A run on the bank. That’s what will happen as soon as Congress adjourns without a bailout plan for the Detroit 3. Hard-pressed suppliers and creditors will force GM to do what must be done: Chapter 11. I guarantee it. GM and Chrysler will sink into bankruptcy before they even think about the annual Holiday shutdown. A few Senators and hundreds of thousands of workers within America’s automotive industry don’t want to see that sad day arrive. But arrive it will. And as the Capitol Hill hearings proved beyond a shadow of a doubt, Detroit needs a thorough cleansing.
The hearings didn’t do much of anything to bolster the case for bailing out Chrysler, Ford or GM; or the industry as a whole. In between the grandstanding and the personal stories by our elected officials, a few key questions were asked. And neither GM CEO Rick Wagoner nor Chrysler CEO Bob Nardelli could give a straight and honest answer.
Simple questions like when would you run out of money? (“Uh, it’s hard to say.”) If we give you this money, how do we know you won’t come back looking for more? (“We have a plan in place, we think it will work.”) What changes will you make to restructure your business? (“We have already restructured and we’re doing more.”) The only real answer we got was from the guy whose union has had Detroit’s nuts locked in a vice for years; he accurately ranked the depth of despair among the Three. GM’s in the worst shape of all and everyone knows it.
Bingo! That’s all the supply chain needed to hear. If Congress doesn’t allocate the “bridge to nowhere” loans, they’ll all be looking for immediate payment on their invoices before they ship one more part to GM and Chrysler. (Give credit to Mulally, he was smart enough to say he doesn’t need the money now, or maybe ever. Just wanted to have access to it if needed.) And that’s why Rick and Bob can’t answer the question about running out of cash. No loan, it’s the next day. Loan granted, and we stay afloat for three or four months.
Uh, Rick…Bob…you two geniuses just sealed your fate. Kind of like the mistake the prosecution made with O.J. You didn’t go for the kill and put the burden on the defense to prove otherwise. Just waffling on the answer about the cash end game gave Congress the excuse it needed not to get into a political showdown. You had to put the onus on Congress that this situation can’t wait for Messiah Obama. It’s a clear and present danger – and you didn’t scream loud enough. And you forgot to show everyone a truly credible plan too.
Congress won’t act. Pelosi owes the “Greens” too much (she’s from the land of fruits and nuts) for her job and they won’t let her touch the Department of Energy money. No chance. Pigs will fly before they give that up to save Detroit. Hank Paulson won’t even discuss tapping the TARP billions for the auto industry. He’s an ex-Wall Street guy and that money goes to save his buddies, not union employees. The Republicans won’t let a new bill get passed; they’ve got all the auto industry they need right there in the South.
So it’s a deadlock. Congress will do some posturing, but will punt on coming to an immediate solution. Maybe they’ll come back in December for a more thorough hearing on the situation but that will be too late. Another round of deliberations on the road to nowhere.
Even if Detroit gets the $25 billion to stay afloat, it’s just money that enables management to keep making all the same mistakes as before, rewarded for their own incompetence. But it’s not the end. Based on their current cash burns, all of these companies will use nearly the exact amount of cash as their respective share of the loans by the end of the first quarter of 2009. By then, GM will have more than $53b in debt and no turnaround in sight. Chrysler will be back at the starting line, with no new products and no hope. Ford probably won’t even tap into the line but will need the funding later.
Congress should take the easy road on this one and do nothing. It’s the right thing to do. Inaction is action. That’s the message to the Detroit 3 – fix your own house. You made the mess of things, and didn’t come to us with ANY plan how you were going to change the way you do business. Half of the country doesn’t want to help you and they don’t buy your products. And Congress shouldn’t set a precedent of becoming the lender of last resort for troubled industries.
And when Congress doesn’t act, the chips will start to fall. The market will determine its own solution fast enough, within hours. The cash calls at GM and Chrysler from suppliers will overwhelm these two companies faster than a Corvette ZR-1 or a Dodge Viper SRT-10 ACR. It’s going to be an ugly crash.
The Big 2.34 haven’t had any answers for decades, why would they now?
John
Ken, excellent analysis. I think there is Carl Levin with his access to DoD budget, that he will try to put to “good” use.
Ken – your Nostradamus-like predictions are eerie. I mean that in a good way for your ability, a not-so-great way for the reality of the situation.
With today’s market crash, and with ports filling up with foreign (!) imports, GM’s offering is not even registering on buyers’ horizons.
The foreign brands, perceived to be better bets by lenders, are offering incentives that were unheard of just months ago.
This would be comical if it wasn’t such a god-damned AVOIDABLE tragedy.
“Give us money”
How much money?
“Who knows?”
How long will it last?
“Who knows”
Well, when would you run out of cash otherwise?
“Who knows?”
Can you survive without it?
“Who knows?”
What is the turnaround plan?
“Who knows?”
When would you return to profitability?
“Who knows?”
What is your current cash burn?
“Who knows?”
How will you repay the debt?
“Who knows?”
Jeez, I get more informed answers from my 4 year old daughter.
Pretty chilling because it’s spot on.
Rick,
I know you are very busy with internal meetings, so let me tackle the Business Plan for you:
THE OFFICIAL GENERAL MOTORS BUSINESS PLAN
First, we will listen to those to complain about our cars and trucks and make every effort to address the fair criticisms.
Second, we recognize we have too many things on our cars and trucks failing way before they should, which is a huge expense and inconvenience for our customers. We will halve or better those numbers in the next three years.
Third, we will stop battling the government and consumer groups over safety, gas mileage, and emissions standards. If other manufacturers say they can make the numbers, General Motors also can and will meet those same numbers.
Fourth, with regards to our divisions, we recognize we have too many and we will do something about it:
Buick Will be discontinued in mid-2009. The brand managers will be moved to Chevrolet to work with the “Classic” (i.e. Caprice Classic, Malibu Classic) people to keep the Buick luxury alive in four or so Chevy models. We’ll be doing some honest upgrades in the new Chevy “Brougham”s like 3-ply firewalls and floorpans to dramatically cut noise, use only top materials for the interiors, and offer popular options like the high-end European and Japanese cars have standard. We will beat the best imports in NVH tests within three years.
Cadillac We will bring back the airport/hotel/Jet Set limo. We’ll also introduce a car that is very competitive with the Ford Crown Victoria in price and quality but without many of that car’s shortcomings. We want a presence in the taxi/police car market and plan to make a solid effort to get a part of it. Cadillac is the division we have chosen for this effort.
Chevrolet The entire product like will be rationalized and options grouped to minimize the number of variations on the assembly line. The HHR will be dropped if a dead-honest review shows it is not earning a fair profit.
Corvette Will be moved over to the Cadillac division and work with the people there doing the 2-seater cars. Some product placement decisions will need to be made and some dealer issues need to be worked out; we’ll talk later.
GMC Will be discontinued mid-2009. The brand managers will be moved to Chevrolet to work to add a few honest “Brougham-like” upscale models to the line. NVH (noise, vibration, and harshness) will be markedly better than the baseline Chevy truck.
Hummer Will be sold to Chrysler to complement the Jeep brand. Engineering assistance will be offered to help convert the design over to a Chrysler Corp. drivetrain.
Pontiac Will be discontinued mid-2009. The brand managers will be moved to Chevrolet to work with the Super Sport people to keep the Pontiac Excitement alive in four or so Chevy models. A two-tier SS package should get us there.
Saturn Current designs will be held over for the next couple of years unless something clearly worthwhile can be implemented at nominal cost. However, we have some customer complaints we must address without further delay.
Thanks,
Rick Wagoner.
Zarba,
Can you persuade your daughter to work for only $14M? If so, she sounds qualified to run GM. Hell, she wouldn’t even have to move to Detroit! As for the supplier run on the bank, count on it! The major sub tiers are already “all in” so I don’t think they will be the issue. It will be a classic case of a death by a thousand cuts as many of the mid to small suppliers cut off shipments.
Tex
Ken,
You left out Harry “kick the can down the street” Reid. Another spineless politician unable or unwilling to call things out for what they are. He’s shown he’s cut from the same cloth as Rick and Bob. Hey, weren’t Ricky and Bobby one half of New Edition?
Ch. 11 may save GM as a company temporarily, but unless they get to building truly great products, it’s Ch. 7 for them. Good enough ain’t enough. I suppose the taxpayers will fund warranty work, so even in Ch. 11, GM and Chrysler still will likely hit the taxpayers up for repairing their sub par products.
I feel badly for the rank and file employees, top performers who are going to get whacked because of this.
@CarPerson
Not that hard, is it? If one lives in the reality based community, that is.
Personally, I think your THIRD point is the clincher. If GM had tried to lead, instead of digging in and resisting, they wouldn’t be where they are now.
Checkmate
It’s going to be an ugly crash.
Wrong. If the big-3 go Chapter 11 the crash will be aesthetically pleasing in its quickness, efficiency and moral correctness. Pontiac/Buick/GMC are a leach on GM’s profitability? Off they go, no expensive payouts to sleazy dealers (hey, I don’t care about your brand strategy, I want my own version of the Aveo so I can cannibalize Chevy sales). Job bank? Shmob bank. Lenders that lent billions to the big-3? Privatized return and privatized risk.
The ugly crash is where, instead of the huge debt, excess dealers and brands, and crazy UAW provisions (job banks???) being shed through a prepackaged Chapter 11, the government has to provide all of the money to pay down the big-3’s massive debt, pay off their parasitic dealers to shut down looser dealers and brands, and continue to pay excess employees not to work.
That long agonizing death, at the government’s expense, is the ugly crash.
Before these hearings, I actually thought this bailout would go through. However, I underestimated the general publics unwillingness to respond to the ‘patriot’ drum and support the bailout. But what really sealed its fate was the abysmal performance of the bailout-beggars. It wasn’t just the answers…they just seemed to convey an impression of lethargy. They needed to make an impassioned plea. What they delivered was a ‘4pm Friday before a long weekend’ performance.
Carperson
Great idea. I would carry it a step further.
My plan would be. (with attribution given to carperson).
THE OFFICIAL GENERAL MOTORS BUSINESS PLAN
First, we will listen to those who complain about our cars and trucks and make every effort to address the fair criticisms.
Second, We will immediately hire consultants from Hyundai to advise us on quality and warranty issues. Their reccomendations would be implemented as soon as practical.
Third, we will stop battling the government and consumer groups over safety, gas mileage, and emissions standards. If other manufacturers say they can make the numbers, General Motors also can and will meet those same numbers.
Fourth, with regards to our divisions, we recognize we have too many and we will do something about it:
Buick Will be discontinued in first quarter-2009. Some brand managers will be moved to Chevrolet to work with the “Classic” (i.e. Caprice Classic, Malibu Classic) people to keep the Buick luxury alive in two Chevy models.
Cadillac Will be discontinued.
Chevrolet The entire product like will be rationalized and options grouped to minimize the number of variations on the assembly line.
Pickup and other Work vehicles from Chevrolet and GMC will be consolidated under Chevrolet. Work vehicles over 6000lbs GVW will only be sold on build to order basis. No leather or carpeting will be offered on these Work vehicles except those supplied to government agencies.
RWD designs currently used in Australia will be produced in the US in small numbers to provide performance vehicles for police and government agencies.
Corvette will remain under Chevrolet management.
GMC Will be discontinued.
Hummer Will be sold to the UAE.
Pontiac Will be discontinued.
Saturn will be discontinued.
We would look to the government for help in consolidating existing dealerships into fewer dealerships to be called Chevrolet dealerships.
A view that challenges conventional wisdom…Cadillac will be outperformed by Lincoln in sales and image sustainability. Ford clearly realizes that the costs to compete with BMW, Mercedes, Lexus and Audi are not worth the potential return on investment. Look at the world’s markets: Japan and Korea are relatively closed. Europe is home to some very competent home players (even Lexus has to work hard there). Huge competition in China, the world’s growth story. Net-net, the reorganized GM will realize that Cadillac mainly appeals to a certain segment of Americans and Middle-Easterners (for comfort, style, value reasons) and will, thus, be based on shared platforms with Chevrolet. Nurburgring and Euro-style luxury be damned.
Congress won’t act. Pelosi owes the “Greens” too much (she’s from the land of fruits and nuts) for her job and they won’t let her touch the Department of Energy money. No chance. Pigs will fly before they give that up to save Detroit. Hank Paulson won’t even discuss tapping the TARP billions for the auto industry. He’s an ex-Wall Street guy and that money goes to save his buddies, not union employees. The Republicans won’t let a new bill get passed; they’ve got all the auto industry they need right there in the South.
You left out one more thing: The Republicans don’t owe the union or anyone from Michigan anything; they haven’t voted Red since before Clinton. If I were a Republican politician, I wouldn’t lift a finger to help them; they’re not gonna vote for me next time anyway.
Maybe GM Rick is smarter than we are giving him credit for. He can hardly come out publicly and say the only hope for GM is to file bankrutpcy and wipe the stench of the UAW out of the assembly line once and for all. It would be equally suicidal to say Buick and Pontiac need to be shot and buried in the back yard. On the other hand, give a pathetic, half-hearted performance before Congress that seals GM’s fate and ensures a Chapter 11 that is essential to save the company? Now that is do-able. Rick may be grinning.
Damn! It would have been a hoot seeing Wagoner, Mulally and Nardelli schlepping to Washington together in a Chevrolet Uplander proudly bearing the GM Mark of Excellence. We could set up an office pool to guess the exact mile the intake manifold gasket would blow.
LOS ANGELES -(Dow Jones)- Three major auto suppliers said Thursday that General Motors Corp. (GM) may have to pay cash on delivery for parts if it fails to secure additional federal aid.
Gardiner Westbound: “Damn! It would have been a hoot seeing Wagoner, Mulally and Nardelli schlepping to Washington together in a Chevrolet Uplander proudly bearing the GM Mark of Excellence. We could start up an office pool to guess the mile the intake manifold gasket would blow.”Although it’s kind of a low blow, the Big 3 execs didn’t do themselves any publicity favors by blowing into town in three separate private jets. I wonder if there was gridlock on the Detroit airport runway.
It will be interesting to see if they make the same faux pas in December when they come back to Washington to take another stab at scarfing up some of that sweet, sweet bailout dough.
I cannot fathom how Wagoner could shrug to the question on HOW much is enough? It’s unbelievable to me that he wasn’t prepared with a plan or strategy to convince Uncle Sam the money was going to something worthwhile.
I believe the cost of a rescue will be less than losing the Big 2.8, but with morons like Wagoner, I’m losing interest. Rick, you’ve have more than enough time to fix your Company. You have proven your level of incompetence. It’s time to hand it off to someone who has a clue. But Wagoner cannot be embarrassed, so that doesn’t bode well for any financial CPR.
I think there is some choreography behind the scenes. The Big 3 can squirm a bit more to 1. Bring UAW to the table 2. execute Wagoner’s resignation, and 3. unveil a PLAN that the American public can stomach without wretching inside of 5 minutes. I don’t know what to do with Chrysler –Cerberus wants out and nobody wants in. Mullaly is the only guy I respect here.
Guys: I’ll give you a magic pill to swallow (if you have time left to digest it). It’s PRODUCT!
Remember when the House shot down the $700B bailout bill? They passed it in the Senate and then passed it in the house.
This is just the first salvo that was shot to see how congress would handle them; let’s say a tracer was fired so they could see who jumps. Little did they know that a Howitzer was shot back at them.
But don’t kid yourself. As much as I would hate to see it pass, it will pass, either sometime next week or in early December. The Debt3 know who their enemies now are and they will work on everyone else to do an end round the major players.
And the bailout won’t help. They’ll come back will hat in hand asking for more.
I love the way Rick said they were burning through $5billion a month. It was ~$1B since last year and this quarter was over $2B and now it’s $5B. Did these guys take an oath to tell the truth? Most people do when they are in front of a committee. I hope they check it out and file perjury charges against him.
Ok, time to jump off my soap box. Boy, I feel better.
The Bush administration’s handling of the banking bailout isn’t helping any. First they scared the pants off everyone, then promised that for just a little under a trillion dollars it could be fixed, then proceeded to get the money and not fix anything. Hundreds of billions have been spent and the sky still appears to be falling. Well paid suits like Wagoner and Paulson keep making pronouncements, but everyone has realized that they are not prophets.
Wagoner made an absolute fool of himself in Washington, and once again has found exactly the wrong words to say in precisely the wrong way. Why does he still have a job and a pension?
Robert Farago said:
LOS ANGELES -(Dow Jones)- Three major auto suppliers said Thursday that General Motors Corp. (GM) may have to pay cash on delivery for parts if it fails to secure additional federal aid.
Game over for GM.
I’m going to come right out and predict they’ll declare Chapter 11 tomorrow, Friday, November 21, 2008 at oh, about 4:50 p.m. EST.
What’s unknown is whether the suppliers will say “fugedaboudit” anyway, and simply stop shipping without money up front.
Or can’t they do that ?
I may be wrong. If GM has P*ssed away billions in the last few months, and aren’t being up-front about how much has evaporated, they might have to declare Chapter 7.
That’d upset the apple cart…
That’s what will happen as soon as Congress adjourns without a bailout plan for the Detroit 3. Hard-pressed suppliers and creditors will force GM to do what must be done: Chapter 11. I guarantee it.
Ken’s close to spot on. Don’t they have a final chance with Congress the week of Dec 1st? Of course, would Bush sign?
If there were DW future’s contracts, DW-240 would be worthless. Anyone know if default insurance on GM bonds has spiked recently?
there is a way out and it’s NOT more surgery. it’s called knowing how to sell cars and it truly is that simple.
Robert Farago :
November 20th, 2008 at 7:15 pm
LOS ANGELES -(Dow Jones)- Three major auto suppliers said Thursday that General Motors Corp. (GM) may have to pay cash on delivery for parts if it fails to secure additional federal aid.
Tick…
Tick…
Tick…
Pontiac, Buick, Oldsmobile, GMC, Saab, Hummer, Saturn, Chrysler, Plymouth and Mercury sleep with the fishes. And Chevrolet and Cadillac are being measured for cement overcoats. Maybe Ford, Lincoln, Jeep, and a slimmer Dodge can survive with less competition. Maybe Chevy can make it. Probably not. They had it all, and they p*ssed it away. American industry killed the factory worker by treating their customers as marks at a carnival show and through negligence, arrogance, and greed.
Carperson, your “GM Business Plan” makes more sense than anything I’ve seen come out of the RenCen. But a couple of quibbles:
“We want a presence in the taxi/police car market and plan to make a solid effort to get a part of it. Cadillac is the division we have chosen for this effort.” Why Cadillac instead of Chevy? Seems like a Caddy patrol car or cab contradicts the brand image.
The plan envisions shedding a lot of employees and dealerships. IANAL, but I know of no way to break contracts with the UAW and dealers other than through bankruptcy. Therefore, the plan implicitly assumes Chapter 11 — and in the event GM won’t have freedom to unilaterally make key decisions.
Well, the Big 3 still have a pretty good hold on the rental/fleet/commercial truck/van markets (especially the last one). There really are no other choices for a full-size commercial van in the US other than from a domestic manufacturer (crappy as they might be).
That’s probably the only solid, legitimate reorganization plan they could conceivably come up with. Whether that’s enough to sustain them for any length of time after C11, even in a substantially reduced capacity, is the key question.
Buickman, I realize that every GM salesman was a master salesmen like you GM could probably sell go-karts as SUVs and no one would complain.
But they aren’t. And its way too late for a marketing blitz.
Interesting post. The thing about Chap. 11 is that GM needs a bank behind it. Without a bank to guarantee payments, no supplier will be shipping parts (as you point out). So Chap. 11 might as well be Chap. 7.
As John Mauldin pointed out today, “The Big Three have a new customer, and it isn’t you. As Detroit’s former heavyweights fight for a slice of a $25 billion bailout package, more than humble pie is being eaten. If the automakers fail and take their companies into bankruptcy, Michigan as we know it ceases to exist economically. The trickle-down impact could rapidly become a waterfall: the seat supplier in Georgia loses three major customers. The factory worker who makes seats is out of a job. The bank who holds his mortgage takes another hickey. Commercial lending at that bank dries up. Ad nauseum. In the best of economic times, this would be a troublesome scenario. In today’s economy, it’s easy to see how policymakers are as worried about social stability as they are economics.
“Few if any believe the U.S. auto industry can survive in its current form. But there is an emerging consensus in Washington that the auto industry must not be allowed to fail now. The argument for spending money on the auto industry is not to save it, but to postpone its failure until a less devastating and inconvenient time. In other words, fearing the social and political consequences of a recession working itself through to its logical conclusion, Washington – like Beijing – wants to spend money it probably won’t recover to postpone the failure. Indeed, governments around the world are considering what failures to tolerate, what failures to postpone, and how much to spend on the latter. General Motors is merely the American case in point.”
Source: http://www.frontlinethoughts.com/gateway.asp
That was a huge mistake for them to show up asking for money and when asked what they were going to do with it; they just shrugged their shoulders.
Just spend it like they normally do and burn through it in a few months and be right back where they are now. The Volt won’t be ready any time soon. It’s hella expensive too. Look at Prius sales with current fuel prices to get an idea for Volt sales numbers.
They are at the end of the line and the big people in powers egos are at stake. That’s all.
If you work the line, stock up on cash, get rid of all debt, and prepare to get by on unemployment and start now arranging for a new line of work. Or work for a US based Japanese or Korean company. You all wanted to move out of the cold north anyways right? Likely get about 30′ of snow up there this winter.
As my favorite Vulcan once said, “Mister Scott, there are always options.” Here’s a 55-gallon drum of crazy…
GMAC has applied to become a bank. Heellloo TARP! NPR’s Planet Money podcast today even implied that GM could wait out the “two year transition period” before they’d have to stop selling cars before they’d be forced to, you know, be a bank. Of course, they could sell their remaining piece of GMAC before then, right?
Good lord, people.
– Your old pal Bob
Hey I have an idea!
Have the government buy 1.25 million Malibus, warehouse them and use them as government vehicles until 2108.
No seriously, wait until a less bad time?
When precisely would that be? It’d be terrible to let GM die during a recovery…. be worse to kill a boom period and start a recession, and we can’t do it during a recession.
There is no good time for this shit. Might as well be now and save a 100 billion.
So, you “guarantee” bankruptcy is imminent. Bold statement. Just wondering? What are your ramifications if you are wrong? Just as I thought. Zero!
Bridge2far:
So, you “guarantee” bankruptcy is imminent. Bold statement. Just wondering? What are your ramifications if you are wrong? Just as I thought. Zero!
No. Mr Elias has never used that word before. If this doesn’t come to pass, many of us B&B types (especially OCD types like me) would make so many snide comments (within posting guidelines, of course), that MrChapter 11. I guarantee it.Elias would have to stop writing. And join the French Foreign Legion…
Bridge2far – It’s an easy guarantee to make. In fact, it’s a no brainer. But I didn’t say “imminent.” It’s contingent on the Federal Government handout – no loans from the Feds, and the run begins. GM pays out roughly $10 billion/month or to suppliers/labor (that’s a late night estimate without checking the fact). These suppliers read the newspaper too – and all watched the debacle on the Hill this week. If you were owed millions of bucks, wouldn’t you demand payment on past invoices immediately before you shipped one more part if there’s no fresh cash to GM or Chrysler?
I give Nancy Pelosi a lot of credit for her decision today to hold off for the time being. But if December comes – and no loans are forthcoming – the run will start within hours, if not minutes. That you can take to the bank!
maybe firing the 32 pilots GM has, sacking the 40 something Flight Attendants and ground crews (both day and night shifts) might help a little. Paying 32 pilots commercial airline rates must be a drain on the company. I work for GM and I am sooooooo sick and tired of them I hope the Rencen collapses with Maximum, Red Ink Prick and all of the board in the building.
Hard-pressed suppliers and creditors will force GM to do what must be done: Chapter 11.
Ten bucks says GM will still be here by January.
Lot of big picture stuff in this post and in the comments. Here’s a little story from the street. My son is a sales rep with a large western territory, he travels a lot and rents a lot of cars, mostly mid size sedans. Last year his flight to Denver was late and when he got to the rental car desk they gave him what they had left which was a brand new Caddy. He left the airport and at the first traffic light all the electrics died. Took some time to replace the car, he got to his hotel late and had an early appointment with a major client. Guess which brand of car now has a line drawn through it and which rental car company lost his business.
There is talk on some web sites of a government backed packaged chapter 11 for GM and Chrysler. The idea is that only by having the protection of bankruptcy can these companies make the radical necessary changes with products, unions, dealers etc. Thus, the government money would be spent on a crash downsizing that has the potential to bring back out of bankrupcy smaller, leaner. ready to compete car companies.
The alternative is the hostage situation that the Detroit three are now using. ie. pay us or we take the middle class down with us. The problem with this short term approach is that in six months it will be another chorus of the same.
Further, if this recession is long and deep, there will be countless additions to the loans now that the middle class is under the protection of Detroit’s domestic car makers. This is a step towards socialism and de facto nationalization of the car industry (and who knows what other industries besides banks). Even in the depths of WWll, Uncle Sam did not nationalize industry.
Right you are Dr no.In the next 2 weeks a lot is
gonn’a happen behind the scenes.I will predict the UAW/CAW changing the contracts again.You will see a whole different side of the top management.
I,ll bet the PR people are working on that one right now.
With the world/US economy where it is right now,even the most half assed plan from Detroit will get passed.
Maybe I’m missing something here but if any supplier demands COD from any automaker doesn’t that start a chain reaction that will cause the house of cards to come down? If it forces GM into BR, doesn’t that mean many suppliers will go under? And if those suppliers feed the Tier 1 guys doesn’t that threaten them too? And if GM files doesn’t that force Chrysler and Ford to do the same?
This is what we’ve been told. Is it not so? If it is true would any supplier be so stupid as to get the ball rolling before at least waiting until the big O takes office to see what’s going to happen? Are the suppliers stupid or is the whole line of the interelationship of the suppliers and the manufactures not true? I had heard that even Toyota and Honda were woried about Big 3 BR because it would adversely affect the suppy base. So what’s the Truth About Suppliers?
Well, windwards, that’s why it’s called a run on the bank. The first guy there gets his money out. Next in line, gets all his money out. Next, few dozen too. After that, the bank might say “we just put a policy into effect – you may have 1/2 your money today and 1/2 later.” After THAT word gets out, and the lines start to form around the block (and the TV crews arrive), the story changes to “sorry, only $50 per customer withdrawal, thanks.”
Next thing you know, you have a bank collapse.
But the few guys who showed up first, got their money out.
Kapische? It doesn’t have to make total sense (yeah, a run on GM will possibly bring down multiple suppliers) – it’s called “a panic” for a reason.
Ken,
Just a few lines to say, an excellent piece. Calling apples apples and oranges oranges. I wish I could read something at least partially as well informed and straightforward in the MSM. I just may add the irony that, going into the congressional hearing, it really looked like the Big 2.8 would get some kind of grudging bailout, but the performance by the 3 stooges + Getthemiddlefinger really killed Detroit’s hopes. Actually I believe that Mullally was the best of the pack (not that he was great or anything), and that together with situation at Ford makes me think: wouldn’t Ford be better off by presenting their own case individually, not having GM and the other losers next to them? I mean, the only one in the pack with something remotely similar to a fighting chance of survival is Ford. Showing up with GM and Chrysler will only encourage a run on Ford as well.
CarPerson,
You forgot about Saab. It should be sold off to someone who will take care of it.
Eliminating Mercury at Ford or Pontiac/Buick/GMC at GM is impossible. The products that PBG sells help keep factories that build Chevys and Caddys in business-if PBG products represents 30% of a factory’s production, that factory can’t be profitable with those products gone. (That is, the Pontiac G5 and the Chevy Cobalt are basically the same car and are built at the same factory. If Pontiac goes away, that factory starts to become really unprofitable due to the loss of sales of the G5.) Mercury has the same problem with Ford, plus the fact that most Lincoln dealers are also Mercury dealers-if you eliminate Mercury, those dealer’s sales go down by 50% and most of them will close, killing Lincoln as well. And I haven’t even mentioned dealer bribes that most states’ law will require to be paid for those dealers to be shut down (although a bankruptcy would clear the way for those-but it would also reduce sales by a lot because people won’t buy from a bankrupt automaker).
Now, I can see selling or closing down Saab and Hummer today, and closing Saturn down in a few years once their current batch of products need to be redesigned. But that’s it; and those brands aren’t big enough to really solve much.
Eliminating brands is not the solution.
“fill-in-the-blank is impossible”.
This is the logic which has brought the D3 to the brink.
Thinking of factories as profit centers has brought the D3 to the brink.
Refusal to eliminate brands or at least brand cannibalism has broght the D3 to the brink.
It’s past time for real leadership. There’s no room for “we can’t do that because it’s impossible”, unless one is willing to admit that turnaround and recovery is impossible.
Every day where C11 does not happen will bring the D3 closer to C7, therefore making this truly a Deathwatch.
ZoomZoom: “Thinking of factories as profit centers has brought the D3 to the brink.”
Chuckle. This reminds me of when my father ran the hardware department of a Montgomery Ward store. (Remember Monkey Ward?) Having been an electrician, he developed a good deal of business with small contractors who would come in for a reel of Romex or a breaker box.
Then Wards built some big new distribution centers. Very snazzy warehouses. The distribution centers were most efficient when handling large quantities. Management was eager to show the company’s investment in new warehouses was paying off. My dad was told he no longer could order, say, six or a dozen breaker boxes at a time; he’d have to order a pallet’s worth. Well, there was no way one retail store could stockpile such a large amount of inventory. So he had to give up the trade with contractors.
In a way, Detroit is like Monkey Ward, oriented to its costs rather than its customers.