Well, it’s official. The Wall Street Journal reports that GM pleaded its case to U.S. Treasury Secretary Henry Paulson. The General’s looking for a mere $10b in “continuation” money to fund its Chrysler “absorption.” That’s a nice cover story for saying that GM cannot muster any other spin on “crying uncle.” Regardless of what Hank “the Hammer” Paulson answers, it’s a safe bet that we’ll be seeing an epic amount of taxpayer money flow into the RenCen’s silos of despondency in the near future. Mark my words: at the end of this, we’ll be saying that never have so many paid so much to so few for so little.
TTAC has chronicled the inevitable slide of the financial train wreck called General Motors. Maybe we’ve had greater foresight than Wall Street. Or maybe we’re just smart enough to see through the “all’s well” smokescreen created by GM’s masterful spinmeisters. Truth be told, it’s neither. The American public has voted for a long time on GM, and that vote marched out the door towards non-domestic brands. And for certain, they’ve never looked at an income statement or balance sheet in a 10K. I’ll say it here: the great unwashed mass of American car buyers know better than we can scribe in 800 words.
So let’s put aside any misconceptions here. There’s zero chance of GM (with its Chrysler sibling) ever again achieving past glories in market share or sales. In fact, the two companies together won’t achieve 30 percent market share. It will be much less, especially as GM simply rebadges more of its own vehicles at Chrysler, Dodges or Jeeps going forward. It didn’t work before (bye bye Oldsmobile) and ain’t gonna work in the future.
Any interested taxpayer has to ask: why should the Federal Government bail out General Motors to preserve the status quo? Why keep this monstrous hulk that gave us more than three decades of shoddy product, misguided investment adventures, and lousy managements? Sure, there were some glimpses of brilliance, and maybe some of GM’s cars and trucks today might be better than ever. Still, it doesn’t seem like Consumer Reports or the buying public thinks its vehicles rank higher than most of the Asian competition. The days of adventurism still haven’t ended with the Chrysler deal. And management-– well how the heck does a CEO who presided over the biggest evaporation of-– name a metric, any metric-– keep his job?
Yes, we certainly feel for the people that will lose their jobs. The suppliers that will disappear. The dealers forced to shutter their stores (well, some of them deserve their fate). They’ve all been given a lousy hand of cards, fed by years of pretending that “the next great vehicle from GM is coming.” It’s time to stop the music and deal with reality.
Any taxpayer monies that go to General Motors must have some very tight terms and conditions. The Feds cannot buy into the story that it’s just a matter of the economic climate today; sunshine is just beyond the next cloud. No way. It’s time for a radical restructuring of GM so that it can emerge as a self-sustaining and profitable enterprise in North America.
The terms should be as follows:
Board of Directors – Completely replaced by an independent group answerable only to the taxpayers – not the shareholders, not the management – no one but us. GM should have split the Chairman’s job from the CEO many years ago – but didn’t. Rick Wagoner answered to himself, surrounded by his handpicked failures, especially lead outside director George Fisher. Kick all of them out. No one from management sits on the new Board.
Management – Hire a new CEO. Find someone like Alan Mulally, an outsider with industrial experience but who has loyalties to no one inside of GM. Make GM’s new leader a czar. Corporations aren’t democracies. GM needs a firm and heavy hand to break down its internal fiefdoms. The new boss answers to no stakeholders save the new Board.
Financial Creditors – Force a cram-down on them. Painful but necessary. The balance sheet cannot remain as structured today regardless of how many dollars the government feeds into the beast. In return, make the creditors the new shareholders of GM, in return for debt foregiveness.
Shareholders – Tough luck, pennies for you. Especially the institutional shareholders that failed to force more action from the Board years ago.
Salaried Employees – The days of guaranteed career growth and job advancement will come to an end. No more buffoons promoted upwards. In fact, thinner and leaner management will now be the “in style” at the Ren Cen.
Organized Labor – We commend your wisdom on the VEBA deal. But you get a cram-down on that too. Retirees will have to take a generic plan versus a gold-plated deal. Everyone has to give. Their “contracts” are being broken. Yours too.
Dealers – If you’re not a Caddy or Chevy dealer, be prepared to wither on the vine. Just like Isuzu did to its dealers. Starve those weak brands of product. They’ll get the hint that their days are numbered.
Maybe this can be construed as “tough love.” But I’ll be damned if my taxpayer dollars go to save the status quo. Ethics aside, a no-strings attached Detroit “continuation” bailout will only continue the misery for all those who depend on GM for their living.
Excellent piece Ken. It’s just a shame none of what you propose stands the slightest chance of being implemented.
well written and insightful article. couple of thoughts, as HPE states, not much chance for your proposals although they make a lot of sense. I’ve been making proposals to GM for years and the effort has been futile.
as to starving dealers, that’s exactly what has been happening to Buick dealers. shame too since the boomers have been moving right through Buick’s demographic. how well we would have done with a Roadmaster and Wildcat instead of rebadged Trailblazers and Minivans.
“But I’ll be damned if my taxpayer dollars go to save the status quo.”
That is exactly why Paulson can not give GM money to merge with Chrysler. It isn’t going to preserve the status quo. Every last cent of that $10B would be spent on layoffs and plant closures. Suppliers and dealers will go bust and/or come begging for their own bailout. And when all that $10B is gone, GM and Chrysler will be much worse off than they were before it. It would take way more than $10B to save both companies. After all that turmoil, Red Ink Rick would have to come back begging for more.
The only person who would benefit from this merger would be Steve Feinberg. It would be the ultimate slap in the face to taxpayers, paying off the hedge fund tycoon at the expense of blue collar jobs.
To be fair to employees both salaried and hourly, there has been no guaranteed career growth for decades, and the workers would have given more back if pushed, since they would rather keep their jobs at a discount than lose them.
When you have to build cars with crappy chinese parts, on crappy obsolete worn out equipment, you get crappy cars, and crappy cars mean lost profit and market share.
my contention is, and has been, that our problem isn’t product or costs. the single issue that is most in need of correction is the marketing.
it’s perception baby.
“RenCen’s silos of despondency”
Love it, sort of like Superman’s fortress of solitude. Perhaps the name “Fortress from Despondency” is more appropriate. A magical place that shields GM execs from reality and creditors.
guyincognito said “The only person who would benefit from this merger would be Steve Feinberg. It would be the ultimate slap in the face to taxpayers, paying off the hedge fund tycoon at the expense of blue collar jobs.”
So, doesn’t this make it dead cert that it’s going to happen, then?
I mean, looking at what the bailout boys in Washington have done over the past 3 weeks, and all?
I’m with Buickman, no one wants to throw thousands of hard earned ( and lately real hard earned) dollars at a company that is on the ropes. There is a real fear of being stuck.
Buickman:
I beg to differ. The problems at GM boil down to PRODUCT. Perception will only change with great product, and years of it. Marketing to folks who won’t consider your vehicles is wasted money.
They’ve spent untold millions marketing their 4 versions of the good (not great) Lambda-based CUV’s, rather than using those monies to build ONE great CUV.
They’ve spend more millions marketing the Volt VaporCar, instead of developing the batteries needed to actually sell it.
More millions on NASCAR; does anyone think it really sells Impala SS’s?
More millions marketing the Pontiac G8, which should have been the new Impala. Supporting another dead brand…
GM got in this mess through decades of poor leadership and even worse cars.
They’ve driven off three generations of car buyers.
They’ve destroyed the single most successful industrial corporation IN HISTORY, and now the taxpayers are supposed to bail them out?
So they can buy freakin’ CHRYSLER??? The one car company that’s even more screwed up than GM?
With the exception of the Jeep Wrangler, EVERY new Chryslerberus car and truck has landed in the marketplace with a thud.
The new Dodge Ram? Yeah, GM needs even more trucks…
Viper? GM doesn’t need it.
Aspen/Nitro/Compass? etc.? Don’t need ’em.
Sebring/Avenger? GM already has the Impala for rental fleets. Does anyone else buy them?
300/Charger? See G8 above.
Challenger? Good for a few thousand old dudes, but they’d have to kill it to support the Camaro.
Caravan/T&C: GM could use a minivan, but it would take many millions to fix the terrible interiors and quality issues. Millions they don’t have.
This is all about GM desperately trying to become “too big to fail”. Unfortunately, we have government officials who will once again show their generosity with other people’s money and give in to them.
Can anyone here honestly say they’ve bought a car based on its marketing?
Marketing doesn’t sell; it only alerts one to a product/service’s existence.
Naturally, after becoming aware of it, one Google’s for info. Professional reviews might be paid for, but consumer reviews (mostly) provide more value. Anecdotal experience is more important to me than a print ad or TV spot.
I expect this to turn out like the financial market collapse at this point – our government is going to step in, bail them out, and take control of them.
So that makes a pretty significant part of the financial market the government will control, a large portion of people’s mortgages will be in fed ownership, and soon the big three will be under fed ownership. Does this not scare the bejesus out of more people than just me? Perhaps Rabid Rick has managed to keep his job because this was the plan all along.
Ok, tinfoil hat off now. This is still a disaster waiting to happen irregardless.
Maybe I am naive, but I still refuse to believe that there are any sentient beings out there seriously contemplating merging GM and Chrysler.
As I been saying here, bend over this is going to hurt.Anyone care to guess how long it will be before Ford will step in line to get their 10B? If anyone buys a car from one of these loser’s then I guess that means they supported the 700B plus bailout?We all should as Americans boycott these Company’s that have run their selfs in the ground and now we have to come to there rescue. Just figure the cost per car of all the money they will get on top of the purchase price and that alone should keep the anybody with a brain from buying.How dose it feel to be Helpless? having the life sucked out of you?
Ack, taxpayer money being used to fund big company mergers. And the Republicans are throwing the socialist word bomb at Democrats?
@Buickman:
The “perception gap” exists for a reason: decades of shoddy, inferior products. GM is just now creating a few models (Corvette, Malibu, CTS and trucks)that can genuinely compete with Japanese and European models, but the bulk of their products are still third-rate. It will take GM at least as long to rebuild their reputation as it did to destroy it.
Zarba : I agree product product product…
let me tell you a quick story that will summarize the domestic car makers problems in a nut shell.
just moved back to the east coast from a 16 year stint in the Midwest.
I am jogging along a street @ 5 AM which is lined with upper-middle class priced homes that lack garages, so all the cars are on the street.
therefore on the street there is a row of 30+ cars & trucks. as i am plodding along i suddenly realized that except for 1 work truck and 3 CUV/MiniUVs not a single one is a domestic car!
if you can not make a product that this demographic wants to buy then, as sorry as it for me to say: game-over, lights out.
undershaft.
As accurate as article is, neither McCain nor Obama will follow common sense model. They will drag us (taxpayers) into this money pit. I think this very site TTAC reminded us the story of British Leyland, which is no longer British and no longer with us. But there will be idiots who will argue that good product will make all go great.
GM is not just a factory that makes products. Because of great cost of autos it requires financial arm and dealer network to service those. Hence a genuine problem: financial arm can survive only on volume and disproportionate profit margin compare to banks. Dealer network trying to push inferior cars at comparable prices must take losses on sales and make up on parts and labor. That three legged stool has to be stand on crappy cars that public must be willing re-purchase every two-three year at a loss.
We, the people, already providing great support to automakers by funding technology and science research available only to domestic manufacturers. If they could not take advantage of this in the past, why we think they’ll become any brighter in the future?
@ menno:
“So, doesn’t this make it dead cert that it’s going to happen, then?
I mean, looking at what the bailout boys in Washington have done over the past 3 weeks, and all?”
On a purely rational level, of course that is how it appears. However, those bailouts involved complex derivatives that no one really understands and mortgages and home equity loans that people do understand were irresponsibly given and taken. I think people realize on some level that Main St. really did have a hand in this problem and are thus amenable to the $700B for some complex related banking stuff that they don’t understand.
However, I don’t see anyone feeling responsible for GM’s plight. Or for Chrysler/Cerberus’ plight. Even if giving them money is the exact same thing with the same outcome as the banking bailout, it will be much harder to sell it that way. It will be much easier to see it for what it is, a handout to a Hedge fund at the expense of Chrysler and likely GM as well. This would get prime press coverage. Axed workers would be out protesting, Granholm would be lamenting, and Pelosi would be grandstanding. It would be a bailout too far.
I’m disgusted with congress’s handling of the entire bail out mess. Unfortunately, other than voting them out, there isn’t much else to be done. In simpler times, tar and feathering was a popular way to express dis-satisfaction.
I wondering if there will ever be enough outrage to explode into riot? Or, are we all like the frog in a pot of water that has just been set onto the stove?
The Auto Industry is only getting a bailout because they built a pipeline from the Treasury to Wall Street and under the circumstances could not say “no” for a bone tossed to Michigan.
Slightly off topic, an excellent article in the Sunday Times Business section by Floyd Nocera. Pretty much zero of the 700 B is going to free up the system and get the banks to make loans. They are sitting on it. (He got to hear a recording of the REAL deal conference call).
In the end, everything but YOUR debts will be nationalized/socialized/bailed out.
“But I’ll be damned if my taxpayer dollars go to save the status quo.”
Unfortunately, voters who pay taxes are becoming outnumbered by voters who consume (or aspire to consume) taxes.
It’s looking bleak – lots of bipartisan government intervention. Worse, the next congress may go HooverII via a Smoot-HawleyII.
Perhaps, ihatetrees, I should put an option on renting an empty building (believe me, there are empty buildings aplenty in northwestern Michigan) and lease a few dozen heavy duty sewing machines.
If we do a smoot-hawleyII and imports are essentially banned, just what do you suppose everyone is going to be wearing within 2-3 years, after their current clothing wears out?
I’ll need the options on some cotton too.
On second thought, why bother when – if by chance – “plan C” (for “clothing”) actually were to succeed. If the Obamanation gets in and I were to be wealthy, they’d simply take it all and redistribute it anyhow.
So guess we’ll be joining the emperor within a few years and will just have to ignore the fact that we’re all running around nekked.
Wow it’s going to be cold up here in Michigan.
Ken,
I highly doubt our current administration has the stones to demand anything of GM.
Look at the recent bank problem. Washington gave billions to banks and asked that they loan that money to those who qualified.
Instead banks are using that money to buy other banks – loans be damned.
Now GM is asking for billions to buy another car company. I suspect the only thing our politicians will ask for in return is campaign contributions.
-ted
From the aritcle in the WSJ:
“Inside the merger negotiations, the growing feeling is that a combined GM-Chrysler effort, while daunting in its complexity, may be the best way to bring federal money into the mix.”
Brings more support for what Holman was saying last week.
The fact that Ricky/BOD/WS didn’t understand what year in – year out negative cash flow on NA auto operations actually meant is not merely astonishing it is depressing. However, Mr. Elias I must disagree with your high opinion of government stewardship.
BOD: Sure, fire all of them, but their replacements will be Wash DC insiders.
CEO: Ex-DC campaign chief now working for a lobbying firm.
Fin Creds: Politically connected and government guaranteed. Still have houses in Martha’s Cove for political fundraising needs.
Shareholders: Nationalizing 401Ks anyway, so who cares?
Organized labor: Jobs for life.
Dealers: Tort attorneys get rich. Keep funding the DNC.
Product? What product?
Sorry to go all negative, but corruption and incompetence are just as likely in government as in the private sector. Sure, maybe the government will choose some combination of Takeo Fukui, Thomas Edison and Dale Carnegie to run the whole thing, but we are more likely to get a combination of The Three Stooges, Marx Brothers and Dumb and Dumber. Why do I keep seeing that scene from Monty Python and the Holy Grail: “Bring out your dead!”? (“I’m not dead yet……”)
Board of Directors – Completely replaced by an independent group answerable only to the taxpayers – not the shareholders, not the management – no one but us.
So, Board members would be appointed by the President and confirmed by Congress. That’ll keep politics out of running the company! The UAW will block any “cruel” efforts to trim payroll. White collar workers will seek Civil Service-like protections. Suppliers will demand regulations to ban “unfair” competition. Dealers will lobby Washington to maintain a “level playing field.” Mayors will plead for factories to remain open. And the White House and Congress will of course be sympathetic to anyone who votes. Courts may intervene, reasoning that full employment and community welfare must be given at least equal weight to profit-making.
If the GM BOD had been truly accountable to the shareholders over the years, the company would not now be in such a predicament. What a bunch of duds.
Dealers – If you’re not a Caddy or Chevy dealer, be prepared to wither on the vine. Just like Isuzu did to its dealers. Starve those weak brands of product. They’ll get the hint that their days are numbered.
I just saw on yesterday’s 60 Minutes that our brain-dead Congress, in “helping” the financial industry, wrote a passage in a law that completely barred the states from enforcing their laws in this area. WTF???
Anyway, since we have that precedent, when they are baling out GM the Congress should write a passage in the law barring all of the state franchise laws that make it so hard to kill all the excess dealers.
How can the .gov just give away tax money like that to GM? Shouldn’t there be a vote over the issue? I guarantee the vote wouldn’t pass.
What a waste of money. They haven’t even shown a business plan on how they plan to use the money and turn things around! What new, exciting, market changing products do they have on the horizon?
It’s a public company and the government gives them money to keep the doors open and the lights on? If Microsoft was going broke; I can’t imagine the gov bailing them out.
What if GM only had 3 brands:
GMC – trucks(3-4), SUVs(mid-size and large)
Chevy – sedans(subcompact, compact, full-size), 1 minivan, 1 CUV
Cadillac – luxury sedans(3) and 1 luxury SUV(Escalade)
No more overlap, distinct brand identity. This would work!
@Honda-Lover
You don’t need GMC to be the truck brand. Chevy can manage cars and trucks, just like Toyota and Nissan (and to a lesser extent, Honda) do.
RF has said it 17,437 times, and I’ll say it again: Chevy and Caddy.
Git ‘er done…or die tryin.