In the second financial quarter, General Motors made $891m. The General's camp followers have been delighted with the slim not to say two percent profit. Meanwhile, GM North America (GMNA) lost $39m. The General has been almost universally commended for their U.S. division's performance, as it compares with a $3.95b loss in ’06. Supposedly, the move “close to profitability” indicates the rot has stopped, as a prelude to recovery. But lessening losses is not the same as making money, especially when you need money.
Make no mistake: GMNA needs LOTS of money. It needs tens of billions of dollars to eliminate the mountain of debt and obligations incurred in the downsizing process. Union buyouts, plant closures, ongoing payments to former parts maker Delphi, the upcoming Wall Street-requisite United Auto Workers pay-off– by the CFO's own admission, GM's cash conflagration is set to continue.
GMNA ain’t making it. Literally and figuratively. At best, GM CEO Rick Wagoner’s $9b in operational cuts have brought the automaker's U.S. expenditures in line with its reduced income. That’s fine, if you assume that income will increase from here on out and expenditure won’t. Both of which are false assumptions.
Next financial quarter, GMNA will shell-out $4b in capital expenditures. Annual plant closures and scheduled production cutbacks will also take their toll on their bottom line. More critically, if the two-month sales drop (July down 19%) is any indication, The General will continue to shed market share in a contracting market. Do the math. GMNA is about to make less money selling fewer vehicles.
After this false dawn, what then? Rabid Rick has two choices. He can slice more capacity from the system, continuing GM's death spiral. Or he can cut prices to move the moribund metal, further eroding his employer’s profit margins. Which are already crumbling under direct assault from Toyota and the transplants.
On Saturday, GM announced zero percent financing for up to 60 months on crew cab and extended cab Silverado pickup trucks. The move wipes some $2500 – $3000 off GM's pickup truck margins, halving their per truck profits. This after reigning-in Silverado production by 10 percent. Will there be another 'round of profit purloining discounts? Seems so.
Once again, still, GMNA’s future depends on selling a lot of something that makes a lot of money; something other than what they’re already trying to sell. Now that GM’s new pickup trucks have failed to generate the anticipated turnaround bucks, GMNA must pin its hopes on the new Pontiac G8, Cadillac CTS, Saturn Astra and Chevrolet Malibu.
The General is only planning on importing, at best, 30k to 50k Aussie-built G8s for beleaguered Pontiac/GMC/Buick dealers. Cadillac sold 24k lame duck CTS sedans this year (vs. 73k refreshed 3-Series). Even if Caddy's new, spizzarkle-prowed model doubles its current sales total, it won't be enough to keep GMNA afloat. The Saturn Astra arrives from Europe at a loss. Which leaves the hopes of a company resting squarely on the shoulders of the new Chevrolet Malibu.
So far this year, GM sold 60k Malibus (many discounted to fleets). In the same period, Toyota sold 212k Camrys and Honda flogged 180k Accords (hardly any of which sailed with the fleets). If GM thinks it’s going to slay the competition with the new Malibu– whose form and function are not a million miles away from the slow-selling Saturn Aura– it’s sorely mistaken. Even if the Malibu is significantly better than the Camry and Accord (also set for a refresh), conquest sales will be like pulling teeth. The demand for an Camcord alternative doesn’t exist.
All of which leaves GM where it is now: depending on sales abroad to generate enough cash for the corporate mothership to stay afloat. That said, while 58 percent of GM’s Q2 unit volume originated oversea, these sales only accounted for 38 percent of the company's total revenues. GMNA's recovery remains mission critical. Besides, what happens if GM’s foreign operations go sour? Amid all the jubilation over GM’s overseas success, there are signs of struggle and danger.
According to GM’s numbers, their Asia Pacific market share is decreasing in an expanding market. GM Brazil has hit a production capacity wall. Shanghai Automotive’s hook-up with countryman Nanjing Motors reaffirms suggestions that The People’s Republic of China wants the lion’s share of their domestic market for themselves. The currency situation is volatile. And last but not least, Toyota's lean, mean, lean production machine is beginning to turn its attention to these ripe pickings– which could turn moldy in an international economic downturn.
In short, GM’s overseas profits are not guaranteed; whereas ongoing and increasing U.S. losses are a sure bet. On balance, the automaker isn’t. Even if GM worldwide continues to deliver enough cash to subsidize GMNA, we’re heading towards the point where GM’s Board of Bystanders must contemplate declaring GMNA bankrupt to save the corporate mothership.
One other thing I have not seen much mention of is the state of the American dollar. It has been falling against most foreign currencies. Hence the profit margins on exported American cars have gone up. It’s been an unexpected winfall. When (or if) the American dollar recovers, the inflated profit margins will go down.
“Even if the Malibu is significantly better than the Camry and Accord (also set for a refresh), conquest sales will be like pulling teeth. The demand for an alternative simply doesn’t exist.”
I disagree with this statement. The demand for an American copy of a Japanese vanillamobile barely exists but I believe a true game changer, an American car that is affordable, reliable, fun, and stylish and American could do well. Of course the Malibu and Aura are not it and it is doubtful that such a vehicle could be sold for a profit anyway.
I guess we forgot about the GM employee pricing firesale last summer? Might that explain the year to year fall off and the fact tha GM has reducded its dependency of fleet sales? Of these money losing ventures, which ones do you want them to pick back up so you can compare the sales numbers next time?
Even if the rest of world continues to make enough cash to subsidize GMNA, we’re heading towards the point where GM’s Board of Bystanders must contemplate declaring GMNA bankrupt to save the corporate mothership.
How do you see this scenario playing out with the buying public, suppliers, and GM’s future ability to raise capital?
I’m certainly skeptical that Chapter 11 for GMNA would be like hitting the “reset” button. Would the company recover in time to bring onstream products that will resonate and stand out, or merely be step one in a long and arduous process to Chaper 7?
Can gmna go bankrupt with out including the whole operation?I think not.891m profit thats 3 quarters in a row!
Call me a glass half full guy.But I don’t see the B word in the NEAR future.GM is just too big and diversified.
As allways an interesting Death Watch keep up the good work and research RF
Interesting that the media hasn’t mentioned tha GM ousold Toyota for the quarter! big news when it was the other way around.
“I guess we forgot about the GM employee pricing firesale last summer?”
GM employee pricing for everyone was the Summer of 2005.
spj911: The fire sale for everyone was summer of 05 not last year.
I’ve never understood the “rabid” Rick appellation
if anything he appears comatose most of the time
I think the General could use some rabid leadership…..
You must give credit where credit is due RF, this time last year we announced loses of over 3.5 billion for the quarter, come on, a loss of 39 million for NA is nothing, depending on where you read (trying to find the link as we speak) but i thought we may have even broken even/made a slight profit in NA.
As for the auto markets in general this month, everyone was down on sales including Toyota. Maybe the US economy is slowing, and the problems with morgages etc is affecting everyone. As for your comment on the CTS only shifting 24k units, this is due to the impending arrival of the new model which is light years ahead of the current offering (another sign of progress in GM) wait for that to take off.
It’s amazing, I’ve been reading autoblog.com (Also, known as “Imports? What imports?”) and already they’re calling for a death to the deathwatch series. Sorry, but I think there’s still a lot of mileage left! Besides, if GM don’t continue their death spiral, Mr Farago won’t write these entertaining articles and I’ll have nothing to read !
But, for me, this is the best possible news at the worst possible time.
GM are currently talking turkey with UAW about concessions for their “flagging” company. Can you imagine how that conversation is going to go?
Gettlefinger: Right, Mr Wagoner, you want us to make concessions to GM because GM is losing market share in a contracting market and GM is haemorraging money, according to you?
Rabid Rick: Yes, that’s right! So, let’s say goodbye to healthcare liabilities!
Gettlefinger: But, you announced $891 million in profits for the last quarter?!
Rabid Rick: Erm……Have you seen the latest Chevy Aveo?
Gettlefinger: No, it’s made in South Korea….
I’m being glib, but the point is a valid one. How can GM’s management possibly ask for concessions from the UAW when they are crowing in the press about how “GM’s back for business”? This was probably a rare occasion where Rabid Rick was PRAYING for a loss making quarter!
In fact, this year, doesn’t look like being a good year for GM. UAW are holding fast and going nowhere, Delphi still can’t their act together and GM look like they are going to lose their last bastion of “World’s largest car maker” title to the Japanese warrior.
Now I can’t speak for other countries, but in Europe, yes, GM are selling more cars. But they mention less often is the huge discounts you can buy these cars at. I’ll give you an example:
You can buy a Vauxhall Astra (A.K.A Saturn Aura) 1.6i 16 valve 5 door automatic transmission, in the U.K, for £3,092 off the recommended retail price (R.R.P is £14,015). That’s a 22% discount! That’s 22% of Vauxhall’s bottom line gone! And don’t think the Astra is built in Eastern Europe. The Vauxhall Astra is built in the UK so labour rates aren’t cheap. So, one can only imagine that the discount is coming from GM’s profit margin.
That was just ONE example. Trust me, there are hundreds (no exaggaeration) of other deals like that over here. So, the next time, GM announce “record sales” in Europe, ask how much money they made and see if you can’t make their face drop!
On a side note, I read on the BBC website that the EU are looking into the possibility that the UK government gave Vauxhall £17 million illegally and Vauxhall may have to pay that back. The EU don’t like governments subsidsing companies. £17 million?! Think of how many discounts on cars they could have used that money for…….!
The dollar is indeed falling, but GM doesn’t actually export that many vehicles out of the US to make a difference. Most GM sales in Asia, Europe, and South America are locally-produced cars (or Korean cars).
At least GM has the Ren Center — certainly the finest, most lavish corp. headquarters I’ve ever seen, and I’ve seen a bunch. So they’ve built one thing that looks nice.
I’d like to point out, as #1 did, that the rapid decline of the US dollar against other major currencies in the last 3 months have have been what created this profit, which is measured in US dollars.
The last quarter was a statistical fluke. I wonder if GMNA can convince the UAW of that fact? Or will the UAW only see the “so called” profit GM made?
If CH 11 does come, can it be declared for GMNA only or does it have to be the whole corporation?
Mikey: One of the things I like about you is your eternal optimism! What happens to GM vis a vis bankruptcy will depend to a large degree on how these contract negotiations work out. The sad thing is that while GM’s latest products are very good and have great potential, a protracted strike will bring The General to it’s knees just when it might have bounced back. I would not want Rick or Ron’s jobs for all the tea in China!
As for your comment on the CTS only shifting 24k units, this is due to the impending arrival of the new model which is light years ahead of the current offering (another sign of progress in GM) wait for that to take off.
The CTS is still only a niche vehicle…..and then you still have to convince folks in that price bracket that the CTS is a better car than a BMW 3, Audi A4, Acura TL, Lexus, etc. Ain’t gonna happen.
Only 60k lame-duck Malibus sold (mostly fleet) while 180k lame-duck Accords were sold (mostly retail)? Rut ro.
It puts things in persepctive as to how bad things have gotten when there is celebration that losses have been “cut” (albeit for one quarter), it used to be people asked questions and got worried when PROFITS (remember those?) were not as high as they should be. Wait to the next two quarters, expect the flood gates of red ink to resume.
Sales figures for July were just announced and they continue to be very ugly, how long can GM and Ford etc keep peddling the “we are reducing our fleet sales” charade? A 19% GM drop in sales and 22% drop at Ford are staggering numbers, and the metals keeps piling up at dealer lots. Here on the left coast, GM and Ford dealer lots are overflowing with vehicles, with the ’08 models hitting soon.
cfisch:
Interesting that the media hasn’t mentioned tha GM ousold Toyota for the quarter! big news when it was the other way around.
It’s not news because for the year so far (1st 2 quarters) Toyota still has outsold GM. Facts are a wonderful thing.
RF, you’re right. GM’s China sales are slowing down. Since GM put most of their eggs in that basket, they will be in big trouble in things go sour there.
I said this as way back as last year: GM’s GMT-900 SUVs wouldn’t save the company or help it turn around. I was an outsider among the sea GM supporters who said the SUVs *would* save GM. Fact: the SUVs have done very little for GM. I then said GM’s new trucks would not save GM either. Again I was an outsider among a sea of GM supporters who said the opposite. Fact: for two months now, GM’s new trucks have seen big sales declines. And the Tundra somehow continues to increase in sales. The Tundra is set to outsell the GMC Sierra for the year.
If we continue to see such big drops in GM’s truck sales, GMNA’s profit accordingly will see a big drop, leading to a lousy Q3.
Also, some people (including the staff at TTAC) have said for months that the Tundra would pose a serious problem for Ford and GM, and that the Tundra’s arrival would signal an incentives war in the truck market. Fast forward to right now, and we have GM continually adding and increasing incentives in a desperate effort to stop the large sales decline of it’s trucks. Meanwhile, Toyota is holding the fort on it’s incentives and in a few months will likely start to ease off and decrease incentive offerings on the Tundra.
mikey: “Can gmna go bankrupt with out including the whole operation?”
That’s exactly what Delphi did. Overseas operations were not included in the chapter 11 filing. Yes, it can be done and has been done successfully many times before.
Interesting list of the top 20 selling vehicles in the US year to date:
http://www.reuters.com/article/marketsNews/idUKN0140862420070801?rpc=44
Katie
“You can buy a Vauxhall Astra (A.K.A Saturn Aura) 1.6i 16 valve 5 door automatic transmission, in the U.K, for £3,092 off the recommended retail price (R.R.P is £14,015).”
That’s $28K. We can buy the base Aura 4 door with automatic and V6 for $21K. (I don’t think we have the 5 door) And that is sticker price. Actual price would of course be less.
Why are cars so expensive in the UK? That’s almost Lexus territory.
NN: The dollar is indeed falling, but GM doesn’t actually export that many vehicles out of the US to make a difference Maybe they should. Maybe, if the dollar stays weak, they will!
Kevin: At least GM has the Ren Center — certainly the finest, most lavish corp. headquarters I’ve ever seen, and I’ve seen a bunch. So they’ve built one thing that looks nice.
The RenCen was built by Ford. GM bought it for a song (‘course they should have bought the parking garages as well…) Poured a bunch of $$ to renovate it (and make it an asset to downtown Detroit, rather than a liability). But way less than what it would have taken to build it from scratch. Overall, a good real estate deal.
Johnson: Folks say “GMT900s have to save the company” or “new Malibu has to save the company” or “getting that transformational labor deal” has to save the company. The fact is that none of those themselves will save squat, but together it smacks of that strategy that few here believe exist. Profit margins on the 900’s is going down but…it’s still a profit margin! And, the combination of a hot market for cars and easing back on fleet sales (and focusing away from daily rental) is starting to crank some margin into the car side that didn’t previously exist. It will take the armchair analysts a bit of time to figure that one out, but it’s a fact. Now, work on the labor deal, get next generation Epsilon right, keep growing outside of NA, get the plug in hybrid right… sounds like a strategy to me. IMO, the big piece missing is dealer consolidation, don’t see how that happens without some “disruptive event”. Doesn’t mean the strategy will work, RF points out the financial tightrope walk that’s going on, and the clock is ticking. But contrary to the general opinion here, there is good hard thinking going on at the tubes.
Katie: Aura maps into Vectra, not Astra. Compare your Astra pricing to Chevy Cobalt, that’s the correct comparison.
The demand for an Camcord alternative doesn’t exist.
And that sums up Detroit’s problem with their new and improved product.
Captain Tungsten describes a plausible scenario that may well be GM’s plan. That is, struggle along, doing what’s most feasible, until the situation evolves to a more favorable environment. But he says “the big piece missing is dealer consolidation.” I think maybe the missing piece is one that GM can’t afford to publicly reveal. Namely, passively wait it out while dealerships wither and die in a sort of corporate Darwinism until the numbers get down to the fittest. The survivors would thereby constitute the retail outlets appropriate to GM’s market share. And there’d be no way for state agencies or bankrupt dealers to sue GM – hey, it kept providing product and did all it could to boost sales!
sorry, so I guess it was only ME that did the forgetting….
Reading some of the responses clues me into why Wagoner plays the games with the numbers that he does. Apparently, some people actually believe them.
GM is in deep something or another, and in my mind, the analysis is pretty simple.
-Inventories are high. That indicates that GM does not know how to manage its production effectively, and builds stuff that can’t be sold quickly. That’s bad.
-Incentives are high. This indicates that the public won’t pay as much for a GM product as it would for a comparable Honda or Toyota. GM is now the K-Mart of the auto business. That’s bad.
-The main passenger car segments in the US – compacts and intermediates – are dominated by others. Chances at this moment of supplanting the winners (Civic and Corolla, Accord and Camry) are about nil. That’s bad.
-GM’s primary segments — pickups and SUV’s — are dwindling. The good: People like the Silverado. The bad: It’s in a double vise, squeezed on one side by a shrinking market and on the other by the transplants ready to force the pressure with incentives of their own. There’s a glimmer of hope, but on the whole, that’s bad.
Overall, this is not so good. Sure, fleet sales in total numbers are being reduced, which is good, but they are not being replaced by retail sales, because the product isn’t up to the job, so the end result is to make a bad situation slightly less bad than it was before. I’d put down the pompoms, and start preparing for the eulogy.
Does anyone know how many plants have been closed since the GM Death Watch series first began? I’m just curious.
And wasn’t the total number of GM plants which were slated for closure 10? Or was it 12?
I’m just curious. With fewer GM cars and trucks being sold, and with a greatly reduced amount of blight (GM plants) dotting the landscape, all in all, I think this is shaping up to be fairly good showdown.
Happy Dayz are here Again!!
“The demand for an Camcord alternative doesn’t exist.”
There are people who want an alternative, but they are already being well served by Nissan, Hyundai, VW Passat and the Ford Fusion triplets.
“Interesting list of the top 20 selling vehicles in the US year to date:
http://www.reuters.com/article/marketsNews/idUKN0140862420070801?rpc=44 ”
I find it amazing that the Ford Focus, yet another decent auto that Ford has let rot on the vine, is still selling in respectable numbers. Also, where are all those Ford Econoline vans going? That seems like a absurd amount to be selling.
Some observations:
1. The old corolla is still selling incredibly well!
2. If you take away fleet sales, the Chevy Impala would not make the top 20.
3. The Tundra is catching the Sierra.
4. The new CR-V is selling really well.
5. GM is doomed. How will they pay finance charges on their laughable debt-load..HeHe.
6. Ford is more Doomedered. See #5.
Captain Tungsten, you actually missed the point of my post. I just said “Saturn Aura” to give you americans an idea of what the car I was talking about was. The real point was the fact you can buy a Vauxhall Astra for 22% of the sticker price. That’s 22% of GM’s bottom line, gone! Yet, they are announcing record sales in Europe. What they mention less often is the discounts they give.
Dynamic88, a base model of the Lexus IS range is about £25000 (about $50000). The problem is a strong pound. So for us, it’s a reasonable price, because we earn that kind of money, but to foreign companies it means record profits! So it kind of works, in a bizarre way!
‘False dawn’, I agree with.
I see a lot of problems in GM’s Q2 and july sales report:
1. They only achieve ‘break even’ in the US with rapidly falling market share. To maintain market share they will need to discount, which they can’t afford.
2. Factory utilization is declining again and falling towards the 90% level. Is the next restructuring already necessary?
3. Investment in factories is at a very low level; this by itself guarantees declining market share.
4. Market share in China is declining. Maybe because Toyota is now in full swing there?
5. The new SUVs and pickup trucks have barely increased sales despite the redesign.
6. Most GM models have incredibly low sales numbers: Saturn Aura, Car of the Year, only 6K units/month; Chevy Equinox cross-over SUV only 7k units/month; Chevy Colorado small pickup only 6K units/month. Very low! The new Toyota Camry has first year quality problems, but still keeps selling at 40K units/month.
7. What is the largest brand in the US, Chevrolet or Ford? Neither, it’s now Toyota.
(Toyota 197K, Chevrolet 183K, Ford 160K in July)
I know a high-level engineer who was involved in the development of the next gen CTS. He was thrilled at the amount of top notch people that GM put into it’s development. He was also dismayed at how the people were stolen from other GM teams and left many of them barely functioning.
People matter. More specifically, the quality of people that make up an organization matter. Even if you have a mediocre system/organization/processes, passionate, motivated, and skilled people will find a way to make things work.
Any thought of a GM turnaround needs to start with cleaning house, top to bottom. This is more important, IMHO, than the next killer product, lean production, reducing fleet sales, etc.
Dynamic88wrote: “Why are cars so expensive in the UK?”
Taxation.
When I lived in the UK, they taxed everything in the supply pipeline at 17.5% VAT. So, when the coal came out of the ground and was sold to the smelting company, 17.5% VAT was added. When the iron ore was shipped, 17.5% VAT was added. When the oil was moved and converted into plastics for the interior, 17.5% VAT was added at every step.
When you purchased your overpriced car, you paid 10% car tax and 17.5% VAT on both the price of the car AND on top of the car tax. Yes, a tax of 17.5% on the 10% car tax.
Likewise, every autumn, the Chancellor of the Exchequer would raise petrol 5p to 10p a gallon, cigarettes would go up and alcohol would go up. I laughingly said that I only had one “vice” and that was driving – the other two “sin taxes” I didn’t have to pay.
“Petrol” is approximately 300% the cost of US gasoline in the UK.
Also, Britain being an island, the car manufacturers have (since I’ve been alive and probably way before) kept prices higher than nearly identical cars in Holland or Belgium – just because of the hassle of going to Europe and buying right hand drive cars.
The European community started to demand more parity in pricing, but it never really did more than reduce prices by about 10-20% in the UK. The UK is still higher than many Euro markets as far as car prices go, for the general public, even before taxes are added.
I lived in the UK from 1976-1978, and then again from 1986-1993, just so you know.
So before you believe that “free health care” is “free” at our next election, go back to the top of this post and re-read what I just wrote about taxation.
When I lived in the UK last time, I was looking at a new Ford Escort estate (station wagon), and realized that the price to me in the UK was virtually the same as a price for a new Buick Roadmaster in the US (before US discounts). At that time, you didn’t get much in the way of discounts in the UK. I ended up buying a new 1987 Lada for the equivalent of $5000 (1/2 the price of the Ford at the time) because I wanted my children to be able to actually eat.
Glenn 126: Your explanation of VAT is a bit flawed. It is not cumulative as your posting suggests.
VAT (Value-Added Tax = 17.5%) is only paid by the end consumer. It’s a consumption tax. It’s paid and received at every step in the chain, but everyone except the end user offsets their out-going and in-coming VAT and pays/claims the balance back. Which is why business expenses and material costs are typically quoted without VAT.
Simple example:
I buy widget from the importer for £1 (so I pay him £1 + VAT = 1.175).
I sell the widget to a retailer for £2 (so he pays me $2 + VAT = £2.35).
Retailer sells to end consumer for £4 (and so charges £4 + VAT = £4.70).
Now everyone in the chain pays their net VAT (VAT in less VAT out) to the revenue:
Importer pays: 0.175 – 0.00 = 0.175
Me pays: 0.35 – 0.175 = 0.175
Retailer pays 0.70 – 0.35 = 0.35
Total VAT paid = £0.70, which all comes from the end consumer. If a company buys more than it sells, then it will claim the negative VAT back for that month.
VAT creates work at every step in the chain as every business must account for it. How is it different from sales tax? Not sure.
New Zealand and Australia have something similar called GST (Goods and Services Tax).
Sorry for the off-topic posting. It took me a while to understand this so I thought I would share the joy.
I still remember the NZ election ad from when I was a kid. An octopus-like vacuum machine was sucking money out of peoples’ pockets as they walked down the street. Not sure if this was for or against GST! The introduction of GST was accompanied by a reduction in income tax.
cheers
Malcolm
When I lived in the UK, they taxed everything in the supply pipeline at 17.5% VAT. So, when the coal came out of the ground and was sold to the smelting company, 17.5% VAT was added. When the iron ore was shipped, 17.5% VAT was added. When the oil was moved and converted into plastics for the interior, 17.5% VAT was added at every step.
This is mostly true, but partially inaccurate. The inaccurate aspect is that it is ultimately only the end user who pays the VAT. Those in the middle of the supply chain will pay it initially, but have it refunded later after the product is resold.
But otherwise, this explains a lot of the price difference. Car prices in Europe are quoted with the VAT in the MSRP, unlike the US where sales taxes are not included in the equivalent. The VAT in the UK is 17.5%, which adds quite a bit to the cost.
Solution is simple but clearly not easy: Build cars people want and make sure they’re put together well. The formula isn’t calculus, but the implementation sure seems to be for Detroitebus. I guess when you’ve got MBA’s and CPA’s running the company, sooner or later you’re going to be SOL and DOA.
“”hawver:
August 2nd, 2007 at 12:42 am
I find it amazing that the Ford Focus, yet another decent auto that Ford has let rot on the vine, is still selling in respectable numbers.”
I agree. I think the Ford Focus – even the older generation about to be replaced – is an excellent option to anyone considering one of the newer B-segment cars Like the Honda Fit, Toyota Yaris and Nissan Versa. With even a few options, those cars creep up very close to the 15K level. For that kind of money, you can buy a very nice Focus hatch or four door.
“CeeDragon:
August 2nd, 2007 at 8:18 am
People matter. More specifically, the quality of people that make up an organization matter. Even if you have a mediocre system/organization/processes, passionate, motivated, and skilled people will find a way to make things work.
Any thought of a GM turnaround needs to start with cleaning house, top to bottom. This is more important, IMHO, than the next killer product, lean production, reducing fleet sales, etc.”
And the ratio of white-collar managers to engineers tossed out in that house cleaning should be 10-1 – no, make that 100-1.
Thanks for the clarification of the VAT system in the UK, Malcolm.
The point is still that cars are (roughly) still twice as costly in the UK compared to the US, due to “market forces” (i.e. the companies can get away with charging more, so they do) and the tax on a tax (10% car tax AND the price of the car at MSRP being dinged for 17.5% VAT even if you get that discount).
I just bought a Michigan made “tent caravan” (that’d be the nearest way to describe it in UK/Aus/NZ terms) and the MSRP was $7000 or so, and I paid $5300 – I was taxed 6% Michigan sales tax on the $5300, not the $7000 MSRP.
By the way, watch out for politician’s “promises” because here in Michigan we were snookered into voting for a state sales tax increase from 4% to 6% – the politicos dangled a reduced property tax in front of our noses – the property taxes went down for about 2 years and then went right back up again.
So now we pay 6% sales tax AND high property taxes, and the roads are STILL among the worst in the United States. “Welcome to Michigan” (where you get a free suspension and shock absorber test every mile you drive).
On the plant floor GM leaves no stone unturned.If they got ten jobs/heads they slash 4 and maybe add 1 back later.
Every job is broken down and time studied to death.They don’t care if its skilled trade or lift truck driver,dock tech,foremen or assembler its all the same dump as many as you can, then dump some more.
When it comes to middle and upper management,its a complete 180 degree turn.The more positions, the better if we havn’t got enough ,create some more.
A middle or upper manager also needs a group of flunkys to run around behind him and pick up his whatever.
The higher up you are the more flunkys you get, sort of like a generals stars.Other flunkys duties [we on the floor use a differerent term] usually include telling your boss daily how wonderfull and brilliant he/she is.
Now you might think,this is just a bitter blue collar guy making this shit up.I’ll betcha the insiders, engineers/design people,and other folks that have actually set foot inside of a big 2.?plant knows just how accurate I am.
The Ford Econoline is still for sale and in the top 20?
I expected to be surprised by something in the Reuters story, but wow! Are any of those being used as passenger trucks, or all for the trades?
I “strongly suspect” that the Ford Econoline is mostly being used for the trades. I see them all the time. Also, as the basis of smaller motor home RV’s, and the occasional person still stuck in the 1970’s who demand a conversion van.
GM’s “equivalent” vans are not brilliant at heavy work or RV conversion because they are not on a full frame. The Ford is. The Dodge “competitor” is discontinued, supposedly replaced by Daimler-Benz’s Sprinter, assembled in the states in a tiny plant more worthy of assembling vehicles in some 3rd world country (in other words, the kits come from Europe, for mere assembly here).
There are a lot of real work trucks out there, it’s just that the market is very distorted by the fact that so many people think it’s the thing to do, to drive stinking’ huge pickups back & forth to work – solo. Slowly, this situation is changing.
Look at today’s news about how over 51% of the US new vehicle market last month went to “other than the big 2.8” for the first time ever.
The bell tolls, GM, Ford and Chrysler; the bell tolls for thee.
SteveBiro: I think the Focus would probably be a decent car to have, one of the problems is the resale on it will be considerably less than the Honda, Toyota similar sized car.
Mikey: Sounds like there is so much animosity between the “floor” and management, it is on the verge of fistfights. How can any company exercise a huge turnaround when there is so much hatred amoung the employees toward each other all the time?
Steve Biro: I think a lot of the Econoline vans are used here in California to transport the bazillions of criminals we have to and from jail/prison.
I think Glenn pretty much nailed it on why the Econoline is in the top 20 — the competition is either gone or inadequate. It’s sort of like the large pickup scene before the Ram got its “big rig” looks in ‘94; there were only 2 real choices — Chevy or Ford.
Carrying criminals — LOL and probably true! In my neck of the woods, these vans are commonly seen with DHL logos on them.
My perspective is that the job is half done.
Wagoner has taken $9Billion out of GM’s costs in North America, which is no small feat. Is it enough? Well, enough to get GM NA to breakeven.
But he will need to go further to establish sustainable margin the way that Toyota, BMW and Porsche have. And that hinges on a more cost efficient labor contract,continuing to consolidate platforms globally and reduce redundant models.
You can criticize Wagoner (and Mulalley) for being too slow in their turnarounds, but compared to 3 decades of predecessors, they are doing impressive work.
Yes, I know, the 5 foot tall man is a giant amongst dwarves.
Just some comments…
But lessening losses is not the same as making money, especially when you need money.
Well, if a loss is point A and a profit is point C, they have to move through point B, break even (if you’re not following) to get to point C. CEO and CFO have both stated much work is still required. I don’t see a profit in GMNA for 2 or 3 quarters but hopefully they can hold ground.
Another important fact is that while GM overall sales were down 18.5% in July, their retail sales were up 14.5%. There’s a small silver lining.
He can slice more capacity from the system, continuing GM’s death spiral.
I wouldn’t be surprised if one of the (many) Truck plants gets shut down. Regrettable for the people that work there but necessary to get in line with demand. But of course, that will come with a “restructuring charge.”
Which leaves the hopes of a company resting squarely on the shoulders of the new Chevrolet Malibu.
Not one product could sustain the global giant that is GM and I don’t think anyone inside GM believes that either. There may have been some hopes the trucks would do that but that dream has faded. The need well design, styled and high quality vehicles in each segment. GM is there for many segments and I expect they will be there in the remaining segments with any new launches. They have made huge strides but it may be too late.
GMNA’s recovery remains mission critical.
That’s clear as day. With the tumultuous results in some of the other regions in the last few years GM brass would know well that GMNA needs to stand on it’s own.
GM Brazil has hit a production capacity wall.
It’s not horrible to be running one of their operations at maximum capacity. With the history of the Brazilian auto market they may want to take things in stride.
…GM’s Board of Bystanders must contemplate declaring GMNA bankrupt to save the corporate mothership.
How about providing a more indepth analysis of that thought. I’m no bankruptcy expert myself but would think that it would be difficult to declare bankruptcy with $27b in liquidity.
I’m no bankruptcy expert myself but would think that it would be difficult to declare bankruptcy with $27b in liquidity.
As of GM’s last 10-Q (quarterly financial), GM had about $30 billion in cash and accounts receivables (money due in the short term.) Sounds good.
Then again, GM also had $80 billion in current liabilities (payable within one year) and another $33 billion in long-term debt. Things are starting not to sound so good.
Wagoner is clearly trying to avoid BK — he’s liquidating everything he can get his hands on in order to put money in the bank. But he had better hurry things up, because he’s quickly running out of the cash that he’d need to keep things afloat going forward. As there’s virtually nothing left for him to sell, I’m curious to see what sort of rodent he plans on pulling out of the hat.
Pch101:
Not exactly. GM actually had positive cash flow in Q2. A billion dollars positive.
At its most basic level, a business that has more cash coming in than going out is doing OK.
At its most basic level, a business that has more cash coming in than going out is doing OK.
Above, the poster Event Horizon looked at the cash account and presumed that BK would not be possible because of that.
As of the date of the last quarterly statement (March 31), GM had $21 billion in the bank and $30 billion in accounts payable. In other words, the company did not even have enough cash in the bank to pay every vendor who needed to be paid within the next year.
Combine this with the other stuff, and it makes GM a good BK candidate right now. GM’s last quarterly earnings before taxes and interest ($604 million) were not sufficient to pay its quarterly interest expense ($799 million.) In the meantime, retail market share is declining, which leaves fewer sources of revenue for the future, and competitor’s products resonate with the buying public, which means GM will need to spend more cash to bring in buyers, so the future promises more incentives, more financing giveaways and ever eroding margins. What’s not to dislike?
So, no, I wouldn’t be so sanguine about GM’s prospects.
As PCH 101 correctly states, GM owes more in short term liabilities than they have in cash available, then when one factors in their long term liability it is very, very bad. While they continue to shrink in size as a company, their legacy costs are not going down.
Meanwhile Toyota just announced another hugely profitable quarter.
PCH101 wrote GM’s last quarterly earnings before taxes and interest ($604 million) were not sufficient to pay its quarterly interest expense ($799 million.)
I don’t understand. Interest expense should have been shown and deducted from revenue because it is a cost of doing business. How can they show this profit if the interest is higher?
I don’t understand. Interest expense should have been shown and deducted from revenue because it is a cost of doing business. How can they show this profit if the interest is higher?
No, this is typical. A typical measure of performance is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization.) Revenues, minus operating expenses, equals operating income or EBITDA. From there, you start deducting the interest, taxes and depreciation to arrive at net income.
The idea here is to segregate the costs of borrowing from the costs of running the operations (parts, labor, rent, etc.). It’s a standard accounting practice, nothing more than that.
Just so long as you understand it and put it into context with all of the other figures, it’s fine to use these figures. The mistakes arise when people focus on one single figure, such as how much cash is in the bank, and ignore the big picture. To really understand what is going on, you need to look at all of the financial statements (balance sheet, income statement and statement of cash flows), and to look at all of the data, not just select portions of it.
Hi, GM. I am unbelievably rich. But you don`t know me personally. Let`s make a deal. You base your nex gen Malibu on a completely new Gm inhouse- build rwd platform( no aussie Joe made mascara job on opels), And I buy 800 000 of your vehicles. Deal?
So basically GM did not show a real profit but actually a loss, when considering interest on their debt. Somehow that did not get pointed out in the press release. Doesn’t the financial press have smarts enough to mention these points.
Thanks for your help with this PCH.
So basically GM did not show a real profit but actually a loss
No, to clarify, it did show a quarterly profit. What put it over the edge was “non-operating income” and interest income (presumably from GMAC) that offset the interest expense (which is presumably mostly from GMNA.)
The point being made earlier was to show that BK is possible, despite cash in the bank, because of the level of debt relative to assets. In fact, you would **need** to have income to file Chapter 11 (reorganization) because having income is a necessary part of a reorganization plan. If a business files BK and has no prospects for getting out of it by earning its way out, then Chapter 7 (liquidation — sell off everything, that’s all she wrote) becomes inevitable.
My general thought is that it would be better to willingly file 11 now than it would be to have no choice but to file 7 later. My concern is that the quarterly profits are temporary and transitory, and not indicative of future operations.
Let’s also remember that the quarterly figures are unaudited. The annual statement for 2007 which we will see in about May 2008 may prove to be substantially different. Making too many judgments based solely upon one quarterly statement leads to some possibility for reaching conclusions that are well off base.
No automaker can file Chapter 11 and expect to survive. Filing Chapter 11 bankruptcy in itself will cause sales to drop an additional 20-50% instantly-people will be worried if the automaker will be around for the lifetime of the warranty, and worry about whether or not they can even get parts after the warranty ends. It’s not a serious option. It’s struggle on and burn the furniture to heat the house, or Chapter 7. There’s no in-between with a Chapter 11 filing.
As of the date of the last quarterly statement (March 31), GM had $21 billion in the bank and $30 billion in accounts payable. In other words, the company did not even have enough cash in the bank to pay every vendor who needed to be paid within the next year.
Maybe I’m missing something but I don’t think you’re right in this assessment. Take a look at Exxon Mobil’s quarterly releases and see their position. From their Q1 of this year thay had $30.0b in cash and $50.6b in short term liabilities. If you look at other healthy compaines you will see the same pattern. Obviously GM’s long term liabilites are the albatross but I don’t see the bankruptcy connection to the short term liabilites.
But Delphi filed for chapter 11 and is working out of it. The International divisions were not included in the filing. Why can’t GMNA just do this. They will still be around in the rest of the world and will be able to stay in business and probably prosper. The chapter 11 will allow them to be reorganized and return as a domestic player.
I encourage those of you who are so certain of GM’s demise to short the stock. You deserve to profit from your insight.
Maybe I’m missing something
Yes, you are. Exxon had EBITDA for 2006 of about $79 billion. Annualize GM’s quarterly earnings (a generous move, as no one expects next quarter to resemble this one), and GM has annual EBITDA of just over $2 billion. The gap between cash and A/P is four years’ worth of GM’ EBITDA when projected on an optimistic basis.
Obviously GM’s long term liabilites are the albatross but I don’t see the bankruptcy connection to the short term liabilites.
It’s pretty simple — you need to pay the short-term liabilities in the short term. You can recycle long-term debt for a quite awhile and stall for time. Short-term debt obviously comes due sooner, and failing to pay it probably comes at the expense of other things, such as being cut off by vendors who you need to keep staying in business.
The simple analogy is to consider this — it’s worse to be stuck with a huge debt that is due next week than it is to owe the same amount twenty years from now.
The “current ratio” (current assets/ current liabilities) and “quick ratio” (current assets – inventory/ current liabilities) are two standard measures of liquidity. Any organization with a current ratio of less than 1.0 (in other words, with current liabilities that exceed current assets) may have a liquidity problem and had better have earnings to offset this lack of assets.
As of the first quarter, GM’s current ratio is about 0.93, and I’m willing to bet that the inventories that comprise about 1/4 of its current assets are overvalued. (Those cars and trucks will end up at lower net values once they’ve been dumped into the market with incentives and cut-rate financing.)
The International divisions were not included in the filing. Why can’t GMNA just do this.
Because Rick Wagoner et. al. would get much deserved pink slips. Of all the proposed job cuts, this is one that Rick does not care to make.
I encourage those of you who are so certain of GM’s demise to short the stock
Unfortunately, unlike the stock buyer who goes long, the short seller has to pay dividends to the stock holders, plus meet margin calls for temporary run ups in the price. If it was possible to simply buy the stock and wait out the temporary price gains before the next decline, then shorting would be great. Otherwise, you need to have enough cash in the interim to ride it out, and that could be tough for a lot of otherwise savvy investors.
If you want to predict GM’s prospects, it’s fairly simple: Look at the 70+ cars in the GMNA lineup, and figure out how many of them generate a decent profit and can be sold with a minimum of incentives. Go further, and then examine how many segments in which GM competes with a product that helps to lead that segment. That ratio of winning products to losing products is very low, and a good indicator of what the future will bring. If you’ve got nothing decent to sell, it’s going to be tough to make consistent profits going forward.
I have to admit it’s getting better
It’s getting better all the time
Better, better, better
It’s getting better all the time
Better, better, better
http://images.google.com/imgres?imgurl=http://delivery.viewimages.com/xv/73963365.jpg%3Fv%3D1%26c%3DViewImages%26k%3D2%26d%3D17A4AD9FDB9CF1932BBB80AB57C9760238BAADA593B1271B8D27467263035E98&imgrefurl=http://www.viewimages.com/Search.aspx%3Fmid%3D73963365%26epmid%3D1%26partner%3DGoogle&h=297&w=198&sz=57&hl=en&start=1&um=1&tbnid=uo-Vhldus2HKFM:&tbnh=135&tbnw=90&prev=/images%3Fq%3Dclosed%2Bgm%2Bplant%26svnum%3D10%26um%3D1%26hl%3Den%26sa%3DG