Dean Radin believes some people are psychic. No surprise there; investigating psychic phenomena is what Radin does for a living. And yet, when author Mary Roach asked the electrical engineer if there's a middle ground between believing that the dead contact the living through electromechanical devices and viewing the whole thing a hoax, Radin said "The middle ground between genuinely true and outright faking is unconscious delusion." Welcome to GM's world.
I have no doubt that GM CEO Rick Wagoner and his acolytes will face this quarter's $3.25b loss with equanimity. Why not? During the last four years, they've glibly provided every imaginable excuse for GM's inability to book a profit; from "restructuring" costs, to labor buyouts, to the housing crisis and gas prices and beyond. The "turnaround is on course" is burned into their collective unconscious. They murmur reassuring words– to themselves and the outside world– and get back to the business of losing money.
In reality, there was a time when GM had the financial clout to make a $3.25b quarterly loss look like a right cross to a WWE wrestler's chin. But whether or not Wagoner et al admit it, the automaker's $23.9b supply of cash, marketable securities and other available funds– and that's worldwide folks, not North America– simply isn't enough to see the automaker through the current crisis, or the crisis to come.
The key point: GM needs to be analyzed for its cash flow, not earnings. This quarter, GM’s direct operating cash flow was negative $3.9b including special items. Total cash flow after non-operating items: negative $3.4b. Speaking to financial analysts, COO Fritz Henderson' tried to compare GM's current cash levels vs. last year's first financial quarter. But that’s irrelevant. All that matters is cash generated vs. cash spent over the last three months. And that’s decidedly negative.
In fact, GM was only saved from a total C11 meltdown in recent years by asset sales (well north of $10b, maybe as much as $20b). There's no escaping it: GM's business is going up in flames. You can feel the burn at the sharp end.
Henderson said GM NA's dealer inventory in April is around 840k units, the lowest level since 1983. But Fritz also said dealer stocks of full-size pickup trucks– GM's former cash cow– are still "higher than we'd like." Uh, GM has stopped making pickups (thanks to a strike by American Axle workers). And Toyota is about to pile discounts of the hood of its superabundance of Tundras. And Ford is about to launch the new F-150.
But it ain't just lost pickup profits plaguing GM. SUV sales have also cratered. In March, GM's truck and SUV sales (combined) dropped 22 percent. Worse still: falling SUV/pickup residuals trap existing GM owners in their current rigs. They can't be turned into repeat buyers to soak-up truck production– should it ever restart in any meaningful fashion.
Meanwhile, GM has no credible small cars to take up the slack. In a market where B-Class cars are flying off the lot, GM's products come complete with rebates. The automaker has no known programs to develop profitable vehicles in this segment except the Volt– which is (sticking with reality) a non-starter. For traditional domestic car buyers, a resurgent Ford looks set to steal whatever's left of GM's lunch.
In the financial realm, there's blood all over the carpet. Thanks to bad loans, bad management and a bad economy, GM's former financial powerhouse– car and mortgage lender GMAC– is heading for disaster. In terms of that beleaguered cash pile, GM has announced that it will advance up to $650m to its bankrupt former division Delphi in 2008. At the same time, GM's credit ratings are falling. Will the company lose access to its existing credit facilities?
As always, Wagoner and GM's camp followers cling to whatever good news they can pull from the wreckage. Today's Bloomberg headline on GM's Q1 loss sets the standard for self-denial: "GM Has Smaller Loss Than Estimated on Overseas Sales." In other words, overseas markets will keep GM afloat. Only, as discussed here many times and explained above, it won't. As TTAC commentator lprocter1982 points out, "GM's international profits, combined, don't equal even a third of their total loss."
To use the vernacular, stick a fork in GM. It's done. It's all over bar the lawsuits, recriminations, government bail-outs and unfurled golden parachutes. In fact, if GM's management accepted the full reality of the company's situation, they'd file for Chapter 11 now, while the automaker still has enough cash to reinvent itself, before Chapter 7 dissolution.
Of course, that would mean the end of Rick Wagoner's administration, his $14.4m annual compensation package and the sharp exit of his fantastically well-paid people (e.g. Car Czar Bob Lutz). Could the GM Empire finally be destroyed by unbridled personal greed? In truth, it's a done deal.
“In fact, if GM’s management accepted the full reality of the company situation, they’d file for Chapter 11 now, while the automaker still has enough cash to reinvent itself.”
They need someone with chapter 11 experience. They’re waiting for Delphi to come out of it’s bankruptcy so they can “borrow” Steve Miller for what would be his biggest bankruptcy protection oversight. Miller only took $1 per year after they filed. Of course, he had all sorts of “extras” that come with his CEO position.
When you hear about someone with Chapter 11 experience joining the staff of one of the automakers, it’ll be all over except for the filing. Is there anyone like that at any of the Det2.8?
I mentioned before in a previous post that in 10 years’ time, if GM has gone bankrupt, automotive historians will look back on this episode and will all wonder the same thing:
“Why did the board of directors and shareholders allow Rick Wagoner and his management team to stick around for as long as he did?”
When you look back on the whole sorry episode, it’ll make for interesting reading. Both GM and Ford were in dire straits; one company brought an outsider to manage the company and breath new life into the company and the other just carried on doing what it did, making excuses along the way.
If it wasn’t the UAW “holding the company to ransom”, it was the Transplants for not building their cars in the United States, thus, giving them a competitive advantage. If it wasn’t that, it was the customers’ fault for not considering GM cars (some of the more eagle eyed readers will see a glimpse into why GM fell. Their sense of entitlement). At no point, did management think that maybe it was their fault and that fresh blood was needed or (at the very least) a fresh perspective). It was always somebody else’s fault.
And this is why the GM deathwatch is necessary. This pathetic episode of Detroit’s automotive history needs to be documented (independently) to show people, in the future, what went wrong for GM. It wasn’t the transplants unfairly “stealing market share”, it wasn’t the UAW demanding a fair wage and it wasn’t the customers “not doing their patriotic duty”. It was the management, pure and simple. They had a sense of entitlement, rather than a sense of competitiveness. Management were paid no matter what the outcome ($14 million and record losses) and no-one was responsible for their decisions (The FIATsco, who was held accountable for it?) Unless management changes its way of thinking or the BOD installs a new management team, then GM will continue down this path. It will continue down this path because the current management team, believe they are on the right track, despite evidence suggesting otherwise.
“The definition of insanity is doing the same thing over and over and expecting different results.”
Benjamin Franklin
Note: This is just speculation on my part.
I wonder if the juxtaposition of the BIG raises, 3.4B loss and labor unrest is delibrate?
I would imagine that Ron G. and the UAW are ticked.
I can only imagine (no, I really can’t) Buzz’s state of mind up in Canuk land.
Could they be trying to drive the unions to strike so they can pile the whole C11 descision on their shoulders?
Then Red Ink Rick (loved that the other day) and Bob-a-looie, could just go “it was out of our hands, we did what we could, boo hoo etc”.
POP!
POP!
POP!
And we see some pretty AU colored chutes basking in the blood hued sunset.
Uncharitably,
Bunter
BTW, noticed the pro-GM turnaround crowd has been a bit quiet today.
If even they can’t find a positive…
Kudos Katie.
Some good thoughts there.
Bunter
All I can say is I am glad I sold my GM stock at $39 (after buying at $19) and held my Ford stock (which I bought at $8).
I do hope that GM can pull themselves out of this mess—-but am not hopeful due to management (or mis-management) inability to make tough decisions and build in accountability. This is a shame given the fact that GM product has really turned the corner.
So no more debate about paper losses versus real losses right. Where are the “its all the biased media’s fault postings.”
Bunter,
I mentioned the same notion a week or two ago – that GM is letting the UAW strike so they can lay the blame on them (even though it’s not their fault. Well, most of it isn’t their fault).
In a sense, the GM armageddon spells good news – it proves that it pays to define a real market, and to cater to its needs.
Honda and Toyota have done so. BMW definitely. Porsche likewise (with some strange maneuvers). Skoda is doing both the definition and the transformation, as they feel they deserve a reputation in tune with their quality.
Meanwhile, GM stands with a palette of brands, that are without a market. Some insane numbers man with a calculator decided that each of the brands was to be a compleat selection of car platforms unto itself, based upon a similar genesis — and that customers would somehow appreciate buying identical cars that were rebadged just to maintain the pretense that the dealers were selling different cars.
The GM website still spells it out for all to see: we’re a car named GM, and we have 53 models, some with different plaques attached somewhere on the sheet metal. Care to buy one? Please?
I was once in the middle of trying to make one of those brands fly, and the amount of sheer obduracy that every distinguishing idea was met with was staggering. The word delusional has been mentioned above in this thread; yes, delusional to the nth degree in the expectation that a lot of factors they have absolutely no control over will fall in line with their hopeful projections, while they are ignoring what they can actually control: whether their cars are topical to the market as it actually is and is developing, and not to the market as they would wish it to be.
The last ten to fifteen years of GM management will end up in business cases as the worst instance of destructive smoke-and-mirrors game ever seen at a major corporation. And those looking for the condensed, distilled, freeze dried nugget of wisdom required to explain it all will have to consider this: the world’s largest carmaker was hell bent on building cars that were destructive to itself, the environment, the economy and its customers – no matter what.
It is perplexing and sad. They could have had it all, and just didn’t care.
They’ll place the blame on the recession and higher fuel prices and they will place no blame on themselves.
Hey do they have enough in the tank to even make it till the next president comes into office? Maybe they won’t last long enough to get a bailout.
katie–
don’t forget franchise laws. they may play a pretty big role, as they almost force destructive badge engineering.
Although I’m no fan of GM or their products their imminent demise causes much concern, even some sadness. I wonder what shock waves a GM Chapter 11 would unleash on an already weakening economy?
This is a direct comment to Rick Wagoneer (he reads TTAC doesn’t he?). Come on Rick, what’s it going to be – 11 or 7? You don’t have much time to decide. If you go with 11 now, you have a chance to save GM. If you keep fiddling while the cash burns you will have to face chap. 7. In that case I hope you will be able to sleep at night with thoughts of destroying a once proud corporation and legions of worker’s livelyhoods. If you cant decide, step aside! let someone who knows the business try to bring GM in for a survivable landing.
Cue the rotund soprano please!
the frustrating part of all of this is that EVERYONE else sees what is going on and what has to be done….yet the guys at the top of GM just keep smiling and nodding.
its going to be weird in 40 years when some companies wants to resurrect the “Chevrolet” nameplate….
yet the guys at the top of GM just keep smiling and nodding.
Contrary to popular belief, these guys aren’t dumb. They know what is going on long before the auditors sign off on financial statements. I think even Lutz knows what’s going on, but has adopted an Iraqi Information Minister approach to the truth to keep the troops energized.
But it’s down to “save face as long as possible” which doesn’t take balls or “nuclear option”, which takes balls the size of watermelons.
Intelligence isn’t what’s missing here.
Robert, I think you are confusing a paper loss with a cash loss with this sentence:
Back when “outside investor” Jerry York was on GM’s board, he noted that The General needed a $10b float to keep the lights on (pay suppliers, meet payroll, etc.). That leaves $13.9b in GM’s kitty. If you extrapolate today’s $3.25b first quarter loss, GM’s will bleed out in a little over a year. But it’s clear that this quarter’s loss is only the beginning of an arterial spray of red ink that will deplete GM’s cash reserves and flat line what was once the world’s largest automaker, and the planet’s most profitable company.
The $3.25 billion loss was ugly, but it was also made of charges to earnings for Delphi, American Axle, GMAC, etc. Their cash position according to the earnings press release did not decrease by anywhere near $3.25 billion (in fact, $800 million by my calculation):
Cash, marketable securities, and readily-available assets of the Voluntary Employees’ Beneficiary Association (VEBA) trust totaled $23.9 billion on March 31, 2008, down from $24.7 billion on March 31, 2007. The change in liquidity reflects adjusted negative operating cash flow of $3.6 billion in the first quarter 2008. The decrease was driven largely by lower production in GMNA, including the impact of the American Axle strike. Including undrawn, committed U.S. credit facilities of approximately $7 billion, GM has access to more than $30 billion in liquidity.
http://media.gm.com/servlet/GatewayServlet?target=http://image.emerald.gm.com/gmnews/viewpressreldetail.do?domain=827&docid=45411
Now, an $800 million negative cash flow is very bad, but also only 25% of the cash burn that you’re portraying.
The press release also says that the American Axle strike’s impact to earnings was $0.8 billion ($800 million), so adding that back into the GAAP EBIT would be only a $12 million loss. The adjusted EBIT would be a $189 million profit.
Aside from the large GAAP loss and $800 million cash burn, the most troubling thing to me was the 0.8 percentage point drop in market share, from 22.7% to 21.9%. When is that going to stabilize?
By the way, GM’s stock is up 12.17% as of 2:24 p.m., so apparently the market agrees with me that the Q1 results are a death knell for GM.
Edit to the above comment: market share in NA dropped from 22.5% to 21.7%, no 22.7% to 21.9%.
No CEO/COO left behind…
ChrisHaak,
Yes, cash changes do not equate to income or loss, but the paragraph you quote itself states an “adjusted negative operating cash flow of $3.6 billion in the first quarter 2008”. The decrease of $800 million you calculate is compared to Mar 31 2007. For the change in the first quarter you need the Dec 31, 2007 balance which was $26.7 billion. So GM’s cash did decrease $3.6 billion this quarter.
That said, the absolute change in cash is no barometer for performance. For example, you could have an increase in cash of $100 made up of a $1000 loss and $1100 in borrowing.
So yes its another grim quarterly result but as workers across the mid west have to, we keep on plugging away. It is hard to see a bright patch in the future but when you break down the losses you see that one time charges?? totalled 2.9 (gulp) billion dollars. makes over all losses 350 million in total, thats still too much s far as i’m concerned, but at least its a bit better than gazillions was reported. Just hope these one times don’t become two times etc etc. Just when i thought we were starting to make progress too!
http://www.wxyz.com/news/story.aspx?content_id=c20d5254-a152-4404-abf7-44e321df4897
bleach : Yes, cash changes do not equate to income or loss, but the paragraph you quote itself states an “adjusted negative operating cash flow of $3.6 billion in the first quarter 2008″. The decrease of $800 million you calculate is compared to Mar 31 2007. For the change in the first quarter you need the Dec 31, 2007 balance which was $26.7 billion. So GM’s cash did decrease $3.6 billion this quarter. Yes, but, Chris is right. The ‘graph in question was misleading– especially to us lay-people. So I’ve changed the text to reflect the necessary emphasis on cash. Cash is king. Or, in this case, the executioner.
I wonder how much “Enron” accounting goes on behind closed doors when loses like these start piling up. If Ch 11 takes place, who’s to say there isn’t any shady accounting going on to shoot themselves in the foot and kill the whole thing. If I was an investor, this is the thing I would worry most about.
kericf:
If I was an investor, this is the thing I would worry most about.
Most investors are quite aware of the risk they’re taking owning GM – if they’re not shorting the stock already.
There’s too much accounting mumbo-jumbo going on there for me to follow, but I came up with this little calculation …
$3.25b (loss) * 4 (quarters) / 266000 (employees) = $48k.
Which ain’t a bad wage. So GM could pay all its employees $48k a year to sit at home and watch TV, not make a single car, and still lose the same amount of money.
Of course everyone would have to donate $50 to the kitty in order to raise $13M for Rick’s wages.
I have a question:
If GM and Chrysler both file for chapter 11, would it be in NA Ford’s interest to do so as well?
Ashkan : I have a question: If GM and Chrysler both file for chapter 11, would it be in NA Ford’s interest to do so as well? And a damn fine question it is too. The short answer is… yes and no. The downside for Ford is the same downside for all of the Big 2.8: the possibility that no one will buy a car from a bankrupt automaker. The downside of NOT filing for C11 is that Ford would be at a HUGE competitive disadvantage. C11 would/will allow GM and Chrysler (Chrysler first, ‘natch) to lop off brands and kill dealers. The patchwork of state franchise laws that made killing Oldsmobile a multi-billion dollar endeavor, a process fraught with 50 legal quagmires, would go away. Gone. [Contrary to popular belief, C11 would NOT give an automaker the freedom to jettison their union contracts. As in the Delphi debacle, it’s just the start of another really nasty conversation.] C11 would allow an automaker to close factories and renegotiate contracts, sell inventory and do a whole lot of things TTAC’s Best and Brightest (specifically our legal eagle Justin) can tell you about. Bottom line: C11 gives an automaker a chance to undercut ALL the competition in terms of labor costs and, thus, price. This would be/will be transormative for the whole U.S. auto industry– including the transplants. Detroit’s outdated cost structure sets the price floor for the entire retail sector. (It’s true: Toyota’s profits depend on Detroit being non-competitive.) Hence Ford’s SEC filing lists the danger of a competitor filing for bankruptcy.
So with all the bad news today about GM losing billions how come the stock went up $2.00?
Either we really are confused as a group on this board or GM investors are dumber than we think.
Bill Wade :
So with all the bad news today about GM losing billions how come the stock went up $2.00?
Either we really are confused as a group on this board or GM investors are dumber than we think.
GM stock has shed value over the last few years faster than an ornery rattler. I wouldn’t pay attention to these fluctuations. Wall Street is not about sustainability. Fear and greed. Fear and greed.
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.
Steven Lang:
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.
GM cannot survive without fixing GM NA. Can’t be done.
The FIATsco, who was held accountable for it?
Great example. In a sensible world, at least a portion of the top management and certainly the CEO would have been fired for such a ridiculous, huge blunder.
You can’t just dismiss “one-time charges” as meaningless in the overall view of a company’s health. “One-time charges” occur all the time; it just means that particular item is not an ongoing charge from the past or into the future. But, every year GM and all other manufacturers will have “one-time charges” that need to be paid, and that’s part of the bottom line. When you are talking about GM’s cash reserve, a “one-time charge” matters because it is reducing that cash reserve, bringing them one step closer to bankruptcy.
What’s the release date on the Camaro?
Katie is right-right-right.
When big one-time charges happen almost every quarter something is very fishy.
GM has spent years squandering the golden eggs layed and stored away in it’s heyday.
Also, I don’t agree that thinning the dealer body and getting rid of brands is very hard. As I’ve said before, just use the Isuzu method. Give the dying brand one or two unappealing vehicles and watch the dealers give up and move on to greener (Asian) brand pastures. The Oldsmobile shut down was a huge expensive mess because of the way they did it.
Not long ago Chrysler put the Plymouth brand to sleep and hardly anyone noticed. A few years earlier they did the same with Eagle.
GM hides behind the franchise law excuse because they are either idiots or have no cojones.
There isn’t a GM (or Ford, or Chrylser) vehicle sold today that I would even consider buying.
Check that. there are several. Unfortunately, none of them are actually sold in North America.
I’d like a Ford Ka, perhaps. A stickshift diesel Caravan might suit my fancy. Oh wait – that still leaves out GM.
A good read as always Robert!
“This pathetic episode of Detroit’s automotive history needs to be documented (independently) to show people, in the future, what went wrong for GM. It wasn’t the transplants unfairly “stealing market share”, it wasn’t the UAW demanding a fair wage and it wasn’t the customers “not doing their patriotic duty”. It was the management, pure and simple. They had a sense of entitlement, rather than a sense of competitiveness.
Boy oh boy Katie, you hit the nail on the head. To see where this is going for GM read about Bethlehem Steel. The similarities of these two companies are profound.
Cut and paste:
http://money.cnn.com/magazines/fortune/fortune_archive/2004/04/05/366339/index.htm
This is not a GM problem, this is a problem with the US corporate system today. I have seen so many companies fail due to disastrous management (the company I work for is being acquired right now), I think it is systemic. Yet, at the same time as the companies fail, those who brought them down through their arrogant incompetence get huge payoffs. Boards do not fire them in time because many of those boards are populated with their act-alikes from other companies. It’s not a system of checks and balances, it’s an incestuous circle that plays musical chairs at many of the US corporations.
GM hides behind the franchise law excuse because they are either idiots or have no cojones.
I think GM’s big problem as far as brands is the fact they are in denial and wont admit defeat. If they start selling off or shutting down brands they would have to admit they screwed up, I think we can all agree they are never the problem for all their woes. They can’t kill Saturn or Buick or Pontiac(I think Pontiac can be salvaged) or Saab, etc. without admitting their branding strategy and basic car business strategy is flawed and needs to be fixed. Instead they sold off the valuable pieces that were managed differently and profitable and more or less invisible to the general public from the car side. Once they start killing brands, even though some of the brands are invisible for the most part, people will come to notice maybe there really is something wrong with GM. It is entirely their egos since Ford has made it work, but GM hasn’t done a single smart thing to fix it’s brands. Saab should have been sold off just as Ford but instead they keep with their screwed up branding plan. How come they haven’t even thought of selling off some of the others, they are worth something if just to get them off the books and out of their hair and slow the bleeding.
The branding mess has been explain many times already, but they hide behind the franchise laws and cost simply because the management refuses to admit they screwed up and wont be humbled. I guess they will take it to the grave. The companies grave since their pensions guarantee little pain.
This theory runs parallel to the fact the must be the largest automaker in the world regardless of the damage.
I’m taking a look at GM’s Q1 financials, focusing on Asia where they are supposedly making a killing.
Interpreting the numbers in Asia is a bit difficult, because the joint ventures in China are unconsolidated. That means they’re not included in revenue.
GM reports in Asia: revenue of $5,477M; earnings before tax of $286M; which includes equity earnings from Chinese joint ventures of $135M.
Deducting the equity earnings from China, GM has $152M earnings before tax on consolidated revenue of $5,477M.
This means their profit margin before tax is 2.8%.
That’s not a lot and far below the profitability of Toyota.
GM sold 311K vehicles in China in Q1. That brought in $135M in equity earnings from joint ventures. Assuming all cars sold are from those joint ventures, that amounts to $434 earnings per vehicle.
Of course, the Chinese joint venture partners also get a chunk of profit. And the majority of sales are ultra cheap Wulings. So, overall profitability in China looks decent.
But, I wouldn’t say GM is making a killing there.
Units delivered in Asia grew only by 6% versus last year on loss of market share in China and Australia. That’s weak.
Daewoo production was up only 2% versus last year. Again, that’s weak.
Overall, I’m not impressed, although something is better than nothing.
We can talk about denial and lack of accountability…and its been discussed before. These topics, while true, are not new.
What I’d like to bring up is the utter and complete lack of caring. As a GM family member, I’ve been watching what’s going on for many many years. I’ve driven their products and I’ve seen just how LITTLE these people care about the very people who pay their salaries. I see no amount of care at the dealership level, and I sure as hell don’t see any care from the very top.
I find it very disgusting to know the company I have supported time and time again …how they simply don’t give a sh*t…about me, my customer experience, my having gone out of my way to purchase their crap. It’s not about “me”…but it SURE AS HELL IS about the customer. All of them…every last one.
If not the customer, who?
Oh, I see…it’s about yourself. Isn’t gluttony one of the 7 Deadly Sins? Anyone who takes (and “take” is the appropriate word) a 64% pay raise for this type of performance simply DOES NOT CARE.
They don’t care about the families who will become unemployed, they don’t care about the slums they are working so hard to create…while simultaneously destroying a once-proud company. They wave the flag trying to get YOU to care, yet they turn around and spit at your feet when you ask them to fix one of the problems which came standard with one of their vehicles.
They are liars, hypocrites, users, manipulators, well-dressed slobs underneath who simply DO NOT CARE.
I feel sorry for the families who actually BELIEVED in their management team. Yes, it hurts knowing you have been screwed by the very people you once trusted.
But this seems to be the theme of the new America- Take as much as you can, and TAKE IT ALL. Don’t act like you’ve never seen this before…recall all those outlandish and disgusting raises everyone over at Delphi received three days (I believe) before they declared Bankruptcy.
I’ll see you at GM Death Watch 200.
Kwanzaa:
I agree 100%. When I was in high school, you could say I was a fan of American manufacturers. But then I came to the realization that they don’t care about me if I buy a car from them. Why should I care about them, if they don’t care about me? So I buy whatever car meets my needs, regardless of manufacturer. Lets face it, when you’re sick, or imprisoned, or hungry, or thirsty, is GM, or any other manufacturer for that matter, going to give a flying fuck about you?
This is a free market economy. The people obviously don’t want to support GM (through the purchase of vehicles) so it’s time for GM to go.
Folks are always looking for the bad news here, and in doing so seem to miss a lot of the silver linings. First off, I’ll concede that GM is going to have trouble turning their NA portfolio around to get away from such heavy emphasis on trucks. And while their cash burn is concerning, a good deal of it is due to the strike, and that’s not going to last forever. The “loss” they took is largely due to the fact that they had to write down the value of GMAC because of the mortgage problems. If you want to make an ana
But here’s the point from a business perspective – despite all the NA problems, automotive operations made money. The only reason total ongoing operations didn’t make money was because of losses at GMAC. Remember when we always used to say that the only reason GM is staying afloat is because of GMAC’s profitability? GMAC’s profitability will return – the housing crisis won’t last forever, it never does.
We used to talk about GM’s inevitable demise because their CORE business – automotive – didn’t make money, even when the US market was up. At that time, they had to lean on GMAC and sell assets to stay afloat. Now, their core business IS making money, even when the US market is down, because they’re globally diversified and can weather a downturn in the US market.
To me, that’s not a bad business model.
You don’t want special items (asset sales) to keep you alive. That’s not sustainable. But they seem to be past needing that because the core business is making money.
So, the bright side: core business making money, GMAC will be back when the housing market turns around (maybe a year?), losses due to write-downs, significant additional cash flow coming in ’10, and they’re solvent and sustainable enough to make it that far.
THAT’s why their stock is up. The people betting with their money, not just their mouths, are speaking.
MichaelJ : THAT’s why their stock is up. The people betting with their money, not just their mouths, are speaking. My mouth is my money. Anyway, you repeat the fact that GM is making money on its core business four times. No matter how many times you say it doesn’t make it so. That said, I’m sure GM execs repeat a similar sort of mantra all day long. That said, here's a little ditty from Mlive.com: GM is enjoying rising sales and profits in China, Russia, Brazil and other markets. But it continues to struggle at home, where GM generates roughly half its revenues. "Losing $600 million in North America is not an acceptable result at all," Henderson said. Again, this doesn't factor cash burn ( -$3.4b negative cash flow). Anyway, care to make the case that GM's core business is making money? I’m not seeing it.
Steven Lang: 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.
We’re witnessing the (painful) birth of a new American automobile industry. This remade auto industry will look more like the European model, where no one company dominates, and 5-6 companies with roughly similar shares jockey for position. It will be a more creative inudstry, which will be good for customers and, ultimately, the industry itself.
There will still be a place for GM (and Ford) in this remade industry. There is not, however, a place for GM as it’s presently constituted – a corporation selling middling cars under several brands whose meaning was lost on customers years ago.
A new, more focused GM will unleash the talent and resources currently contained (or, more accurately, smothered) within the current company.
jthorner: Not long ago Chrysler put the Plymouth brand to sleep and hardly anyone noticed. A few years earlier they did the same with Eagle.
GM hides behind the franchise law excuse because they are either idiots or have no cojones.
It was easier for Chrysler because Plymouth had never been a standalone brand. It was always paired with another Chrysler marque at the retail level. Eagle was only killed after the company had successfully merged the AMC-Jeep dealer network with the Chrysler dealer network.
Watch the current effort to merge Buick, Pontiac and GMC into one dealer group. My bet is that – if GM does not file for bankruptcy first – Pontiac will be gone within five years.
The wild card is Saturn. It has a standalone dealer network, which makes shutting down the brand very expensive. GM doesn’t have the money to buy out Saturn dealers. The new models are failing to connect with customers. The Saturn makeover is following the Oldsmobile script quite closely (too closely), but GM doesn’t have the money to buy out the dealer network. At the same time, spending money to give Saturn unique models – even rebadged Opels – doesn’t appear to be a profitable undertaking.
Geeber is right, Saturn is the barely visible millstone tied to GM’s neck. One valuable fact: Saturn has lost money for GM since its conception.
At least Ford management had the cajones and intelligence to give up on Edsel after 2 years and 2 months (3 model years – very few 1960 cars were built).
My guess is that Generous Motors will be chapter 7 by 2012. I don’t think the current management believe their problems are “as bad as all that.”
Something will force them to pull the trigger on Chapter 7, not Chapter 11, though. Whether it is something totally unexpected like a Tsunami taking out their Daewoo plant in South Korea, or the Chinese government simply declaring 50% ownership of SAIC-GM null and void, or an extended CAW or UAW strike. Something will blindside them and that’ll be it.
This is GM’s 100th year of existance. Few people realize how many times it nearly ceased to exist.
Size is no real protection. Look at Pan Am, Bethlehem Steel. Studebaker-Packard was one of the 50 largest companies in the United States when it was formed. International Harvester was huge, but nearly died in 1982.
British Leyland was the top selling auto company in the UK for a long time, and in fact, the last remaining vestage of BL (MG-Rover) had a top-10 selling vehicle in the UK as late as about two years before its demise (in the equivalent of Chapter 7 – close er down boys – bankruptcy).
The question is – will a US Chapter 7 kill the entire entity of GM? I guess it depends upon how the ownership of the international operations is set-up. But I think they are wholly owned subsidiaries, so chances are (to my layman’s mind) that they’ll perish with the mother ship in a similar way to an unborn fetus dying when his or her mother dies.
I don’t know if emergency cesarian sections (so to speak) could save Adam Opel AG, Holden Limited, GMDaewoo, Saab, etc.
As for’GM’ not caring about the customer; yes and no. From the customer perspective, ‘GM’ is the manufacturer, which is responsible for the supplier’s output, and how their products are designed and assembled, and the dealers. I know some dealers do take excellent care of their customers and others don’t. From my experience, dealers have been running scared for the last few years and many have improved their service. Undoubtedly many engineers and hourly people in GM work very hard and smart and others don’t. What is certain is that those at the top, i.e. Wagoner and the pathetic board don’t give a damn. When York was among them, they treated him as an intruder and were literally offended at his questions and suggestions.
If you are a human in the woods, many things escape your senses — warnings, indicators — that forest animals sense immediately.
Will there be a storm tonight, you wonder? Is there a forest fire coming my way? Will there be a landslide?
All unknowns by you, until the fact.
However, if you watch animal behavior around you, you can pick up hints to environmental changes you will soon face.
For this discussion, the “animals” we need to be watching are GM’s dealers.
They can smell smoke long before we can.
Through negative Pavlovian learning, they instinctually know, by now, when to clear out, or hunker down.
So, my question to everyone is: What are the dealers in your neighborhoods doing?
Business as usual? Selling out in droves? Consolidating? Laying in inventory? Clearing it out and leaving lots empty?
I do know that my daily e-report from Auto News from a couple days ago was almost entirely about the state of U.S. Domestic Dealerdom. And it’s Doom. And Gloom. The big holding groups (Lithia, AutoNation, Sonic), tanking. Smaller individual stores, cratering.
I also know from personal observation that one of Chicagoland’s most respected dealer groups just bailed on their B-P-G store in my neck o’ the woods (which they took in as part of a Nissan point “swap” about four years ago). Now, why would you part with a Nissan point to take on a big B-P-G point, pour money into it, and then sell it in less than four years? This month in fact?
The smell of smoke.
Other large domestic dealers in big cities are fairing worse, finding NO takers for their Ford and/or GM dealerships. However, the land on which these stores sit is worth far more than the franchise, so they’re selling the land and handing back their franchises to the manufacturers, shuttering long-standing Ford and Chevy dealerships for good. Or bad. Depending on your point of view.
However, the Honda dealer near me has rented the parking lot of a closed movie theater about a half-mile from their store and piled it high with 4-banger Accords and Civics. About 150 units, plus what’s on the ground at the store itself.
And who owns the Honda store? Same group that just bailed on the B-P-G dealership.
The smell of smoke, if you sell Hondas, is apparently a very good thing. Enough to bet the floorplan farm upon.
Samir has a point — the GM management team is not lacking in intelligence. You don’t get to their level of the food chain being dumb.
What they’re doing — failing — may just be on purpose.
Intentional.
That’s all I can make of it. Simply no other way to look at it.
And as discussions above indicate: management failure hastens the necessary pull of the pin on the Chapter Grenade. Due to the fact things have gotten so bad, GM management will then heroically fall upon it, martyring themselves and hoping for favorable Chapter rulings against franchise laws, contracts, debts — everything.
Maybe the savvy dealers sense this already. That if you hold a franchise contract with GM currently, it may become worthless in the very near future, as it goes up…
in smoke.
THAT’s why their stock is up.
You must be reading the chart upside down. This is not a winning stock: http://finance.yahoo.com/q/bc?s=GM&t=5y&l=off&z=l&q=l&c=
I’m no GM supporter and I love reading some of the better quotes on here like: “GM never misses an opportunity to miss an opportunity” and “Never buy a new model car from a manufacturer that does nothing but make new model cars.”
But I never for once thought or expected a car company of any flavor to actually care about me or anyone in my family. While I prefer (and buy) German and Japanese cars I certainly don’t think any of those companies care about me, either.
I think each car company does it’s level best to put out the cheapest product that will get the best journalistic coverage and sell it at a price point that keeps their factories running and profits up. The only difference between the products is where the company set the minimum standard.
The local mall has a raffle going where the grand prize is either $25,000 or a brand-new GMC Yukon with a window sticker of $53,000. To me it says something aobut the state of the market that a Buick/Pontiac/GMC/Nissan/Chrysler (yes, all those) dealer is willing to give away a supposed high-profit vehicle as opposed to a Caliber or Versa.
In the past,were I to win that raffle, I’d have considered taking the Yukon to sell or trade. Now, I think I’d take the money.
Overseas, emerging markets (China, India, Russia, Eastern Europe, etc.) are the only hope for Ford and GM to survive. And, considering how fast those markets are growing, they might just allow the two to limp along.
But Chrysler in particular is fucked, because their overseas presence is close to nil. GM and Ford are in much better shape due to their larger overseas presence (plus they are bigger domestically as well). Chrysler clearly will fail first.
And if Chrysler fails, that demand doesn’t just disappear. Honda and Toyota can’t absorb all that demand (although there are indications that Toyota is no longer running all of their plants at 110% of capacity, so they might be able to absorb some). Hyundai/Kia will take some of it as well.
However, the majority of Chrysler’s sales will be absorbed by Ford and GM. Chrysler going out of business will save Ford and GM for at least a decade.
Bring back the Aztek, put a licensed Prius drivetrain in it and sell -nothing else-. Homely little Toyota hybrids are the hot seller now!
So what happens to warranty obligations if GM goes C11? Case in point: I have GM’s warranty until 3/36K on my Chevy, which is currently at 22 months, 24K miles. I have a third party warranty that kicks in at that point and goes until 7/84K.
Now, if GM goes bankrupt, should I drive the thing like hell to 36K miles so the third-party warranty kicks in?
Axel, that’s not even a remote possibility. GM is in the strongest fiscal shape of the three. Ford is in the finest strategic shape. Chrysler is the sick patient at the moment.
I believe there is much truth in Domestic Hearse opinion that GM is making it difficult for smaller dealers in less desirable locations to succeed. Many times on this site it has been noted that Toyota, Honda and the like sell x amount of vehicles with x less dealers. That translates to profitability. What with all the various local franchise laws, GM simply cannot terminate points that underperform both in sales and customer satisfaction. GM believes that the strong will survive. When the dust clears, the General hopes to have fewer dealers selling more vehicles per point with better customer relations. Just my opinion.
RF,
You wanted me to make the case that their core business is making money. As you (and Henderson) point out, they lost $600M on NA’s automotive operations.
But taking that loss into account, they made $390M globally on the auto business because the other 3 regions made enough money to make up for NA. That’s the basis for my comment that their core business (automotive) is finally making money.
Workers just walked off the line at the Fairfax, KS (primary Malibu) plant. They know that this car is critical for GM and can afford to strike here and hold out for more than other plants.
So what are they going to accomplish doing this? Pay raises from a company that prob just wants a way to reach bankruptcy so they can abandon labor markets where the UAW rules with a heavy fist?
Really, clue me in here.
Any chance the board of directors will take a pay cut too?