By their own admission, General Motors' North American operations are currently doing business with negative working capital (NWC). At About.com, an unnamed investment adviser has some advice on that subject. "Negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivable. In any other situation, it is a sign a company may be facing bankruptcy or serious financial trouble." Any guess which one of those descriptions applies to GM?
GM has been staving-off the whole "NWC leads to bankruptcy" paradigm by hocking the family jewels. The $5.4b recently added to GM's accounts by the sale of their highly profitable Allison Transmissions unit is only GM's last (and I do mean last) significant sell-off. In the preceding two years [alone], GM CEO Rick Wagoner jettisoned some $21.4b worth of corporate assets. During those same two years, the company signing his paycheck lost $12.4b.
While the charges for losses in these years were mostly non-cash items (worker buyouts, plant closings, etc.), the piper must be paid. The charges will eventually morph into cash demands. Without positive earnings (i.e. profitable vehicles), the situation is destined to deteriorate.
Selling assets to cover the shortfall wasn't an inherently bad idea– if GM had used the proceeds to reinvigorate their brands and products. No such luck. GM was forced to use the money to pay for the aforementioned worker buyouts, plant closures and other downsizing costs. The automaker did so in the hopes that production would eventually equal demand, while cost reductions would lead to more profitable products.
As the last two month's of lowered sales and diminished market share have shown, as GM's accounts reveal, that strategy is dead in the water.
In terms of the downturn's effects on GM's life-sustaining margins, much has been made of GM's increased incentives. Fair enough; every discount dollar bestowed upon GM's customers is one dollar less profit. But it should also be noted that the company's been heavily discounting its products beneath the media radar for quite some time.
According to GMAC's recent 10K filing, at least 90 percent of the lender's 2006 GM vehicle financing involved rate buy-downs and lease subventions. That's up some 22 percent since 2005. Figure the same amount for '07, estimate the cash value at around $2k per vehicle, consider the fact that 48 percent of ALL GM's U.S. retail sales are financed by GMAC, and you can see that the automaker has been burning big bucks to maintain market share.
Scanning the large number of pickup truck and SUV sales involved, it's impossible not feel a frisson of fear. Pickups (many sold to construction companies and contractors) and large SUVs (sold to God-knows-whom) still generate the lion's share of General Motors' operating capital. The current sub-prime meltdown is hurting housing starts and refurbs AND causing a general economic slowdown. GM's cash cow is being slaughtered.
No wonder CFO Fritz Henderson declared that The General will defend its pickup truck market share "at all costs." Which is exactly the kind of statement you don't want to hear from a company with NWC.
There's another, hidden danger. The NWC situation has reached the stage where GM increasingly depends on suppliers' payment terms to keep the wheels turning. Should GM's suppliers decide not to extend the corporate mothership credit, the gig is up. GM would be forced to file. But even with their suppliers' support, GM is now sailing into hurricane force headwinds.
The way out of this mess hasn't changed since Rick Wagoner first outlined his turnaround strategy and began jettisoning assets to pay for it: trim production until it matches demand. Only GM can no longer afford large production cuts. Lost in NWC world, they need all the capital (i.e. money) they can get. If GM stops making so many vehicles, the gap between income and outgo earthquakes open and they'll fall into Chapter 11.
To eliminate the NWC crisis, GM needs significant earnings from profitable vehicles and/or massive new borrowings. But the recent withdrawal of the Allison junk bond sale and Cerberus' escalated borrowing costs betray the new reality: the price of money has skyrocketed. So GM must sink or swim on the back of their products.
Clearly, the company's paddling like crazy. Truth is, Toyota could drown GM in debt simply by lowering their prices. GM couldn't afford to follow suit. At the same time, they couldn't afford NOT to follow suit.
Mind you, that's Toyota's nightmare scenario. Toyota's American profits depend on GM and Ford remaining high cost producers, setting a floor for U.S. market pricing. If GM files Chapter 11, eviscerates its bloated dealer network, consolidates its brands, builds some shit hot products and undercuts Toyota's prices, ToMoCo would have a real fight on its hands.
Sounds like a plan to me.
Nothing GM makes appeals to me. Simple as that. They are not my first or even fourth choice for a car company. 8 brands and none of them are on the short list. No amount of accounting tricks are going to change that. I took a chance on a Saturn in 1991. I was content with the car and found it a good value at the time. To quote Borat about GM today:”Not so much”.
What exactly happens to a company like GM when they declare bankruptcy? Do they disappear?.. get their debts erased and a slap on the hand?..
It is in no ones best interest (this side of the ocean) for GM to go under. Putting that many well paid people out of work can not be good for our economy. Yet, it seems like they have wanted to fail over the past decade or so. They have a few promising new vehicles (new truck/suv, corvette, Impala, Acadia, possibly the new Malibu), but their track record for inspiring vehicles abysmal.
Maybe they will rise from the ashes with fewer bean counter and more engineers at the helm.
Couldn’t they sell Opel? Does GM have any real substantial assets left or are they at the point where they have to start selling off limbs?
I know Opel essentially does all the design, but GM looks like a parent company that isn’t above selling off their children for food.
I’m just praying I can get rid of my Caddy before the axe falls or I may be stuck with it forever.
RyanK02: "What exactly happens to a company like GM when they declare bankruptcy? Do they disappear?" I'll be writing about that issue in the next GMDW. Redbarchetta: As far as I know, GM's medium duty truck division is the only asset remaining that can be sold, and it won't fetch anywhere near the same money as Allison.
They are going to do what Delphi did, file chapter 11 for the US operations only. Overseas markets will be left untouched. It’s working for Delphi.
There are those who think that Delphi is the test case for this type of “reorganization effort.” They’ll still have money coming in from overseas, that they will not have to declare in their chapter 11 efforts, which will put them in a position to stay afloat until they come out the other end in a couple or three years.
So, essentially, they get a 7 year ‘time-out’ in the States, then make their come back once they are a little more cash-laden?
Bankruptcy is not an option, IMHO. If GM goes bankrupt (but remains in business, that is, Chapter 11 instead of Chapter 7), many people who otherwise would purchase GM vehicles would stop doing so, because they would be afraid of thier warranties going away and/or the lack of future availability of spare parts. That is, the act of filing Chapter 11 would cause sales to drop to the point that filing Chapter 7 would be inevitable. Now, there are many advantages (renegotiating contracts of all sorts) to a bankruptcy filing, but the psychological aspects of a bankruptcy filing in terms of a drop in sales probably outweighs them.
Robert Farago Is it possible to sell off the auto companies they own such as Opel and Deawoo and Saab I guess? Are they too tied to the parent company to make it impossible? Are they worth nothing, well I know Saab is?
many people who otherwise would purchase GM vehicles would stop doing so, because they would be afraid of thier warranties going away and/or the lack of future availability of spare parts.
This offers a good business opportunity:
1) Some insurance company could get involved in underwriting the warranties. You buy a car from GM with no warranty and you buy one from another company. Or the dealer could offer some type of warranty when you buy the car. There are a number of options that could work.
2) Spare parts all come from the suppliers anyway. They could sell them direct to market. With the number of GM cars out there, there will always be a extra parts around.
GM should have filed 11 a long time ago. (Well, OK, maybe 12-24 months ago.) They could have limited it to the US operations, and used it to avoid paying creditors, stiff the union and the retirees, shut down a dead badge or two, reduce the size of the product line and pare down the dealer network.
Wagoner clearly didn’t want to do this, but what he has done is to liquidate everything of value, which will make GM’s odds of survival much lower. You need revenues to fund a turnaround, and that will become difficult if the US vehicles are being given away while the profitable divisions such as Alison are gone.
Stupid, stupid, stupid. GM needs a crisis management team, but all it has are bureaucrats who won’t admit that GM is in a very different position than it was during its heyday. The company needs to make some very hard choices and do some very nasty stuff, but it just doesn’t have the will or the skill to do it. I fear that they will go the way of the US steel industry, shrinking into a tiny version of what it once was.
To me all signs are pointing to a whole new way of thinking. Now, I don’t mean that as an empty management slogan (i.e “Bold Moves”) I really do mean a complete reform of thinking and management.
Firstly, lean manufacturing. Really, the benefits areally outweigh the cons. Reduced inventory, more efficient production, less man hours spent on building a car, no need for a warehouse to store supplies (a REAL cost killer, trust me, I know!) and more free capital to spend on, say, management/worker buyouts?
Secondly, a complete rehaul on what GM owns stakes in and ask the question “Is it worth our money?” if not, withdraw.
Thirdly, axe brands. Yes, I know it’s something we’ve all said for a long time, but it needs to happen. Not necessarliy for GM’s image, but to get more money in. They don’t need SAAB (well, not after they killed it!), I’m sure they could find a buyer in China or India for it?
Fourthly, a cull of management. Now since management aren’t unionised, this should be a doddle to do. Management is costly and, if bad at their jobs, can cause a lot of damage to your company. We’re all aware that GM needs to streamline their bureaucracy to get cars more quickly approved, why not take some management with it?
Mr Farago is right (as always!), GM CANNOT carry like this. At some point the haemorraging has to stop, be it voluntary or involuntary. This is very much like the Cold War only this time Toyota are the Americans and GM are the Soviet Union. The united states, basically, spent loads of money on weapons which the Soviet Union felt compelled to do (much like the “space race”), the only problem is The United states could afford it, unlike our Soviet friends. As time went on, the Soviets became bankrupt because they felt compelled to keep up with the United States. Now compare this analogy, to Toyota and GM. GM have stated “We will defend the pickup truck market to death”, this presumably means more cash on hoods and I’m sure Toyota will put up a good fight. Problem is, Toyota can beat Rabid Rick, Maximum Bob and “On the Fritz” Henderson to death with their wads of cash, whereas, GM are selling Granny’s silver tea service to keep the heating on. Who do you think will win this race?
I personally, believe that if GM’s gameplan is to file chapter 11 so they can cull the UAW and their dealers, then, they are playing a dangerous game. Who’s going to want to buy a car from people who don’t look like they’re going to be around much longer? Also, how will they win public confidence?
“GM cars. Try us, we’ve changed……honestly!”
RedBarchetta,
I would be EXTREMELY surprised if GM sell Opel. Not only are Opel a key brand for the rest of the world, they also give Saturn their big hit, the Aura (a car which they make a huge loss on!). To put it another way, I would be extremely surprised if Ford sold their stake in Mazda considering how key they are to Ford engineering department.
And before anyone suggests it, don’t expect Vauxhall it be culled either. When I was younger, they tried to introduce the “Opel” brand to the Uk while phasing out “Vauxhall”. It flopped. Opel withdrew and the UK kept “Vauxhall”. If they tried that now, they would lose half of the UK market and would take years to build back up. Time which they can ill afford. Also, killing Vauxhall and introducing “Opel” would solve nothing other that a streamline of brands. The staff would have to stay the same as Vauxhall cars are the same as Opel.
Now getting rid of SAAB, that makes sense…..
Nothing GM makes appeals to me
But what GM could make appeals to me very much. This statement also tells me that you obviously don’t buy trucks as I do.
I agree with one of the previous commentators who stated that Chaper 11 would be one short step away from Chapter 7.
This may be a fondly wished desire on the part of many, but is a terribly vindictive and short-sighted view.
What I’m still trying to reconcile with myself is if GM, in a 30 car manufacturer universe, has it in them to build another 55 Chevy, and if so, would anybody notice, or care?
I personally, believe that if GM’s gameplan is to file chapter 11 so they can cull the UAW and their dealers, then, they are playing a dangerous game
The unfortunate thing is that GM’s gameplan is to AVOID Chapter 11. But since it has no viable plan for creating long-term profits, it seems intent on forcing itself against a wall so that it may end up filing Chapter 7, which is liquidation. Liquidation = Death.
What many don’t understand is that companies file Chapter 11 in order to stay alive, not to die. It’s a bit like going to a doctor now for major surgery, so that the cancer doesn’t end up killing you.
But a successful 11 filing requires approval by creditors. If there is no viable plan, the creditors could just reject the plan, causing the filing to be converted to 7 so that the creditors can be repaid from whatever can be sold off. The less revenue that is being generated, the more likely that the plan would be rejected.
An ideal 11 filing has a ton of creditors who are owed money, coupled with a viable revenue/ cost reduction plan. GM would have been smarter to pile on debt to pay for an intense R&D effort and plant and equipment (which would have given it the basis for a revenue plan), then file 11 to cram down the creditors and the union, and to force the dealers to a settlement that could allow for brands to be culled.
If GM went ch11 would the stock basically lose all its value?
If this is the case how can the board of directors who are allegedly representing the stockholders authorize something like this?
I understand the whole bit about saving the company and that’s fine for the managers and employees but this would just prove that GM is run, has always been run, and will always be run for the benefit of top management and for no one else.
Its too late now but could they have done the following? Spun off GMAC, and Allison as well as any profitable units to the shareholders and then ch11 the parent company to save the auto business?
I don’t own any GM stock but it seems pretty crass for management to save the company which they ran into the ground by declaring bankruptcy which would destroy the owners equity and yet they would continue to run the show.
I just wonder if the first order of business is approving a large set of bonuses to top management and the second would be to authorize bankruptcy.
Am I wrong or missing something?
If GM went ch11 would the stock basically lose all its value?
Yep.
If this is the case how can the board of directors who are allegedly representing the stockholders authorize something like this?
Because in the order of priority, creditors come before shareholders. It is more important to pay the creditors than it is to fatten the pockets of the shareholders.
A plan that puts more money into the pockets of the lenders is better than one that puts less. The shareholders benefit from the fact that they are not personally held liable for the debt, unlike the company itself, and can lose nothing more than their investment.
I was just wondering, when you have nothing left to sell you start to make decisions based on despiration. Thanks for answering my ‘afraid to ask’ question about Mazda, I was hoping they could escape the Fordtanic before it goes under.
Could they really sell Saab, I mean is their really someone dumb enough to buy it for real money. I see no value left in Saab it has become another GM clone machine with nothing of it’s own, Saab SUV’s! What they have done to Saab really makes me hate GM. I still have very fond memories of my brothers Saab’s(between him and his girlfriend they had 4) with there NECK snapping turbo boost. My brother at one time had an ’86 900 Turbo he bought for $300 with 160K that finally gave up the ghost at 280K while on his second 12,000 mile trip around this great country. The significant thing is the boost was modified and set way too high, giving the car accelleration that puts my Subaru Legacy GT to shame, and the engine still kept going(alternator quit on his trip). Hell of a ride even when the steering rack felt like it was about to fall out.
Pch, I understand that the creditors stand before the shareholders in settling things that’s not my question
Why would the board of directors who represent the shareholders do it? They don’t represent the creditors interests, they are suppose to represent the share holders. I mean if top management came in to me as a board member and said here is our plan “we’re going to declare ch11. We’ll be able to cut all these costs and be mean and lean” I would thank them and fire them.
I also remain skeptical that with the franchise laws in place a Chaper 11 filing will make much of an impact in culling dealers.
Chapter 11 can’t just be the “reset” button.
Why would the board of directors who represent the shareholders do it?
Because surgery (11) beats death (7).
The primary responsibility of the executives is to build and maintain the company. Their secondary responsibility is to pay the bills. Their tertiary responsibility is to the shareholders.
The shareholders do not come first, and should not come first. You are supposed to pay what you owe to others before you pay yourself.
SAAB does have one thing left, the brand itself. If a Chinese or Indian company where to get hold of it, they have access to their technology PLUS a dealer network in the United States and Europe.
One person’s junk is another person’s treasure.
Chapter 11 can be called by the creditors, too.
The creditors (including the unions and dealerships) will all gather around the big pie that is GM and negotiate for their piece of the pie. Hopefully in a new GM in which they have new shares.
Pch the CEO Rick Wagoner and his underlings(for now) are responsible for keeping the company alive and all those good things but are you are telling me that the board of director’s main job is not suppose to represent shareholders interest?
If GM went ch11 would the stock basically lose all its value?
Yep.
Not necessarily, but it’s a risk. Mere bankruptcy does not always mandate a worthless stock, and people often do trade cheap bankrupt company stocks, hoping to make a killing on the rebound.
But the rights of debtors comes before share owners, per the contracts behind the various debts. Debtors are first in line. If GM ran too low of cash to make debt payments, debtors can come in and start repo’ing plant and equipment — whatever debt agreements allow — and leave the shareholders with a dead business and no assets at all.
THAT is why a board would declare bankruptcy — to protect the business from debtors’ claims long enough for the business to get back on its feet. Depending on circumstances the outstanding shares might essentially be cancelled, but that’s case-dependent.
Redbarchetta:
The board of directors declare bankruptcy when there is no value left to salvage for the shareholders after the creditors get their due. Does that explanation make sense?
are you are telling me that the board of director’s main job is not suppose to represent shareholders interest?d
I’ve already stated it — they come third in line. The enterprise comes first, debtors second, equity holders third.
Shareholders are investing their money. If they placed a bad bet, that is ultimately their problem. Those who lend money take priority.
Mere bankruptcy does not always mandate a worthless stock, and people often do trade cheap bankrupt company stocks, hoping to make a killing on the rebound.
That’s true, and I overstated things a bit. I would suspect that if GM filed 11, the shareholders would get nothing or some shares that are worth a fraction of what they are now. The creditors would probably be given stock in the new company as part of the repayment plan, which leaves less for the existing shareholders. As a wise investor once said, s**t happens.
Pch101:
As correct as your points are,
You are missing the plan,
Detroit is desperately trying to hang on until it can claim victim status and be bailed out by taxpayer money under what they expect to be a quasi communist new administration.
When it comes to free rides they wrote the book.
Would the stock lose all value with Ch 11? No, it would still be worth its speculative value, like a lottery ticket that represents a chance for gain. Ch 11 is a plan for recovery so that a business will again be viable.
Why declare Ch 11 if it hurts stockholders? Because not declaring–and thereby going into liquidation–would probably be worse. Usually, after selling all assets and paying all debts (a legal obligation, remember) there’s nothing left for stockholders.
Why has management been reluctant to file Ch 11? For four big reasons: it’s humiliating (“Judge, may I have/use an executive jet?”); it’s bloody with much short-term pain for everyone except the lawyers; it has its own risks (for example, will filing destroy so much “good will” (as accountants call it) that the recovery plan will be undermined?); and they’ll lose control (in Ch 11 the Court and creditors are in the saddle).
Readers should click on the illustration that accompanies the editorial. If you do, you’ll see the caption that asks “What’s wrong with this picture?” I have one quibble–I’d add a box labeled “product development”–but the chart is excellent as a way to identify GM’s problems. Practically every line showing the flow of money in and out of the central “Cash” box represents a troublesome issue confronting GM. And Ford, for that matter.
Firstly, lean manufacturing. Really, the benefits areally outweigh the cons. Reduced inventory, more efficient production, less man hours spent on building a car, no need for a warehouse to store supplies (a REAL cost killer, trust me, I know!) and more free capital to spend on, say, management/worker buyouts?
GM can’t switch to lean manufacturing, and here’s why: UNIONS!. I’m no lean manufacturing expert, but my understanding is that one thing needed for it to work is that people need to do many jobs, and keep changing jobs versus the demand (e.g., the shipment of seats just arrived, so all those guys who were putting on the lug nuts need to move to install seats). With union job rules, you can’t pull someone off of one job and put him on another. So even with the reduced inventory costs of lean manufacturing, they won’t save labor costs. You’ll still have one job per person.
GM management may be pretty dumb, but I’m sure they recognize the benefit of lean manufacturing (if nothing else, they can see the direct results with Toyota). But living with their constraints, they can’t implement it.
The Detroit-3 are buying time. They will make their survival an election issue. Nothing motivates a politician like the prospect of the wheels coming off his personal gravy train. It might be prudent to bury your wallet in the back yard.
GM can’t switch to lean manufacturing
In many respects, it already has. Everyone got the lean production mantra a long time ago.
The problem is that GM isn’t very good at it. Lean manufacturing requires a culture change that GM management has generally been unwilling to make. They have some of the trivial trappings of it, but they haven’t fully adopted it in such a way that would work as well as it could.
Lean production cannot function properly in a top-heavy organization that is anti-worker. Contrary to the mistaken belief of GM managers, job classifications are just a small part of what it is about. Its real virtue is in eliminating bureaucracy, and prioritizing customer satisfaction above all else. Some within GM have been able to do this, but for the most part, they have not. The managers are addicted to their power, and lean production would require them to give some of it up.
And despite its flaws, the UAW has been more cooperative than this forum gives them credit for. They willingly agreed to lean production in plants such as the Saturn facility and NUMMI.
I’m not trying to beat a dead horse but I am simply asking, Why is a board member suppose to be more responsive to the interests of the creditors and the enterprise first?
Because the law requires it. If it didn’t, why would anybody bother loaning anyone any money?
Nonce observed, “Chapter 11 can be called by the creditors, too.” Which makes me suspect the trigger for filing might be pulled, directly or indirectly, by a major supplier. Suppose a vendor is in or very near bankruptcy, partly because GM has gotten very slow in paying its suppliers. The supplier might decide it must club GM with Ch 11 for the sake of its own survival.
When creditors and major shareholders get riled up enough, they can crack the whip. Billy Durant was forced out of GM twice. Alfred Sloan was installed because du Pont wanted to protect its interests. Currently, about 90% of GM stock is held by institutions. They won’t let sentiment interfere with decisions about GM’s fate.
Miked,
Even if they save in inventory costs (which is a lot!) that’s better than nothing. GM have sold off nearly everything and need to start making money. If they don’t do it now, when should they do it? When it becomes desperate(?)
If I recall correctly, the only American automobile company to ever successfully negotiate the pitfalls of Chapter 11, was Studebaker in 1933, during the depths of the depression, and they lasted 33 more years (though in fact, should probably have just closed their doors in 1954).
Look what happened to MG-Rover in the UK when they filed the equivalent of Chapter 7. The dealers were essentially “stuck” with new cars and NOBODY wanted them. Plus, there was no means of obtaining monies from the (dead) parent company on warrantee claims, which British law required the dealers to do (or, close – so most closed).
Interestingly, GM itself forced Daewoo USA into bankruptcy by refusing to allow Daewoo (which morphed into GMDaewoo) to supply new cars to the dealer network, instead selling them as Chevrolet Aveo and under the (then part GM owned) Suzuki brand.
Perhaps there is going to be a little pay-back coming to GM.
My guess is that when the perfect (economic) storm, which we’re seeing the start of now, hits the United States, GM will have to file Chapter 7. Unfortunately for the workers, creditors, stock holders and car owners.
If GM is in a crisis (and I agree that it is) you would never know it by just listening to the words spoken by GM’s CEO, CFO, CMO and Mr. Lutz. There is not even a hairline crack in the facade they are showing to all. Steady as she goes! The GM spin-machine has managed to fool almost everyone so far.
Robert, based on what you said I find it hard to believe that the money markets, banks etc. are not almost cra**ing themselves when they look at GM’s financials. O sure, you will sometimes read warnings from independent investment advisors about the problems facing GM but it would seem that Wall Street, the mainstream automotive press and GM themselves are either blissfully unaware of the dilemma or it’s “Damn the torpedoes, full steam ahead”. Are they all in denial? I cannot help feeling that all hell is gonna break loose all of a sudden and then everyone will be scratching their heads wondering what the hell happened.
This why TTAC is #1 because it tells the facts that everyone else wants to hide.
Oboylepr said “it would seem that Wall Street, the mainstream automotive press and GM themselves are either blissfully unaware of the dilemma or it’s “Damn the torpedoes, full steam ahead”. Are they all in denial?”
It has long been known that stockbrokers are much faster to issue “buy” recommendations than to advise their clients to “sell.” Partly it’s psychological (having to admit error in earlier “buy” advice) and partly self-interest in keeping the stock price up.
Does anyone here know the specifics of the Harley Davidson employee-buyout, where the employees essentially bought the company back from… AMC, I think. Any chance that could work here? Literally, have GM bail itself out? I imagine that would change the sense of urgency!
If GM is in a crisis (and I agree that it is) you would never know it by just listening to the words spoken by GM’s CEO, CFO, CMO and Mr. Lutz. There is not even a hairline crack in the facade they are showing to all. Steady as she goes! The GM spin-machine has managed to fool almost everyone so far.
To be fair, if I was in Wagoner’s position, I wouldn’t acknowledge it, either. He can’t and shouldn’t concede to these things publicly, lest investors and customers react negatively to it.
What concerns me is not what Wagoner says, but what he is doing and isn’t doing. What GM really needs is an R&D push so that it has products that it can bring to market quickly that could earn money. Not just so-so products, but some amazing products that it can sell in large quantities and put money in the bank.
This just isn’t happening, there is no real product plan to speak of. There is no Accord or Civic beater on the horizon, no ultra-innovative product ala Chrysler’s original minivan to wow the market, while the remaining segments — large vehicles — are being squeezed by fuel prices, and may face a double whammy if the US enters another real estate-induced recession.
What will ultimately bury GM is Toyota’s not-so-unstated desire to take a chunk of the full-size truck market. It’s the one segment in which GM has genuine leadership, but it can’t compete with Toyota. Toyota will do a Reagan on GM, and just spend it into the ground. Does Wagoner see it coming? Who knows?
On one hand we have Wagoner, Lutz et al acting as if they NOW have the market by the short hairs, yet they continue to fuel poor brand perception by discounting virtually every product they offer. Rebates and special financing offers are a far more powerful message to consumers at large that the corporation does not have faith in their products, even if they are overtly attempting to maintain market share.
It is this perception that needs to change before people will look forward to buying a GM car, rather than settling for it because GM is offering ‘deals’ on their products.
Finally, as Mr. Farago has pointed out in GMDW so many times, the primary thing GM is fighting is a corporate mentality steeped in the idea that people will buy whatever they choose to produce. Sometime in the early 70’s, they quit making money on cars as a product, but were then able to make money on the financing; it’s no wonder that as a corporation they forgot what the product was. If it is financing, then those four-wheel things are just a means to an end, and they seem to fly out the door with surprising regularity. This worked until their market share began to tank.
A Chapter 11 filing seems inevitable, as the work necessary to truly compete in the world market needed to be done 15-20 years ago, so they did not have to resort to fire sales in order to move product. Even in the mid-90’s, when they were flush with money from the unexpected SUV/Truck bubble, they had an opportunity to stuff the money back into the product. This didn’t happen.
I have a rather unusual question. If they end up filing Ch 7 does the top management stay on through all the filing and such before they get there golden parachutes or are they just like everyone else that works there?
I cant see how they get to run the company into the ground and then get a big fat bonus when they have finally succeeded, accountability is non existent.
If they end up filing Ch 7 does the top management stay on through all the filing and such before they get there golden parachutes or are they just like everyone else that works there?
If the company files, it would almost certainly file 11. If it goes into 7, it would be because the creditors would have forced it into 7, in the belief that they’ll never get paid through restoring operations.
There would be a trustee who would sort out what to do. If the filing is converted to 7, a receiver would be appointed to operate the firm temporarily as it is wound down, and most of top management would probably be sent to the door right away — the only people needed would be the ones who are needed with a liquidation. Someone like Wagoner would be history, and it seems unlikely that any bonuses would be in order.
Pch101 I was referring to there cushy escape hatches when I said bonus, I probably should have worded it better.
Thanks for explaining it, I couldn’t think of a reason why they would be needed at that point but I wanted to ask rather then assume.
Katie: The management cull has been going on for the last 6 years, just slowly and under the radar. And, it’s not done yet…
PCH: If you have access to GM’ product plan, could you let the rest of us have a look at it?
And finally…RF, yeah that is starting to sound like a plan…
If you have access to GM’ product plan, could you let the rest of us have a look at it?
I think that all of us have already seen it:
-Cobalt. That’s not going away for a couple of more years, at least. Civic beater? I think not.
-Impala. America’s favorite rental. No replacement for some time. The fact that this is a relative hit for GM should tell you that times are not so good. (Just compare retail Impala sales to those of the Altima, Accord and Camry — enough said.)
-Malibu. New and improved based upon the flatlining Aura. Is an Aura with a bowtie going to outperform the current Aura? For Avis, probably, but not for the rest of us.
-Silverado. Under attack from the better capitalized Toyota. So far, its greatest success has been in cannibalizing F-150 sales, so what happens when a new F-150 comes out while Toyota continues to put on the squeeze?
All of the other stuff has been a disappointment: G6, GTO, Lacrosse, etc. etc. Aside from a couple of low-volume niche sellers such as the Solstice, there are no winners here to see and few profits to be generated, may as well just move on…
If you want to bet on the Volt, good luck. Too little, too late, and we don’t even know how late it will be.
Unless you see these cars all being dumped and being replaced by at least 4-5 solid hits in the next two years, then I will stand by my obvious contention that there is no plan. It’s not as if new cars are introduced at the drop of a hat — product cycles are typically 4-5 years long — so most of these are new enough to show that the short-to-medium term holds no bright spots for GM.
Meanwhile, the competition continues to improve, raising the bar even higher. It’s just too reminiscent of punk rock: There’s no future, and it ain’t pretty.
To the gentleman whose wife drives a Sonata: My current GM vehicle is still running. However, it IS without a doubt my LAST GM vehicle. I always like to think ahead…and my thoughts are, if my vehicle dies tomorrow, I’m going to buy a Sonata…cash.
The Lambda 4-banger is supposedly specified to run 250,000 miles. For 16-17K, it’s a done deal. I watched Hyundai come ashore w/ their crappy Excel. But what I’ve witnessed since then is quite amazing….effort, more effort, and still MORE EFFORT!
That alone earns my respect…and quite possibly my cash.
GM? What have you done (for me) lately? Your work ethic is right up there with the Columbian drug lords: You want something for damn near nothing! Your work ethic and business practices do not represent the best of what America has to offer. Quite the opposite…your foundation of “loyal” customers can be construed as quite Socialistic!
How is it that a company which waves the Red, White, and Blue is a vehement adherent of Karl Marx himself?
Yes…the Sonata is music to my ears. Hell, I may even forgo the Lambda and buy the 3.3 V6 (Hey, I have to look cool with the twin chrome tailpipes!!)
Perhaps it is time to move the GMDW to the site f_____company.com :(.
Chapter 11 two years ago might have bought time to keep the ship afloat. Now GM faces a horrible storm of high fuel prices, virtual-dud “Gotta-Have” products and lack of support from the majority of the population. You could not get political support for a 1970s Chrysler style loan guarantee program nor for restrictions on imported vehicles which happened then. Toyota, Honda et. al. have done a masterful job of insulating themselves from political interference with their US factory building spree and long term campaign for the hearts, minds and wallets of the American consumer/voter. While the Japanese makers were winning loyalists one at a time the US makers were kicking their loyalists in the teeth. Just imagine the backlash if the government tried to penalize Toyota or Honda today! The Prius loving liberals of both coasts would rip their Democratic representatives several new ones. The south wouldn’t go along. The only protectionist support would come from the midwest with it’s small, and shrinking, portion of the voter base.
At this point only the government is big enough to throw GM a lifeboat, and that isn’t going to happen. Looking at the UK’s example, government support for British Leyland didn’t work out so well. GM and Ford quietly cheered as they took over the bulk of the UK auto market from the indigenous players in the post WWII era. Now the worm turns.
The time to rationalize the product line, break the union, trim the dealer network and build compelling vehicles has run out.
Woolworths is gone from the US market, but the brand lives on quite vigorously in the UK and Germany. Perhaps the overseas subsidiaries of General Motors will carry one after the US parent folds up it’s tent. Nothing lasts forever, including big corporations.
Yes, but why call the Prius a totem-pole for the Democrats?
Anyone, and I mean *ANYONE* who values an honest-days work (spelled “R-E-P-U-B-L-I-C-A-N”) can look to Toyota’s Pruis as a damn fine achievement!
Engineering excellence is non-partisan!!!
(That’s coming from a Conservative, my friend :)
“CEO Rick Wagoner has jettisoned some $21.4b worth of GM assets. During those same two years, the company signing his paycheck lost $12.4b.”
Total insanity!
Come on GM; it’s play hard ball or die. Take drastic measures. High risk is warranted. Else bleed to death.
GM’s intertia is killing it.
Managing a modern car conglomerate the size of GM is a relentless task, and as one poster above put it: they began considering the four-wheeled product as things that would get the financing arm going. They lost sight of product, and got lost in the fog.
Now they’re coming out of the fog, and they are finding themselves steering a supertanker straight at some rocks in the water that “weren’t supposed to be there.” Everyone else knew they were there, and you had to be a wishful sailor to ignore them as well as Wagoner has.
So what’s left for him is to do the Captain of the Titanic thing and go down with the ship, because it’s going to hit those rocks. The inertia is simply too great. Words such as Juggernaut or Leviathan simply do not describe the mad size of GM, a size that made it impossible to steer well – the ship just plowed on.
New attractive product?
Well, the competition isn’t standing still, and quite a number of players have cash on hand, GM doesn’t.
GM’s cars suck – across the line, across the brands.
Selling Saab? Who would want it? What would they do with it? The company’s been gutted, the talent’s been chased away by GM’s idiot managers. Decades of interesting R&R that could have made a difference some years ago was dropped, in order to “exploit” cross-platform synergies.
Selling Opel? Sure. Throw as much as you can overboard, you’re still going to hit those rocks?
GM has no reason for being any longer. It’s just a few years ago that Lutz declared “rich people don’t care about the price of gas.” Turns out they do – and in the Energy Lean Age we’re headed for, they won’t have a choice. In a few years, driving a big gas guzzler will make you less popular than the women wearing furs were during the anti-fur protests.
And while fur is a take it or leave it issue, clean air, a healthy environment, reasonable fuel prices and a sound economy are not.
During the Habsburg Empire, officials who had made a major mistake that cost the Empire’s wealth or reputation did the honorable thing. We’re going to look back, once Peak Oil’s is an accepted fact, and wonder how we could ever defend driving three ton vehicles to pick up a six-pack of beer. And I’m not just blaming the majors, we consumers should take our share of the blame, as well.
Interesting times ahead. And for a sobering read on Tough Oil, check this out. Even the generously compensated Lee Raymond of Exxon is on board now.
They should have given him a gun, not the world’s biggest compensation package:
http://www.tomdispatch.com/post/174829/michael_klare_tough_oil_on_tap
I can think of one fleet sales market that might actually help GM: the Feds.
I wonder to what extent a concerted effort by the Federal government (e.g., GSA and DoD) to buy GM products would help GM in weathering a Chapter 11 filing. DoD light truck contracts (think M1008-series CUCVs from the mid-1980s) would be especially useful in providing a hidden subsidy, since mil-spec vehicles could be purchased at a premium well exceeding the cost of modifying current light trucks to meet military specifications.
Guaranteed sales of GM vehicles to GSA and DoD, with the cash flow said sales imply, might help convince creditors to give GM time to restructure, thus buying time.
Whether the management at GM would be able to use the bought time wisely is left as a subject for further debate…. ;-)
The worst part of this whole mess is that even if they file 11, they still have to come up with products people want in order to generate revenue.
I don’t think they’ll survive with a “one hit wonder”. There are too many different segments to the market. If they did make it with one outstanding vehicle it would be the invention of a whole new niche – like Chrysler’s mini van. And that would only buy some time.
I’d like to get an AWD sedan as my next vehicle. Where is a GM AWD sedan? If I replace my truck (Ranger) I’d like a 7 foot bed and regular cab. Where is the Colorado that fits my needs? OK, I admit my desires in a truck are contrary to the majority of the market. That’s ok, don’t build a Colorado for me, I’ll get another Ranger instead. But AWD sedans are the wave of the present.
“AuricTech:
August 17th, 2007 at 1:51 am
I can think of one fleet sales market that might actually help GM: the Feds.”
I don’t think that this is likely to happen in numbers high enough to matter to GM. Federal law requires the GSA and other govennment agencies to but Alt Fuel vehicles in high percentages of their total fleet purchaces. Up till recently they got a round that by buying Flex fuel vehicles and assigning them to areas where E85 is not available. I believe that the law was recently changed to reflect the reality that these vehicles were not being used as intended.
The fleet managers for these agencies can also see how much the price of fuel is going up. When you agrigate a 10% fuel savings over thousands of vehicles that saves a lot of money! As one of my bosses once told me “a million dollars might be a rounding error, but you add enough of them together and it becomes real money!”
My sister works for a state government in the midwest. They recently sold off all the Ford Escorts they had bought for Honda Civic Hybrids. Saving fuel and money. I can’t believe that they are the only ones doing this.
I think everyone is missing the obvious. With a Democratic win in 2008 fueled by UAW money, some type of GM “workout” is pretty likely. So for those who expect to become financial moguls via shorting GM stock and/or buying puts, be careful.
It may not be as worthless as depicted here.
A new President is 16 months away can they really hold out that long without one of the many problems they face hitting them hard and sending them off the cliff.
the problem lies in your final sentence – GM just won’t build any shit hot products.
I’d buy them if they were there – they just aren’t.
Perhaps history has some insight for us here? What happened when AMC cratered? IIRC that was in the mid-80’s or so, correct? Did they go ch. 11 and then 7 or was it straight to 7 or was it something else? I seem to recall that for a short time there was a brand called “Eagle” that was making some formerly AMC cars, but it didn’t last too long. Then I seem to recall some short alliance with Renault, and after that the sale of Jeep to Chrysler.
Ditto for International Harvester. They were always a niche player in the consumer/light truck market but had a solid reputation from the 1930s into the 60’s. They made a full line of trucks and SUVs (long before that term came into common use, though.) By the early 70s they were in trouble – gas crisis, I assume, since all of their products were big, heavy gas guzzlers. In 1975 they stopped making everything in small vehicles except for the Scout II and the Scout II -derived Terra and Traveler, and by 1978 or so they stopped making everything but the Scout II. 1980 or 81 were the last years of the Scout, at that point they stopped making ‘consumer’ vehicles altogether and concentrated on their commercial trucks, but even then they were in bankruptcy by the mid-80s, IIRC (going from memory here.) Some time in the early 90s, they emerged with a new name, Navistar, making updated versions of their commercial trucks.
So what happened there? Anyone know? I was around then, but not much interested in the car business. However, my first two vehicles were both IHC Travelalls, so I do have some curiosity about the company.
PCH: I didn’t think so….
Re Stein X Leikanger:
Interesting times ahead. And for a sobering read on Tough Oil, check this out. Even the generously compensated Lee Raymond of Exxon is on board now.
They should have given him a gun, not the world’s biggest compensation package:
http://www.tomdispatch.com/post/174829/michael_klare_tough_oil_on_tap
Exxon-Mobile is profitable and has been an excellent investment. Lee is worth it. (The ex-CEO of BP – with his ‘Beyond Petroleum’ and crap stock performance – he needs the gun).
Oil is not going away – and there will always be those willing to pay a premium for performance or size.
Companies (like Exxon-Mobile) that excel at extracting a resource will always make money. Even if a resource is dwindling, they may make more money, given their superior expertise and technology.
ihatetrees
which CEO of BP are you referring to? Surely you don’t mean Lord John Browne?
Browne turned BP from a minor player in the oil market into a colossus on the scale of Shell and ExxonMobil.
Re KatiePuckrik:
which CEO of BP are you referring to? Surely you don’t mean Lord John Browne?
Browne turned BP from a minor player in the oil market into a colossus on the scale of Shell and ExxonMobil.
Yes. Mr Browne. Admittedly, I was being overly harsh. BP has been a good investment and probably will be a good investment as long as their refineries stop blowing up.
Of course, Exxon-Mobile has been much, much better.
I know we’re talking about GM and I hate to digress, but I must correct you about a few things.
1. Exxon-mobil has been a continual denier of climate change and has undermined many studies, projects and movements to say otherwise. Which didn’t do their public image any good. They aren’t perfect.
2: It’s LORD Browne! ;O)
Also, with regards to GM, I had another brainwave!
We’re always talking about streamlining brands but can’t do it. Well, why don’t GM just spin the businesses off and let them work independently? Only the businesses which GM have little or no interest in (i.e GMC and SAAB) Well, either that or SELL them!!!! I truly believe that the Chinese or Indians will jump at the chance to own one of those brands. Established dealer networks in the United States and other countries and access to their technolgies to beef up their own cars.
Also, and I’ve said this MANY times so pardon me for repeating myself, but in order to shift cars (and hence, make MONEY!) why don’t GM takes a leaf out of Hyundai’s book and actually work for customers’ money but giving a 5 year warranty in order to kerb that so called “perception gap”? Face it, if GM are sooooo confident about their quality, then an extra 2 years shouldn’t cost them anything. Unless they have something to hide……?
2007 GM Powertrain warranty is 5 years/100,000 miles $0 deductible including Roadside Assistance.
At this point in time, that’s not all that compelling. Particularly when Honda and Toyota both have 5 year/ 60,000 mile powertrain warranties of their own.
A 5 year warranty in the UK would be quite long by local standards. In the US, that’s not really the case, Americans have higher demands for these sorts of things.
GM would have to seriously consider a 7-10 year warranty that exceeded 100,000 miles in order to look considerably advantageous as compared to the competition. And given the widespread skepticism of the product in its current state, even that may not be enough.
Americans want to have a warranty, but they also want to have an ownership experience that doesn’t require using it. Luxury brands are cut some slack, but the run-of-the-mill cars are expected to run without skipping a beat, warranty or no warranty.
The warranty thing would work if not for the fact they already have a bad reputation in that regard. What good is a 5/10/50 year warranty if rarely honor it.
“Martin Albright:
August 17th, 2007 at 1:00 pm
Perhaps history has some insight for us here? What happened when AMC cratered? IIRC that was in the mid-80’s or so, correct? Did they go ch. 11 and then 7 or was it straight to 7 or was it something else? I seem to recall that for a short time there was a brand called “Eagle” that was making some formerly AMC cars, but it didn’t last too long. Then I seem to recall some short alliance with Renault, and after that the sale of Jeep to Chrysler.”
I don’t remember the details about International, but I can tell you AMC didn’t go bankrupt. Not Chapter 7 and not Chapter 11.
Renault bought a controlling interest in AMC (late 70’s or early 80’s), which proceeded to build some Renault models in the U.S. Remember the Alliance sedan and the Fuego sport coupe? At the time, I didn’t think they were bad cars. Most of AMC’s older (and aging) models were culled from the line at that point – which the exception of the Eagle and Spirit, which were the AWD versions of the old Hornet and Gremlin.
But one of the smartest things AMC ever did was to buy Jeep at the beginning of the 1970’s. See, AMC didn’t have a truck line and the Jeep line (which included pick-ups) took care of that very nicely. Enter Lee Iacocca and Chrysler Corp., which coveted Jeep for years. AMC repeatedly spurned offers by Chrysler to buy Jeep. And the new smash-hit Jeep Cherokee made the brand even more attactive at that point. Finally, with Renault having limited success selling its cars, it finally agreed to sell Jeep to Chrysler – but only if Chrysler took the whole ball of wax – all of AMC. And so a deal was struck.
Once Chrysler took over, it created the Eagle brand so that Jeep dealers would have some cars to sell. Eagle cars included the Premier (a large Renault sedan already in the pipeline) and a few versions of Mitsubishis – including an AWD version of the Mitsubishi Eclipse. The Eagle line didn’t last many years. And, with the big SUV boom of the 1990’s, Jeep dealers didn’t need it.
Hope this helps.
TheHammer:
2007 GM Powertrain warranty is 5 years/100,000 miles $0 deductible including Roadside Assistance.
That warranty is only on the engine. Hyundai’s is bumper to bumper (or it is in the UK). Engines rarely fail (even GM’s!) but transmissions, wheel bearings, cooling systems, even down to minor things like a wing mirror falling off, that’s more likely. But GM are always saying how their quality and reliablity is the same as Toyota’s. So, prove it or make way for Toyota!
But as Mr RedBarchetta points out, GM’s reputation for not honouring warranties is also a mill stone around their neck. How are they going to close THAT “perception gap”……?
Really, my point is this. It’s NO GOOD that GM keep whining like bitches that no one will trust them because of their reliablity of a few years ago. Now, they say, their reliablity and quality is the same as Toyota’s and Honda’s. But they won’t put their money where their mouth is. They’d rather spout out that they’ve won some award, that nobody cares about, rather than say “Look, here a warranty that’s longer than our competitors. Now try us!”. Hyundai’s reputation was worse than GM’s, but because of their quality drive, they turned from a regional player into the 5th largest car maker in the world by volume* and they are now thought of in the same vein as Toyota and Honda. It’s not rocket science, it’s just giving customers an incentive (bad choices of words!) to buy GM.
* = I realise that last year Hyundai was 6th largest, but they were behind DaimlerChrysler. Now that DaimlerChrysler has disbanded, I believe, that Hyundai makes more cars, than both Daimler or Chrysler. Feel free to correct to me. :O)
Wall Street doesn’t appear to be concerned with GM’s path: if Chapter 11 was so imminent, then its stock would be in the tank. It’s not.
Re KatiePuckrik…
I know we’re talking about GM and I hate to digress, but I must correct you about a few things.
1. Exxon-mobil has been a continual denier of climate change and has undermined many studies, projects and movements to say otherwise. Which didn’t do their public image any good. They aren’t perfect.
2: It’s LORD Browne! ;O)
Yeah. Exxon-Mobile is about as PC as my nickname when it comes to climate change.
GM might learn something from them, however. Instead of embracing greendom and the warmer-mongers, confront them with some facts about the small costs of a ~10 MPG difference vrs the costs of going small/or hybrid.
As much as I personally find this distressing – honestly, I would *like* to be able to find a quality American car to buy – GM has made it’s bed and now has to lie in it. Pity the bed is an air mattress, which is now quickly deflating.
The roots of this are clear. Back in the 70’s, when the paradigm for successful compact cars shifted, GM chose to assign it’s efforts to the higher margin fullsize and pickup markets. Reasonable in the short term.
But younger buyers don’t want full size cars and don’t need pickups. To find appealing quality vehicles they had no choice but to look to the imports. And once they had done so, it became much easier for Honda, Toyota, et.al. to keep them. Brand loyalty is a powerful thing if you work at it. And they have worked very hard at it.
As those young buyers aged, they bought bigger, higher margin vehicles. They kept the memories of the poor quality domestics, and gave the bigger domestic vehicles little thought – even when they were very good. This further marginalized the domestics’ available markets.
And now their buyers are at the point where they are buying their last cars. And GM is desperate. I recently spoke to a retired Marine who flew F4’s for 20 years. He told me he would never consider any domestic vehicle for his grandson. (He was buying my ’02 Acura for the grandson in question.)
I would like to say I see a clear, painless path for the domestic automakers. And I do see a clear one. But it’s going to involve considerable pain.
Wall Street was part of the Enron conspiracy right up until the day it blew apart. Wall Street is smack in the middle of the Sub-prime mortgage fiasco which is going up in flames at this very moment. Wall Street was on a tear right up until the moment the Great Depression started. The idea that GM’s current stock price can be interpreted to mean that Wall Street knows GM is going to survive intact is more than a little naive. The investment bankers of today have more in common with con men and carnival barkers than they do with honest hard working men and women. Most of them know it, but don’t care because the money is so good.
The federal government bailing out GM with it’s buying power isn’t going to happen. For one thing, they are generally required to put purchases our for bid to the lowest priced qualified bidder. For another, how are they going to get away with focusing all buying on GM and thus sticking it to Chrysler and Ford?
As for the idea of a Democrat controlled new president and congress bailing out GM … I highly doubt it. First you have the problem of helping one company but not all three. Do you think Ford and Chrysler lobbyists are going to stand by and watch a bail out of their main competitor? The three domestics primarily compete with one another for the shrinking Buy American customer base and only secondarily compete with the Asian makes.
The only scenario where I can imagine government involvement would be in a big forced marriage like the one which created British Leyland. Seems highly unlikely, and we already know how that turned out!
The majority of the Democrat’s political base hates General Motors. About the only thing you could get the editorial pages of the New York Times and the Wall Street Journal to agree on is probably opposition to the idea of bailing out GM with taxpayer money.
GM of the 1960s was a juggernaut riding high over the US economy and psyche. Now 40 years later they are a stumbling giant with people scrambling to get out from under it’s fall. The only fall back plan is China, and the Chinese are going to rip that rug out sooner than anyone can imagine.
I will never forget my involvement with a deal in China many years ago. Our people and the Chinese customer negotiated for weeks over a contract. The process was far more time consuming and difficult than it had ever been with any other customer. Once it was done and we started making things happen per that contract we were shocked to hear from our Chinese counterparts: ” …. oh, the final contract is only a step in continued negotiations, we will not follow it … “.
GM needs to do more that offer a 5/100k warranty. As mentioned, it is powertrain only. They need to offer a comprehensive, every single part of the car, no BS, no weasel-clauses, no double-speak, warranty. They need to make it clear that the dealer isn’t going to have the ability to muddy things up. They need to make it crystal clear that GM will honor and execute the warranty.
GM (and the others for that matter) have for too long allowed their warranties be to become worthless in the eyes of consumers by trying to wiggle out of fixing problems. Their promise has become worthless.
To be “fair”, this warranty weasel dance is not exclusive to GM. I know lots of people who have had the same BS with German (VW!) and Japanese cars too.
But if GM wants to stand out, then raise the bar and make your warranty a clear, no-BS, word of honor. Done right, the warranty should not exceed two paragraphs. In fact, it should not exceed two sentences. “If anything breaks, we will fix it immediately at no cost to you. If we can’t fix it, then we will replace your car with a new one.”
I agree with yankinwaoz – the current GM warranty means nothing to me (I deal with this on an all too regular basis). Even if it’s covered, the shenanigans they pull make you hate the whole experience. I preferred the shorter warranty on my Honda, and MUCH prefer the warranty on my Lexus, where they back it up with free loaners and spot-on customer service.
GM could offer a lifetime warranty. Between their horrible past treatment of customers and financials woes it means nothing.
Chrysler’s lifetime warranty? An even bigger scam – their systematic and well planned denial of warranty claims for the well known sludge problem in their V8 is living proof they have no intention of taking care of the customers. Just google “Durango sludge” for an interesting read.
And for someone who cries “Toyota sludge” in defense – sorry – they look good in contrast to Chrysler who denied warranty claims even if you had oil change receipts. And eventually Toyota extended warranties and admitted the issue. Chrysler? – you’re still f–ked. GM’s not much better.
Steve Biro: Thanks for the clarification. I’m curious about what happened to owners of warranted AMC cars? of course, back in the 80’s, IIRC, most warranties were still 12 months, 12k miles, correct? So maybe it wasn’t much of an issue. Presumably those people who had bought Hornets or Javelins in 79 or 81 saw the writing on the wall.
However, Steve’s description of AMCs slow death does contain a kernel of an interesting notion: What if it’s not Ch. 11 or Ch. 7, but rather something more like what happened to AMC? IOW, as the General sinks deeper, the jucier plums are picked by other automakers. Not sure what these would be – Corvette, maybe? Would either GM or Ford have the stones (or the cash) to buy GMs Crown Jewell? Would/could an import buy that line (would anyone buy a Toyota Corvette?) And are there any other desirable properties that could be salvaged by a savvy investor? None I can think of off the top of my head, but you never know.
A Toyota Corvette? Not the first year, but the second generation, oh hell yes. I have one two seater (ok, it’s a Harley, but it’s still a two seater), but I would save for that Corvette.
Building on my previous comment…might one of the other Japanese companies be interested in buying all or part of GMs light truck division? It might allow them to have a foot in this market without having to spend the capital to come up with their own full size truck. The Japanese are still trying to crack that nut with the Titan and the Tundra, and the lesser Japanese makes don’t have a foothold in that market at all…
As an alternative, I wonder if GMC or Chevy trucks could survive as an independent marque, divorced from the sinking GM. Certainly out here in the West there is no shortage of GM trucks on the road.
virgule wrote: “The board of directors declare bankruptcy when there is no value left to salvage for the shareholders after the creditors get their due.”
So why do they bother? They have a _fiduciary_ responsibility to shareholders. They are required to put the interests of shareholders above all else. *Bankruptcy Law* places shareholders below creditors, as others have noted, but this is only relevant *once bankruptcy is filed*.
In other words, once they’ve screwed up the business so badly that they file Chapter 11, then why not simply file Chapter 7 and let the judge decide otherwise? That’s not the order in which things happen, but why? As far as the fiduciary interests of the board is concerned, once the shareholders are screwed there’s nothing left. Yet boards don’t behave that way…consider Delphi. Should Steve Miller be sued because of his choice to file? If not, then what exactly, *other than bankruptcy law itself*, compelled him to file? After all, he publicly claimed “October” as a deadline when “October” was nothing more than the effective date of a law which made filing bankruptcy more difficult. But on either side of that deadline, shareholders were equally screwed.
Tom.
“Martin Albright:
August 20th, 2007 at 3:22 pm
Steve Biro: Thanks for the clarification. I’m curious about what happened to owners of warranted AMC cars? of course, back in the 80’s, IIRC, most warranties were still 12 months, 12k miles, correct? So maybe it wasn’t much of an issue. Presumably those people who had bought Hornets or Javelins in 79 or 81 saw the writing on the wall.”
Sorry it’s taken me so long to respond. You’re right.. warrantys were only 12 months/12,00 miles in those days, so it wasn’t a big issue. However, customers who bought AMC vehicles in the last year of the old AMC were covered by Chrysler because Chrysler assumed all of AMC’s obligations.