know that GM’s market share is falling and the General therefor has two many production plants and idle workers.
Now wouldn’t it make sense for GM, to let Nissan use some of their factories? Nissan wouldn’t have to build their own North American factories and all the infrastructure and workpower would be there already. They’d only need some new machines and could start producing cars. GM wouldn’t have to buy thousands of workers out of their contract, while Nissan would profit from it too.
Another possible benefit for Renault could occur if Ghosn would actually try to establish Renault in North America. It is highly unlikely but I think Ghosn is capable of a move like that. In that case, the most crucial thing he’d need is an American dealer network. Again, GM has way too many dealers and Renault could possibly need some of them.
Occam’s Razor might work here if we ignore the dry mechanics of the deal. Ghosn has a reputation for saving companies, and GM is a classic example of a company with an obvious problem (an old boys’ club that refuses to change) but scads of potential. This is a way for Ghosn to keep his executive position and look good doing it.
“To back up your theory, remember that the UAW is pro-Wagoner; or, if you prefer, anti-Ghosn. ”
If the UAW is pro Wagoner then why don’t they finally stand-up and give some real support instead of milquetoast type comments:
“I do trust that Rick Wagoner and his team can get this behind him as quickly as possible and stay focused on what they were really starting to make inroads on, and that’s moving General Motors forward.”
– Ron Gettelfinger, President of the UAW
Quality Partner ? — Where is the UAW when they are needed most?
http://qualityg.blogspot.com/2006/07/quality-partner-where-is-uaw-when-they.html
About 9 months ago, I “knew” GM was going to be on the rocks, possibly within a couple of years.
The reason (one reason, ultimately) was simple enough.
GM was losing $2800 per vehicle sold new on average. Day in, day out.
So what did the Brainiacs at GM Central do?
Why, drop the prices of the cars, of course! It’s not like they could stop building them, because as we all know, the UAW won’t let them. As it is now, tons of “workers” are in “jobs banks” and show up at empty plants to play cards and get a huge paycheck. What a way to run a railroad!
Excuse me, but when a company not only cannot make money at its major business, and has sold off virtually all of the family silver, it increasingly looks like it is going to sink.
Look at what MG-Rover did in the UK. They were sinking slowly, slowly. The management actually even sold the land out from under their only plant facility and leased it back. SAIC (ironically the company which is involved with GM in China) circled like a vulture trying to wait out MG-Rover and get a better deal until the equivalent of Chapter 7 bankruptcy knocked the card table over for everyone.
It’s not like SAIC didn’t have a great example to follow. You can’t say the Chinese aren’t quick learners. GM pulled the same deal on Daewoo, stringing the bankers and creditors along for several years, pinching the price down until they snapped it up for a song. It’s just that SAIC screwed it up and Nanjing, a Chinese competitor, got to the spoils first after MG-Rover went “bust.”
Yes, IMHO, GMs “Titanic” hit the iceburg in September of 2005 when it put “employee pricing” into place. It’s only a matter of time, sadly.
By the way, I think the wayback machine would have to be set for about 35 years ago and a clean sheet of management put in for GM to have continued to prosper. Not to mention a whole different range of cars with stupendously good quality and differentiation between brands, including price points (as originally envisioned by Alfred Sloan, the guy who “re-invented” GM and made it the success it was from the 1920’s to the 1960’s).
If you read all of the above accounts there is one constant, GM is behind it’s major competitors in style and product content not to mention cost of build.
If this were a car race, we would say are they 5 car lenghts back, or 5 laps back? If the distance is laps (years in corporate talk) then their ability to win this race is doomed. The reason is that if we take another blogger saying 1975 was a pivital year, look who they had for competition. Ford and Chrysler were certainly capable of scoring a coup in any given year ie mustangs and chargers. But they were only a car lenght ahead and GM could always come back next year and trump them. Also ford and chrysler could only unload so many new hits in any one year to go against the general. Now, it’s different, as you take a hit from Toyota, huyndai and kia are reloading to fire new product. when the general responds to this, volkswagen and audi are reloading etc. Looks a lot like the way a pack of wolves take down a larger prey.This is the type of competition I don’t think the general can respond to, it’s an large animal too weak to take the thousand cuts from a multitude of agressive competitors not two as in the past. Thirty years of falling behind is a lot of laps to make up.
GM, Nissan and Renault.
What an incredibly bad idea.
All of this smoke and mirrors results from Kirk Kerkorian trying to get his money out of GM. I thought the ‘Quiet Lion’ was some sort of genius, but maybe not. I don’t think the playbook he used for Chrysler will work at GM. Ghosn may be a megalomaniac, but I cannot conceive of how he would run three companies.
Let’s look at the other partners in this sad menage-a-trois: Renault has no presence here. Hasn’t since 1987. Considering what transpired between AMC and Renault, it’s just as well. Nissan, they’re not exactly burning up the charts. Except for the Altimas that were catching fire… literally! Please, no more remarks about ‘refreshing’ the lineup, Nissan’s lineup almost as confused as (allegedly) the GM lineup. If GM built almost it’s whole lineup from one platform (ala FM), the press would have a field day. And don’t start me on the ‘vaporware’ Skyline…
Let’s focus on market share. For example, what is BMW’s market share? 3-4%? Where are the postings and articles about BMW’s imminent demise? In the US, it’s not much of a concern. BMW has plants and sales and more of everything else throughout the rest of the world. The same situation with GM. More germane to this discussion, what is Nissan’s market share? Didn’t they lose sales year-over-year this year, too? My point is marketshare is only one of many yardsticks. Toyota is taking market share from everybody else, even Honda.
No doubt GM has made some very bad, cars, deals with unions and even ideas. I’m not ignoring that at all. I vote for Roger Penske for GM chairman, but like LBJ in ’68, he won’t run…
But let’s see what this ‘deal’ really is, just a way for Kirk to get his money back. He should have known better.
Yes, thirty-five or so years ago, GM indeed took the wrong fork in the road. But I don’t believe it has come to a dead-end. The monopoly style tricks they are contemplating right now will only be mere measures of survival unless they do turn around with believable products backed up by a stronger, longer warranty.
The “retirement” being handed to GM’s salaried, mid level employees needs to be practiced on the top floor. They once had a saying “What’s good for GM is good for the country”. It’s that kind of arrogance which continues to cripple the company and must be dealt with radically.
The “Generous Mother” needs new blood with new ideas and a genuine feel of what will turn the heads of consumers. Buick is trying but still battles the spectre of their “stodgy” image while Cadillac shook off their own just recently. I don’t know about Chevrolet, and I have a feeling that a lot will depend on what they produce in the very near future. They can’t pin all their hopes on the new Camaro whose production is still a few years off. The new Impala seems to be a start in the right direction, but the Monte Carlo, Malibu and Cobalt do nothing for me. Pontiac and Saturn have piqued my interest though with the G6 and Sky. The styling is fresh and the performance seems promising without having to stop too often at the gas pump.
Arrogance and short-sightedness has indeed taken its toll on GM. But I, for one, am willing to do my part to rally behind them, because if they really do go belly up, the economy of this country will be a lot worse for it.
bobmiller45
If you actually do want a CTS-V, over the July 4th weekend (and probably again soon), they were offering 0% for 6 year financing on it.
Between dickering the dealer down to $48k OTD or so to start with…
Back of the envelope was suggesting that 0% over 6 years costs GM ~$6k+ in incentive, but its incentive who’s cost is spread out over time rather than all at the start: much better for a cash-starved company who’s belief is “Next year, we will sell good cars”
I think the economy of the country would survive GMs failure at this point. In 1970 during the UAW strike against GM which lasted several months, it brought us a national recession.
GM is not nearly so important to our economy now. Looking at the Mulroney stickers on GM products will tell you “why”.
Where are they built, and where are the engines and transmissions from? (These being two highly expensive “pieces”).
Largely, GM builds cars (and trucks and SUVs) for sale in the US in Canada, the US and Mexico. A few cars come from South Korea (Chevrolet Aveo, plus several more lines for sale in Mexico and Canada).
Some engines come from Honda (Saturn Vue V6), some from China (Buick Rendezvous V6s, both OHV and DOHC types, as well as Chevrolet Equinox and Pontiac Torrent). The prior Saturn L100-200-300 V6 was an Opel unit.
Lastly, GM have been closing down plants all across the US and now, even in Canada. Mexican plants they keep running – possibly because it is actually profitable even for GM, to pay people less than a dollar an hour to build cars?! (Let’s face it – if GM cannot make a profit in this circumstance, then they must close the doors now and save us all the heartache of watching them die on the vine).
This is not to say that I want GM to fail – I do not. But it increasingly looks as if it is not an “if” but a “when.”
geozinger,
While raw market share is just a number, ’tis a rather important one. BMW’s market share can be tiny – as long as it makes money (and it does).
GM’s market share must be much larger than it is – otherwise it will not generate the revenue to pay it’s massive obligations.
In suggesting setting the ‘wayback machine’ to 1975, I was being generous. GM’s corpulent, err, corporate culture set the autopilot on ‘destination:oblivion’ somewhere in the late 60’s. Management is to blame, they have caved to the terrorists of the UAW one too many times, but more importantly, they lost any clue that they were there to design and execute decent cars.
I still have not learned exactly how this “alliance” smokescreen is being funded, or who owes who what favor to make this much ado about nothing. If I hear, I’ll toss it up.
Bottom line remains the same. GM is not profitable. GM cannot be profitable between the tens of billions it currently owes and the many tens it is obligated for. It gets even worse as market share continues to shrink.
The only way to save (some vestige) of GM is to do the bankruptcy. If there were a way to manage the company back from the brink, Warren Buffett would have bought GM, not a Caddy. Ghosn is merely part of the dog and pony distraction team.
At this point, nobody in their right mind would want to save GM. Why would anyone want to? With ridiculous UAW contracts, 3x the white collars they need, and unfunded legacy costs that rival the US gov’t on a per-person basis, long-term profits simply cannot happen in that frame-work.
Frankly, if you really work the numbers, being *given* GM in its current form would be a present you’d want to re-gift rather quickly. Within hours if possible.
Raze and recast into a smaller Chevy fleet-car/GMC truck company. Maybe keep the ‘Vette. Sell Caddy, bury Buick next to Olds. Kill half (or more) of the dealer network. None of this will happen until GM goes 11, so I wish they’d just pull the trigger already.
Robert:
How does this work? “Kerkorian???s game of footsie with the foreigners would add $3b to GM???s kitty”. If they buy stock, the $3b would go to the stockholders that sell it, not to GM. Or would this be newly issued stock, diluting everyone elses stock?
gbh,
I think you may have missed my point about market share in the States. Just like BMW in my example, GM is not only in North America. The other arms of GM are supporting the North American operations.
GM kicks rear in China, and other parts of the Far East. I personally believe the acquisition of Daewoo was one of the smarter moves in the last 20 or so years. Let all car people admit this: the Koreans have become master automobile producers right in front of our very eyes. I also think that Daewoo was one of the contributing reasons why GM ended projects with Isuzu and Subaru. The Suzukis you see in the US market today are Daewoo products. Some Opels are Daewoo-engineered. You get the picture
As I understand it, Daewoo does much of the engineering ‘heavy lifting’ , combined with their production capacity and capability, it was a sweet deal. I understand that GM does well in Europe and the Middle East, too. Again, they will stay afloat. The North American Operations may have difficulties, but globally, GM will exist for some time to come.
Put bluntly, why is Mr. Farago’s column now in it’s 84th installation? Didn’t he really believe(wish) that GM would have died by now?
FWIW, I have heard that if GM were to call it a day, it would take seven percent of GDP with it (Sorry, I can’t remember where I heard that). For those who think that this wouldn’t hurt the economy, think again. Glenn, it’s a Monroney sticker that is on the inside of the window.
There’s lots of ways to slice the North American pie. One way to help out GM (and others) is to eliminate the dealer system. Order and purchase the car online, go to your GM retail store to sign off the paper work and drive home happy. I have advocated for a long time now for GM to axe Saturn and Hummer, sell Saab back to the Swedes. In addition, tighten up the product and marketing for each of the remaining domestic brands.
But, since my last name isn’t Wagoner or Lutz, I’m largely ignored. Imagine that. I don’t know that Chapter 11 would even help my (or your) ideas. Some things are beyond GM’s control. The dealers are officially sanctioned in all 50 states, imagine the howl that would result from attempting to change that little patronage…
But, we’re REALLY diverting away from the original intent of our posts. GM + Nissan/Renault = 0. Even as a (somewhat) casual observer of the industry, I can’t see where this ego-fest would result in anything remotely good.
Last I heard, Jaques Nasser has filed a restraining order against Kerkorian for “pestering” and the DeLorean family has hired a guard detail at John’s grave after seeing a grizzled geezer in an italian suit get out of his limo with a shovel near the site!!! At this point he’ll try ANYTHING!! Lol.
GM sells about 9 million cars world wide. About half are sold in the US. That means the US market is, by far, the most important region for the company. So if they’re losing money on each vehicle they sell in the US, it doesn’t matter if they’re making money in other markets because those other markets aren’t big enough.
geozinger,
I understand that you are referencing world share, and there are parts of GM that can be salvaged because they are profitable. This proves that GM is not inherently flawed everywhere – just in the US where it really matters.
Those parts are not nearly enough to support the whole. As to RF being on episode 84, most of us who are involved with cars and understand business have been predicting the death/breakup/sale of GM since the 1970’s.
GM is a textbook corporate trainwreck. The culture of GM cannot ever be fixed without it’s demise and re-building. Without a functional culture, there eventually is no functional business. This happens in America all the time, I am always bemused that people feel GM is somehow immune.
Yes, the General has gotten lucky every so often in the past. If you don’t examine the underlying expenses, it might appear to the casual observer that things have turned around more than once. The problem is, in the macro sense, GM has been on the ropes since the late 70’s. They have never been competitive since then.
Please add up the numbers, don’t take hackeyed PR blurbs as truth. They have been able to refi the house, run up the credit cards, and keep adding more to keep the illusion of a potential turnaround. The problem is that they have burned throuhg most of that “huge pile of cash” that the survivalists like to reference. GM has huge short and long term health-care liabilities as well as a pension fund that’s underfunded to the tune of at least $25B. GM’s paper is junk-bond rated for a reason – they really have no way to pay it back.
No earth-shattering new cars in the pipeline. Piles and piles of unsold iron, that is not only unwanted, but still being produced en masse. Expenses that have been shaved a tiny little bit, not cut to the bone. Still on the hook for a whole lotta Delphi.
There’s not even a ray of hope. The only question is when and how. It has not been ‘if’ since about 1975.
I’m a bit late to this party, but here goes:
Nissan is on the up and up. The Infiniti G35 was a wild success, as was the new Z. The Maxima continues to be a major presence. I can tell you why people drive Maximas – my mom (a realtor) had a Camry (I4) and then two Maximas in succession. The Camry was a soft, slow wafter (though probably the version with the 6 is better). The Maxima is a hidden beast. It’s huge, comfy, not as ostentatious as the G35, but can very easily get out of it’s own way. I spin the tires every time I drive it, I can assure you not on purpose. It’s also still a few thousand cheaper than the G35. The market for that car is quite healthy. I can also say that it has a very different presence than the Camry or Accord.
As for the meat of this article, Nissan going after GM:
Businesses like to eat other businesses. That’s life. GM has plenty of nice things (like their strangely sophisticated LS engines) but is in a position of weakness. Businessmen who LOVE to fix up companies (Kirk and “the Jackal”) see this as an opportunity to get ahold of a fixer-upper with great potential. Just like people who buy used old cars and fix them up.
I don’t think GM will EVER get a chance to go bankrupt (unless something truly catastrophic happens). Someone will swallow it if it’s value goes down enough, and it’s looking like Nissan-Renault is calling dibs. Chrysler is the example of what happens in the modern world. If you start to look weak a bigger dog will eat you. Divisions have a reason to fear death but the overarching companies like GM just get swallowed.
The idea that GM going into bankrupty would collapse the economy is exagerated, in my opinion. Even if GM accounts for 2, 5, 7% of GDP, a Chapter 11 bankrupty (which is what is likely) doesn’t mean liquidation and disapearance. A good 15-20% of the sales they generate (whether to fleets or…consumers) would still have to come from somewhere, even if it’s from their Mexican and Korean plants (or domestically built competition).
No doubt the economy would be injured, but wouldn’t we all be better in the long run that needlessly large and/or unwanted vehicles are being shoved down the throats of consumers, increasing debt, expenses, wasteful consumption? From the point of view of a long term strategy, both for GM and for the USA, it seems it would be better to do some housecleaning and not provide big fat welfare checks for being in the job bank.
I know for a fact this won’t be popular with quite a few, but are we really better off when things are being made that are not needed? I mean -of course- in the long run. Too many dealers holding acres of unwanted vehicles to be discounted; too many used car lots holding rentals and “practically new” vehicles at almost half price. This is what I call living on borrowed time…money…no matter how you want to look at it, something just ain’t right. Sure it’s good for GM…now; just like Employee Pricing was great for GM…then.
So many of the problems discussed have been festering for so long, there comes a time when the pain of dealing with them is just too much, and something drastic has to happen. That’s life: it’s usually how people get fired, divorced, lose weight, you name it. As we all know these problems have been building for decades, and have yet to be solved. Different approaches have been tried by different people, all very smart (anyone who can become the head of one of the largest corporations in the world has accomplished more than me and probably anyone here), nothing has worked – because the constraints are simply too much.
There are two things wrong with this alliance, first, Gosn may have spent a few years in the States, but not enough time to understand American taste, his Nissans are selling because they are relatively fuel efficient and they have the Asian cachet… Nissan by the way has not been doing that well lately, and is being eaten by Toyota and Honda, not to mention the Koreans… second, having the French on board gives people another reason to avoid GM, I call it French backlash… personally I would not buy a Nissan for the same reason, but what is amazing, is how people who bought Nissans react, when you tell them it is 45% owned by the French….
Frankly, I think GM and Ford and to a lesser extent Chrysler ought to do a total re-look at the US car business and decide what customers want…. sure they want fuel economy, but more important, I think they want a car that does not lose 75% of its value after five years, and a vehicle that does not require trips back to the dealer for numerous recalls… amen…
Hey, geozinger, I don’t know of one single soul who actually “wants” GM to go down, to be honest, certainly not anyone here, I’d honestly say – including Robert Farago, and myself (despite my extreme dislike of GM)*. Hey, GM had 30 years – almost a third of a century – to make me a happy customer – they, Ford, Chrysler and VW-Audi blew it big-time.
Now, I’m a permanent non-customer of GM, Ford, Chrysler and VW-Audi, but a happy customer of Toyota, Hyundai, Daewoo (before GM) and potentially happy customer of Honda and Kia, depending upon my future needs.
Yes I can see why GM bought Daewoo, because now they build very good cars, for the most part, and 20 years ago they were only capable of building a very very poor supposedly carbon-copy of an excellent car – the Opel Astra, sold in the 1980’s as the Pontiac LeMans (bastardizing a proud old name while they were at it) when GM owned a portion of Daewoo before Daewoo went “independent”…. followed by the Asian financial crisis, followed by years of GM teasing and setting demands – to pay pennies on the dollar for the automotive operations. (Or most of them).
Ironic that Daewoo may end up being the savior of General Motors, isn’t it? But then, it is not widely known that when Chrysler bought American Motors from Renault in 1987 (in order to get Jeep, to be honest), the Chrysler management team was hide-bound and getting back into the extremely bad habits that had nearly bankrupted them in the 1970’s – it was the AMC “fresh blood” that saved the day until the “merger of equals” (not) with Daimler-Benz in 1999. “AMC guys” had been doing sterling work for decades and using brain power to make up for dollar power. It was the lack of money which caused AMC to be unable to succeed in the marketplace, since they had no worldwide operations to fall back upon (this being the only reason that Ford survived the 1970’s and 1980’s – the North American operations continously lost money until the original Taurus saved their skins; Ford lived off the fat of the then-closed European market and their overpricing/high profits).
*I may dislike GM intensely but I understand that a lot of people live off the old dinosaur, and it would be a shock to the country to have no GM. But as someone noted, perhaps, just perhaps, it would be healthier for the country – and I might add, for the industry, to not have the old dinosaur around. Believe it or not, Ripley.
I think there may be a way for G.M. to survive, without merit. The clouds of reality-based doom will coalesce to finally kill off the General in about 2009 or so I would suspect. It could (should) happen sooner, but G.M. tends to do EVERYTHING rather slowly, including its demise.
However Michigan is a big primary state for both political parties, and the pandering should be in full effect when the respective suits go begging for some votes. My guess is G.M. will be bailed out by the Feds, but on a different President’s watch, and Rabid Ricky will probably still be around. This is too bad as I am old fan of G.M. due to old man’s influence on my growing up, and I would like to see a Chevrolet Impala (one made after I was born in 1975) someday that would be worth buying. I’m not holding my breath.
My head hurts….