The Wall Street Journal’s Evan Newmark takes a look at GM’s Congressional bailout begging term paper. To paraphrase, “we are amused” (in a deeply cynical, bemused sort of way). More specifically, “The restructuring plan comes up short on the most fundamental question. Will this company actually make money? Just look at the details — or what details are lacking. GM says it plans to focus on only four brands. So why does the number of models only drop from 48 to 40? GM has 6,600 dealers, which it says it will cut to 4,700 by 2012. Honda has 1,300 dealers. Even Ford has only 4,100 — which it will cut further. And nowhere in the document does GM lay out, year by year, its own projected market share. This is perhaps the most critical part of any business plan. The kind of thing you learn in the first day of business school.” Yup, the WSJ gets it– in the same place the American taxpayer will… well you get my drift. More mill grist for left-brained nay-sayers after the jump.
“Turn to Exhibit B-1 — and you find something interesting. It is only in an appendix entry — and not stated explicitly. GM appears to have changed its market share assumption for 2009 GM U.S. volume from 20.6% a year ago to 22.5% today. In this environment, it seems strange that GM is actually increasing its market share assumptions. And car business is all about volumes. That points to the real flaw in the GM restructuring plan. The U.S. car industry has been a credit junkie that now has to go cold turkey.”
Ain’t that the truth. Once again. I’ll flag the fact that GM’s for-public-consumption rescue plan makes direct and specific reference of its strategy’s dependence on a federal bailout for GMAC. That’s GM’s once-captive soon-to-be-a-bank finance arm that wrote paper on just one to two percent of GM’s November new vehicle sales. And who owns the majority of GMAC these days? The same peope who own Chrysler. If you want to talk about enabling, here be dragons.
Newmark delivers the coupe de grace with characteristic clarity.
“Ask yourself how long it will take housing to hit a bottom and you’ll understand why the GM restructuring plan ain’t gonna cut it. Oh, it will work in Washington this week. But by next year, the U.S. taxpayer will be left holding the bag.”
The politicians on Capitol Hill don’t read the WSJ or have the brainpower to comprehend the situation. The only chance is for enough Senators to grow a pair.
Otherwise, Bush needs to veto it and punt it to Obama. Let him “save” the Domestics, and take the heat for the failure…
I don’t understand this emphasis on cutting brands, dealers, and jobs, and otherwise shrinking the company. That’s not how one succeeds in business. One succeeds by growing, not shrinking. GM needs to sell more, not fewer, vehicles. Of course, if a brand is hopeless and will never make a profit, it should be cut. But shrinking is not the way to making a profit. It doesn’t work that way.
Never in the history of capitalism has a failing large company become a successful small company (without at least a Chapter 11 bankruptcy in between, which is not practical for an automaker because it will depress sales further). No, failing large companies become failing medium sized companies, which later become failing small companies, which later become nothing.
Certain fixed costs in a large company are based on said company being large. There’s no way to cut those costs quickly enough to shrink your way to profitability. And the Detroit Three have above average fixed costs of this nature. A Chapter 11 bankruptcy would eliminate a lot of those costs, but it would eliminate so many sales at the same time that nothing would be solved.
Ironic: I was raised with the understanding that the Laughing Buddha‘s belly was huge because he sucked in all the ails around him. Also got a smacking for trying to play with LB like a Mego superhero, as ours had his arms raised above his head.
Open wide, big guy, it’s going to get a lot bigger.
Adub,
I’m guessing the GOP strategists are right on board with what you’ve said, and this is guiding their moves during the next few months. I don’t see any way that GM is salvagable (short of CH11 & coming out about half their current size.) I think the socially responsible (and to me personnally acceptable) use of taxpayer money is to deal with the aftermath of a bankruptcy to make the fallout as humane as possible for the displaced workers and impacted communities. There WILL be pain all around. Congress would be well served to plan for it.
Tex
Robert – too bad we can’t arrange a TTAC presentation of GM Deathwatches 1 through 200 for Congress. This might give them some background (and perhaps some backbone) on which to make an informed decision about funding GM’s funeral and what kind of casket the taxpayers should fund.
Like most of us who care about automobiles, it is almost sickening to watch this happen. Yet it has been in the mill for nearly 30 years and no one in Detroit wanted to look more than a few quarters out or make contingency plans for the two fuel crises we all watched in the 70’s. Saddest of all, in GM’s case, is that they finally had delivered a few truly desirable cars (which we all knew they had in them), but it may be too little, too late.
@ Geo,
Seriously? Yes, GM needs to sell more cars. That’s clear. But they can’t do it saddled with the excessive cost burdens they are under now with the bloated product lines, excessive dealerships, etc. There needs to be substantial streamlining and “leaning” of the company before it has a snowball’s chance of making it.
Unrelated…but not really…has anybody read Jack Nerad’s (of Kelly Blue Book fame) article with is spin on why the US automotive industry must be bailed out? Unreal…there are people that truly believe that it’s everybody else’s fault BUT the Big 3 that they’re in the shape they’re in…
I hope that GWB will leave the business of saving big 3 to Obama. I have some level of respect to Harvard MBA (even after Rick Wagoner obtained it), so I hope that W will be able to look into plan review it compliance with SNL skip at have a laugh.
….and we all know what a car-loving organization the WSJ is. Epecially after GM canceled millions in advertising with them a few years ago, their love affair just hasn’t quite been the same; Gee, I wonder why?
Pleeeease… the WSJ actually publishes nothing that resembles news about my industry, they wouldn’t know a business story about the automotive sector if it landed in their InBox pre-written by someone with a pulse, a brain and maybe some sense of JOURNALISM?!?
The WSJ just a few weeks ago suggested this from David Yermack: Quote: “If the government wants to spend $25 billion to protect auto workers, it would do better to transfer the money to them directly (perhaps by cutting each worker a check for $10,000) rather than by keeping their unproductive employer in business.” -David Yermack Wall Street Journal
Okay…If you follow Mr. Yermack’s suggestion and put the $25 Billion in the hands of the ‘affected 2.5 Million workers’ he mentions in his diatribe in the form of $10,000 checks you have only given them enough cash to pay their bills for 2 or maybe 3 MONTHS perhaps-Face it-$10,000 does not go very far today….What then Mr Yermack? What do you do about the job loss in the other 9 months in 2009? in 2010? and 2011?
Having those workers stay employed, earning a wage, doing WORK is a much better long-term solution for the economy, for the community, for morale and certainly for the national debt-if the Big-3 and half of their suppliers go down, the national government will instantly find itself with a $100-150 Billion shortfall in tax revenues from the 1-3 Million unemployed workers and their employers. In short, $10,000 per worker is not a solution, certainly not a well thought out one from an economic standpoint and isn’t that the reason the WSJ exists?!?!-To report on business and economics, but when the WSJ scribes like Yermack can’t even ‘do the math‘ and realize that their brilliant solutions would only help the supposed 2.5 Million newly unemployed workers for about three months at best, I find it hard to read anything they report. What an elitist, car-hating, Citi-AIG-Paulson-coddling bunch of pap the WSJ has become. Where’s the outrage from the WSJ about the 700 Billion that is needed to prop up their industry? The Big-3 and their suppliers make things…very very difficult things to make I might add…the Wizards On Wall Street and their accomplices at the WSJ wouldn’t know the first damed thing about building an automobile-look at the wonderous results Cerberus has had at Chrysler-Yippee, great work guys…and their buddies at Citi needed a bailout and they’re in the Credit Card Business for God’s Sakes!! How the heck do you lose money in a business that charges 20%+ interest?!?! and THEY need a bailout yet the WSJ has the gall to chastise the Big-3 yet their bailout buddies at Citi just raise your rates whenever they need more money with their barely-legal lending practices that have landed them in court in hundreds of cases around the globe yet no one chastises them for needing a bailout-Citi and WSJ, most of your friends write loans that they can change the terms of ANYTIME and yet THEY need a bailout?!?!
Where’s the perp-walk for the Wizards on Wall Street and in the Banking World for causing most of today’s world-wide Recession, bordering on Depression? Where’s the WSJ when you need them to name names and call out their own industry for the crimes, graft, back-door dealings and heavy influence peddling on Capitol Hill? Wasting everyone’s time by dissecting the remains of GM et al because they don’t dare shine the light of truth on themselves and their buddies on Wall Street…oh no, let’s tear down an entire industry that employs millions of people around the world instead of pursuing a story contained within our own industry-GM is the Bad Guys right because they are begging for a few billion but the Good Guys are AIG, Citigroup and others in the Banking World that caused most of the World’s recession issues? Nice use of ink WSJ.
About the only thing you can believe in the WSJ is the Advertising Rate Cards.
At the end of the day, bailout or not, bankruptcy or not, GM is most likely still screwed in the long term. In the unlikely event that it gets healthy again, it will never return to what it once was. All that is left is trying to minimize the damage.
GM: 10B left?
Robert:
According to GM’s “Restructuring Plan for Long-Term Viability” attachet to the article of the WSJ, in page 35 which is: “Exhibit C-3: Pro-Forma Global Liquidity Balance” It says that GM will have B14 by the end of Q4 2008, including the 4B that they are asking to be delivered in DECEMBER.
Based on my teacher; who used to tell me that 14-4=10
Does that tell us that GM has 10B left??
One of the requirements for this report was “Liquidity at end of November” while everything/one is focusing on sales, I think that liquidity is more important.
If they really have 10B left: no loss of jobs, no jet-gate, no “Chrysler is privately owned, why are they asking for taxpayer money?” matter.
Nothing will matter.
Maybe the Senate should just say” Come back after XMas” and when they file for C11 the Bush administration can say: “We were going to help, but they couldn’t wait for the cavalry to arrive”
Robert: Can you post GM liquidity as of end of November, so that everybody erase the B16.1 number from Sept?
Why does GM credit rating seems to have a delay of 6 months or more?hasn’t been downgraded any furtherin default
How come the media was saying that GM needed 11-14B to operate and now they say
threeer :
December 3rd, 2008 at 10:40 am
@ Geo,
Seriously? Yes, GM needs to sell more cars. That’s clear. But they can’t do it saddled with the excessive cost burdens they are under now with the bloated product lines, excessive dealerships, etc. There needs to be substantial streamlining and “leaning” of the company before it has a snowball’s chance of making it.
Yeah, but to force those things like cutting of dealerships and brands requires Chapter 11, which would cause sales to completely fall off a cliff (plus if you cut brands and dealers, you cut sales as well because there are then fewer brands and dealers to sell cars). If GM sold twice as many vehicles as they do now, having eight brands and a bazillion dealers wouldn’t be a problem.
The solution is for GM to sell enough cars so all those brands and dealers aren’t a problem. Of course, that’s not going to happen-which means there is no solution.
Stu, What’s the solution? Just keep throwing money (our money) at GM hoping that things will get better? This company has been losing market share since the sixties. If GM has its way, it will continue to be run by the same people, schooled in the same culture, that has brought us to this.
I still remember 1979-80 with Chrysler. It wasn’t Lynn Townsend who went to Washington for help. It was an entirely new management that recognized the problems and was trying to solve them. An aside, it never got a dime of government (meaning our) money. It sought only a federal guarantee of 1.2 billin in new loans. That deal cost the feds not one dime. Government even made money from the stock rights it got from taking the risk. (And remember GM Chairman Tom Murphy thundering on about what an affront this was to the free enterprise system.)
Fast forward to today. New management team? Nope. Detailed plan? Nope. Loan guarantees? Nope, cash only, and lots of it. No limit, please. I hate to see people lose jobs. Some of them are my friends and neighbors. But its going to happen anyway.
I agree that GM has some of the most appealing vehicles coming out since the sixties, but this remains an arrogant company that cannot or will not admit to a long term inability to read the market or to run itself.
Here’s food for thought. Can you name a single segment buster from GM since the 50s? I mean a new and unique product that recognized an unserved market and rode it to success. Examples are the 58 TBird and the 64-5 Mustang at Ford. The minivan and the modern convertible at Chrysler. Jeep and Ford can both claim parentage of the modern SUV with the Cherokee and the Explorer. Is there a single example of a segment buster coming out of GM since the 53 Corvette? The only one I can think of is the Suburban, but this was almost accidental where a market swung around and found a vehicle GM had been making in obscurity since the 30s and which none of the competition decided to contest straight on.
This company’s philosophy has been WE are GM, WE think this car is a good idea, and WE think that you should buy it. Don’t bother with the competition. They are not GM, therefore, they cannot possibly have any good ideas. Because WE have the only good ideas. Because WE are GM.
I realize that I overstate to make the point, but the point is that bailing out this company in its current state will not do anything but delay the inevitable. GM will not voluntarily oust its management, and the government will not do anything about CAFE and the union contracts. What else is there?
Stu Sidoti:
For the most people in the automotive news arena this has stopped being about saving an American automotive industry and started being about who can rob the taxpayers for more money – the people who helped create a financial crisis by financing houses people could not afford (the bankers), or the people that helped create a financial crisis by financing cars that people could not afford (the big-3).
As a number of experts on this website, Mitt Romney (a successful businessman and the son of a Michigan Governor and automotive CEO), and most people that understand business have clearly and persuasively argued, the only future the big-3 have is Chapter 11 Reorganization, prepackaged and with government backing.
The only people defending the big-3 bailout are idiots in the main stream media and those who will make more money if the big-3 slowly die as taxpayer money stealing zombies than if the automakers are reborn free of their crushing liabilities (i.e. the executives, directors, UAW and NADA).
None of those groups are sympathetic. The UAW is so sleazy that it threw new workers under the bus with half the pay to keep the same company crushing pay and benefits for current workers.
The big-3 could probably produce twice as many cars with half the workers, and with that cost savings develop the cars better.
There is nothing special about big-3 workers (and non-workers in the job bank) that should force other taxpayers to support their fake jobs indefinitely.
We patriotic Americans have an important duty to fulfill today:
To place three phone calls. One to each of our senators and one to the White House…telling them to shut this shit down now. No money for these jackasses. Not a dime.
The last sentence is completely true, the tax payer will be left holding the bag. Holding it for the inflation caused from the bank bailouts, it will be holding the bag for all the pension liabilities if any of the big 3 go down and the ripple effect it will have around the country. What will that do to the economy, tax bases and future spending abilities of america. Chapter 11 for America anyone?
Interesting article on cnn about the conditions congress is setting and how they’re conditions and helpfullness previously….
http://www.cnn.com/2008/POLITICS/12/02/nerad.auto/index.html
edgett :
December 3rd, 2008 at 10:34 am
Robert – too bad we can’t arrange a TTAC presentation of GM Deathwatches 1 through 200 for Congress. This might give them some background (and perhaps some backbone) on which to make an informed decision about funding GM’s funeral and what kind of casket the taxpayers should fund.
Why not? Perhaps someone could make a few color printouts of all GM and Ford Death Watches, bind it and send it to the relevant people of the committee? Takes some time to read, but is good reading …
gerber :
December 3rd, 2008 at 11:05 am
GM: 10B left?
Robert:
According to GM’s “Restructuring Plan for Long-Term Viability” attachet to the article of the WSJ, in page 35 which is: “Exhibit C-3: Pro-Forma Global Liquidity Balance” It says that GM will have B14 by the end of Q4 2008, including the 4B that they are asking to be delivered in DECEMBER.
Based on my teacher; who used to tell me that 14-4=10
Does that tell us that GM has 10B left??
Hi Gerber,
I think your calculation misses one point: the cash burn of December itself. Currently GM seems to burn 2-3 bn USD per month. That would mean GM currently has about 12-13 bn in their account, which would be realistic compared to the 16 bn end of September.
@Stu Sidoti,
Stu, WSJ is in business news not car news. As business GM has been sick patient for some time. I totally agree with David Yermack, as a provider of subsidies, we the people, will be better off by paying off UAW members with a stipend of 10-20K and shutting the door on non-performing corporation. The patient is beyond repair, let him die without life support for billion of dollars. There is nothing to salvage here.
I think Rick and his team were educated at the underpants gnomes school of business – based on their business plan to Congress.
Step 1: collect underwear (cut to prosperity).
Step 2: ? (no plan given as to how they will make money)
Step 3: Profit (happy, happy, joy, joy).
What MgoBlue said.
Also, jaje has it: The underpants gnomes broke out of the b-schools.
jaje:
Perfect! You had me laughing tears!