I view the government’s intervention in GM’s business (or lack thereof) as automotive ebola. But we can all agree on one thing: the president’s decision to fire GM CEO Rick Wagoner was a no-brainer. Giving the Harvard MBA and GM lifer millions of dollars to guide GM to viability was like letting Al-Qaeda run a liberal arts university. Now that Wagoner’s gone, his supporters are notable by their absence. That’s because deep-sixing Red Ink Rick was the right thing to do. It was also the easy thing to do. While the MSM is lionizing Steve Rattner, the head of the presidential quango that defenestrated the GM CEO, the Obama administration’s wallow in the GM quagmire is just beginning.
There is no longer any doubt that GM is headed for bankruptcy. The GM C11 gestalt is growing by the day, of which there are only 56 left. The question is no longer “if” GM will file but “how.” Yesterday, GM’s federally elevated Chairman of the Board, Kent Kresa, signed his name to a plan unofficially called “Good GM, Bad GM.” In this scenario, the government would split GM into two companies, “old” (bad) and “new” (good). GM’s best bits would become part of the unencumbered business. The remaining dreck would be sold or liquidated.
It’s a good idea—in theory. Separating the potentially profitable wheat from the same old chaff would be a relatively rapid way to reinvent the American icon. But there’s a good reason why this practice isn’t the norm: someone’s got to decide which part of GM is Michael Knight and which part’s his evil twin Garth.
In a normal bankruptcy, management creates a recovery plan. A federal judge (or judges) rules on the plan, and then oversees its execution. The judge can demand forensic accounts, call witnesses, order asset sales, protect assets, etc. Yes, yes, Delphi; the former GM parts maker that’s been in Judge Robert Drain’s bankruptcy court since the late Pleistocene era. But that doesn’t obviate the main advantage of a judicial bankruptcy process: someone without an axe to grind has the power to make sure that creditors and other “stakeholders” aren’t screwed.
Lest we forget, GM is [still] a vast, sprawling enterprise, with thousands of dealers, suppliers, workers and former workers. Both here and abroad. All dependent on various parts of GM’s business for their survival. A triage-trained bankruptcy judge decides the least bad options for all concerned.
Now imagine the Presidential Task Force on Automobiles (PTFOA) deciding which bits of GM fall into the “good” (life) or “bad” (death) column.
First of all, the separation poses a huge philosophical conundrum. What is the new GM and why? If you subscribe to the theory that Chevrolet and Cadillac are the only GM brands worth saving, what of GMC, which accounts for a large chunk of GM’s truck biz? Kill or consolidate?
Viability means profitability, which requires both situational awareness and dedication to a specific competitive advantage (a.k.a. a unique selling point). The PTFOA’s recent report said the money-making GM of the future would build and sell reliable, practical, safe and fuel efficient vehicles. Must. Choose. One. Oh, and WTH does any of that have to do with Cadillac?
Secondly, on a more practical level, holy shit. GM has assets all over the world, with enough overlap to keep bean counters busy for decades (as it has). So which vehicles will these “good” brands sell, and where will they be made? Will the new GM only build vehicles in the U.S.? Given that some of the best/most profitable GM products are fabricated outside of the United States, an America-first approach would put the “good” GM at a huge competitive disadvantage.
Which, of course, leads us to the most important thumbs-up, thumbs-down consideration of all: politics. In a judge’s case, there is no political consideration. He or she is beholden to no single constituency. In contrast, the PTFOA. Anyone who thinks that this politically appointed body will be ready, willing and able to set aside partisan politics to look after the taxpayer’s best financial interest is woefully naive.
If nothing else, we’ve not heard the last of the United Auto Workers (UAW). So far, the union’s done all that they could do to “help” GM: nothing (i.e. no major concessions). The next step: make sure the PTFOA looks after UAW members’ interests in the pre-pack process. And while that’s happening, political markers are already being called in. How many pols with a GM factory in their jurisdiction have PTFOA boss Timothy Geithner in their sights? I’m thinking . . . all of them.
So here’s my idea: the PTFOA calls in GM’s federal loans. GM files for Chapter 11 protection. A bankruptcy judge does his or her thing. The feds (that’s you and me) provide debtor-in-possession financing (I’d prefer C7 but no one asked me). Fair enough?
GM’s 2007 line – Present have been the best cars they’ve ever made.
The CTS/V is a ground breaking car, the Malibu is awesome and their line of SUV’s are fashionable despite the fact people are moving towards crossovers, but, so long as there is an obesity epidemic, SUV’s will not fade from the face of these United States.
But the government, as much as I support the green movement (transfer of political power towards reviving America’s industrial base through energy efficiency), I think is wrong in the way they are going about trying to get people to spend money.
They seriously are offering tax incentives for people to buy certain types of vehicles – during a recession – when people are trying to save money rather than taking on more debt. Its stupid.
and if they are trying to get people into more efficient vehicles, a large number of people will choose imports if cars like the Fusion and Ecoboost line aren’t ready and affordable for new buyers. If people do buy imports, the government is undercutting itself and losing out on profit for the big 3.
I think GM should absorb Chrysler and just GM and FORD should exist. Then I think Congress should pass laws that demand that any gasoline car/SUV/crossover produced after 2012 gets no less than 50 MPG CITY / 60 Highway as well as a reasonable Mile Per CHARGE requirement on EV’s.
While I don’t think the 35 mpg CAFE requirement will be a big problem to implement (should almost get there by changing the sales mix of existing products), 50 mpg city, 60 highway as a minimum runs headlong into the laws of physics.
At that point, existing technology would make a diesel hybrid Prius the largest salable vehicle.
Never feed a stray cat. Once you feed it, you own it.
BO owns GM. meow.
It cannot turn out well.
Seriously man:
like letting Al-Qaeda run a liberal arts university
that was just beautiful!! We’re not worthy, we’re not worthy!!
Flashpoint:
you need to have another look at your numbers. The only car that would make your 50/60mpg cut would be a manual Honda Fit with no airbags or sound deadener, 13″ wheels, a 1.4L engine and a 2000rpm rev limiter.
Not gonna happen dude. Not even close.
Here’s another, sequential approach:
– force bankruptcy at Chrysler. Shift Chrysler’s valuable assets (like the Jeep brand) over to GM, then shut Chrysler down cold. The reduced competition will help GM and Ford. (Under normal economic conditions some of Chrysler’s parts could go direct to Ford, but I don’t recommend this. Let the parts pass through the sieve of a double-bankruptcy to scrape off all the crud so it doesn’t infect Ford.)
– cut off federal money, and send GM into bankruptcy. Let the judge sort it out, with no bailout bucks to distort the picture. Plants will close, and UAW members will lose their jobs. So be it. By definition, the pieces that have value will survive. The rest can be sold off in bits after being transferred into a holding company; these will probably be liquidated for pennies on the dollar.
– If the judge can’t put enough “good” parts of GM together to make a viable company, let the whole thing go to hell, with Ford buying Cadillac, Corvette, and anything else Ford thinks it can make a buck building. (One plus for Ford: they could finally dump their miserable Lincoln brand. Still might not work… trust the Blue Ovalheads to put their Lincoln team in charge and utterly bugger Cadillac, using the kind of in-house loyalty-think and careerist logic that made Detroit what it is today.)
– As part of all this, Ford would pick up any GM and Chrysler dealerships and plants it wants. The rest close down.
Benefits? The UAW, an organization apparently hell-bent on suicide, gets to keep at least a vestige of its membership working. The government can stop pouring money into Detroit, which would help Washington save face while placating an increasingly angry American public. Auto parts suppliers continue to function, but on a reduced scale. At least one of the Big Three would survive, an outcome which a lot of Americans would perceive as “good”.
Me? I won’t GAF that we’re down to just Ford. I’ll be off someplace not buying another car because my Honda seems to be running just fine.
Although when I first heard of it I thought it was an excellent idea to roll the best bits into a “New” GM, I agree with Robert that it will be disastrous if politicians are the ones left in charge of deciding what the good bits of GM are and what when bad bits of GM are. I still think it is an excellent idea, if someone else was in charge.
RF,
You got it covered. So, let’s say some evil creditors don’t like what is offered. Can they be forced to take a hot, or does the whole thing then havevto to to court?
The problem with weighing good vs bad is not only a question about putting what sells in one basket, and what does not sells in another. It’s also a question about what would sell tomorrow, hadn’t GM screwed it up. I really think there is a brand cachet in the Buick name. Perhaps not today, perhasp not tomorrow, but starting today with a better management, perhaps Buick will be profitable within 5-10 years time. And who will see to that?
you need to have another look at your numbers. The only car that would make your 50/60mpg cut would be a manual Honda Fit with no airbags or sound deadener, 13″ wheels, a 1.4L engine and a 2000rpm rev limiter.
Excuse me but you are misinformed: I get (city+road+freeway) 58mpg (imperial) from my 2004 Toyota Avensis D4D (Diesel).
That´s more or less 48mpg (US gallons).
The Avensis is a 3150 pound safe, comfortable and (for European standards) big car. In fact I can not see why anyone would nedd a bigger car.
She got a 5 star NCAP rating and 7 airbags.
http://www.evecars.com/what-car-full-review.aspx?RT=876
Mine has 5 gears (manual, of course). The 6 geared Avensis gets even a better milage.
Of course that I drive like an 80yo lady driving a 1960s buick (it is the driving I enjoy: Smooth and Slow).
No, you do not need to drive a small car with not equipment to get that kind of mileage. It is quite easy to get much better mileages just changing your driving habits.
Oh, and there is a 2000rpm rev limiter in my car: Me.
Aside from rearranging hard assets, I fail to see how GM can amount to anything unless it:
~ Reduces the 10-15 layers of managment (still alive and well)
~ Frees the bottom level employees from operating in the “culture of fear” so the truth can be told
~ Fires the “ladder climbers,” who could give a shit about the product
~ Stops the internal fiefdom building (still alive and well)
~ Starts making great decisions at the top (Ha-ha-haaaa, stop it, you’re killing me…)
~ And not last, and not least, fixes its amazingly inefficient business methods in all facets of the business (still very alive and well)
it really all comes down to the marketing.
The good & bad division is some simplistic concept Obama has come up with for everything, banks included. No firm plan around what to do with the “bad” stuff like hold a “bad $hit” toxic flea market or put it all in the space shuttle and launch it, I don’t know.
I was actually with you until that last line, “(I’d prefer C7 but no one asked me).” Sounds like a personal vendetta.
A is A :
April 4th, 2009 at 4:51 am
Oh, and there is a 2000rpm rev limiter in my car: Me.
I’d hate to be behind you entering an American highway.
In retrospect, the “keep the good, ditch the bad” thinking should be applied to the GM vehicle line-up, not just the assets. GM has some great vehicles, and its portfolio is getting better every year. And this is with it’s severe cash crunch; imagine the results if cashflow got better. First up on the chopping block: Either the CTS wagon or the SRX; why in the F did GM’s idiot managment allow both to exist?!!
Fair enough?
Fair enough. I’d be ok with that.
A couple points though-
1. The only reason pols and/or a bankruptcy judge are making executive decissions is that the private sector execs abdicated their responsibility for 30 years. I don’t know why so many people assume that politicians can’t make good decissions. If we’re comparing them to GM executives, how could they be worse? If the PTFOA has to make the decisions and does so within the next 12 months, that will be a full 3 decades faster than GM’s private sector managers took to not make these critical decissions.
2. There are interesting questions – such as what to do with GMC. It is the second best selling brand GM has. I’ve pointed this out several times – nice to know someone was listening. But, in the end, a decission has to be made. Keeping it can be criticized as needless dupllication. Killing it can be criticized as ignoring the sales numbers. In any case, why be more critical of the G-men than the GM-men? What evidence is there that the GM-men would make a better decission – or, even make a decission at all.
It seems GM NA is having most of the problems. Perhaps the rest of GM overseas could reorganize as a going concern?
Even as far back as the 80s I can recall asking myself the question “WTF is GMC around for?!” I’ve never, EVER once met a truck guy (and being from Northern Ontario, that’s most guys in the area) that gave a damn if a truck was a GMC or a Chevy. In fact they frequently mixed up which one THEY owned (my Dad referred to my S-15 Sonoma as an S-10 ALL the time)… GMC is by far the biggest example of GM’s dealer insanity–either Chevy trucks go, or GMC trucks go. There is ZERO reason to have both. Personally, I like the idea of having GMC the truck brand, and Chevy the car brand, just to keep things simple.
As much as I’ve been a Pontiac fan my whole life, other than the G8 and the Solstice there’s no reason for them to exist either. I question whether or not they can be sustained as a “niche” brand with only the G8 and Solstice on the roster though.
I invision those two Pontiac models POSSIBLY living on…
Cadillac with the up-market performance and luxury… Pretty much leave the line the way it is…
GMC the truck division, preferably minus one or two SUVs, but keep the CUVs…
And Chevy as the bread n butter brand. Chevy should still have performance options, and the Corvette–bring back the Chevy of the 60s, where I could order any car with 5-7 engine options (okay in this modern world, let’s say 3-4) and a multitude of other options… Even FORD offers little performance upgrades on stuff like the Fusion… So why not the Malibu? Keep the Malibu, ditch the Impala, god knows it’s doing nothing anyway… Fast-track the Cruise into production as your “world-saving small car”… Keep the Cobalt around for the poor masses, the HHR is fun too… Ditch all the Trucks and SUVs. Keep the Camaro and Corvette as the niche cars.
And if this involves shutting down like 70% of your dealers, THEN FUCKING DO IT.
It does seem like the hatred for GM is so great that many wish their demise regardless of how it effects the people who work for them.
50 MPG? does anybody really care? It seems like the high mileage crowd only comes out every 10 years or so. If you can make an F150 or Silverado that gets 50 MPG and can still tow over 6000# with a plus 1500# payload more power to you.
I’m actually seeing more Hummers out these days.
DetroitX- What’s wrong with the SRX? The luxury crossover market seems to be relatively strong these days.
The government is most worried that a bankruptcy will dump a million high priced relatively young retirees in their lap.
Dynamic88 :
I don’t know why so many people assume that politicians can’t make good decissions.
Check out this link and it will answer that question.
http://www.brillig.com/debt_clock/
I suspect Rick Wagoner was simply rolled up, stuffed into a cannon, and fired across the bow of other recipients of bailout dollars as a warning shot.
This is gonna be great fun to watch. Whatever you can say for or against Wagoner, it’s now Barry O running GM – and Barry O’s experience at running anything is precisely zero.
So, let’s see – Wagoner couldn’t get the UAW to cut wages to a reasonable level and eliminate legacy costs. Obama’s going to give the UAW a haircut? Wagoner couldn’t get relief from the two-tier requirements of the law that wouldn’t let GM import small cars and use them as part of CAFE calculations to offset bigger ones. Obama’s gonna do that? And offend Ms. Nancy Pelosi and the greenies?
Right.
GM’s not going backrupt – that would let a bankruptcy judge take the UAW out of it’s platinum plated nirvana. GM’s just going to keep sucking money out of the taxpapers, indefinitely.
That’s because Obama didn’t think. He didn’t consider that kicking out Rick meant that he now was responsible for solving all the problems Wagoner hadn’t been able to solve, and that none of GM’s bosses in the past half century have been able to solve.
But, this is going to be a blast to watch, especially if, like me, you dislike Obama. He’s going to have a really rough ride on this one.
Meantime, if there’s a problem with your muffler, just call the White House.
The real issue is how do you untie the bank loans/debts. GM borrowed to develop new models/components. Example, if you are GM-Gov then the new developed Saturn Aura gets stuck with the unpaid debts for developing that car line and you let those debts die with the Saturn brand. The banks on the other hand will say the debts are tied solely to the still selling Malibu. So my question is since all of these brands are inbred, there is no clear point of this debt belongs to this car/brand solely by itself. Yes, you kill off the brands but the banks/fund who are owed money will argue that their developmental dollars went to the still living cars. This splitting the company into bad self good self will not work like housing assets The gov can do it with the bank’s mortgages because you are separating whole assets. This is a good mortgage. that is a bad mortgage. Think about it if you were trying this from the car viewpoint of keep this house (brand) but get rid of the heating systems in those same houses (shared engines go with the dead brand). Chapter 7 end of October.
For what it’s worth, I have put business entities into bankruptcy for turnaround purposes. Overall, I think that the process gets pretty good results.
But if what I’ve seen is representative of the norm, the judges are not particularly useful to the process. They certainly aren’t business experts, by any means.
The key is that they rely heavily upon receivers to deal with a lot of the business components. The receiver should have business knowledge that the judge does not, as the receiver is a third party who should have some industry and business experience. That leaves the judge free to deal with the law, or at least his interpretation of the law (and often, his own huge ego — court can be an interesting place), but the actual business issues are handled by other people.
I’m not saying that the process doesn’t work in some respects, just that it doesn’t necessarily serve as a shining example of brilliant execution. The system seems to work well in spite of the judges, not because of them.
In essence, the task force is acting like a receiver. Given the amount of taxpayer money in jeopardy, it is better for us if we have them take the reins, rather than have the secured creditors select a receiver who is more favorable to them. (Receivers are theoretically neutral, but in practice, they tend to favor the largest creditors who had a hand in appointing them.)
Would you rather have a receiver who gives priority to the US treasury — which basically means us — or one who is subservient to a few large lenders who are already in the TARP program and are otherwise making our lives difficult, and to the hedge funds who have become GM’s latest bondholders?
The good company/ bad company idea is taken straight out of the pages of the FDIC takeover manual. Cut the institution into good and bad pieces, turn the good one into a coherent entity that can be sold off, and sell off the pieces of the bad one. It would appear that the feds want to do with GM what was done with Washington Mutual, which is a good plan assuming that they can find a buyer for it.
On the other hand, if the idea here is to let GM die, then why provide any DIP financing at all? If that’s the best course of action, then we should just shelve everything, order them to liquidate, and pay the creditors with whatever is left. If that was the case, they wouldn’t need any more money; they die immediately, end of story, fat lady sings, etc., etc., etc.
WARNING: Thread hijack.
In the final shootout scene between Eastwood, Wallach and VanCleef, you can clearly see that VanCleef is carrying a Remington percussion revolver — you can see the capped nipples on the cylinder. Despite the fact that he’s carrying a percussion revolver, he’s got metallic cartridges in the loops on his pistol belt!
What the people in Hollyweird need to do is hire me as a small arms consultant.
You are now returned to you regularly scheduled thread.
For the nth time, the reason GMC exists is to give the Buick, Pontiac, and some Cadillac dealers, trucks and SUVs to sell. How many Buick and Pontiac dealers, or Chevy dealers, would survive without the stuff GMC sells?
It’s getting old to read continued bad mouthing of BO & Co. for doing what they’re doing with GM. It seems to me they’ve pretty much threaded the needle. What are the other options? Continue handing out money? Not giving any support and letting them fall hard into BR? Letting Wagoner continue his walk through fantasy land? And I don’t think what’s coming will be fun for any of us. I see many dealers going dark as will suppliers with a possible freeze-up of the other manufacturers. And the loss of ad revenue might be the final push over the edge for starving newspapers. Then there’s the further loss of tax revenue in so many communities.
Re. the newspapers- let them contact WorldPress and start their own website / blog.
Is it the government’s obligation to a) bail out banks to the tune of trillions of dollars, b) bail out the automakers to the tune of several tens of billions, and NOW we have the GRAPEFRUIT growers and the NEWSPAPERS….and soon city/local and state governments.
OMG, why not just demand the government wipe every citizen’s royal ass. We, as a society, have just become a bunch of helpless SOB’s to where WE ALL need a bailout.
GROW UP PEOPLE!!!! And please stop with all the sob stories, it’s growing mighty wearisome…not to mention pathetic.
The children!!!
The next step: make sure the PTFOA looks after UAW members’ interests in the pre-pack process. And while that’s happening, political markers are already being called in. How many pols with a GM factory in their jurisdiction have PTFOA boss Timothy Geithner in their sights? I’m thinking . . . all of them.
This could get really ugly and political if subsidies keep flowing for a year or two. The attack ads from Bob Corker & Transplant Land against the UAW & Government Motors almost write themselves.
The President should ensure the New GM retains the UAW contract provision allowing election day as a paid holiday. He’ll need those votes you paid for.
A is A
The Avensis is a 3150 pound safe, comfortable and (for European standards) big car. In fact I can not see why anyone would nedd a bigger car.
She got a 5 star NCAP rating and 7 airbags.
You can’t compare a European car to one designed to American requirements. Our crash standards are more severe and require protection of unbelted occupants, this leads to bigger (heavier) vehicles. Also the emission standards are different which leads to a different calibration strategy. Your Avensis, to American specs, would be lucky to break 40 mpg.
“Barry’s Auto Emporium” is the latest from Mark Fiore:
http://www.markfiore.com/
@Rastus:
I suppose in a democratic republic, or whatever we have now, it’s the government’s ‘job’ to follow the will of the people as long as it’s legal, i.e. constitutional. So we could try it with the govt just standing around watching the financial system collapse, the auto industry, including suppliers and transplants go down, etc. But after a few months of that, and whatever civil disorder that came with it, we might decide we wanted a tad more action. I think Hoover pretty much proved that.
We have several years of irresponsible behavior under our belts by most all factions of society, so it’s not clear to anyone what will work to avoid further collapse and confusion or if anything will.
RF – You got it.
When the politicos start defining what is “Good GM”, I’m afraid we’ll end up with the status quo – union protection, pork in every barrel, and worst of all, THE VOLT.
Things are definitely ugly at GM: seen the new Saturn ad “At that other company, if you lose you job you lose your car. Wow, what a bad day to lose your job and your car.” They know that’s not what Hyundai said. You CAN turn it in. More lies and BS from GM.
John
/Threadjack: All throughout the movie the guns keep switching. It all depends on whether they will be fired or not. Percap for the visual, carts for actual usage. It’s just like Blondie’s rifle: it’s a cut down Winchester made to look like a period Henry. These aren’t mistakes but attempt to be accurate within the confines of safety and practicality. /threadjack
I certainly don’t want to be the judge having to make those decisions. Everyone will lose out in the end. Someone’s ox is going to get gored and at this stage it looks like everybodies will.
A q of the B+B: who should be appointed a receiver in your opinion? Ideally it should be someone with immense familiarity with the auto sector, perhaps of GM itself but without biases. What paragon would this be?
You can’t compare a European car to one designed to American requirements. Our crash standards are more severe…
That´s just not the case, sir. In fact just the opposite is the truth: US standards for crash testing are less demanding than European.
As an ilustration of my point, please check these tests for the PT Cruiser:
EuroNCAP 3 stars with a dismalling frontal crash rating.
http://www.euroncap.com/tests/chrysler_pt_cruiser_2002/138.aspx
IIHS “Best” overall rating
http://www.iihs.org/ratings/rating.aspx?id=1068
NHTSA 4 stars
http://www.safercar.gov/portal/site/safercar/menuitem.db847bd57e3dc1f885dfc38c35a67789/?vgnextoid=c95df2905bf54110VgnVCM1000002fd17898RCRD
As you can see, the most demanding crash test is the european test. You can check this comparing tests made in Europe in the USA: The rating is always best in the USA for the same vehicle, and therefore the US tests are less demanding.
…and require protection of unbelted occupants
An absurd and unjust requirement, IMHO. NCAP thinks as me. Please read from the NCAP page linked above:
The PT Cruiser is designed to meet US safety regulations, under which drivers must be kept safe whether or not they wear a seat belt. Where vehicles are primarily intended for Europe, the safety systems are set up to protect belted occupants. This difference particularly affected the PT Cruiser’s cabin. A bolster is fitted to cushion the knees of front occupants without belts, but in Euro NCAP tests it put the driver and front passenger at risk of severe feet and knee injury
Sacrificing protection for the careful passenger who clicks for the sake of the negligent one who fails to click is -IMO- simply a crime. In this case a crime mandated by the US government (a circumstance which makes it much worse).
Also the emission standards are different which leads to a different calibration strategy. Your Avensis, to American specs, would be lucky to break 40 mpg.
This is a very interesting assertion. Could you please provide links to substantiate it?.