For taxpayers to be made whole, the new mini-G.M. would have to produce earnings sufficient to support an enterprise value of at least $95 billion, the sum of a $69 billion market cap and its $26 billion of debt and preferred stock under the restructuring plan. Using market valuation multiples of five times that means New G.M. must generate operating cash flow somewhere in the order of $19 billion annually.
That would require both increasing annual sales to some $150 billion, almost 50 percent more than the entire company, shorn of its various financial and international businesses, is expected to generate this year, and matching the whopping 14 percent operating cash flow margin that Toyota achieved in its best year ever. It requires a vast leap of faith to believe that can happen.
ya think? And the sheeple continue to rely on the MSM like drones.
> It requires a vast leap of faith to believe that can happen.
Haven’t you heard? “Change” is in the air, and so is “hope”. What’s a little “faith” added to the mix?
Stop the presses… the NYT has a calculator and knows how to use it?!? Well when they are done playing with their fancy number adding thing-a-bob they should send it to Detroit, or better yet straight to DC.
Ever since their own financial situation started to resemble GM’s, the NYT has gotten real interested in math.
Funny that.
I’d take issue with their use of an earnings multiple of 5 times (especially since they didn’t explain why they’re using that number. Basically they’re saying the value of the company should be 5 times the amount of operating cash flow it takes in. But that seems like a small mutliple to me, especially given the assumptions that the new GM would be trimming all of it’s dead weight, and should be well capitalized, it would be primed for some decent growth.
Just pulling numbers out of the air I’d use a valuation multiple of 10. Of course, that would require GM to have sales of $95 B and a 10% margin to justify those stock prices, which is still a stretch.
But if the NY times is going to break out all these calculations, the least they can do is justify the most important assumption they make, or at least give some kind of back up.
Did someone at the Grey Hag figure out how to read a corporate financial statement?..I’m sure it wasn’t that gubbermint-worshiping socialist/keynesian brat Krugman…They are all just anti-individual and anti-car at the Hag so what they say does not matter.
So, uh, a bunch of us “rubes” from the “flyover states” had figured this out a long time ago. And today, the New York Times figures it out.
Note to the Editors of the Gray Lady. Are you guys really so clueless that you haven’t figured out why people stopped subscribing to newspapers? I’ll give you a clue. We, the readers and former readers are a lot better informed now than you gave us credit for all these years. And guess what? The ability to exchange ideas in a forum such as TTAC only helps us better understand that even with your newpaper’s “hit or miss” on the analysis and informatation, we’re still a shedload smarter than you ever imagined.
Now go save your papers and careers.
It’ll happen. 0bama can do anything. Just ask him.
I wonder if this news finally has NYT readers selling today. GM stock has finally gone under $1 a share. I had always wondered what was keeping it over $1 for the last month, and now I know. All of the Times subscribers had been waiting on the turnaround that was going to happen any day now.
Speaking of newspapers
Will the GM Bankruptcy kill the Volt?
The WSJ wants to know
http://blogs.wsj.com/environmentalcapital/2009/05/29/would-gms-bankruptcy-derail-the-chevy-volt/
Well isn’t that special? The NYT is kinda late to the game aren’t they? Considering TTAC has been publishing accurately for a long time now the coming demise of GM and the foolishness of the bailouts. Consider the sad state of the NYT’s financial statements, perhaps they should merge with the “new” GM, combined they would have a worth of about half dozen happy meals. Both companies are relics of the past who did not trasnform to stay alive, now they are wards of the state (the newspaper soon will be).
Lokkii The Volt will be a good litmus test for if GM will have the brains to survive outside of bankruptcy and if the government is in charge of product development. It technically shouldn’t survive Ch.11 no matter how much it’s lousy execs want it too.
If it survives bankruptcy it will mean the same bone heads are running the show with the same thinking AND WORSE the government is in tune with the lousy thinking and manipulating the court for their own political agenda, meaning GM will not ever become a profitable company, taxdollars gone.
IF it doesn’t make it out of Ch.11 and maybe just gets shelved then their might be a glimmer of hope the thinking has changed. I’m not going to hold my breath on that, unless we see a huge housecleaning of management, top and middle, after they file.
RF, here’s an idea. Put up a “GM Fleece-Meter” on TTAC that counts/tracks how many $Billions our politi…er…we taxpayers are pissing away down the PTFOA/GM/Chrysler toil…er…investing in our green automotive industrial future. Kinda like what Apple had going recently leading up to 1 billion iTunes app downloads.
Now there’s an analogy….PTFOA’s GM managed bankruptcy as the ultimate “killer app”…
I’m not convinced that we’ll get all of our money back, but this is a poor analysis.
As pointed out above, a PE of 5 is exceptionally low. If the company became a strong performer, the PE could easily be 10-15, maybe higher. By using the wrong PE, the author of this just arbitrarily slashed 1/2 to 2/3rd’s of the potential value.
Honda’s current market cap is over $100 billion, on a lower base of sales and during a recession. If GM were to be a larger company with equally good margins, the market cap during good times could well above that.
On the whole, whoever put this together didn’t do well with it. The devil is in the details, and his details aren’t very well done.
A firm that borrowed $250 million from Carlos Slim at credit card rates to remain afloat?
Fine judge of business.
The NYT will get gov’t dough, too. Just like Pravda.
I wonder what range of sales New Chrysler will need to survive?
With Fiat, the Feds, & the UAW running the show, I’m sure they’re up to the task…
It only seemed like yesterday that we were extolling the values of a Chapter 11 filing. You know, the shedding of a bloated dealer network, the shredding of the UAW collective bargaining agreement, the shedding of excess dead weight brands…
Then we were sold the belief that a post Ch.11 GM would emerge “leaner and meaner” and all of that corporate gobbledeygook, free of the crushing debt that sank them.
The naysayers were pooh-poohed. They pointed to how “successfully” the airline industry emerged from ther en-masse Ch.11 filings. They were told their fear of buyers who would avoid GM if they filed is an ungrounded fallacy. They were told this is their only option for survival.
So, how did we sour so quickly on on a move that less than a year ago we all considered was so essential? Were we so easily taken in by dreams of a pared down GM, free of dealers and UAW contracts that we failed to realize that Ch.11 filings are a messy complicated business? Were we easily seduced by Ch.11 proponents who promoted this as some kind of great reset that even individual filers of Chapter 13 cannot achieve?
I really want to know how GM’s Chapter 11 morphed from being a necessary evil to just evil.
The question I would love the answer to is this: Is the NYT too big to fail?
@qausimondo:
I really want to know how GM’s Chapter 11 morphed from being a necessary evil to just evil.
Because it doesn’t appear that the structural changes and personnel changes and cutting that needs to occur will actually occur. It appears that since it’s a “managed bankruptcy” or “accelerated bk” or whatever newfangled term is used to describe this process, that it’s, to borrow Obama’s words, putting lipstick on a pig.
Let me bounce your question back to you- do you believe that having GM run by the Feds for 6-18 months will help GM emerge with what it needs to succeed (solid leadership, labor contracts and wages that reflect real skill set value, solid pipeline of products, etc.)?
Pch101 :
May 29th, 2009 at 4:01 pm
Honda’s current market cap is over $100 billion, on a lower base of sales and during a recession. If GM were to be a larger company with equally good margins, the market cap during good times could well above that.
———————————————–
It seems DIY bankruptcy credential can only get you so far.
Honda’s market cap is $52B as of today (no, they didn’t just get a $50B bailout). And here are some questions for you:
How many motorcycles does GM sell each year?
How many airplanes will GM sell in the next 10 years?
How many hydrogen fuel-cell patents does GM hold?
How much money and time would it cost GM to match Honda’s level of car technology?
bluecon:
“Give them a while and they will figure out that all the borrowing has destroyed the dollar.”
No they won’t. They will be all for nationalized health care “Hey, it’ll only cost 150 Billion (estimated)”. No problem. Keep the (money) printing presses running. Good times for everybody!
On a related note…
Wild-Ass Rumor of the Day: Koenigsegg To Buy Saab???
Because it doesn’t appear that the structural changes and personnel changes and cutting that needs to occur will actually occur. It appears that since it’s a “managed bankruptcy” or “accelerated bk” or whatever newfangled term is used to describe this process, that it’s, to borrow Obama’s words, putting lipstick on a pig.
What do you mean they’re not occuring? The UAW just ratified a new agreement where they’ve agreed to further wage and benefit concessions, let GM dump their penny stocks into the VEBA fund instead of cash and are bound from going on strike for the next six years. Wasn’t the reduction of labor costs what we said GM needed to do?
They’ve announced plans to reduce their dealer network by nearly half from approx 6200 to 3600 by 2010. Wasn’t the reduction of their bloated dealer network what we said GM needed to do?
They’ve made steps to put Hummer and Saturn up for sale, and decided to shut down Pontiac within the next two years. Isn’t cutting excess dead weight brands what we said GM needed to do?
For years we’ve lambasted “Red Ink” Rick Wagoner and “Maximum” Bob Lutz as a significant part of GM’s problem. We’ve criticized their ineffective board of directors for letting Wagoner remain on board despite his poor performance. Now, Wagoner is gone. Lutz is gone. Half of their corporate board is gone. Isn’t getting rid of GM’s poor leadership what we said GM needed to do?
I must be missing something because I’m still failing to see how after all of this, we’re now sour to the idea of a GM Ch.11 filing, which is what we said GM needed to do.
Let me bounce your question back to you- do you believe that having GM run by the Feds for 6-18 months will help GM emerge with what it needs to succeed (solid leadership, labor contracts and wages that reflect real skill set value, solid pipeline of products, etc.)?
I never believed a Ch.11 filing, whether it was managed by the gov’t or anybody else, was ever the right answer, and I’ve disagreed with the calls for a GM Ch.11 filing from as far back as the Lehman Bros. bankruptcy. I just put these questions up there because up until very recently, nearly everybody was gung-ho for GM to file Chapter 11, and this sudden about face seems puzzling to say the least.
Too bad I don’t know what the right course of action is. If I did, my plan would be condensed down to 800 words for all to see.
So Walter P. Cronkite says that the Viet Nam war is unwinnable ?
The most trusted man in America ? Then it is truly over.
Man bites dog is news. Dog bites man, and GM going down in flames is not.
But Government Motors is too nationalized and politicized to fail.
NEWS FLASH: The New York Times is failing ALSO.
Of course it’s unlikely that GM can pay back the debt to taxpayers. It had and has legacy costs out of proportion to the current company size that customer demand will support. The not good choices were bankruptcy at the end of 2008 vs. TARP money to delay bankruptcy to 2009 and government money to help with restructuring vs. liquidation. Every option had some cost, but some options were better certain interest groups.
One idea I liked last year was to directly convert part of the retired autoworkers to federal government retirees. Splits off the legacy cost from the ongoing business costs and cuts the UAW middleman out from the retiree bailout. With legacy costs reduced, GM and Chrysler would enter Chapter 11 and attempt to restructure with minimal government help/interference beyond the legacy cost bailout. Maybe D.I.P. loan guarantees to backstop private financing. Ongoing business restructuring cost wouldn’t be conflated with cost of retiree benefits bailout.
I don’t even dare to dream that GM would pay back my money.
If they are happy with an extra $50B in “restructuring” and stop robbing me from now on, I am happy. But I know even that won’t happen.
George B :
May 29th, 2009 at 6:06 pm
Of course it’s unlikely that GM can pay back the debt to taxpayers. It had and has legacy costs out of proportion to the current company size that customer demand will support.
——————————————-
Don’t you see the irony here. The very purpose of C11 was supposed to void all that legacy costs.
Oh, wait, UAW obligations carry through bankruptcy. My bad.
They can’t do right w/o bankruptcy, they can’t do right with bankruptcy… the media sure has them in a Kobayashi…
quasimondo :Because it doesn’t appear that the structural changes and personnel changes and cutting that needs to occur will actually occur….
Too bad I don’t know what the right course of action is. If I did, my plan would be condensed down to 800 words for all to see.
I absolutely agree with you, having spent a couple of dozen years directly or indirectly in the industry, I don’t know what the answer is. The companies are in too deep to escape, the current administration is going to force cars on the general public they do not want, the companies are not doing what they need to do. And the paying off the UAW does not foretell good things.
@ quasimondo :
You are correct in pointing out that many of us were in favor of a CH 11 for GM and many of the changes we called for are now taking place. The major difference with this CH11 filing that has soured me on it is the use of my taxdollars to pay for it and the resultant government control of the post CH 11 company.
While I certainly agree with the decision to oust Wagoner, cut dealers, and gain concessions from the UAW, I still see many problems with the new GM. For one, they still have too many brands. Why are GMAC and Buick? For another, where will these profits come from? Without the SA and European operations they will lack the economies of scale that make the epsilon platform marginally profitable. Relying on now repossessed Delphi plants for core parts will also render their costs uncompetitive. Then add in the Government meddling, that is certain to result in less SUV’s and Trucks, and I don’t see how they will emerge as a going concern.
With respect to Evil and the rocket:
GM launcher is +30 degrees from the pic without any additional thrust.
I really want to know how GM’s Chapter 11 morphed from being a necessary evil to just evil.
Because we all woke up and, shit, didn’t it come to light that a Chapter 11 filing by a (possibly the) major employer in North America would cost actual money.
The problem is that, while government and industry seem to be aware that torpedoing a major middle class employment provider in the middle of the most significant recession since the Depression would cost society a lot of money, ideologues (on both sides to be fair, but it’s the Right that’s squawking more now that they’re on the defensive) can’t seem to get it through their collective heads that either we do have to do this or risk a far, far worse short-term consequence.
The plan is to, at worst, facilitate the assisted suicide of Chrysler and possibly GM. If they come through, great. If not, well, at least it was a slow burn, which is much better than clinging to principles for the detriment of society.
Ideology is all well and good, but only a few pompous windbags can parlay it into a living. The rest of us need jobs, not purity of purpose, to put food on the table.
@qausimondo:
I really want to know how GM’s Chapter 11 morphed from being a necessary evil to just evil.
Because people love the pat answers. A whole bunch of people who aren’t looking at and don’t know about the details love to just give their 30 second insights. It’s the same with our political class.
@Pch101
Honda’s current market cap is over $100 billion, on a lower base of sales and during a recession. If GM were to be a larger company with equally good margins, the market cap during good times could well above that.
The problem is, GM can’t get equally good margins, at least on products that matter. They just don’t know how. So many companies in the US are struggling to be competitive. GM has not understood how to do that for a long time. It goes all the way back to what Deming taught in the 1950s. What is happening now is what he and others said would happen, back when there was still time to change things. Now, it is too late to learn by doing. The only way to get GM back to the level of sales it needs is for someone from the outside, who already understands how to do it, to come in, clean house, and start over. Think along the lines of what Roger Penske did with Detroit Diesel, only on a much more comprehensive scale.
But have we seen anyone in a position to be that person?
@psarhjinian
either we do have to do this or risk a far, far worse short-term consequence.
We’re already screwed in the short term. There’s nothing more that can be done about it now. We better start thinking long term now or 5 years from now we’ll still be in this mess, and then you’ll really be in pain.
We’re already screwed in the short term. There’s nothing more that can be done about it now. We better start thinking long term now or 5 years from now we’ll still be in this mess, and then you’ll really be in pain.
It’s necessary to think of enough in the short run to make sure there is a long run.
There appears to be a great big lie perpetrated that the “government” for the most part sat on its ass all day and did nothing until Obama came in and started doing socialist stuff.
This is in part due to the general ignorance of what the government does. For example, the Fed is constantly regulating the monetary system. http://www.federalreserve.gov/generalinfo/faq/faqmpo.htm
I’ll bet the usually suspects in conservative published have NEVER made specific accusations as which portions of the Fed (we are talking controllers of money supply to all america plus world reserves here) have been all socializ-ed up by the commies, in large part because they’ve never bothered to read the fed’s own web page.
—
On the NYT piece, the math is idiotic. You can’t just add up the money. For example, the lost part of bridge loans thus far is the cost to prolong a liquidation to today.
Hrm, maybe Saturn will end up being the winner in all this mess.
FerrarimanF355- I must be psychic because I suggested that Koenigsegg buy Saab years ago.
I don’t see a problem with the NYT article. The govt will have loaned GM $50B and own 72.5%, which means they need a $69B market cap, which together with $26B in debt and prefs, means GM needs to be valued at $95B. Rule of thumb is valuation = 5 x operating income (EBITDA, approx), so if GM can sell $150B worth of vehicles at a 14% margin they can do it.
That’s 50% more sales than they are doing now, at a margin Toyota has achieved only in its best years.
What are the chances? Nil.
@ agenthex
It’s necessary to think of enough in the short run to make sure there is a long run.
Yes but the problem usually ends up, that when people who are not technically qualified make decisions that are based on political expediency, then we not only have the original problems to fix, now we also have new problems created by the short-term-focused solutions.
There appears to be a great big lie perpetrated that the “government” for the most part sat on its ass all day and did nothing until Obama came in and started doing socialist stuff.
You never heard that from me. I only know enough about economics to be dangerous, so I don’t have anything to say about monetary policy. I fear inflation. But it still isn’t clear to me what the root causes are for this recession, even after hearing all the pundits and experts talk about it. Some seem intent on covering their asses, and others are only looking at the situation from a narrow perspective.
I do know a few things about the auto industry though. The issues the auto industry faces are complex, and require solutions that are aimed at the long term.
What we’re doing now is like drinking alcohol to get rid of a hangover. This isn’t a solution to our fundamental issues.
There is an old Deming quote relating to the way people react to problems under pressure: “Don’t just do something, Stand there!”
Both the New York Times and GM serve political markets, not rational markets. Their decisions in the future will reflect this more and more. Head-in-the-sand syndrome is rampant in such political markets.
I was watching C-SPAN (I’m getting old these days) last night and they had a Book TV forum at some university campus where movers and shakers sounded off on the economy. The panel consisted of six people…Krugman from the NYTimes, George Soros, Senate also-ran Bill Bradley, a couple of B-lister socialists (I forget their names) and one rational guy, British fellow named Neil Ferguson who wrote The Ascent of Money.
What was interesting here was all the socialists (including the “moderator”) and the university crowd being so irritated with that Ferguson guy ruining their combined circle jerk-echo chamber with “reality.” That guy wasn’t playing the game. Instead of saying “quantitative easing” he would correctly call the a duck a duck, i.e. “printing.” Ferguson complained that having cake and eat-it-too such as printing for low interest rates couldn’t work while floating deficits, driving up interest rates…something had to give here. Krugman’s answer was to complain that the (little) people were being naughty economic actors because they were saving money now instead of blowing it, so the government would have to keep printing “quantitavely easing” until the (little) people got on board. I’m not making this up.
Nobody else was buying into reality here. The lefties kept breaking down on talking economics per se and would segway off into socialized health care, rainbow-powered cars, and how the evil “laissez-faire” Bushies had done this to us. Huh? It was really sad to watch. It’s relevant a mention here I think because GM is serving these political markets, and that forum was an excellent example of how rationality is being drowned out in those markets, literally shouted down. Reminded me of a tot who covers their ears and goes “la-la-la-la” when they don’t want to face the music.
GM’s toast in this environment.
The problem is, GM can’t get equally good margins, at least on products that matter. They just don’t know how. So many companies in the US are struggling to be competitive. GM has not understood how to do that for a long time. It goes all the way back to what Deming taught in the 1950s.
That is true about the current GM. I am presuming that the new GM will be eventually sold off, ala Chrysler, and end up with better management, probably with Carlos Ghosn at the helm.
The key to a successful GM would be the development of a long-term plan that can improve their brand equity and raise the average transaction prices of the cars so that they can compete with Toyota head-on. This would require the right management team, including a major defenestration initiative that purges a lot of the upper and senior middle managers who propagate the culture. That would also mean selling fewer models, but increasing the volumes of those that remain.
IF (and that’s if) they can do that, GM should easily have a market cap of at least $75-100 billion and an ability to service the government debt until the stock is sold off. Given typical margins and PE ratios for profitable mainstream car companies, that should be achievable.
If not, then the taxpayer won’t be seeing much of that money, and cat food sales should increase when the VEBA collapses. I’m hoping for the former, although fearful of the latter.
Yes but the problem usually ends up, that when people who are not technically qualified make decisions that are based on political expediency, then we not only have the original problems to fix, now we also have new problems created by the short-term-focused solutions.
The only people who are not technically qualified making decisions that are based on political expediency are the ones making shit up about law being violated in chrysler’s bankruptcy case and fake valuations of whatever worthless stock the UAW ended up getting.
Not once have I seen even a lowball estimate of the social ramifications of turning the industrial landscape overnight into a wasteland via immediate liquidation, ala New Orleans.
The only “easy”, and correct way to avoid having all poor choices right now is to recognize the external costs of capitalism which we’re paying now ahead of time, and steering away from that with a viable industrial policy back in the day.
We saw this exact same thing which ended up as labor vs Thatcher, but apparently were too dumb (or fearful of accusations of socialism) to avoid the same fate.
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Ferguson complained that having cake and eat-it-too such as printing for low interest rates couldn’t work while floating deficits, driving up interest rates…something had to give here.
WHAT has to give? WHAT SPECIFICALLY is the historian offering on the table? WHAT is the alternative and its cost? I hope you’ve seen the near collapse towards the end of last year, those events have a cost just as government spending.
@ Pch101
The problem is, GM can’t get equally good margins…
That is true about the current GM. I am presuming that the new GM will be eventually sold off, ala Chrysler, and end up with better management, probably with Carlos Ghosn at the helm.
I don’t think Ghosn is the right man for the job. He has a reputation for forceful cost cutting, but he is not very astute with regards to product. If it weren’t for the great product people he has had under him, I really don’t think he would have done very well. Since he has over time lost a lot of those product people due to his cost cutting moves, his results have suffered.
GM is such a basket case because. in general, nothing is working: not product, not manufacturing, not sales or marketing; pretty much everything needs to be re-considered. Yes yes some people say that the latest GM product is pretty good, some of it. But I will bet that the margins on those products are pretty slim. Fixing that will require more than just going at things with an axe. Besides fixing all the technical and business issues, it will probably take more than a product cycle, or two, to get things going again. That means at least 5 to 8 years, probably more. Not the stuff of a company needing 14% margins soon.
Because there are so many things wrong with GM, it will take a special personality to turn it around. Not JUST a product guy like Lutz, not JUST a cost cutter like Ghosn, not JUST a marketing guy like Iacocca. We’ll need someone with serious breadth AND depth.
Marchionne may be such a guy, for Chrysler. But Fiat’s problem, especially now that they’ve lost Opel, will be to attract enough capital, now that they’ve effectively been relegated to a second tier auto maker. Marchionne is going to have his hands tied. Fiat’s only real future is probably to merge with someone, maybe PSA. Would anyone like to buy a Peugeot at their local Chrysler dealer?
@ agenthex
The only people who are not technically qualified making decisions that are based on political expediency are the ones making shit up about law being violated
People who are making decisions about who should be CEO of certain companies are also perhaps not so technically qualified, and are making decisions that are based on political expediency.
WHAT has to give?
We’re setting ourselves up for serious inflation. This is the same thing that happened in the 1970s, the last time we tried this kind of approach to get out of a debt jam (also brought about by a war, political collapse, and a fuel crisis, but not by a banking crisis that time). Gotta save jobs, gotta keep the economy going, they said. But jobs were still lost and the economy still suffered. It took a change in approach, tight money and a pro-business policy, over the course of a decade to get over it then. As bad as things are now, it would be better to get it over with quick than to drag it out over a decade. If you think it’s hard for people to deal with this kind of recessionary environment over this last year, try having people dealing with it for over 10 years.
No problem, Obama can figure it all out. That’s why so many people voted for him. He’ll appoint experts that have the answers GM and Chrysler have been looking for.
Now just get up there and buy a car from each company like a good lemming and don’t make me get rough with you.,
hltguy :
May 29th, 2009 at 3:33 pm
Well isn’t that special? The NYT is kinda late to the game aren’t they?
For years, many of us have been saying that if the NYT identifies something as a trend, it’s already out of date. Same goes for their editorial board of late, i.e. “Masters of the Obvious.”
People who are making decisions about who should be CEO of certain companies are also perhaps not so technically qualified, and are making decisions that are based on political expediency.
Provide some evidence.
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We’re setting ourselves up for serious inflation. This is the same thing that happened in the 1970s, the last time we tried this kind of approach to get out of a debt jam (also brought about by a war, political collapse, and a fuel crisis, but not by a banking crisis that time).
Sure, that’s exactly what’s expected, because it’s far better than deflation. This is followed by fed rate increase to constrict inflation. If you knew anything about fed history, you’d see that’s exactly what happened under Volcker (and would’ve under Carter had he been re-elected, he’s also chair of Obama’s economic advisory board). The constriction can only occur after the inflationary stage.
The “pro-business” angle was just a bunch of propaganda for people who don’t know anything about monetary policy. High interest rates are hardly pro-business.
Again it should be noted no one has a better strategy than this. I comments on this way back. All the whinos and bitches need to stfu until they think of one. Don’t hold your breath in anticipation.
@ agenthex
Provide some evidence.
There is no one with auto industry experience on the PTFOA. There are economists, lawyers, people with M&A experience, even a few with experience in environmental and climate change issues. But nobody there has experience with running or being involved with the operations side of the auto industry. That’s pretty weird, considering it’s the Presidential Task Force on the AUTO INDUSTRY!
It implies that they won’t be making operations issues a high priority in their planning. They’ll be thinking about management theory, about enironmental issues, they’ll be thinking about the financial issues, about accounting issues (as if GM hasn’t had enough of that already in its history), they’ll be thinking about where to find a buyer. But operations are the key to making GM successful in the future. Operations are how GM will make money in the future, if it ever does again.
Instead, they get rid of Wagoner and replace him with Henderson. I’m saying this is a political move. For the uninformed, this makes it look like the government is doing something (get rid of the guy that led GM to tank, bring in someone new!). But Henderson is just as clueless/impotent as Wagoner was, even more because he owes them his job. For those who are informed, making Henderson CEO says “We’re the government, we’re in charge now, and we don’t want anyone getting in the way of us splitting up the leftovers among the stakeholders any way we think is best”. That may make certain stakeholders happier, but it doesn’t get at the core operational issues that are getting worse by the day.
It’s a short-term political answer that will lead to another, and another, until whatever is left of GM is finally sold off/absorbed/merged with another company and disappears for good. OR, it stays on the government dole for an indeterminate amount of time. Either way will not be good for you and I.
At one point in the past, all this could have been avoided. But it’s too late now. The only options are a) government take-over, or b) normal bankruptcy. If GM ever becomes viable again, it will be under the leadership of someone with automotive operations experience. If that time comes in the future, he’ll have so much to fix because of the decisions that are being made now (relating to the collapse of operations at GM), that the likelihood of success will be much lower than it would have been. You could say that at least with option (a) there is a GM around to save in the future, and maybe that’s true. But doing it this way is going to cost all of us and our kids an awful lot of money.
There is no one with auto industry experience on the PTFOA. There are economists, lawyers, people with M&A experience, even a few with experience in environmental and climate change issues. But nobody there has experience with running or being involved with the operations side of this business. That implies that they won’t be making operations issues a high priority in their planning.
I believe you’ve interpreted this without paying mind to what has actually happened.
The agenda is clearly to find new management. It happened with Chrysler, it’s happening with Opel, and it’s likely to happen at some point with the rest of GM.
Who would you would hire from the industry side? DeLorenzo the cheerleader? Jack Smith, who wrote the death sentence for GM with his truck building spree? Bob Eaton?
The problem with choosing people from the industry is that it is the same incestuous group of people who destroyed it in the first place. You absolutely don’t want or need their input.
The fates of GM and Chrysler were destined to end up in foreign hands, and presidential task forces don’t get staffed up with foreigners. The task force’s jobs are to find a new owner and to cram down the debt so that the balance sheet clean up is as cheap as possible. As far as finding new owners goes, there just aren’t that many choices, and the cramdown doesn’t require industry expertise.
The point of a task force is not to run a company, but to find people who can. They are effectively acting like an interim board of directors, in order to cope with the incompetents who clog up the existing one at GM. With the bankruptcy, they are also wearing a bit of a receiver’s hat.
So far, they’re done reasonably well with it, although it remains to be seen whether GM will end up with a new home. Daily operations is not their job, and nobody intended it to be.
There are economists, lawyers, people with M&A experience, even a few with experience in environmental and climate change issues.
That doesn’t reflect you said:
People who are making decisions about who should be CEO of certain companies are also perhaps not so technically qualified, and are making decisions that are based on political expediency.
In the interim, the important decisions to make are business/economic ones. There are few good choices to head the new GM anyway, so it’s not as if we’re counting on the task force to be creative here. If they really wanted to tap Bob Lutz for suggestions, I’m pretty sure they have his number.
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I missed this earlier:
Because there are so many things wrong with GM, it will take a special personality to turn it around. Not JUST a product guy like Lutz, not JUST a cost cutter like Ghosn, not JUST a marketing guy like Iacocca. We’ll need someone with serious breadth AND depth.
Most probably competent people like Ghosn are flexible enough to make and execute a wide range of plans. He (and his team) also seems to do alright when not competing again virtual candidates. Sorry but we don’t exactly have time to genetically engineer your perfect auto exec.
One theme that keeps repeating is that people are expecting absolute success, mostly likely to set up the political opposition for failure. Again, when times are bad, least bad solutions are best. If you don’t like being in that situation, then I suggest planning properly so it doesn’t happen (which is only done by socialists like those asian auto makers, apparently).
Pch101:
The point of a task force is not to run a company, but to find people who can
That’s close – consider my addendum:
“The point of a task force is not to run a company, but to find people who can” do so in a politically acceptable manner – by not closing too many factories, not transferring too much manufacturing overseas, not selling too many trucks, never opening a non-UAW plant in a right-to-work state, and not NOT making a profit.
The number of people who can do the above: ~ 0.
Instead of investing in the New GM, I’d recommend going long on Cat Food Futures and shorting Strip Steak & Lobster Notes (in high UAW retiree areas). That play should get you a new Tundra – or 10 Silverados at liquidation.
@Pch101
I believe you’ve interpreted this without paying mind to what has actually happened.
The task force’s jobs are to find a new owner and to cram down the debt so that the balance sheet clean up is as cheap as possible.
I’m not disagreeing with you. I think I see quite clearly what is happening. As I said previously “It’s a short-term political answer that will lead to another, and another, until whatever is left of GM is finally sold off/absorbed/merged with another company”.
The fates of GM and Chrysler were destined to end up in foreign hands
I think this one statement summarizes what may be a generational divide in this country. There was a time in history when a statement like this made in public would have seemed very strange.
These days we just let it happen. It’s very sad.
I know I know, we have no choice. I’ve heard it all before.
@agenthex
If you don’t like being in that situation, then I suggest planning properly so it doesn’t happen
Some of us have tried harder than you know.
Of course, Pch101 has summarily written off American talent, so maybe it was a losing battle all along.
Martin B summed it up: “I don’t see a problem with the NYT article. The govt will have loaned GM $50B and own 72.5%, which means they need a $69B market cap, which together with $26B in debt and prefs, means GM needs to be valued at $95B. Rule of thumb is valuation = 5 x operating income (EBITDA, approx), so if GM can sell $150B worth of vehicles at a 14% margin they can do it. That’s 50% more sales than they are doing now, at a margin Toyota has achieved only in its best years. What are the chances? Nil.”
But part of the valuation of a company is expectations. If people think GM will turn it around, that the new product and structure leads to further success, the stock price will rise.
Of course, if the New GM is heavily into projects that are thought to be losers (like the Volt) or the Daewoo-supplied vehicles look like they’ll continue to be losers…
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Speed Racerrrr,
Getting rid of Wagoner simply sent an important message. Henderson’s not any better but he’s also not any worse. Lutz then volunteered to retire. Two down.
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PCH101,
I think you are about right.
As for who we ultimately get to run it, I think we do want someone with manufacturing experience and who has dealt with unions.
That’s close – consider my addendum:
“The point of a task force is not to run a company, but to find people who can” do so in a politically acceptable manner – by not closing too many factories, not transferring too much manufacturing overseas, not selling too many trucks, never opening a non-UAW plant in a right-to-work state, and not NOT making a profit.
So far, there isn’t any prove of this, and a fair bit of evidence to the contrary.
Wage, benefits and job cuts have been part of the negotiation process. The UAW is pretty well gutted; look objectively at this, and it’s clear that they are not coming out of this as winners.
Have you seen the new Chrysler TV spots? The 300 plays a prominent role in them. They have no problem marketing gas guzzlers if they make money. There is a clear agenda to reposition the brands as multi-faceted companies that can make good cars, and not just trucks, and all sorts of cars, not just large ones.
That’s pretty much what any smart turnaround team would be doing. Being pigeonholed into the gas guzzling truck camp has been part of the problem here all along.
We’ve all heard the stink about GM outsourcing future production to China. So they’re retrenching into the US; the US is half of GM’s market, and a solid turnaround effort will use that as an advantage that can entice the foreign buyer needed to make it happen.
I was skeptical myself, but the government has made more smart moves in a few months than Detroit management made in a few decades. Give credit where it’s due, and don’t allow your political biases or previous expectations to obscure you from seeing what business-savvy actions are being taken. On the whole, I’m pleasantly surprised.
Pch101 has summarily written off American talent
I’m just accepting the reality that Americans destroyed the business, and that there aren’t enough Americans available to lead a turnaround. Some months ago on this site, I noted that the list of players outside of China and Russia would be limited to the likes of Renault, Fiat and Magna, and that’s who is stepping up. It makes no sense for Ford to do it, so whom else would you suggest?
I think we do want someone with manufacturing experience and who has dealt with unions.
Agreed. People can whine all they want about the union, but a new GM and new Chrysler will need blue collar work forces to build cars, with minimal delay once their operators are ready to move. It is faster and ultimately cheaper to keep a lot of the existing payroll than to replace every single grunt on the line, when it would take months or years to hire and train that many people. They obviously aren’t going to keep everyone.