GM is auguring-in for its date with a bankruptcy judge, burning [your] cash, shedding share and losing money as it goes. The latest ding: the company reports that it’s lost $6 billion in the first financial quarter. That’s almost double last year’s Q1 results ($3.3 billion). Revenues sank 47 percent ($22.4 billion from $42.4 billion). As always, there’s a lot of waffle in the official press release: “GM’s automotive results in the first quarter of 2009 were driven by a revenue decline in all regions, due in part [in part?] to a depressed global industry. In addition, GM’s results were impacted by unfavorable foreign currency exchange and mark-to-market commodity hedging versus the year-ago quarter. However, these losses were partially offset by a significant structural cost improvement of $3.1 billion when compared to the first quarter of 2008.” But the bottom line is clear: the federally-funded automaker’s house is on fire and so far from profitable it’s not even in the same solar system. GM CEO Fritz “Wagoner Clone” Henderson reckons he knows how to plot a course for the Milky Way.
“This is a defining moment in the history of General Motors, and we are committed to our Plan, which we believe will lead to a stable and sustainable operating structure with a strong balance sheet,” Henderson’s PR lackey wrote. “Our goal is to fix this business once and for all to position ourselves to win in the long-term. That will be achieved by putting the customer first in all we do, focusing on fewer, stronger brands and developing great products that lead in design, technology, quality and fuel efficiency.”
When you say it like that, you make it sound like a bad thing.
CFO Ray Young said today: “We cannot cut costs fast enough to offset that revenue loss”.
What a wonderful look inside GM’s management thinking. Cost-cutting your way to success…
My favorite part of the spin is that buyers held back on the speculation of bankruptcy. What a crock of beans…but the MSM doesn’t even flinch when reporting it. Yikes….
RF,
If you have the time, could you do a chart of cash burn and profits and losses over the last few years?
chops,
There’s some truth to that. A couple people I know who bought something else remarked that GM’s uncertain future was a factor in their decision.
Whether or not this is particularly significant and/or more important than reputation, pricing… I don’t know.
Whether or not this is particularly significant and/or more important than reputation, pricing… I don’t know.
I wouldn’t say so. Their sales declines aren’t all that much higher than Toyota’s. Their potential bankruptcy may have influenced a few people, but not a ton. Remember, Toyota’s sales with respect to GM’s have been gaining for quite a few years now.
The chart needs a box that says “Promote vapor ware electric vehicles that cost twice as much as a Prius”
Same thing is happening in government.
Huge revenue decreases. NYC will be lucky not to soon go bankrupt.
Bankruptcy? naaaaah
Honestly, I don’t consider it to be my money. I give it to the government because I have to, and when they fuck it up well that’s just too bad.
If it were really my money I’d have a say in what it’s spent on, but besides petitioning local (very local) politicians, I don’t. So I don’t.
What would happen if GM focused on profit raising instead of cost cutting? If they killed off all dealer holdbacks, volume discounts, any and all forms of ‘cash on the hood’? The old joke that ends with ‘…what we lose in margin we make up in volume’ has never been truer for GM and seems to me to be a big part of what is holding them down. Now, if that means that the price of a Malibu jumps so high that no one buys it, at least then you get real feedback that says you should kill this car off. If it sells anyway, then you can pay everyone that works for you with a little left over for growth and improvement. Nahhhh, that’s too simple to work.
In positive GM news, some employees are working OT building Camaros with shims on the calipers and defective battery cables. http://bit.ly/VnanT
But once the mid-life crisis guys get their Camaros, there won’t be any good news. Maybe they should bring back the Celebrity and Cimarron. They’ll be the next big things that will save GM.
This merits a DW.
(And why did it take to 10:30 for the stock to drop? The market “knows”; my rear it does.)
This is an entirely normal predicament under the circumstances and should have been /should be anticipated in the government’s bridge loan financing. It’s a classic failure of a “save our way to success” strategy. People don’t want to join a shrinking club in mass markets, so revenue declines faster than costs can be reduced, and accelerating same cost reductions shinks sales at an even faster rate. You’re left with a cinder.
Instead, GM should get *more* cash from the Treasury, less incrementally, along with a leadership appointment that infuses with ambition this effort to reflate the company. The company must get more aggressive about accelerating every good thing and killing every bad thing in its products and operations. As with cars, so it is with companies in turn-around: speed costs money. Given that the Federal government is underwriting GM for the time being, we should stop futzing around and ante up real cash and let them get on with fixing their business.
We now have the worst of both being a public company (quarterly performance reporting and all that which is distorts) + the incremental thinking of overseers who drip-feed the cash. It thwarts holistic action and eliminates strategic thinking.
What was once a +/- $200Bn revenue-generating enterprise is now pulling in sales at a rate about half that. The speed of the decline leaves a catastrophically chaotic mess of problems to overcome, not to mention a bloated inventory in the channel. Purging the system will cost more not less. So put real cash into the company — $100Bn if necessary — replace the board, hire a genuinely capable leader, get creative, and get to it.
Ignore the stock price. Clear the channel. Move the metal clogging the channel at prices that move it. Destroy what can’t be moved. Hell, give cars away to the 10% of owners driving clunkers that emit over half of our private vehicle pollution. Operate a lottery. I don’t care. Get up in the morning and change your circumstances.
While you’re at it, fellas, along with speeding development of new vehicles, including Volt, go through existing models to upgrade interiors mid-cycle since that’s a point of contention for GM. Also, generally look for ways to improve build quality and reliability without resorting to re-design on every existing model you will continue making and selling while new models are developed. Emulate already-competitive models throughout the liine.
Mothball, close or sell factories that you don’t need. Use a proper funding to compete, not merely to cope. Boost marketing and fire every ad agency you’re currently doing business with. They are all failing you. Put out notice you’re reviewing agencies and will be selecting the strongest creative resources you can possibly find. Dangle the carrot of a robust budget. Revamp pricing to what the market will accept without rebates and other bribes. Give the customers you have left compelling reasons to buy. Extend warranties. Find your way back.
The bailout is currently being run with a parenting mentality. We’re not trying to supervise an errant child; we’re trying to right a badly listing business. Leadership + cash + product upgrades + distribution rationalization have to be undertaken with large tactical effort to clear the channel soon. More cash, ambitiously allocated. We need to find someone who knows how to spend the right $100Bn the right ways. Doing this right will be cheap in the long run. Doing it wrong is always expensive in all the wrong ways.
Phil
Mr. Ressler, you’re asking a zebra to change its stripes. It’s a zebra that’s seen every other animal on the veldt change its stripes since the first Toyopet showed up in 1957.
And now, you’re forcing it to make institutional changes it can’t make.
Honestly, this beast needs to go. It’s time is up. It’s the last great American whale.
Mr. Ressler, you’re asking a zebra to change its stripes.
Exactly. It’s the very nature of a turn-around. Other people do it; why not GM? The problem here is that a golden, once-in-a-lifetime opportunity to truly kill a culture and revamp an enterprise for effective performance and greater good may be wasted by incrementalism and can’t-do hand-wringing.
It’s just a business that needs encompassing minds to sort it out. Titanic effort, yes. Worth doing, yes. Impossible, no.
Phil
No, not for $100 billion dollars. Not even close.
Phil,
There is no ‘will to win’, as Ross Perot would say, either within GM at the right levels or within the Fed gov’t to turn GM around. There is no Lee Iacocca, no Herb Kelleher, no Alan Mulally to be heard from. They just have mouthpieces like Fritz and Rattner spouting and spinning.
Just die GM, die! You haven’t made any money since bell bottoms were popular. You’re burning thru mine and every other taxpayers money. None of your cars are any good or else you would be making money like… Toyota. Die! Die I say! Just go out of business. The other automakers will pick up the slack and nobody will care once you’re gone.
GM has replaced absolutely shitty cars with less shitty cars. There is nothing left to save. Chrysler, on the other hand, you could keep the Dodge Trucks and the Wrangler. Decades of the Chevrolet Junta at GM killed all the other divisions.
I just read this little tidbit in the New York Times:
“Under a plan introduced last week, G.M. would give a majority stake in a restructured version of itself to the Treasury Department and more than a third of the company would be held by the U.A.W.’s new retiree health care fund.”
American Leyland is here, folks. The U.S. gummint is about to become an auto maker. We’re all doomed.
”General Motors is a broken company,” said Peter Morici, an economist and professor of business at the University of Maryland’s Robert H. Smith School of Business. “If you sell an inferior product and you expect a premium price, you’re going to go out of business. That’s General Motors’ problem.”
That was three years ago, when they lost over a $ billion for a quarter for the first time as a company.
What have they improved since then?
What “bold steps” have been taken?
Other than increase their losses ten-fold?
GM’s plan seems to sell it’s brands so other, stronger companies can use them to compete against GM, sell Opel so it loses a huge European foothold, skimp on development of future models that will likely only be designed for the US market, and continue to overpay the UAW. It just might work!! Not.
Phil Ressler :
May 7th, 2009 at 11:56 am
It’s just a business that needs encompassing minds to sort it out. Titanic effort, yes. Worth doing, yes. Impossible, no.
——————————————
Theoretically, it’s possible to turn around a car company. It’s not like to create anti-gravity.
But then, the right plan would negatively impact the interest of UAW Obama and Co.
For instance, if a loser wants to improve, what better way than to look at how a winner is doing it? Toyota/Honda transplants don’t have a union. Disassemble UAW at GM would be a positive first step. But will that happen?
So, it’s impossible.
Phil Ressler:
No amount of money will do what you suggest. I have long argued that GM could MAYBE be saved with an infusion of new management, someone who is a leader, preferably with some turnaround experience. But THERE IS NOBODY NEW at this company. These guys have worked all their lives at the world’s largest industrial corporation. Most of these guys came to work there when the company had a market share of 45-50 percent. This company has had 35 years of chances to build better cars. If Chrysler or Ford had been run by these people, this culture and this management structure, they would have been gone by 1982.
I am still unable to come up with an example of a major industrial turnaround that worked without massive new blood at the top of the organization. Won’t work here either.
Phil..Please forward your resume to President Obama for the CEO position.Buickman has marketing
sewn up.Find a place for PCH 101,we need his smarts.Pay RF an obscene amount of money to write car reviews.Hey I’ll sign up for labour relations rep.You don’t even have to pay me,well….maybe a new Corvette once a year…and don’t forget my pension check.
There is no ‘will to win’
There is nothing left to save.
We’re all doomed.
So, it’s impossible.
No amount of money will do what you suggest.
THERE IS NOBODY NEW at this company.
A man walks up to a horse in a bar. “Why the long face?”
Geeze Louise, the pessimism here….
There were few organizations as hidebound as IBM in 1992 and yet, a former tobacco company CEO purged a relatively thin layer of naysayers and guided the rest to a turnaround that returned the company to profitability on a sustained basis while ceding relative sector influence to relatively Young Turks like Microsoft and Sun. OK, there wasn’t the UAW to deal with but really, folks, this idea that judicious purging isn’t possible, that new imaginative leadership doesn’t exist, that no one would want the challenge is balderdash. It’s not the lack of will to win internally that’s holding back the reconstruction effort at GM, it’s lack of will to prevail on the part of the collective entities in charge, including now the Federal government and the American consumer.
The window of acceptability for large taxpayer-financed infusions of working capital is a priceless opportunity to reconstitute GM and banish the bulk of the old practices and habits long criticized and documented here and elsewhere. We just have to muster the stones to put major money on the line; find, recruit and hold accountable the fresh executive talent pool to rebuild and purge recalcitrants deeper in the organization. Instill a performance culture, make the best deal possible with the UAW or break it. The key is to put enough cash in the company to make bigger bets on product kills and approvals, union deals, employee hardball, dealer cooperation and buy time to reframe GM in the minds of its customers.
What GM lacks is not a reason for helplessness; the deficiencies are reason to get serious about holistically repairing the company and rebuilding its market. There is, even in truncated form, an *army* of people there to implement a layered strategy of tactical fixes possible *this year*, revamp of processes and decisionmaking going forward, and driving an extended product development plan that reflects the actual talent and imagination already extant in the company. But this army has to be LED.
A GM that is even marginally on the mend will also become attractive to automotive talent employed elsewhere. The most capable people tend to like a challenge. But only a hard core of turnaround folks enjoy climbing on board while the ship is still taking on water. Change the trend line even in the slightest, and talent will come to GM, if it has a management culture imaginative, smart and skilled people want to work for.
$100Bn, even $150Bn is small money to do this, if it succeeds and it’s not endangerment money if it doesn’t. Now the truth is, while Fritz looks to be another finance nebbish, we don’t know how good he’d be if he were adequately financed. This cash dribble of a few Billion at a time is the worst of all possible approaches. Tranch a financing and your management can’t see beyond a couple of months. If we’re going to fund and float GM for salvation, we have to give them enough money to lift their eyes and operate for a future.
If it were my job, I’d even buy my own car. From a GM dealer no less.
Phil