Most auto industry observers have lauded President Obama’s decision to defenestrate GM CEO Rick Wagoner and his Board of Bystanders. Their logic is as simple as one, two, three. One: U.S. taxpayers have “loaned” The General billions of dollars. Two: GM’s management failed to provide a viable viability plan to return the money. Three: the presidential putsch protects America’s “investment” in General Motors. Yes, well, protect THIS. When GM files for bankruptcy 59 days hence, $17.4 to $19.5 billion worth of taxpayer money will disappear down a rathole, never to return. That’s a conservative estimate of the total amount of federal “loans” and grants and God-knows-what that will be wiped out the moment the judge signs GM’s C11 papers. Oh, and after we kiss that cash goodbye, U.S. taxpayers will provide the cratered car maker with debtor-in-possession financing. In other words, more money. And who’s to say that money will ever be repaid? What’s the end game? Is there one?
President Obama justified his intervention in the American automobile industry with a vision of a revitalized General Motors. (Chrysler not so much.) With Uncle Sam’s help, GM will one day rise again. It will produce the clean-running, high mileage vehicles of the future, built right here in the U.S. by yada yada yada. Seriously? Does anyone seriously believe that a post-Chapter 11 General Motors will build and sell products that will be the envy of the world?
Post-C11, GM will trim down to two brands: Chevrolet and Cadillac. Costs will be cut to the bone. The United Auto Workers’ power will be denuded. Legacy issues? Banished. Bloated dealer network? Decimated. GM may even emerge from C11 with a Mulally-like leader and a fiercely independent and intelligent Board of Directors; ready, willing and able to reinvent GM’s poisonous corporate culture. And then . . . GM will face a leaner, hungrier, larger Honda, Nissan, Toyota, Hyundai, VW and Ford.
Good luck with that.
Once upon a time, GM could have entered bankruptcy, cleaned its own clock and survived. The talent locked-up inside the artist formerly known as the world’s largest automaker could have been refocused, redeployed and redirected. But CEO Rick Wagoner couldn’t see the diem, never mind carpe it. His delay and denial made GM’s recovery both more expensive and less likely.
Amongst other Shiva-like maneuvers, Wagoner created four sales “channels” for GM’s eight stricken car brands, trading internecine warfare for outright paralysis. As resources diminished, the key question—who makes what for whom when, where, why and at what price point—became a Gordian knot. “Why” became “why not” became “whatever.” A Cadillac sports wagon? You betcha. GM’s last next big thing, the pedestal-dwelling plug-in hybrid Chevrolet Volt, is the poster boy for the company’s headless chickenism.
And now, nothing. GM Car Czar Bob Lutz has retreated into the shadows, counting the days until he collects his bankruptcy-proof pension, watching as the company’s creative process (such as it is) slips into chaos. Meanwhile, GM’s Best and Brightest have left the building. The Presidential Task Force on Automobiles (PTFOA) rightly ripped Red Ink Rick’s ridiculous rabble a new REDACTED, but their “restructuring fact sheet” makes one wonder about their ability steer a course into the future. What’s the plan, Stan?
“The new GM will have a significant focus on developing high fuel-efficiency cars that have broad consumer appeal because they are cost-effective, have good performance and are reliable, durable and safe.” PC it may be, but that hardly sounds like an ideal recipe for world-class Cadillacs. Which leaves Chevrolet. Trying to play catch-up with battle-hardened, technologically adept, customer retaining competition.
Again, good luck with that.
Fifty-nine days from today, GM will file for C11. Chevy and Cadillac will eventually emerge from the rubble. The chosen ones will survive until they come off the federal teat. They may even survive after that. But they will be damaged brands—welfare queens tainted by their association with the federal government. Even if Chevrolet and Cadillac create world-beating products with industry-leading customer service, they will have the stench of corruption. Their logos will be a malodorous reminder that they achieved their success off the backs of the American taxpayer, rather than honest labor.
OK, maybe that’s a bit much. Americans love a comeback kid. And what late 1940s industry expert could have predicted that his fellow countrymen would elevate Japanese brands to the top of the family and luxury car sales charts? But do we really have to pay twice for GM’s resurrection?
If General Motors had filed for Chapter 11 when they coulda shoulda, no tax money would have been harmed in the making of this [entirely theoretical] renaissance. As it currently stands, there is no end point. Sure, Chrysler repaid its loans way back when and . . . oh dear. Despite all that government help they’re in a bit of mess now aren’t they? You know, in a DOA sort of way. So maybe, just maybe, government assistance is a form of assisted suicide. Perish the thought.
I think it’s great that Obama is doing what a normal CEO of a company cannot intentionally do… which is to accelerate an extreme level of restructuring
You do realize that Wagoner is not supposed intentionally force a publicity traded company into bankruptcy. It is his responsibility to keep GM out of bankruptcy – and Fritz, as the new CEO, is technically supposed to do the same thing. This prevents a CEO from increasing the firm’s leverage in order to overpay business “partners” and to pay bonuses. And then plunge into an intentional bankruptcy because the business just isn’t viable as it was operated.
Of course, the situation changes if the firm defaults in spite of the best efforts of its CEO or its creditors force the issue. The banks (and other entities that are owed money by the automakers) are going to be the ones that should use bankruptcy court (or Obama’s Court) to force a reorganization.
I guess there is one example where in 2001 the CEO of USG (Foote) used bankruptcy as a means to protect itself from massive asbestos-related lawsuits. USG had been combating these suits even though other firms in that industry were dropping out like flies due to increasing litigation. Prior to the filing USG was doing so well that the Enlightened One, Warren Buffet, bought big-time into USG because he believed in the company.
Of course the year following their 2001 bankruptcy Foote received a pretty hefty retention bonus for his efforts.
donut, I disagree in part. It was Wagoners job to keep GM out of bankruptcy, true. But there was a point past which he was just pissing away resources in a futile struggle to stay afloat. At that point his job was to man up and do what was best for the long term health of the company. That’s why we pay em the big bucks (in theory) vision and balls. Not shortsighted cowardice.
You asked what the endgame is. Well, let me tell you- it is global socialism.
That’s it. Take a look for yourself what the sentiments are in England:
The destruction we are witnessing is deliberate.
What does that mean for GM? Well, Buickman has stated many times the destruction of GM is/was deliberate….so, what becomes of GM is totally irrelevant.
What is relevant is the amount of debt being heaped upon the working folks of this nation- the debt is not a tragic consequence…it is THE main objective!! Job loss is the main objective. The destruction of salaries…all part of the main objective.
Wake up.
toxicroach :
… That’s why we pay em the big bucks (in theory) vision and balls. Not shortsighted cowardice.
I think this taxpayer funded bailout is causing me to misinterpret the term “we” in your quote.
Prior to this bailout there were 2 major sources of GM continuing to trek along its merry way while meeting its payments due to bondholders and other long term debt. The first was the fact that dealers kept on buying cars to sell to end consumers. The second was GM funding itself through additional financing (equity and debt). While yes, the money you deposit into a 401K technically provides a bank with the ability to purchase GM stock or to loan GM money, I don’t think you’re really paying GM anything.
It is the CEO’s job to try his best to stave off bankruptcy. The banks and other lenders kept on feeding the issue – and it manifest itself in what you see today. If GM had a workable cash flow where it wasn’t about to fail its obligation to pay its interest payments, then GM cannot snap its fingers and just decide to go into bankruptcy.
The Taxpayer Bailout prevented what would normally be witnessed as a bankruptcy. But the bailout is creating a domino effect of increasing government intervention where now some federal task force appointed by the Executive Branch is making business decisions.
I liked the old way of using bankruptcy courts to settle things out – but it’s still great to see that the massive restructuring may still occur.
So at this moment “we” as taxpayers are paying Fritz to do whatever it takes where we get our money back. A CEO’s obligation in bankruptcy is to get the firm to re-emerge (as Foote did at USG). If we consider that GM is already bankrupt, then yes – his obligations are no longer aligned to equity holders. But Rick never had the option to steer GM towards in bankruptcy court even as recently as the middle of 2008. Even if the RF’s of the world thought a GM bankruptcy was inevitable, there were still people who thought otherwise and owned GM equity shares. Rick represented the interests of those people – not to RF.
holydonut :
GM was technically bankrupt long before now. At the moment when they had no realistic chance of paying off their debt, the CEO should have filed for C11. You don’t have to enter C11 with a zero bank balance. In fact, it’s the worst possible scenario.
And let’s refocus here: “we” the people are never going to see that initial $20b again, no matter what Fritz or Obama or anyone else does. It was pissed away for political pandering.
As the editorial says, the real question is whether or not we’ll ever see the NEXT $20b again. (And the rest.) I doubt it. And I wonder how in the world this “we” ever got to be me. Actually I know. And it disgusts me.
I don’t mean to upset anyone, but if you knew the REAL figures …you’d probably be hunched over the toilet…face-first:
http://www.youtube.com/watch?v=tfSopTQMtsE
Billions is nothing…not even a drop in the bucket.
RF:
GM was technically bankrupt long before now…
What are your thoughts on when Rick should have pulled the trigger on the filing? 1975? 1984? 2001? 2003? 2005? 2007? 59 days from now?
I agree that their business was fundamentally flawed pretty much since the 1970s, but I don’t think Rick could have taken them into C11 until 2008. Unfortunately this coincided with a time that enough people (it really only takes 1 if he’s the president) felt that Detroit going bankrupt would be catastrophic.
Atop the RenCen, they knew that the federal buffet was available, they opted to keep GM out of C11… we all love buffets right?
Well, now that we are seeing the start of GM’s bankruptcy (what TTAC has been saying has been nessessary for years now) it seems a bit churlish to complain about “what happens after.” GM will face fierce competition when it emerges from C11, but, hell, that’s what we at TTAC wanted, wasn’t it?
Neb
Yeah, when I originally read this article I thought RF was implying that Rick should have taken GM into C11 back in 2005 or whenever it was that RF started vocalizing C11 as the best solution.
If General Motors had filed for Chapter 11 when they coulda shoulda…
Now I’m thinking that RF just meant that GM should have gone into bankruptcy without taking your taxpayer funded bailout dollars… so the timing of the C11 is wrong, even though it is what he wanted from the beginning.
Reminds me of that one XFiles episode of the genie that gives you what you want – but in the worst possible way.
I don’t think it will be 59 days. Three, maybe four days at most. Saturday or Sunday the announcement will be made. Maybe Friday night when the markets close.
RF,
My man, you are a mystery. For YEARS you’ve been begging for this moment to come…and now that its here….and you’re STILL critical and angry? Okay, I get the taxpayer money part…we’re altogehter there. But if we had normal credit and private equity markets, the investment in “the new” GM (assuming this split company approach is put in play like the Leahman Brothers deal which took all of ten days to do)would be very possible. But the credit markets are busted still…so it needs DIP financing from you and me. BUT, think about what we get here:
Caddy, Chevy and BPG – with the right dealers only — in the new company…everything else heads to court to be forgotten.
A clean balance sheet. CLEAN.
A wage rate with the UAW that is completely competitive, with a manufacturing footprint that is sized for volume sold.
A viable way to payback the DIP because the new company is working with a CLEAN balance sheet.
A company with real worth that can pledge equity that has real value…the bondholders have a reason to move now.
The “new” Opel, GMDAT, SAIC and other global assets pleged to the new company to make it powerful.
And a reason for customers to consider the cars from the new company because they’ve seen REAL change..this is the most public business deal ever.
Robert, you should be beside yourself with glee here. You almost sound as resistant to change as GM management. Take a breath, enjoy this moment…you called it…this could be a great ending.
Yesterday General Motors fired the CEO, Rick Wagoner. He is being replaced with longtime GM exec Fritz Henderson. Yesterday President Barack Obama promised the American consumer that the US government (you) would provide the warranty for all GM cars. He also said that GM would be reorganized (chapter 11 bankruptcy) in 60 days. What was the new chairman’s first order of business? He committed fund from your checking account for the next five years. The details he promised you would pay:
5 Year / 100,000 mile warranty
Payment protection for unemployed buyers for up to nine $500 payments, or $4,500
Equity protection on your vehicle.
When President Obama said the American people would stand behind the warranties of GM, he clearly did not assume that the warranties would be extended the NEXT DAY! This cost combined with the unemployment payment adjustment could represent possibly $20,000 per vehicle. It is the “Buy Now / Let the Taxpayer Pay Later” plan. The government oversight committee should have stopped the press conference in mid stream today. If the US government was complacent in the deal, they are knowingly committing taxpayer funds in later years to fund sales now. Congress should step in and stop the madness. Where are taxpayer groups?
Is it arrogant to pledge things you do not have? If your are being forced into bankruptcy because you operated on credit all of your career, how prudent is it to pledge the good will of the American people?
Americans want cars of exceptional value that are well made, sold at a fair price and retain their value. They will buy them all day in great numbers. The US has tried to help GM survive. What GM did this morning was similar to a homeless person receiving a gift from a stranger he could never pay back, and leveraging it into a loan that the donor will have to pay for the for the next 5 years. Incredible!
The Car Geek at CarGeek.com has helped car buyers find pricing and financing on new cars since 2003.
Sometimes good things happen for bad reasons. Sometimes bad things happen for good reasons.
GM is long overdue for a massive restructuring. Given the situation as it existed on March 25th, 2009 it seems that team Obama is making a rational set of decisions. Of course many will disagree out of ideological passion or simply a different view of likely outcomes. Personally I think they made a reasonable set of decisions given the facts at hand.
The other options:
1) Let is all burn.
2) Keep drip, drip, dripping money into GM and Chrysler without making any fundamental changes.
Forget what coulda, shoulda happened months or years ago. The only question which really matters is: What happens next?
I heard something interesting on the radio today – that Hummer is is the #1-selling brand in Iraq. Uh huh…seems the emerging middle class in post-war Iraq likes to load up the H3s with bling and show off their new-found wealth. Nothing short of totally-loaded will do. And this in a country where their gasoline prices are through the roof. Seems like GM could find a buyer for Hummer if that’s true.
To me, a more interesting question is what happens to the other brands. Chevy and Caddy survive – that’s simple. But what of Buick, Pontiac, GMC, and the rest? I wouldn’t miss any of them, really, but it seems to me as if the took Chevy back to its entry-level roots and kept Caddy upscale, that might make room for some solid mid-priced rides from Buick. I’m just sayin’…
The REALLY scary part to me is when the ObamaNation starts dictating which models to kill and which to save. Of the 20 vehicles they actually make a profit on, Obama wants them to kill 11 of ’em. Just because you want everybody to be driving Prius clones doesn’t mean you can force the public to buy them. I’m afraid GM is well on it’s way to becoming America’s answer to the the USSR’s GAZ.
Workers of the world…untie.
RF ‘Does anyone seriously believe that a post-Chapter 11 General Motors will build and sell products that will be the envy of the world?’
I believe it can happen. I believe there are a lot of Americans and consumers worldwide who would absolutely love to see it as well. There would be enough consumers to make a slimmed and efficient Chevy/Cadillac profitable.
prthug ‘And a reason for customers to consider the cars from the new company because they’ve seen REAL change..this is the most public business deal ever.’
Agreed.
Chevy/Cadillac, Honda/Acura, Nissan/Infiniti. I could see it.
Okay prthug,
Maybe you have absolute faith in the ability of the government to decide which dealerships are worth keeping and which should go away. Maybe you are confident that the government willbe able to decide which cars can be sold at a profit and which can’t. Maybe you think that the government can decide which engineers and designers will provide all of this automotive goodness. As for me, I have no confidence that the government will be able to do any of these things. dealerships will be kept open in the same manner as national parks and military bases, based ont he power of their local representatives. Car models will be absed on what the PACs want and which ones will help are esteemed representatives retain their seats of power. As far as engineering, I work with public sector engineers, and while there are exceptions, as a general rule the weak are protected and the strong are beaten down or leave for the private sector. And, if you don’t think that the feds will have the final say in all such decisions, did you miss the part where they just fired the CEO?
I wonder if any of this is going to cause businesses to reconsider how much they rely on “market research” and “consumer testing”.
It was market research that convinced GM executives that Chapter 11 would hurt them more than taking government loans.
One would think that after coming out with cars that have been focus tested to a fare-thee-well only to flop in the marketplace that they would come to the conclusion that their market research is not reliable.
FWIW, I applied for a few jobs with the federal government. They get great benefits and have better job security than just about anyone. If you make it through the probationary period it’s almost impossible to get fired unless you really piss off a high level supervisor.
Why fight it? It’s easier to go over to the dark side.
Imagine what would US look like if I was a president:) in say, 20 years.
I would drastically diversify taxes. Casinos of Las vegas would pay unprecedently high taxes, while manufacturing companies, if registered as US-based companies, would pay a tiny tax. I would reorganize the whole education system and create the 21 st century as the great century of Art and Science. no bank bailouts, if a manufacturing company had ever been bailed out, the funds would only go into R&D and direct product overhaul. Nothing else. I would tax all companies according to the field of complexity they are dealing with. if a company is running sports games they pay high taxes, if they manufacture LCDs they pay small taxes. I would wipe out all the sports from TV and and annihilate all those multimillion sports contracts. I would bring the sports in your families, and homes, and you would enjoy sports for the sake of its beauty , not profitability. You would have free facilities and possibilities to do what best fits you. imagine the money that this country would save, if healthy people didn`t have to buy insurance and the government didn`t have to subsidize medicare companies . Billions saved. Imagine if we reorganized the education system in a way that we wouldn`t need to import all the gadgets . Imagine if we closed those 700 bases, and poured the money into creating jobs and products.There wouldn`t be an army or 1.4 million people , there would be an army of scientists and engineers who would build the next telescopes, mission to mars aircraft and new engines.I would build monuments for those that discover new frontiers in science and invent new technologies , you wouldn`t bother to memorize names of football teams ,or lottery numbers, because you would be challenged enough to build your own spacecraft in your own basement. The whole education system for technical sciences and engineering would be for free. We would create a new net where each lab in Universities of US would be connected to R&D centers of manufacturing companies.Art is a beautiful side effect of a clever mind. If science was really delveloped, the art would follow in footsteps. for educated people would bother less about cheap food, they would more likely want to be involved in a process of creation. Of creation that could be immortalized.A `we can` would have a new meaning. :)
Jurisb…
A funny place to extol the virtues of a Resource Based Economy….but hey, at the end of the day I have to agree that the pursuit of profit and the debt based economy is the main reason the Human race is not progressing as fast and as compassionately and as rationally as it should be.
http://www.thevenusproject.com perhaps ??!!
Strangely, the pro bailout don’t see Chrysler’s situation now as a problem, instead they look at all the jobs that were saved since they took the loans.
I guess I have a bad attitude because I think if they had gone under back then, Ford and GM might not be in trouble today. If we were to save both GM and Chrysler, I would be willing to bet that the next big downturn would have Ford going under as well.
It is the “Buy Now / Let the Taxpayer Pay Later” plan. The government oversight committee should have stopped the press conference in mid stream today. If the US government was complacent in the deal, they are knowingly committing taxpayer funds in later years to fund sales now.
You nailed it.
FWIW, I applied for a few jobs with the federal government. They get great benefits and have better job security than just about anyone. If you make it through the probationary period it’s almost impossible to get fired unless you really piss off a high level supervisor.
Why fight it? It’s easier to go over to the dark side
You must fight it because it is the dark side.
If the dark side (Collectivism) wins ALL the “benefits” and the “security” vanish.
I doubt most consumers will care if GM survived because of bailouts. I don’t think the badges will carry any odor. The key, post C-11, will be making good products. That was key prior to C-11 and GM could only manage it here and there, not consistantly. If they make good stuff, people will buy it. Only a few idealists will avoid GM because it was bailed out.
As for competing against Honda, Hyundai, etc., those companies were once very small, but they built good stuff, gave good value for money, and prospered.
I’m not implying that GM will, as a matter of course, build good stuff. It’s going to take more than reducing to two brands to accomplish what needs to be done.
Recalibrating the discussion, re the “cars that GM should be building,” while ObamaNation wants us all to drive a Prius.
It appears this has to be stated again:
The US has 4% of the world’s available oil reserves, and consumes 20% of daily global production, of which over half goes to transportation.
The US auto industry has blithely gone on making irrelevant cars, as if the above was not a fact — while at the same time denigrating anyone who said that maybe, just maybe, it was worth thinking about.
And that’s why they’re going to hell now.
Imagine if those 700bn dollars US government allotted to building cars. For this money we could build 600 new car models. We could build the next generation cargo and passenger airplanes, new helicopters,we could revive the consumer electronics sector and build next generation reusable launch vehicles and prepare for Mars mission. Instead we give the money to Wallstreet nerds who haven`t built a single item in their boring lives….So sad.
It seems many are missing the point of this bailout and the banking rescues, set out pretty clearly in hearings for the first auto bailout.
Pch101 has said it previously; most recognise that these companies are going to crash land, but by puffing them up for a few more months, hopefully they land out to sea rather than on a heavily populated city. (Apologies to Pch101 if I have mangled that).
Sorry RF/TTAC but it was not the time then to crash that plane, maybe not quite yet either.
The shame is, for the size of the debt, no structural change has been achieved (or will be).
It’s all for show, not effect.
This whole thing is a giant distraction. I don’t believe any of the participants believe this footwork is going to achieve anything.
But who cares? They aren’t paying for it. And they can go to the industrial Midwest and say, “And when you were in trouble, who was there!? We were! We supported the American worker!” they can attempt to conjure up memories of a valiant fight to keep a dieing industry alive.
Why should anyone believe the UAW will be forced to make any changes to the structure of their agreements?
Obama will protect the UAW to the bitter end.
And then he’ll force them on the transplants.
I’m still waiting for Ron Pullmyfinger to resign. Good thing I’m not holding my breath.
I don’t believe that Obama is going to force GM into CH11, nor do I believe that Fritz will take them there.
First, “When GM files for bankruptcy 59 days hence, $17.4 to $19.5 billion worth of taxpayer money will disappear down a rathole, never to return.”
Second, “Post-C11, GM will trim down to two brands: Chevrolet and Cadillac. Costs will be cut to the bone. The United Auto Workers’ power will be denuded. Legacy issues? Banished. Bloated dealer network? Decimated.”
If Obama were serious about putting them into CH11, why is he giving them 60 days and more billions down the rat hole? The terms of the agreement GM was working under up until this week were, ‘come up with a viability plan or else’. Now that that plan has rinses and repeated, why would anyone expect a different result? Insanity defined.
The fact is that Card Check Obama isn’t going to decimate the UAW, not anytime soon anyway. His public works projects aren’t going to be able to absorb all those job losses 60 days from now. His PTFOA wont have figured out how to screw all the secured debt holders by then either. The guaranteed warrantee test is going to show that sales continue to decline anyway, and the $5B supplier support will disappear faster than coke up Ashley Biden’s nose.
CH11 was punted because the Obama team is afraid of the consequences. GM will continue to get bailouts. SUV’s and sports cars will certainly be banished and everything will become much more fuel efficient, but it will not get smaller, it will not produce less vehicles, and brands will not die.
most recognise that these companies are going to crash land, but by puffing them up for a few more months, hopefully they land out to sea rather than on a heavily populated city.
Thanks, that’s a pretty accurate view of my position. However, I do think that the administration sees a possibility that GM might be reparable, whereas the Obama team has already effectively written off Chrysler.
That’s a very good strategy, in my view. In the scheme of things, an immediate failure of GM would be painful to the economic system, whereas Chrysler could vanish with little impact.
Plus, a GM with a clean balance sheet and new upper management may have a chance to work. Among the Detroit players, it has the strongest product portfolio of the bunch; if it could shed the many losers that weigh it down and then create some branding power with the few winners that remain, then there might be a shot of recovery.
I’m impressed that the administration did a far better job of identifying what ails these companies in far less time than did the private sector in many years of bumbling and misdiagnosing the problem. The task force summaries are far better than practically every stock analyst’s report that I’ve read about the industry, and made observations that were mostly missed by the mainstream business press. The media and Wall Street were oblivious to many of Detroit’s structural problems, even though they are paid to know better.
The feds clearly understand that these companies’ greatest problems come from unrealistic sales projections, a lack of pricing power and overwhelming debt, more so than their operating costs or labor.
It may hurt the ideological conservatives, but the automaker situation and the task force response illustrate that the private sector is far from perfect and that there are occasions when government really does do a better job. Most ideological conservatives have bought hook, line and sinker into this union blamefest, when anyone who can work a calculator who bothers reviewing the numbers can see that labor costs are not even close to being the primary problem. Politics tend to get in the way of good financial analysis, even if they shouldn’t.
Isn’t a “resource-based” economy the same thing as “From each according to his ability, to each according to his need”?
http://en.wikipedia.org/wiki/From_each_according_to_his_ability,_to_each_according_to_his_need
Is this what “the venus project” is striving for?…one of those futuristic utopias where everything is perfect and you no longer have to work for material comfort?
Pch101
Diagnostics are easy. We’ve been doing it here for years.
Effective treatment is a WHOLE ‘nother matter.
Diagnostics are easy.
Apparently not. GM has been pushing this “everything-will-be-great-if-we-can-just-cut-these-costs-and-fight-these-regulations” nonsense for years, and Wall Street sucked it in and regurgitated it like cheap booze during a drinking binge.
Read the stock analyst reports of old, and you see little assessment of the superior products of the competition, and almost no mention of the huge pricing disparity or why it exists. With few exceptions, they just missed it completely and misdiagnosed what they did see. They were like Wagoner’s parrots, presumably because the message being shopped by GM suited their political whims and they weren’t eager to challenge their own ideological assumptions. Those blinders have since cost a lot of people a lot of money.
If the private sector was on the ball, then GM would have lost its ability to borrow long before the credit crunch. Guys who are paid very well to assess risk completely blew it.
The feds face the same challenges that the private sector would — finding good leadership who can fix what the current board, Wagoner, et. al. hath wrought. I suspect that Henderson is an interim choice, who is just there as a placeholder because the need to dump Wagoner was that urgent. Hell, we may even have a shot at getting our money back (although I already wrote that off; we probably won’t, no matter what happens.)
I wouldn’t say a RBE is where everything is perfect and you don’t have to work, but probably better for most of us than what we currently have…and hey, most of us do extra work for no reward anyway!!
“A Resource-Based Economy is a system in which all goods and services are available without the use of money, credits, barter or any other system of debt or servitude. All resources become the common heritage of all of the inhabitants, not just a select few. The premise upon which this system is based is that the Earth is abundant with plentiful resource; our practice of rationing resources through monetary methods is irrelevant and counter productive to our survival.
Modern society has access to highly advanced technology and can make available food, clothing, housing and medical care; update our educational system; and develop a limitless supply of renewable, non-contaminating energy. By supplying an efficiently designed economy, everyone can enjoy a very high standard of living with all of the amenities of a high technological society.
A resource-based economy would utilize existing resources from the land and sea, physical equipment, industrial plants, etc. to enhance the lives of the total population. In an economy based on resources rather than money, we could easily produce all of the necessities of life and provide a high standard of living for all.”
And the stated goals of a RBE could be something like:
1. Conserving all the world’s resources as the common heritage of all of the Earth’s people.
2. Transcending all of the artificial boundaries that separate people.
3. Evolving from a monetary-based economy to a resource-based world economy.
4. Reclaiming and restoring the natural environment to the best of our ability.
5. Redesigning our cities, transportation systems, and agricultural and industrial plants so that they are energy efficient, clean, and conveniently serve the needs of all people.
6. Evolving towards a cybernated society that can gradually outgrow the need for all political local, national, and supra-national governments as a means of social management.
7. Sharing and applying all of the new technologies for the benefit of all nations.
8. Using clean, renewable energy sources such as wind, solar, geothermal, and tidal power, etc.
9. Ultimately utilizing the highest quality products for the benefit of all the world’s people.
10. Requiring environmental impact studies prior to construction of any mega-projects.
11. Encouraging the widest range of creativity and incentive toward constructive endeavor.
12. Assisting in stabilizing the world’s population through education and voluntary birth-control to conform to the carrying capacity of the earth.
13. Outgrowing nationalism, bigotry and prejudice through education.
14. Eliminating any type of elitism, technical or otherwise.
15. Arriving at methodologies by careful research rather than random opinions.
16. Enhancing communication in the new schools so that our language and education is relevant to the physical conditions of the world around us.
17. Providing not only the necessities of life but also offering challenges that stimulate the mind, emphasizing individuality rather than uniformity.
18. Finally, preparing people intellectually and emotionally for the possible changes that lie ahead.
Utopia….perhaps! But I for one would sign up if I knew the bankers and the elite were not the only ones getting a good deal from what the Earth has to offer…
Sounds like quite a leap if you ask me
Why not take a baby step and simply have the U.S. Government reclaim the ability to print and coin money (as opposed to the Federal Reserve…a private organization much along the lines of Federal Express)…as JFK attempted to do.
That would go a long way my friend :) As long as the thieves have the ability to print money and manipulate our economy the way they do, we will continue to see these so-called “contractions” if and whenever they choose to do so.
Ask yourself, “If Congress has the ability to print and coin money, then why does a Debt exist at all?”. Its an absurdity knowing we pay income tax to support this racket.
This whole Detroit bailout-as-cover-for-imposing- national-industrial-policy schtick is getting seriously old, seriously fast. Ol’ Tom Paine said it best: “These are the times that try men’s souls.”
By supplying an efficiently designed economy, everyone can enjoy a very high standard of living with all of the amenities of a high technological society.
…Utopia….perhaps! But I for one would sign up if I knew the bankers and the elite were not the only ones getting a good deal from what the Earth has to offer…
Sorry – the last few countries on the planet to have attempted to build that model have closed their borders and aren’t letting anyone in – or out.
Now back to our more mundane subject world peace GM bankruptcy.
One thing that I haven’t heard about recently but which was often bruited about as a reason to keep GM out of bankruptcy is the impact on the Pension Benefit Guarantee Corporation – http://www.pbgc.gov/
who are tasked with insuring payment of pension benefits (albeit at a reduced level) for the employees of bankrupt companies.
Dumping hundreds of thousands of large pensions on the PBGC is really going to strain the system… and the politicians know that. It may be better to keep dumping cash into GM and keep it “alive” for 4 to 8 years than face the consequences.
sutski, your RBE utopia will never work, for the same reason that communism didn’t work. It tries to negate human nature, rather than work with it to get the best from the majority and dampen the worst of the majority at the same time.
All of this stuff has been espoused and tried many different ways, from religious communists such as the Amana in 19th century Iowa, to the Soviet Union, to current day Cuba and Venezuela.
Here in North Venezuela (once known as the USA), it will work even less satisfactorily than in the real Venezuela, because there is a small minority of us who actually can see through the Bullsh*t and know what the end result will be.
Not pretty. And I don’t just mean for GM.
Rastus, the whole money gig is a racket and has been in this country (the USA) since 1913, when the Congress of the United States usurped the clearly written law of the land, and handed control of the money supply to the “Federal Reserve” – which is neither Federal, nor does it have much (if any) of a “reserve”.
The fault of all of this lies with foolish power hungry greedy men who thought they could skim off the top forever, gradually eroding the value of money, gradually taxing the people via inflation, gradually gradually gradually gaining control over every aspect of life. Look at Al Gore’s foolishness about global warming; do you see the mega-rich saving the earth by living in an 850 square foot, modest home? Driving a Prius instead of being driven in bullet-proof dino-SUV’s? No? Wow, imagine that… hypocrosy!
The bottom line is that there ARE a few hundred people who act much like The Wizard Of Oz behind the curtain. They don’t want to be known as just men, you see…. and yes, I do believe they do think they can run the whole show. Their egos are that over-inflated. Look at B.O. – he is their poster-child.
God has other ideas. He always has! Wait and see…
My favorite of the three biggest lies is, “I’m from the government, and I’m here to help you.”
We expect government to take care of big things and leave small, ordinary things to us, At best it is marginally competent at big stuff, and downright lousy at small stuff. The U.S. Constitution doesn’t even talk about small stuff. Thomas Jefferson never envisioned an America where bureaucrats tell the people how much water a toilet can hold. Now well-upholstered civil servants micromanage that, and a toilet has to be flushed three times get rid of the crap!
It may hurt the ideological conservatives, but the automaker situation and the task force response illustrate that the private sector is far from perfect and that there are occasions when government really does do a better job.
Outside of national defense, name one thing that the government does “a better job”.
Education? We have an administration that is the product of our educational system. Obama can’t open his mouth without making a factual error – that’s because outside of politics he’s an ignoramus. Obama’s administration has argued before the Supreme Court that it has the right to ban books.
Food safety. The FDA is doing a fine job keeping melamine out of Chinese food imports and salmonella out of peanut butter, isn’t it.
If you want to see overpaid, entitled, lazy, and over benefited employees, you don’t need to go to Detroit or a UAW staffed plant, just go to Washington or any local office of a federal agency.
I just noticed that California’s plan to fix their budget puts the burden on the taxpayers and none of the public employees in California have to take reduced pensions or any kind of haircut.
Like I said, if I get offered a federal job I’m going to strongly consider taking it and once the probationary period is over I’m gonna sit on my fat ass and do nothing. Why should Barney Frank and Chris Dodd get all the gravy?
name one thing that the government does “a better job”.
I just did. Rattner handled in a few weeks what GM’s inept “Board of Bystanders” couldn’t handle in years. They also identified core issues that Wall Street analysts who are allegedly industry experts failed to identify.
You can’t discuss the utter mismanagement of Detroit while extolling the alleged accountability of business, and keep a straight face. These incompetents have proven themselves to be a joke that private industry failed to identify and fix.
The alternative is to just let GM die. You want the best of both worlds (from a Michigander’s perspective) — you want our money AND have zero accountability.
Sorry, but it shouldn’t work that way. The minute that you imperiled the American economy was the day that you lost that privilege. Get used to it, you’re reaping what you sowed, so enjoy the crop.
PCH,
I love it when the left blames the private sector for failing after loading them down with regulation and labor laws to the point of absurdity. I haven’t read those reports, but if they don’t point out the overall chilling effect of the present labor laws on performance, then they missed a big problem that will likely cause yet another failure in a few decades or less. Fainling to see that car manufacturing in the US fails with the UAW, but succeeds without, is disengenuous at best.
Still, let’s go with your belief that the PTFOA did a better job than the stock analysts. I will assume they did since the stock guys so badly blew it. A more important question for our futures is why did the stock guys get it so wrong? The New York financial industry is supposed to be providing value by directing capital it’s best use, but they haven’t been doing that well lately. What do we change to improve that? I know you aren’t really for having them replaced with more task forces.
I love it when the left blames the private sector for failing after loading them down with regulation and labor laws to the point of absurdity.
Funny how Toyota, Honda, etc. can build a perfectly good car in the US that people want and is in compliance with US law, with no issues. It’s only the excuse makers in Detroit who can’t cut it. Maybe it’s time to put the blame on the excuse makers, instead of the bogeyman government that gave them breaks and preferences (“voluntary” quotas, chicken taxes, a two-tier CAFE and the rest) when they bellyached to get them.
A more important question for our futures is why did the stock guys get it so wrong?
Because like Detroit, they fixated on costs and blaming the little guy, and forgot all about revenue, retail demand and management accountability. The blame-the-union-at-all-costs mentality certainly supported this; they followed their political whims instead of the money, took the easy way out, and stopped analyzing with the grand assault on labor, even though labor costs are a relatively small component of vehicle assembly.
Part of the problem is that analysts relate more to the management than to labor, so they apply a double standard that places less scrutiny where it belongs. They belong to the same club, and tend to commiserate with their fellow members, rather than critique them. Far too inbred a group to provide an effective assessment; it’s much easier to blame the high school graduates who do the drudgery than to look in the mirror and take responsibility.
Even if Chevrolet and Cadillac create world-beating products with industry-leading customer service, they will have the stench of corruption.
Disagree. Robert, this is something on which we’ve always disagreed. You’ve esentially argued that the brand is the be all end all of a car company, so who would want a post-Ch.11 Chevy?
I’ll argue just the opposite. The product is the be all end all of selling cars. History just doesn’t matter to most people. You pay for a product, and if you can pay the same amount for a better product from Chevy, who wouldn’t?
That’s what precipitated the demise of GM, Chrysler, and maybe Ford in the first place. Everyone wanted the home team to win, but the competition was just better.
Forget about taxpayer bailouts. BMW made airplanes that killed American soldiers, and we still buy their automobiles. In 5 years, who’s going to care about an ancient history bailout, except maybe for the die-hard purists like yourself?
Pch101: You want the best of both worlds (from a Michigander’s perspective) — you want our money AND have zero accountability.
This, to me, is just mind-boggling. I know that the two of us have disagreed on whether a bailout is necessary, but I completely agree that once a company takes taxpayer money, its loses a great deal of freedom of action. (Which is why it’s best not to ask for taxpayer money – note that no heads are rolling at Ford.)
It’s entirely appropriate for the Obama Administration to demand a change in management as a condition of moving forward, particularly when said management is the one that brought the company to its knees in the first place.
The comments – and vitriol – from GM fans on various automotive weblogs are simply amazing. I didn’t vote for Obama and find myself defending him on this one.
Do these people live in an alternative universe???
“OK, maybe that’s a bit much. Americans love a comeback kid.”
Yes that’s a bit much. There are a lot of fans of GM (the car company – not the exec clowns) here. Me, not so much. But even I want them to succeed whether it’s thru C11 or some other way. Yes it will be difficult. But why all the doom and gloom?
“Sure, Chrysler repaid its loans way back when and . . . oh dear. Despite all that government help they’re in a bit of mess now aren’t they?”
A mess not of their doing I will add. And don’t mention Bob Eaton, a former GM man. He was never at Chrysler long enough to feel like he was part of Chrysler. He was there just long enough to sell it out.
Pch101:
“Funny how Toyota, Honda, etc. can build a perfectly good car in the US that people want and is in compliance with US law, with no issues.”
Hmm… last I heard Toyota, Honda, etc. haven’t been doing too well. And even when they were you can put up with a lot of regulatory crap when you sell your cars for $3000 more than your competition because you don’t have lagacy costs to cover. Oh, and the Japanese have been on record opposing some of the same regulations that the domestics oppose. Maybe it has something to do with Sequoias, Armadas, Tundras and Titans.
last I heard Toyota, Honda, etc. haven’t been doing too well.
The transplants are obviously in far better shape. Let’s not forget that GM and Chrysler were both losing money, even when the economy was going gangbusters. Aside from the fact that they all make cars, Detroit has very little in common with the transplants.
Do these people live in an alternative universe???
It’s a bubble of their own creation. The fact that they believe that they deserve the bailouts isn’t so astounding when you remember that these same people have spent decades blaming everyone but themselves for their problems. Accountability doesn’t appear to be in their dictionary.
PCH,
Now you know I don’t blame just the unions, but I also don’t excuse them. All states are not created equal, and the biggest excuse makers in Detroit are from the different governments. The 2.8 are more like governments than any business I have ever been a part of, btw.
It’s telling how the UAW is still ignored in this topic, as are the differences in state laws and local cultures. The transplants negotiate with a LOT more strength than any of the Detroit companies. Maybe the PTFOA should investigate the differences between the UAW and the other laborers?
Anyone with an anti-union, blame the little guy stance should have never recommended investing in GM. Let’s leave the politics out of this part of the discussion.
Seriously, I can see your culture/clique point, but is that enough? Do the analysts really get so easily snowed by VP’s and C level types who sell the companies? If so, how do we change that? Putting high school guys in the analyst jobs isn’t likely to help.
The incentives are supposed to be there so that the analysts are motivated to get it right, not give someone a pass because they graduated from the same school. None of my school chums are worth losing my job over (or maybe I am just different).
Do you think there is an us versus them where the analysts are trying to enter the club of the inside the boardroom club? Is that it? So the CXO’s and boards end up in an unspoken conspiracy with the analysts and market movers to cheat the investors out of their money? I can see that, but then how do the mutual fund managers get roped in? The only mutual fund manager I ever knew well had most of his own personal wealth in his own fund. He lived in a little apartment, drove an old saab, and had millions in his fund. Millions!
I find it hard to differentiate between rat holes. They all look about the same to me and we have lots of them in government. The GM and Chrysler rat holes are not worse nor look any different to me than rat holes like the wars in Iraq and Afganistan, the space program rat hole, the bank bailout/AIG rat hole or any other of the dozens of rat holes that taxpayer funds disappear into.
Theoretically the rats in the hole have to pay some taxes on the receipts. That is how government gets part of the money back. The rest gets sloshed around the economy and keeps it going a little while longer. And that is the name of the game. Bush bailed the car companies so that bankruptcy wouldn’t happen on his watch.
The mistake was made decades ago when GM, Chrysler and Ford were allowed to dominate the auto market thru mergers and acquisitions. The same is true of the large banks. “Too big to fail” means that there is no longer a competitive market. In a true competitive market the loss of one or even a few competitors is no big deal.
But when a few players are dominant, they and their stake holders have the means and the political power to do the shenanigans that we have been witnessing.
And even when they were you can put up with a lot of regulatory crap when you sell your cars for $3000 more than your competition because you don’t have lagacy (aic) costs to cover.
Hellllloooooo –
Honda has been building cars in the states for 26 years now….. and anyhow legacy costs really don’t have much to do with anything.
The reason Honda and Toyota can sell their cars for more money is that people are willing to pay more money for what they believe to be better cars.
The reason that they’re not selling cars right now is that NOBODY is selling any cars right now.
Finally
2007
HONDA 2007 PROFITS
Honda… recorded a record profit for the year despite a one-time corporate tax levied on its Chinese joint venture cutting profits in the last quarter by 86%, reports The Detroit News. For the fiscal year ending March 31, Honda said strong sales and cost reduction efforts boosted profits to $5.77 billion – a 1.3% increase on last year’s result.
TOYOTA 2007 PROFITS
Less than a month after the Japanese giant was announced as the world’s number one carmaker, the superpower today reported that annual profits have risen 19.8% to a record $1.64 trillion yen ($14 billion). Revenues, which rose 13.8%, reached 23.94 trillion yen ($204 billion) for the year ending March 31 with 8.52 million vehicles rolling off the showroom floor.
GM 2007 LOSSES
GM CEO Rick Wagoner attributed some of the company’s problems to America’s flagging economy and high commodity prices.
IN an effort to keep cutting labor costs, the company is offering another buyout to its seventy-four thousand union workers in the U.S.
Overall, GM reported a $39 billion loss for last year. The company, though, made that information public months ago. And most of the loss did not come from actual operations, but from a giant tax credit GM had to remove from its books.
I don’t blame just the unions, but I also don’t excuse them.
I don’t excuse them, either. I don’t even particularly like them. But they didn’t design the cars or create the deficiencies that cause consumers to prefer the alternatives. They are easy to hate, which creates a distraction.
Do the analysts really get so easily snowed by VP’s and C level types who sell the companies?
Read their work. Clearly, they do. They beat the cost drum relentlessly, while completely ignoring the revenue gap and the reasons that there is a revenue gap in the first place.
For example, look at how they completely missed the fleet sales problem for years, and then misdiagnosed it when they finally did see it. When they stumbled upon it a few years ago, behind the curve of sources such as TTAC, they thought that the solution was simply to reduce fleet sales. They cheered when Detroit announced that they were going to magically cut their fleet sales by proclamation.
The analysts were duped. They failed to realize that the fleet sales were as high as they were because the cars could not be sold at retail. They confused the symptom (low margin fleet sales) with the problem (products lacking in appeal.)
It’s easy to blame the union. The most vocal members are shrill, out of touch, smug and entitled. That rubs the analysts the wrong way, for they believe that it is only people like themselves who have the right to be smug and entitled. It’s class warfare that caters to their political biases, not good business analysis.
My googling got mostly technical analysis and a couple current reports that didn’t mention unions. Any links or leads for the older reports?
I am really curious how an analyst recommends buying GM while saying they can’t overcome the union problems. If they get the reasons wrong, it’s not as important as getting the recommendation wrong.
$17.4 to $19.5 billion worth of taxpayer money will disappear down a rathole, never to return.
????
Uh, last time I check these were secured debts and will be paid back first in the event of Chapter 7. Given the GM has about 91 Billion in Assets and given that the Government is notorious for being first to the trough in the event of Chapter 7… I would say there is a pretty good chance that most of the loan/gift will be coming back.
I’m impressed that the administration did a far better job of identifying what ails these companies in far less time than did the private sector in many years of bumbling and misdiagnosing the problem.
This isn’t surprising given the incentive structure on wall street (finance) which has long been extremely corrupt with focus on front-loaded packages, as opposed to the back-loaded compensation of silicon valley, or the flat pay structure most other places including gov.
Nobody there really cares if their “predictions” are correct since they’re paid as long as the deals were done and everything could be propped up when anyone was looking (creative accounting / bubbles). The losses (or wins, but the house doesn’t care since it’s largely a poker game) are for the rubes indoctrinated in the axiom of perfect information. It was funny at one time to point and laugh at the suckers who actually believed price equaled value/utility or were too greedy to care, but unfortunately their stupidity is taking us all off the edge.
I really can’t see how anyone can come out of this mess and retain their religious conviction that perfect honesty and transparency can be born of unrelenting greed, but hey what do I know about committing to crackpot superstitions.
—
sutski, your RBE utopia will never work, for the same reason that communism didn’t work. It tries to negate human nature, rather than work with it to get the best from the majority and dampen the worst of the majority at the same time.
This also describes why capitalist utopias don’t work either.
If anything, collectivism is more characteristic of human behavior than selfishness; the proof is the wealth of civilizations governed mainly with collective rules (like us).
But when a few players are dominant, they and their stake holders have the means and the political power to do the shenanigans that we have been witnessing.
I think the phrase you’re looking for to pair up with “too big to fail” is “moral hazard”.
The latter is not an idea that’s emphasized when making money is the priority.
—
Effective treatment is a WHOLE ‘nother matter.
The general treatment right now is gov spending to replace private sources in order to control unemployment. The trick is to make it good spending that invests instead of just throwing it in a liquidity trap like they did with the banks.
Also, I called the gov back bankrupcy and have some wagers to collect, so, *happy dance*.
the unions need to see that a paycut and a job is better than no job and no pension the company goes bankrupt what will be left behind choose wisely gettlefinger is a loser i wouldn’t follow him
Any links or leads for the older reports?
Here’s an article from July 2007 which provides a sense of the thinking at that time. Casesa, who is quoted below, was the auto analyst with Merrill Lynch before forming his own shop.
Look at the emphasis on the alleged linkage between union concessions and a GM turnaround. No mention at all of improving average revenues per unit on passenger cars, which has long been GM’s most glaring deficiency on its income statement. These guys fail to address the fundamental issue: **Why** does Detroit need to use much larger sales incentives than do the transplants, and still can’t hit the sales numbers even after putting so much cash on the hood?
GM shares closed Thursday at $36.76, down $1.22, or 3.2 percent.
GM’s troubles put even more pressure on the automaker and the United Auto Workers to reach a deal that will help the automaker cut labor costs.
The labor question is the lingering unknown in a turnaround that began after a $10 billion loss in 2005, said auto analyst John Casesa of the Casesa Shapiro Group.
Since then, GM has successfully eliminated waste and downsized to cut costs. It’s also becoming clear that the automaker’s market share woes aren’t going to lift dramatically anytime soon, he said.
“On revenue, the company is struggling, on cost it has done a fabulous job — the open question is labor relationship,” Casesa said. “The turnaround will hinge on automaker’s ability to forge a radically different relationship with the UAW.”
Casesa said the stock price drop isn’t cause for too much concern, given GM’s gains over the past year.
Even after Thursday’s drop, GM shares are up more than 20 percent from a year ago.
Some promising product launches, namely the redesigned Chevrolet Malibu and Cadillac CTS sedans, are set for later this year. Analysts also seemed hopeful that GM will strike a favorable deal with the UAW.
“We nonetheless believe structural changes will be significant,” Gehrke wrote. “And that these changes will prevail in the intermediate term.”
http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20070706/AUTO01/707060349/1148
I wouldn’t call that being anti union. Misinformed, not anti union. They would never let gm do what toyota has done in San Antonio. That’s what GM needs to be able to do.
I wouldn’t call that being anti union.
I would. More to the point, it shows the analysts touting the Wagoner-GM line — cost cutting will solve most of our problems.
The comments express some concern for market share, but none for price per unit. The most glaring deficiency is missed, even though it is easily quantified and obvious.
A UAW deal was not critical to a GM turnaround. While it wouldn’t hurt to get one, it doesn’t fundamentally change the position in which they find themselves, with customers preferring the competition and unwilling to pay the same prices for GM products. Twenty minutes spent with a spreadsheet make this clear, so perhaps Mr. Casesa devoted all of ten minutes to his “analysis”?
Ford workers are represented by the same union, and it managed to wrangle concessions from it recently without suffering a nasty strike.
Labor relations are another aspect of sound corporate management.
“Wishing the union away” is not sound corporate management.
Over the years, GM has been firm with the union when it needed to be soft, and soft when it needed to stand firm.
Often, the latter has resulted from classic GM arrogance. Namely, it signed those lavish agreements because management truly believed that those hot new vehicles just around the corner would send customers scurrying back to the local GM dealer – which management believed they never should have left in the first place.
What Geeber said.
GM has the union that it deserves. People who negotiate from a position of arrogance tend to get it lobbed back into their faces.
The union has been a gift to GM management. The UAW has provided Wagoner et. al. with a great distraction, and the analysts eagerly kept their eyes off of the ball because the Evil Union story provided an easy explanation for GM’s woes.
The problem is more fundamental. People pay more for Accords than they would for Malibus, and they buy more of them. Until someone at GM can explain that and fix it, the company is going to suffer.
Unfortunately, my business dealings with GM were all actually done with EDS. Ford was better to work with, and Chrysler was kind of silly.
I will grant you that there is some truth to your argument, but I have to say that dealing with unions in Detroit, was not the same as dealing with them anywhere else. Only a representative of a federal workers group in Kansas City was up to the level of idiocy and lack of mission awareness that is de riguer for Detroit area workers.
Once again, if GM and other 2.8 had the lattitude Toyota does, they would be MUCH better off. This analyst is not bashing, he is ignorant. I see more evidence of what I was talking about than union bashing. This guy is playing to GM management because that’s where he thinks his bread is buttered. That’s the problem, not that he hates unions, assuming he does. You can’t fix the latter, but the former is something we need to change.
Also, let’s not use Ford as a UAW excuse, after all, they may be next into Chapter 11. In fact, if GM gets through it, Ford will almost surely have to follow to stay competitive.
Meanwhile, non UAW shops are ALL in little danger of BK. Coincidence? That’s gonna be a tough case to make, and as an investor, I wouldn’t even bother. Of course, I hate the UAW, and many other large unions, regardless of their incomes because I believe they unethically meddle in our political system against the good of the country and their own workers.
I have to say that dealing with unions in Detroit, was not the same as dealing with them anywhere else.
Even if that is true, that doesn’t change the fact that the domestic products have generally been inferior. Consumers buy the product, service and brand, and failures in those areas are what hurt sales most.
The UAW didn’t force GM to spend years building a mediocre or subpar Malibu, Celebrity, etc.; GM management haughtily decided that the public didn’t need a better product.
If GM had been making great cars with good branding, Toyota would be a much smaller company, Detroit would be selling vehicles at higher prices, and GM would be able to carry its expense load without whining about it.
Toyota can build Corollas with UAW labor in what was once one of GM’s worst plants. Toyota used most of the same workers to build a high quality product, while the absentee rate went from being one of the highest in the GM system to well below average once Toyota took over.
It’s all about the management. They are supposed to manage, after all.
Over the years, GM has been firm with the union when it needed to be soft, and soft when it needed to stand firm.
Dear lord in heaven, I think I agree with you.
psharjinian: Dear lord in heaven, I think I agree with you.
Let’s enjoy it while it lasts…LOL!
“Imagine what would US look like if I was a president:)”
jurisb, you must have been asleep when the structure of government in the US was taught. The US President is a weak executive with the power to veto bills and significant power over the military plus celebrity power to get on television. Tax law has to get through the House Ways and Means committee first, get majority party leadership support to get voted on (where it will usually pass on a party line vote), get a companion bill through the Senate Finance committee, and pass a vote in the full Senate before the President gets to either sign it into law or veto it. The President gets the fame, but the congressional committee members at the start of the process have the real policy power.
“They failed to realize that the fleet sales were as high as they were because the cars could not be sold at retail. They confused the symptom (low margin fleet sales) with the problem (products lacking in appeal.)”
Pch101, I would argue that labor agreements with the UAW where workers got paid 95% of salary to not work had at least some impact on the decision to crank out cars for fleet sales. Better to make a small profit selling rental cars than lose money paying the same workers to not build cars.
the truth is when gettlefinger said to congress” this would not be done on the backs of the union men” well now they don’t need to worry they won’t have a job uaw bad union, a good union looks after it’s workers but loks a the company and it’s viability, and looks also at the customer and what is going on. uaw looked at itself. your greatest stongest point if left unchecked will be it’s biggest downfall. they didn’t know when to give in alittle. oh well the japs, germans and south koreans will take their place. if they hire the old union workers which i don’t think so!!!
I would argue that labor agreements with the UAW where workers got paid 95% of salary to not work had at least some impact on the decision to crank out cars for fleet sales.
Sorry, but that’s a flawed argument if you look at the production and sales numbers.
Year after year, for their US customers, Honda builds more Accords and Toyota builds more Camrys than GM builds G6’s, Auras and Malibus combined. Yet while Honda sells almost none of those to fleet and Toyota may put 10-12% or so into fleets, GM will predictably dump more than half of the Pontiacs and a lot of the Malibus into rental, while the Saturns languish.
In the process, GM will carry larger inventories, sell the cars at lower prices, and use more incentives, even though they are selling fewer cars. GM sells less AND at lower prices.
GM doesn’t build too many vehicles; the competition builds more vehicles and can sell them at a profit. The problem is that GM builds too many inferior vehicles, that can’t be sold at a competitive price because the average consumer would rather buy a Honda or Toyota, even though it costs more.
All of that is management’s fault. Clearly, they either didn’t take the Accord, Camry or American public seriously. Instead of building a better vehicle, they keep arguing (wrongly) that their vehicles are just as good, even though they aren’t.
prthug :
March 31st, 2009 at 11:52 pm
But if we had normal credit and private equity markets, the investment in “the new” GM (assuming this split company approach is put in play like the Leahman Brothers deal which took all of ten days to do)would be very possible. But the credit markets are busted still…so it needs DIP financing from you and me.
———————————————–
The credit market was normal, before the bailout. Bear market was normal. Unable to finance was part of the game.
No, it doesn’t need or deserve financing form me. It deserves whatever it can get from the market in the form of bond or stock. If I want to finance GM, I have the choice of buying their bond. If no one is going to finance GM, then C7, no big deal.
PCH,
It’s not a flawed argument at all, it’s common sense. You can grind all you want that the design problems are the biggest part of the problem, but when you blind yourself to the other parts of the equation you don’t help.
The UAW contracts have changed too much of the labor costs from the variable to the fixed cost column. While most businesses stop making losers, GM rationally chooses to keep making them because the variable costs of a car for them are tiny.
Perhaps GM management has got the union it deserves. However, the union has been there longer than almost any of the managers.
Try to stop thinking about what CAN work, or should work. That’s a faulty liberal paradigm that is nearly as bad as the libertarian green field solutions you always deride.
It’s possible a group of folks who could manage GM better are out there. But it’s more likely that if they could do that, they wouldn’t go to work for GM as long as the UAW is there. Why would they? And now you think they are going to show up and work for the government as well? Forget about it.
If you want a healthy US auto industry 20 years from now, you are better off with everyone dying except Ford. Then, some new start ups will compete to be the “other” big dog. Or, you can use the government to keep GM alive, create a duopoly, and keep doing everything else the same. Same results will occur. Crap cars, crap companies, crap, crap, crap. And, you will have a bunch of entitled managers at the top who know nothing other than how to climb to the top of a stale institution and manage a bunch of parasitic interest groups feeding off the carcass of what used to be a world leading company.
Try to stop thinking about what CAN work, or should work.
That’s what a business plan is supposed to do: assess the market, and turn a profit.
Here’s the business problem: GM doesn’t have the market share that it should, due to the fact that it doesn’t field competitive offerings to get that market share. It’s clear that the overall market demand is there, but the lion share of it goes to other companies.
At this point, GM is too large in relation to its existing market share. But its existing market share sucks compared to what it could be because of mismanagement, mismanagement and mismanagement, not necessarily in that order. GM needs to shrink today because of this morning’s and yesterday’s incompetence in managing its products and branding, not because of a lack of consumer demand. Others have built share profitably while GM has lost it, even though GM sells for less.
Or, you can use the government to keep GM alive, create a duopoly, and keep doing everything else the same.
I would expect the government to sell GM once the economy has improved. It might break even on the deal or turn a profit. A foreign operator will buy it in order to grab a large chunk of US business quickly. The question is a political one — will the buyer be desirable (i.e. from a western democracy) or not (the PRC.)
The credit market was normal, before the bailout. Bear market was normal. Unable to finance was part of the game.
Periodic painful collapses are a normal part of the laisse faire game. Newer systems are designed to mitigate this despite higher growth goals.
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Try to stop thinking about what CAN work, or should work. That’s a faulty liberal paradigm that is nearly as bad as the libertarian green field solutions you always deride.
I guess reasonably full employment and preventing economic collapse is considered a liberal paradigm now.
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Or, you can use the government to keep GM alive, create a duopoly, and keep doing everything else the same.
Nobody here’s advocating this. This is why some form of gov sponsored bankruptcy is happening. GM’s size will probably tail off naturally over time, instead of say, implode by tomorrow. Do you even look at the unemployment figures or do you just assume they’re irrelevant because it’s automatically the gov’s and union’s fault anyway?
PCH,
There is a HUGE difference between what can work, and a biz plan.
You CAN dig holes with your hands, but if you want to turn a profit, use a shovel, or better yet, a machine that digs the best hole in the least time for the least money. Of course, the shovel and the machine may put people out of work so they are evil, especially if they are imported. The guy who spends years in school and at work who can figure out the most profitable way is even more evil, and should be taxed and villified. Yet, the liberal ideal is to tax the laborer rather than the shovel, or the hole. Brilliant.
That’s PRECISELY the problem with most liberal ideas. Sure, they CAN work. It’s possible. Wouldn’t it be better?! Yeah, it works as a plot to a musical, so it must be the best way to go.
Management: Fine, GM will be profitable when it CAN produce more desirable products. The managers and designers CAN overcome a labor cost disadvantage, work rules, and other UAW issues. They CAN also not make any mistakes that will suck down tons of time and resources because the labor contracts won’t give them the flexibility to fix those mistakes later.
New Managers Wanted: We need people who can dig with their hands. Pay similar to operator of shovel. Excellent Benefits if we don’t go bankrupt, again. Apply Now!
Sure, they have had lousy management. What is the plan to get them better management? If only we punish the ones making over 500k, that should solve the problem?
Selling GM: Great, we bail them out, and sell them to the chinese rather than liquidate them and let US players grab the pieces and try to build something new and better. Well, that’s not completely ridiculous because only the chinese can presently afford to run a Michigan based auto company. Better to let them do it than borrow money from them that we will lose and then owe with interest.
There is a HUGE difference between what can work, and a biz plan
There shouldn’t be. A business plan is supposed to be realistic. If it isn’t, the problem is with the contents of the plan (and by extension, those who did the planning), not the concept of having a plan.
That’s PRECISELY the problem with most liberal ideas.
Sometimes, you really take this politics-is-everything thing a bit far.
My comments above were apolitical. We’re talking about business issues here, the sort of thing that should end up in a business analysis case if anyone is paying attention.
Let’s take the above example of the Camry, etc. In the US mid sized car market, you have a few clear winners (Accord and Camry, with Altima as a distant third), some niche players (Subaru, VW, etc.), the fleet queens (GM, Chrysler), and the possible up-and-comers (Ford/ Mercury, Hyundai).
Of these, GM is obviously not in the winner’s circle, even though it builds volumes that suggest that it should be, and reflect that it once was (a long time ago).
The obvious question to ask is why GM is a loser. We know why, and it has everything to do with product and branding.
The point that I raise is that the union is not to blame for that problem. The fact that GM can’t figure how to sell three cars profitably while its competition can make profits with one speaks to its mismanagement.
Clearly, the workers and the union will pay the price for this, as many of them already have. The workforce undoubtedly needs to shrink in order to deal with GM’s inability to compete, and it will, as it has been for many, many years.
However, the root causes of the problem are not with the size of the work force. The size of the work force imposes a cost problem once it has been established that the cars they build can’t be sold at a profit, but those costs are not the **source** of the underlying business problem.
Businesses make money when they can compete, and a sign of their ability to compete is that they have customers. GM has a customer problem. They have been too busy babbling about currency manipulation, fair trade, and every other irrelevancy to bother addressing the customer issue.
You are missing my point completely. I, of course, believe that the best thing for everyone concerned would be liquidation. I think that is best for the workers of this and coming generations, and for consumers around the world.
However, let’s leave politics out of it as you ask. Heck, the fact is that GM is in trouble. Politics rears its bloody head mostly when trying to figure out what went wrong.
If you had control of the money, and the responsibility to use that money well, would you invest it in GM? Would you want to go to work there if you had a chance to get the same job at a successful company where you weren’t ever going to have to put up with UAW picketing your office, calling you names, threatening you or your family, interfering in your local elections?
I say the best use of the money is elsewhere. I say support strength, not failure. If your interest is building cars, then start another company in a state where the UAW is less welcome.
The only reasons to try to save GM are political aren’t they?
The previous post is evidence that human behavior tends to follow existing developed patterns/memes instead of correcting for rational expectations.
This is further proof of the superiority of empirical observation over political ideology.
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The only reasons to try to save GM are political aren’t they?
Given how many times this has already been answered, it breaks the rule of no dumb questions. BTW, the answer is no, because unemployment, spiral, social cost.
Politics rears its bloody head mostly when trying to figure out what went wrong.
They shouldn’t. The mistakes that GM and Chrysler have made have nothing to do with politics. There’s nothing particularly liberal about making products that customers want to buy. Customer orientation is not a ballot box issue.
If you had control of the money, and the responsibility to use that money well, would you invest it in GM?
If you’re asking me whether I would buy GM stock with a buy-and-hold investment approach, the answer is clearly no. It’s a terrible company.
The only reasons to try to save GM are political aren’t they?
No. For some of us, it’s a reluctant effort to deal with the greater economic impact of what could happen if the company was to disintegrate during the worst economic downturn in seven decades.
There are some cheerleaders who believe that Detroit deserves that money, but I clearly don’t hold that position. It’s more about the timing issue, and how it impacts the macroeconomy that we all have to live in. It frankly sickens me to be forced to help GM, but given the circumstances, we don’t have much choice, at least as of April 2009.
Let’s remember, the auto industry has sent most of its campaign money to the GOP: http://www.opensecrets.org/industries/indus.php?ind=M02 Rick Wagoner gave his campaign dollars to Mitt Romney, not Barack Obama. Funny how things work out.
PCH,
I never said that the mistakes that the management made were ideologically based. That doesn’t mean that the results were not affected by government or politics. But if we are going to keep politics out of it, as you asked, then fixing blame can’t be done.
Talking about the possible outcomes of government intervention will also lead to politics. Our worldviews will get in the way without a doubt.
So, that gets back to would you invest. I am not talking about stock. I am talking about something simpler where you get a return or loss on the money that mirrors GM’s performance, like total ownership (it’s hypothetical of course). Similarly, I am asking if you would invest yourself in the process given similar opportunities elsewhere. Still no? Then do you really want to invest all our money in that? Is there no moral component to this at all to you? I am not grandstanding here, stay with me.
If your reason to have the government invest in GM is because you think it will cost the government less money over all, then we disagree in both the accounting and the ideology. I would be willing to overlook ideology if I thought it were really a sure bet (see, no grandstanding, or high horse here) but I don’t. I think it will cost more in the short and long run. The people hurt through intervention will mostly be workers as well. Pragmatism isn’t really going to work here either. I am not talking about some poisoning of the capitalist system that will cost us in the long run, I am talking about the cost of the free lunch that I believe will be a real bitch, and soon.
As for who RIR gave money too, I don’t think it mattered. It’s been recently proven yet again that you can bribe a democratic politician, but they won’t be loyal to you. ZING! (Just like Sajeev, I too will be here, please come back and see the show again).
PS. No, I don’t know if the Repub’s stay bought, or whether that is better or worse.
I am asking if you would invest yourself in the process given similar opportunities elsewhere.
The argument is not one of “investing.” We aren’t talking about dealing with GM because we like it. It’s more about preventing a negative, which is what goes wrong if you don’t fix it, or if we must, at least stall until a later date when the crash landing is less destructive.
Not all choices in life are positive. If a dog runs in front of your car as you’re driving, and you are then forced to decide whether to hit the oncoming car to your left, the oak tree to your right or the hapless terrier in your path, then you are left with three lousy choices. Yet one of them must be made, there is no painless option. (I like dogs; if you don’t, change the metaphor.)
Doing nothing with the automakers is still a choice. If the outcome of doing nothing is worse than doing something, then doing something, as rotten as it may be, could be your best outcome. Not good, just better than the alternatives, all of which are lousy.
Is there no moral component to this at all to you?
No.
I would be willing to overlook ideology if I thought it were really a sure bet (see, no grandstanding, or high horse here) but I don’t.
There are no sure bets. These are tenuous times, and we can’t afford to blow it. Again, it’s about the best alternative, not about good ones.
the comments you all have been leaving display a rightful sense of outrage. however, GM CANNOT be allowed to go bankrupt at the present time for a number of reasons. the first, is while you all seem to be blaming the uaw and “poisonous” corporate structure for the economic situation you have failed to remember that all of these “evil” entities are actually people. sure there may be largesse reminiscent of an earlier time, but would you want to take a demotion at YOUR job if your company needed the money, and don’t lie to yourself. second, one has to consider where those billions are actually going. they are not going into the hands of the corporate fat cats, this money is coming right back to you through the purchases of the retirees whom this money keeps afloat. this money pays the workers who buy things that keeps our heavily consumer based society functioning. Futhermore, this number of workers is not inconsequential. if one considers the “bloated” dominantly AMERICAN owned dealer network employees, the massive number of support businesses which supply GM with parts and services, and finally the workers of GM itself more than a couple of million people could face unemployment due to bankruptcy. this is a massive number. it is only a few percent of the US’s economy, but if you liken the economy to global warming. 1.5 degrees (the current global change attributed to man) is enough to begin to change the whole world. similarly those few points of unemployment combined with the money lost from incomes WILL launch the us into the next GREAT DEPRESSION. so unless you want to loose your job with 30% or so of the worlds denizens read a macro economics textbook, a history book and stop bellyaching. this money is literally buffering our whole economy. for those of you who don’t know the programs in the government that are considered the most influential on quality of life in America (social security, medicare, medicaid) are all products of FDR’s new deal. these programs and other now defunct programs likewise spent exorbitant sums of tax payer money bailing out businesses and people during the great depression. the punchline is that sure the tax payer may have to bail out some large businesses, but they are simply to central to our nation’s economic structure to fail regardless of bad management. as a closing point, were our major companies to fail consider the huge negative trade balance that would result. as the saying goes money literally does not grow on trees we can and will run out and all be poor ( see the foreign oil argument.)