"Managing expectations." It's a term near and dear to the hearts of the people who pull our politicians' strings. Increasingly, it's the rhetorical weapon of choice for executives seeking to maintain their grip on America's large corporations. While there's nothing wrong with casting your company's efforts in a positive light, the danger is both simple and lethal. When a company's culture becomes based on hype, it loses its ability to react to reality– both good and bad. It becomes lost in the fog of war. One such company is GM.
Last Tuesday, GM CFO Fritz Henderson did something his boss, CEO Rick Wagoner, has refused to do throughout his entire tenure at the top. Fritz set a deadline for GM NA's return to profitability. Well, not a deadline, exactly. More like an estimate. Actually, make that a prediction– with caveats. Anyway, in the now-familiar post-bloodbath (a.k.a. financial results) conference call with industry analysts, Fritz said General Motors' North American operations should be solidly profitable by 2010. Or 2011.
Now that's saying something. GM North America is currently in complete turmoil, verging on chaos, heading towards meltdown. It's losing market share, production capacity, skilled workers, profitability (incentives are up) and, most of all, cash money. If you exclude the mother of all tax credit write-downs (which placed GM's '07 losses at $38.7b), NorAm dropped $1.5b last year. Not bad? Lest we forget, that number was propped-up by the sale of the Allison Transmission unit for $4.3b.
Speaking of fire sales and clever accounting, Fritz claims GM has $27b in cash and "cash equivalents" in the kitty. Take away $10b for life-sustaining cash flow, and GM is only $17b away from empty.
GM's cash conflagration continues unabated. Despite dramatic downsizing, the American automaker still has enormous overheads: advertising ($2.6b per year), research and development, factory modernization, pensions, health care, administration, servicing its massive debt ($2.9b per year) and, of course, executive compensation.
If we presume that these costs are holding steady– at least until the new labor agreement yields significant reductions– GM's $6.8b '07 loss (with Allison removed from the equation) indicates that they've got two-and-a-half years to turn the ship around– or go down. In other words, if Fritz isn't right, if GM isn't "solidly profitable" by 2011, they will be bankrupt.
Of course, this also assumes there won't be any "exceptional" calls on GM's cash pile. Heading into a major industry downturn, that's about as safe as assuming that the IRS will forget that you're legally obliged to file a tax return.
For one thing, bankrupt parts supplier Delphi, is looking for a billion dollar plus cash infusion. If GM's former division doesn't find the financing, well… Chrysler's unresolved Plastech debacle shows how vulnerable GM's assembly lines are to a parts disruption (a.k.a. renegotiation/extortion). A quarter of Detroit's main parts suppliers are teetering on the brink of bankruptcy. Even if GM's suppliers simply ask for their money up front, The General's liquidity would take a massive hit.
And then there's GMAC. Since GM sold 51 percent of the lender to Cerberus, The General's former cash cow has cratered. GMAC just posted a $724m fourth-quarter loss; the ResCap mortgage-lending unit bled $921m worth of red ink. If ResCap collapses, creditors may pierce the veil and sink GMAC. Meanwhile, cheap GMAC loans to high risk debtors are a thing of the past, which pulls the rug from under one of GM's main weapons in its war on excess inventory.
And that brings us to the income side of the ledger. While GM boosters view the new Cadillac CTS, Chevrolet Malibu and GMC Acadia as evidence that the automaker has got its NorAm product-related shit together, it most decidedly does not.
As nice as they are, these vehicles are not class-leading import conquerers. Sure, GM's finally woken-up to the fact that they have too many brands (eight), products (49) and dealers (6750). But their "throw the losers (Buick, Saturn, Pontiac, Saab) into a gulag and starve ‘em to death strategy" is a long-term play that will make things worse– before they get worse. No matter how you slice it, GM needs LOTS of turnover the keep the lights on.
Post corporate fire-sale, you could consider GM's brands its only remaining asset. If so, the company is already dead. Aside from Hummer, none of GM's brands has a clear remit or a coherent product line. There is overlap, cannibalization, confusion and chaos. Fleet sales aside, you can't sell products in a highly competitive environment without proper branding.
So, Fritz, how IS GM going to become solidly profitable by 2011? "We need to step on the gas on how we are performing in the market." At the moment, in terms of market share, branding and overall product desirability, GM is going backwards. Stepping on the gas will simply accelerate that process. Right until they hit something. That's the only realistic expectation.
When will we see GM’s new small truck diesel?
That could move a lot of product.
So, the cashburn is still on? Hardly surprising. GM are still haemorraging market share, profitability and talent. And now, they’re offering more buyouts to blue collar workers, which will take a hit out of their cash hoard. GM seem fixed on reducing blue collar workers, but yet, I hear very little about management culling. They seem to escape unscathed, coincidence?
I’ve said it before and I’ll say it again, giving “On the” Fritz Henderson, “Rabid” Rick Wagoner and “Maximum” Bob Lutz golden parachutes was a huge mistake and seldom ever works. Now I know what people will say, “without golden parachutes, you can’t hire top people” and in the case of Mr Mulally, this is true. But what has Larry, Curly and Moe done for GM that’s of any value? Dealer network is still bloated, they still have a glut of cars on forecourts and too many brands still exist.
Yes, we’ve had a few good cars (I still love the Cadillac CTS) but that’s small potatoes to what they should really be concentrating on. If GM left the engineers to build good cars (and I know they can), then top brass can concentrate on exterminating the toxic corporate culture in GM which is crippling the company.
Mind you, the whole picture isn’t that bleak for GM. I reckon they could still sell SAAB (Renault would be a good buyer for them. They’ve always wanted a luxury marque of their own, since they can’t use Infiniti); SAAB still has a decent infrastructure of dealers and a line which Renault could make something out of. So, that’ll bring in a few dollars. Go on a management cull and use the money saved on research and development. I believe GM still can be saved, it really is a case of whether anyone can be bothered at this juncture.
When one looks at GM’s dire situation, one has to ask oneself whether “The Hudsucker Proxy” was a film or a documentary…….?
KatiePuckrik :
Mind you, the whole picture isn’t that bleak for GM. I reckon they could still sell SAAB (Renault would be a good buyer for them. They’ve always wanted a luxury marque of their own, since they can’t use Infiniti); SAAB still has a decent infrastructure of dealers and a line which Renault could make something out of. So, that’ll bring in a few dollars.
Saab is worthless.
I disagree. I believe there is still some value to SAAB as a marque and its infrastructure. Granted, it will take some work, but Renault have a little experience in turning companies around…..
It’s all coming together right now, the race to bankruptcy for all three of them. As soon as one pulls the trigger the other two are toast.
GS650G: Tell me how Chrysler going bankrupt hurts Gm and Ford ? Net–I think it helps them.
I’ve been saying it for about five years: Chrysler is in the worst position (always have been – though it used to be solely product related and has expanded since the Daimler sale to see a company really teetering on the edge), GM is in second place in the race to the bottom (a few spotty, almost-competitive new products doesn’t a turnaround make; they’ve been promising more than they can deliver for the past 25 years, and it continues unabated today), and Ford is in a better position than either right now (they’ve got Mulally at the top – yes, he has his problems, but he seems far more competent than “the other guys,” and has streamlined the massive bureaucracy to a larger extent than at either of the other Detroit two – and their products actually have quality awards and a few perception changes to show that they’ve done something that seems to acknowledge their many shortcomings, although Mercury is utterly mis-managed, the naming debacle continues [Taurus is practically a low-volume vehicle despite the re-naming], their sales numbers continue to sink, etc., yet they seem to have a coherent plan for the future, the success of which only time will tell).
These are interesting times, to say the least.
Many (this be MANY) years ago there was a political ad (targeting Tip O’Neill if my memory serves correctly) with two fellows in a car, the younger one driving and the camera panning regularly to the gas gauge that was past “Empty”. The driver kept saying, “Senator, we’re just about out of gas” and at every caution the older passenger would wave his hand and just scoff at the information. At the end of the ad, they were in the middle of nowhere…out of gas.
After reading this piece, that ad immediately came to mind.
I believe Renault can channel a French product through Infiniti. This was in their plans a few years back with the Renault Avantime. In retrospect I am glad they did not go with that particular product.
We all of us understand that bankruptcy is very favorable for the big 2.8 and from what I can see Ford is winning that battle or at least preparing for it by selling its brands. For GM though the “throw the losers (Buick, Saturn, Pontiac, Saab) into a gulag and starve ‘em to death strategy” might not be the strategy.
Yes Buick is looking more and more like the Oldsmobile restyle and drop tactic (guess you cant say they didn’t do them any favors). The others don’t look likely to be face an axe anytime soon. Although SAAB is still a company that GM could sell if if the needed to. Saturn is the poster child for re badging.
And cutting Pontiac would be like saying a Subaru is bad, in a gay town after they put millions into gay advertising. Or anything bad to just Subaru dealers. I am sure that GM will do some cutting but I believe that they will hold off till the first day of the bankruptcy.
Like New York Gov. Spitzer said “on day one everything changes” and yet it won’t. Good luck GM buy something nice lord knows that you wont be able to with the audits that are coming.
Besides we need to get that debt up if we are to get away with asking for a government handout boys!
And it all comes down to a terrible misunderstanding on the part of GM managers: they thought people were buying GM cars, and failed to realize the need to power the individual brands.
That basic and most avoidable fallacy will result in the implosion and eventual disappearance of this company.
Sad, yet inevitable. It’s been like watching a high-speed camera slow-motion crash with gruesome sound effects of the thwack of tearing metal.
Saturn should not be on the brand hit list. IMO they’re the best import fighting brand, and the only GM brand without an oldy-moldy reputation. IE, you cannot find a 60 year old hippy driving a Toyota beer can still complaining about his Saturn falling apart 30 years ago (as you could with Chevy).
Consider:
Saturn
Sky >= Miata, S2000
Aura > Camry, Accord, Altima
VUE > RAV4, CRV
Astra > Civic, Yaris, Versa
Outlook > Enclave LOL!
I agree with Steve the comparable Saturn vehicles do well in against their competition. GMC on the other hand could be an option when you buy a Chevy truck “and would you like the GMC package with that”
I once thought the Detroit-3 could reverse their fall from grace by producing quality products and providing and honoring confidence inspiring comprehensive lengthy warranties. It was atrocious product quality and abominable customer care that caused customers to flee screaming.
It’s too late. A manufacturer warranty from a company with an uncertain future provides zero value-added.
Has GM made the pension transfer to the UAW yet? If not, that should eat a pretty good hole in a $27 billion cash pad.
Assuming that the domestic three DON’T want to go into bankruptcy and will avoid it all costs – then the first to go will be Ford. Ford has costs and bureaucracy similar to the biggest of the domestic 3 but it has market share approaching the smallest of the big 3 – and it’s getting smaller all the time, every quarter. And Fords products are still lackluster in the design department (wow factor). Ford is like the neglected middle child – too small in financial reserves to weather the storm and too big for someone to buy.
The wild card is Cerberus. They may decide to put Chrysler in bankruptcy (even though they could hold out) or sell it – IF they deem that it will make them money. Chryslers’ fate is not in the hands of the people who work there.
I wish GM hadn’t reduced Saab to the quivering lump of automotive failure it is now. Saab used to have some quirky cool vehicles. They need to nuke their entire lineup and come out with a new (possibly retro) reimagining of the 99/900 series that I used to see so many of. Imagine a Saab that hearkens back to models past with a stout 2.0 or optional 2.0 turbo motor.
Seeing a Saab is a rare thing nowadays and when you do, it’s just another GM or Subaru. That’s a sad thing indeed.
If they aren’t willing to do this then why not just put Saab out of its misery with a bullet to the back of the head? It’s just a dead marque walking as it is anyhow.
“the first to go will be Ford. Ford has costs and bureaucracy similar to the biggest of the domestic 3 but it has market share approaching the smallest of the big 3”
but they are controlled by the Ford family which stands to lose big time. I kinda suspect thats why they appear to be at least trying very hard to change their bad past ways.
Why GMC? Where would the Chevy dealers be without trucks? GMC exists to keep, for awhile, BP dealers alive.
Even if Saturn sells some stuff, the dearth of dealers makes it very hard to sell any volume, so it seems to me that GM must surely lose money on Saturn. Thus why not dump it? Especially why steer decent product to Saturn when that product might/would sell at higher volume as a Pontiac, Buick, GMC or Chevy?
I think the question John asked here is correct: What about the VEBA funding? Where is that money going to come from? How much? When? Wasn’t that the one of the basis of the new labor contract? How can GM fund that is they only have $27 billion in cash reserves remaining, and that is diminishing apparently.
GM picked a bad time to be in trouble, with the nation’s economy hitting the skids.
GM should pull Saab out of the USA, but keep it in Canada where they do sell a respectable amount and there are plenty on the road (new and old). They shouldn’t entirely get rid of it. If you look at the the GM Europe profit numbers in Europe for the completed fiscal year in detail, you can see Saab was generating revenue.
In response to the VEBA question, if I am not mistaken, that money is already in place. It has been separate from all the other accounting gymnastics that are going on at GM and the other dom1.801. Anybody remember the details?
Even if Saturn sells some stuff, the dearth of dealers makes it very hard to sell any volume, so it seems to me that GM must surely lose money on Saturn.
If GM thought Saturn would do better with more dealerships, I wonder if they would consider scrapping the Buick, Pontiac, GMC brands and converting their dealers to Saturn? I know it would be costly and difficult, but if they really thought they had the goods with Saturn do you think they would attempt that kind of bold move?
I still think the problem is the product. Maybe GM is a failed business and a lost hope. Unwilling to change or take any aggressive action. Too stuck in their ways of the past thirty years. Just show up to work everyday and build the same old cars and get a paycheck. That’s how it’s always been right? Build the cars and people buy them right?
No one ever wakes up any day of the week and says “I want a new Malibu so bad I’m going to buy one right now! That car does everything for me. It’s as fast a Corvette, gets fifty miles per gallon, and only costs eight thousand dollars!”
Nope. The reality is it’s that piece of junk car I got stuck with last time I rented a car at the airport. It’s got four doors, weighs almost thirty five hundred pounds. It doesn’t matter if it’s got a four or a six in it as the power level feels nearly the same in both. They both get nearly the same fuel mileage as the hybrid model. About twenty something city and highway.
Let’s say I go to the stealership this evening to buy a left over still new `07 Malistu. They stiff me real good for $23,495. I drive it off the lot and kelly blue book says my new used car is now only worth $12,920. What a deal!
Let’s see here. A waiting list for $90,000+ Tesla Roadsters, CNG models of the Civic are all sold out, a waiting list for Smart cars, petitions for bringing Mitsubishi and Subaru electrics to the states..
Has the Aveo ever sold well? How about the Cobalt? Is the Impala any different then a Malibu? I think an electric Cobalt would sell better then any gas model. Offer performance and economy models with various range offerings.
Silverado’s, Suburban’s, and Tahoe’s; now that’s GM.
They need to get their finances lined out. Inefficiencies and waste across the board. Not spending their money in the most effective ways.
If GM were to admit defeat and close up shop, who would build rental cars?
if the American mfgs. could have a still target they would already be on the road to recovery. Unfortunately, the competion is not standing still. While the Americans are rolling out their first generation hybrids, the Japanese are introducing their second generation etc. etc. Now that the money is all in the hands of the foreign builders, they simply keep the products and innovations coming. They can at least get a model change out every 3 or 4 years. How old is the town car? And what you think is modern the Impala, came out in 1999. A refreshning is not the same as all new. You can’t fool the public all the time, not any more.
Would I be naive to use the idiom “Rome wasn’t built in a day” when discussing GM’s progress?
If GM was doing everything right from this day forward it would still take a few years at minimum to shine . Nissan is a great example . Brought back from near death,now with lots of great product and I am still not sure I would want to hold that franchise…
On the question of the VEBA, they already funded it and still have $27 billion? What are the details?
Bancho asks if GM goes under who will build rental cars? I think you will see a Tata coming to your local rental car agency. Inasmuch as National Rental Car’s customer phone line is in India, may as well bring those cars over. So when you are finished talking to “David” in India reserving your car, he will tell you “tata” meaning both goodbye and what you will be driving.
This is the real issue they face right now
Eh, whatever. I’m through caring about GM until after the inevitable bankruptcy – then it will get interesting again. Chrysler is interesting because it is actually in the hands of people who care about their investment, and they won’t be shy about acting to maximize value (or cut losses). Ford is also interesting because the Ford family can’t risk the company declaring bankruptcy; that may lead to extremely desperate acts, or to extremely smart and decisive ones.
But GM? Wake me when the bondholders are finally in charge.
Because, they have a plant nearby in Niagara County (NY), I’ve been following the Delphi situation . I know some of the employees – and the whole story of Delphi & GM in the last 2+ years is absurd.
I think GM is just trying to get to January 09 with a Dem president / congress. Then they can beg for tax dollars.
KatiePuckrik:
Larry, Curly and Moe
Comedy gold! Good name for the three.
Steve K:
Aura > Camry, Accord, Altima
VUE > RAV4, CRV
Astra > Civic, Yaris, Versa
You’re kidding right? The Vue over the Rav-4 and CR-V? What does the Vue beat them at? Higher Curb weight? Higher MSRP?
And the Astra over the Civic? Again, what does the Astra beat it at? The amount of money GM loses on each Astra sold here in North America?
And I won’t even go into your Aura comparison as that’s just silly.
oboylepr, that was a very interesting post by Buickman that you linked to. That explains quite a bit.
I wonder, how many promises has GM failed to fulfill?
For instance, incentives are up and that is a fact. GM cannot afford to increase incentives but it looks like it’s doing so just to prop up sales numbers which is pointless and futile.
People like to talk about Toyota’s incentives on the Tundra but fact is that is the ONLY Toyota model with a significant amount of incentives. On average, GM still offers over three times the amount of incentives per vehicle than Toyota does.
Quite shocking that Toyota is holding incentives steady while GM increases them.
frontline :
Would I be naive to use the idiom “Rome wasn’t built in a day” when discussing GM’s progress?
If GM was doing everything right from this day forward it would still take a few years at minimum to shine . Nissan is a great example . Brought back from near death,now with lots of great product and I am still not sure I would want to hold that franchise…
Nor did the Roman empire collapse all at once. It took centuries for the barbarians to get to the gates of the city.
Well. 38bn bled is quiet scary, what`s more frightening is toyota`s annual profit records. And an absolute spine-chiller is Toyota`s announcement that most of the profits( from14bn) will be devoted to Research and development, meaning their aspirations for product diversity and quality are unremitting. Toyota`s market capitalization is already tenfold of that of GM. In january Gm entered a new phase of rebadge- this cancer has reached even concept vehicles. Opel Flextreme was displayed as Saturn Flextreme, clearly admitting that the era of Saturn as a car unit is over, and Saturn is going belly up, only the badge will be kept on german and korean cars, with GM gurus trying to convince, that `belly up` is just a matter of gravity and the way you look at it.
frontline,
Your argument brings up one of the big problems facing these companies (and our goevernment). The leaders can claim things are improving FOREVER. By the time the truth is known, they have changed jobs, changed the subject, or retired.
The Dems aren’t the only party that would bail out the big 2.8. The Republicans would too. The bail out despite all of our whining and complaining is absolutely going to happen. There are too many jobs at risk, too many pensioners. Not only GM, Ford and Chrysler, but all of the suppliers would go under. Not a few, all. The Government, no matter which party it is won’t let that happen. They need the income taxes.
Then again, maybe not, maybe they will just increase the taxes on those that are left working so that the starving former autoworkers don’t starve and maintain either a war in Iraq or Universal Health Care
The bail out? Not so fast.
There’s going to be a huge revolt in the country (especially considering the current economic downturn).
Some good points jurisb.
The most recent news is that Toyota wants to spend roughly 13.8 Billion a year on R&D and new facilities.
There is simply no way GM can compete with that. As you said, Toyota seems determined to invest in future products and invest in quality.
Chevrolet and Cadillac. Ditch the rest.
GM does not have the engineering or marketing wherewithal to support more than two lineups in the US. There isn’t a single Buick, Pontiac, Saturn or GMC product which isn’t already a direct competitor to a Chevy or Cadillac or which couldn’t easily be sold as one. The Solstice/Sky niche vehicle could easily have been a Chevrolet to go with the Corvette and New Camaro. That would have given Chevrolet small, medium and large sport(y) cars. All of the current Pontiacs are don’t care vehicles. Ditto the US Buick lineup. In 1972 a Caprice Classic was as well appointed as an entry level Cadillac Calais.
There simply isn’t a definable market for all of GM’s also-ran brands which is large enough to feed the beast.
Give ’em each one model and let the dealers starve off. See Isuzu for the how-to plan.
Johnson
You are right about the Aura accord comparison.
One car has more torque, larger wheels and tires, a longer wheelbase and a much better warranty. And it’s not the honda!
Yeah and I’d still rather have a four cylinder Accord. We’ve owned 5 Honda vehicles (1 was a motorcycle) and my father has owned 4 Honda motorcycles in a row. They’ve been excellent in every case especially my ’87 Accord Hatchback that was last seen with 325K miles on the original drivetrain (not rebuilt).
On the Saturn front we’ve had about 6 Saturns in the extended family with so-so durability. We’ve got friends with two Saturns. One with nearly 200K miles and one that blew an engine at 100K miles. Identical age and engines.
We were recently offered a Saturn Vue that was otherwise going to be traded in on a Saturn Outlook. I was so close to buying it from my in-laws until an evening on the ‘net revealed that the whirlling noise that the CVT tranny was making at 70K miles was the beginning of the end and that repairs cost the moon and part of the sky. No, I’ll keep my CR-V with twice the miles (150K+) and a 5 speed with the original clutch disc even. It’s been flawless.
I WANT to like GM and Ford, even Chrysler but I’m a small car guy (always have been) and these three either won’t make a small car worth a damn or they won’t import the ones they do make in the rest of the world. Saturn is the exception and the Astra has my attention.
If GM and Ford (and Chrysler) would put as much effort into their small cars as they have their SUVs and trucks they’d have something I’d feel good about buying. The way it is now however is that they are either ugly or not durable or lack features that the imported small cars commonly offer.
The Astra = good, the Zafira = good, the retractable hardtops = good, the smallest of their cars like the Corsa = I’d give them a look. The Aveo – I’d look were I buying a car today. And I’d look at the used examples first.
What I really want is a plug-in hybrid.
On second thought – the Aveo has a 1.6L engine and gets 28/34 mpg. My ten year old “heavyweight” VW Cabrio has a 2.0L engine and gets 29/34.
28/34 isn’t bad until I compare it to other cars…
Why does the Aveo get such miserable mileage for it’s size? In other parts of the world a 1.6L would get at least 40 mpg. Heck the little Toyotas with carburetors my family had in the early 80s got better mileage than that!!!
Didn’t the Neon get better mileage than that?