The New York Times reports that hecklers are verbally assaulting GM’s booth babes at the New York Auto Show. Worse, the glamor girls are wearing last year’s dresses. Literally. This is not what you’d call death with dignity. This is GM on federal life support, drooling and soiling itself uncontrollably as it waits and waits and waits for someone somewhere to pull the damn plug already. As I’ve asserted in the past few episodes of this series, I no longer believe GM can be revived. The company is brain dead. No matter what cancerous parts of The General’s terminally ill body Uncle Sam’s surgeons separate from the corporate body, GM can’t function as an independent entity. Chevrolet and Cadillac? Building what? For whom? At what profit? Both of those brands are money losers losing market share right now. They may have volume but they ain’t got game. Of course, that’s not going to stop the feds from trying to revive GM. And boy, are they—I mean “we”—going to piss away a LOT of money.
In 37 days the Presidential Task Force on Automobiles (PTFOA) will force GM to file for Chapter 11. A friendly bankruptcy judge will then split the artist formerly known as “the world’s largest automaker” into “good” GM and “bad” GM. “Good” meaning a new(ish) American carmaker, freed from a mountain of debt, pesky union contracts, health care obligations, pensions, unprofitable brands, outdated factories, commitments to Delphi, etc. “Bad” as in all that worthless NSFW piled into one place, where the creditors can squabble with each other over its worth until death do them part.
This the PTFOA will do in the name of jobs, jobs, jobs. Or, more accurately, finding a way to support GM with [your] federal tax money without completely alienating the 70 plus percent of Americans who are against supporting GM with [their] federal tax money.
Politically, the split makes sense—but only if the US government takes an equity position in the “new” GM. See? We didn’t throw billions of dollars worth of your hard-earned money down a rathole. We used it to help GM rise Phoenix-like from the ashes. It’s an investment. Uncle Sam gets to make a new cake and eat it too because GM’s current U.S. Treasury loans (call it $22.8 billion) are secured, backed by all of GM’s assets, including the assets owned by its subsidiaries.
The Fed’s claim on GM is junior only to the existing, secured, revolving credit facility (a pittance at about $5 billion). I repeat: GM’s federal loans are senior to all GM’s creditors, including the retiree trust claims (around $27 billion), GM bondholders ($29 billion) and the trade payables owed to suppliers ($22 billion).
Moving forward, leaving all of those “stakeholders” behind, “good” GM is looking for another $22 billion from the Treasury to fund its future operations. Oh, and an additional $6.6 billion to develop energy efficient vehicles and $6 billion from foreign governments. If Santa leaves all these presents under GM’s Christmas tree, all of this new money would ALSO be senior to existing unsecured creditors, ahead of payments to bondholders, the retiree trust and creditors.
Again, in exchange for their largesse, US (and foreign) taxpayers get a stake in the new, relatively unencumbered “Good” GM. The Treasury Department converts all of its current and upcoming senior secured debt into junior preferred stock. Ladies and gentlemen, I present to you, American Leyland.
Here’s the worst part: what if it doesn’t work? What if the PTFOA puts the paddles on the new, cancer-free GM and the patient fails to revive? I mean, if consumers are ignoring, eschewing and even heckling “old” GM, why does anyone think that “new” GM will recover or even maintain life-sustaining market share?
To pull that one off, Chevillac would have to steal customers from Honda, Toyota, Nissan, Hyundai, Ford, Mercedes, BMW, Infiniti, Audi, Lexus and all the rest. In five years, maybe. Short term? No NSFWing way. Damaged brands, damaged company. And if this American Leyland plan bites the dust, all of that preferred stock will be completely, 100 percent worthless.
Alternatively, the PTFOA could put GM into Chapter 7 and let someone try to make a go of whatever bits are make-a-go-able. And if politics demand it, Uncle Sam could spend that $34.6 billion worth of additional funds sending every UAW worker and supplier employee and Detroit-area pump jockey a big fat check.
Assuming (as we must) that common sense has nothing to do with this, the flip side is the really scary bit. What are the feds willing to do to “protect” their (your) investment in GM? As the “investment” gets larger, so does the pressure to make sure it doesn’t fail. The PTFOA has already fired GM’s CEO, gelded its Board of Bystanders and manipulated the bailout bill to send the automaker tens of thousands of sales. What’s next?
Whatever it is, you can bet it won’t benefit the American consumer.
I’m trying to locate the “American Leyland” goatse logo someone created and posted awhile back.
I think this logo needs more publicity…because GM really IS beginning to look like one gaping, bloody goatse for the entire world to see.
Disgusting.
Here’s a radical idea: why doesn’t Congress rewrite the dealer franchise laws at the federal level to allow cars to be sold directly by the manufacturer in all fifty states under a uniform set of rules, while allowing GM to sever its obligations to the thousands-too-many dealers it doesn’t need? Unlike most of the rest of this crap, that would actually be justifiable as a regulation of interstate commerce, and would allow GM to become “Chevillac” overnight without going through a costly and time-consuming bankruptcy process.
Perhaps I’ve overlooked the entire point of this exercise though. It seems that Congress wants to try playing automaker. Us taxpayers should hire Will Wright to create SimCarCompany and give out copies to our representatives. It would be a cheaper way of accomplishing the same thing.
freed from a mountain of debt, pesky union contracts, health care obligations, pensions unprofitable brands, outdated factories,etc.
I always wonder when I read this scenario, just what makes anybody think that there is going to be a newly freed bunch of auto workers who go to work the day after bankruptcy. What do they do, say; oh we work for good GM now, throw their Union Cards in a bucket beside the plant door and scream “Free At Last Where Free At Last!” Meanwhile the bad GM employees go to work thanking themselves they have a union and continue on as usual.
Don’t see how you actually get good product out the door. Anyone else ever heard of a S**T run but me.
*sigh, after having read the NYT article* ya, the starving actress/laid-off fill-in-the-blank caused the entire economic crisis…so just take your Glenn Beck-stoked rage out on them.
Today’s TTAC PSA: be nice to your local car booth worker….they’re someone’s brother/sister/spouse/child, too…..and save your indignation for someone who really is in a position of accountability.
I add this up to $56 Billion, ASSUMING that the New Government Motors actually flies when all this is through.
Does anybody remember the congressional hearings back in early December? One of the senators asked Wagoner how much GM needed to weather the crises. So many Billion dollar figures have gone through my mind since this ordeal started, but I don’t remember. But I think it was under 10. Even if it was more than 10, it was a LOT less than 56.
@slateslate Yes I couldn’t agree with you more.Heckling a young lady,trying to make a living
Real classy!
No point in heckling the booth babes; they could be part of the solution.
Worse, the glamor girls are wearing last year’s dresses
Heh. So are the vehicles.
That woman in the picture is not making the GMC Terrain look any better. In fact, it’s making her look worse.
@slateslate Yes I couldn’t agree with you more.Heckling a young lady,trying to make a living
Real classy!
Here is a lil story….back maybe 12 years ago at the NAIAS I saw a bunch of hickish Chevy fans heckling one of the booth babes for Ford. What these punters didnt know is that the girl’s husband was watching he whole thing….this guy was a monster. He probably benched 450 easy. Well, bout an hour later my dad and I are walking down Congress where Cobo Joes is located and saw said monster chasing after the nimrod hecklers….who were shitting their pants.
But in this case in NYC, the hecklers are probably the same goofs that are into the whole lame-ass tea party thing.
JP:
What I really can’t figure out what is so hard to figure out about this whole thing.
Everyone was shocked when GM had to ask for money when GM has been losing money for 5 years and sales dropped by 50%. Maybe people thought GM had a magic money tree or something, I don’t know. How this came as a shock when it has been obvious for years (decades) that this was coming down the pike, and inevitable (by Wagoners own admission) for months prior to the December begathon, is beyond me. The media didn’t just drop the ball, they didn’t even know there was a game on.
Congress take GM’s claims of viability seriously, or at least pretends to, give them 90 days to present a viability plan when anyone following the game knows that GM isn’t viable and won’t be viable ever, much less in 90 days. Obama needs to assemble a Presidential Task Force to commission a report that might as well have been a hyperlink to TTAC.
Gah, I’m just rambling.
People have some kind of mental disease when it comes to GM. They just get all fuzzy and stupid. Psychosis de Lorenzo should be the clinical term.
Toxicroach:
Here’s a point to add to yours: Why does GM need 90 days or 2 weeks or any amount of time other than NOW for a viability plan? It’s the BoD’s job and the CEO’s job to be working a “viability plan” every NSFW’ing day.
Just more smoke and mirrors…..
Nothing to see here…. move along…
So at least 49B to bondholders and UAW owed. Another 23B or so for “loans” to the government. All this from a company that LOST 30B dollars last year and hasnt posted a profit in years. How would this company ever repay these loans?
The government should “strongly suggest” to Toyota that they should partner with GM on another NUMMI plant: this one to produce Priuses (priorii or whatever) in the US, in one of GM’s closed facilities. In return, the government would agree to buy 100,000 per year for 4 years, using many of them to equip a cadre of recent college graduates trained to do home energy audits.
100,000 x $25,000 is $2.5 billion per year x 4 years is $10 billion gross.
Reading TTAC is like hanging out with Hurbert Hoover circa 1929. We are now in the era of depression era economics with an interest of zero and deflation threatening to pull the world economy under.
The government’s role in such an environment is to be the buyer of last resort to help prime the economic pump so that private investment can get started again. That’s why have an economic stimulus bill (which is too small). If the government decides to “buy” a car company to stimulate the economy, who care? People get paycheck, mortgages get paid, and once the economy recovers, the government get backs what it can with increased tax revenue from the increased growth when the economy turns around.
As for the worrying about your tax dollars, the same government giving them out and collecting them is the same that’s printing them. That’s why pretending that the government budget is like your family budget doesn’t work. If your family prints dollars, you go to prison. Sure, it creates inflation, but in a deflation environment, that’s a very good thing. Plus, our projected debt load as percent of GDP is well within the safe level so I’m not to worried about the US becoming Zimbabwe.
Mr. Sparky or: How I Learned to Stop Worrying and Love Goverment Financed GM
The credit markets, consumers and banks already decided long ago these companies were not worth their own money. So now we have politicians buying the votes of workers connected to the companies with our tax money. Note we don’t really get a choice, enough people were fooled to put these pols in charge to do this, too late to change your mind. By 2010 or 2012 the damage will be done.
If they muddle with franchise laws in 50 states then all businesses will be affected, not just GM or Chrysler. Once you meddle in one area you meddle in it all.
Chevillac, I love that term. And if they don’t sell what is plan C? Huge tax incentives one way and domestic tariffs the other? Does the PTFOA intend to pit one group of workers against another? Those ToyoHonHyunNissan workers get to vote too.
This will provide students in the future a great example of why the government should stay the hell out of company business. They fail, that’s too bad. Propping them up only delays the inevitable and costs the country money.
Conslaw-
That idea is probably what the government would want to do, I mean Detroit’s problem is only that it doesn’t build the Prius. Since the Prius is selling so well, making money hand over fist, and Toyota is clamoring to get that Mississippi plant open ASAP that was supposed to build Highlanders and then Priuses and now sits completed but empty, that sounds like a TERRIBLE idea. Not to mention the federal government would have zero power in forcing any kind of merger with Toyota.
I suspect the idea GM is dead even in a Chevy/Cadillac world is off. I do believe at some point sales volumes will return. Maybe not 17 million, but I’m sure it will be only a few million a year less. If the new GM gets out from most of its bad obligations (including UAW contracts and pensions….), they should certainly have enough volume to be able to make money and invest in new product. Sure Chevy and Cadillac and everything else lose money now, but thats specifically because the liabilities are too high. Get rid of them and you’ll be doing probably pretty well. Fact is Chevy and Cadillac have good to great lineups with world class products ready to launch. That is worth something. And I am positive they have the volume of a Honda/Acura or Nissan/Infiniti. If those companies can do it, why couldn’t the new GM?
And as far as workers not showing up the day after? Give me a break. You want a job or not? GM could have broken the UAW 5 years ago, offered $14/hour plus healthcare benefits and the lines would have stretched around the block. You don’t think the same thing would happen in these times? Please. Sure the UAW members would be out picketing, but for what? The scabs would just go in the back entrance and gladly take home their paychecks.
So, Mr Sparky. If I’m not misunderstood, your way of doing things will devaluate the dollar vis á vis other currencies, thus actually making cars in the United States more expensive to make, than making cars in other places. What will that do to the retail prices of other non US domestic cars? American cars will be yet more expensive, making for less profit-margin, while the profit-margin for other makers will rise. That means, less profit for Detroit, more profit for everybody else.
Rastus :
“I’m trying to locate the “American Leyland” goatse logo someone created and posted awhile back.
I think this logo needs more publicity…because GM really IS beginning to look like one gaping, bloody goatse for the entire world to see.
Disgusting.”
Took me a bit to find my original post… and then a bit longer to find my password, but is this the picture you’re looking for?
http://img388.imageshack.us/img388/3249/thetruthil9.jpg
American Leyland, stay away from me
American Leyland, GM let me be
Don’t come hanging around my door
I don’t wanna see your cars no more
I got more important things to do
Than spend my time going broke for you.
With apologies to Randy Bachman
The American Leyland Goatse needs GM in there somewhere and it needs to more closely resemble the Obama campaign logo. Marketing is nothing without brand familiarity.
If I’m not misunderstood, your way of doing things will devaluate the dollar vis á vis other currencies, thus actually making cars in the United States more expensive to make, than making cars in other places. What will that do to the retail prices of other non US domestic cars? American cars will be yet more expensive, making for less profit-margin, while the profit-margin for other makers will rise. That means, less profit for Detroit, more profit for everybody else.
That’s not really accurate. It’s possible (to a point) to print money without creating inflation, and the issue of inflation doesn’t necessarily correlate with exchange rates.
The major cause of inflation is wage growth. With 8.5% unemployment, that isn’t a problem at the moment; wages do not skyrocket when there are so many people in need of jobs.
A secondary cause during certain periods is rising commodity prices. Rising commodity prices are usually associated with prosperity (when people buy more stuff, producers need more resources; as demand goes up and supply goes down, prices go up.) With deflation and declining GDP, not really a factor, either.
If we are to have hyperinflation, that would be another matter, but there aren’t any indications that there is a plan to print money to the extreme degrees associated with hyperinflationary behavior. “Quantitative easing” and “Weimar” are not on par with each other; one is moderated, the other extreme.
Letting BadGM rot in the corner means that suppliers to BGM will stand in line for their cash with the other creditors…. but continue supplying GoodGM….. right.
And customers will look at the wreck of B-GM (which they didn’t want to support), and buy from GGM….. right.
And the workers in the BGM, they’ll be ok with this…. right.
And the Bondholders, who must have links to the banks and finance institutions will take a bath, and be ok and tell their buddies to supply finance to GGM, because, “hey, it’s a new company”…. right
I guess the G-GM will discount even more to get some sales…. using govt money. Hey, how’d you like subsidizing your neighbors new Caddy? Hope he thanks you properly. How much of that will people take before the say NSFW-it and decide not to piss off their neighbors and buy from Ford etc instead.
I’m rather cynical, and hope I’m wrong, but I think too many of the customer and support base are about to get seriously NSFWed off to have anything to do with GGM if they can.
Letting BadGM rot in the corner means that suppliers to BGM will stand in line for their cash with the other creditors…. but continue supplying GoodGM….. right.
And customers will look at the wreck of B-GM (which they didn’t want to support), and buy from GGM….. right.
And the workers in the BGM, they’ll be ok with this…. right.
You don’t follow the “good company/ bad company” concept. It’s a financial construct similar to bankruptcy that is usually used to fix broken banks, not a matter of operating two separate businesses.
This is likely what goes to “Bad GM”:
-All debts, including secured debt and bonds
-All contracts, including the UAW agreement and VEBA
-Dealer franchise agreements
-Employment agreements (or at least the ones that they want to renegotiate)
-Any other assets that the company believes have little value or wants to dump
“Good GM” would get something like this:
-The intellectual property that it wants to keep
-The current payroll that it wants
-The assets that it wants to keep
-The company Rolodex
Good GM can still buy supplies, make stuff and (try to) sell cars. Bad GM would be a pile of debt that gets parted out and dies.
What “good/bad” really is is a way to shed liabilities. The creditors that get dumped into Bad GM would get paid what little they can out of the scraps that end up in Bad GM, while Good GM goes on to do whatever it is going to do to get back into the game (or flail helplessly as they try, depending upon how well they do.) It’s not as if there would be two GM’s across the street from each other, trying to sell different models of Aveo…
That’s the logo, thank you :)
I agree, if we can update it to include “GM, The Mark of Excrement”, I’m fine with that.
I love the way you think :)
Thanks Pch101 – bit clearer now. But for any company to survive and prosper it has to have some goodwill from the public it wants to sell to. I just wonder if all the different constituents taking a haircut from the financial engineering that’s about to happen will have any goodwill left towards either GM to allow it to trade.
not to be a tard, but what does NSFW mean? lol
Anyone who thinks a “Good GM” is somehow lurking in the current mess is misunderstood. Isn’t what we are describing called “bi-polarism”? So we have a bi-polar GM and somehow you are going to surgically remove the “Good” GM, and that “Good” GM will be whole and complete?
I’ve never heard more rubbish in my entire life.
If they succeed in removing Opel and/or Saab then I’ll be a convert…not until then.
Remember, this is the very same GM which once went out of their WAY to create a “separate” (ie, “Good”), GM…it is/was called Saturn. Instead of adhering to the “separate but equal” segregation, they deliberately chose to pursue busing and racial integration…until all they have left to this day is a mulatto of a company.
Ptrott…
Not Safe For Work. Usually used instead of a swear word on TTAC.
“our projected debt load as percent of GDP is well within the safe level so I’m not to worried about the US becoming Zimbabwe.”
Just day before yesterday, I saw that this years federal deficit will be 116.4% of the entire GDP of the United States of America for the same year.
That’s what is planned with the current imbecile in charge only in office for less than two months.
The prior imbeciles in charge ramped it up, but the ramp up since January 20 is ridiculous.
Put another way, if the United States were a Corporation run under US law, all of the management would be in FEDERAL PRISON; the company would go Chapter 7; and the auditors would ALSO be in FEDERAL PRISON.
What were you saying about Zimbabwe, now?
See you about November 2009 and let’s discuss hyperinflation again, shall we?
http://www.youtube.com/watch?v=dlHBYQrCnIk
Money in circulation (electronic or otherwise) = inflation when it is raised. There is a lag- time, but it’s there.
Not that I question the judgement of Pch101, but will the rest of the world stay silent if the US prints its way out of this mess? It is, after all, hundreds and hundreds of billions of dollars…
Heckle cute females who are doing their level best to survive the NYC crowds ? No Way !
I wanted to heckle the accountants who took a very nice interior design for the new Camaro, and made the engineers execute it for $25.00 for the entire interior. Cheap plastic door handles, hard doors, and the classic Camaro “door crash” are all in evidence. Pony cars have always been cheap, but this interior is “old GM” all the way.
Sadly, the bean counters weren’t there.
The Saturn “Astra” was nice and won the “cheap car” competition. The Pontiac-Holden G8 was out of place and belonged in the BMW exhibit as a “loss leader” model.
The Camaro ? It hurt me to see the insides.
GM, The Mark of Excrement
HA-HA-HA-HA so you’re familiar with my wife’s 1998 Buick?!?!
John
Ingvar :
At the moment, most advanced economies are heading down the “Quantitive Easing” (a.k.a. Print-N-Spend till we get traction) rabbit hole which should offset the normal exchange rate problems associated with opening up the ink well at the US Treasury alone.
In normal times, I would say let GM collapse like any other failed enterprise. In the current economic world, I am fine with giving American Leyland a try. If it works, great. New GM (and its stakeholders) will pay taxes and add to the economy.
If not, we’ve at least temporarily slowed the rate of economic decline (remember GM’s not setting fire to the money its burning through (ok… not all of it)… it’s pay suppliers, wage, retirement, bonuses to Maximum Bob to use on a new jet). New GM should should work as well as digging and fill holes… Heck, it might work a little better:)
will the rest of the world stay silent if the US prints its way out of this mess?
That depends upon how much is printed, and how much economic growth is generated by the economy.
Money supply is not a zero-sum game. Printing money won’t devalue it if the stimulus outweighs the benefit.
A lot of laypeople have problems digesting this concept, because they assume that quantitative easing is the equivalent of taking a pie of a fixed size and cutting it into smaller pieces.
If that was true, they’d have a point. But a fixed pie isn’t a good analogy, because we keep making more pies (or as George W. liked to say, “make the pie higher.”) The challenge is to use the money to stimulate enough pie production so that the slices don’t get smaller.
As the big kid on the block, the US can get away with a lot more than other countries. A country such as Iceland is too small to get away with it, but the US gets to write some of its own rules, at least for now. Size matters for things like this.
Ingvar, what can they do? Nuke the US?
In fact they are irrelevant, it took China 30 years to accumulate $1T of USD. Now that the federal government is going to print $2T~$3T per year (as deficit). So, the USA has formally transitioned from “foreign financed” to “printer financed.” China can dump all that USD bonds and it won’t make a splash.
Yes, the inflation is upon us, even if the unemployment rate is high. It’s not uncommon to have 20% unemployment and still have hyper-inflation.
Robert Schwartz- Thanks. Your homage to BTO was worth a chuckle.
My $0.02 agrees that hassleing the “product presentation specialists” is truley pathetic.
These ladies are not even GM employees. They are hired for a given show.
But even if they did work for GM, so what? It’s like blaming mikey for GM selling…er marketing four different lambdas.
Bunter
PCH is correct about inflation, and only leaving out that there is a possiblity that printing now will lead to inflation later. The cure likely won’t be as bad as the current disease though, which is why they risk doing it. It’s something that needs to be tempered though.
I really liked this gem from Brian E though:
“It seems that Congress wants to try playing automaker. Us taxpayers should hire Will Wright to create SimCarCompany and give out copies to our representatives. It would be a cheaper way of accomplishing the same thing.”
There is a good amount of truth and humor in that one. Everyone thinks they can run a big car company, but not everyone thinks they can run a financial megacompany. In reality, I now wonder if anyone can actually do either reliably. The advantages of extreme size need to be looked at, and perhaps trimmed by the legislatures. There are presently too many subsidies and legally created advantages for the mega corporations. The offsets for small business don’t seem to work, and why do we really need two sets of advantages rather than simply trying to keep the field more level?
wsn: So, all this talk about Free Trade is Free Trade, my ass? When it suits America? You know that the US has started several wars to prevent what you are now suggesting? To the tune of millions of lifes… I say, in for a penny, in for a pound… What everybody keeps forgetting is that the current economic crisis is a global phenomena. In the end, we are all in it together. That means, printing dollars out of the blue to keep the domestics clear of obstacles will only make them jump into the frying pan…
Mr Sparky, yes, I understand the principle. In effect, it’s only the Keynesian model, but instead of accumulating money in good times to use in bad times, the money is used in good times as well as in bad times, and in really bad times, you print some more and borrow from the future. The problem is, it only works if there’s future money accumulated in the magnitude to not only keep up with the futures demand, but also pay off old debts. Otherwise, it’s only pushing all the debts forward in time. Somewhere, that “this is not a zero-sum game” will have to be balanced.
Perhaps I’m stupid, though I know an economy that is based on speculation can not go on forever. the point of borrowing from the future, is the promise of money made, in the future. If that money isn’t made, the house of cards will have to fall. Capitalism has its cycles. There are good times, and there are bad. This can’t be news, its been going on for some hundred and fifty years…
Is there anybody here that thinks a “Good” GM will EVER pay ALL its debts? Or is this bailout an enormous scam, to make it somebody elses problem?
It would be wonderful if we could get some inflation, but it’s not going to happen.
Inflation is as American as “The Wizard of Oz”. Actually “The Wizard of Oz” is an argument for inflationary monetary policy, look it up (hint, the slippers were originally silver, not ruby).
Inflation (in moderation, like everything else) is great; it is the real way that everyone from “The Greatest Generation” paid off their houses.
Inflation also kept nominal interest rates high enough to encourage saving and discourage reckless borrowing.
If your debt is fixed rate like mine then you should be rooting for it.
But, again, it’s not going to happen.
The stock market is off by more than half and the housing market is off by a third. The current bail-out frenzy makes me sick, but it’s not going to come close to bringing the money supply back to where it was before the crash, much less increasing it.
During the 1930s, with all of the New Deal spending and jobs programs, inflation peaked at around 5%. Not until the resource and labor demands created by WWII did inflation hit double digits. And with that double digit inflation the US emerged from the great depression for good.
http://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg
Acxtually, no_slushbox, as I get it, the dollar is saved from inflation by the intervention from all other currencies. In effect, everybody else on this planet pays for the american luxury of not having inflation.
Leave the models alone. That’s just beyond crude.
I had the pleasure of meeting Lindsay Bloom a 2nd time, at the LA Auto Show where she was doing this same work.
She was the lead in “Six Pack Annie” and made a personal appearance at the local drive in where it was playing back in the Quad Cities a year or so before.My brothers and I went to get her autograph. She wound up playing Velda in “Mike Hammer” and playing Jean Harlow in some other biopic about Harlow and Howard Hughes IIRC. But she was gracious and friendly and approachable as well as a knock out. It was a pleasure to talk to her.
GM may be General Mess Up, but the girls at the auto show shouldn’t be treated as if it was their fault Waggy drove the company into the ground.That’s just crass and ill mannered. And ignorant.
And more than a little sick.
Ingvar:
The US is saved by the lack of a significantly better currency.
When the US can no longer borrow with dollars then hyperinflation will become a serious threat.
That’s why the dollar took a dive when China hinted at a “world” reserve currency.
But right now the Pound is doing much worse and the Euro hardly better. The “red menace” is also having inflationary issues: http://news.bbc.co.uk/2/hi/business/7288940.stm
No matter what the US does there is not going to be short term hyper-inflation, or much inflation at all.
But in the long term hyper-inflation is a real threat if the Dollar is no longer be a reserve currency. That is when the US will face the consequences of whether it spent the stimulus money wisely or poorly.
My argument is that federally supporting the restructuring of GM in the current depressionary environment is a type of defacto economic stimulus.
The TTAC consensus is that federally supporting the restructuring of GM is a waste of money because GM is not viable and will not be able to repay the money.
I argue that repayment is irrelevant since that money is flowing into the hands of workers, suppliers, etc. In the short term, it slows the economic decline which hopefully buys you enough time for private investment to pick up in the rest of the economy. In the long run, if New GM flops after the economy recovers, who cares. We gave them a fair chance, the economy will be able to absorb the blow, and there’s enough fresh tax revenue from the recovery to mop over the loss.
Hyper inflation would only be a real risk if the US was alone in expanding the money supply through deficit spending. The world’s advanced economies are doing the same thing. No one is advocating running large deficits for very long myself included.
Today is a difficult time. We are faced with certain deflation and resulting depression if we do nothing, or the risk of high inflation in the future if we act. We are faced with possibly creating the 1970s (stagflation) to prevent the 1930s (depression). As a Keynesian, for me the path is clear… Order more red ink!
I’m just wondering if it’s not Mr. Farago heckling the models for getting kicked out of an auto show once. ;)
So is there an opportunity for some cast off parts of “Bad GM” to emerge from liquidation as a success while the government attempts to help “Good GM”? For example, could some other company start with Buick or Opel/Saturn models minus GM management and UAW labor and make a successful business? For example a Chinese company hauling some cast off designs and manufacturing equipment back to China and making cars to compete at the Kia end of the price spectrum.
I understand where you are going, Mr Sparky. The problem is, investments versus consumtion. If GM was to be made a going concern, an investment would make the wheels turn almost indefintely, like GM has been going the last 80 years or so. The problem is that GM isn’t a going concern anymore. And the question is, how viable will a a “good” GM be? Injections into GM will not be invested, but consumed. The wheels will be turning until the next payment is up, like it’s been the last six months or so.
And ultimately, there’s a turning point, where it’s just not economically feasible anymore, to throw in more money. You can throw cash on a fire all day long, the only thing happening is that the money will burn up. I understand the notion about “Just give’em the money and be done with it”. But if that money does not make GM generating long-term profits, it will just be money down the drain. The money will be lost, not invested, but spent, consumed, gone.
How much will it take to make GM a going concern? One hundred billion dollars? And how much money will that new “Good” GM generate? Jobs for how many people? Is a hundred billion enough? Two hundred? When is it enough?
I keep reading that the labor contracts (UAW) would be moved to BGM. GGM would have re-negotiated contracts with the workers.
What makes anyone think the UAW and their subsidized delegates in DC will let this happen other than in a very token way?
It is one thing to let big bad bondholders eat it, even big bad dealers – I mean who knows a dealer they like. And as to suppliers, that is too too abstract.
But the UAW?
They the power! More than the Bored of D, the Execs, Bankers, Lenders, Dealers, States, Guvmnt.
So is there an opportunity for some cast off parts of “Bad GM” to emerge from liquidation as a success while the government attempts to help “Good GM”?
By definition, the Bad Company is engineered to die. It would go through the equivalent of Chapter 7 liquidation. So Bad Company won’t be building any cars, although it may be used to sell some of the brands. I would guess that Hummer, Saab and possibly Saturn would end up as Bad Company assets, with the objective of liquidating them immediately.
If the feds do what they have done in the past, the goal with Good Company would be to sell it later, and to fold it if it can’t eventually be sold. That could involve breaking it into pieces, if that proves to make sense.
And the question is, how viable will a a “good” GM be?
It may not matter. This may end up being a stall tactic, so that GM dies at a time that it isn’t so harmful to the economy. The faster the US recovery, the easier it will become to just let GM or even Good GM die if it can’t be sold off quickly or become profitable. It’s a timing issue, more than anything else.
Yeah, but where does it end? How much money does GM need? Where will this nonsense stop? When will someone put his foot down and say: “This is ridiculous. It will cost a hundred billion dollars to make a company that will eventually break-even, and hopefully, some day, turn a profit.”? Or is the political price worth the loss? Any loss? At any cost?
Here’s the worst part: what if it doesn’t work? What if the PTFOA puts the paddles on the new, cancer-free GM and the patient fails to revive? I mean, if consumers are ignoring, eschewing and even heckling “old” GM, why does anyone think that “new” GM will recover or even maintain life-sustaining market share?
A good point. We haven’t heard much about what G-GM would do differently than old-GM. Even w/o debt and with higher profit margins, putting the likes of the current Cobalt up against the Civic is a recipe for continuing to lose share. Putting the Aveo against anything is certain to lose them market share.
However, they do have some good cars in some segments, and they are strong in trucks/suvs -granted a declining market, but one that will not disappear. There is at least a plausible argument to be made that the new unburdened G-GM will be able to turn things around.
To my mind the question isn’t so much about customers reactions – if you build quality they will come- it’s about management. Is there any sense creating G-GM and then turning it over to the same people who’ve been running old GM into the ground for 30 years? It’s about the management, and the new G-GM won’t have wage rates to blame, or work rules. I suppose they’ll find excuses though.
How much money does GM need?
To legitimately succeed? A lot.
To limp along until there’s a safer place to crash land? Something less, although still a lot.
When will someone put his foot down and say: “This is ridiculous. It will cost a hundred billion dollars to make a company that will eventually break-even, and hopefully, some day, turn a profit.”?
If an immediate implosion would be more expensive than the bailout, than the bailout would save us money. The bailout wouldn’t be cheap, but it would be cheaper than the nuclear option.
It’s a mistake to assume that the cost of failure is zero. The whole point of this exercise is that failure is the most costly choice, given the fragility of the economy, so we are stuck with dealing with it.
If the economy was strong, this would not be happening. If you follow US markets, then it becomes really clear that a GM failure last year or earlier this year would have been an absolute disaster.
As time goes on, there will be other positive factors to offset it, plus the markets will have time to get accustomed to it and adjust. At that point, we can revisit whether to pull the plug on the patient.
Yeah, that sounds fine and dandy. But show me the money?
Somebody else wrote about the problems very large companies has to deal with, in a contraction. The downsizing will have to go on almost indefinitely. The more the company downsizes, the less profitable it makes itself. In the end, there’s nothing left to generate the profits that are needed to turn the company around. And the point was that no major company has successfully done that transaction, from a very large company to a small company. The notion isn’t mine, so I can’t back it up.
The problem with a “Good” GM is that not only does the company have to downsize all its operations, and shed the unprofitable ones, it will have to significantly increase its r&d budget to the tune of tens and tens of billions of dollars to stay competible, because, GM:s portfolio of products is really not that strong. What made British Leyland fail, was not that they were given money by the government, but that they weren’t given enough to develop successors to its current line-up on their own, and let them be money-making products in their turn.
So, how will GM successfully contract, while at the same time expand and increase the money-generating businesses? And how much will THAT cost?
Maybe America does not need cars. We can go back to the horse and buggy.
Somebody else wrote about the problems very large companies has to deal with, in a contraction.
The PTFOA seems to understand the need to reduce capacity. That will be easier to do if there aren’t eight US brands to feed, and the dealer and UAW contracts are renegotiated.
The main barrier to this, though, has always been cultural. GM management has always valued being Number One, which has been defined by dumping large amounts of inventory, not by making money from it. Unless they are fired en masse, it could be difficult to get GM managers to understand that a genuine 15% market share in North America, with only limited fleet sales, is more realistic and better for the company, even if that means that it is “smaller”.
The problem with a “Good” GM is that not only does the company have to downsize all its operations, and shed the unprofitable ones, it will have to significantly increase its r&d budget to the tune of tens and tens of billions of dollars to stay competible, because, GM:s portfolio of products is really not that strong
With fewer models, this should be possible. GM and Toyota have had similar R&D budgets in dollar terms, but the GM budget had to be stretched over a much larger lineup to cover all of those brandds. If they can get good management and better engineers in place, they should be able to build better cars and use that money more efficiently.
GM will be just be smaller with the same mediocrity. GM is not going away, but will live forever in mediocrity.
There are a few gold nuggets in GM that can be spun off. Why can’t Chevy just become a full size pickup and SUV manufacturer? It is the only product they do well and make money at. True, the market is small, but they should be able to create a new correct sized personal use truck company out of what is left of GM.
@no_slushbox:
I agree with you on the inflation thing. People are overjoyed that fuel prices have dropped, car prices have dropped, and there are sales galore at every retailer.
Only home sellers seem concerned about price drops these days. But the home buyers are happy.
The problem is that low prices end up translating into flat wages, because manufacturers and retailers can’t afford to keep raising wages. This also translates into bad investment returns, and nobody likes that. Hyperinflation is bad, but a little inflation keeps the economy expanding. Right now, it’s contracting, and that is bad.
When I see an equally-equipped 2008 Kia Sedona selling for the same price as a used 2008 Kia Sedona with 31k miles – from the same dealer on the same day, there is a problem.
RF,
What happened to the “Lightbox” effect when the photographs on the site were clicked on?
They were very elegant, bring them back if possible.
ermalm :
April 14th, 2009 at 6:14 pm
I keep reading that the labor contracts (UAW) would be moved to BGM. GGM would have re-negotiated contracts with the workers.
What makes anyone think the UAW and their subsidized delegates in DC will let this happen other than in a very token way
But the UAW?
It will get very very ugly. UAW will not allow a plant to open under GGM and an alleged new contract. Cut their nose off to spite their face, yes, but there will be further implications and unintended consequences. The violence seen in the 30’s will return with a vengeance.
I am in the camp that says that G-GM won’t have what it takes. Sure, the costs will be lower, but continued long, slow, painful failure will bring it right back to where it is now.
Can anybody name a market segment that GM has identified and got out in the lead with since the 60s? Ford identified the ponycar market, and the Mustang has been a major factor ever since. Dodge pioneered the modern passenger van in the 70s and only lost leadership to Ford thru horrid quality. Chrysler popularized the minivan and is even now a major player. The Jeep Cherokee and the Ford Explorer started then rules the SUV market. GM was an also-ran in every one of these segments. The only leadership role they have played in a new segment has been the suburban, and this was pure accident when the market found a vehicle it had produced in low volumes since the 30s. GM has only been a leader in big sedans and pickups, both segments that have been around since the 20s.
My point is that there is no new blood. The Good GM will be run by the same lifelong products of a flawed management system. There is no innovation, no identification of new trends and no ability to capitalize on those trends when they are spotted. What few product successes we have seen lately were due to Bob Lutz. Love him or hate him, he was the only breath of fresh air to hit that culture since Alfred Sloan died. And now he’s gone too.
Its hopeless.
The New York Times reports that hecklers are verbally assaulting GM’s booth babes at the New York Auto Show.
That’s pretty low. And New York has spent so much time polishing its image. Shame on them, they should at least boo sports figures.
I still don’t quite grasp how the warranty thing would work. At a high level, it’s easy to say that the government will backstop them. But logistically speaking? Sounds like it could be challenging, to say the least.
I’d have been heckling the hood ornament hotties as well. “Yo, baby! Better cash your paycheck before it bounces!”
there is a way out, still sitting here waiting to implement Return to Greatness…shame…
NickR:
I still don’t quite grasp how the warranty thing would work. At a high level, it’s easy to say that the government will backstop them. But logistically speaking? Sounds like it could be challenging, to say the least.
Sounds like it could be lucrative for Paulee Walnuts types who know how to cut corners and create paperwork for their government ‘friends’.
What happened to the “Lightbox” effect when the photographs on the site were clicked on?
Too much for the farked server to handle.
Why are they heckling the models? I mean, I find it amazing when a woman can fit into a dress that was purchased (rented?) a year ago. Well, of course these are models, so it’s not quite that impressive, but still.
Must be that recession diet that’s all the rage these days.
Not sure that Leyland is an appropriate analogy. Leyland through their Honda alliance eventually transformed into quite a flourishing private enterprise by the time BMW got their mitts on it, gazzumping Honda in the process. It was only after BM had screwed it up that they went to the wall.
It looks like the model is yelling back something like, “F-you buddy!”.
Assuming that the GM bankruptcy is a pre-pack deal, a lot of the decisions about the “New GM” will be politically driven. This means that the “New GM”
– will be structured around production facilities in democrat states with strong unionism
– vehicles will be based on “green dreams”, i.e. fuel cells, plug-in electrics, and other technologies that aren’t ready for prime time.
– will have a minimum of 535 CEOs and all major decisions will be slowed down and/or triple reviewed
– carry a stigma from the current GM that will make suppliers and potential customers cautious.
Ford, on the other hand,
– recognized the shift in the auto market several years ago and took action
– has a better management team and an increasingly coherent culture
– has a plan and has already done most of the steps still on the GM to-do list
– has a global brand identity and strategy
– has a strong product pipeline that starts to show up in the show room this year
Ford has a long history of driving right to the edge of the cliff and then turning in a new direction to increased prosperity. Ford will get healthier while GM struggles under the influences from Washington
“Ford, on the other hand,
– recognized the shift in the auto market several years ago and took action
– has a better management team and an increasingly coherent culture
– has a plan and has already done most of the steps still on the GM to-do list
– has a global brand identity and strategy
– has a strong product pipeline that starts to show up in the show room this year
Ford has a long history of driving right to the edge of the cliff and then turning in a new direction to increased prosperity. Ford will get healthier while GM struggles under the influences from Washington”
Bit of wishful thinking there.
Ford employee?
Ford needs products like the Malibu, CTS, and Corvette.
davey49 :
Bit of wishful thinking there.
Ford employee?
1) Ford management retiree
2)Some wishful thinking but based mostly on personal knowledge of what Ford has done,when they started to do it, and some strong hints of what is coming.
@ akear:
Ford built the GT500 and their midsize sedan looks better than the Malibu and neither does it inspire visions of Barbie and Ken every time the name rolls off of our lips.
CTS wise, well, somebody will buy Cadillac if GM’s planned C11 turns into a C7.