It’s nice when Detroit News auto journalist Mark Phelan and I agree. We recently had a head-to-head on BBC World Service where I called GM and Chrysler zombie automakers, and Phelan didn’t. In a piece in this morning’s Free Press—“Bankruptcy no fast cure for GM“—the Irish scribe shares my belief that a GM C11 will be, as the Brits might say, the bunfight to end all bunfights. But first, let’s put the pro in prolepsis, and begin with Phelan’s final paragraph: “GM’s cost-cutting progress has allowed it to pass on some of the loan money the government has promised, but the company’s own projections say it could need another $4.5 billion to $12 billion if the economy remains moribund.” That’s what I call a big spread. But there’s something else about Phelan’s finale that gets my goat . . .
Once again, Phelan perpetuates the GM-originated myth that cost-cutting made it a more responsible tax grabber. Once again, bullshit. GM grabbed cash from Canada to salve its unstoppable cash burn and has now asked for (and will receive) an extra billion dollars to get all the way to its June 1 bankruptcy. Which will suck.
Beyond the legal unknowns, suggestions that a bankruptcy splitting the company into a salvageable “Good GM” — Cadillac, Chevrolet, Buick and GMC — and disposable “Bad GM” — Hummer, Saab and Saturn and pension costs — oversimplify the company’s operations and its multibillion-dollar obligations to hundreds of thousands of current and retired workers.”
GM’s a tremendously interconnected organization,” said Michael Robinet, vice president of global vehicle forecasts for consultant CSM Worldwide in Northville. “It’s Pollyannaish of anybody to think you can just slide brands to the bad side of the ledger.”
Preach it!
“Thinking that getting rid of the brands solves the problem is a gross oversimplification,” said Stephanie Brinley of consultant AutoPacific. “The brands’ buyers will go somewhere else. It’ll take years for GM to create a new model line that retains buyers and keeps costs in line.”
Amen. And now, back to the penultimate paragraph.
GM’s projections say a bankruptcy that lasted more than 90 days could cost as much as $100 billion. The federal government is the only entity that can finance that. If GM gets the concessions it needs to stay out of bankruptcy, the federal government will provide new loans. It has not said how much.
Then again, why would it?
like watching a train wreck.. you try not to look but cant…
I don’t believe GM or Chrysler will go Ch11/7 this year. Anyone else?
Baaaah, are you sure you didn’t mean get your goad? Not sure what getting your goat will do for the problem.
Fort Knox….Auric Goldfinger and Odd Job must be around somewhere…let them sort the Detroit muckamucks out.
saabophile: No, it’s an American expression. History: http://www.worldwidewords.org/qa/qa-get1.htm
Last week I took a trip to South Bend, Indiana. Some of the B&B will remember South Bend as the location of Studebaker Corporation. In December 1963, Studebaker shut its doors. I kept thinking of the differences between then and now. Then, 5000 UAW members in South Bend lost their jobs. Couple thousand more in 1966 when the Canadian plant closed. There was no other auto manufacturer in the area to absorb these workers. 11000 had pensions affected (there was no PBGC) and many got either 5 cents on the dollar or nothing at all. The company did not go to the government for help. It had tried hard, but just could not compete. Nobody expected that it was the government’s job to keep the factories running turning out cars that not enough people wanted to buy. No auto plant ever came to replace Studebaker. Rightly or Wrongly, the South Bend UAW had developed a reputation of being difficult to deal with. Maybe this is why, we will never know.South Bend has never really recovered, and the factory site is still vacant, the buildings only now being torn down.
Today, it is so different. Even though there are governmental protections and safety nets that Studebaker workers could not even have dreamed of, nobody is ready to let GM pay the same piper. We are going to pay (as a country) billions and billions of dollars to try and keep the doors open, but with this company it is not going to work. The only thing that would help GM is to turn back the clock to 1965. Won’t happen. The industry is going to continue to bleed UAW jobs. The rest of us will pick up the pension costs and move on.
Unfortunately, the UAW areas are going to be just like South Bend in the 60s and 70s. I realize that there are some retired auto workers among the B&B. But we have to understand the reason that none of the transplant companies has located anywhere near UAW turf. They pay good wages, good benefits, and their employees are glad to have the jobs. But none of the transplants is ever going to build plants in Detroit, Cleveland, Toledo, or the smaller industrial cities like South Bend, Kokomo, Muncie, and Anderson in Indiana.
This whole situation is not going to get better by dragging it out. It needs to be over with so everybody can move on as well as they can.
Unfortunately, the UAW areas are going to be just like South Bend in the 60s and 70s. I realize that there are some retired auto workers among the B&B. But we have to understand the reason that none of the transplant companies has located anywhere near UAW turf. They pay good wages, good benefits, and their employees are glad to have the jobs. But none of the transplants is ever going to build plants in Detroit, Cleveland, Toledo, or the smaller industrial cities like South Bend, Kokomo, Muncie, and Anderson in Indiana.
Ah, be careful there as well. Many transplants are already looking elsewhere in North America for cheaper alternatives to the TTAC championed places such as Alabama and Tennessee. This won’t come out in the MSM though. With NAFTA, it is still cheaper to produce a unit or vehicle in Mexico. I predict a LOT more manufacturing will move to Mexico….yes, there is a presence in Mexico but it is going to grow leaps and bounds.
From a pure manufacturing and assembly standpoint, the Rustbelt lost to the southern states…..20 years form now, the southern states will lose to Mexico. I don’t see how mass-manufacturing can remain in the US 20-30 years from now without the utilization of ultra cheap contract labor, which is VERY popular in non-union transplant facilities.
Yep. Grandpa got NOTHING, NADA, ZIP when Packard went under; he was a Master Mechanic with 27 years in; no Packard ever left the plant without a complete inspection of EVERYTHING by him or his brethren who had to know everything about the whole car. The old plant in Detroit is still there rotting away. At 49 years old, it took him a year to find a new job as a janitor at Blue Cross/Blue Shield. But, along with a boxful of feeler gauges and inspection tools, I still have his 25-year Packard gold watch engraved with the motto “Ask the Man Who Owns One”. At some point people must have stopped asking…Grandpa drove a Chevy anyways – Packards were for rich folks – and always took the streetcar and later the bus to work. But he was proud of the products and his role in ensuring their quality. Packard is another example of lack of product development and failure to keep up with the market.
He did odd jobs, painted houses, took temp positions, whatever he had to do for 2 years until he found a job. And by the time he retired he was the building superintendant at BC/BS HQ, and got 15 years of pension at least.
So if Packard had been kept on life support…who would have benefitted? And how long would it have been sustained? Grandpa just put on his Man Pants and found a new career, working his way up from janitor. Starting at 50. His last car was a Buick that he kept for 20 years.
His take was that Packard management failed to realize that, for a time, “quality was no object” in the auto industry; nobody wanted a Master Mechanic in 1960. Well, he lived long enough (94) to see his grandkids drive Hondas made in Marysville, Ohio and Toytotas made in Kentucky.
Grandma always asked why us grandkids never moved back “home” to Detroit. Grandpa never did.
Marquis Dee
I think it will really be interesting to see exactly how the court decided to allow the C11 if it is filed. The courts really have a great deal of power and say in what “goes” and what “stays.” I think the real benefit would be in just using the C11 as the time to just can the failing brands, dissolve obligations to the dealer network and sell the assets.
jpcavanaugh: The company did not go to the government for help.
In a sense, Studebaker-Packard did expect government help. The merged company’s business plan depended heavily on defense contracts. When those were yanked by the Eisenhower Administration in 1954-55, the firm was in big trouble, and went to Washington, D.C., to have the contracts restored.
The takeover by Curtiss-Wright was strongly supported by the Eisenhower Administration. It didn’t want the collapse of a big corporation during an election year (1956), but it didn’t want to give direct aid to the company. So Curtiss-Wright was encouraged to take over the company, which spelled the end of real Packards.
jpcavanaugh: Rightly or Wrongly, the South Bend UAW had developed a reputation of being difficult to deal with. Maybe this is why, we will never know.
After World War II, Studebaker management dealt with its union local by basically giving it whatever it wanted. Paul Hoffman and Harold Vance were obsessed with keeping Studebaker “strike free,” expecially during the turbulent early postwar years.
Spoiled children only want more and become less cooperative, despite getting what they want. The union local became increasingly militant over any attempt by management to impose discipline on the factory floor, or to bring wage rates and productivity standards in line with those of the competition.
Marquis Dee: Packard is another example of lack of product development and failure to keep up with the market.
Packard abandoned the luxury market and chased volume in the medium price segment under the leadership of George Christopher, a production man hired by GM to prepare the factory for the production of the Packard 120. (There’s an interesting story there that is relevant to GM’s position today.)
Under Christopher’s leadership, Packard abdicated its position in the luxury market and handed that segment over to Cadillac.
Marquis, you should post some stories of your family’s experiences with the auto industry. Your posts are fascinating.
‘GM’s a tremendously interconnected organization,” said Michael Robinet, vice president of global vehicle forecasts for consultant CSM Worldwide in Northville. “It’s Pollyannaish of anybody to think you can just slide brands to the bad side of the ledger.”’
True Dat. The PTFOA keeps dribbling billions to GM because they can’t sort it out. The extended deadline is for them not GM. The problem, they won’t be able to sort it out.
GM is set up to produce tremendous volume, still. And they usually produce their badge engineered vehicles in the same factory. Killing brands would simply require that they increase the volume on the platform mates at the remaining brands to make a profit or rather not lose more. Cutting out the “Bad GM” would leave the “Good GM” with more overcapacity, more expensive parts, and less customers, not to mention a decimated supply base or the political implications actually carrying this out. The fact is that this was a mess 30+ years in the making and it isn’t a finger snap solution away. Unforunately, all I see is a search for that quick and easy answer instead of the drawn out messy solution that is necessary.
I’m with JG. There will be no GM CH11 anytime soon.
Remember this all started with AMC/Jeep and Chrysler group going under in the early ’80s. At the time, AMC went flailing into the dark night and Chyrsler, with brilliant Iacocca at the helm and some actual innovative product lines, convinced Congress to let them have a loan that will keep them from bankruptcy. Today’s Chrysler has nothing on the table to offer and GM is busying itself throwing deck chairs off the titantic. C11 for GM and C7 for Chrysler seems inevitable and needs to happen sooner than later.
Ah, it does my heart good to see all these posts about Packard. And telling the stories well.
Marquis: I would have loved to have had the opportunity to talk with your “Grandpa”.
geeber: Always great to see someone who knows the history. Everything you say about Studebaker-Packard and Curtiss-Wright is true. However, by 1962, Packard, the defense contracts and Curtis Wright were all long gone. Sherwood Egbert was running what was by then Studebaker Corporation. He did what he could with the antiquated product line (the GT Hawk, Wagonaire and Avanti are nothing short of stunning considering what little money there was to spend) but it was not enough. In 1962-63 there was no governmental help to be had and 111 yr old company closed its doors.
delorean23
Remember this all started with AMC/Jeep and Chrysler group going under in the early ’80s.
Actually, AMC/Jeep’s first savior (third for Jeep) was Renault. Who can forget the lovely AMC Alliance (Appliance?) and the late, great Eagle Premier. Chrysler didn’t enter the picture till 1987, if I remember correctly. Chrysler had paid all of its loans back by this time and was making tons of money.
Another point – The government spent not a dime in that deal. Guarantees on $2 billion in private loans from many private sources. Chrysler recovered, paid off the loans early, and the government never wrote a check. Just think, only twice what GM says it needs to survive until it can make it to bankruptcy court.
Derm81,
Actually, I suspect that 20 years from now, the plants may move back to the rust belt. You see, just like eastern europe, the people there will eventually demand freedom and private property over false promises of security, benefits and equality that are never delivered upon.
jpcavanaugh: He did what he could with the antiquated product line (the GT Hawk, Wagonaire and Avanti are nothing short of stunning considering what little money there was to spend) but it was not enough.
Considering how little money he had to spend on new product, and how old that basic platform was, Studebaker’s 1962-64 offerings were nothing short of miraculous. But they were still too little, too late…
I visited the old plant in South Bend during the summer of 2000. The Studebaker Museum is located in the area. All very interesting, and still somewhat sad…
I know that efforts were being made to save the old Packard Proving Grounds, but I heard that part of the grounds have already been turned into a new subdivision.
It’s interesting to examine how former GM executive George Christopher ran Packard into the ground, and compare what he did to the mistakes that GM has made (and continues to make) in managing its own brand. The GM mindset hasn’t changed much over the decades…
You mean a Chapter 11 filing isn’t the great magic pill cure-all we thought it would be? Surely you jest.
Landcrusher, I have thought about that as well.
Actually, I suspect that 20 years from now, the plants may move back to the rust belt. You see, just like eastern europe, the people there will eventually demand freedom and private property over false promises of security, benefits and equality that are never delivered upon.
Now I am not the UAW’s biggest fan but I seems to me that there is still a sense of master-slave mentality in the right-to-work states. I witnessed this firsthand during a longterm work project in a certain state for a certain corporation. Most of the employees seemed to be terrified to speak up if an issue arised.
What happens if “bad” GM ends up doing better than “good” GM? I think HUMMER, Saab, and Saturn might be stronger brands
Davey49: Wouldn’t that be ironic? Serves them right.
In dealing the numbers though, there hasn’t been a production bound model in decades at GM. If you want a Chevy, you could by it. Any brand reduction by the Good/Bad scenario doesn’t mean a production increase for the Good version. So, what is the right size at a GoodGM? Chryslerish? Hondaish? Smaller? Is that viable?
I drive a 1953 Packard Cavalier as a daily driver. Better than a new plastic computer car.
Maybe one of the structurally healthy outcomes worldwide might be the realisation that these larger-than-nation-state corporations will be prevented from existing in the future.
“Too Big To Fail” will be a key lesson, but because those corporations won’t be allowed to exist.
About bloody time.
“Most of the employees seemed to be terrified to speak up if an issue arised.”
I’m not sure this is an issue only for unionized business in right-to-work states. I’ve worked for two OEMs and most recently for a large and fairly successful Silicon Valley firm. I think this is more of an issue caused by corporate leaders and the cultures they create.
Even companies in growing industries can suffer from “not invented here” internal bureaucracies, CYA management styles, and “kill the messenger” mentalities. Here’s a clue… any company that needs to actively remind people about their “open door” policies doesn’t really have a culture that wonn’t instantly crush people who use it. If they did they they wouldn’t need the policies in the first place.
It’s sad to see that the real brainpower at companies like GM and Chrysler are the people who leave or get laid off first. They either leave because they see better opportunities elsewhere or they get the axe because they don’t play politics well enough. Sh** definitely floats.
Hondaish is the right size for all big car companies. In the US Toyota, Hyundai, Ford, Honda and Chevrolet all equal would fill most of the market. The rest would be niche or close.
Studebaker lives – literally, albeit in name…
http://www.satellite-sightseer.com/id/7009
Hi Marquis Dee,
We share a similar bond to Packard Motor Car Company, my grandfather received a 25 year watch from them. After losing his job when the plant closed, he went to word for Goebel’s brewery. You can’t do that now because all the businesses of that type became Multi-National, moved, and consolidated their operations elsewhere. He probably would have survived even if he had to sell pencils on a street corner. Pencils won’t pay the rent or even buy food in today’s world. We need to make something. China, Japan, Korea, Mideast, etc. depend on our consumption of “their” products. “Their” products use to be ours – TVs, Cars, Toys, Tools, Electronics, etc. We just can’t be a country of consumption only. We need industry and that is why we need to keep GM and Chrysler running, and Ford, too.
Flash