On Tuesday, the junk bond market sneezed and General Motors caught a cold. Less poetically, the money men behind the buyout of GM’s Allison transmission unit postponed a junk bond offering designed to pay for same. According to market sources, when the “spread” (the extra yield investors demand to compensate for their risk) widened by about 100 basis points, Merrill Lynch, Citigroup and Lehman Brothers pulled the plug. GM spokeswoman Renee Rashid-Merem said the company wasn’t worried about the sale: “The buyout remains on track.” Maybe so, but GM can’t afford this kind of setback. Literally.
GM is now deep into contract negotiations with the United Auto Workers (UAW). By all accounts, The General’s generals need some kind of “game changing” deal with the UAW. In other words, GM must take CEO Rick Wagoner’s well-established “pay off to f-off” union template to the next level. If, for example, GM wants to dump their health care liabilities into a UAW-run VEBA, it will require tens of billions its U.S. operations are still not generating.
It’s true: the chips are down. Without delving into the finer points of the fire raging through GM’s cash hoard, the automaker needs the $5.6b check from the Allison sale to finance its “turnaround.” Ipso facto. Whether or not The General’s advisors manage to off-load $3.1b in junk bonds to finance the Allison sale in a timely fashion, the fact that it’s happening at all tells us the company’s corporate masters are still mortgaging the farm to bet the farm on the farm. And the crops are still failing.
Confirmation came [again] on Monday, when we learned GM’s set to cut production of the vehicle Rick Wagoner hailed at launch as “the most important part of GM's strategy to turn our fortunes around.” GM’s Pontiac Production Center will soon be building 17 percent fewer Chevy Silverados.
More specifically, GM is reducing Pontiac’s pickup production by 3060 vehicles per month or 36,720 per year. If you [conservatively] figure GM clears $2k per truck, the move evaporates $73.4m in profit. And it still might not be enough; Silverado sales dipped 23.5 percent in June. Another month like that…
Is exactly what the financial whiz kids over at Barron’s are predicting. If so, by the time GM unveils its UAW window dressing in September, Wall Street’s confidence in the automaker’s prospects may be so low that another “historic union giveback” won’t make no never mind to the money men. The cost of GM’s borrowing, which is already onerous to the point of near-usury, will escalate even further, even faster. For a company already downing in a sea of debt, that’s not good.
What’s worse, GM’s faces a more general malaise in the leveraged loan and high-yield markets. Ironically enough (given GMAC’s role in the debacle), the sub-prime mortgage crisis has taken the sheen right off the sector. Cerberus is reportedly having problems financing its Chrysler takeover at the desired price. Despite Ford’s “surprise” results (attributable to asset sales and foreign ops), investor confidence in The Big 2.8 is fading. Same result: the cost of borrowing rises.
Brad Rubin, senior auto sector trading specialist for BNP Paribas, recently stated that “Investors know both Ford Motor Co. and GM are going to have to tap the debt markets at some point, and unfortunately it's at much wider levels than what they've done before.”
GM already rolls over tens of billions of dollars in debt each year. As Slate’s Daniel Gross pointed out way back in ’05, if GM borrows $30b and the rate it pays for new debt rises 1 percent, the company has to stump-up $300m in additional interest costs. “And since interest has to be paid first, higher interest costs mean less money for important things like executive compensation, investment in new plants, marketing, and developing hybrid engines.”
Fast forward three years and you can add financing union givebacks to the list. And update GM’s debt rating to Fitch Ratings’ “negative," despite dodging the Delphi bullet (by paying off the unions, ‘natch). While the media talks about GM's union-related health care burden, pegging the cost at $1800 per car, if The General returns to the Wall Street well in a big way, its vehicles could soon be shouldering half as much again in interest payments.
GM’s debt is a ticking time bomb; the fuse is well and truly lit. In terms of ridding itself of the UXB, nothing much has changed: GM can only eliminate its gigantic debt burden by selling hundreds of thousands of high margin vehicles in the United States.
Yes, well, in response to fading market share and continued over-production, GM has just amped-up its financial incentives on languishing metal (including leftover 2006 models). Meanwhile, Toyota’s going great guns. Its new entry into the full-sized pickup truck market has triggered the predicted incentives war in GM's most profitable segment, in a declining market.
As a TTAC commentator recently pointed-out, GM is now like communist Russia, with Toyota as America spending them into oblivion. For those who believe that GM can emerge from this crisis– or Chapter 11– fitter, better and stronger, the parallel is instructive.
Let's take this a step further. Newsflash, January 2, 2008: General Motors, after having suffered over 45 days of UAW walk-out, has declared Chapter 7 bankruptcy, meaning the company is dead and all remaining owned assets will be sold off to pay off debtors at 2 cents on the dollar. All white-collar and executives are hereby notified to not come to work; only contract security personnel are to come to work, worldwide. (What do you suppose this might do to the US, Canadian, European economies? I think we can all figure it out). The 50% owned SAIC-GM operations in China are unaffected, but this company is not allowed to export Chevrolet (Daewoo) vehicles or Buick vehicles manufactured in China except to Vietnam for assembly there. In Sweden, workers at Saab were shocked to find their plant closed when they arrived this morning. The word had not gotten out to the workforce to stay home. UAW President Ron Gettelfinger has resigned and reportedly gone into hiding to protect himself. Michigan's Governor called upon the National Guard to quell riots throughout the southeastern part of the state, but they were unavailable (and in Iraq, Afghanistan and other locations). The Pontiac Michigan (ex-)GM light truck factory is currently burning and local fire fighters "suspect sabotage" but are unwilling to brave the gauntlet of irate (ex-) UAW (ex-) GM workers. Wall Street has fallen 1800 points since the bankruptcy Judge announced that he had approved GM's chapter 7 early this morning. He was reportedly awakened by Delaware State Police who threatened to break down the door of his home unless he answered it.
Three of my neighbors are in the market for new cars. We all agree it’s no time to “buy American”, as, among other things, it looks like there won’t be any NA car companies to meet warranty obligations.
This is the true cost of years, decades, really, of Detroit’s failure to deliver — we won’t buy their metal, even in the few instances where styling, performance, features, and reliability are on a par with Japanese and European (and now Korean and soon to be Indian and Chinese) offerings.
Toyota and Honda could put Detroit out of our misery at any time by, as Robert says, spending them into oblivion.
Glenn:
You scare me.
And you could be absolutely right. Very little’s been said about the financial crisis at GM and Ford over their bonds. Far greater than their UAW health car costs, the interest costs of borrowing are going to kneecap GM and Ford long before the UAW caves.
Using the numbers in the story, each 1% rise in interest costs means GM has to sell 150,000 more Silverados each year. That’s a tall order, especially if gas stays at $3/gallon.
Bankruptcy’s coming, boys. And it ain’t going to be from the UAW, it’ll be from Wall Street.
As always, Mr Farago, one of your deathwatch article always makes my day. Partly because it’s entertaining to read and the GM fiasco is more entertaining than any soap opera, but mostly, it gives me a chance to spout my ill thought out vitriol! ;O)
So, GM is deeper in debt and closer to bankruptcy. Yet, there still seems to be no sense of urgency at GM. Mind you, if you had a golden parachute protected from bankruptcy, would YOU bust a gut?
It’s just the same old same old, GM in trouble, this time because of their cash hoard and Toyota are royally kicking their arses. Now GM have backed themselves into a corner, they can’t pare their staff that much more without compromising operations, cash is running tight (which also means, R and D will slow down) and Wall Street is losing patience with them. So now, GM have to look to the UAW talks to save them. Or to put it another way, imagine the only you can save yourself from bankruptcy is to take a loan from “Mad” Sam DeStefano*.
I mentioned in another article, that GM need a killer car to help raise their profile. A car which generates buzz and talk, but actually delivers (unlike the Chevy Volt.
“Yes, we’ve made a concept car that runs on electricity!”
“Do you have the techonology for it?”
“No, it’s just a concept! We need money to fund that research!”)
What was GM’s initial cash hoard and does anyone know their burn rate? Compare all of this with Toyota who with their $110 billion cash hoard could, theoretically, stop selling cars, and the amount of interest on the cash hoard could keep operations running AND still turn a profit! So, he profit on the sales of Toyota’s cars are just creating a bigger problem for GM. This fact adds another dimension to the scale of GM’s problems and yet, no urgency at top level.
GM’s last bastion of pick up trucks may take a right royal hammering when the latest episode of Top Gear gets broadcast in the United States (Spoilers). In that episode, they took a Toyota Hilux to the North pole, something which NO-ONE has ever done. If you watch the episode, you’ll see the battering and harsh conditions the Hilux went through. A lot more positive advertising for Toyota. (End spoilers). One of GM’s trucks could to do with that kind of advertising, in the UK in brochures, Toyotas ALWAYS refer to Top Gear when they tried (and failed) to destroy their Hilux. What do you think they’ll do with this new information?
Anyway, I digress, GM, now have no avenues left apart from one. They’d better make this count. Otherwise, what’s left? A bunch of broken brands, a cash hoard burnt to buggery,a crumbling infrastructure and a bunch of rich MBA’s.
God bless capitalism(!)
* “Mad” Sam DeStefano was a mafia gangster who went into the loan shark business, not to make money, but to torture people when they didn’t pay up. He had a torture room built in his house which he considered his “office”. He used to get so excited at torturing people he’d foam at the mouth. The Mafia never “made” him because he was considered to be “too demented”. Doesn’t sound too far away from the UAW, eh…..?
I get the same sick feeling in my stomach reading this today that you get from watching a documentary about someone dying slowly from their drug addiction.
Re Glenn 126:
The Pontiac Michigan (ex-)GM light truck factory is currently burning and local fire fighters “suspect sabotage” but are unwilling to brave the gauntlet of irate (ex-) UAW (ex-) GM workers.
Wall Street has fallen 1800 points since the bankruptcy Judge announced that he had approved GM’s chapter 7 early this morning. He was reportedly awakened by Delaware State Police who threatened to break down the door of his home unless he answered it.
Interesting strike scenario, but I doubt things will shake out that way. The template here is the airlines – operate as long as you can (and collect your paycheck) until your accountants tell you to see a bankruptcy judge. Even then, you still see a check for a while – consider the Delphi bankruptcy / cluster-finance.
The Dow dropping 1800 is more possible. As DiLorenzo at AutoExtremist has noted, the public is mostly ignorant of a possible GM/Ford train wreck. But then some rabid, three-headed dog like VC firm will see all the upside in gutting out the ‘assets’ of GM (like it’s storied vehicles) and things will turn. Not to mention all the transplant factories that will go full bore to ‘make up’ lost production. This isn’t 1980 – the big 2.1023423 are not major economic playyaz(sp?).
One things for sure, it’ll be interesting to watch. Morbid finance people I know haven’t been this excited since Argentina melted down a few years ago.
My wife just traded off her 2002 Hyundai Sonata for a 2007 Hyundai Sonata. The new four cylinder car is (on paper) 20% more efficient than was the prior V6 car, is larger inside, more comfortable, has a larger trunk, built in the US instead of South Korea, and is only down 7 horsepower on the prior V6 car, with similar performance to my 2005 Prius (0-60 in about 10 seconds). It also can tow our pop-up camper (we could not find a hybrid CAR to do this job yet). Since we carpool in our Prius 95% of the time, the Sonata will only see about 6000-8000 miles per year. The new Theta four cylinder engine is engineered to last 250,000 miles.
We never even CONSIDERED looking at any GM product, and in fact, the Hyundai dealer in our town sells Saturn (in a store literally cheek by jowl against their Hyundai store) as well as Pontiac-GMC and Buick across town (cheek by jowl against it’s Dodge-Chrysler-Jeep store).
To be fair, we also did not even CONSIDER a Ford product or a Chrysler product.
Been burned once too often and multiple times by all 3 and won’t return – EVER. Thus – my entry here to inform those reading one reason why GM is going to fail and go down in flames. Decades of alienating repeat customers with crap product, worse “service” and a warrantee worth less than the paper it is written on, has a knack for preciptating bankruptcy.
Did consider a Toyota Corolla (it can pull 1500 pounds, the little tuffy!), Kia Optima (why bother when the Hyundai is more car, same mileage and the deal was better?) and “looked at” the Nissan Sentra. Bah-made in Mexico, Nissan’s reliability record not as good as Toyota or Hyundai, why bother?! Also looked at the Honda Civic Hybrid but again – this can’t tow so we dropped it (otherwise we’d have been a two hybrid family). Maybe next time. The Hyundai is a two year lease – we were not impressed with the longevity of Hyundai’s last Sonata which we traded at 76,000 miles. (We didn’t used to car pool, now we do).
Why can’t GM sell me a truck just like a Toyota Hilux Diesel?
If the fools at GM honestly answered that question, they would know how to save their corporation.
“And since interest has to be paid first, higher interest costs mean less money for important things like executive compensation, investment in new plants, marketing, and developing hybrid engines.”
Is it just me, or does someone else find shocking that executive compensation is roughly at the same levels as plant upgrades and R&D?
@Tommy Jefferson
Why can’t GM sell me a truck just like a Toyota Hilux Diesel?
If the fools at GM honestly answered that question, they would know how to save their corporation.
“Just build it big, heavy and powerful – and try to use as many parts as possible from our other platforms, and just do some window dressing on an already established design so that we don’t have to set up a new production line, just pick something off the shelves. Hey! Get in touch with marketing – let’s find a cool name for it.”
Good riddance. Once the cancers gone we can start recovering from this 30 y/o disease and move on to bigger and better things.
I did the contrarian thing last month and actually bought Detroit iron. Call me crazy and foolish, but I got a Ford!
Er, actually, the Hecho in Mexico Ford Fusion. But it is a good car!!! It is a really good car!!
If Ford can build good cars in 2007, which it does(!), and yet those cars are still NOT COMPETITIVE ENOUGH PULL DETROIT OUT OF THE HOLE, then these companies are truly doomed. Doomed. Doomed.
KatiePuckrik-
GM made a real EV1, and had an EV2 ready to go. Everyone who bought the EV1 seemed very happy with it.
Heard the Chrysler deal may be off, no one wants to buy the bonds necessary to finance the deal.
Ford looks to at least have decent cars to sell. They may not be the “best” but they are paying attention to the market. GM on the other hand, even in Cleveland I am seeing less and less new GM product on the streets-
As Robert has opined on numerous occasions, the only way out is to file for Chapter 11. Get court protection from the hordes of creditors while implementing a sound restructuring plan. Ch11 will give the company great leverage in restructuring labor agreements, and (probably) help shield the company from huge financial penalties when dealing with bloated dealer networks.
Where this all falls apart however, is in the executive office where Rabid Rick and his cronies have shown us nothing to give us hope that they could indeed craft a sound restructuring plan.
Doesn’t a company have to have some value and assets to do Chapter 11. What will GM have after they have sold everything just to keep the doors open to this point.
Exactly how big is GM’s debt right now, total number they owe?
Difficult to read, RF.
Even more difficult to disagree with.
My wife and I have worked with Brad Rubin over the last ten years. BNP Paribas, along with countless other investment banks, are steering clear of these junk bonds. Just yesterday (with the help of the market being in the tank) even some of these BBB-bonds weren’t trading hands. Nobody wanted ’em…including the banks who currently own them.
In the end, it may be this perfect storm (soft housing market, sub-prime mortgage defaults, elevated energy prices) that winds up shortening the runway of the Big 2.8’s turnaround plan. And unlike the ideal airlines’ bankruptcies, chapter 11 may not even wind up being an option — just shut it down and liquidate. There is nothing to restructure if the product doesn’t sell.
Matthew, Congrats on the new Fusion.
I’m in the process of replacing my beloved Mini Cooper S with a more appropriate, practical, and affordable long-distance driver, so I have been keeping an open mind about my choices. It’s been a gut-wrenching decision, but I digress.
Anyway, I stopped by a local Ford dealership and liked the Fusion so much I’m very close to getting one myself (SE manual w/ sport package–thanks for the review, Jonny L!) Mind you, I hadn’t driven a Ford or GM since 1999, and in all fairness I was truly surprised in a positive way.
Unfortunately, I have had no such surprises with GM’s products. The sad question is: How can a company like GM that has so many divisions, dealerships, and nameplates have almost nothing even remotely interesting to me? (And yes, I also drove the Aura… Not bad, but no thanks.)
Perhaps the politicians can save GM. If GM can get through 2008 perhaps a Democrat president + congress could inject public money in the form of lost cost “loans” and erect some protectionist trade barriers even to foreign screwdriver ops in the US.
After they put the fires out at the factory, the taxpayers could pick up the tab for the WTO war that ensues too.
What a wonderful scenario!
Pete, that would then put the big 3 into pretty much exactly the same position that British Leyland was in, in 1973. Nationalized (by another name).
Ah yes, let’s p!ss away hundreds of billions of taxpayer dollars on a dead industry for, oh, about two decades before realizing we’re trying to recuscitate a dead dinosaur with a 12 volt moped battery and Wal-Mart chinese made jumper cables.
In the end, the result will be the same. The US will join the UK in essentially not having a home owned automotive industry.
In both cases, it will have been a fate well deserved. Because actions have consequences. Or, they should.
Seen by me last night while going past a GM dealership in California: $4,000 rebates and 0% interest financing on new GM pick ups. The lot was so crammed full of trucks, a mini poodle could not navigate through it. In a recent editorial Mr. Farago mentioned there were over one million unsold cars from the 2.2 of 2007 vintage, wonder how many of those are still looking for a home? It seems some of the “main stream press” missed the real story on the Ford “profit” announcement yesterday, the North American operations lost $274 million and Mullaly said to expect big losses in the next two quarters. It seems like GM’s over maxed out melted down credit card will soon be revoked.
Steve-O and Matthew:
I bought a Ford product a little less than 3 years ago, a Mazda6s. All in all I have been happy with it. It is light years ahead of the Saturn I had before it. I’m sure you’ve heard the old saying that the two happiest days in a mans life are when he buys his boat and when he sells it. You can add a third day to that, when he sells his GM car.
I totally agree with you that at least Ford has some decent offerings that I would consider buying and are even at the top of my and my wife’s list of potential new cars for her, especially when you include Mazda with the versatile and sporty Mazda3 (God, that sounded like a commercial, but it’s true). From what I’ve read here and elsewhere and based on what he did at Boeing, I also have much more faith in Mullaly than Rick Waggoner. I just hope that Ford hasn’t gone too far and hasn’t destroyed their reputation to the extent that GM has, because I would like to see them survive based on their recent performance.
It’s no coincidence that Mullaly is doing more productive things at Ford (Not Fields, how overrated can one CEO be?) than Rabid Rick. Mullaly came INTO Ford whereas Rabid Rick has been at GM for some time. Mullaly came to Ford when it was in trouble and has seen the mistakes that Ford were making and knows what to fix. Rabid Rick has been (to use an american saying) “been drinking GM kool aid” for so long, he’s in some sort of (metaphorical) kool aid induced psychosis.
How many times have we said that GM should off load (either, by closing or selling) redundant brands? What did Mullaly do? Aston Martin have gone back to British hands, Land Rover and Jaguar are up for sale and Volvo may be on the chopping block, too. How many times have we said that GM need to focus on their product and have a defined vision of where they want to be? Well, under Mullaly, people are now talking about their products and generating a buzz (something I mentioned earlier), whether it’s a well earned buzz, that’s another issue. Anyway, feeling exicited about the Saturn Aura….?
Fact is, Mullaly has, in a much shorter space of time, achieved more at Ford, than Rabid Rick has at GM.
If you’re surrounded by “yes” men it’s unlikely, you’ll get a true picture of the company. Ford in Europe do have some good cars and are putting up a much bigger fight against the orientals than in the US. They still look cheap, however.
OK, I’m a dummy, so please help me out–why does GM shutting its doors wreck the US economy?
The things I see being bad are very high interest rates and inflation. I see inflation happening as a result of the Federal Reserve printing press. High interest rates, though, somewhat elude me.
If GM shut its doors, it would flood the labor market with a bunch of engineers and UAW folks out of work. I suppose this could depress wages.
And the way things work, I guess a bunch of them would start to collect welfare. I can’t see the government saying that we now have to raise taxes to 40%, so would those costs just be hidden by printing more money?
If I’m not out of work and I’m saving money and investing conservatively, why should I care if GM or the rest of Detroit burns to the ground? The fact that I don’t understand the situation at all concerns me more than the warnings I hear.
I don’t think the US economy would be permanently damaged by the loss of GM, Ford AND Chrysler, nicknick, but Michigan would suffer for at least 5 to 10 years (we already are suffering here badly compared to the rest of the states).
KatiePuckrik: It’s no coincidence that Mullaly is doing more productive things at Ford (Not Fields, how overrated can one CEO be?) than Rabid Rick.
Actually, Fields has made several key decisions, including the cancellation of Ford’s original entry in the B-car class. He saw that it was an underwhelming, boring vehicle, and had the guts to cancel it and demand a new plan.
As for Mullaly – he is making the right moves from a corporate organization standpoint, but so far the only real impact that he has had on the product is the decision to rename the Five Hundred and Freestyle the Taurus and Taurus X, respectively.
He cannot claim responsibility for any of the products that may be generating buzz in the Ford lineup.
I’ll reserve judgement on his performance until I see the product in the showrooms that has been developed under his tenure.
NICKNICK – here’s my take on what GM collapsing would be a bad thing.
All these numbers came from Google and the analysis was pulled out of my butt, so take them for what it’s worth
Total number of workers in the US 150,000,000
Total number of workers at GM 284,000
Total number of workers at Delphi 171,000
So just counting GM an Delphi that’s about 1/2% of the entire US work force. I’m sure if you count all the other suppliers, dealers, and anybody else whose job depends on GM, I’m willing to say that GM has a DIRECT impact on 1% of the US work force. If 1% more people are suddenly out of work:
Wages will be depressed due to lots of supply – this will be exacerbated because the new supply of workers just lost their high paying jobs so the effect is not only more people in the job hunt, but the loss of high paying jobs
Once wages are depressed no one can afford their houses and they all go into foreclosure
Once houses are in foreclosure there’s no one to pay proper taxes
Then you have the people selling off their investments to live until they get a job, massive sell off will cause the stock market to crash.
Stock market crashing will result in the other markets to fall and the price of money will go way up
With the price of money going up, new mortgages will be too expensive, so people won’t be able to gobble up all those freshly foreclosed houses.
I could go on, but I think I need to get back to work.
The deal is that everything will suck, even for those of us who have been responsible with our money. The best thing right now, that I can say is to buy hard goods or real estate. Having a cheap mortgage now will be even better as the dollar devalues. And hard goods will always be worth something.
I don’t know how drastic a GM collapse would be on the economy – just the thought of all those empty lots filled with GM cars no one wants is really depressing.
If you all note the “big news” in the market yesterday July 26th was that Ford made a large profit, not in North America but in Europe and Asia, in NA they are still in the Tank! Itsa crazy world out there
Well! at the risk of flaming and or trolling, let me point a few facts out.
1] G.M. is number one in world wide sales
2]Silverado,GMC and Ford f150 are the best selling trucks in North America {Toyota can only hope to crack that market}
3]Ford shocked even the experts with a 750 million profit.
4] 17% reduction in Pontiac means squat.3060 trucks is 2 and half days production in Oshawa Truck
5]All 3 Oshawa car/truck plants have Saturday production right through Aug.
6]G.M. will not go bankrupt today, tomorrow or next year.
And Kate Puckrik, I love reading your comments
6]G.M. will not go bankrupt today, tomorrow or next year.
I would like to know where you get your divine knowledge from.
Good Luck GM, hope you stay in business, I still want a Camaro!
Yes, a GM collapse would be very bad for a lot of people, especially in Michigan. But the wider economic consequences would be more varied, Miked, than in your scenario. Not “everything will suck.”
I’m not sure what you mean by “price of money will go way up.” Some of the consequences you list are associated with deflation (as we had in the 30’s), and some with inflation (like the 80’s). In a deflationary economy the price of a house falls and people earn fewer dollars to pay off mortgages. People who still have cash are winners. In an inflationary economy wages grow faster in number of dollars, so it gets easier to pay off fixed-rate mortgages. This favors debtors.
Overall, I think economists would say a GM collapse would mostly hurt the nation’s economy for some time. I say “mostly,” because in every windfall there is opportunity for someone. (The lawyers would certainly enjoy a bonanza!)
But I doubt GM would disappear. It has so many valuable assets (e.g., Corvette, patents, property, foreign operations, etc.) it would be more sensible to restructure under chapter 11 than liquidate under chapter 7. If GM-North America gets relief from the crushing burdens of too many brands, above-market pay and fringes, and unfunded retiree obligations, it’d be a viable business. No doubt, creditors, employees, retirees and shareholders would be burned. But there’d still be a GM to make profitable vehicles and sell parts for the many millions of Chevy’s, etc., out there.
miked
Deport the 20 million illegals and wages will go up even with GM and Ford closed for good.
There’s plenty of value inside GM and Ford so even if they go bankrupt or even get liquidated and sold off in chunks there will still be a profitable car and truck businesses in NA as well as international operations. Being part of GM has done nothing for any of its constituent parts – every business it sells off can consider itself lucky.
Mikey: A response to your comments: 1) GM may be the worldwide sales leaders (but that is slipping rapidly), but if they are not making money on what they are selling, what difference does it make? They are losing money on the vehicles they sale. They are losing their market share fast, very fast, to companies that are making money on their products, such as Toyota, Honda etc. 2) Have you noticed the sales drop in their pick ups (and Fords), they are losing sales in that segment (compared to even a year ago) by tens of thousands. As I stated in my previous posting today, one can get a new GM truck with a $4K rebate and 0% financing now. They have hordes of new ones from 2006 and 2007 model years not yet sold. 3) Ford made a profit, that is true, but their North American operation LOST $274 million in the second quarter. Their internation sales are not going to keep US workers in a job. In addition their CEO stated in the press release yesterday to expect large losses in the next two quarters. Bottom line Ford continues to lose huge in north america. 4) I can't speak for the production stuff, you work inside GM, but isn't it true that GM has to pay the workers whether they are assembling vehicles or not? As Mr. Farago has repeatedly pointed out, the big money guys on Wall Street are getting very nervous about the financial condition of GM. In the midst of on the largest stock market gains in years, GM's stock has been sinking fast. Could you please explain what is going on that is positive at GM, and that may have them avert BK?
Well…Ya know…If GM would just build better Cobalts, Malibus, and Impalas where the profit cannot even pay the extra finance charges…LOL…I kill me!
Even if GM gets all it wants from the UAW, they will still go bankrupt. The UAW negotiations are just a waste of time…Theatre of the Absurd.
Face it. GM is just a freaking welfare state in itself…A self-contained bolshevik revolution. Read GM SEC Filings.
Mikey
“And Kate Puckrik, I love reading your comments “
I’m glad you do! Now, if only I put a bit more thought into them, I’d be onto a winner!
I still stand by the fact that the UAW should show no quarter to GM. Because GM’s management have backed themselves into a corner and NEED to suffer these consequences. They didn’t learn from the oil spike in the 1970’s, maybe this will learn ’em…..?
If GM get through this, they WON’T learn from it. I promise you, Mr Farago’s son will be writing the new series of deathwatches when the next oil spike comes along!
Katie, you mention “when the next oil spike hits” well it is upon us now, oil is now over $77 a barrel. I don’t think we are going to have to wait to read the Deathwatches from Mr. Farago Jr. There is tipping point on oil prices and we are just about there, where many, many consumers are priced out of their normal fuel purchasing patterns. If you can’t afford fuel, you can’t afford larger cars, and not many want a Cobalt in their driveway. This is getting ugly, real ugly.
katie,
Always enjoy your posts. The Hilux is known as the Tacoma here in the US. While I acknowledge that Toyota has earned bragging rights with the North Pole adventure, I don’t think it’s likely to sell many trucks – at least in this market. Few of us are planning to drive a pickup to the north pole.
Also, I can’t quite believe the Tacoma/Hilux is all that much better than a Ford Ranger. A little better, possibly, but Ford always offers the possibility of fire sale pricing. I’m starting to research small trucks in anticipation of replacing my ’98 Ranger. I won’t be buying for 2-3 years, so perhaps my research is a bit premature. Anyway, if I were buying right now, my replacement would be another Ranger. Toyota doesn’t offer the combination of cab/transmission that I want. Couldn’t tell you why. I want a standard cab with an automatic so my wife can drive it when necessary. It’s hard to believe Toyota is making a marketing blunder by not letting people have it “their way” – but that’s what the build & price feature on Toyo’s website is telling me.
Of course there is no guarantee Ford won’t do somethign stupid in the next 2-3 years, like pulling the plug on a trusted name in an underserved market segment.
In reference to some other comments – it’s time we quit thinking of the transplants as foreign. These companies have invested in America. They are creating American jobs – albeit non-union and considerably lower paying than UAW jobs, but as jobs go, a lot of people could do a lot worse. In short we could loose the so called D3, and still we’d have a NA automobile industry. It just won’t be headquartered in Detroit anymore.
For what it’s worth, I don’t believe GM is going to die. It’s still got 25% of all American light vehicle buyers. (Don’t ask me how that’s possible) That is a pretty decent slice of a pretty big market (but of course, they used to have half of all the buyers in the US) If they can get new management I think they can survive, albeit as a smaller company – something about the size of Ford, at present.
I don’t know what it will take for GM to get off of the whole truck and SUV pedestal. The only new car they have launched in the last year is the Saturn Aura. The rest of the cars they have launched have either been SUVs, Crossover SUVs, or pickup trucks. In fact, Rabid Rick Wagoner named 2007 “The year of the Truck” last January. I don’t know what it is going to take for GM to finally realize that the huge market for SUVs and trucks is gone forever, as gas is now flirting with three dollars a gallon. GM still has the belief that there is still a bull market for SUVs, and they still don’t realize that people want fuel efficiency. They should get the hint by how badly their SUVs are selling, while the Chevrolet Aveo and Cobalt are flying off the lots. The Impala and G6 are selling well too.
GM needs to wake up and smell the coffee. They need to pin their hopes on something that there is actually a market for. What they basically need is a Taurus. They need a car that is uniquely thought out, one that actually fits the demands of the people, one that the competition doesn’t hold a candle to. But of course, instead of making a fuel efficient car, GM will just make another SUV. When will GM finally stop endlessly churning out SUVs?
The SUV market is gone. Like a great man named Bruce Hornsby once said, “Thats just the way it is”, and GM has to accept it. GM needs to start making cars the people actually want, instead of always shoving trucks and SUVs in everyone’s faces.
AKM: Is it just me, or does someone else find shocking that executive compensation is roughly at the same levels as plant upgrades and R&D?
‘Shocking’, not really. ‘Disgusting’, absolutely.
GM has just amped-up its financial incentives on languishing metal (including leftover 2006 models).
2006? Surely you jest…
“Silverado sales dipped 23.5 percent in June. Another month like that…”
How about every month. How well do truck sales do during the winter? The trucks are just flat to expensive. They have priced themselves out of the market. All their potential buyers can’t afford the vehicle anymore.
Same thing happened with the Firebird/Camaro/Z28/IROC-Z/TransAM. Price goes up, sales go down. They stopped building it citing low sales. The V8 model(the one everyone wanted) got to the point where it was just a few grand less then a base model Corvette.
They hope the new Camaro and Volt will save the day. I just get the feeling they will be a bit too high price wise to really sell in any volume.
Let’s go back in time for a moment. April 1964. New Mustang. $2368 FOB Detroit. Adjusting for inflation that would be $15,915.40 today.
A car that most everyone wants, at a price everyone can afford. That is the key to selling volume. Seems like OEM’s go for margin(markup) these days.
2007 PT Cruiser for $9988. If I had a better paying job; I’d pay cash for one and commute to work in it. Less then ten grand; can’t beat that. Well… with a China car you can. ~$7,000 msrp?
They can build quality. It’s just a matter if they want to. If they care too. If they really want to. I’ve seen some quality product come out of China before so I know they can do it. It’s just how bad do they want it? They just don’t seem all that obsessed and concerned about it though. Lack of motivation and desire. No desire for perfection and best in the world. GM could be number one in the world if they wanted it bad enough.
Personally, I don’t think they much care if the company goes bankrupt. They will all just transfer to Honda and Toyota and work for them.
To get an idea of what happens when a mainstream American industry is decimated, just look what has happened to steel since the 60s.
In places like Cleveland, Pittsburgh, and Youngstown generations worked at the mills, in the blast furnaces or in the trades. They made fantastic money, at a level that an engineer right out of college could only dream of.
It’s all a distant memory. The towns in which steel dominated are still frantically trying to find themselves, and are lucky if their populations are 1/2 of what they were in 1950.
Michigan was always more car oriented than the steeltowns of Gary and Cleveland. That meant Michigan was spared the death spiral that started in say 1970. Michigan has had close to three decades to learn the lesson, and make a difference.
The people that ran those companies did not learn a lesson. They did not care to.
Steve-O & Matthew Danda
Get the thicker sway bars and a better tune and the Fusion is too enjoyable ($75 to the South Elgin, IL Police)
GM remains fundamentally as messed up today as it was one, two, three and ten years ago. Out of touch executives, bloated cost structure and a history of putting sticks into the eyes of it’s customers. How many Citation and Cimarron owners joined the never again club decades ago? How many modern GM minivan owners joined that club? How many Cadillac Northstar owners with worthless vehicles due to leaking engine blocks made their next purchase at the Lexus store and never went back?
GM faces the perfect storm of high fuel prices, increasing interest rates and talented hard working competitors. Chapter 11 right now or Chapter 7 in a short time.
The only question is which of the 2.8 will be the last man standing. I suspect that one will survive and maybe two, but not all three. Ford has the advantage of a product line which at least almost makes sense. Small, medium and large cars plus a fleet-special (CrownVic/TownCar). Small, medium and large trucks. Small, medium and large traditional SUV. Small and medium CUV.
Mercury costs very little to sustain as it is pretty much just a trim level option onto Fords. GM is putting unique sheet metal out for each of it’s 99 brands. So Mercury makes sense as a sales volume kicker for Ford designs. Lincoln is a complete disaster right now. Horrible product names and no reason to be. They should go the same way as Mercury, just more so. Bring back the classic names instead of that MKZ crap and make luxury trim versions of the Fords in all three car sizes. There is a market for really well appointed small cars. A killer vehicle on the Euro Focus chassis could be a real game changer.
These next few years are going to be really hard on Michigan.
Pontiac, Buick and Saturn don’t make sense because they cost a fortune to sustain on top of Chevrolet.
Chrysler is a mess. I think it ends up being to first brand which goes the slap-a-label on Asian outsourced stuff route. Think Magnavox or Schwinn.
I’ll tell you what…we, as automotive enthusiasts and those who closely follow the industry….WE can say “Oh, this is so terrible!…GM is about to file for bankruptcy…how can such a storied company find itself in such dire straits?, How can a once world-class company, with such a rich history, now be such a street urchin sleeping in the gutter?”. Yes, we see what is going on and we find it to be quite upsetting.
But you know what? The average consumer doesn’t care…not one bit. Why should they? Why should customers who were once DEDICATED, LOYAL customers even give this company a once-over nowadays? You see, after 30 years of taking your customer for granted, and taking them to the cleaners to boot….WHAT DO YOU (RICK WAGONER) EXPECT??
Do you expect to shaft the consumer for ANOTHER 30 years?? Is that your game plan? Do you EXPECT a loyal following of flag-waving idiots who ENJOY twin-tower style depreciation?? Do you EXPECT people to take out a 5 (or 6) year loan on a car/truck which will almost certainly require warranty work, only to have the customer always be “wrong”, and have their request for repair denied…and not once, but denied REPEATEDLY?
You business model is based upon a completely fabricated fantasy land in which all the characters called “customers” are total idiots…and who ENJOY being idiots!!!
Maybe the next spokesperson for Chevrolet should be Jethro Bodine Clampett!
http://www.nostalgiacentral.com/images_tv/bhb_002.jpeg
GM may have 25% of the market, but how much of that market do they make a profit on? Remember, the Saturn Aura (which apparently is selling well) they don’t make a profit on. They now only get half of GMAC’s profits and the UAW (hopefully) will stand firm and tell GM’s management to stick their concessions up the hole which is slightly bigger than the hole in their cash hoard. Doesn’t matter how big the company is, if it isn’t turning a profit, it’s going down….hard! And lets not forget that small profits every 6 months won’t be enough. They need to replenish that cash hoard AND spend on R & D.
In fact, Ford recently posted a profit a $750 million quarter profit and Wall Street is, apparently delighted. What they mention less often is that, this includes the $924 million they got from the sale of Aston Martin.
Someone also mentioned that GM could survive if they had a change of management. Well, current management has presided over a market share slide GM has never experienced before, their cash hoard depletion, a millitant union which they can’t stand up to, a $2 billion loss to FIAT (No, Rick, I WON’T let you forget that in a hurry!), the production of cars which are still not bringing in customers and negative feedback from Wall Street.
On the plus side, Rabid Rick negiotated a bankruptcy protected pension. So, the future of GM isn’t all bad(!)
“GM may have 25% of the market, but how much of that market do they make a profit on? ”
That’s a fair point, they do need to make a profit, not just sell cars.
I just find it odd that people talk about GM as if it only has until Thrusday to do a turn around. Granted they don’t have another 30 years, but they do have some time.
They’re taking some slow tentative steps in the right direction. Saturn has some decent offerings which at least might develop some customer loyalty. Pontiac/Buick/GMC is being shaped up as a single sales chanel, giving the hope that future products, at least with these 3 divisions, might be differentiated from one another.
GM has even been a market leader, with On Star. No one else thought to provide such a service until GM did it.
GM at least here in Canada did not honour all the defective Gasket problems with all there V6 engines, now there is a class action law suit in progress! Also the large GM dealer in Guelph has been complaining to the Press that too may people are going to the USA to purchase Cars and other vehicles, for years GM has been screwing there customers, take my GMC Van, the Roof has leaked since the day I purchased it, they would never omit warranty either, never again will I purchase any GM, Ford or Chrysler-Cebrus product.
The trucks are just flat to expensive.
I agree completely. Out of curiosity, I looked at the new GMs and Fords at the car show, and I was astonished at the prices. No wonder they are the Big 2.8’s most profitable product. No wonder Toyota wants to come in and get a slice of the action. I can’t imagine that they cost much more to build, if at all, then a car.
Firebird/Camaro/Z28/IROC-Z/TransAM
Another epic GM blunder. Pricing soared, while the same terrible packaging continued. In terms of length, they are big cars, and the interiors were tiny. I think that’s why the Mustang survived. With the base engine, it was reasonably comfortable but still attractive commuter, while the V8 versions were a blast but tolerable on a day-to-day basis.
I also agree that a small luxury car can be a great opportunity. The Canadian car market has always favoured smaller cars (Civic #1 5 years in a row…ah, to be a Honda saleperson). Honda, to their credit, caught on and introduced the Civic based CSX, which has been a success. Of course, that kind of badge engineering has to be done carefully.
GM only cares about profits, not producing quality, desirable, and reliable vehicles. GM is less an automobile manufacturer and more of a corporation.
GM can produce a solid small competior to the Corrolla/Civic/3/Jetta but there is not enough profit in that market so they will not do it. In order to justify this GM would have to sell over 200k of these.
GM will only produce and make an effort on products that maxiumize profits with little effort. Rebadging is just a band aid and GM might as well fire all US engineers and bring in rebadged Opels, Holdens, and Chinese made crap.
Unless, you financially beneifit from GM/Ford/Cebsler I do not see why anyone would purchase any of their products.
To the comment that GM “has” 25% of the US market I say, not really. Cars and trucks are sold one at a time, so at any given moment market share can only be talked about in retrospect. Perhaps in the most recent period GM had 25% market share, but that says nothing about what people will be buying today, tomorrow or at any other future time. There are generally no long term purchase contracts (except maybe in fleet sales). If next week nobody buys a GM car or truck then their market share will go to zero.
Companies talk as if the “own” certain market shares and it just isn’t true. Ownership means control and no company selling at retail actualy controls it’s daily sales. Influences, yes, but controls, NO.
GM’s flock of loyal repeat customers has been flushed out of the underbrush and scattered to the winds. After being shot at multiple times they just might not come back next time!
Redbarchetta Where did Iget my devine knowledge you ask? Well I wouldn’t call it devine knowlege, anymore than I would refer to a company employing 284000 Americans, as a cancer that should be gone.Your post July 27 10:24.
Devine knowledge? No, maybe educated guess would be more accurate
mikey: I feel a little bad for all the employees that are going to lose their jobs when GM finally goes bye-bye(not the millionares at the top though, fry them). But then I think about the millions of American’s (me included) that have been screwed repeatedly by GM(and Ford and Chrysler). I cannot and will not excuse their past & present(future) conduct just because some people might lose their job. I guess Enron should still be in business because they employeed thousands of people even thought they stole billions from the rest of us.
Just look at previous customers posts to see just why they are a cancer. I’m sure the government employees working in Communist Russia didn’t think their employer was a cancer on their country, but it was.
Evil empires don’t deserve to be in business!