And this, folks, is just the beginning. Or the end. Or the beginning of the end. Whatever you call it, however you look at it, GM's $3.25b first quarter financial loss makes a mockery of CEO Rick Wagoner's $14.4m annual compensation, and eliminates any hope that GM's foreign markets can keep the corporate mothership afloat. As Bloomberg reports, the number would have been even more horrific if not for GM's international growth. "GM's European profit grew by more than 18 times to $75 million. The Asia-Pacific region and Latin America-Africa-Middle East region doubled earnings to $286 million and $517 million, respectively." Meanwhile, "GM had an $812 million pretax loss in North America, its largest region, wider than the $208 million deficit a year earlier." And if you think things will be better stateside in the second, third or fourth quarter, what with strikes and tanked SUV and pickup sales, you need to be working at GM. Otherwise, no one will believe you. [Read General Motors Death Watch 175: Phone Calls from the Dead for a full analysis.]
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Wagoner ought to give his salary AND bonus back based on morals. Or ethics, or principle.
Oh wait, what was I thinkin….
Where I worked about a decade ago one of the postings on the coffee room wall was a supposed article from a Chinese newspaper about the execution of refrigerator factory managers for years of shoddy work. At the time for some reason most people believed it. It turns out to be an urban legend according to snopes, but somehow rings true:
http://www.snopes.com/politics/business/refrigerators.asp
Shanghai Automotive, GM’s partner in China, bought what was left of the once mighty Rover of England which in turn was the resting place of most of British Leyland (Jaguar is the only BL member which got out alive, or as a zombie). It is not far fetched to imagine Shanghai or another Chinese company picking through the bones of GM sometime in the next few years. Shanghai already owns half of GM’s single growth business.
Wagoners compensation is a piss in Mississippi. What I wonder is, where does the money come from, to hold this sinking ship afloat? And that without fixing the problems in the first place?
jthorner,
While that one may be urban legend, some managers in China have been executed for similar things. China is trying to build a better reputation for themselves and if anyone screws it up there’s hell to pay.
“What I wonder is, where does the money come from, to hold this sinking ship afloat?”
It came from two sources: 1) In recent times, almost two decades of huge profits on cheap to build, yet high priced, highly optioned trucks and SUVs. 2)Selling off pieces of what was once the largest and most profitable corporation to ever roam the earth. Said pieces were acquired and built over a 50 year stretch of time when GM was master of the automotive universe.
Today the good ship Easy Truck Money has run aground and the valuable assets have pretty much all been sold. It is a bit like the heir who lives high for years by pawning the family jewels and one day goes to the safe only to find it empty.
Wow. How long will the board of “directors” tolerate this kind of abject failure?
How much more red ink has to flow for someone in that dysfunctional organization to even HINT to Rick that it is time to fall on the sword??
Folks, this is actually a missed blessing of sorts.
GM did achieve 20% revenue growth in international markets and they have been among the best in the industry when it comes to that measurement.
The North American market is substantial. But it’s declining in importance by an awful lot these days. With hundreds of millions of new car shoppers in these overseas markets over the next five years, GM may actually be able to attain the income and growth they need to keep competitive.
On a side note, you should take into account that GM is likely to reduce their North American parts and assembly dependence by double digits over the next several years. You may very well see a GM that is American in name only in the times to come.
All of this may help the stock price. But is a very unfortunate set of events for the future of this country.
I wonder when the ‘turnaround’ will be seen for what it was, a mirage, and with it, any fantasy that this guy ever had a clue. They’ve got $1k on the hood of the pathetic Aveo and $1.5k on the hood of the Cobalt while Civics, Fits and Toyota’s similar offerings need no help other than how they run. Meanwhile after all of Wagoner’s known ideas have failed to turn anything of importance around, the bleeding continues at Saturn, the starving continues at Buick and Pontiac and the snoozing continues at board meetings. Time for another gem out of the mouth of the vice chairman.
Stephan Lang, you know a tad more about this than I do, but my thinking has been that GM has been doing well in ‘immature’ markets where the full offerings of Toyota, Honda, Nissan, etc. are not available. So I see GM’s success there as temporary. Do you see it as having more life?
So, GM lost 4 TIMES as much this quarter as they did last year. Wow. And when you look at the international profit numbers, well, they seem kind of piddly compared to the total loss. A few hundred mil here, a few here, it’s like the weight of mankind’s CO2 contributions compared to the weight of the atmosphere in total (which happens to be 30 billion tons of CO2 per year as compared to the atmosphere’s weight of 5 quadrillion tons – it’s 0.6% of the atmospheric weight.) In this case, GM’s international profits, combined, don’t equal even a third of their total loss. Pretty sad.
So what if GM doubles their sales in China in the short term? Last year they sold 4 Buicks. This year they sold 8. That’s 100% growth. But statistics work that way.
But still not worth the price they lost in the NA market.
China doesn’t buy trucks, or SUV’s. That’s what GM does well.
And they’re likely to get handed their walking papers in China. As are all other investors.
So that’s the turnaround plan then. Grow the overseas business, and do whatever it takes to shrink the NA business down to match demand. And if that means run the NA side into chapter 11, then all the better. Much easier to cut unwanted expenses that way.
Mel23,
There is some truth in what you say about GM being successful when Toyota, Honda and Nissan aren’t around. Their presence is minimal in Latin America (about 5% for Toyota) and China (where the bulk of GM’s growth is) the Japanese are just getting ramped up.
But in Europe, GM and the Japanese have been around for a while, but GM has a bigger market share (Toyota has 5.3% in Western Europe. GM has 10%). Though, having said that, GM Europe posted, in 2007, a loss of $23 million!
This brings up a point i meant to comment on the other day in the ‘should the government bail out GM QOTD’ thread. I see a huge difference between GM now and Chrysler then. Whatever Iacocca’s true impact was, there was a strong perception I picked up on even as a kid that he had the right stuff to save them. I don’t get any sort of similar vibe from Rick or Bob. Quite the opposite in fact. I’m sure there was some backlash at the time for the bailout, but imagine how much worse it would have been without Lee on point building confidence and goodwill among the public.
This is for you GM:
For all those times you stood by me
For all the truth that you made me see
For all the joy you brought to my life
For all the wrong that you made right
For every dream you made come true
For all the love I found in you
I’ll be forever thankful baby
You’re the one who held me up
Never let me fall
You’re the one who saw me through through it all
You were my strength when I was weak
You were my voice when I couldn’t speak
You were my eyes when I couldn’t see
You saw the best there was in me
Lifted me up when I couldn’t reach
You gave me faith ‘coz you believed
I’m everything I am
Because you loved me
You gave me wings and made me fly
You touched my hand I could touch the sky
I lost my faith, you gave it back to me
You said no star was out of reach
You stood by me and I stood tall
I had your love I had it all
I’m grateful for each day you gave me
Maybe I don’t know that much
But I know this much is true
I was blessed because I was loved by you
You were my strength when I was weak
You were my voice when I couldn’t speak
You were my eyes when I couldn’t see
You saw the best there was in me
Lifted me up when I couldn’t reach
You gave me faith ‘coz you believed
I’m everything I am
Because you loved me
You were always there for me
The tender wind that carried me
A light in the dark shining your love into my life
You’ve been my inspiration
Through the lies you were the truth
My world is a better place because of you
You were my strength when I was weak
You were my voice when I couldn’t speak
You were my eyes when I couldn’t see
You saw the best there was in me
Lifted me up when I couldn’t reach
You gave me faith ‘coz you believed
I’m everything I am
Because you loved me
I’m everything I am
Because you loved me
-Celine Dion
I hate Celine Dion!
So GM is on pace for a $13-bn loss. After posting a $13-bn quarterly loss last year.
At what point do you just go “fuck it” ?
Celine Dion didn’t write that song, she’s just the voice, Diane Warren wrote it.
I hate Celine Dion also.
$3.3 billion loss in the first quarter and they have 3 to go. A $10-12 billion loss this year has got to hurt BAD. How much money did they have in the bank, it wont last too much longer at this rate. The Volt can’t save them with losses like that, if they are around to even release it.
I think the management are grabbing the cash and sneaking out to the life boats while telling everyone on the ship there is no problem, play a marry tune. Wagoner “I got mine, screw the rest of you.”
I wrote this 3 years ago for my work.
General Motors and Fords Plight and Fight for Survival
A litany of woes:
GM:
Too many types of, and many outdated engines and transmissions. Major management blunders such as ignoring hybrids, concentrating on large SUVs and trucks, the $2 billion wasted getting out of the FIAT ‘marriage’ and dropping a nearly ready line of cars (Zeta) to compete with Chrysler’s 300 Hemi. Money is hemorrhaging. Survival prospects are waning. Management is betting the farm on a new technology (hydrogen), which may or may not come to fruition in time to save the company. A suffocating UAW contract is paying 16,000 workers to sit home. $1500 costs per car for UAW and retiree medical costs. Terrible paint, quality and reliability records over the past 20 years. GMs market share has dropped from over 50% in 1965, to 25% and is still dropping.
What is GM doing to survive?
GM just announced the merger of Pontiac, GMC and Buick, and plans to stop overlap of vehicle types. Recently improved vehicle quality. Excess plants are being closed. New UAW talks in 2007.
GM and Ford:
Standard & Poors downgraded both GM and Ford debt ratings to junk bond status, increasing their borrowing costs and limiting the types of investors.
Sales of SUVs and large trucks are dropping like a stone, and these are virtually the only profitable vehicles for GM and Ford.
Recalls continue to be worse for GM and Ford than many competitors, and this signifies poor engineering and haphazard quality to buyers.
Excess rebates by both GM and Ford have debased their brands, causing a drop in resale value for most of their products. Now, buyers are reluctant to step up to the plate without a bribe.
Both GM and Ford are squeezing suppliers mercilessly, many of which are bankrupt or in trouble. Is that any way to run a railroad? Toyota methods seem to work far better (results speak for themselves) – that is, regarding suppliers as true partners, with respect, and allowing them to make a profit.
Ford:
Poor investments such as purchasing money-losing Jaguar. Time to euthanize that sick cat? Or maybe sell it back to the Brits for a Pound?
Dabbling with super-cars is cool, but Ford can ill afford to make such a hash as it did with the GT again – the recall of these cars (bought by the ultra-rich) was highly embarrassing and terrible publicity.
An inability to replace a one-time top-seller (Taurus) with a popular midsize.
Toyota has overtaken Ford worldwide and will probably overtake GM within 3 years (the Toyota Camry is now the best-selling midsize).
Where Ford is doing better than GM:
Bill Ford will take virtually no pay or bonus until Ford auto is profitable again, which makes Ford look more like a (very large) family business rather than a faceless company.
Bill Ford also understands the idea that hybrids are the sea-change on which Ford needed to place its surfboard, and did so with the Escape hybrid. Kudos to Ford – an industry first – a fairly economical SUV.
The new Mustang is a ‘hit’ for Ford.
Ford has recently recognized that it must, and will, fix its quality problems.
What does this all mean to us?
We’d better enjoy our collector cars. They not only don’t build them like they used to, but may not be around to build any cars soon.
I also wrote this. Hmmmm, how’d those sub-prime mortgage loans work out for ya, GM?
General Motors’ plight, General Motors’ fight Friday the 13th of May 2005
GM’s recent difficulties are all over the news, but here is an in-depth look at the litany of woes addressing the still-largest car manufacturer in the world that you probably won’t see elsewhere. Our next article will look at Ford’s fight for survival.
-A recent survey by financial firm UBS of 550 car dealers found that the top six models anticipated to flop in the marketplace were all GM products; the Buick LaCrosse and Terazza, Pontiac GTO, Chevrolet SSR, Cobalt and Uplander.
-GM had the most number of annual Consumer Report “much-worse-than-average” reliability vehicles in 1997, 2000, 2001, 2002, 2003 and 2004. In 1998, 1999 and 2003, Chrysler “led” the field of shame. In contrast, NO Toyota, Subaru or Nissan vehicles have even been on the above lists, and only one Honda has been, the now discontinued Passport SUV – which was a re-badged GM Isuzu product.
-In 2003, GM had 13 times more vehicles recalled for safety defects than did Toyota in the United States, though GM overall sales only about twice what Toyota’s was, and the gap in sales is shrinking very fast.
-In April 2005, GM announced yet another recall of 2 million vehicles, including 1.5 million SUVs. This, after decades of one recall after another.
-GM sales between April 2004 and April 2005 fell 5% overall, with Saturn down 32%, Hummer down 28%, GMC down 12%, Buick down 5%, Chevrolet down 2%, and Pontiac down 2%. In 1965, GM sold 51% of the new cars in the US, while in 2004 it was about 26%.
In contrast, Toyota group sales between April 2004 and April 2005 increased 21%. The hybrid Prius was up 196%, while the youth-oriented Scion Division was up 166%. Lexus GS300 sales jumped over 513%, while the Lexus GS430 increased over 396%, neither of which can be good news for Buick or Cadillac.
– In Texas, the weathervane state for SUV and truck sales, sales are down, partly due to gasoline being $2.20 a gallon or more. It’s tough to pay over $100 for a tank full of gas every week. The problem for GM is that the only vehicles they make a decent profit on are big trucks and SUVs.
-In April, Standard & Poor’s downgraded GM’s debt rating to BB “junk bond” status, along with Ford Motor Company, which was downgraded to BB+. This adds to borrowing costs and restricts trade of company bonds.
-The online source autoinfo.net has studied long-term reliability and places 1996-2000 GM vehicles overall at a percentrank of 0.29 (“reliability grade, high standard” of F), with Volkswagen getting the booby prize of 0.24 (F), with Ford (0.50, F) and Chrysler (0.33, F) joining them, as did Mercedes Benz (0.33, F). GM’s percentrank in 1988 was 0.44 (still an F) and it has continually dropped every year since.
In contrast, Toyota was tops with a percentrank of 0.90 (B+), Honda was close at 0.88 (B+), Subaru was near at 0.82 (B-), Nissan and Mazda tied at 0.74 (C), and Mitsubishi was tail-end Charlie for the Japanese at 0.62 (D-).
-Likewise, autoinfo.net has kept track of the cumulative number of ownership satisfaction pyramid awards from 1983-2003. Toyota obtained 18, Honda 3, Nissan 3, Ford 1, Chrysler none and GM, none.
-Our ‘neighbours’ to the north, through the Canadian Auto Association (CAA), have surveyed ownership satisfaction and in a combined list of 2001 and 2002, top 10 prizes have gone to: Toyota with 13, Honda with 5, Nissan with 1, Hyundai with 1, Ford with none, Chrysler with none and GM with none.
-GM is ‘stuck’ with a UAW contract which currently has as many as 15,000 people sitting at home earning nearly a full paycheck off General Motors, and the contract goes through 2007, and the UAW won’t come back to the table early.
-GM’s past success is now its possible cause of demise since “fixed costs” pertaining to prior UAW contracts (paying for medical costs, paying for retirees and retiree medical costs) add $1500 to the cost of each GM vehicle built before a single piece of steel is purchased for the car’s construction. This, when engineers fight tooth and nail to save 1 cent on a production part.
-GM miscalculated – very badly – in ignoring hybrids as a ‘bridge’ to their anticipated future of fuel cell cars, which are electric cars fuelled by hydrogen (the fuel cell making electricity from hydrogen). Toyota understands this and is working on both hybrids and fuel cells, after taking the long view rather than looking at the next quarter’s profit/loss statement.
Now, GM is penning an agreement with Daimler-Chrysler to hurriedly develop hybrids, which is telling in itself – the once world’s largest corporation and still largest automaker cannot afford to do it alone?
-GM just paid $2 BILLION to get out of a contract it had signed to purchase the loss-making FIAT group in Italy, in the year 2000 – money it desperately needed to develop new vehicles. Probably not coincidentally, GM announced that it’s “Zeta” large-rear wheel drive car program (cars which would have been in competition with Chrysler’s very successful 300 Hemi cars) had to be summarily dropped – though the engineering is sufficiently far along for GM’s Australian Holden company to tool-up for “Zeta” cars down-under. “Zeta” was at the gate – and summarily executed for the US.
-GM has stated that it has staked its future chips on the Hydrogen economy. At best estimates, fuel cell cars are 15 years down the road – while it is somewhat doubtful if GM will be in existence by that time, if current trends from the past 15 years continue. At current estimates, a mass produced fuel cell car would cost $200,000 if built and sold today, while hydrogen would be as much as $3 per gallon.
Now, GM is penning an agreement with Toyota to collaborate on development of fuel cells, again, a telling tale – presumably GM can no longer afford to go it alone in research and development that executives have staked the entire company’s future on.
-It is widely understood that GM is not making much, if any, profit on the manufacture of automobiles, and that most of its profits stem from car loans and 2nd mortgages. Yet, GM has been instrumental in exporting thousands of jobs to Mexico and China (for example, the Buick Rendezvous is built in Mexico, and the engine is from red China) while Toyota, Nissan and Hyundai continue to add jobs to the United States economy. This begs the question as to why these companies can make a profit in the US while GM cannot, and many ‘pundits’ have many answers, from incompetent leadership, to the UAW, to health costs out of control.
-Virtually all of the major competitions auto and SUV engines are much more modern (overhead camshaft, multiple valves per cylinder, variable valve timing) than GMs which are largely archaic over-head valve technology, unless you buy a GM product with a Chinese-made or Honda-made (Saturn Vue Red Line SUV) V6, which GM are buying in order to play catch-up.
So, with quality continually dropping, outdated engines, sales continuing in apparent freefall, recalls continuing to increase, debt costs going up, money hemorrhaging, future prospects waning and management betting the farm on a new technology which may or may not come to fruition in time to save the company, GM is girding its loins for a long fight to stay ‘king of the hill’.
Some are even saying that the only way out for GM – the only way it can survive, never mind stay on top – is to declare Chapter 11 bankruptcy, which would allow it to summarily drop brands (possibly any combination of, or all of, Buick, Pontiac, Saab, Isuzu, GMC and Saturn) without threats of lawsuits from dealer contracts – and get ‘out’ of its obligations to the UAW retirees and current UAW contract.
Another nightmare scenario might be for GM to simply import re-badged cars from GMDaewoo in South Korea (which GM do in Canada, Mexico and Europe at this time) and also its partner in China (appropriately called Shanghai motors), and close down all US vehicle production after the UAW contract ends in 2007. Trucks would be from Canada and Mexico (NAFTA).
What do you think this all means to America, to Michigan and to you as a ‘car guy/car gal’? Take our survey and see what others think. Choose one of the following:
( ) Let GM struggle, corporate capitalism is like real life in the wild – only the strongest survive – if GM sinks, it sinks. Nothing stays the same, or we’d all be living in caves.
( ) GM may need help from the US government such as Chrysler obtained in 1980, otherwise Michigan’s economy – as well as the entire US economy – could tank, if GM does not survive. We taxpayers should bail them out.
( ) Let’s close the borders and hunker down, banning any imports – that will ensure that Americans stay at work, and will help GM. Remember the bromide from the 1950’s “what’s good for GM is good for America”.
( ) None of the above.
( ) The situation will right itself; don’t worry, be happy. (Bye. I’m putting my head back in the sand now).
What do you think GM could do to ‘turn the Titanic away from the iceberg’?
Choose one of the following:
( ) Build (in the US) the prototype retro-style Chevrolet Bel Air convertible which was seen at car shows in 2002 and 2003, and do it quick! Price it under $20,000 and build it with a light-hybrid V8 out of the Sierra pickup, also in hardtop 2 door, hardtop 4 door and Nomad wagon styles. V8 power, 6 cylinder economy and retro-style – all built beefy, with a real frame under the car, with all-GM engineering, just like the 1950’s!
( ) Bring back the ‘Zeta’ rear wheel drive car plans for the US and blow that Chrysler 300 Hemi back into the starting gates. More power, that’s what we need! Build that 1000 horsepower Cadillac Sixteen, as well.
( ) Swallow the pride and license the Toyota hybrid synergy drive technology, and build everything within 3 years with it – doubling gas mileage on all new vehicles by GM. Then, GM would have a great chance of survival.
( ) Don’t know – don’t care. I’m a Ford fan.
( ) Don’t know – don’t care. I’m a Mopar fan.
Here is a cnbc story
I got lost at this statement…. "remember, production drive revenues"
What? I may not be a financial maven, but I would SWEAR that SALES drives revenues. TTAC seems to indicate an abundance of inventory, and a lack of sales. So no dealers are DYING because they are short of inventory.
Sorry, but most of this world doesn’t have anywhere near the same tastes or preferences we do when it comes to cars. Not even close.
As of now, 64% of GM’s revenues come from overseas markets. Think about that for a bit. With all the full-sized trucks, SUV’s and cars GM sells stateside, the purchasing abroad is nearly twice as much as it is here.
That market has grown by 20%. Regardless of whether you like/dislike GM or it’s products, that represents an enormous level of success. If you take out GM’s one time accounting write-down’s, the loss for the General was $.62 a share compared with a forecasted $1.60. They completely blew away ‘analyst expectations’ which is why the stock is up 10% today.
I’ve said it before, and given today’s announcements it’s definitely worth repeating. GM does not be the leader in North America to become successful overall. The growth of overseas markets is far more important to their long-term success, and GM will likely build their presence in those markets by investing there instead of here.
You shouldn’t be bemoaning the death of the General just yet. But the decline of an educated American automotive industry is definitely under way. That is where the real loss lies.
As for Toyota, dull vehicles rarely get a strong market base in most countries. They may be a giant here. But abroad, they are often just one of the fish.
Steven Lang, As I understand it, the $3.25B Q1 loss is for GM as a total, not just GM NA. An almost $1B profit on GM’s international efforts won’t be enough to sustain GM overall unless they can maintain that level of growth for years, while maintaining or reversing the amount of GM NA loss. As KatiePuckrik pointed out, GM was mostly successful in markets where the Japanese manufacturers don’t have a large presence. History shows that the Japanese aren’t likely to sit around and allow GM to profit unchecked. What, say you, about this? I’m not trying to antagonize; I’m merely a curious onlooker.
my jaws drop when i read this today in the morning paper, then I said to myself, this is only the first quarter. But as funny as this my sound I believe that there are still investors out there that will pour countless amount to money into GM knowing that there nothing in return. GM will still operate even if they are way way below the “RED”
Steven Lang:
As for Toyota, dull vehicles rarely get a strong market base in most countries. They may be a giant here. But abroad, they are often just one of the fish.
How WRONG you are. Toyota is not just a giant here in North America; Toyota is a giant in Japan, Australia, the Middle East, many parts of Asia, Russia, a sizable presence in Europe, certain African countries and I can go on.
Toyota was the world’s largest automaker by sales volume in the 1st quarter this year. To achieve that, you *must* be a giant in many countries.