Plenty of pundits predict the world's largest automaker will jump down, turnaround, pick a bale of bucks and survive. We can debate this delusional supposition all day. You say new CUV's are a comin'; I say it takes two CUV’s to make the same profit as one old school SUV. You say union givebacks; I say dream on. But let’s face facts: GM is toast. Uber-investor Kirk Kerkorian knows it. GM CEO Rabid Rick Wagoner knows it (along with his in-house bankruptcy expert Jay Alix). The sooner GM throws in the towel the better.
Whether or not GM sells 51% of its GMAC finance unit, The General's NA operatives are set to burn through the company's remaining cash before it even gets close to posting a profit. Why wait? If GM files for Chapter 11 now, it can use its financial hoard to retain the people and plants it needs to become leaner, keener and more competitive. If it hangs on and files with an empty bank balance, The General faces the final curtain: dissolution and/or total annihilation under Chapter 7.
You can argue about who’s to blame for GM’s sky high labor costs and restrictive work rules (including the infamous jobs bank), but there's no question that GM needs to cut its labor costs across the board and re-structure its working practices. In bankruptcy, the United Auto Workers (UAW) couldn't frog march GM into a contract which would force the automaker to spend more than it can afford, or agree to terms that make it uncompetitive. If the union digs in its heels, the bankruptcy court can throw out the union contracts. In theory, GM could even up stakes and move its domestic operations into right-to-work states.
Each active GM worker currently carries 2.6 retired workers on their proverbial shoulders. Generous Motors' health care costs alone account for $1,525 per vehicle. Chapter 11 would allow GM to end what George F. Will called “the latest welfare state.” While the idea of cutting retired workers’ pensions and health care benefits is abhorrent to anyone who appreciates the value of keeping a promise to someone who's given you the best years of their life, common sense says it’s better to have some pie than none. Make no mistake: there is no “gentle” cure for this situation; Chapter 11 is the only way GM can shuck the beneficiary burden that’s dragging it into oblivion.
Under Chapter 11, GM can also cull its bloated dealer network. GM NA can’t sustain the enormous disparity between their decreased (and decreasing) market share and the huge number of dealers (and related internal bureaucracy) that the remaining business must support. Under US franchise law, GM can’t close up Buick, Hummer, Pontiac, Saab and Saturn stores and walk away. (Lest we forget GM is still paying costs related to Oldsmobile's demise.) Under Chapter 11, the dealer deadwood can be trimmed without razing the entire forest.
The ability to kill diseased brands is arguably the single greatest potential advantage of a GM bankruptcy. The need to feed The General’s eight US automotive brands with new[ish] products and mondo marketing dollars has been dragging GM’s design, engineering, production, sales and marketing creativity into the dumpster for decades. If a post Chapter 11 GM had three brands– Cadillac, Chevrolet and GMC– selling a limited range of products, the company would unleash all the talent locked up inside its bloated bureaucratic structure. It could finally take on its transplanted competitors with unfettered American grit, imagination and know-how.
To that end, a GM Chapter 11 would recapitalize the company’s balance sheet. Think about it: GM’s real problem isn’t debt. It’s negative working capital and crippling legacy obligations. Eliminating these problems under bankruptcy protection would allow GM to emerge as a lower cost producer (albeit with a smaller dealer footprint and sales). With lower costs and a tighter focus, GM could be what it’s supposed to be: a producer of high value vehicles for the general public– rather than an automaker that relies on steadily diminishing (if high profit) truck sales for its survival.
Rick Wagoner’s primary argument against bankruptcy: no one wants to buy a car from a bankrupt company. GM’s sales would tank beyond recovery. And yet millions of passengers have continued boarding Delta's jets since the airline filed for bankruptcy on September 14, 2005. Surely quality, price, service and warranty (which would not be affected) would remain customers’ primary concerns. That said, the enormous disruption to GM’s vast supply chain would cause massive headaches. So… best to get on with it.
Not to get all Wall Street here, but the Chinese military strategist Sun Tzu said “There is no instance of a country having benefited from prolonged warfare.” GM has been fighting the inevitable for too long. It’s time for GM to file for bankruptcy, regroup, gain a competitive advantage, and start again.
Well Rf I really think you are wrong on this subject… 101 deathwatch just makes for interesting reading now (crying wolf) but, I know like everyone else that if GM keeps up this trend of taking a loss every quarter, eventually you will run outa cash. I feel that GM is really trying hard to turn this around and they are on the right track as their losses this quarter were what 90 million or so but that was after one time expenses were paid out… I think GM will do all possible to avoid bankruptcy for the obvious reason (LOOK HERE GM would you buy a major expense like a car from a bankrupt company? I wouldn’t) but again interesting read!
GM has 18 Billion in liquid cash.
If GM lost the same amount (100 M) every quarter as they did the last quarter, GM would go bankrupt in the year 2052.
I have to agree whole-heartedly with your assessment here, Robert. Unfortunately I live in Michigan (though neither my wife nor I are directly related to an automotive income). Even so, with Michigan “tanked” right now (we have a recession while the rest of the nation carries on), I know it will get dramatically worse before it gets better.
We’ve been through it before. The early 1980’s. We had a saying then. “Would the last person out of Michigan please turn out the lights?” I left in 1982, to go to college as an adult after serving in the military. I left Michigan for the Air Force in a oil crisis enduced recession (1976), came back onto civvy street in Michigan in an oil crisis II recession plus jimmah cahtah induced stagflation (1980), and left college in the middle of another recession (1985).
Michigan can survive without GM, Ford and DCX if we have to. But it doesn’t have to be that way. The UAW has to actually change with the times as much as the auto companies, IF they are to survive (which I don’t think they will).
Case in point: Delphi workers upset over the bankruptcy and the potential loss of jobs, income, bennies picketing the Detroit International Auto Show in January 2006 while the executives of Toyota were coming through, with thoughts of adding plants in Michigan. What a surprise, instead, Ontario got the plant, and Toyota bought into Subaru for the benefit of their already built Indiana plant this year.
Why? It’s obvious. The Toyota executives have eyes to see with and brains to discern with. Michigan workers under the UAW are too militant and obviously are dragging down the big 3. What company in their right mind would build a plant in Michigan?!
The answer lies in the 300,000 jobs which have left Michigan – and the tens of thousands which went to other states.
Mr. Farago,
Great article. Probably the best GMDW since #1. GM does face many tough decisions including if and when to go chapter 11.
Of course, I have one gripe: Your line about Kirk Kerkorian “knowing” that GM is “toast”. If he really was sure about that, why would he still be holding on to ownership of about 6% of GM?
Keep up the good work.
Wow, 1984, how quickly you forget the massive losses GM has incurred up until this last quarter when “losses reduced”.
Which is just one way of saying “well, the patient is dying, but slower.”
I knew GM was finished over a year ago when I realized it was losing thousands per vehicle built, then speeded up the losses in it’s “Employee Sale for Everyone.”
Now, Ford has just got themselves a secured $18 billion line of credit using their plants and equipment as collateral.
Handwriting is on the wall for both GM and Ford, unless they can pull off miracles.
OK 1984, let me ask you this. Would YOU put your savings account entirely into GM or Ford stock? Neither would I. In fact, no touchee with barge-pole-eee.
Rationally thinking, GM should file for bankruptcy now since it’s inevitable.
Then again, The UAW would rationally say lets give in what we can now so we can salvage something worth saving.
Customers, as long as they would still get warranty and service, rationally shouldn’t care about bankruptcy…
Apparently, people aren’t thinking rationally. I heard last week about an inquiry that indicates this problem. Various random people were given 100 Euro’s, of which they had to give x (they themselves were to choose x) to another person. If the other person accepted this x, knowing that the other one had 100-x, both could keep the money. If the other person rejected x, both were aware they would then BOTH end up with 0.
Rationally, the 2nd person would accept any offer from the 1st one, since he or she did nothing to earn money and would still get money, and would otherwise get nothing. Even if the offer was 0, he or she would be indifferent.
However, significantly many times, the 2nd person would reject what in their opinion was an “unfair” offer, so that both would have 0.
Without in anyway justifying the flaws of GM’s management, I guess a lot of the irrational 2nd persons are with the UAW…
Robert,
I second the motion. This is a great article. We’ve seen that GM can create great stuff when it is brand focused (Z06, Silverado/Sierra) and so-so when not (the half-dozen products riding on the Epsilion platform).
One of the reasons Toyota does well is that it only has to develop and sell a few brands.
I agree, bankruptcy would not be a bad choice. Many companies have filed for Chapter 11 and come out the other side for the better. Although, I am wondering how a company that operates in so many nations can easily do that (can GM just go bankrupt in NA?).
Any suggestions?
i think the unions are the biggest problems. they HAVE to build cars that they wont sell…Buick minivan?! i suggest they drop the union by any means necessary. THEN they can build cars based on demand. i wouldn’t drop brands but combined them at the dealer level. rather then having a Buick dealer, a GMC dealer, a saab dealer and a hummer dealer…make a GM dealer. sell a buick or two. maybe a saab. an H2 and H3. If each brand didnt have its own full range of vehicles there would be no need for individual dealers.
Looking at the just-unembargoed interior pictures of the Buick Enclave, looks like the bean counters have been at it again. Interior plastics appear identical to its Lamba platform-mates. Leather padded dash and brushed aluminum instrument faces? Hah, leave that as an opportunity for the aftermarket.
Thanks to high fixed costs, the bean counters have not just Ford, but all the 2.5 by the nads. And looking at the recent news, so do the oil companies, subtly cutting supply to increase profits. All it takes is a few bad quarters + Hugo Chavez (or your demagogue of choice) and that $18 billion is toast.
Good to see Sun Tzu make it into an American-based automotive article. His “Art of Warfare” is required reading for many future engineers and managers at Asian Universities. His lessons on competition are as valuable as Dr. Deming’s contributions to manufacturing.
Great read as always! GM needs some major help restructuring and since a government bailout seems to be out of the question, Chapter 11 is the next best “help” they can buy.
while GM might have 18 billion in cash, I’m lead to believe Toyota has 100 billion+. Anyway the suggestion of Chevrolet/Cadillac/GMC brands i thought should have these current vehicles in the line up.
Chevrolet
Opel Corsa
Cobalt/HHR
Saturn Sky
Opel Vectra
Lucerne (possibly- for the, how we put this, the Old School)
Holden Commodore
Corvette
Cadilac CTS, STS, DHS. If you want a sports car there a corvette and the crossovers, suvs etc all go under the GMC brand.
This is the first decent GM deathwatch column in ages. Write about what is possible in the real world and bankruptcy just may be the solution for most of GM’s woes. However, using the airlines as an example about how bankruptcy does not affect buying decisions is absurd. A buying decision in the hundreds of dollars for a service that is concluded within minutes to hours does not compare to a decision in the tens of thousands that one must live with for a decade and use multiple times per day. Comparable to riding in a seat on a bankrupt airline is riding in a seat from a bankrupt Hertz or Enterprise rent-a-car. Bankruptcy reorganization may save GM. It may also end their North American car production and sales for all time. Be realistic.
IANAL but I am lucky enough to work for a company that has gone through 2 bankruptcies in the last 5 years. First time the shareholders were given a reduced number of shares, second time they got nothing. I wonder how GM would work that part of it.
I believe that it would be better for GM to go this route sooner than later, but the problem is there are a lot of large groups who will feel they are getting screwed by GM and will fight them tooth and nail to hold on to what they have now. GM will have to convince a court that it’s the only way for them, and I don’t think they are sick enough yet to pull it off. I think GM will have to be in a position where they can show that they have no other options, they are going to have to close their doors and soon if the court doesn’t OK bankruptcy. Don’t think they are there yet, to many billions still available to them.
Glenn A,
The 18 B is what they have now… not before the losses.
I’m sorry… did I state something that was not true? If GM makes even half the improvement they did from Q2 to Q3 for Q4 they would be in the red by a huge margin.
rjsasko:
Point taken, but not proven. I would like to see some hard data on whether or not a traditional GM buyer would abandon a bankrupt GM (after all, they’re pretty much down to the hard core by now).
Obviously, they’d lose some share, maybe even a lot. But the most important determining factor would be… PR. When Chrysler hit the buffers, Lee Iaccoca’s ability to reassure buyers was literally priceless.
There is no way on God’s green earth Rabid Rick would match Lee’s hand-holding abilities. But of course, when GM files, he’ll be gone in double-quick time, floating gently into the history books on his golden, bankruptcy proof parachute.
The sideline quarterbacks are always winners for a reason. You are not being sensible in any way. Why would Joe Sixpack buy a car- His second largest lifetime purchase- when he has ANY doubt about the makers’ ability to warranty and service his car. BK would be suicide. Analogies to the airlines are comparing apples….etc. And how do you figure that the dealer network is a negative? Even if the point in Marmarth, Montana is only selling 2 units a month, the related cost per unit is the same, yes? Remember- Chrysler was in default, not BK.
tulsa_97sr5: In the new year, new accounting rules will put GM into negative equity (where they can't take out any more unsecured loans). It's the financial and psychological Rubicon that they can cross into Chapter 11. BTW: Harley-Davidson has a larger market cap than GM. olddavid: Warranty payments would not be affected by a GM bankruptcy. The availability of parts– replacement and production– would be the single largest concern for GM in Chapter 11. But nothing is impossible.
Robert:
I agree with you. Mostly. Delaying the obvious need for the nuclear solution reminds me of the story of the little boy who brought his injured puppy into the vet. The vet examines the dog, and tells the little boy, “Your puppy is sick. We can make him better, but to do it, we’re going to have to cut off his tail.” The little boy thought for a bit, then asked, “can you cut it off a little bit at a time, so it won’t hurt so much?”
There’s no way to avoid pain here, and the sooner it’s over, the better for GM, the workers, the shareholders, and the country. What I’m worried about more than anything is that what’s good for GM (in the long-term) may be bad for American (in the here and now). With all that’s going on in the world, I can’t see much good coming from the huge hit to the economy that a GM bankruptcy would bring.
Nevertheless, my only reservation about your strategy is your choice of surviving brands. Obviously Chevy survives. Caddy seems to be the healthiest of their brands right now – if they can get past the era of Bling. After that…I dunno. I see no reason at all to keep GMC around. It’s only raison d’être is to allow the non-Chevy dealer network to have a way to sell trucks. So what should survive?
Frankly, I think you could have a few brands, but with a drastically reduced number of nameplates/models. If Chevy, for instance, needs to be a “full-line” brand, then it should have only an econobox, a sedan, a minvan, an SUV, a CUV and a couple of pickups. And of course, the Corvette. That’s it. No 3 or 4 different SUVs. No array of virtually-identical products. Just a very few well-made vehicles with gotta-have-em looks. Caddy is even easier. A sedan, a coupe, and an SUV. Maybe a CUV. That’s it.
Spin off Hummer. It might survive. Sell off Saab, if you can. Kill Buick and Pontiac. Make Saturn your “green” brand, so you can focus Chevy on “family values” and Caddy on “luxury.” I don’t know enough about GM’s overseas ops to know if those brands are worth saving, but I suspect they are.
So to recap:
SURVIVORS
Chevy – the foundation of the company. Family values.
Cadillac – luxury and quality
Saturn – e-85, diesel, hybrid, hydrogen, solar – you name it.
LOSERS
Hummer – sink or swim on it’s own
Saab – find a sucker for this Saab story
Buick – RIP
GMC – why bother?
Let the bloodletting begin.
I’m going to go with RF on this one.
To those who say no one would purchase a vehicle from a GM undergoing chapter 11, I say there are already many people who treat GM that way.
I know that if my next vehicle is a domestic, it won’t likely be because it was the best vehicle, but because they were able to give me the best deal, because they were desperate. That’s been their business model for pretty much the last 3 years.
Why would that change if they were under chapter 11?
Some thoughts, Why did Kerkorian only sell 10% of GM at one time? If he sold it all, he would get $3.00 a share by the time the last million shares went through the sell brokers. He has to filter his way out slowly, it does not mean he has any confidence in gm just the vagaries of selling huge blocks of one companies shares. As to gm’s $1500 a car legacy costs, if gm did everything else right and say toyota did everything mediocre (especially since they can now afford to coast), on a $20,000 car that is still about 7 1/2% of profits, more than gm every makes. It’s just too much to spot the competitors with the low legacy costs. As to the argument, what about when toyota has high legacy costs? Gm (and ford) can’t last that long. And remember toyota has no union, whenever the costs start to spiral on them they can change the work and benefit rules unilaterally. With no union all of the foreign transplants (except chrysler) can keep their advantages forever.
In my opinion, a GM bankruptcy would bring the inevitable comparisons to the Rover fiasco in the UK/Europe. Lot’s of people got screwed by this. What the hell do you do with a nearly new Rover when it’s supposed to have warranty-covered work? Apparently in the UK, the dealer and/or financing organization may be responsible for covering warranty work. But come on. GM’s image would be [that much further] damaged by this.
I’m also in agreement with the others who state that you can’t compare airline bankruptcy to GM’s. I had tickets on Delta when they declared bankruptcy, and was slightly worried. On leg was on Delta, with Delta-issued tickets, the other was a code-share flight on KLM or Air France. I was slightly worried about losing at least one leg if Delta just stopped flying. But as stated, we were talking about one-half of a $700 ticket that would be ancient history once my flight (3 weeks later) was over. Not if the company would be around to fix my drivetrain in 5 years. Now, knowing that Delta seems to be working, I probably wouldn’t hesitate to buy another ticket, assuming it was the cheapest, on Delta.
And therein lies the crutch. If GM starts selling Logan-esque cars, maybe they’ll be able to pull it out. Beyond this, the hard-core GMites would probably stick by the company, especially for trucks & ‘Vettes. But those new Chrysler, Fords, and even Toyotas, Hondas, et.al, would be looking pretty damn good to many many people. Why take the chance, when you have the choice.
Very good article indeed, as others have mentioned.
One point brought up in the Comments is that GM are down to their hardcore supporters now.
I wonder.
The father of one of my workmates dropped by recently, and parked his Silverado outside. He mentioned that the Toyota Tundras are delayed coming to Canada until Spring.
This perked my ears up. On further questioning, he said he wanted to get one of these new Toyotas. He’s had Chevy pickups for decades, and had no particular problems with them at all, and none with his present 4 year old vehicle. Yet he wants a change.
He couldn’t care less about the automotive world, has no beefs with GM, has no idea they’re in trouble, and he’s going to get a different brand just because he wants to.
Things like this are going to spell the end of GM, as I’ve never met a soul lusting after a GM pickup since about 1962. When Mr. Average changes his buying habits. GM is really toast, if it’s not already.
salokj
Because they don’t have a choice. They just think they do. Or… perhaps not.
“GM could be what it’s supposed to be: a producer of high value cars for the general public– rather than a provider of a steadily diminishing number of high profit trucks.”
So if reliance on trucks is GMs major problem, and cars are the answer, how does retaining GMC help? Chevrolet dealers sold 3xs as many trucks as their GMC counterparts, despite the loss of about 2000 Chevy points while GM added a significant number of GMC dealers over the last 25 years. Obviously Chevy should retain the truck retailing in any new GM.
And really folks, the best DW ever? They are all pretty much the same and this one is no exception. Just more of the blah, blah, blah that RF has spouted since job one.
*Yawn* This Deathwatch series has gotten so very tiring. Anybody can get up on the Cyber-soapbox and pontificate. When you have some real news, let me know.
ucanthandlethetruth Thanks for the heads-up. I wasn't clear. I've amended the text to read “GM could be what it’s supposed to be: a producer of high value vehicles for the general public– rather than an automaker that relies on steadily diminishing (if high profit) truck sales for its survival."
I recall some years ago sitting around a pool in Naples, Florida chatting with a retired GM couple.
They were absolutely incensed that they would have to start paying co-pays on their scrips and medical care. It could cost them (gasp…) $100 a month more!
GM (along with Ford) is the last great welfare organization outside of Europe. Remember, it’s always easier not to give in the first place, than to give and take away.
Also, GM will need a midlux division too, so make that Cadillac, Chevy, Buick and GMC as the new GM divisions
doom and gloom. geeze. i prefer car reviews.
RF:
Because they don’t have a choice. They just think they do. Or… perhaps not.
Most people do. Right, the “If you some-how show interest in our vehicles we’ll finance you” does kind of mean that some people don’t have a choice, but if you’re in the market for a normal, pedestrian car to get you from point A to point B and you can either hope the manufacturer may be in business if (when) you have problems or you can buy something from a manufacturer that will probably not declare bankruptcy in the next 5 years.
Of course, I’m not in middle America, and I don’t want to assume what people with strong brand alliances will/won’t do.
jazbo123
Three is the magic number. Three vehicles for three brands. Anything more is an invitation to repeat the mistakes of the past.
Three is the magic number. Three vehicles for three brands. Anything more is an invitation to repeat the mistakes of the past.
RF, Upon further reflection, I might “go ahead and agree with you here”. After all, another brand means more marketing and dealer networks.
RF,
So Toyota can thrive with 16 vehicles under the Toyota badge, but GM can only survive with three each Chevrolets, Caddys and GMCs?
RF, I agree with most of your argument, but bankruptcy? Gulp. Maybe you’re right, but I wish it didn’t come to that. Seems akin to opening Pandora’s box.
That said, your throwing the skunk out on the table might encourage key stakeholders to look at the situation more rationally.
Replying to 1984:
GM has 18 Billion in liquid cash.
If GM lost the same amount (100 M) every quarter as they did the last quarter, GM would go bankrupt in the year 2052.
-100M for 1 quarter isn’t really a good indicator. For a company at this size, GM will most likely earn/lose much more than 100M per quarter. Just look at Ford, -5B for the 3rd quarter and another -5B for the 4th.
Replying to ucanthandlethetruth:
So Toyota can thrive with 16 vehicles under the Toyota badge, but GM can only survive with three each Chevrolets, Caddys and GMCs?
Look at where they started. There is a thing called momentum. Toyota never add a new model when losing money (as if they ever did). GM can have 43413124 models as they want, only if they make money. Since they don’t, they had better trim the lineup down.
Reducing the brands to Cadillac, Chevrolet, and GMC is still too many. Too much redundancy between Chevy and GMC trucks. There isn’t anything in the GMC line that doesn’t also wear a bowtie, so I say they should kill off the GMC plate too.
Let us put it simply, GM has worse brand equity than pretty much any of the automakers out there. What educated consumer would ever buy a Chevrolet car over a Hyundai?
GM should understand that they are starting over in America. Their brands are a liability not a strength. They should approach the market as if they are Yugo trying to make decent cars for once. I would argue that the Saturn name is not too damaged, but maybe draining good product from Chevrolet.
Bankruptcy would be just the beginning. US franchise laws screw them left and right as do the unions. It would actually be a huge deal if GM and Ford could push to have those franchise laws eliminated and they could start selling direct.
Personally I don’t really think a GM bankruptcy is going to affect many average Joes’ opinions about GM, for one reason: ignorance of the situation. I’ve been reading these Death Watch articles since the first one, and there is a huge abundance of information, news, and data that I’ve never heard the slightest peep about from the mass media. A friend of mine was looking over my shoulder the other day when I was reading an article about Ford’s new secured credit line and his response to the news was something along the lines of, “Who gives a shit?” And this is a guy who is generally considered among his peers as being a car guy….he had no idea whatsoever that Ford is in a pickle. Similarly, when one of my friends goes car shopping I try to explain to them why they might want to avoid GM vehicles for the time being, using information I’ve gathered from Mr. Farago’s reports, and the general consensus is, “What the hell are you talking about?”
Fact of the matter is, your typical car buyer isn’t the type of person to delve into the matter and do research. Most people don’t know anything about GM’s situation and don’t care to. There was a small article from Reuter’s on the Yahoo! main page a few days back about Cap’n Kirk selling some of his shares of GM….didn’t say anything about why he would do that, though. I doubt anybody gave it much thought after mindlessly skimming through the boring and more-or-less irrelevant article.
I think that if GM reaches the promises land of bankruptcy, people won’t know enough about what’s going on to care and, if GM does indeed pull itself out of Chapter 11 to become a successful, quality carmaker, most people will forget about what happened anyway. It’s all about playing the mass media.
I recall reading in the WSJ (or was it NYT?) about Fiat’s recent turnaround. Their CEO noted that direct labor costs (in unionized Europe) were only about 6-7 percent of the cost of the car. If such a figure holds true for the US, then union scale wages hardly seem to be the problem for GM. Does anyone know? Incidentally, the existence of high wage scales for all the unionized auto labor is the reason why non-union auto plants pay well. This is a well established effect – union contracts have the effect of increasing wages and benefits for non-union workers in the same industry.
The big problems of course are pension and health care costs, which were incurred over decades when making such deals was hardly unreasonable at the time.
How about this for a radical solution: nationalize health care for the auto industry (or at least nationalize catastrophic coverage), let them dump their pensions on the Pension Benefit Guaranty Corporation, give the domestic makers a little breathing room, and see if they can survive. If auto manufacturing is really that important to the overall health of the US economy (and it is, IMHO), why not help them with their biggest burdens?
If GM lost the same amount (100 M) every quarter as they did the last quarter, GM would go bankrupt in the year 2052.
1984: there is a big difference between accounting profits and cash flow. A company can report a $100 M loss even though it actually depleted itself of $3 billion in cash, for a variety of accounting reasons. What matters for bankruptcy is the burn rate of cash — even a profitiable company could find itself having to declare bankruptcy — and GM has been burning the cash at an alarming rate.
Also, they won’t wait til cash is literally zero to declare bankruptcy. GM would likely become non-functioning and face enormous financing issues even with a few billion still on hand.
akatsuki:
What educated consumer would ever buy a Chevrolet car over a Hyundai?
I know quite a few, using that example. Hyundai is still on its uphill battle for most of America’s top-of-mind awareness for decent cars. Chevy cars, while mostly bland, are at least a recognizable brand. I’d put money on 80% of America choosing them over “that Korean cheapo carmaker” (the mental associations with Kia and, ironically, Daewoo that GM doesn’t have). On one hand, Alabama skews domestic…on the other hand, they build the Sonata and Santa Fe here, so there’s some hometown pride in it, too.
Re Saturn: No matter how good the Aura is, I don’t even know what Saturn is anymore. Without cars built in Spring Hill, Tennessee, with plastic body panels, what else is going for them? I can easily see the prevailing thought becoming “And they want close to $30k for a sedan now?”
Kevin,
A company can report a $100 M loss even though it actually depleted itself of $3 billion in cash, for a variety of accounting reasons.
That is an illegal practice. You and I can make all the accusations you want but it does not make it true or false.
bfg9k wrote: “How about this for a radical solution: nationalize health care for the auto industry (or at least nationalize catastrophic coverage), let them dump their pensions on the Pension Benefit Guaranty Corporation, give the domestic makers a little breathing room, and see if they can survive. If auto manufacturing is really that important to the overall health of the US economy (and it is, IMHO), why not help them with their biggest burdens?”
Why should it be socialism / bailout for GM, Ford and 1/2 German DCX now, when 30-60 years ago, these three companies were burying their competition without a thought?
The “big 3” cried foul and demanded a free market place at the same time that they buried competition such as Hudson, Packard, Studebaker, Crosley, Checker, Kaiser, Frazer, Willys, Tucker, Davis and others (all post-WWII) and absorbed AMC and Jeep?
So, why the hell should these same companies, now that the shoe is on the other foot, be given MASSIVE tax-payer funded handouts for doing a crap job of making cars and keeping customers over the past 30 years?
Unfortunately with the clowns in Washington DC (past, current and future), your assessment is probably going to be reality. Wow, will we end up paying. And paying. And paying. And paying.
1984: Uhm, no it’s not. It’s actually fairly common practice for a variety of reasons.
in reply to akatsuki’s comment;
“It would actually be a huge deal if GM and Ford could push to have those franchise laws eliminated and they could start selling direct.”
The franchise system does not prevent manufacturers from selling to the public.
Yet with all the new entries in the US over the last 20 years not one has decided to take it direct. I think that’s because even if they could afford the cost (and risk) to build new buildings and run the stores themselves, they know that they just can’t do it as well as the dealer who knows his market, probably lives there and is active in and supportive of his community. And who has his own two-balls at risk in his stores.
For example, Ford tried to start “Ford Collections” in a few cities around the country in the 90’s (including my town, Rochester, NY). They bought most of the Ford stores (including several that were well-run and very profitable), closed a few and tried to serve the market with the rest. The result was a large, rapid loss of market share (much more than the rest of the country) and the loss of millions of dollars. After a few years, they sold what stores they could back to local dealers and closed the rest. Ford in my market has never recovered.
Manufacturers should do what they do best; build vehicles, and dealers do what they do best; sell them. And since the dealers themselves make the investment and pay for their own marketing, the cost to deal with dealers (even if there are more than is needed) is minimal.
The market always chooses, and those dealers that serve their customers well will survive, while those that don’t will not.
How about this for a radical solution: nationalize health care for the auto industry (or at least nationalize catastrophic coverage), let them dump their pensions on the Pension Benefit Guaranty Corporation, give the domestic makers a little breathing room, and see if they can survive. If auto manufacturing is really that important to the overall health of the US economy (and it is, IMHO), why not help them with their biggest burdens?
So, bfg9k, your proposal is to make all Americans pay for the domestic automakers mistakes rather than just the Americans who buy their cars? Instead of a GM buyer paying that extra $1500 vehicle, we all chip in and pay it for him/her?
I don’t see how auto manufacturing could be that important to our economy that we should pay to keep it afloat. Let these companies go under, take the hit to our economy, and move on. Why should these companies be exempt from market forces?
It will take years worth of 1B+ quarter losses to drive GM bankrupsy. Conspiracy theories aside; at the current rate of improvement statistically it’s unlikely. I think everyone underestimates the massive size of this corporation and the fact that they have survived much worse economic turmoil during its 100+ year history.
I know it’s popular and fun to hate on the “big bad corporation” but at the same time it’s completely futile.
virgule,
Does it really matter anyway? You and I will never know one way or another.
When you board a Delta flight, you trust the bankrupt company to stay alive for at least the duration of the flight. You also know that the competition offers exactly the same service at the same price. And you know the FAA is enforcing the safety rules, so bankruptcy does not mean your airplane has been repaired with duct tape, hot glue and cardboard plated vinyl. It also costs you less than a month of income.
When you buy a car, you trust the conpany that built it to stay alive for as long as you own it, to build and distribut parts and have a dealer network that can service it. And even longer than that since there is a (slight) chance the car has some value when you want to ditch it. Admitedly, resale value is not a strong point of GM vehicles, and that’s wording it kindly.
While the entire GM operation has been run by bean counters for a while, chap11 will bring the judge mandated Super-Bean-Counters. This will be the end of any chance of creativity or improvement forever. They will look at every penny spent. And if a corner can be cut, you can be sure it will. Twice. And then it will be looked at again, and cut again. Vinyl plated paper, made to look like cardboard looking brushed nickel satin finish interior.
And unlike the airline industry, competitors have different (dare I say better?) products. GM’s lineup does not sell well as it is, does not compare well to its competition, chap11 will scare the last bunch of faithfull to non-bankrupt companies.
1984
You’re not crunching the numbers properly.
First, GM needs a $10b pad just for cash flow to stay in business. So you need to simply scrub that off your calculations.
Second, all the obligations that GM has incurred in their downsizing program are out there… somewhere… waiting to take their toll on GM’s bottom line.
For example, the company is about to make another $1b payment into a health care VEBA, as part of the UAW “giveback.” The Delphi situation will require at least a few hundred million per year to “resolve” (not including all the income lost from the contracts that Delphi insists that it will dump.) Plant closures, buyouts, loan payments, bad loan write-offs– the list is as long and scary.
Again, the biggest issue is cash burn. GM NA ain’t making any money. If they score $8.5b from the GMAC sale, they’ll muddle on for a bit longer (a year?) before the cash crunch comes. But if you think they’ve got another five years left to fart around– I mean, turnaround, uh, no.
As for the argument that GM is simply too big too fail, well, empires rise and fall. History is littered with examples of enormous enterprises with glorious pasts that sank quickly and decisively when the conditions that once suported them changed. Which is exactly how it should be.
1984: Read this article for a discussion of GM’s accounting profits versus cash flow in the third quarter: http://www.businessweek.com/autos/content/oct2006/bw20061026_856936.htm?chan=autos_autos+index+page_news
I believe RF has already covered this in previous death watches.
tms1999: As much as I agree with you about GM products' lackluster quality vis a vis their competition (in the main), I've read enough commentary here to know that GM has a significant group of passionate supporters who would continue to stand by their man. Despite what seems like a concerted effort to commit mindspace suicide, I think there's still brand equity in the Chevy and Cadillac marques, and if you restricted trucks and SUV's to GMC, it would make perfect common sense.
It will take years worth of 1B+ quarter losses to drive GM bankrupsy.
Even IF that’s the case, if they actually keep writing these kind of losses it will take far shorter for even the most loyal GM buyers/car ignorant public to completely loose faith in a happy end for GM. And if that happens; cue the fat lady.
Maybe it will take her a while to come on stage and sing, but sing she will.
1984,
Problem is, you can “shuffle” your losses to come up later or earlier.
Say, for example, that you have decided to pay off your dealers so that they will close. Instead of paying them over three quarters, you do it in second and fourth – so your losses seem worse for 2nd and 4th, but you LOOK like you’re doing much better for the 3rd. Meanwhile, your wise investors (like Kirk) and insiders can buy some shares after 2nd quarter and dump them after 3rd, because, hey, check this out, GM is on a turnaround, their losses narrowed 500%! It’s plain expenditure shuffling, it’s legal, and everybody does it.
You can also launch fire sales of your stockpiled inventory, and turn some great ‘profits’ – you already paid for those trucks in 2nd quarter, so no matter how cheap you sell them, it’s still extra black ink on your accounting sheet for the 3rd.
On average GM burns 2 billions a quarter, and it’s going to be more – say, a 10-15-billion dollar credit is anywhere between a half and a full billion of annual interest alone. In the worst case, they have about a year and a half of running time. Three in the best. Unless magic happens and fairies sprinkle every Chevy Cobalt with pixie dust and H2 starts running on cold fusion, Chevy will fall.
It will fall because their leadership does not have the guts to really start chopping things. It’s much like the natural tendency not to let go of your cup of soda while doing an emergency maneuver. Somewhere at the back of your head the bureaucratic machine still wants to save your white pants from getting ruined, even when faced with a potential disaster.
Great discussion and kudos to those for staying close on topic. I like the tone of the article and believe it to be the most forward-focused of the DWs I’ve read (started somewhere in the mid-70s, after Business Week told me to check this site out and being a sheep, I did). There is great potential for GM post Ch. 11.
To those tired of the DWs, stop reading them. Just because you subscribe to the newspaper doesn’t mean you have to read every article. And quit scribbling your thoughts of discontent on the page – they get in the way of we interested folks trying to read the text. Be like jerseydevil and stick to the car reviews or whatever else interests you.
Alex Rashev – I believe GM plans to have the pixie dust sprinkled from their flying cars on the third installment of their 5/100 warranty campaign.
Alex,
I understand you can move money between quarters but that does not mean everything is a ploy to hide the truth about their finances. The idea that GM is misleading us, that every quarter is worse than the next… is something you WANT to believe. That does not make it true or false on theory alone.
No amount of arm chair quarterback accounting will ever get you any closer to the actual truth inside GM.
Now before everyone get’s upset, I recognize that the possibility of accounting trickery may be true. But since there is no hard proof of that you must accept the possibility that it is not true.
I know a few details of what is “chopped” for the near future at GM and trust me some changes are coming.
As for “what happens to market share if GM declare the big B” there are no examples strictly relevant.
However, I have read recently that in a poll, fully 2/3’s of those polled would NOT buy a vehicle from a bankrupt company.
I can also tell you from historical fact that once Studebaker pulled the plug on South Bend Main (Indiana factory) and imported cars from Canada starting in January 1964, their market share plummeted because people thought (quite correctly) that – “oh, this company is on the ropes and is not going to be around. I don’t want to buy an orphan”. (Ironically, many a big 3 dealer sold many a car by badmouthing Studebaker in just this way, too).
The historical record speaks for itself, not forgetting that these sales were model-year (thus, some 1964 cars were sold between September and December 1963 when South Bend Main was running). I’ll put in 1965 as well, showing a full year of imported-only cars for comparison.
1963 Studebaker car sales in the USA 69,555
1964 Studebaker car sales in the USA 36,697
1965 Studebaker car sales in the USA 19,435
So if the GM boys think they are going to retain 24% market while going Chapter 11, they’d better figure on about 8% to 12% market at best and act accordingly. September 2005, I believe it was, GM netted 19% true retail market share. Ouch. Plus, most of their dealers are going to start selling other company’s products or close down. Plus, the Enterprise Rental Cars and Avis Rental Cars of the world will probably stop buying their stuff, too, knocking a huge chunk out of their overall market.
It’ll be a death-spiral and not a pretty sight. (Cue the falling airplane sound).
I don’t know whether bankrupsy now or later or possibly never is the best choice, but I have a simple idea that could help.
Run the company smarter.
Here’s what I mean: First, don’t worry about how many dealers or brands or models they have. You get a top engineer/designer to run each of the current brands. So you have a Chevy guy, a Pontiac guy, and GMC guy, etc. Then you tell them built what ever you want, you have the resources of the whole company. Now you’ll have many smaller pseudocompanies cooperating on resources, but competing amongst themselves to get market share, competition is good.
Now, you’ll end up with things like the Pontiac dealers saying that they way a G5 because the Chevy guys made a Colbalt. What I’d do is just ignore them. If the Pontiac dealers can’t cut it, then they’ll go out of business, no need to worry about franchise laws and whatnot, it’s their job to sell what you make. Not tell you what to make.
Now since all the brands are cooperating on resources, they’ll have similar designs on the boring stuff (electronics, suspension, switch gear, even engines – the R&D has all been paid for on those engines, might as well get use out of it). So the individual resources can go to exciting things, like making the sheet metal not ugly. Or specality things like extra bling on Caddies.
Now comes the hard part, but it’s only hard because the unions don’t want to accept change. When it’s time to build the car, each of the brands would have to buy time at the plant to make their specific car. If the Chevys are selling better than the Pontiacs, they need to buy plant time from Pontiac. This would require flexible plants (but if they’re already cooperating on resources, it should be too hard) and people who are willing to do more than one job (hard part with unions). In fact, you pit the plants against one another so that the plants that make the best cars (i.e. have the best empolyees) will charge more for their time. A natural way to keep the wages up – make a good product.
If something happens to one of the brands, say Saab isn’t selling enough Trailblazers with the ignition between the seats. Just kill it. The excess plant capacity could be used to make Trailblazers with the ignition on the steering column. Or any other car that is needed at the time. No more wasted capacity.
I think one of the keys is that GM NEEDS competition among its brands. We (TTAC) always say that GM spends too much time competing againts themselves, but that’s not true. They spend too much time finding the lowest common denominator that can be sold among multiple brands. If there was true competition inhouse, then you can bet the Chevy guys would be trying to make the Colbalt much better than the G5 and the Pontiac guys would be trying to make the G5 better than the Colbalt. In the end, that can’t be bad for the consumer.
In no particular order:
Do not confuse earnings with cash flow especially with a cyclical company on a quarter to quarter basis.
GM’s finances are straight forward and easily decipherable.
GM has been doing some “accounting trickery” (we won’t even attempt to explain their unfunded pension fund liabilities and the games corps. play with that), but the absolute fact of their NA auto operations being cash flow negative for years is indisputable.
Ford has essentially just sold its’ NA auto infrastructure for $18b in cash is an indication that GM probably needs $25b in cash at any given moment to stay in business.
How much cash does GM have?
RF – I am a new to TAC but have been a casual reader for about a year. Your Deathwatch articles are very interesting and thought provoking. Have I missed the article where you name the names of GM senior executives and board members who bear the real responsibility for the current sad state of GM? It seems to me that these greedy, detached and short sighted people are the real culprits. When the top executives and the board became more interested in their salaries, options and retirement packages, than selling a quality product, the dismal future of GM was a foregone conclusion, as far back as the ‘80s. Blaming the UAW and “legacy costs”, while certainly contributing factors, mask the real and consistent failures of a historically third rate management team and those responsible for oversight (the board).
A simple way to eliminate about half of the Japanese cost benefit over the Big 2.5 is to institute a Single Payer Universal Health care system in the US. We are loosing new manufacturing plants to Canada almost daily due to our uncompetitive, incredibly inefficient health care delivery and payment system. Some sort of universal health care system is inevitable in the US; I just hope the free market ideologues remove their ideological coke bottle glasses and face this fact while we still have a manufacturing base left to save in the USA.
We've covered GM's Board of Bystanders more than once. https://www.thetruthaboutcars.com/?p=892 https://www.thetruthaboutcars.com/?p=1 The fact is that there's more than enough blame to go around in this sorry saga. airglow: Having almost lost my life at the hands of Britain's NHS, all I can say about universal healthcare is nooooooooooooooo.
GM will not be proactive or can’t be. Until they bleed through most of their reserves and can show a court that bankruptcy is the only alternative they can’t file for it. Once they file chapt. 11 their sales will tank. There are few reasons to buy a GM car over a competitor as it is now add in the uncertainty of repair and warranty and people will avoid it like the plague. As many others have said the bankruptcy of the airlines does not compare. You just need an airline to honor a ticket and get you to your destination. A car is your second largest expenditure and you will have it anywhere from 3-10 years. And it’s not like you would be able to sell it. Few are going to gamble on that when there isn’t a compelling need to.
Once GM goes down then Ford goes down and then suppliers and all who depend on the industry go down. The sad part is this is going to come as a shock to most of America as they have no clue that the US auto industry is such dire straits. It’s a shame too, I would have liked to have had a Camaro SS as my next car. I guess a used BMW 335i will have to do.
airglow said: “A simple way to eliminate about half of the Japanese cost benefit over the Big 2.5 is to institute a Single Payer Universal Health care system in the US. We are loosing new manufacturing plants to Canada almost daily due to our uncompetitive, incredibly inefficient health care delivery and payment system. Some sort of universal health care system is inevitable in the US; I just hope the free market ideologues remove their ideological coke bottle glasses and face this fact while we still have a manufacturing base left to save in the USA.”
airglow, go to Canada or England or Scotland for a vacation, get sick and see how well the socialized medicine works (or rather, does NOT work). I’ve lived in the UK, my in-laws are there. Socialized medicine SUCKS, there is no polite way of putting it.
Or do you think seriously sick Canadians just come to the USA for medical care to spend all their money and have a short vacation?
Robert Farago Wrote:
Having almost lost my life at the hands of Britain’s NHS, all I can say about universal healthcare is nooooooooooooooo.
Statistically speaking, you are better off having a major medical procedure in virtually every other western country over the US. Even some third world countries have better surgical survival rates than the US. The high quality of the US health care system is a myth, and a very expensive myth at that.
Anecdotal evidence is just that, one person’s story. But that leads us to another of GM’s problems. People who won’t even consider a GM vehicle because of a bad experience in the distant past.
GM has a lot riding on lineup of new SUVs
Three new models to mount challenge to foreign brands.
General Motors is on the verge of its biggest success story in decades as new and more fuel-efficient SUVs begin rolling out of a $1.5-billion assembly plant in Michigan, reports the Detroit Free Press.
The new models may help GM lure significant numbers of customers from Toyota, Honda and Nissan. The three new models — the Buick Enclave, which debuts at the Los Angeles Auto Show, and the GMC Acadia and Saturn Outlook — offer a combination of fuel economy, styling, passenger room and standard features that could vault GM to the lead in a market segment dominated by Japan’s Big Three.
Code-named Lambda, the vehicle program is an almost exact counterpunch to Toyota’s ballyhooed new Tundra full-size pickup plant in Texas. Both automakers reacted to a gap in their product lines, investing heavily and spending years developing vehicles carefully engineered to wrest customers away from their competitors.
The Saturn Outlook and GMC Acadia, which go on sale this week, and the Buick Enclave that arrives next spring, could account for 275,000 sales a year.
The new vehicles have the profile of a traditional SUV and a car-like uni-body chassis that reduces weight and improves interior space and ride comfort.
Honda and Toyota created the market for uni-body SUVs with the compact RAV4 and CR-V. They later moved up market with the midsize Honda Pilot, Toyota Highlander, Lexus RX 350 and Acura MDX.
A key selling point will be a high level of standard equipment that includes curtain air bags for all three rows of seats, electronic stability control and a separate climate control unit for the rear compartment.
Glenn A. wrote:
Or do you think seriously sick Canadians just come to the USA for medical care to spend all their money and have a short vacation?
My wife is Canadian. I travel to Canada often for business and vacation. I have yet to meet a Canadian who was not a multi-millionaire who would trade their system for ours.
One of the great triumphs of the US health care industry and their lackeys is their success in convincing most Americans that our private health care system is better than other western countries single payer systems. All of the objective data says the US system is insanely expensive and below average in outcomes. So how do those Brits and Canadian live longer than Americans while paying about 30-40% less for health care?
Statistically speaking, you are better off having a major medical procedure in virtually every other western country over the US. Even some third world countries have better surgical survival rates than the US. The high quality of the US health care system is a myth, and a very expensive myth at that.
Correct, it’s not just surgical survival, either. Life expectancy, infant mortality, and other markers all trail other industrialized countries. (And what country is at the top? Japan, with the benefit of a smaller and homogeneous population) US health care costs have gone up 60% just in the past 5 years, with no end in sight. 43+ million are uninsured, emergency rooms are at the breaking point. What to do? Uh, good question. Anyhow:
Hospital races to learn lessons of Ferrari crew
which means that NASCAR pit crews will be teaching US medical staff about handoff procedures.
In theory, GM could even up stakes and move its domestic operations into right-to-work states.
The only thing Right-To-Work does is prohibit unions from adding language in CBA’s that forces workers to pay dues. It does not stop workers from unionizing and it does not break existing unions. It only prohibits unions from collecting dues or “agency fees” as a condition of employment.
However, Right-To-Work is a polarizing subject. It attempts to stike at the heart of unions. Without solidarity unions have no barganing power. If workers opt out of paying dues, yet still work in jobs covered by a CBA they are considered scabs and leeches. If large numbers of workers did not pay dues, the union would have a weaker bargaining postion due to lower funds. If a union is powerfull and workers feel as if their lives are better as a union, Right-To-Work does nothing to stop them from organizing and paying all the dues they want to the union.
Oklahoma passed Right-To-Work in 2001 and GM closed a plant in OKC this year.
http://www.righttowork.org
Can we leave the health care debate alone, despite my, um, inflammatory remark?
As for the crossovers saving GM, my opening paragraph stated the plain fact that GM would have to sell 2X as many crossovers as SUV’s to make the same margins. Good luck with that.
More than this, it’s ALWAYS been you just wait for The Next Big Thing at GM. The GMT-900 SUV’s were supposed to save their bacon. Then the GMT-900 pickups. Now the crossovers. What’s next in manana-land?
Meanwhile, the cash burn continues.
The GMT-900 SUV’s were supposed to save their bacon. Then the GMT-900 pickups. Now the crossovers. What’s next in manana-land?
As far as I know, those new GM offerings are tracking to be a success. What’s to say the new Lambda crossovers will not continue that trend? Even those rooting for the General’s fall must acknowledge that.
One more from RF, whose DW theme song goes;
“You’ve got to accentuate the negative, Eliminate the positive, Latch on to the unfavorable, Don’t mess with anything but doom”
You can’t be serious. Three products for three (or two if GMC is elminated) divisions? GM is a full line manufacturer, selling over 4 million vehicles spread over EACH MARKET SEGMENT.
While it makes alot of sense to pare the makes down (Chevy Caddy, Buick??) how could they have any hope of surviving by eliminating product offerings to customers in segments that it has sold 100s of thousands of vehicles to? Each Make should play in distinct demos, with little if any overlap. But no way that particularly Chevy should have just “good, better, best” offerings. That would throw away not only what brand equity is left, but also millions of customers that currently buy vehicles in the eliminated segments.
Although your commentaries always seem to offer up plenty of psudo-evidence to support your conclusions, here you show a profound lack of marketing knowledge.
finger:
That depends on what you mean by “tracking to be a success.”
Do you mean their profits are keeping GM NA afloat? Do you mean that they’re best of breed models that dominate their niche? That they hit their sales targets? What?
With so many models, brands and dealers, GM is like a plate spinner that’s fallen WAY behind.
What are the stipulations behind dealer franchise laws???
Is’nt one of the things to think about before buying a franchise is consideration to what a particular market wants,or its possible ability to gain market-share??
Taking a risk at buying a franchise could go either way financially,so why would the Parent Corporation have to shelter any store,dealership,restaraunt ect. with monetary give-backs??
If this pertains to G.M. which seems to be the case,its a no-brainer to take over an aging,established dealership if given the oppertunity.
While I’ve found it interesting to read all of your comments, and opinions, I have to say that most of what you are all saying is covered one way or another in the article. You’re all right. But, the bottom line is that this company is in the toilet for all of the reasons outlined here. The entertainment comes from what they’re going to do about it…
I wasn’t able to read all the comments…but I was curious: If GM files Ch. 11, do all their retirees lose their benefits? The job banks, although a noble idea at the time, have obviously not evolved with the changing marketplace. And how many millions a year are the higher-ups at GM still making?
One reason to not declare Ch. 11…stock holders.
willjames2000:
Brand equity eh? What are the world strongest car brands? How many models do they sell? Or, if you prefer, Honda does a pretty good job selling nine models.
More to the point, the new GM will not look anything like the old GM. (God willing.) They’re going to have to start thinking small.
Oh, and I thought you might enjoy this:
Automotive News / November 27, 2006 – 1:00 am
It looks as if General Motors’ marketers failed to reach China in time to brief at least one Beijing-based reporter on core brand characteristics.
In a special English-language edition for the Beijing auto show last week, the Beijing Daily had these unusual takes on some GM brands.
“In North America, the Buick is the symbol of middle-aged people who have had a successful career and cocaine-snorting kids. When it came onto the Chinese market, it kept its high quality and comfortable design.”
The paper had this to say about GM’s premium brand: “Cadillac is a name that is synonymous with quality and luxury for most people. For others it’s a name synonymous with arrogance, greed and tiny genitalia.”
And the newspaper said the Chevrolet exhibition area “will be painted in colorful, gay-pride parade colors.” Chevy is a brand that “symbolizes youth and vitality.”
…and what the f### is the Beijing Daily? Is that China’s equivalent to The New York Times? Or is it more like High Times?
Do you mean their profits are keeping GM NA afloat? Do you mean that they’re best of breed models that dominate their niche? That they hit their sales targets?
I would say they are meeting their sales goals at this time. For GM to even think that their future in North America is going to rely on 3 or 4 models that are being or about to introduced is foolish. I would think that they are addressing their situation as a marathon rather than a sprint.
I’m not completely sold on bankruptcy — particularly in the immediate future — but I do think that GM makes the idea look better because its management has acted so complacently. They seem to think that evolutionary change is acceptable when that is no longer the case.
For example, GM’s dealer consolidate plan might have made great sense a decade ago, but now it’s too little, too late.
That said, Farago’s approach strikes me as a wee bit simplistic. For example, why arbitrarily cut the number of brands to three when they’ve invested a century’s worth of equity into some of them? Instead adopt a brand boutique approach where non-core brands only offer one iconic product each at “quaded” dealers.
The trick here is to avoid product overlap. GM can’t seem to admit that it can no longer afford to offer both a Saturn Sky and a Pontiac Soltice. Pick one.
But don’t get too focused on playing by Toyota’s rules. If GM attempts to do that it will surely lose. So how about looking for ways to turn some of GM’s weaknesses into strengths instead of throwing the baby out with the bathwater?
RF,
In the US GM outsells Honda about 3.5 to one. And Chevy alone outsells Honda 2 to 1. Any “new” GM would be foolish to throw away what customers still feel loyal to it by eliminating both Makes and Segments. Retaining Chevrolet as a full-line make would give GM a chance to produce the volumes needed to make a profit at say a 15% market share, 2.5 million vehicles divided between maybe 10 Chevy models and 3 each for Caddy and Buick. Anything less would be too low of a starting point
finger – wrong sport; think of GM as a biathlon skier competing with too many skis and poles and a sawed off shotgun.
And lets get the labeling right here. We’re not rooting for GM’s demise. We’re “rooting” for GM’s re-birth as a competitive automotive manufacturer. And we don’t think Wagoner has the right hip size to handle that job.
JIM H
wow, are you late to this game- you’ve got some catching up to do
and this “One reason to not declare Ch. 11…stock holders.”
go do some research tonight on who the holder’s are,
how much the Public actually owns
how much is short
and how many shares are protected to zero (in the options market)
once you find these answer’s , your Only reason not to declare will simply fall apart.
willjames2000,
Who’s to say GM and Chevy can’t hold serve against Honda by getting rid of the clones and badge engineered brands? Why do they feel the need to fool us into thinking they have all these different vehicles for sale when the average Joe knows better?
As far as Ch. 11 and future market share, I really don’t see much flexibility on this. I agree with RF that they should cut their losses and do it now or wait until push comes to shove. Either way, you end up with the same post Ch. 11 world where the only difference is the amount of cash you have left to start over with.
Gotta….
Re-read my post – that is my point.
Give Chevy a platform in all the market segments except lux. (Toyota)
Give Caddy a low, mid and high lux (Lexus)
And give Buick a fancier version of the biggest Chevy, a less fancy version of the mid Caddy, and a mid x-over SUV. (for those who think Chevy below them and Caddy too high. Also gives BPG dealers a chance to live.)
Don’t have clones anywhere, but share platforms where it makes sense.
Probably won’t happen, but it’s much more likely than RFs “three with three” postulation.
As for BK, it’s not going to happen. Nor does it need to. The new GMT 900s will sell and bring in much needed profits. And so will the Lambda SUVs. While not as profitable as the “old school SUVs, the “old school” SUVs that these are likely to replace haven’t been profitable for a long time anyhow. And these vehilces have a real chance of conquesting from not only Ford and DCX, but even (yes I’ll say it) Toyota and Honda, Nissan, et al. I know the reaction from the TTAC faithful will be “No Way”. But just watch.
Who won’t buy a car from a bankrupt company? I would
Who did that survey, CAP RE, State street? cui bono?
seriously RF, why don’t you do a suervey of your reader’s – there as good an auto audience as your likely to find.
three words in auto pruchase should Never be forgtten.
VALUE VALUE VALUE
tahoe at 26k, sold
cts at 25, sold
solstice at 18, sold
i think we all get the point-
bring the cost structure down, get profitable at VALUE prices, and people will CLearly Buy.
sleepingbear;
I’m waiting for all those $26k Sequioas, $25k Lexus 350s, and $18k Solara verts. I’m gunna run right down to my local Toyo dealer and buy one of each!
I’m waiting for the new Camaro
hottest looking car since 69 vette
I’m waiting for all those $26k Sequioas, $25k Lexus 350s, and $18k Solara verts. I’m gunna run right down to my local Toyo dealer and buy one of each!
Coming soon but from a Chinese company. As we wonder how GM can compete with Toyota/Honda, Toyota/Honda wonders how it will compete with Hyundai/Kia, and Hyundai/Kia wonders how it will compete with the Chinese makes.
GM is toast in N.A. regardless of legacy costs.
sleepingbear: that is RF’s point. Unless they can restructure under Chapter 11, they can’t bring the cost structure down to the point where they can be profitable at so-called value prices. It just isn’t going to happen.
Robert: Come on, you don’t know that GM “is toast”, just like the people who say it will do fine are not certain. We will all just have to wait and see. Also, compairing a 200 dollar plane ticket to a 20,000 dollar car purchase is ludacris.
I repeat: if GM finds a spokesperson who can lay out their case as a bankrupt automaker to the American people, all is not lost.
“We here at GM believe in American ingenuity, guts and creativity.
As you may have heard, we’re using the protection of the courts to change the way we do business. We’re working with our unions, suppliers and dealers to completely reinvent the way we make and sell automobiles. Yes, there are going to be some tough times ahead– just like there have been some tough times behind us.
But we are fully committed to building the best vehicles in the world– no matter what.
During our transition, we’ll still be selling great cars, trucks and SUV’s, and backing them up with the best warranty in the entire industry [sic]. You can buy a GM product– any GM product– knowing that we’re still here to provide you with aftersales service.
This new move will allow us to throw off the burdens of our past and fully embrace the challenges of the future, without government handouts or excuses.
Meanwhile, we’re lowering the prices on all our vehicles by 25% across the board. It’s a sign of our renewed committment to you AND ourselves. To return to our roots and build products we all can be proud of.
And if you think that’s great, just wait until tomorrow.”
Or, as ucanhandlethetruth says, blah, blah, blah.
I think the airlines demonstrated that the customer concern with Ch XI is overblown. After all even if you can’t get warranty service, you are on the ground in one piece. GM should have filed a few years ago, every day they wait they impair their cash position.
The days of the late Walter Reuther are gone, in part, because of competition from the likes of Toyota. I appreciated what Glenn A had to say about the Toyota executives at the Detroit Auto Show. And additionally, having read an interview on-line with members of the UAW who got to ask the current head of that union questions, I don’t sense that he, nor the membership are willing to give an inch. However, if Chapter 11 comes forth, they might change. But at this point, the union leadership and its members, seem to feel that it is just a threat from management, not a promise. It could be Delphi, all over again – only worse.
Perhaps the UAW is willing to go for a pyrrhic victory. GM has giant unfunded obligations to the union membership, based on agreements the union made in good faith. Bankrupty will allow GM to wiggle out of those but may preserve some stockholder equity. Why should secured creditor, for sure, get something, the stockholders maybe get something while the union gets nothing? I imagine the UAW would like nothing better than to punish whoever managed GM 10 and 15 years ago.
Why should Wagoner get a golden parachute when the rank-and-file get nothing?
The concentration of auto industry is certainly in Michigan. There are factories all over the states. What would the impact really be if the big 2.5 go belly up?
You have to look at the supply chain as well. I fear that we will have a national disaster on our hands.
To the gentleman who claims Chevy holds a higher mark in public perception over Hyundai is completely off base. Out here in Cali, visiting a Hyundai dealership is actually quite NICE compared to the same old swindler days of old which one STILL gets treated to by stepping inside a Chevy dealership.
You tell me which dealership has the 4-5 sleazebags hanging out outside smoking cigarettes, wearing Ross “dress” attaire, ready to pounce on their next victim? Which dealership has banners galore, baloons, clowns (yes, CLOWNS) outside waving signs etc. all to draw up a potential sucker…I mean “customer”? Which one has every inch of glass painted in neon colors proclaiming the latest “YEAR END BLOWOUT!!!”?
Hint, it isn’t Hyundai.
I live here in California, and well, to be quite honest…only the Mexican immigrants drive Chevys. They have a particular fondness for Astro Vans (I shit you not). Talk about a TWAT award, my Lord!!
Back to the subject of bankruptcy: a person who is completely lacking in a particular desirable quality or attribute .
I ask the public, is GM NOT bankrupt????
OK, say something positive there Rastus. Well, the only real POSITIVE thing which could come of a bankrupt GM is…
…less TWATS!!! That IS what we all wish for, correct?
Sure, people slam RF:
http://www.autobloggreen.com/2006/11/24/the-truth-about-keeping-watch-over-a-dying-general-motors/
But you know what? This is Democracy at its most fundamental level. Yes, you or I or anyone Else can speak up and be heard. We can hold these bastards accountable for their actions, for the crap you and I have been subjected to…and well, there’s not a dime out of anyone’s pocket.
GM DOES represent the domestic version of a Yugo. I know first hand! They are morally bankrupt…a financial bankruptcy isn’t so far off, now is it?
It’s funny…I don’t even wish or daydream for a Corvette anymore. Years ago I would have crapped myself to own one. Not now. Not after the way I, nor my elderly parents have been treated.
My next “Chevy”, that is, an affordable, reliable, dependable, and yes…even proletarian car will most likely be a Sonata or Azera!!
That Corvette is within reach if I want it (try cash), but no way in hell. I just can’t see myself writing a check to one of those sleezballs…I just can’t do it.
Robert,
Be careful about customer loyalty analogies between the airlines and car companies. Customers have only a fraction at risk in an airline ticket. It’s close to 1% of what a customer has at stake in a new car. Under bankruptcy, even GM diehards would think hard about indulging blind loyalty to that brand.
Also, Chrysler survived its bankruptcy due, in part, to a virtuoso performance by pitchman Lee Iacocca, it’s true. However, today’s customers have FAR more choices than they did back then. Not even a nude Jessica Simpson is likely to woo interest in post-bankruptcy GM ads.
I think an “early bankruptcy” would be very risky for GM. Of course, the choices ain’t great in any event.
If everyone bought a GM car as their next, GM’s problems are gone. Just give us one reason to do it. A smile from the person at the service desk would make a world of difference.
What if GM knows it is going to go bankrupt.. and knows if it does go bankrupt there is no coming back? Then the strategy in my mind would be to keep the show running as long as possible, then total implosion on the day of reckoning.
At least then the vast number of retirees would get more years of high pension and benefits.. Then get put onto the pension benefit guaruntee corporation rolls after.
Robert: GMC should remain in the GM lineup because of its medium-duty commercial truck line. I dont think a Chevy dealer would want big dump trucks on their auto lots.
Why doesnt GMC build big-rigs? Why do they not compete with the Peterbuilts/Macks/Freightliner/Volvo rigs? Hmm.
I think a GM bankruptcy would do irrepairable damage to GM. I think Rick Wagoner is right on that. It is only a “gut feel” though.
Dr. No,
I think they should give the nude Jessica Simpson campaign a shot. It would stir up A LOT of interest.
TTAC’s Deep Throat has been monitoring your comments and would like to remind people that the day after a GM Chapter 11 filing, nothing would change– other than the fact that the company would be operating under court protection.
What would change is that the company can begin a major reorganization (subject to creditor committees, judge’s orders, etc.) that could make the company stronger and slimmer.
The real issue: the process would be messy and complicated. Its success depends on how much DIP financing GM can get, and whether they can continue on generating sales and some cash.
But eliminating legacy overhang, excess dealers, some debt obligations, etc. could be beneficial in the long term. And most importantly, the unions would have a hard time dictating any terms whatsoever.
So now you know.
I see a recession… no I mean depression coming
What day will that be specifically?
Rastus Wrote:
My next “Chevy”, that is, an affordable, reliable, dependable, and yes…even proletarian car will most likely be a Sonata or Azera!!
Hey Rastus, you should be able to pick up that Sonata you’ve been lusting after for a good price from Hertz or Budget. As a frequent traveler I can assure you the Sonata has replaced the Taurus as the #1 choice for rental car companies in the US. This can’t be good news for Hyundai; having to sell their highest volume, well reviewed, relatively new flagship sedan in huge quantities to fleets. Can Bobby F. start a Hyundai death watch soon? Of course, if North Korea nukes the south it won’t really matter.
Hyundai? Now this is getting ridiculous.
GM left the class 8 heavy duty truck arena many years ago. As did Ford (sold off to Sterling). GM competes heavily (and successfully) in the medium duty segment with the cab forward truck (Isuzu) and the GMC Topkick and Chevy Kodiak series. Major competition is Ford, International, Freightliner etc.
1984:
If I knew, I’d tell you.
“Now before everyone get’s upset, I recognize that the possibility of accounting trickery may be true. But since there is no hard proof of that you must accept the possibility that it is not true.” -1984
Accounting Rules are just that, rules (GAAP, anyone). There are certainly Federal laws that require reporting of certain defined data elements, but most of the data we get about a company’s financial health is much less concretely defined.
I’m not sure I have a good example of this, just know that its not trickery (or illegal) to define profits from operations in such a way that they do not include one time charges and restructuring costs. Only you wouldn’t know how each data item is defined unless you read GM’s 10K filing (or what ever its called) to the SEC. The ~$100M loss you cited earlier probably did not inlude these costs. Further, the loss may have been reduced by the profits made in other parts of the world.
Maybe someone with a finance background can give a clearer statement about the data (and how its defined) to my friend 1984. GM is not breaking any laws, but the lay-person would probably call the way they go about reporting financials is trickery…proof of that is in their annual report.
“Maybe someone with a finance background can give a clearer statement about the data (and how its defined) to my friend 1984. GM is not breaking any laws, but the lay-person would probably call the way they go about reporting financials is trickery…proof of that is in their annual report. ”
I represent the accounting firm of Dewey, Cheetham & Howe. I would be happy to assist anyone…
Ed S,
You are explaining this to me as if I do not understand such accounting practices exists.
My issue is with the use of the words like probably… What the hell does that mean?
the ~$100M loss you cited earlier probably did not include these costs.???
My point is you don’t know and neither do I, but at least I have a statement to go by instead of theory. Just because TTAC has pounded the fact into your head that chapter11 is inevitable does not mean that automatically the -100M report is actually hiding -1B. You don’t know… please stop stating it as fact.
BTW – If you read the Q3 report is specifically states that the Delphi one time cost was included.
Great series, RF. A few random comments on various topics discussed in the comments:
Bankruptcy Impact on Sales Overblown:
RF’s mock PR release from GM after a filing is where I see GM headed. If GM is wise it will file with plenty of cash in the cash account and a DIP financing line of credit in place. GM will cite these cash sources as the means to fulfill its warranty obligations and will pound the table on its commitment to not abandon its loyal existing GM product owners and all those will be buying GM product during the reorg period. Although we know that GM will be losing some dealers, just about all consumers will still have at least on dealer close enough to perform service. As far as parts go, I see no concern there as a GM BK does not mean that GM will stop paying its parts providers, sending them into BK (some are already there, of course). I see overcapacity in the parts production area due to reduced domestic auto volume as a problem for the parts companies, not as a problem for GM or those buying GM vehicles. The only real fear that I would have in buying a GM product would be that the BK could be so bungled that GM could end up as a Ch 7 instead of a Ch 11 reorg. But GM has the best and brightest BK people in the country available to them and has some time to plan its entrance into BK, so I don’t expect a Ch 7 to eventuate. To further cement my point, I would note that I am currently shopping for a 1-ton truck to pull a fifth wheel that I am also shopping for. I would not hesitate to buy a GM or Ford product if I decided that one of GM’s trucks best suited my needs. And I consider it a very high likelihood that both GM and F will end up in BK over the next few years.
And let’s look at this issue from another perspecitive: How have all the import companies managed to sell cars to the American public? Do the buyers of KIAs really know anything about the financial condition of the underlying manufacturer? I say no. What buyers want is a good vehicle that meets their needs at a good price (in relation to other options), local options to receive proper service when needed, and an assured parts supply for the life of their vehicle ownership. I think GM can provide these assurances even in a BK scenario.
Yes, sales will drop some as a result of a BK filing. But I don’t think the impact will lead GM straight into a Ch 7. I think GM will be able to reorgainze around a level of sales that is still pretty substantial in relation to current sales levels.
Reported Accounting Results vs. Cash Flows:
1984 states that GM’s reported losses and cash flows are a mystery that us outsiders will never solve. This is true for reported accounting losses. A CPA would need to sit down with GM’s accounting dept for a few weeks to fully understand all of this details that go into GM’s reported GAAP results. But what is happening to GM’s cash is a clear as the sky outside our windows. Just look at the cash balance on GM’s financial statement each quarter. This is a figure that can’t be fudged, although GM does its best to at least window dress the figure higher for each quarter end by paying a load of its AP immediately after the end of the quarter instead of immediately prior to the quarter end, which would give a more true picture of GM’s quarter end liquidity. The reported cash account has gone straight down from over $50 billion at 6/30/05 to about $20 billion as of the last financial statement at Q3 06. The cash is being burned to operate the company in its present cost structure. Yes, some cash has been burned for special, non-recurring events like paying off bought out employees, Delphi issues, etc. However, the cash account has also been restocked during this same period with asset sales and financings that are equally special and non-recurring. Tremendous amounts of cash are being burned and that is not even disputed by GM management. During the last earnings conference call management stated that reducing the cash burn is an extremely high priority. York’s resignation letter cited negative cash flow as an ongoing problem that the board, in his opinion, was not moving quickly and dramatically enough to solve. York also stated that a near term BK filing was only averted by the expected sales proceeds from the GMAC deal. York is an ex-CFO of an auto company, so he surely knows his way around cash flow numbers vs. reported GAAP numbers. And York, as a consultant for KK, had every reason to downplay the cash flow troubles at GM to support KK’s exit from his position vs. an incentive to overhype GM’s problems. Anyone that argues against the severity of GM’s financial situation is simply in denial or unable to process basic finanical information.
Assuming GM realizes the $8+ billion in liquidity from the GMAC closing, then GM will have around $20 billion in cash in its cash account and its $4+ billion line of credit, a total of about $24 billion. If $10 billion is tied up as required working capital, then available liquidity is $14 billion. GM has burned through over $30 billion since 6/30/05. The cash burn over the next five quarters will likely be less than the trailing five quarters, but using the reported accounting loss of $100 million from Q3 06 a proxy for actual cash losses going forward is not realistic. Using GM’s financial statements, its cash balance went down by over $2 billion during Q3 06, not by $100 million. This is not illegal, but instead of function of the difference between accounting rules and real cash events. If we use $2 billion as a quarterly cash burn rate, then GM has about 7 quarters to either stop the cash burn of file. If and when GM management and its board determine that the cash burn is unlikely to be reversed in time to avert a filing, then GM will file. Simple as that.
Nonsense. Buying an airplane ticket for a flight that you board once and leave is very different from a buying a car that you keep for 3+++ years. Especially if under your model, dealerships disappear. Lots of people would sell their GM cars -let alone but a new one- if they start seeing the dealerships where they have them serviced suddenly close for good.
You don’t consider is that a post-bk GM will have everything different except management. The very same people who dragged GM down will still be there and earning more than ever: good for nothing managers (aren’t they all), beancounters and all others who get a paycheck just for talking and not doing anything. All that will be timmed is manufacturing and dealerships. BTW, GM can’t wait to move production to China. A whole lot of people who would buy GM cars would never buy a Chinese Buick.
I believe that GM would like to ultimately shrink their dealer base while maintaining or increasing sales. They have scaled back incentives drastically. This strategy not only saves them money, but it also effectively “chokes” the smaller and less capitalized dealerships into extinction. GM can then funnel their product into larger, more visible locations. This will also decrease the number of field personnel needed to service their dealer body.
sleepingbear:
Thanks for the high-nosed response…but that wasn’t the only reason and I wasn’t citing a reason according to GM…but rather to the folks that own GM stock. If I owned it, I wouldn’t want the company to declare bancruptcy. For those that stand to lose their investment, for those that gave a major part of their life to a company that is wanting to strip their promise, and to a company that did great things ages ago to which today’s society screams, “what have you done for me lately…it’s only about the dollars!”…perhaps you could think of those folks? There is more at stake here than your little world and opinions.
m12by60 brings up excellent points that reflect the sentiment of many here, including (I think) RF. And I don’t always agree with RF’s points in the Deathwatch series, but I do this time.
The 2007 UAW contract negotiations will be the catalyst for filing bankruptcy.
Who thinks it will go well? I think GM is COUNTING on it not going well. Then the failure to reach an agreement will seem like the straw that broke the camels back, and GM will file. Convenient.
GM’s current activities suggest they are lining up their ducks to do just that. And it might not be a bad thing.
We interrupt this One Note Samba Number 101 with breaking news from da LA Auto Show…
Generous Motors Chairthing Rick “Yes we have no Hybrids” Wagorer announces…
• In 2008, the first front-wheel-drive application of the 2-mode hybrid system, will debut – without plug-in technology – in the Vue Green Line. The Vue Green Line will offer customers a choice of the GM Hybrid system or the 2-mode hybrid system.
• In 2009, an electric all-wheel-drive, 2-mode hybrid system will be introduced in the Vue Green Line.
“GM plans to introduce a new hybrid system annually for the next several years, each offering different levels of affordability, fuel savings and performance,” said Tom Stephens, GM group vice president, GM Powertrain. “This strategy will allow more consumers to benefit from our hybrid technologies, while providing the opportunity to reduce our country’s petroleum consumption.”
I’m sure they are doing this to give ya’ll a chance to pan the 2009 Vue plug-in by saying it only goes 75 miles on a charge while the far more advanced Toyota Hypus has a 9% greater range.
Here’s to GM Death Watch 1000!
Plus all the good look of the Prius. Yuk!
Pezzo_di_Merda proffered, “I’m sure they are doing this to give ya’ll a chance to pan the 2009 Vue plug-in by saying it only goes 75 miles on a charge while the far more advanced Toyota Hypus has a 9% greater range.”
Avoid the rush. Pan it now.
GM’s two years late, again, that is, if they actually manage it in 2009. The aftermarket has thoughtfully provided what Toyota felt would be bad marketing. Check the web sites http://www.hymotion.com and http://www.edrivesystems.com. Two vendors who will upgrade your Prius to a plug-in hybrid with 30 mile electric-only range. TODAY.
Of course, we know that GM decided hybrids were a bad long-term strategy and decided to put their resources into the real technology of the future, a hydrogen-powered car. “Their resources” meaning mostly a lot of hot air. Honda has SOLD to ACTUAL CUSTOMERS hydrogen-powered fuel cell vehicles here in the US. Not many, true, but they’ve done it. Where’s my GM hydro-car?
GM might as well try to go into reorg now. They have to become lean and mean and, most of all, they have to jettison Wagoner and Lutz. The stench of bankruptcy may help force them out.
And there you have it: the next next big thing.
“In addition to plug-in capabilities and the modified 2-mode hybrid system, the Saturn Vue Green Line hybrid SUV’s powertrain will feature Lithium Ion battery technology, two interior permanent magnet motors and GM’s 3.6L V-6 gasoline engine with direct injection.”
Finger, the Prius is ugly (maybe), but the Vue is not ugly???
Finger, the Prius is ugly (maybe), but the Vue is not ugly???
Are you referring to the current Vue, or the 2008 Vue (Opel Antara) just unveiled in LA? I think the new one is a step in the right direction.
Eric Miller noted, “In addition to plug-in capabilities and the modified 2-mode hybrid system, the Saturn Vue Green Line hybrid SUV’s powertrain will feature Lithium Ion battery technology, two interior permanent magnet motors and GM’s 3.6L V-6 gasoline engine with direct injection.”
Is GM commited to learning ONLY from its own mistakes and no one else’s?
The Prius – a hybrid optimized for fuel economy with modest performance and a four-cylinder engine – is F-L-Y-I-N-G off the shelves. All the V6-powered, performance-oriented hybrids, are languishing by comparison.
What part of Saturn’s customer base cares FIRST about performance and SECOND about economy? All the Saturn owners I know value economy and “green” over performance*. GM!! If you MUST build a performance-oriented small-to-medium size hybrid SUV for God’s sake, have Pontiac or Cadillac do it! Give a four-banger hybrid powertrain to Saturn.
This bit of genius could only have come from the same guy who would green-light a V8-powered FWD Impala. Or the SSR, the only vehicle I know that’s a bad roadster, pickup, drag machine and coupe all at once.
Lutz… must… go…
* – in most cases that’s actually “former Saturn owners” as, having been burned by the Saturns they owned, they have now mostly switched to small imports.
Speaking of Saturn, I saw an Aura today. Must say that I was impressed.
KixStart- Wow, you feel pretty strongly. Relax a bit, these discussions should be about sharing knowledge, not raising blood pressures.
My understanding from GM’s press releases was that Saturn will get three different VUE hybrids over the next couple years that range from mild to wild.
The non-hybrid 250hp 3.6L V6 front-drive with 6 speed auto should be good for 20 mpg city / 28 mpg freeway (baseline).
GM claims the ‘two-mode’ hybrid 3.6L represents a 25% improvement: 25 mpg city / 31 mpg freeway. The all-wheel-drive version should get a couple mpg less. Expect a tow rating of at least 3500 lbs.
The plug-in ‘two-mode’ hybrid ~300hp direct-inject 3.6L V6 claims a 45% improvement: 29 mpg city / 37+ mpg freeway.
The ‘cheap’ (mild) BAS hybrid 170hp 2.4L 4 spd auto is currenty rated 27 mpg city / 32 mpg freeway so I would think the new Vue would carry over.
Since we do not know what ‘other’ hybrids Saturn (or GM) has planned, it is probably too soon to comment that they will not also fill the ‘frugality at the expense of performance’ need (ala Prius), but with a car (ala Prius) not a CUV/SUV.
Delta goes bankrupt? Big deal. Aside from some concerns about whether their skimping on plane maintenance, we only need them for a few hours to get to a destination (for a few hundred bucks). By contrast, GM needs to support my multi-thousand dollar purchase for 3-10 years.
Also, there aren’t exactly thousands of Delta “dealerships” out there that would be affected. Oribitz/travel agents will just as easily sell you a ticket on Jet Blue.
Has anyone really listed out all the pieces of the pie that would be affected if GM really does go bankrupt?
If GM simply files for Chapter 11 ‘restructuring’ not much would change, and only what/who GM wants to change would be much affected.
Chapter 7 and/or dismantling GM would affect tens (if not hundreds) of thousands.
KixStart:
Two vendors who will upgrade your Prius to a plug-in hybrid with 30 mile electric-only range. TODAY.
Yes but I remember reading in a newspaper that this type of conversion will cost you an extra $25,000 (please correct me if I have the wrong figures as I am going on memory of the article and it was about a month ago) after you buy the vehicle, is it really worth it?
I spend $50 a week on gas so it costs me roughly $2500 a year. It would take me 10 years to just make my money back but at the same time I have to pay for the electricity to charge my batteries and how much is that worth?
Make it affordable (under $3000) than I will make the switch.
It’s closer to $10K at present.
OK, at this point, I wouldn’t recommend it. Hymotion’s upgrade voids the Prius warranty. I’d bet eDriveSystems does, too.
But it’s well on the way. I expect we’ll see a Toyota equipped this way from the factory very soon. Before GM.
Eric Miller: the thing of it is, hybrids appeal to greenies first. Greenies are not going to get the warm fuzzies over the green-ness of a V6. Rightly or wrongly, they’re thinking “I4.” Smart marketing says, play to the product’s strengths. And, when you can add the power from the electric motor to the power from the gas motor, performance should be more than good enough – at least for the greenies.
““GM plans to introduce a new hybrid system annually for the next several years, each offering different levels of affordability, fuel savings and performance….”
Yikes, what is he thinking? Just as GM has too many brands and models, now they expect to educate the consumer about three or more different flavors of hybrids? Somebody needs to tell GM about the value of FOCUS. Pick something and make it fly instead of frittering away resources and mind share on a zillion things.
John
Response to KixStart:
“…hybrids appeal to greenies first….”
Possibly. But I am not a greenie. And I know of many non-greens who love driving hybrids. Lots of people can appreciate the benefits of burning zero gasoline at traffic lights and in rush-hour stop/stop/go/stop/stop/repeat.
Of course, Prius had been out 8 or 9 years when I bought my 2004 new, so I suppose I am not first, either.
In any event, there’s a certain bit of good feeling in going farther on less, and doing it cheaper than the next guy. And yes, I do know how long it will take for me to recoup the extra I paid for my car. But I’ve done the math. Barring catastrophe, I will reach break-even point long before I sell the car.
Oh, shame on me! I neglected to comment on the article.
Eeeeh, it’s all been said anyhow, and by people smarter than I. So I’ll just say that I liked the article and I think GM will have to declare. I wish them luck and hope they can come out of this mess they made for themselves.
ZoomZoom, my caution was limited to advising against the HyMotion and (probably) eDriveSystems upgrades, as they void a Prius warranty.
I think generally the Prius is a fine choice if you a) enjoy the latest technology b) would like to help save the planet c) think it will save you money or d) think it will save you money when gas prices spike again.
I *still* think a V6 hybrid Vue is going to be bad marketing.
Several posters – daily – complain that there are those of us who would *never* buy a GM, even if it was made of gold and got a zillion miles per gallon. Listen up, you clowns!
A V6 hybrid Vue is not an example of me refusing to buy a GM car under any circumstances, it’s GM failing to build the car I want! If it delivers the goods (i.e., really good mpg), yes, I’ll consider it but I’ll bet you dollars to doughnuts that a hybrid Rav4, when it arrives, will get better fuel economy.
I’ll further bet you that the hybrid Rav4 gets here first.
Farago,
You’re probably right. But in the real world company management will always try to postpone bankruptcy until they are forced into it. In the case of GM, the board of directors would have to sack Wagoner, then bring in a turnaround manager, who would have to conclude that bankruptcy is inevitable, before GM will voluntarily declare bankruptcy.
For the moment, the board is still behind Wagoner’s turnaround activities. At least, so it seems…
Any Odds on GMAC not closing today?
Whether GMAC closes today or within the next few weeks probably does not make much of a difference. I think GM will do whatever it takes to make sure a closing happens, even if that means pulling its pants down in some form or fashion. For instance, GM could relax certain purchase conditions, accept a lower sales price, etc. The buyer holds all the cards at this point. GM needs the deal much more than the buyer. GM can threaten to sue for non-performance if the buyer is squeezing GM for better terms, but GM likely does not have the time to see a court battle through before having to file due to liquidity problems.
Now back to the issue of GM selling cars while in BK. I suspect that most of you that have such a violent reaction to the suggestion that GM might be able to hold its business together during a reorganization have some vested interest in hoping that GM does not file. I think the Studebaker precedent from the 1960s is not very relevant today. The American public has become much more conditioned to deal with these large company BKs since so many have been happening over the past 10 years.
GM should have no problems getting a successful reorg completed. Look at what Delphi has been able to accomplish for a blueprint of where GM will be going. Expect lots of US plant closures with a good share of production shifted overseas (note the recents spate of GM deals to boost overseas manafacturing capacity) followed by large domestic wage and benefit cuts for a much smaller, remaining US workforce. To cut legacy costs expect the pension plan to be shifted to the PBGC. Health care might be a bit trickier because the case law as to whether the existing health benefits can be terminated in a BK is a bit murkier. But some amount of cutting will surely get done. And finally, convert a big hunk of the existing GM debt into new common stock, wiping out the existing common stock in the process.
So we now have a new GM with much less debt (and less interest burden, of course), a much smaller US workforce earning much lower wages and legacy costs substantially cut. To match is lowered production capacity, GM will retain say 70% of its pre-BK sales volume by killing its least profitable brands and/or models. So we now have the makings a profitable company that can easily cash flow itself. GM ‘s most popular products can be retained and sold a lower prices while still allowing the company to create positive cash flow and earnings.
I wish there was some other way, but this appears to be the most likely path to maintain some subset the existing GM going forward. I know it stinks for those of you that currently live off of the existing system, but that system is just plain running of money to sustain itself. American car buyers are simply unwillling to pour enough money into the top of the sausage maker to allow the existing amount of sausage to come out of the bottom.
>in most cases that’s actually “former Saturn owners” as, having been burned by the Saturns they owned, they have now mostly switched to small imports.
No L series though. Those IMO were heaps.
sorry it clipped my post.
in most cases that’s actually “former Saturn owners” as, having been burned by the Saturns they owned, they have now mostly switched to small imports.
I have owned 6 96 and later S series models and would have no problem owning a seventh. All of the ones I owned were solid so I must be living right and I still own 2 of them.
my12: Excellent analysis. You obviously have been down this street, as have I. They need the 11, the sooner the better. Like an injection, it only hurts for a moment, then does a lot of good. Clearly, it doesn’t bring their business to a halt, and I agree that the risk of customers fleeing the brand is overblown.
Someone wrote above that companies hold off filing as long as possible. The history of reorganizations in this country over the last 20 years says the opposite. The traditional reasons to avoid bankruptcy – loss of customers, inability to obtain credit, problems recruiting and retaining employees – have been shown to be worse when a company waits too long to address its problems. For reasons from competitive pressure to the size and cost of DIP financing, smart companies file sooner rather than later.
my12by60, very good points you made, and I agree. It’s nice to have people look at the big picture, and objectively face reality.
1984, you have too much faith in GM’s reported numbers. You are only looking at the surface, and refuse to believe anything other than what GM PR tells you. Almost ANY company (save for a few with paranoid corporate cultures such as Intel and Toyota) in GM’s predicament would lie and make the picture seem rosy. This is not just wishful thinking. It’s just the way it is.
Fact is, GM over the course of the past 2 years or so, has burned through billions upon billions of it’s cash. Indeed, in 2004, I still remember GM’s liquid assets being at about 50 Billion. Now that number is about 20 Billion. GM, despite all of the cost cutting and “restructuring” going on, is still a huge lumbering company by many measures. So it needs every bit of that 10 Billion or so for daily operations. Realistically then, GM is only left with 10 Billion cash on hand, with about another 8 Billion said to come from GMAC’s sale. Even so, GM is burning cash at an alarming rate, billions and billions in fact per year. Yes, they are slowing down this rate, but the burn continues because GM has yet to address the root of it’s problems. Those problems can only be addressed realistically by a Chapter 11 filing. If not, GM will flat out run out of cash in the next few years.
Ford too is in a similar predicament, burning through a large amount of cash. They recently put up EVERYTHING they have as collateral for an 18B loan.
To contrast, current estimates put Toyota’s liquid assets at about 50 Billion. GM and Ford, as well as Chrysler are all burning through cash for various reasons, meanwhile Toyota continues making record profits. In no time at all, Toyota will be nearing 100 Billion in liquid assets as there seems to be no reasonable slowdown for Toyota’s profits. On top of which, Toyota continues to increase R & D spending at a substantial rate. For GM, Ford or Chrysler to be competitive with this juggernaut, they need radical change.
‘Wagoner and Putz’ are old fogeys who aren’t capable of making the needed radical changes. More and more people are coming to this realization; Wagoner and Lutz have got to go.
Mr. Farago,
I have a few questions here.
Based on my understanding of the bankruptcy process, GM will not walk into court and walk out with a declaration of bankruptcy. The judge must grant it, and other parties can challenge GM’s filing. As long as there is some life left to GM, the UAW AND the suppliers would challenge the filing, so it is not a given that declaring bankruptcy would be easy, or that that bankruptcy would even be granted by the presiding judge.
Two, I think you are underestimating the effect that a bankruptcy would have on GM’s potential customers. I recall reading last year that the media chatter about a potential bankruptcy was discouraging sales of GM vehicles.
A real bankruptcy filing would be page-one news on EVERY paper in the country. Prospective customers would stay away in droves, concerned about warranty claims and service after the sale.
Plus, don’t discount the desire of consumers to avoid a vehicle with a “loser” stigma attached to it. Image still matters in the marketplace, and most people still have a negative image of a bankrupt company. GM vehicles would be branded with a big capital “L,” which would keep buyers away in droves. GM may capture a few diehards or bargain hunters, but they would not be enough to keep even a reorgnized, leaner company in business.
The best GM could hope for is to have its plants, some of its dealers, and maybe even some vehicles (Corvette, Silverado) picked up by another company looking for a quick and inexpensive way to grow in the American market (Hyundai, perhaps?).
In closing, I’ll leave some encouraging numbers for those of us who actually like to root for and support the home team. The J.D. Power 2006 Vehicle Dependability Survey reports that Mercury, Buick and Cadillac (in that order) grabbed the number 2, 3 and 4 spots to beat Toyota, Honda, Nissan, BMW and everyone else (except Lexus) in having the least number of problems per 100 vehicles.
Perhaps someday the American media will give GM and Ford the credit they deserve. And once they do, perception among the majority of the American public will rightfully change. GM and Ford aren’t only doing what they should to make gains in the American market to deserve American consumer loyalty; they’re also doing what they should to make gains in the markets of China, Europe and across most of the rest of the globe.
Looks like Kirk Kerkorian (a.k.a. “Count Kerkorian”, “The Grim Reaper” or “Dr. Death”) is cashing in his chips and selling his stake in GM to the tune of $800 million. Once the Grim Reaper decides to dump his shares, you know something is up…
Yes, Kerkorian dumping shares is definitely an omnious sign.
Oh and finger, I live in Canada, so the “home team” for me is Toyota and Honda as much as it is Ford or GM. The domestics are closing plants up here too, while Toyota and Honda continue building new plants here in Ontario.
On the topic of new Japanese plants…
And the foreign car lovers will probably also not tell you (or maybe they just don’t know or don’t want you to know) that GM and Ford pour more money into existing American facilities than foreign automakers spend on new plants, usually with little or no tax breaks. GM has already spent over $500 million upgrading two transmission plants this year, and has spent nearly a billion dollars over the last decade, for example, for facility upgrades in Texas. And what do GM and Ford get for making their existing plants more efficient? It isn’t tax breaks. Instead, they get accusations of not being “competitive” enough! Maybe here I should also mention that the average domestic parts content for Kia is 3%, while the average domestic parts content of Ford and GM is 78% and 74% respectively. This means that buying a U.S.-assembled (or even foreign-assembled, for that matter) GM or Ford supports more American jobs than a U.S.-assembled car or truck with a foreign nameplate.
Fortunately for our benefit, the U.S. remains the overall global leader in research and development, and a big reason for that is that American automakers – according to the Level Field Institute – invest $16 billion in R&D (Research & Development) annually, which outpaces any other industry one could name. Admittedly, the Level Field Institute counts German-owned DaimlerChrysler as an American automaker, so Ford and GM’s combined R&D contribution to America is closer to around $12 billion. But who’s counting, right? Certainly not the American auto-bashing media
All companies make necessary upgrades to their plants in terms of tooling. The media doesn’t tell us a lot of things, but doesn’t mean it isn’t true. Toyota for example spent several hundred million upgrading it’s Kentucky plant for the new Camry, and is spending a substantial amount to upgrade it’s current Ontario plant in preparation for the Corolla. This is nothing spectacular. These are needed and expected expenditures.
But on top of that, they are building new plants. Toyota spent over a Billion dollars to make the Texas plant, and the suppliers next to the plant likely spent a similar amount. Overall, billions were spent on that whole Texas complex. Toyota is also spending about 1 Billion to build the Woodbridge plant in Ontario.
As for R & D, Toyota *alone* is spending about 8 Billion this year, more than any other single automaker, including GM, Ford, and Chrysler.