On March 31, President Obama will contemplate GM’s viability report and decide whether the ailing American automaker is, as it contends, “viable.” If so, more bailout bucks. If not, more bailout bucks, in the form of debtor-in-possession financing to the bankrupt behemoth. Either way… In the run-up to CEO Rick Wagoner’s ritual disembowelment for failing to get his company’s shit together, the press is sensing the fact that Wagoner doesn’t have this shit together. This morning, Automotive News [AN, sub] reports on GM’s continued cluelessness on the “pssst. want to buy a dead brand” front. “Just a couple of weeks before General Motors has to submit a detailed plan proving viability, GM executives have no idea what to do with their losing brands.” Yes, AN has found its inner TTAC, affirming my suspicion that the MSM is gradually turning against Detroit’s mindless mega-suckle.
Saturn:
GM asked various companies to run Saturn and absorb the dealerships, provide product lines and perhaps rename the brand, says a source. Under that scenario, GM no longer would own part of Saturn. But no one was interested…
According to a dealer familiar with the talks, options include allowing dealers to buy the brand, blending Saturn into the Buick-Pontiac-GMC channel, finding an outside investor to finance an upgrade of the product lineup and finding a global partner.
Saab:
GM hopes to make Saab an autonomous company, the source says. That means moving production, engineering and marketing to Sweden and pulling Saab out of GM’s global product and manufacturing system.
“We’re trying to see how much of Saab we could isolate,” the source says.
The next step is to secure funding from the Swedish government to help Saab run on its own. Saab hopes to launch the next 9-5 large sedan and new 9-4X crossover next year. The Swedish government has offered aid but does not want an ownership stake.
HUMMER
GM put Hummer on the block last summer and knowledgeable sources say there is an interested party. But sources close to GM say Hummer’s financial situation will make a deal difficult.
One source says it’s hard to build a business case for the brand, especially in view of coming U.S. fuel-economy standards. And the current global economic slowdown makes it unlikely that international sales could rescue Hummer.
GM is asking $500 million for Hummer but likely would settle for less, says a source close to the discussions.
No, we’re not starting a whip round. AN says GM may just close the dead brands and take the heat from franchisees. The “you try suing the federal government” approach would immerse GM in 50-state lawsuit hell. And what about Pontiac and Buick? What’s the plan there? At least we know what’s going on with Cadillac and Chevy’s product plans. Oh wait…
It’s a Mini Moke on steroids!
It will be interesting to see if the Feds will allow GM to just starve the dealers out without any explicit plan to terminate brands.
From a taxpayer perspective, you have to wonder how writing off, say, $1BB per brand would compare to the status quo.
Gee, Mini Moke…on steroids…or something. A Hum Job. Ought to go over big in Bermuda…or Abu Dhabi
This waiting for Ch 11 is getting painful to endure. On the other hand, considering the laws, doing nothing at all and by default, starving dealers, is a smart Plan too. Then the government has to make an actual real life decision. Some day.
Well at least GM is dithering on our taxpayer’s dime. They can put off the decisions until the US govt gets tired of the injections. Then they can threaten the several million job losses again if they go under.
I wonder how long this charade continues. I hear the Feb. downturn in sales by the big three will focus on reduced sales to the fleets. (where have we heard that before?) In other words their anemic consumer sales will stay at the same level.
As this goes on, and remember they have all but frozen new product, the hole gets deeper and deeper. Will Americans buy yesterdays news from wounded producers at any discounted price?
As an aside, the big three (I saw chrysler’s add yesterday, of you pay what we pay, carries on into 2009). We haven’t paid what these guys paid to produce and markdet these loser cars for years, why is the ad so revealing now?
Hate the wording in the Saab paragraph: “We’re trying to see how much of Saab we can isolate.”
As if Saab is some cancer in GM when it really is the other way around.
I agree billc83, but Saab should be isolated from GM – since GM hasn’t a clue with them. Perhaps in the end ownership of it (prior to any sale) should be transferred directly to GM’s subsidiary Opel. Let ze Germans and ze Swedes run it. Can’t get any worse.
At 10 to 11 million vehicles there will not be any winners in the U.S. With the weak dollar and the market decline, Honda,Toyota, Nissan, etc will have trouble. This could be the game changer for the entire industry and all it’s suppliers in the world not just the U.S. and not just GM.
Donate Saturn, Saab and Hummer to car-starved Cuba. GM would be better off, and the three brands would bring down the Castro regime.
The photo makes me feel like it’s 1977 all over again. Watching the start of Fantasy Island.I’m just waiting for Mr. Roarke and Tattoo to appear from behind the canopy. I wonder if GM people ever visit the island?
I’m really tired of the Detroit bashing.
ALL car companies are looking at decreased sales and other problems right now–even your precious Toyonda.
“With the weak dollar and the market decline, Honda,Toyota, Nissan, etc will have trouble.”
Unlike the US, though, the Japanese have no problem giving real support to their domestic auto industry.
BDB :
What “problem” might that be? You are aware, sir, that GM and Chrysler just received $17.4b in loans from Uncle Sam, on top of their share of $25b worth of retooling loans, and $6b for GMAC and, and, and.
In fact, John Horner’s scorecard goes up next.
“What “problem” might that be?”
Decreasing sales from a deep, global recession and credit crisis.
“You are aware, sir, that GM and Chrysler just received $17.4b in loans from Uncle Sam, on top of their share of $25b worth of retooling loans, and $6b for GMAC and, and, and.”
What do you think the Japanese government would do if Toyota was about to go bankrupt? They’d bail it out.
BDB :
February 2nd, 2009 at 11:24 am
What do you think the Japanese government would do if Toyota was about to go bankrupt? They’d bail it out.
It’s unlikely we’ll ever find out will we?
Already Toyota is taking drastic steps to insure profitability, unlike Detroit that goes hat in hand crying to the Feds while changing utterly nothing.
At least Ford is making an attempt to compete. As far as I’m concerned GM and Chrysler can disappear. I won’t shed a single tear.
It’s unlikely we’ll ever find out will we?
Yes, thanks to decades of unfair Japanese trade practices and subsidies.
Do you realize what a disaster it would be to have no domestic auto industry? If you think bailouts cost a lot, wait until that happens.
@BDB
I’m really tired of people putting forth the falsehood that GM is somehow a victim of circumstances of the current economic climate, and bears no responsibility for their current situation.
The signs been out there for years for anyone who cared to look. RF has been connecting the dots since at least GMDW #1 back in 2005. Many of GM’s problems (too many brands, to many dealers, poor vendor relations, truck heavy portfolio, unsustainable labor cost structure, dependency on incentives ) go back decades.
No one wants GM to fail, but I don’t see how they can succeed as they are currently configured, and all of the changes GM has put forth do not do enough to address the underlying problems.
BDB
In fact, Toyota was bailed out by the Japanese government in, I believe, 1949. Apparently, Toyota had an inventory problem and was facing bankruptcy.
Big on the outside, small on the inside. Look at Farago’s picture of the jeep like Hummer in this post. Tell me it doesn’t say what was always wrong with this the most in-efficient use of space of any SUV on the planet.
Sorry but The United States lost its car companies many years ago.
For too many years, General Motors and Chrysler have been run as nothing more than a cash cow for Board and executive salaries. These people would harvest potatoes for all they care as long as the salaries, bonuses, and perks were high.
Ford is attempting a comeback but is pushing a heavy load of non-car company people trying to thwart Al’s every move. When we hear four dozen from the top three tiers of Ford Management have been terminated, Ford will finally have both hands firmly gripping the ledge, able to pull itself up.
Audi, BMW, Honda, Hyundai, Kia, Mazda, Mercedes, Mitsubishi, Nissan, Porsche (leave it alone), Subaru, Toyota, Volkswagen et. al. are run as car companies. Smart management and product will keep the lights on at these stores.
For those interested in the history of Japan’s auto protectionism, please see “Will The Rubber Grip The Road? An Analysis Of The U.S.-Japan Automotive Agreement” by Eleanor Roberts Lewis and David J. Weiler. Articles such as this one concretely show that mercantilist East Asian countries are promoting an economic model that is globally trumping Western-style capitalism, particularly in regards to manufacturing.
Articles such as this one concretely show that mercantilist East Asian countries are promoting an economic model that is globally trumping Western-style capitalism, particularly in regards to manufacturing.
And its a model we should adopt. We should treat Japanese cars in America the same way our domestics are treated in Japan.
GM trying to sell an entire brand(Hummer) for 500M.
Cry-sler lends a sleezy dealer(Hecker) 550M then sues to collect.
If Chrysler owned Hummer, they could have just loaned(given) it to Hecker instead of the money and saved 50M…….Then we would have Hecker Hummers.
@ BDB
Do you realize we had this very same situation happen with Harley in the 1980’s? We went after the Japanese. Harley was going under, had suck products with poor quality and was going bankrupt. The US Government actually put heavy tariff’s on every Japanese motorcycle over 700 cc’s to help Harley unfairly. You talk about Japan’s unfair trade practices….we did exactly that to THEM.
The Japanese manufacturers ended up making great motorcycles for different segments and powered through, as evidenced by a complete lock on the motorcross and sportbike markets today.
Harley got back on its feet by improving their product, carving out it’s niche and pushing the lifestyle, the tariff did little to help. I would say that Harley will once again be challenged as GM is. They have little product differentiation and hugely expensive models. I am sure there are some dealers that would love to offer scooters, city bikes, enduro’s and models that were less that $10K – $20K. Wait and see.
The Japanese have been successful in the auto industry because the Big 3 have screwed up royally. All the foreign companies have had to do is combine good market research with affordable, quality cars and Bingo!
Harley got back on its feet by improving their product, carving out it’s niche and pushing the lifestyle, the tariff did little to help.
If it wasn’t for that tariff Harley would be dead today. They were given enough breathing space to improve their products thanks to the tariff. We shouldn’t be scared of doing the same thing with our automobile industry. What is Japan going to do, block us from competing in the Japanese market? Oh, wait, they already do that!
The Japanese have been successful in the auto industry because the Big 3 have screwed up royally.
Sure the Big 3 have made bad products, but they’ve also made some very good cars in recent years. The new Malibu, the Sky/Solstice, the Fusion, the G8, the 300c to name a few.
Problem is they have a horrible image, even when they make a good car people make cracks about the ’89 Tempo or what have you. It’s become cool (and easy) for automotive journalists to bash Detroit.
BDB:
Are you aware that Harley-Davidson is on Death Watch?
Click here.
BDB,
A global recession is not the time to have tariffs. We did that once with the Smoot-Hawley and it turned a stock market crash into a depression.
I would, however, like to see Japan and other Asian countries remove the barriers that prevent US agricultural businesses from selling in Japan. If they want to be able to sell Corollas and Camrys in the US, they have to let us try to sell rice in Japan.
BDB,
What did Harley do during those tariff years to make themselves better? Did they look to innovative new product channels or product lines? Will the government let Harley die now?
The Japanese took the opportunity to jump into everything from motorcross bikes, scooters, watercraft, and lawnmovers. Harley kept doing the same thing as always and now, they will pay the price for being so egocentric, like the Big 3 have.
@BDB,
It’s fair to say that all of us want GM and Ford to succeed (Chrysler’s been dead for a while). Ford appears to now have the decision makers in place to make it competitive. The same cannot yet be said of GM.
GM is still proving to the American public that they don’t give a shit. Proof? Lack of thoughtful leaders laying out a clear, specific direction for the company with timetables and costs.
They’re still living in a bubble. They don’t deserve a bailout.
RF,
Thanks for the link to HD-Death Watch. I figured they were doing poorly what with the recession and their high priced line of cycles, but I didn’t realize they were in such bad shape.
RS,
I would, however, like to see Japan and other Asian countries remove the barriers that prevent US agricultural businesses from selling in Japan. If they want to be able to sell Corollas and Camrys in the US, they have to let us try to sell rice in Japan.
Sorry to get off on a rice tangent, but- I doubt we’d be all that successful in selling rice. Maybe for some type of processed food where the rice isn’t going to provide much flavor, but not “table rice”.
I lived in Hawaii for several years, and I’m familiar with the type of rice the Japanese eat. By comparisson, American rice is really only fit for animal feed.
Of course, Thai rice is much better than Japanese rice, but people get accostomed to a certain taste. The Japanese will want Japanese rice on their table. Rice isn’t a single commodity in the same sense that wheat and corn are. (Though I suppose there are different varieties of wheat and corn as well, I’m not sure the differences are as important as with rice).
@jkross22
If GM goes under–meaning Chapter 7–won’t it drag Ford down with them?
On the rice issue, Japan already does import a lot of rice. As well as other agricultural products. In fact, Japan imports more agricultural products than any other country.
But the United States cannot compete with other countries, including South Korea and Thailand, in supplying the Japanese market. The United States does export some rice to Japan, but less than 1% of the market. A largely symbolic share.
But the point on rice is well taken. Japan has always protected its markets. Restrictions have eased over the years due both to outside pressure and reform within Japan. Still, Japan remains effectively closed to United States carmakers.
Tariffs are useless. They already happened in the 1980s with import quotas and all the Japanese did was bring in more expensive models and build plants here. People still bought their cars because they were seen as better value.
So, Detroit was protected under import quotas. What did they do to become competitive?
Sweet Fanny Adams!
Unfair Japaneese trade practices (alleged or real) did not cause GM to build cars and trucks ranging from uninspiring to truly awful. GM alone took 5 (maybe 6) of what in the 50s were valuable powerhouse car and truck brands and slowly destroyed each one. Some, like Cadillac, have been under rehabilitation (do not forget that 15 years ago it was Lincoln with all the product mojo). Others are dying a slow and agonizing death.
The cluelessness of this management makes me angry. How does a group of people take a company that sells HALF the cars and trucks in the USA and foul it up beyond recognition over the next 45 years. It should be no surprise that GM’s management is clueless about what to do with its brands. It has exhibited the same cluelessness for the last 40 years. And for the last 3 or 4 years, all signs have pointed to “no shit, this is serious” at GM. So they do precisely nothing with the brands.
There are 3 choices. The first, shutter multiple brands, is impossible without a c-11, for reasons repeated in the original article. Second: Keep all the brands. Pull the plug on unprofitable models, and divide the rest equally among the brands. Sorry, but no more competing models. One mid size sedan. Assign it to a brand. That’s it. They can’t keep all their brands and still keep Chevy competitive in every segment. Third: Remember the Omni and Horizon? One car. Two grilles, two sets of badges. No other differentiation. Then lets see who sells them and who doesn’t.
I can’t be any smarter than at least some of GM’s management (kind of hurts to say it, though) so I figure that these ideas have to have come up in discussion. But they don’t like any of the alternatives, so they just sit there. OK. I’m done. I feel better now. Thank you for listening.
jpcavanaugh–
Chrysler killed of Eagle and Plymouth. How’d that work out for ’em?
For that matter, is GM any better off today for killing Oldsmobile?
Killing off brands isn’t a magical solution.
BDB:
For that matter, is GM any better off today for killing Oldsmobile?
Not when they then add Saturn, Hummer and Saab and pack GMC with more product.
My point is not that killing brands will magically save GM. It won’t if the vehicles in the remaining brands are lifeless.
My point is this. From the 20s into the early 60s, the market was divided by price. GM’s brands (they were called Divisions, then) were designed to segment the market into 5 price groups. Each division designed and assembled its own cars, often from components manufactured solely by that division. GM’s main corporate job was to set boundaries for what the brands could and could not sell. Sometimes messy in practice (say, the 1941-42 Buick Limited that encroached into Cadillac’s territory, and was not brought back after the war) but by and large it was successful. But 2 things happened. First, GM got lazy or sloppy or stupid and started giving every platform to every brand. How was a Buick Skyhawk any different from a Chevy Monza. It wasn’t except for the decals. It just stole sales from Chevrolet and diluted the image that Buick was supposed to have. But it was not fatal (in the short term), because the company still had a market share of over 40 percent, so they could afford to blanket the market with clones to keep from losing a single sale.
Second, times changed. Now its less about price class and more about specific segments. SUV, crossover, pickup, minivan, sedans of various sizes, etc. Ask yourself this: What is a Pontiac, and why does GM make and sell them. Go through this same excercise with each of the brands. Are you having trouble yet? I don’t know anybody under 75 who thinks a Buick is somehow inherantly superior (let alone different in any fundamental way) to a Pontiac or Chevy.
IF GM still had 40% of the market, go ahead and sell a Traverse, an Acadia, an Enclave and whatever the Saturn is called. Each variant has its own sheetmetal, interiors, wheels, etc. But GM doesn’t have 40% of the market anymore. GM is burning BILLIONS of dollars monthly. Now they are your dollars and my dollars. Does anybody really think they will lose more than a marginal amount of sales by picking one of the 4 versions and pushing it. Especially if they take the money wasted in developing the multiple flavors and use it to improve the performance/quality and value of the one that remains.
The worst example is the Chevy and GMC pickups. I hope I’m wrong, but I think I noticed that the new ones use different sheetmetal in the fenders and boxes between the Chevy and the GMC? Why on earth would GM spend money on this at this stage of its rolling disaster? Is there anybody out there who thinks a Chevy Truck and a GMC Truck are anything other than complete clones?
Either use the brands or throw most of them over the side, I don’t really care. But GM can’t do both, which is what it is trying to do and failing badly at it.
… Does anybody really think they will lose more than a marginal amount of sales by picking one of the 4 versions and pushing it. Especially if they take the money wasted in developing the multiple flavors and use it to improve the performance/quality and value of the one that remains.
The worst example is the Chevy and GMC pickups. I hope I’m wrong, but I think I noticed that the new ones use different sheetmetal in the fenders and boxes between the Chevy and the GMC? Why on earth would GM spend money on this at this stage of its rolling disaster? Is there anybody out there who thinks a Chevy Truck and a GMC Truck are anything other than complete clones?
Either use the brands or throw most of them over the side, I don’t really care. But GM can’t do both, which is what it is trying to do and failing badly at it.
At the risk of sounding like a broken record, I have to ask why so many of the B&B are hot to kill GMC. It’s the number 2 selling brand at GM – all of them high profit trucks, vans, SUVs, or CUVs – the kind of vehicles GM makes money on.
Sure, it’s just cloning, but as I say, it’s the #2 division. If you can make a compelling case that the vast majority of these customers stay with GM, then by all means, kill GMC. If you can’t make the case (and I’m not talking about guessing) then it would seem a foolhardy thing to do, especially when revenue is falling and this division returns good profit per unit (presumably).
Why do people buy GMC? I have no idea. But wouldn’t it be wise to have a good idea before killing it off?
We’d have to have some real numbers before we can make this decision. How much is saved by killing GMC? How many sales would be lost to GM? Does GM come out ahead or behind? I don’t have the numbers, but my guess is that it costs relatively little to rebadge other GM (mostly Chevy) vehicles. For some reason, people buy the clones in large enough numbers to make GMC the number 2 division.
The question comes down to this- if customers would stay with other GM divisions, why aren’t they already buying from other GM divisions? It sure isn’t due to a lack of outlets.
Don’t get me wrong, it could well be that 97% of GMC customers will stay with GM. In that case, killing GMC is a no brainer. But what is the real figure? Don’t we need to know that (or predict it as accurately as we can) before saying this is a good idea?
Dynamic88, you raise a good point. GM management is hunkered down under fire in a bunker doing who knows what. Critics (like me) and politicians bandy about pet solutions that are based on poor data and have little chance of helping. Money and time are wasted.
If GM had a real board, they would have stepped in and done something, and that might well have saved GM. Compared to the insolvent companies I have seen, GM has a good business. As best I can tell, their revenues are still over $100 billion on an annual rate. That’s not too shabby.
It sure came as a shock to me during the bailout hearings to hear that GM had only enough cash to last the year. Even so, their cash burn rate, compared to revenue, is not too bad. And it looks like GM has eased off on the burn rate some.
This is a classic case for bankruptcy. Bankruptcy does require serious surgery. Many companies do not live through it. But while GM is sick enough to need bankruptcy, its basic health is still strong enough that it has a good chance of recovery.
So I would write two things on my prescription pad. Both would be process steps. Not something like get rid of brands. But instead,
1) Replace Rick Wagoner. Get someone like Frank Macher. I do not think Wagoner has been the disaster that many do. But to make the needed changes, he has to go.
2) Declare bankruptcy.
The problems at Saturn and Saab, to focus for a moment, have been going on for a very long time. The lowering of the water in our Economic Lake simply made the boulders many of us saw with our virtual sonar obvious to one and all.
GM has had too many brands in the US market for many years, and most sentient beings who considered the situation have known it. Rather than making the necessary decisions and dealing with the consequences, GM has constantly kicked the can down the road. Well guess what, there is no road left.
Saturn never should have been started and Saab never should have been bought. GM needed to fix its internal problems and maximize the value of the brands it already had … but instead went out and spent good money creating (Saturn) and buying (Saab) more of what it didn’t need! These are fundamental management errors. Errors are to some degree unavoidable, everyone makes them. But, good management quickly sense when it has screwed up and goes about fixing it ASAP. GM hasn’t had world class management in many decades now. They pay like they have world class leaders, but don’t actually have it.
I think it is wrong to compare Harley Davidson to the plight of the US auto industry.
Motorcycles in the US are not utilized as primary transportation by a large percentage as compared to the rest of the world.
Furthermore, it is the Japanese who are copying the style of Harley Davidson. Yes, there are markets Harley isn’t in, such as dirt bikes but Cruisers are the high margin bikes. Sport bikes and dirt bikes (except probably for my lowly KLR650) are more advanced and thus have a much lower margin.
The fact is that the American Motorcycle Industry isn’t really about transportation…Bikes are toys in this country and thus the market is drastically different than somewhere like Europe.
“The US Government actually put heavy tariff’s on every Japanese motorcycle over 700 cc’s to help Harley unfairly. You talk about Japan’s unfair trade practices….we did exactly that to THEM.”
No, it screwed American customers like me. Harley *still* doesn’t make a bike I’d buy. Yet back in 1984, they saw fit to have the government jack up the price of the FJ1100 I bought that year. Meanwhile, the Japanese shortened the stroke on their 750CC models and, voila, 700CC tariff-beaters.
On another front, I find it interesting that so many people seem to think that the 10 million market is here to stay. This is patently ridiculous. It will probably be quite a while before we see another 16 million-unit year, but it is inevitable. There are almost 200 million cars and trucks in this country. At 10 million per year, it would take almost 20 years to replace them all. Clearly, not all cars and trucks will last that long. Add in population growth and annual sales will definitely increase. The question is when. The longer that the slump continues, the larger the rebound will be.
But while GM is sick enough to need bankruptcy, its basic health is still strong enough that it has a good chance of recovery.
Who in their right mind is going to buy a car from a bankrupt company though?
Sometimes I get the sense those glibly predicting the death of the Big Three or bankruptcy don’t realize what a disaster it will be.
BDB :
What a disaster it WILL BE? Don’t you mean “is”? Or do you seriously expect Chrysler or GM to repay these loans?
“Or do you seriously expect Chrysler or GM to repay these loans?”
If they get enough support to make it through this recession and get their new products out, yes I believe they will repay the loans after the economy recovers. Chrysler repaid its 1979 bailout loan early, after all.
But there’s one way to be sure they will never, ever repay the loans–and that is for the government to tell Detroit to drop dead this year (I get the feeling that’s your proposed “solution”).
And yes, “will be”. GM and Chrysler still exist right now. They haven’t gone into bankruptcy last time I checked.
Technically, they are already bankrupt.
GM and Chrysler (and perhaps Ford) died at least four years ago. There is no “plan” for these companies’ survival. They already blew it.
Chrysler is dead. Filing for Chapter 11 won’t “save” GM. It will allow something new to arise from the ashes. Whether THAT survives is an open question.
“Chrysler is dead. Filing for Chapter 11 won’t “save” GM. It will allow something new to arise from the ashes.”
Nothing will rise if that’s true. That means the suppliers (which many transplants share) go under, too, screwing them over. Not only that, but the loss of so many good paying industrial jobs being replaced by $9/hour Wal-Mart McJobs (if they’re lucky enough to be employed at all) will bring the entire economy crashing down even further through the floor than it is now.
This includes a lot of pain for Tyonda because guess what? A hell of a lot fewer people are going to have enough money to buy new cars.
BDB,
If GM goes C11 it has a slim chance of surviving.
That chance goes up significantly if Chrysler goes C7 as well. But it drops to zero if they don’t declare C11.
Chrysler is C7 bound at this point, no matter what.
It’s going to be a nasty for folks in Michigan no matter what. It’s been lousy for a long, long time. That’s why I left GM and the state. Without dynamic change, I may never move back to work again. Dynamic change may come if GM (and maybe Ford) goes C11 now and Chrysler goes C7. If not, southeast Michigan will end up like eastern Ohio and Pennsylvania when the domestic steel industry imploded.
BDB, most of them never had the money to begin with–they went into serious hock in the days of 16m SAAR. That was abnormal and unhealthy. The bubble has burst and we’re now collectively moving toward fiscal sanity. (I’m talking about people, of course, not the government.) The automakers need to figure out how to make a profit in a normal economic environment.
I worked in the federal judicial system for a while, and I’ve seen Chapter 11 reorganization bankruptcies in several different industries. At least from what I saw, the process works fairly well.
Surprisingly perhaps, a reorganization is usually good for employees, suppliers, and customers. A troubled company gets a fresh start. Things get better for these groups, not worse.
The ones who suffer are the shareholders, who get nothing, and the creditors (suppliers are usually treated differently than other creditors), who get their debt converted to equity.
GM’s shareholders have already lost almost all the value of their shares. Even with Toyota’s stock getting hammered lately, a GM share is still worth only 2% of a Toyota share.
GM’s creditors may also do better under a Chapter 11 reorganization than otherwise. Carmaking is not the steel industry. The numbers are very different in carmaking from what we saw in steelmaking. In my view at least, GM is sick but not a dead man walking.
So this idea that people will not buy cars from GM if it reorganizes in bankruptcy court makes no sense to me. As Farago says, GM is insolvent now by any measure. Only government money is keeping the lights on.
Bankruptcy would help, not hurt, GM. The protection of the bankruptcy system, mature and tested, will be far better than this cobbled-together farce that the bailout is. Bankruptcy has its problems and abuses, of course. Lawyers would feast on it for years. But for GM, it might work.
Poor Chrysler is another story. Cerberus has left it for dead. The only hope there is for someone to buy up some or all of the pieces and at least employ some Chrysler people and give work to some of its suppliers. Like with Lehman Brothers.
Some of the bloggers get it. You don’t kill off brands like olds and keep building mediocre cars in the rest of your brands and expect success. You need as Farago stated a new beginning with one or two solid product lines.
Can someone tell me about the exciting new cars that GM will be producing in the next 24 months that will persuade me from buying a Hyundai (either Genesis, Sante Fe, or Elantra Touring)?
Like most customers I compare price and standard features, warranty, reliability and financing.
Blobinski: Yep, I can tell you about the exciting new GM car that would make you pause before buying a Genesis. It is the Opel (Vauxhall, Holden) Insignia. Oh…oops, wait, that’s right, we’re in North America, so we’ll have to wait for an “Americanized” (decontented, downgraded, detuned) version wearing a Saturn badge. Never mind, guess you’d better head for the Hyundai store after all.