I've been wary of GM's alt propulsion press vehicles since ’04, when The General faked a hybrid test drive with Autoweek, slapping a cod cover on a pushrod powerplant. So I approached USA Today scribe James Healey’s review of the hybrid Tahoe with no small amount of skepticism. "GM says the electric-only mode could take you to 32 mph under ideal conditions. But the test showed that accelerating in traffic means electric-only lasts only up to about 10 mph." Oops. "Tahoe's gasoline engine shuddered as it fired up and began contributing power. Expect the shakes to be gone in regular production models, says Mark Cieslak, chief engineer for GM's full-size trucks." Doh! But wait! There's more!

"The transmission got hung up on full-throttle shifts, holding the engine at 5,500 rpm too long, followed by a falloff in power, before up-shifting. Also gone by production, Cieslak promises." And yet USA Today's headline proclaims "Tahoe Hybrid is a Real Treat" and "Chevy SUV is nicer than gas model." Yes, once again, GM's spinmeisters have convinced a too-credulous journo to devour a tray of puffed-up, half-baked goods.

It’s been a while since GM trotted-out this “look at the shiny object” PR strategy. In every case I can remember– from the new Tahoe’s debut to the United Auto Workers (UAW) “historic health care giveback”– distraction preceded disaster. As GM is set to reveal its second quarter financial results on Tuesday, and the automaker has just experienced a horrific June, and July ain’t gonna be much better, I can only conclude that no one at RenCen will be singing “Happy Days are Here Again” anytime soon. If ever.

Note the desperation that’s infecting GM. It’s not a sense of urgency, as Mary Ann Keller famously requested when eliminative products hit the fan back in ’05. It’s a sense of bewilderment and befuddlement, leading to irrational behavior. The on-again, off-again, on-again, off-again plan to launch a range large rear wheel-drive cars illustrates GM’s growing propensity for contradictory chaos. 

As does the decision to add hundreds of engineers to the Volt electric car project; a car whose very existence depends on battery technology that doesn’t yet exist, whose arrival has been promised for 2010 (at the last annual stockholders meeting, of course). Import a German compact for Saturn, even though it can’t make a dime? Sure! Stick a diesel into a Cadillac? Why not! Hybridize poorly packaged, gas-guzzling SUVs? Duh! Who’s gonna resurrect the electric car? We are!

Clearly, the vast commercial enterprise that is GM is doing everything it can to find a way out of its North American cash crisis. Clearly, that’s the problem. There is no master plan. There never has been. Instead creating and implementing an overarching vision of a new GM and working towards it, CEO Rick Wagoner has launched a relentless cost-cutting fatwa. Which is a bit like the captain of rudderless, sinking ship concentrating on jettisoning as much ballast as possible.

While Boeing’s ex-exec is busy reducing, refining and redefining Ford, Wagoner’s mob can’t get past the first part of that process– presuming they even want to. They seem to think that General Motors can get small at home, get big abroad, and act big everywhere, all at the same time. Hence GM’s semi-decision to concentrate on “world cars;” it appeals to the notion that they can solve their problems by continuing to rely on the sheer scope of their operations.

Once again, it must be said that Rick Wagoner has never set benchmarks for GM’s turnaround. There have been promises and plans aplenty, but no hard and fast publicly declared targets and deadlines. No map by which GM employees, suppliers, shareholders and stakeholders of every stripe could chart the company’s progress towards recovery– or lack thereof.

In other words, GM’s current management team has never been held accountable for its actions. This is, perhaps, the single largest failing of what was once the single largest automobile manufacturer in the world. That GM’s Board of Bystanders could keep Rick Wagoner in power through such an enormous slide in market share and profitability, that they let the company’s stock price determine Wagoner’s longevity, is a tragedy of epic proportions– that will ultimately be revealed.  

Meanwhile, on Tuesday, more bad news. General Motors Executive Director of Market and Industry Analysis Paul Ballew will take journos for a spin around the dance floor. He’ll talk about foreign expansion and tell the press not to pay any attention to the men behind the curtain. Men who will continue to run GM with self-deceiving incompetence, safe in the knowledge that that they can do so without personal consequence.

The press will treat GM’s failing management with no more disdain than Mr. Healey heaped upon the under-developed, incomplete Chevrolet Tahoe hybrid press vehicle. They’ll note Wagoner’s faults and once again describe his turnaround plan “a work in progress.” Only it isn’t.

On Tuesday, the junk bond market sneezed and General Motors caught a cold. Less poetically, the money men behind the buyout of GM’s Allison transmission unit postponed a junk bond offering designed to pay for same. According to market sources, when the “spread” (the extra yield investors demand to compensate for their risk) widened by about 100 basis points, Merrill Lynch, Citigroup and Lehman Brothers pulled the plug. GM spokeswoman Renee Rashid-Merem said the company wasn’t worried about the sale: “The buyout remains on track.” Maybe so, but GM can’t afford this kind of setback. Literally.

GM is now deep into contract negotiations with the United Auto Workers (UAW). By all accounts, The General’s generals need some kind of “game changing” deal with the UAW. In other words, GM must take CEO Rick Wagoner’s well-established “pay off to f-off” union template to the next level. If, for example, GM wants to dump their health care liabilities into a UAW-run VEBA, it will require tens of billions its U.S. operations are still not generating. 

It’s true: the chips are down. Without delving into the finer points of the fire raging through GM’s cash hoard, the automaker needs the $5.6b check from the Allison sale to finance its “turnaround.” Ipso facto. Whether or not The General’s advisors manage to off-load $3.1b in junk bonds to finance the Allison sale in a timely fashion, the fact that it’s happening at all tells us the company’s corporate masters are still mortgaging the farm to bet the farm on the farm. And the crops are still failing.

Confirmation came [again] on Monday, when we learned GM’s set to cut production of the vehicle Rick Wagoner hailed at launch as “the most important part of GM's strategy to turn our fortunes around.” GM’s Pontiac Production Center will soon be building 17 percent fewer Chevy Silverados.

More specifically, GM is reducing Pontiac’s pickup production by 3060 vehicles per month or 36,720 per year. If you [conservatively] figure GM clears $2k per truck, the move evaporates $73.4m in profit. And it still might not be enough; Silverado sales dipped 23.5 percent in June. Another month like that…

Is exactly what the financial whiz kids over at Barron’s are predicting. If so, by the time GM unveils its UAW window dressing in September, Wall Street’s confidence in the automaker’s prospects may be so low that another “historic union giveback” won’t make no never mind to the money men. The cost of GM’s borrowing, which is already onerous to the point of near-usury, will escalate even further, even faster. For a company already downing in a sea of debt, that’s not good.

What’s worse, GM’s faces a more general malaise in the leveraged loan and high-yield markets. Ironically enough (given GMAC’s role in the debacle), the sub-prime mortgage crisis has taken the sheen right off the sector. Cerberus is reportedly having problems financing its Chrysler takeover at the desired price. Despite Ford’s “surprise” results (attributable to asset sales and foreign ops), investor confidence in The Big 2.8 is fading. Same result: the cost of borrowing rises. 

Brad Rubin, senior auto sector trading specialist for BNP Paribas, recently stated that “Investors know both Ford Motor Co. and GM are going to have to tap the debt markets at some point, and unfortunately it's at much wider levels than what they've done before.”

GM already rolls over tens of billions of dollars in debt each year. As Slate’s Daniel Gross pointed out way back in ’05, if GM borrows $30b and the rate it pays for new debt rises 1 percent, the company has to stump-up $300m in additional interest costs. “And since interest has to be paid first, higher interest costs mean less money for important things like executive compensation, investment in new plants, marketing, and developing hybrid engines.”

Fast forward three years and you can add financing union givebacks to the list. And update GM’s debt rating to Fitch Ratings’ “negative," despite dodging the Delphi bullet (by paying off the unions, ‘natch). While the media talks about GM's union-related health care burden, pegging the cost at $1800 per car, if The General returns to the Wall Street well in a big way, its vehicles could soon be shouldering half as much again in interest payments.

GM’s debt is a ticking time bomb; the fuse is well and truly lit. In terms of ridding itself of the UXB, nothing much has changed: GM can only eliminate its gigantic debt burden by selling hundreds of thousands of high margin vehicles in the United States.

Yes, well, in response to fading market share and continued over-production, GM has just amped-up its financial incentives on languishing metal (including leftover 2006 models). Meanwhile, Toyota’s going great guns. Its new entry into the full-sized pickup truck market has triggered the predicted incentives war in GM's most profitable segment, in a declining market.

As a TTAC commentator recently pointed-out, GM is now like communist Russia, with Toyota as America spending them into oblivion. For those who believe that GM can emerge from this crisis– or Chapter 11– fitter, better and stronger, the parallel is instructive.

"We anticipate [that the U.S.] will still be the most profitable market in the decade ahead. It's really key not to be excessively dependent on the U.S., but you still need to be successful in the U.S." It’s no surprise that GM Chief Sales Analyst Paul Ballew sent mixed messages to the financial community when revealing GM’s Q2 sales results. Not to put too fine a point on it, the automaker’s U.S. market share continues to evaporate while its overseas operations continue to expand. The General’s growing foreign sales aren’t enough to compensate for the company’s North American sinkhole, but it gave GM’s spinmeister something to spin. Such is the way of things at GM these days.

That said, this just in: according to Mr. Ballew, GM should begin seeing a recovery in U.S. in 2008. As far as I can tell, no reporter or analyst asked GM’s mouthpiece what events or non-events are covered by the word “should,” what exactly the word “recovery” means, when in 2008 this recovery will arrive or how this sudden rise from GM’s fall from grace will be achieved. Oh, and didn’t GM say they were already in recovery?

Yes, well, it’s no wonder GM’s backed away from that idea. Thanks to a spectacularly lousy June, this financial quarter, at the height of GM’s new product cadence, the automaker’s North America sales fell seven percent. Once again, GM blamed high gasoline prices, a weak housing market and a planned reduction in daily rental sales. So are we to assume that gas prices will decline, the housing market will jump to its feet and the company will abandon abandoning daily rental sales?

The last point raises an important question. It’s all well and good to bolster residual values by limiting fleets sales, but what will take the place of these job lots and raise GM NA out of its current torpor? The new Saturn Astra, whose production and importation costs obviate the possibility of profit? The new Chevrolet Yukon hybrid, an enigma wrapped in a riddle (what kind of fuel conscious buyer buys a huge, poorly packaged SUV)?

How about the new Chevrolet Malibu? Last year, the current fleet queen Malibu racked-up 153,846 sales. If GM is getting out of the fleet business, they’ll need to replace every Malibu removed from fleet duty with one purchased by a retail customer. In other words, Chevrolet will have to sell tens of thousands more Malibus to retail customers just to achieve existing volumes. 

The redesigned Cadillac CTS is also on the horizon. Last year, GM’s erstwhile luxury division unloaded 54,846 CTS sedans on its class-conscious customers. Even if Caddy doubles that total, it still wouldn’t generate anywhere near enough profit to rescue a company with eight brands selling 52 models.

Clearly, obviously, GM’s turnaround depends on the company shifting a lot more of everything. While there are some bright spots and heavy hitters in GM’s roster– the law of averages guarantees it– the overall picture is bleak. Other than reducing price, which kills profits and destroys brand equity, what can they do? 

Rick Wagoner’s mob doesn’t have an answer. Thankfully (for them), no one’s asking. All eyes are now upon GM’s negotiations with the United Auto Workers (UAW). Wall Street, stockholders and GM camp followers are all watching the proceedings like hawks, presuming that reducing labor costs to transplant parity is the key to GM’s survival. That logic only works if you assume that GM would use the money saved to make better cars. Is there anyone out there who really believes that?

At the risk of sounding cynical (perish the thought), any money saved is likely to disappear down GM’s corporate rat hole. For one thing, if GM bosses pay themselves huge bonuses when the company’s losing billions, imagine what they’ll do after concluding a “historic union giveback.”

Whether or not GM “reduces” its health care obligations by going into subterranean levels of debt (to set up a VEBA for the UAW as described by Frank Williams), whether or not the two sides emerge from negotiations with the status quo intact or destroyed, Chevy and Saturn will still be fighting a losing battle against Toyondissan, Cadillac will still be struggling for sales, Pontiac and Buick will still be deeply damaged brands, Hummer and Saab will still be expensive irrelevances and GMC will still be… there. 

Now that GM’s suffered a 24 percent sales drop in June against the transplants’ double digit sales increases, some analysts are beginning to understand the crux of GM’s problem: unloved, unwanted and uncompetitive product. If GM’s sales take another big hit in July while their competition moves upward, there will be even more pressure to do a deal with the UAW. And it will be even more irrelevant.

“This is another important step to strengthen our liquidity and provide resources to support our heavy investments in new products and technology.” And so General Motors' CEO Rick Wagoner heralded the sale of GM's Allison Transmission unit for $5.6b. Odd that. Allison has provided General Motors with new products and technology for eight decades, and billions upon billions of dollars in revenue. So is this another case of GM throwing its furniture into the fire to heat the house? You betcha.

Allison Transmission began life as the Indianapolis Speedway Team Company in 1915, fabricating quality parts for America's burgeoning automotive industry. In the roaring 20’s, Allison successfully applied its engineering and manufacturing skills to military airplanes (e.g. high-speed reduction gears for aircraft motors and propellers and Roots-type blowers).

When the company’s founder died in 1929, General Motors added Allison to its corporate portfolio. Since then, Allison has been at the forefront of its field, from the 1947 V-drive transmission to the Vietnam-era M551 tank to its new “world transmission.”

The company still focuses its energies on designing and producing automatic transmissions for trucks, buses, off-highway equipment and military vehicles. Allison's excellence has earned the company an 80 percent market share for medium- and heavy-duty commercial transmissions. 

That expertise now belongs to The Carlyle Group and Onex Corp. The former is a private equity firm deeply involved in military contracts; the latter is a Canadian conglomerate with their mitts in everything from airplanes to makeup.

The new owners get Allison’s global sales and distribution network and seven (out of eight) manufacturing facilities. GM retains the Baltimore plant, which makes, amongst other things, hybrid drivetrains.

Allison’s two-mode hybrid system has been a huge commercial success. The system marries an internal combustion engine to a hybrid transmission: two electric motors/generators inside an infinitely variable transmission. With a nest of nickel metal hydride batteries, a vehicle using the Allison system can drive under electric power, combustive force or an adjustable combination thereof.   

Buses with Allison’s hybrid system schlep passengers in Seattle, Philadelphia, Minneapolis, Portland, Salt Lake City, Austin, Hartford, Houston and 38 more U.S. cities and parks (e.g. Yosemite). The hybrid-equipped vehicles achieve some 50 percent better fuel economy than diesel-only drivetrains.

The system also reduces emissions: nitrous oxides (50 percent), particulate matter(90 percent), carbon monoxide (90 percent), hydrocarbons (90 percent) and cardon dioxide (50 percent). Allison’s parallel hybrid electric system is quieter than its peers and faster off the line. And it's both scalable and adaptable; it can be fitted to nearly any size vehicle, front or rear wheel-drive.

Before The General off-loaded Allison, GM Powertrain’s group vice president proudly declared Allison’s handiwork “the most efficient hybrid architecture available in the world today.”

At the time, Tom Stephens also promised that “Our Allison Electric Drive System will help establish hybrid technologies as effective, practical and commercially viable beyond mass transit applications."

Hence GM’s retention of the Baltimore plant, where Allison is adapting their hybrid system to the automaker’s GMT-900-based SUVs. The Allison divestiture ought not interfere with the implementation of this program.

That said, the final decision on who gets what patents or rights to Allison’s hybrid technology is likely thousands of billable hours away. The future of GM's two-mode hybrid co-development partnership with Chrysler and BMW is also an open question.  

Meanwhile, GM is exchanging Allison’s enormous potential in a growing field– and a not inconsiderable $2b annual turnover– for an immediate $5b cash injection. You could say it’s the bird-in-the-hand thing. But putting down your leg up on hybrid know-how seems more like a biting-off-and-swallowing-the-hand-that-feeds-you kind of thing.

Some analysts have lauded the Allison sell-off, claiming it brings GM's management team "closer to their core business.” That sort of spin is almost believable when referencing The General's decision to sell off half of its GMAC finance unit to the ravenous three-headed dog. But when you’re talking transmissions, the spin stops here. What’s more at the heart of an automobile manufacturer than the greasy bits that make the vehicles, you know, motive? 

You don’t have to look too hard at the Allison sale to see that it reeks of desperation. There’s only one reason GM sold Allison: cash. There are only two possible motives. Either GM’s roasting in a cash conflagration or Rick Wagoner’s telling it like it is: the company is building-up a war chest to invest in the kind of new technology they just sold. Occam’s razor that.

In June ’05, GM CEO Rick Wagoner unveiled his turnaround plan for the beleaguered automaker: accelerate new products, eliminate discounts, renegotiate union contracts, import parts from China and downsize to match diminished demand. The last of these five points captured the critics’ imagination. “You can’t cut your way to profits,” they warned. Wagoner reacted with characteristic bravado: “We aren't going out of business in the next six months.” One wonders how those words would sound today, two days after the world learned that GM’s June sales slid 21.3 percent.

By now GM has a lot of practice explaining operating losses, shrinking sales and lost market share. Still, Black Tuesday challenged veteran mouthpiece Paul Ballew’s exculpatory skills. Once again, Ballew was determined to convince GM’s camp followers that the automaker’s sagging fortunes actually represent good governance and bad luck. To that end, Ballew rounded up the usual suspects.

GM’s Spinmeister began by pointing out that the showroom massacre was “partly attributable to a planned reduction of an additional 13,487 daily rental sale vehicles.”  Although Ballew did his best to headline the fact, empirical analysis suggests additional emphasis on the word “partly.” In June, GM’s sales fell by 86,825 units (320,688 vehicles vs. 407,513). GM’s reduced fleet sales only account for 15.5 percent of the total tumble.

Ballew then trotted-out the old “soft industry” excuse. Only it turns out the U.S. automobile industry has an airtight alibi. According to Autodata, American automobile sales fell just three percent in June; from last year’s 1.5m to this year’s 1.46m. The numbers clearly indicate that the industry was tucked-up in bed at the time of GM’s bloodbath.

And anyway, how do you explain the fact that GM’s transplanted competition went nuts? Nissan posted a massive 22.7 percent sales increase. Toyota’s turnover rose by 10.2 percent. Honda’s sales ascended by 11.5 percent. Hyundai’s sales climbed 11 percent.

Surprisingly, Ballew says GM wasn’t surprised by their [continuing] shimmy down the sales charts. “We had very strong retail sales in June and July a year ago, so we knew we'd have a tough time on the retail side.”

Yes, well, that's what happens when you offer zero percent financing to anyone with a pulse for six days, and then don't. In any case, there's no getting around the fact that GM sold 50k units less in June than it did the previous month.

Ballew identified two legitimate conspirators: rising gas prices and slowing housing starts. The twin terrors tore into GM’s truck sales, scything 22.9 percent from the previous June's total. Sales of the relatively new GMC Sierra and Chevrolet Silverado pickup trucks fell 26.5 and 23.5 percent respectively.

Surprisingly, Ballew says GM was surprised by Toyota’s aggressive offers on their Texas Tundra: zero-percent financing for 60 months and $5k in dealer incentives. The fact that GM failed to realize that their deep-pocketed nemesis would slap cash on the dash to attain their 200k per annum Tundra target shows GM’s woeful lack of situational awareness.

It gets worse. Ballew hinted that his employer will react in kind, increasing incentives on its pickups to protect its turf. As predicted, Toyota’s entry into the market is gradually and inexorably taking its toll on the profitability of GM’s last remaining cash cow.

Meanwhile, GM's new product cadence has peaked, and its eight brands are in dire straits. Caddy (-28.4 percent), Chevrolet (-23.5 percent), Hummer (-10 percent), Pontiac (-18.1 percent), GMC (-16.1 percent), Buick (-30.4 percent) and Saturn (-8.8 percent) all sucked the joy out of June. Only Saab stayed above water, adding 1066 sales, topping out at 4361 vehicles.

In silver lining search mode, Paul Ballew and Marketing Maven Mark LeNeve pointed to the early success of the SUV-sales-stealing Lambda triplets (Acadia, Outlook and Enclave) — although admitting you can’t build a new model fast enough to meet demand is a curious sort of boast for a company that's boasted about reduced production. 

So, where does all this leave Rick Wagoner’s turnaround plan? Accelerate new products. Flop. Eliminate discounts. Nope. Renegotiate union contracts. Health care “giveback” swallowed by soaring costs. Import cheaper parts from China. Check. Trim excess capacity. Who cares? If you didn’t believe it then, believe it now: you can’t cut your way to prosperity.

To wit: GM’s U.S. market share fell 3.3 percent in June, down from last year's 25.4 percent to this year’s 22.1 percent. (Down 8.1 percent since '90.) Toyota’s U.S. market share now stands at 16.9 percent. When you consider the disparity in the two automakers' dealership count– 7715 vs. 1740– it's easy to see which company is headed for Chapter 11, and why.

In fact, since Rick Wagoner launched his turnaround plan, GM’s market share has shrunk by 5.2 percent. No matter what else GM's CEO may or may not have achieved in that time, the figure is an irrefutable condemnation of his administration. GM's Board of Bystanders granted Rick Wagoner a bankruptcy-proof pension. It's time they activate it.

Let’s keep things in perspective. Delphi has been in bankruptcy since October 8, 2005. As in "we need protection from our creditors and a new way to do business or we’ll have to throw all our workers onto the streets." Since the former GM subsidiary filed for Chapter 11, the company has lost billions of dollars. To view Delphi's deal with the UAW as a demonstration of the union’s ability to “accept reality” is like suggesting that a doctor looking at a patient with multiple bullet wounds should be praised for thinking a bit of surgery might be in order.

As Frank Williams pointed-out previously, the union has already drained huge amounts of blood money (GM’s) from Delphi’s wounded body. By the time yesterday’s UAW contract vote rolled around, 8k of Delphi’s 25k UAW workers had already been bought out (with General Motors’ money). Of the 17k remaining members, 4k more get a buyout and/or buy down program (financed by General Motors). The rest exchanged job security for pay and benefits cuts.

Well, not exactly. The agreement allows Delphi to close or sell 21 of its 29 U.S. factories. While there are lay-off payments (up to $40k) and “flow back” provisions for workers whose plants are history, a great number of Delphi’s union members will be SOL. And while the words “pay cut” may be music to Detroit execs’ ears, it’s actually more like a glass ceiling; the majority of Delphi’s current UAW members already work at the lower wage rate. 

In short, the UAW arranged a pay-off for 4k GM-era members, maintained the status quo on pay for the remaining workers and “allowed” Delphi to downsize its U.S. operations by around 80 percent.

Ah, but does this set a pattern bargaining precedent for the UAW’s upcoming negotiations with GM? Does the Delphi agreement reflect a “new era” in labor negotiations that will allow General Motors to reduce its wage costs to parity with Toyota and transplants and, thus, turn its business around? Nope.

Again, Delphi is a bankrupt company hemorrhaging money. GM is a going concern, albeit one that’s hemorrhaging money. In fact, the new Delphi – UAW contract will cost The General $7b (for pension and retiree health care expenses), a one-time $500m payment (when Delphi emerges from bankruptcy protection) and annual payments of $400m to $500m after that (for an “undetermined number of years"). 

[GM says a forthcoming $2b reduction in their Delphi-related parts bill cancels out the cost of the annual payments. That remains to be seen.]

Anyway, when it comes to their upcoming contract with GM, the UAW will abide by the same principle that informed the Delphi deal (and every other deal they’ve ever made): get as much money as possible for their members. Nothing wrong with that. But you can't ignore the fact that the union was perfectly happy to let/watch Delphi fall into Chapter 11 before [eventually] agreeing to this week’s contract. 

I know, I know: management. Even so it’s not credible to think the UAW will cut a similar deal with GM to prevent the automaker from tipping into bankruptcy. Even though The General’s mortgaged up to its eyeballs and burning through cash, the company’s ability to stay in business is proof that it can afford its UAW contracts. You know; if you see it that way.

Of course, the "you" in question here are GM’s UAW workers. While Delphi’s UAW workers had over two years of doom and gloom in which to contemplate a jobless future (and then four days to forestall it), GM’s UAW workers see signs of life everywhere.

GM’s foreign subsidiaries are going great guns. There’s a whole bunch of shiny new products on the showroom floor. Five hundred engineers are working on fuel cells. CEO Rabid Rick Wagoner, Car Czar Maximum Bob Lutz and the rest of The General’s high-flying management team are still swanning around in their Gulfstream jets, banking millions in bonuses and stock options. General Motors’ stock price is now sky high. And just this week, GM sold its Allison Transmission unit to a pair of buyout firms for $5.6b.

And they want me to work for $14 an hour?

UAW boss Ron Gettelfinger is no dope. He’s looked at GM’s books. He knows what’s really going down (market share, for one, margins for another). But at the end of the proverbial day, GM’s UAW workers must agree to cutbacks, givebacks, buyouts or layoffs. At Delphi, they were already in the shit, convinced they faced a choice between nothing (chapter 7), a little more than nothing (Delphi’s original offer) and something (the final deal). Similar concessions from GM’s workers are not likely.

Until GM goes bankrupt. When GM files for Chapter 11, its workforce will finally start coming ‘round to the idea that it's time to give back what they already enjoy. Until then, why would they? 

GM had an excellent May. Despite the title of this series, I’m not going to dwell on the fact that The General’s ten percent year-on-year sales increase is actually a rebound from a disastrous May ’06 (overall sales are still down 3.2 percent compared to the first five months of last year). And I won’t bother pointing out that the majority of GM’s one percent market share gain came out of Ford’s two percent market share loss. Or that GM’s “rising tide lifts all boats” progress pales in comparison with the sales tsunami that Toyota’s [still] riding deep into the American heartland. No I want to focus on debt.

GM is carrying a monumental amount of debt. Forbes pegs the stat at $445b, against a market capitalization of $17b. General Motors has so much debt that even their high-flying foreign divisions know it’s hammer time (“You can’t touch this”). Only a major recovery in the black hole known as GM’s North American market can hope to pay off the interest on the company’s loans– never mind reduce the principal, break even or, Heaven forfend, bank a surplus. 

Less than fifty years ago, General Motors had no such burdens. It was one of the world’s largest multi-national, multi-industry conglomerates. The company was so big and so rich it spent all its energies extending and embellishing its status. GM had so much money swilling around its corporate coffers it made money loaning its money to other people.

Those days are long gone. While auto industry pundits focus on the fading fortunes of GM the carmaker, it’s important to remember that virtually all of GM’s ancillary businesses– from refrigerators to airplanes to defense research to locomotives– have been de-acquisitioned. More recently, GM's been jetisoning bits of its core business, from shares in foreign automakers to the entirety of their [now bankrupt] parts provider Delphi.

The full list of items included in GM’s epic family silver sale is too long to provide here. Suffice it to say, in the 15 months to January 2007 alone, GM shed $17b worth of assets. Last month, the corporation hocked their remaining 49 percent share of their GMAC financial unit for $4.1b. Allison Transmissions is next to go. Aside from a few under-the-radar bits and bobs, there’s literally nothing left to sell. (Would YOU buy Saab?)

So it’s on to the plastic! Last Wednesday, GM replaced $1.1b in convertible securities with new unsecured convertible notes. As we reported previously, GM plants and machinery have also been “monetized.” Not to put too fine a point on it, the quintessential American automaker has reacted to the violent contraction in its Empire by going into eyeball level debt. Their dynastic dreams are history (literally). Servicing the debt is Job One.

In the last decade, only two profit engines have been able to perform that life-sustaining task: North American truck sales and GMAC. Now that GM’s pawned its remaining piece of GMAC, the golden goose is dead. High margin pickup trucks and SUVs are the last great hope for bailing out the artist once known as the world’s largest automaker. 

While GM's PR machine trumpeted May’s rise in full-sized truck sales, America’s once profitable pickup truck and SUV market continues to contract. Last month, for the first time since 2002, U.S. dealers sold more cars than trucks. Cars accounted for 51.4 percent of all new vehicle deliveries. Aside from the $5k+ incentives GM’s piling on its slow-selling vehicles to staunch the truck-shaped wound, here’s the really scary bit: transplants scarfed-up 61.4 percent of last month’s 804,196 car sales.

Strangely, the Dallas News reports that GM is planning to increase production of the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade at their Arlington, Texas plant in August. Either GM’s planning a major new incentive campaign in July or they’re stockpiling product for a United Auto Workers’ strike. No matter; there’s little expectation that SUV sales can generate the gi-normous profits that management squandered to get them into this mess.

On the face of it, everything’s going to be all right. GM will use the debt/cash to complete its turnaround plan, and then reduce its debt. But first it's got to placate (i.e. pay off) its former workers over at Delphi. And do something about (i.e. pay off) that union guy in Canada who’s watched too many episodes of Dallas ("I’m gonna bring Ricky down, if I have to destroy GM to do it!"). And fund their on-again, off-again, on-again, off-again, on-again range of rear wheel drive-cars. And, perhaps, pony-up a bil or so for the new “Beta” small car platform.

GM’s “We Heart Debt” strategy has topped-up their bank account to git ‘er done (even if it don't). But here’s the problem: they’re tapped out. If there’s a cash-related setback– be it a union strike, gas price spike or a big rise in interest rates– that’s it. Chapter 11. What are the odds?  

As GM tosses the last pieces of furniture into the cash conflagration burning down their house, you are going to see some seriously weird shit. Saturn’s new tagline is the most recent anomaly from the End of Days department: “Rethink American.” Given that the new Saturn Astra will be built in Belgium and the new Saturn Vue will be built in Mexico, you’ve got to wonder what bright spark (no concept car intended) OK’ed an ad campaign based on post-modern irony. Oh wait; they’re serious. They want customers to equate Saturn's Opelized lineup with American patriotism. How bizarre is that?

Rivet counting readers know that Chevy’s tagline– “An American revolution”– ignored a Korean-made car in that brand’s stable. And a Canadian Impala. And a Mexican Avalanche, Silverado, Suburban and HHR. They might also be aware that every car in Saturn’s new lineup will soon be based on European Opel designs– save the Outlook and Sky, which both entered Saturn’s orbit via the time-honored GM tradition of badge engineering.

Business-oriented readers might wonder why Saturn would play the American card when the corporate mothership has staked its future on “world cars” built on shared platforms. Or how an ad agency named Deutsch (which is German for “German”) figured that a Saturn ad campaign appealing to American patriotism would work when Chevy’s “My Country” ad campaign did sweet FA for the Silverado.

If you’re not a member of either camp, how about this: Dan Keller, Saturn’s marketing director since January, explained his brand’s new approach by claiming Saturn was free to re-invent itself. Why? “We don't have all the baggage the domestic car companies have.” So the marketing director responsible for an American-themed re-branding campaign forgot that Saturn is a division of the largest car company in the U.S.? Weird.

In fact, the division GM CEO Roger Smith Saturn founded to be GM’s “import fighter” is now using imports to fight cars built by foreign-owned companies in the United States. Go figure.

Meanwhile, as I said, GM is throwing pieces of its [former] American Empire on its own funeral pyre. The General is now looking to sell its medium-duty truck unit to truck and engine maker Navistar International Corp. The news comes hot on the heels of the revelation they’re trying to unload Allison Transmissions.

While medium trucks are a relatively small business for GM (last year they sold 59k vehicles under various nameplates), Allison is a large and thriving concern. The division currently adds about $500m cash flow to The General’s coffers. And yet GM wants to unload the company for about $3b. Wants or needs? While the spinmeisters talk about “focus,” we’re keeping an eye on the cash.

As, no doubt, are the private equity vultures who’ve been circling GM for some time. And now that Cerberus has thrown open the factory gates of Hell over at Chrysler, it’s only a matter of time before someone, somewhere figures out a way to extract financial value from GM by carving it into pieces. You don’t have to be a frustrated Corvette intender or a Hummertainment Center owner to know that there are significant bits of GM with latent value– if only someone could sever the bureaucratic umbilical cord.

Truth to tell, even Saturn would be better off on its own. Rethink American? What the Hell’s wrong with American? And what the Hell was wrong with Saturn? Not so long ago, Saturn built an innovative, home-grown product (with union labor). The brand offered no haggle pricing and delivered an unparalleled dealer experience. Saturn had some of the highest customer loyalty in the history of car retailing ever. From the git-go, Saturn was a hit. And then GM killed it.

Through neglect, indifference and in-fighting, GM murdered Saturn’s product line and disbanded their design team. They even took away Saturn’s corporate offices. GM’s “different kind of car company” became the same old “nothing very special but here we are, still nice people, still selling cars, if only just.”

Yes, you’ve gotta credit GM’s Car Czar and Co. for switching Saturn’s product lineup from famine to feast. But stuffing a bunch of products (however excellent) into Saturn showrooms without having a coherent, unifying reason for them being there won’t resuscitate the brand. In a hyper-competitive market, you need more than a few good products. You need a raison d’etre.

In fact, it’s painfully clear that GM’s overpaid execs don’t have a clue about branding. Not one. They don’t understand that all brands are built on trust: a promised fulfilled. Spinning tales about your product that are patently or even subtly false breaks the brand’s promise. At that point, you’re done. At that point, it’s time to sell all your worldly goods and disappear. Which is exactly what GM is doing.

GM’s Board of Bystanders just voted to allow its top execs to resume trading their company’s shares. GM’s big dogs have until May 21 to buy, sell, or buy and then sell their company-subsidized stock. According to Bloomberg News, it’s “another sign of confidence at GM.” Viewed another way, it’s a sign of impending doom. This fall, after GM fails to wrest any significant concessions from the United Auto Workers (UAW), after the full extent of GM’s cash conflagration becomes apparent to the Street, bankruptcy will once again loom large and GM stock will tank.

Looking at General Motors’ inflated stock price, I reckon Wallace Hartley’s band could have taken a few anti-anxiety tips from GM’s spinmeisters. GM’s PR machine has successfully focused the minds of both the press and the investment community on cost cutting, union buyouts, new products, theoretical new products, Chinese Buicks, carbon cap groups, anything and everything save the only thing that really matters: cash.

In its last quarterly statement, GM reported that it has $24.7b in the hopper. It’s generally accepted that the automaker needs $10b to keep the lights on (i.e. pay suppliers). So General Motors is $14.7b away from filing for Chapter 11 protection. Of course, that’s the best (worst?) case scenario; if General Motors has any sense, they’ll declare bankruptcy before hitting the wall and save some much-needed cash for restructuring. Anyway, they’re headed in that direction.

Last quarter, GM reported that it had immolated $1.7b of its cash hoard. All things being equal (i.e. no turnaround), the company’s coffers will be lightened by $6.8b this year. If GM’s cash burn continues at that rate, the company has a little over two years before bumping-up against the 10 bil barrier.

But all things are not equal– even without supposing GM’s turnaround turns into a nose dive. For one thing, the first quarter’s results are not the harbinger of things to come.

Last quarter, GM’s accounts payable rose by roughly a billion dollars. It’s entirely possible that the extra bil represents the current state of pay and belongs on the cash burn side of the ledger. If so, that would raise the [artist formerly known as the world’s largest] automaker’s quarterly cash burn to $2.7b per quarter. At that pace, General Motors could only evade bankruptcy for another year and four months.

At the same time, GM’s also declared that it will spend between $8b and $9.5b on capital expenditure (i.e. developing new products) this year. In the first financial quarter, GM spent just $1.2b of that total– some $800m to $1.17b less than one quarter of the total amount of their planned “cap ex.” If they spread the rest of the expense evenly over the last three quarters, that’s an additional $277m to $392m heaped onto GM's quarterly cash burn.

There’s one reason and one reason only why GM’s feeling the burn: the North American market. This quarter, GM North America (GMNA) posted an adjusted loss of $85m. This after selling the family jewels, cutting structural costs to the bone, trimming production and, most importantly, introducing a raft of new products. If GMNA’s not making a profit now with their new metal glittering in the marketplace, how will they do so in the short to long-term future?

There’s only one answer to that vexing conundrum: drastically cut the UAW’s wages, health care and pension costs. As we’ve said before, there’s not a hope in Hell that’s going to happen. For one thing, unions are in the business of increasing wages and benefits. For another, CEO Rick Wagoner’s $10.2m smash and grab compensation package has destroyed management’s bargaining position. But most critically, GM is profitable.

Although GM’s European operations are flat, GM Asia Pacific (GMAP) is on fire. Low-cost (non-union) labor and hot products have increased the unit’s sales by 20 percent, boosting revenue by 35 percent to $4.6b. GM Latin America, Africa and Middle East (GMLAAM) is also cranking. First quarter net income tripled to $201 million in the first quarter of 2007. Russia, India, China– the rest of the world is GM’s oyster.

This international dichotomy plays straight into the union’s hands. As long as GM’s foreign relations are banking bucks, their American and Canadian unions are happy to tough it out, take Johnny Foreigner’s money and keep on keeping on. If GM somehow turns its North America operations around, great! If not, so what? Let it limp.

Which brings us to the end game.

GM’s foreign operations can’t grow quickly enough to damp down the flames of GMNA’s cash burn. And even if they did, GM’s Board of Bystanders would eventually recognize that GMNA is a bottomless pit. GM’s foreign ops will need every dollar they make to compete against cash rich Toyota. One way or another, GMNA’s going down. GM execs are banking on it right now. 

On Friday, Senator Carl Levin condemned a draft Commerce Committee bill revising federal Corporate Average Fuel Economy (CAFE) standards. The bill would raise the required average to 28.5 mpg by 2015 and 35 mpg by 2020, with four percent annual increases thereafter. The Michigan Democrat threatened to filibuster the bill. In fact, Levin should shut the Hell up. If passed as is, the Commerce bill would create The Mother of All Loopholes. 

Part of the proposed Commerce bill directs the National Highway Safety Traffic Administration (NHTSA) to change passenger car fleet averages to a system based on a given vehicle’s “footprint” (wheelbase times width divided by 144).

To understand the implications of this change, consider the impact of the same “reformed system” on light truck CAFE standards, which take effect this year (albeit on an opt-in basis until 2010).

Light truck footprint-based fuel economy standards are based on a sliding scale. Simply put, smaller vehicles must be significantly more frugal than big ones, and every light truck within that spectrum must meet a size-specific mpg target.

But there is no requirement to create a mix of vehicles whose combined fuel economy adheres to a federally mandated overall average. In other words, according to the new rules, the sliding scale IS the Corporate Average Fuel Economy standard, NOT a manufacturer's fleet-wide light truck average.

The change has freed light truck manufacturers from any obligation to build a “mixed fleet” of vehicles that meet an overall fuel economy average. I repeat: Ford, GM, Dodge, Toyota, etc. can build any size truck they like as long as it meets its size-specific fuel efficiency target. 

If cars switch to this same system, they’ll be subject to a similar curve as their light truck counterparts: small cars will have to meet much higher fuel efficiency standards than mid and large-sized cars. And domestic manufacturers will be under no obligation to build a mix of vehicles that achieves an overall average. As long as any given passenger car meets the appropriate size-related standard, they’re good to go. 

The United Auto Workers (UAW) appreciates the enormous implications of this rule change. The UAW’s legislative director told the House Commerce committee that his employer vehemently opposes changing passenger car CAFE requirements to a footprint calculation. lan Reuther said the move would lead The Big 2.5 to completely abandon the small car market to foreign manufacturers (eliminating union jobs in the process). 

True dat. It’s an open secret that Detroit only makes econoboxes to meet CAFE standards. They’re a “loss leader” that allows them to sell large, large-profit vehicles. Without a federal obligation to build uncompetitive, unprofitable small cars, Detroit would cut bait and fish.

And if you thought that higher CAFE standards would lead to more people buying smaller cars, think again. In fact, basing standards on vehicle footprints could lead consumers in the opposite direction.

In a document outlining the impact of “reformed” standards on light trucks, the Department of Transportation noted “Downsizing of vehicles is discouraged under Reformed CAFE since as vehicles become smaller, the applicable fuel economy target becomes more stringent.”

If that doesn’t make the new bill on federal fuel economy standards all Detroit’s Christmases rolled into one, the new proposed CAFE legislation also includes a "get out jail free" card: NHTSA can lower fuel economy mandates if the agency determines they’re not “cost effective” or “feasible” in a given model year.

It’s a mostly forgotten fact that Congress has already charged NHTSA with setting CAFE standards. They’re supposed to do so at the “maximum feasible level” according to “economic practicability, technological feasibility, the effect of other standards on fuel economy and the need of [sic] the nation to conserve energy.”

Obviously, Congress has usurped NHTSA’s authority. Worse, the new proviso or “off ramp” turns NHTSA’s theoretical CAFE evaluations into an all-too-real politically-charged adjudication.

When an automaker or group of automakers ask the agency for a CAFE wavier based on poverty or technical challenges, how would NHTSA make its decision? Does Congress seriously expect NHTSA to examine an automaker’s books or R&D labs to determine whether to waive CAFE compliance?

But wait there’s more! Under the proposed legislation, Detroit automakers would be able to use CAFE credits to meet fuel economy mandates for five years (two more than currently). AND they’d be able to buy and sell credits amongst fellow manufacturers.

I’m having trouble getting my head ‘round all this. Unless the Senate strips off all these little goodies, Detroit’s bitching about a federal bill that will nearasdammit remove their unprofitable CAFE commitments.

Perhaps they’re getting the media to focus on illusory CAFE numbers so they won’t consider the fine print that renders them largely meaningless. Is Detroit really that devious? If they are, how did they get themselves into this mess in the first place?

"We have a continued sense of high urgency." Last Sunday, I ressurrected auto industry analyst Mary Ann Keller’s 2005 call to GM to face its problems with “a sense of urgency.” Yesterday, GM’s CFO reassured analysts and reporters by seeing Keller’s heightened mental state and raising it a Mel Brooks. High urgency? What the bleep is that? Whatever it is, it better be the management equivalent of Viagra.

"Our business is not generating the kind of returns we expect,” Fritz Henderson told the money men and journalistic jackals, announcing a 90 percent drop in GM’s first quarter earnings (from $602m to $62m). Ya think?

At the risk of overthinking this, I find it a bit strange that Fritz said GM’s not getting the returns they “expect” not “expected.” I take that to mean there’s an ongoing discrepancy between management expectations and market reality, in a “what the Hell do we do now?” kinda way.

Just in case we hadn’t quite grokked the overarching irony of GM’s circumstances, while Fritz was busy yap dancing, Car Czar Bob Lutz told a hack that GM’s on-again, off-again, on-again, off-again Zeta platform cars are on again. Maybe. Meanwhile, GM's [theoretical] world-beating small car is still stuck in global limbo.

Despite ongoing product confusion, results from GM's overseas operations (net income up $264m to $304m) indicate that it would be relatively smooth sailing for the corporate mothership if it weren’t for the gaping hole in its side known as the North American automotive unit (GMNA).

Although GMNA's first-quarter net losses narrowed from $292m to $46m, Fritz [rightly] credited structural cost savings. In other words, we’re cutting our way to prosperity! Only, you know, not. But hey! GMNA's revenue per vehicle (RPV) rose by $1,064!

Yes well, in a perfect world, an uptick in small car sales would have lowered the number. While GM is selling larger, more highly contented vehicles, they're flogging fewer of them (sales down 9.5 percent in April, 100k fewer vehicles sold during the quarter). And the revenue figure doesn’t include the cost of the additional content. In fact, the actual cost per vehicle could well be rising faster than the RPV.

Addressing the subject of sinking sales, Fritz flagged the fact that GM’s rental fleet cutback accounted for 60 percent of the automaker's reduced throughput. U.S. retail sales were “only” down four percent. Yes but– sales of the vehicle carrying the hopes of a nation the company– the refreshed Chevrolet Silverado pickup– tumbled 7.2 percent.

And things are about to get even trickier. GM’s urgently high— I mean “highly urgent” CFO acknowledged the United Auto Workers (UAW)-shaped storm clouds gathering on the increasingly bleak horizon. Fritz played the “we’re all in this together” card.

“We have to continue to make significant improvements,” Henderson admitted, continuing the automaker’s unspoken policy of not speaking about long- or short-term targets. “That is on our minds as we go into collective bargaining, as well."

As predicted, GM’s almost about to gonna sort its union problems at its Lordstown and Fairfax factories. This proto-success returns the Delphi UAW UXB (unexploded bomb) to its rightful position under the Chairman’s chair.

To prepare for a UAW payoff at their bankrupt former subsidiary and mission-critical parts supplier, GM's allocated an additional $100m (up to $500m) for the first year of any Delphi deal. They've also increased the ongoing estimated cost of a Delphinian solution by an additional $100m per year (now $100m – $200m per year). And they still insist they're going to save $2b on parts costs over the next five years. (Someone should tell Delphi's private equity owners.) 

Short term, the Delphi problem pales in comparison to the ongoing disaster over at their GMAC finance unit. Thanks to sub-prime loan implosion, their former cash cow has turned into a vampire bat.

This quarter, GM’s 49 percent share "earned" it a $115m loss. (GMAC dividend RIP.) Fritz took a stab at singing the sun will come out tomorrow, but his heart wasn’t in it. ”When you're in the midst of the kind of maelstrom we're in with nonprime, I think it's important to take it quarter by quarter.” And take it like a man.

Bottom line: with its continuing cash conflagration, GM needs to start selling a whole bunch of profitable vehicles in North America, and soon. Goldman Sachs analyst Robert Barry isn’t optimistic. He told Automotive News that GM’s NorAm results were weak "given that we are at the peak of GM's product cadence."

Barry may not know the half of it. According to TTAC’s Deep Throat, as bad as GM is doing overall, it’s far worse on the coasts. In particular, California is becoming more and more of a GM-free zone. That situation needs sorting now, in a super highly urgent way.

But how? As long as Toyota is the price leader and GM has to discount its vehicles to sell, GMNA can only hope for breakeven or slightly better. And face much, much worse.

After Rick Wagoner “woke up” to the news that Toyota had replaced General Motors as the world’s largest automaker, GM’s CEO fired-off a post-Empire email to his execs. Rabid Rick admonished The General’s generals to stay focused on “further reducing our still huge health care cost disadvantage versus Toyota and other non-U.S. based manufacturers.” So Mr. Wagoner’s major dodos must sell the union on a “huge” health care cutback at the same time that regulatory filings reveal that the boss pulled down $10.2m in fiscal ’06 and just received a $370k increase to his base pay for '07 (regardless of results). Good luck with that.

You might’ve thought the prospect of life or death contract talks with the United Auto Workers (UAW) at both GM and Delphi would have convinced GM’s Board of Bystanders that austerity begins at home. Nope. They rubber stamped a CEO compensation package that makes a mockery of any reasonable concept of performance-related pay and insures the continuation of management – union conflict. If you need proof that it’s [lack of] business as usual at GM, well, there’s more.

In the same email, Wagoner was quick to assure his execs of that his “steady as she goes” management of GM’s decline continues apace. “Our sales and marketing strategy requires patience," Rabid Rick explained. "But it's working, and we need to stick with it.”

Putting aside the fact that only the most optimistic analyst could stretch the definition of the word “working” to cover GM’s ongoing financial losses, cash burn and inexorable market share slide, this forbearance-requiring strategy has taken a few knocks as of late.

We’ve already covered GM’s start – stop – start – stop Zeta platform program. Any hope that GM would carve itself a niche as a provider of large, comfortable, reasonably fuel efficient rear-wheel drive sedans (a.k.a. traditional American cars) is now in the automotive equivalent of cryogenic suspension. More worrying, the much-need refresh of GM’s small car platform is now stalled amidst union strife at their Lordstown factory.

On Friday, GM stopped tooling and other preparations for their Delta update. The move supposedly came after the UAW decided to dig in its heels over changes designed to make Lordstown more like a modern manufacturing facility and less like a feudal fiefdom. According to an unnamed Automotive News source, local negotiations to remove janitorial and truck unloading jobs from union control and limit overtime fell apart when the national union stepped in and said “No.”

For their part, the UAW claims they pulled the plug on the agreement after learning that GM had decided to postpone development of the new Delta vehicles. The dispute has widened to include GM’s Fairfax facility, tipped to produce the new Epsilon 2-based mid-sized Malibu— another vehicle upon which GM’s passenger car hopes depend. Same deal: contract talks suspended, tooling stopped, or vice versa.

Either way, on the face of it, this is old school stuff. In the run-up to national contract talks, GM threatens to take work away from the UAW. The UAW threatens to strike. GM execs blink, pay off the union and call their stock brokers with the glad tidings.

There’s not a shred of doubt in my mind that GM and the UAW will resolve this dispute in the traditional manner– save minor window dressing spun as “Historic Union Givebacks II." If Rabid Rick had the balls to stand up to the UAW or the charm to seduce them, he would have– should have– done it by now.

It’s almost inconceivable; GM’s playing what the British call “silly buggers” with the UAW and critical future vehicles when they’re hemorrhaging market share, depleting their remaining cash hoard and just passed a psychological watershed that set off alarm bells in every nook and cranny of GM’s bloated Byzantine bureaucracy. I’m sorry; the Toyota tipping point SHOULD have called GM’s multitude of minions to battle stations, but didn’t.

When will GM’s Management and its Board of Bystanders develop what longtime GM watcher Mary Ann Keller called a “sense of urgency?” In case you’ve forgotten, Ms. Keller sounded the alarm back in November 2005, when Toyota first passed GM in the U.S. market (if you remove fleet sales from the equation). At the time, Keller was convinced GM would act to address its flawed fundamentals because, well, it had to.

One wonders what Ms. Keller made of GM Car Czar Bob Lutz’ reaction to the Toyota coup. When a reporter confronted Maximum Bob with the news that GM's global reign was over, the well-paid and pensioned executive issued a terse response: “So what?”

And then Lutz, Wagoner and the rest of GM’s management went back to work, implementing a turnaround strategy devoid of stated targets or a deadline for a return to profit. If the definition of insanity is doing the same thing over and over again expecting a different result, then that's just plain nuts. 

“Our goal has never been to sell the most cars in the world.” For those who’ve been following GM’s fall from grace, this statement– following the revelation that GM has ceded its "world’s largest automaker" title to Toyota– probably comes as no surprise. Or maybe it does, because it arrived via Toyota spokesman Paul Nolasco. Or maybe it doesn’t. Toyota achieved this monumental victory by focusing on a process that led to a goal; whereas GM has been all about the money, for quite some time. And therein lies the tale.

You don’t need to compare long and short term business plans to understand the difference between Toyota and General Motors; although if you did, GM’s recent inability to devise a coherent platform strategy or develop a world class economy car would certainly give you pause for thought. All you have to do is sit in a few cars.

You can argue that the relative quality of GM's interior plastics don’t make no never mind. You could say that a four-speed gearbox is plenty of cogs, given their robust engineering, adequate performance and reasonable mileage. You could prevaricate over pushrods or defend GM's value-for-money vis-a-vis the competition. You could conclude that there isn’t any significant, appreciable difference between a current Toyota and an equivalent GM product. Not now. Not anymore. And you’d be wrong.

Don’t take my word for it. In the first three months of this year, Toyota sold 2.348m vehicles. In the same period, GM sold 2.26 million vehicles. All of these buyers had a choice. They chose Toyota over GM because they believed the Toyota product was superior. Yes, “believed.” Even if the “real” difference between a Toyota and a GM product exists entirely in their minds, well, it's still a product-related reality.

Automaking is not the French Revolution. GM can’t simply tell car buyers to forget the past, history starts here. No wait, here. OK, here. Consumers remember their past experiences with an automaker’s products. Just as a carmaker can build a reputation with years of consistent quality and service, bad quality and lousy service can destroy it by the same process, only faster.

Which is just as it should be, and exactly what GM has done. After years of alienating customers with shoddy, non-competitive products and indifferent (or worse) treatment, they’re reaping what they’ve sown. It’s a perfect example of a free market in action, or, if you prefer, simple Darwinism.

Here in the world’s biggest automotive marketplace, GM has provided a textbook example of de-evolution. When I started the GM Death Watch in April ’05, the company had a quiver full of domestic products ready to counter all those lingering bad vibes and “progress” its turnaround.

Including badge engineered products, GM launched the Saturn Sky, Aura and Outlook; Pontiac G5, Torrent and Solstice; Buick Enclave and Lucerne; Chevrolet HHR, Hummer H3 and Cadillac DTS. They updated the Chevrolet Tahoe, Suburban and Silverado; GMC Yukon and Sierra; and Cadillac Escalade.

While some of these models have created a buzz in the U.S. market, none has generated the predicted, mission critical market share uplift, or a return to profitability. How could they? With an estimated 7123 dealers for eight brands selling 42 models, no one model can possibly make up for the dogs, or significantly elevate earnings.

Meanwhile, in the same time period, Toyota has launched two new models: the Yaris and the FJ Cruiser. They’ve updated the Camry, Avalon, Tundra, RAV-4 and Lexus IS, ES, GS and LS. Toyota has less on its plate, and so (arguably) makes it better and (inarguably) keeps it fresher.

Why wouldn’t they? With 2422 dealers for three brands selling 30 models, the company has the development money, marketing budget, healthy dealer network and low cost structure it needs to stay ahead of the pack.

Make no mistake: Toyota knows exactly what it’s doing. It will continue on its current trajectory until GM’s world domination is a distant memory. Not that The General’s destruction is their goal. As company spokesman Nolasco said, "We simply want to be the best in quality. After that, sales will take care of themselves."

The truth is GM has cleared a path for Toyota. GM blurred its once proud brands through botched badge engineering, and then tried to fix the problem by adding brands rather than retrenching. Its fate was sealed. Given that GM’s now wearing two straitjackets– one with a union label and one enshrined in U.S. dealer franchise law– it cannot escape the consequences of its arrogance and short-sightedness. All that’s left is the unraveling.

When Car Czar Bob Lutz told the world that GM was putting the Zeta platform on hold, it was the second time the rear-wheel drive (RWD) program had been chopped. Two years ago, GM killed Zeta for being too pricey. Less than half a year later, the RWD program was resurrected; working with GM’s Holden division supposedly made it feasible. When Bob announced GM had second thoughts about its second thoughts, he blamed the double volte-face on government fuel economy and emissions legislation. In fact, there’s both less and more to this decision than meets the eye. 

First, understand this: the regulations in question have yet to be finalized, let alone codified. While politicians have discussed the possibility of increasing federal CAFE (Corporate Average Fuel Economy) standards, no changes have been made. And while the Supreme Court has ruled that the EPA (Environmental Protection Agency) can/should regulate carbon emissions, any such action must first go through a lengthy process of debate, drafting and implementation.

Bottom line: any GM carping about government interference is preemptive/speculative. And there’s nothing about the regulations that prohibits the development of fuel-efficient RWD cars through alternative propulsion, displacement-on-demand, turbo-diesels or any number of technological solutions. In fact, GM’s decision to kill Zeta may have less to do with government regulations than commercial realities.

On January 9, 2006, GM announced they were going to build a rear-wheel drive Camaro. The automaker took considerable heat for being late to the RWD party. The fifth-generation Ford Mustang had been on sale for over a year; the fifth-generation Camaro wouldn’t arrive until (model year) 2009. GM also announced the ’09 Chevrolet Impala would switch to the Zeta platform to take on the Chrysler 300 (which also arrived in ’05).

At first glance, the Mustang and 300 were worthy targets. But, as pundits warned at the time, the Mustang and 300 were niche products— big niches, but niches nonetheless. Their stellar sales success occurred within an untapped market with limited potential growth.

Recent sales data has vindicated the soothsayers. In the last two months, Mustang sales have dropped 15 percent. Year to date, 300 sales have tanked by 22.8 percent. Both market segments– rear-wheel drive gas guzzling nostalgia-mobiles and big-ass RWD American sedans– have cooled. There is little reason to believe that GM’s “new blood” will re-ignite sales.

Zeta’s crib death could well reflect the fact that it isn’t worth the cost to develop the RWD platform for the North American market– where it would have to be produced in much larger numbers at a much lower price-point than down under (where Holden lives). Holden is still getting the Zeta platform, and the Canadian-built RWD Camaro will debut as planned, but it looks like Zeta is an evolutionary dead end.

No matter what the reason, GM has spent a lot of money NOT to build a car. And the hit to their bottom line could well be ongoing. Changing plans for the next Impala pretty much force the next design to be a “refreshing” of a car that's hardly a world-beater. 

Replacements for the Impala et al will have to wait for plan L (or thereabouts). With development times as slow as GM’s, continuity has to be job one. GM hasn’t just lost a couple of cars– they’re back to square one in their single most important car class in their most important market.

Just before Bob’s Zeta obituary (officially it’s “on hold”), the company revealed the Beat, Trax and Groove micro-concept cars. The “triplets” were nice enough small car designs, but they were nothing but pretty skins. GM gives away very little to the competition in terms of styling. Their weak point is running gear.

If GM had revealed a new global platform and matching engine, which could have worn any of the skins shown (heck, they could build them all, haven’t they seen the Scion xA/xB?), THAT would have been a suitable replacement for the ill-fated Zeta platform. Instead they gave us an ageing Emperor wearing new clothes, riding a wooden horse. 

I’m not ripping GM for dumping RWD. The question of which wheels are driven isn't nearly as important as some pistonheads believe. Nor am I all that concerned about who's responsible for GM's expensive start – stop development process. The real problem is that Zeta’s demise leaves GM’s car cupboard looking distinctly bare for another three to four years.

In the short term, GM will serve-up the Pontiac G8, updated Cadillac CTS, hybrid Saturn Aura, new Chevrolet Malibu and Camaro, a couple of over-engined Buick variants and the inherently unprofitable Astra. It's not enough. The automaker needs some revolutionary/evolutionary new small and mid-sized cars. Unfortunately, they need them NOW. If Lutz and Co. took the wrong path three years ago, once again, GM is doomed to continue offering too little, too late. 

"It was at the point where if you extrapolated that trend line out, you could see where that trend line hit the ground.” No, GM Car Czar “Maximum” Bob Lutz wasn’t referring to his employer or a bad flight in his L39 Albatros combat jet. Maximum Bob was reflecting on his infamous “damaged brand” assessment of Buick and Pontiac at the ’05 New York auto show. So how’s tricks? "They're still not where we'd like them to be,” Lutz told the Detroit Free Press, “but the vital signs have at least turned up.” In other words, they’ve gone from flatline to comatose. Nice one Bob.

In the last two years, GM has unleashed (if that’s the right word) a slew of models designed to defibrillate Buick and Pontiac. GM’s former “excitement” division unveiled the badge engineered Torrent SUV and G5 coupe, the Oprah-glorifying G6 (sedan, coupe and convertible) and the “My kingdom for a trunk” Pontiac Solstice. Buick attempted to find a pulse with the Lacrosse, Lucerne and Enclave.

When the Free Press pressed Lutz on the results of this product push, Lutz admitted that both brands have seen sales declines and trotted out GM’s excuse du jour: “cuts in rental fleet business.” Maximum Bob then insisted that Buick’s and Pontiac’s new models have helped both brands “gain traction.” Huh?

Once again, Lutz is flying blind. Comparing ’05 to ’06, Buick’s total production numbers sank 7.6 percent. In the same period, Pontiac production slipped 6.7 percent. In the first quarter of this year, Buick sales are down 30.3 percent. Pontiac’s first quarter sales have faltered 6.7 percent. If these brands are gaining traction, it’s in a distinctly backwards direction.

So, where do Buick and Pontiac go from here? Since he first assumed control over the GM Empire’s product plans, Maximum Bob has touted “fun to drive” rear-wheel drive cars as The Second Coming of General Motors. Although only one of Buick and Pontiac’s last seven models is RWD (the Solstice), each brand was due to receive a brand new RWD model– until Tuesday.  

That’s the day The Chicago Tribune reported that GM has suspended development of its RWD automobiles. "We've pushed the pause button,” Maximum Bob told journos. “It's no longer full speed ahead." MB’s mixed metaphors highlight General Motors’ abject inability to stay ahead of the product curve, or, if you prefer, get its shit together.

Maximum Bob revealed that the decision to stick with front-wheel drive (FWD) vehicles stems from proposed federal legislation that would mandate a 30 percent increase in automotive fuel efficiency by 2017. According to Lutz, "We don't know how to get 30 percent better mileage from rear-wheel drive cars.” Which raises two questions: why not and this is news?

Instead of leaving it at that and heading home in his G5 (jet, not Pontiac), Maximum Bob trotted out the same old foot dragging arguments GM's used since the federal government first got in the CAFE business: consumer expense and "you're killing me!" Without citing any internal or external studies, Lutz claimed the new regs will cost GM an additional $5k per vehicle, which they’ll have to pass on to the consumer. This, of course, is a bad thing.

"Rather than buy new, people would hang onto their old cars,” Lutz warned. “We could eat the five thousand dollars, but that would put us out of business."

I won’t bother you with Maximum Bob’s ensuing remarks about CAFE credits and global warming, which were about as factually accurate and politically correct as Don Imus’ summation of the Rutgers women’s basketball team’s hairstyles and freelance income. Suffice it to say, Lutz said GM has postponed its final decision on whether or not to completely abandon RWD cars until the U.S. government legislates CO2 emissions and revises CAFE regulations.

The implications of Maximum Bob’s remarks beggar belief: the world’s largest automaker, a vast commercial enterprise that’s hemorrhaging both money and market share, is taking a “wait and see” approach to new product development. Privately, the new product line managers for Buick and Pontiac (and Chevrolet, Hummer, Saab, Saturn, Cadillac and GMC) must be shaking their heads in dismay, if not despair.

Now you could say that GM’s decision to kill– sorry “pause”– its RWD program is the right thing to do. You could also argue that continuing down the wrong road is almost as stupid as choosing the wrong road in the first place. And you’d almost be right.

The truth is GM’s Board of Bystanders pays the automaker’s executive leadership tens of millions of dollars to make, at most, five critical decisions per year. If their Car Czar got this one wrong– moving towards RWD “fun” over front-wheel drive frugality– what else have they screwed up? I could give you a list. For now, I’ll just say this: the worst is yet to come.