It’s déjà vu all over again. GM’s sales sink, the PR flacks weave a tangled web and the product guys dangle shiny objects in front of the easily distracted press to prevent them from focusing on the company’s ongoing, unstoppable rot. It’s got to the point where Buickman, the original tin foil hat guy, can’t be bothered to pen his usual protracted rant. All we get is three sentences, the first of which proclaims “Need anything more be said?” Well, yes actually. It’s time, once again, to talk about small cars.

It’s no revelation that GM is, was and will be ill-prepared for rising gas prices and increasing demand for smaller, high mileage vehicles. Back when they launched their “new” GMT900 based SUV’s, ttac.com (and everyone else) pointed out that The General had arrived late to the high mileage ball dressed in an oversized clown suit.

That was over a year ago. By now, GM should be at least two years into a small car project (or five), getting ready to stun the market with a Fit-killer, a Versa adversary and a Yaris crusher. And?

And now Chevrolet is running an on-line competition where consumers can choose between three foreign-made mutant micro-cars: the Beat, Trax and Groove. You know, hypothetically. ‘Cause they’re concept cars.

For the next two years, consumers looking for GM’s mark of excellence on a high mileage vehicle are still left with a choice of fuel-gargling SUV’s and pickups, marginally less thirsty crossovers, a wide selection of anemic rental grade sedans, a couple of ergonomically challenged toys (a.k.a. roadsters) and a small range of joyless (if frugal) penalty boxes.

Remind me again: who’s surprised that GM’s March sales are off seven percent from last year, while Toyota’s climbed 11.7 percent, Honda grew by 11.3 percent and Nissan increased 7.8 percent? Well, no one really– save those misguided souls who think the inherently unprofitable (and anemic) Opel Astra will take the US market by storm.

Nope. The miscalculations of the past continue to haunt GM, arguably the least agile automaker on the face of planet earth.

This is the point where I usually trot out one of GM Car Czar Maximum Bob’s inane auto show pronouncements, illustrating the fact that GM is so far behind the curve they’d almost be better off waiting until motoring trends come full circle. Something like, "The real question is will we build these types of vehicles in the U.S.? Historically, these types of cars haven't done well here. But clearly, things are changing."

Normally, I’d segue into a statement about GM’s inability to catch up with the transplants’ constant evolution with timely, segment leading products. But I've discovered a far better example of The General's general cluelessness and temporal distortions, courtesy of GM’s vice president of global design.

"I think American, and [I think] big," pronounced Ed Welburn at this year's New York Auto Show. ”Big has been very much a part of America. The highways are wide, the parking lots are quite large, but the interest level is there for a smaller car…

“I think it is time, especially as people are looking for a unique offering, to be a very creative, or to at least look at a very creative offering in the small car category."

Ed is certainly a corporate survivor, but who knew he spent the last five years as a survivor on a desert island, away from the U.S. automotive marketplace? GM's going to “look" at the "possibility" of building a creative small car? As John McEnroe would say, YOU CANNOT BE SERIOUS!

He is. They are. Incredibly, a full year into an unstoppable downsizing trend amongst American car buyers, GM’s still “thinking” about the whole small car thing– while the transplants are busy gorging themselves on The General’s lunch.

Given the now familiar litany of lost sales and declining market share, this parlous state of affairs leaves GM PR flacks without a coherent story to tell. In other words, there’s spin to be spun.

“In March, we saw continued strength and stability in our retail business led by gains in mid-cars, crossovers, economy cars and luxury SUVs," said Mark LaNeve, vice president, GM North American Sales, Service and Marketing.

"The Chevrolet Silverado, GMC Sierra, Acadia and Saturn Outlook are exceeding our expectations and confirm that when you offer the best product, value, segment-leading fuel economy and the best warranty coverage in the industry, customers respond."

While we’re happy GM’s exceeding their own “expectations” (a meaningless measure if ever there was one), and we’ll defer to Frank Williams' monthly “By the Numbers” editorial to provide the obvious truth behind the hype (a few bright stars do not a universe make), suffice it to say LaNeve’s recipe is spot on. In fact, The General’s competition is using it right now to kick GM’s ass.

When will they ever learn? Never. They will never learn.  

Is it any wonder GM announced another deadbeat deal and cash incentives the day after they reported their long-delayed fourth quarter and year end financial results? Whatever else you can say about GM, you can’t fault their news management skills. If the automaker had revealed the package before the accounts were released, the discounting would have [rightly] be seen as a sign of desperation. Coming hard on the heels of a fourth quarter profit and a reduced year-on-year financial loss, the sale seems part of a successful turnaround strategy. Only it isn’t.

March madness: zero percent financing for up to 36 months and reduced-rate financing for up to 72 months, plus $1k in “customer cash.” The “Spring Sales Event” (for Chevrolet and Saturn) and “Upgrade Event” (for Buick, Pontiac and GMC) excludes Hummer, Caddy and Saab. More importantly, it includes all GM’s GMT900 SUV’s and pickups. In other words, the marketplace has ruled that GM’s Hail Mary pass is unintentional grounding.

On the macro level, the financial experts are beginning to lose faith in GM’s game plan. "For the first time in a long time, I am questioning their strategy," BNP Paribas analyst Brad Rubin told The Detroit Free Press. "The results aren't that great considering everything. It still isn't enough."

True dat. GM has cut its costs to the bone. They’ve sliced an astonishing $6.8b from their expenses. They’ve also butchered their GMAC cash cow (for a paltry $5b initial payout) and sold off everything that isn’t nailed down, including their Arizona proving grounds. The company’s launched a slew of new products. And they’re still losing money in North America. 

Forget smoke and mirrors accounting: “special charges” and “net profit.” Don't forget: (especially?) with its former CFO at the helm, General Motors filed its SEC paperwork si x weeks late AND restated its accounts all the way back to January 2002 AND admits that its internal controls on financial reporting are "currently ineffective.” So look at the cash flow. 

Scanning backwards, GM’s burned through $3.8b in cash in 2006 and $8.2b in 2005. Scanning forwards, GM CFO Fritz Henderson said his employer would experience “negative cash flow” for the rest of 2007. Looking backwards, GM’s “first quarterly profit since 2004” masks the fact that the North American market didn’t even break even in the fourth quarter, and lost $779m for 2006. Looking forward, the company has, um, shot its wad.

Despite the arrival of the Tahoe, Yukon, Aura, Acadia, Outlook, Silverado and Sierra, GM NA’s fourth quarter revenues fell by $1.2b, while market share slipped to 23.2 percent. U.S. sales tumbled six percent through February ‘07. GM’s CFO says the company has “some impressive models coming,” but does anyone really think that the Astra (imported at a loss), Vue, Malibu, G8, restyled CTS and hybrid versions of the Yukon and Tahoe will be enough to turn around GM’s U.S. fortunes?

“GM’s automotive results are anemic at what we still believe is the peak of the company’s product, pricing and cost reduction cycle,” Banc of America Securities analyst Ronald Tadross told his clients.

So the light at the end of the tunnel is the headlight of an oncoming train. Although it’s increasingly clear we can’t depend on GM for an accurate picture of its cash reserves, even if we accept their $26b figure, that hoard is under mounting pressure. Take off $10b for float just to keep the doors open. Remove $6b – $7.5b for the Delphi payoff. Peel off another bil for the GMAC blowback. And then watch the burn.

The truth is GM has depended on asset sales to maintain its liquidity over the last year or so. That gambit is just about played out. GM can off-load the rest of GMAC, sell its Allison Transmissions unit, and, um, that’s about it. While GM’s overseas operations are the only bright spot in an otherwise bleak picture, the General’s foreign profits can’t save the domestic troops from an ignominious defeat.

Simply put, GM’s North American operations are not sustainable. According to the mavens over at Fitch ratings, “Despite profitability on a reported basis, GM's margin levels remain insufficient for long-term viability given the economic and product cycles inherent in the industry.”

If the United Auto Workers agree to a massive roll-back in their pension and health care benefits this summer, if gas prices slide to the point where GM’s high margin pickup trucks and SUV’s experience an enormous sales surge, if the competition takes a major hit (safety, reliability, something), GM could, conceivably, live long enough to turn itself around. That’s just about as likely as it sounds.

Meanwhile, GM is rolling out its latest national sales campaign, sealing its reputation as the K-Mart of cars. It could be US car buyers’ last chance to pickup a bargain– before all Hell breaks loose. 

I’ve said it before, I’ll say it again: GM Car Czar Bob Lutz is a gift. To the media– not GM stockholders. The General’s Vice Chairman of Global Product Development feels free to make it up as he goes along, paying scant regard to the current state of the world market or his own company’s plans. Lutz proved the point, again, at his Swiss birthplace. Speaking to reporters at the Geneva auto salon, Lutz outlined his vision for Cadillac. Unfortunately, Cadillac’s General Manager was at the same show. 

So, Mr. Lutz, Caddy’s flagship sedan, the DTS. The model accounts for 25.6% of the brand’s U.S. sales. Does it? I’m not surprised. Yes, well, moving forward, front or rear wheel-drive? Rear wheel-drive. That’s the way we’re going with all our mainstream– I mean, upmarket cars.

Jim Taylor, General Manager, Cadillac. DTS. Front or rear-wheel drive? Good question. We could put the DTS on the Zeta rear wheel-drive platform– which we’re using for the new Pontiac G8– or merge it with the STS line. Or keep it in its current form. So no decision yet? No decision yet.

Mr. Lutz, what about a small Caddy? You guys sell the front wheel-drive Cadillac BLS in Europe, South Africa and Mexico. Any plans to bring it to the States? We don’t want a front wheel-drive Cadillac in the domestic market. As for a small rear wheel-drive car, "there's certainly an opening, whether we choose to fill it or not." 

Jim, you on board with that? "We're not going there. We're a $30,000-to-$40,000 player, not a $20,000-to-$30,000 player."

Even now, I find it astounding that a company as large as GM is run by people who don’t know the first thing about competitive strategy. Strike that– who don’t HAVE a competitive strategy. Or if they DO have one, the people in charge of implementing it have no idea what it is. How could the two men determining the fate of GM’s flagship brand have various, nebulous plans for its future?

No wonder GM is getting its ass kicked.

Even a cursory glance at Toyota’s success tells us the company’s top executives have read, understood and implemented Sun Tsu’s “The Art of War.”  To wit:

“The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy.” Think Camry.

“He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated.” Think Toyota’s rep for reliability and their limited product line.

“Appear at points which the enemy must hasten to defend; march swiftly to places where you are not expected.” Think Prius.

“We can form a single united body, while the enemy must split up into fractions. Hence there will be a whole pitted against separate parts of a whole, which means that we shall be many to the enemy's few.” Think Toyota’s three divisions.

Need I go on? The really depressing bit is that you can read Sun Tsu and marvel at all the ways GM has violated virtually ALL of the principles set forth by the master military strategist.

GM’s seemingly endless strategic failure seems preposterous, given the fact that Maximum Bob Lutz is a former Marine aviator. Surely a top flight military man should understand the rudiments of armed conflict enough to formulate something akin to a coherent plan for victory.

But then, Lutz served from 1954 to 1965, before Colonel John Boyd changed Marine fighting strategy to reflect Sun Tsu’s principles. Lutz was trained to execute what Boyd called "hey diddle diddle, straight up the middle.” In other words, Lutz and Co. still believe in a direct assault on Toyota, using strength of numbers to overwhelm the enemy.

Why else would GM even entertain the idea of buying Chrysler? Even though it’s clear to anyone with a modicum of common sense that the last thing GM needs is more cars, workers, bureaucrats, divisions and dealers, the fools running the company couldn’t immediately see that the concept offered nothing more than a corporate suicide pact. How many examples of ruined conglomerates do you need to see before you realize that “synergy” is another word for insanity?

If GM had some genuine mental firepower at the top, could they turn the company around? Absolutely. But they’d need to adopt Sun Tsu’s final strategy: if all else fails, retreat. Many see GM’s successful expansion into foreign markets as its final hope. Others do not. As Cadillac’s lackluster lineup proves, GM needs to regroup, conserve its remaining resources and marshal them for the fight on the home front. Otherwise, all will be lost. 

GM CEO Rick Wagoner was once the automaker’s Chief Financial Officer. So why has GM twice delayed filing its 10-K financial statements (reporting their earnings for the fourth quarter and the ‘06 financial year)? You’d think that they’d be ship shape by now. "These are big complex businesses,” Wagoner told a reporter in Geneva yesterday. “When you do transactions at the end of the year it adds additional complexity." Fair enough. But Wagoner’s no dummy. The real reason for the delay is a fight over cash.

On November 30, 2006, General Motors sold 51% of their finance unit, the General Motors Acceptance Corporation (GMAC), to Cerberus Capital Management. Actually, Cerberus bought the net asset value of a large number of GMAC’s financial securities, with little value ascribed to the enterprise itself. Equally important, GM didn’t realize $14b. So far, GM’s net payoff is around $5b. This lump sum will soon be less.

Even as Cerberus was negotiating their GMAC purchase, the U.S. housing boom was going bust. So the money men at Cerberus included a “valuation period” before the closing statement. This last loving look at GMAC’s books will determine the final purchase price for Cerberus’ 51% GMAC buy-in.

Suffice it to say, things have not gone in GM’s favor. In the last six months, the U.S. housing market has tanked. In January, new house sales fell 16 percent. The situation is exacerbated by the fact that GMAC put $57b worth of its eggs– some 77 percent of its loan portfolio– into subprime mortgages. The current default rate: around 14 percent.

Fourteen percent of GMAC’s money is not about to disappear; the loans are collateralized against bricks and mortar. But all that defaulting does nothing for GMAC’s profitability. To wit: GMAC’s subprime subsidiary, Residential Capital, is laying off 1000 employees.

All of which means GM’s 10-K filing delay isn’t so much an accounting issue as a Mexican standoff. Cerberus and GM are locked in a dispute over the exact amount of “blowback” GM owes the investment group. There’s Wagoner’s “complexity.” 

Lehman Brothers analyst Brian Johnson reckons loan-loss provisions and mortgage securities write-downs could end up costing GM $900m to $950m in cash charges– in the first half of this year. The easiest and most likely way for GM to pay off Cerberus: surrender more GMAC shares to Cerberus. TTAC’s Deep Throat estimates another 10% should do it.

But even after the dust settles and GM’s accounts are finally filed, the dust may not settle. Lest we forget, GM still owns 49% of GMAC. A sustained housing market downturn would eventually reduce GMAC’s once bounteous cash to a trickle. Eventually, because GM gets its GMAC money in the form of dividends, and the GMAC sale eliminated dividend payments for two years post-sale.

If you’re beginning to get the idea that the GMAC transaction has turned into something of a headache for one of the “partners,” consider this.

You know those “zero percent to anyone with a pulse” finance offers GM’s used to move the metal? To “buy down” the obvious risk on these deadbeat deals, GM has made as-yet-unspecified payments to GMAC (an amount that probably begins with a “b”). You can bet that Cerberus will be taking an even closer look at these car finance deals in the days ahead, looking to further limit their exposure and protect their profits.

Meanwhile, GM Car Czar Bob Lutz has been predicting that one of his cross-town rivals is about to go belly-up. He’s not wrong. But GM’s determination not to file for Chapter 11 will take a major hit when The Glass House Gang seeks the court’s protection. FoMoCo will restructure its dealer network, shed its OPEB (Other Post-Employment Benefits) and force a new deal on the UAW. The disruption to parts provision and the Blue Oval Boyz’ huge cost advantages would eventually force GM to follow Ford into bankruptcy court.

Is waiting out Ford the “real” plan? Not according to Maximum Bob. "We're approaching the end of the beginning of the transformation of GM," Maxi Bob proclaimed.

I don’t think so. Yes, GM’s cut about as much fat as they can from their cost structure. Yes, their earnings will improve. But this year’s cash flow will remain negative. To stave off Chapter 11, General Motors needs many things to go right and, more importantly, nothing to go wrong. A GMAC meltdown, a strike at Delphi, a sudden gas price hike, a Ford bankruptcy, a supplier revolt– The General simply doesn’t have the financial strength to withstand a major attack on its cash reserves.

Like a sub-prime borrower looking at the loss of their home, GM is at the end of the line, hoping that its luck will hold out long enough for it to climb out of a hole– of its own making.   

Since the General Motors Death Watch began, GM employees, dealers and customers have emailed me their perspective on the General’s general degradation. Obviously, financial analysts are important (and confidential) contributors to this mix. While their info provides invaluable insight on the automaker’s slide into bankruptcy, their language can be daunting. So when I read this simple declarative statement in a recent investor briefing, I was shocked. “GM and Ford retail sales should continue their precipitous decline."

The numbers are bad. The Wall Street firm reckons GM’s February sales are set to drop 11%. That would leave the world’s largest automaker with a relatively paltry 23% share of the domestic market. Small, and unsustainable. According to The Detroit News, GM is currently losing $1300 on every vehicle it sells in the North American market. Toyota is making $2100.

The numbers suck, but the word is worse. “Precipitous;" as in “over a precipice.” As in free fall. Indeed, despite an endless stream of new product hype, the question is finally beginning to be asked: when and where will GM’s domestic misery end?

Although Rick Wagoner is the head of one of the world’s largest publicly held companies, GM's CEO has been stonewalling on this question since June 2005, when he announced the first round of production cutbacks and employee pay-offs buy outs. Unlike Carlos Ghosn, who set hard targets for Nissan’s turnaround, Wagoner has refused to commit to a defined– and thus measurable– corrective course. In other words, he’s completely unaccountable.

The American people aren't bothered. In fact, they're clueless. While amateur and professional pundits busy themselves debating GM’s fate, the average GM buyer doesn’t know/care about their transportation provider’s financial woes. They remain oblivious to the seismic rumbles foreshadowing the yawning chasm that’s about to open up and swallow GM’s business. At least that’s how things stood until last week.

Last week, the automotive press went slightly crazy. The possibility that GM would buy Chrysler unleashed a torrent of speculation about The Big 1.5. Aside from the frightening fact that Rabid Rick’s ego could be stroked with sufficient skill to get him to even contemplate such a preposterous move, and the millions in consultants’ and bankers’ fees paid to the strokers, the “GM wants Chrysler” media feeding frenzy was nothing more than a feeble distraction from a looming catastrophe.

The real action was going down at Daytona. During the Daytona 500 pre-race show, Toyota’s entry into NASCAR was a hot topic. Commentator Darrell Waltrip, who runs a Toyota truck in the Craftsman series, whose brother Michael operates a team that races Camrys in the Bush and Nextel series, was ready with a reply.

"Don't forget: the Camry is the only car of the four [Camry, Fusion, Monte Carlo and Charger] that's built in America. The Monte Carlo and Dodge are built in Canada and the Ford is built in Mexico. There are seven thousand people in Georgetown, Kentucky who build over three hundred thousand Camrys a year."

It was a defining moment in GM’s history. At a single stroke, the carmaker’s ability to wrap itself in the American flag was dealt a telling blow– in front of the very people to whom it matters most. By a man they respect and admire. This is our truck, this is our country. Uh-huh. Now tell me again what the Hell you boys are doing building Montes in Canada? Never underestimate the damage a company suffers when it breaks faith with its customers’ deeply held beliefs.

GM’s very own perception gap– the difference between the idea that they’re the home team and the company’s willingness to outsource automotive production abroad– is headed for extinction. It’s only a matter of time before GM is just another car company, just another once proud old line American business that couldn’t compete with faster, sharper and more intelligent competition.

The loss of patriotic identification is simply the continuation of a longstanding trend: GM’s diminishing stature. Fire Sale for All. Toe Tag Sale. Anyone with a pulse financing. Cash back. Imported Monte Carlos. At some point soon, the “average” GM customer’s understanding of GM’s place within the automotive firmament will evolve, from mighty power to beleaguered underdog to loser.

No wonder GM chose to pretend (perhaps even to itself) that’s it’s in a position to “buy” Chrysler (straight stock swap more like). Lest we forget, General Motors was formed by swallowing up smaller car companies. But this, well, this is a sad echo of a once great dynastic power’s ability to mow down all before it. The “Chrysler deal” is one last chance for GM’s power players to pretend that they’re calling the shots in the U.S. automotive market, rather than fighting a losing rearguard action against the barbarians inside the gates.

Our man Mehta recently ran into a GM PR flack at an industry event. When Sajeev revealed TTAC as his spiritual home, the GM underling shook with rage. Still, it being the South and all, pleasantries were exchanged. After sweet talking the spinmeister, Sajeev promised I’d call and oil the troubled waters. During the ensuing conversation, I [once again] offered GM the right to reply– unedited– and promised to correct any factual errors. And then, quite out of the blue, she lost it. “Why do you hate domestic cars so much?” she demanded.

I asked my antagonist if she’d read our reviews of GM products. She admitted that she hadn’t visited the site “in about a year.” I pointed out that we’ve praised many a domestic product, and eviscerated plenty of imports and transplants. I also reminded her that several "foreign" cars have a higher domestic content than GM's wares (e.g. the Honda Odyssey) and mentioned GM's Canadian Buicks, Korean Aveos and European Astras.

I also told her I'm a patriotic American who’d love to see General Motors build a vehicle– any vehicle– that stands head and shoulders above all comers. “What about the Corvette?” she interjected. Yup, the ‘Vette offers unparalleled bang-for-the-buck. But clock that plastic craptastic interior. Could she honestly say a Corvette's cabin was even half as welcoming as a Porsche Boxster's? The silence was deafening. Not because she’d been trumped; she simply didn’t know.

“Have you ever been in a Porsche?” I asked, succumbing to the knife twisting urge. Faltering slightly, she admitted she hadn’t been in “one of the new ones.” An Audi? “My neighbor has one, and she’s had problems with engine sludge.” Volvo? Viper? Mustang GT? Clearly, the GM factotum had never spent seat time in much of anything that wasn’t sold by GM.

Although I find ignorance, arrogance, defensiveness, paranoia and aggression an unappealing combination, I blame nurture, not nature for the spinmeister’s ‘tude. Any automaker that doesn’t expose its front line workers to their competitors' cars gets the representation they deserve. Is it any wonder that GM makes a huge range of “nearly there” cars when even the people charged with their public promotion do so with their eyes wide shut?

When Toyota developed the new Tundra, they based it on information provided by a research team that traveled America to see how "real" pickup truck buyers use and abuse, love and loathe their vehicles. Once the Tundra was finished, ToMoCo then made sure all their dealers' staff– right down to receptionists– spent seat time in the new vehicle. And now they're organizing the Mother of All Ride and Drive Events, inviting anyone who so much as glances at the big rig for an extended test drive.  

Meanwhile, GM's importing yet another Australian RWD sedan, re-badging it a Pontiac and sticking it on the showroom floor. The fact that they've done this before without success (GTO), the fact that the G8 has no visual connection to Pontiac's hit Solstice, demonstrates the company's profound inability to learn from mistakes AND capitalize on success.

Car Czar or no, GM lacks Fingerspitzengefuhl: an intuitive sense of what's happening on the battlefield. Put another way, they don't understand the automotive landscape in which they work. They are, quite literally, lost.

Of course, GM's uninformed and misguided executives could simply read The Truth About Cars. I’m serious. If GM wants a road map back to reality, they could do a lot worse than ask TTAC for directions. Our writers are deeply immersed in American car culture. They call it like they see it, without fear or favor. And our commentators add invaluable perspective.

Better yet, GM could actively engage TTAC and its audience. They could provide us with press cars and then publicly address our criticisms. Hell, what’s to stop The General from participating in ALL car enthusiast sites? Why not assign a team of literate, experienced and open-minded experts to demo the metal, confront critics, answer problems, correct mis-impressions, quash unsubstantiated rumors and, yes, toot their own horn?

Oh, I’m sorry, I forgot: all statements must be approved by GM PR. And GM PR's too busy whining and dining beating up the buff books for “unauthorized” new product leaks to monitor a fast, frank and open exchange of ideas. 

Anyway, for some reason, Sajeev's PR contact called me back. She told me Flack Central had declined my invitation to post on this website. “They prefer to use their own blog,” she announced, with no small amount of smug self-satisfaction.

And there you have it. GM will not “break the fourth wall” (as theater folk call it). The General’s majordomos will continue to hold tight to the reins of power, sheltering inside The Kremlin The Renaissance Center, relying on their toadies, spies and consultants to tell them what’s going on in the real world, and then communicating pre-approved responses through "official channels." Thus empires do fall.

I know it’s hard to believe that the world’s largest automaker is going down– especially when the company’s management swears up, down and sideways that revenues are up, costs are down and market share is stabilizing sideways. But understand this: GM observers will only realize the extent of GM’s peril retroactively. Meanwhile, it’s clear that GM is trying to follow the old English adage “When you’re stuck in a hole, the first thing you do is stop digging.”

Jerry Marks of the Auto Retail Informer reports that GM dealers will end January with nearly 1.1 million units on dealer lots. That’s roughly the same 80-plus days’ inventory level that preceded June ‘05’s Fire Sale for Everyone. Although GM has famously slashed production, they're still failing to cut their supply fast enough to match falling demand. Less charitably, they're still in a death spiral.

Given GM’s cash position, they can’t afford to shut down production for the month or so needed to clear the backlog. Alternatively and perhaps inevitably, GM could hold another clearance sale. A price blowout would spring clean the winter metal– and seal GM’s rep as the “come on down!” cut-price car company.

Another fire sale would also kill GM vehicles' residuals (again) and put the automaker right back where it can’t afford to be: a high-cost producer selling discount product. But what else can they do? Meanwhile, at the sharp end, GM dealers are suffering.

GM retailers are getting hammered by interest rates on their “floorplans” (unsold vehicles). To keep GM stores sweet, The General pays its dealers’ floorplan costs from day one through day 60 (standard industry practice). That’s all well and good when vehicles move off the lots in three months. When they don’t, as is the case now, dealers’ inventory costs soar.

To help GM dealers foot the bill for moribund metal, The General has agreed to pay roughly half the interest rate charges for vehicles still hanging around its dealers' lots, from day 61 to day 160. From day 151 onwards, any unsold GM vehicle is blessed with an additional $500 “consumer incentive.”

We spoke to several dealers who are unhappy with the new program. Stores who can’t afford to “age” their inventory for 150 days miss out on that $500 spiff. They claim this puts them at a competitive disadvantage. (A GM dealer’s deadliest competition is another GM dealer.)

What’s more (or less), many dealers complain that the program offers no short term help; they’re already stuffed with unsold ‘07’s and not a few ’06's. GM's program only applies to freshly ordered 2007 models– although it's good up to and including, wait for it, November 3.

One dealer described the program as a blatant attempt by GM to seduce its dealers into taking more inventory than they can sell. Even if you call it good business, sales channel stuffing has clear implications for GM’s bottom line. Well, they might be clear when GM eventually files its 2006 financial results.

According to GM CFO Fritz Henderson, the company is working on yet another restatement of earnings (that's seven restatements over the last eight financial quarters) and waiting for results from GMAC. Given that the recent sale of GM's finance unit to Cerberus must have been preceeded by some pretty rigorous due diligence, there are two possible reasons for the delay. Either GM's recent accounting kerfuffles resulted in understating GMAC's worth, or overstating it. If it's the latter, payback will be a bitch. 

I digress. As we’ve stated here many times before, GM’s story these days is all about [negative] cash flow– rather than earnings (or the manipulation thereof). And here’s the thing: while Henderson confidently predicted that GM’s '06 accounts will be back in black, the overall numbers will be distorted by many factors, including the booming Chinese market and current exchange rates (the relative strength of foreign currency helps GM).

But the most important factor to consider is GM’s cash pile and the dealer situation described above. That’s because industry practice allows GM to book all vehicles sent to its dealers as “sold.” So the real results– the amount of customer cash generated by new product sales– always lags behind the reported numbers by at least one financial quarter.

As GM launched its new[ish] high margin GMT900-based pickups at the end of the fourth financial quarter, you’d expect a big old positive blip. But if sales tank, if GM’s “sold” vehicles stack up like cordwood on the dealers’ lots, the blip becomes a bust, the cash flow dries up and, well, bad things happen. 

It’s no secret that The Detroit News (DTN) likes to cheer for the home team. It’s also no surprise that the financially challenged paper imports low-cost out-of-town talent to satisfy their product needs– just like the domestic automakers they support. So when I read Washington Post writer Warren Brown’s analysis of GM’s fortunes on the DTN website, I was hardly stunned to discover a happy clappy Pollyanna puff piece. Like his prickly personality, Brown’s nose for news is distinctly stuffy; his piece embodies and elevates mindless pro-GM optimism to new heights.

“What is it about the human condition that so delights in the negative?” Brown’s opening sentence demands. (I’m feeling you Warren.) Clearly, GM naysayers have put Brown’s nose out of joint. To avoid any accusations of dancing on GM's grave– sorry, jinxing The General’s rehab, let’s skip to the bit of Brown’s bombast that has captured the attention of the GM faithful, and do a little factual intervention.

Never one to miss an opportunity to lord it over the boorish riff-raff commonly known as his colleagues (I’m feeling you Warren), Brown chastises auto scribes for continuing to question (publicly!) GM’s viability. In fact, these know-nothing car hacks are so blinkered by their negative nature they fail to recognize that The General has “rediscovered its fighting and innovative spirits.”  

“There is proof in the new Saturn Aura sedan and the new Chevrolet Silverado pickup truck, which together swept the North American car and truck of the year honors at the show — ironically, awards given by some of the journalists who later were questioning GM's ability to survive.”

While TTAC’s reviewer wouldn’t have given the gong to the Silverado, I’ll spot Brown that one (you feeling me Warren?). But pinning GM’s future on Aura sales is like depending on an infantry assault to defeat an entrenched machine gun position. The truth is the Aura is getting slaughtered.

In its first three months, Saturn sold 19,746 Auras. If the model sustains those numbers– and that’s a big “if”– the Aura will generate roughly 80k sales per year. While the projected annual tally would dwarf ’05 sales of the similarly platformed Saab 9-3 (24,133), it would fail to surmount the, gulp, Buick Lucerne (96,515). To put that into perspective, last year GM sold 323,981 Chevrolet Impalas, 312,747 Cobalt/HHR’s, 157,644 G6’s and 163,853 Chevrolet Malibus.

To put THAT into perspective, between 34 and 60 percent of those models went to rental fleets. In other words, in the battle for the mass market, the award-winning pride of Detroit Saturn Aura is another, even smaller, damp squib.

Anyway, Brown’s nose may not be growing like Pinocchio’s, but he certainly doesn’t know a scam when he sees one. Our Capital correspondent views the press' skepticism about the Chevrolet Volt concept car as yet more evidence that GM critical TTAC-types are simply cynical bastards. Brown considers the Volt “tangible proof” of GM’s right-minded “intentions.”

Yes, well, the road to bankruptcy is paved with good intentions. While GM has hoodwinked Brown and his ilk by claiming that the lithium-ion battery-powered Volt will hit showrooms in three to five years, experts are snorting coffee out their noses.

“Lithium-ion chemistry still has issues for automotive applications,” Don Runkle told Bloomberg News. The former GM engineer and chairman of battery maker EaglePicher Holdings Inc. isn't buying GM's development timeline. “Everyone tries to pooh-pooh thermal runaway (overheating), but this is nasty stuff. If it screws up, you have a dead serious fire on your hands.”

Never mind analyzing the facts; Brown is too busy mocking the “media murmuring”: “Is GM serious? How can they afford it? Is this just a ploy to get money from the federal government? Toyota will probably beat them to the punch first, don't you think? It's a good idea but so what? It'll take them 10 years to bring it to market.” 

As the Brits would say, you gotta laugh, mate. The same man who raises a condescending arched eyebrow at the “irony” of automotive journalists handing out awards to the company whose survival they question smirks at implications that the Volt is a ploy for federal subsidies. Yet he recognizes, welcomes even, The Big Two Point Five’s post-Volt request for a $500m federal hand-out to develop automotive battery technology.

Hang on; doesn’t the fact that GM [alone] can’t afford such mission critical, company-saving research trigger any alarm bells for the Capitol curmudgeon? Nope, he’s off politicizing the debate, defending the government handout as a way to avoid foreign troop engagements.

Oh wait, that’s just me being negative again. Luckily, Brown's gonna cut us death watchers a bit of slack. “Perhaps such chatter is inevitable. It is easier to believe in failure than it is to achieve, or sustain success.” Hey Warren; do me a favor. Tell it to GM.   

As read by Robert Farago below. 

[Read the original DTN article here.]

Last spring, reporters forced GM CEO Rabid Rick Wagoner to confront his company’s demons. At the opening of a Russian assembly plant, in the midst of US plant closures, sell-offs and buyouts; scribes raised the unholy specter of Toyota’s usurpation of GM’s “World’s Largest Automaker” crown. Wagoner told the assembled throng that GM would “like to stay number one” but it wasn’t the company’s "top priority.” New Year, new tune: "I like being number one,” Wagoner told Detroit auto show survivors. “I think our people take pride in it."

So Rick likes being number one. God knows he’s good at it; hanging onto power despite losing billions of dollars and overseeing a precipitous decline in the automaker's market share. And it's reassuring to hear that he “thinks” his people take pride in GM’s mantle (Vince Lombardi’s got nothing on Rick).

But RR's optimism couldn't counteract the bad news at yesterday’s automotive analyst hand-holding session. The beancounters had counted beans and concluded that the General's cash flow will remain negative this year– despite stripping out billions of dollars in fixed costs and plans to jettison sell even more of their remaining assets (e.g. $265m for GM's Arizona proving grounds).

Chief Financial Officer Fritz Henderson attributed some of the company’s predicted cash burn to a $1b increase in capital spending. The extra cash will pay for ongoing transmission upgrades (from four to six-speeds) and foreign expansion.

When pressed on the effect of this increased outlay on the company’s liquidity, Henderson said the company could take the hit, but admitted that GM’s cash flow was 'not anywhere near an adequate position’ (which is a bit like saying a person who’s lost is not as well-oriented as they could be). Equally ominously, Henderson spoke of “serious financial pressure” throughout ’07.

After this downbeat conclave, Rabid Rick launched yet another charm offensive. Schmoozing with Fortune Senior Editor Alex Taylor III, Rick revealed the home team’s latest defense: stop nickel and diming us! “People ask when is the business profitable and our objectives have to be much bigger than that. It is not an issue of can you make a nickel – that doesn't do anything for anybody. We need to get good profit and then it is very important that we generate good cash flow.” So now we know: making a nickel isn't much better than losing $10.6b.

Meanwhile, GM’s product mix continues its troubled evolution. While all eyes were on the plug-in Chevrolet Volt concept car, The Next Big Thing (Malibaura?) and the blingier Cadillac CTS, Henderson confirmed our suspicions that the the forthcoming US-spec Astra won't earn GM a single one of those not-so-precious nickels.

An unfavorable dollar – Euro exchange rate and European labor and transportation costs preclude the possibility of profit. Apparently, the Astra is merely a "bridge" product for Saturn, a temporary replacement for the Ion designed to "prove" Saturn’s new Euro-style handling/performance gestalt. Huh.

At the same time, Henderson said that GM’s recent sale of controlling interest in its GMAC finance unit was critical to lowering the subvention cost to GM. Translation: GM will probably use aggressive leasing tactics in the future– especially if it can boost residuals through lower rental fleet sales.

Of all its downsizing moves, the reduction in GM’s fleet sales is, perhaps, the most telling. It’s a sure sign that GM is fully committed to becoming a vastly smaller enterprise than it was at the beginning of Wagoner’s tenure. It’s a tacit admission that the company can no longer rely on sheer volume to make its crust. 

In fact, it's increasingly clear that GM has a new, Delphinian survival strategy: stabilize the US market (at whatever percentage) and expand abroad. Even as it stands, GM sells more cars abroad than it does in the United States. Buick is dead here, thriving in China. GM is tightening its belt stateside, preparing to bid for Malaysia's Proton.

At this point, all Rabid Rick wants to do is stop the arterial spray on his home turf. That’s why he was so sanguine about Toyota’s rise back in June. He was breaking ground on the company’s best bet for survival: Russia, India and China.

Rick’s “bigger” vision could work– if GM has enough time. While GM may make some progress towards a healthier revenue stream in '07 with a better product mix and reduced incentives, the real gains will continue to be made on the cost side. And that’s just not good enough. GM’s weak balance sheet makes it highly vulnerable to setbacks and shocks, which are on their way.

Writing in his Fastlane Blog, GM Car Czar Bob Lutz recently claimed that proposals to raise Corporate Average Fuel Economy (CAFE) standards by four percent per year would “effectively hand the truck and SUV market over to the imports, particularly the Japanese, who have earned years of accumulated credits from their fleets of formerly very small cars." Wrong. First, CAFE credits were never transferable between cars and light trucks. Second, as of ’07, light truck CAFE standards are gone; replaced by target mileage figures based on a vehicle’s footprint. Third, even when there WERE such things as CAFE credits for light trucks, Toyota, Honda and Nissan never used them. Fourth, Bob Lutz is an idiot.

Some time ago, we pointed out that an auto industry executive who can’t name Volkswagen’s brands wasn’t an ideal choice for Vice Chairman of Global Product Development. We’ve also chronicled the numerous occasions when Maximum Bob’s betrayed his firmly held belief that firmly held beliefs trump reality, even when they don’t. And now he’s taking on both environmentalists and the federal government without having a clue what he’s talking about.

It’s hard to believe that this uninformed loose cannon was hired to be GM’s “car guy”: the man charged with lifting GM’s products from their fug of mediocrity into a brave new world of stunning design, peerless powertrains and world class interiors. Feel free to debate Lutz’ handiwork thus far, but I reckon the majority of The General’s new products continue down the path marked not-quite, me-too, also-ran, we’re getting there, you just wait and WTF. The fact that GM’s Car Czar is still around to say stupid things on his blog (and in the media) says bad things about CEO Rick Wagoner’s management skills.

If you’re wondering why Wagoner lets Lutz get away with spouting politically incorrect nonsense, it’s because what Lutz says, others think. Face it: GM’s Board of Bystanders doesn’t pay an employee over $6m per year and give him his very own blog if his opinions fly in the face of his equally well-compensated peers. So when Bob gripes that more stringent CAFE standards would put domestic manufacturers “at odds with the desires of most of our customers, namely larger vehicles,” you can bet that the “bigger is better” mantra is alive and well at RenCen.

Yes, despite resurgent environmentalism and the effects of the Iraq war on the American motorist’s psyche (i.e. increasing their concern about fuel consumption), Maximum Bob’s mob continues to believe that U.S. consumers want the biggest damn vehicle they can afford, period. In Bob’s world, it’s all about size: “I’m the guy on record who compared forcing automakers to sell smaller cars to improve fuel economy with fighting the nation’s obesity problem by forcing clothing manufacturers to sell garments in only small sizes.”

Bob believes that CAFE regulations are a government plot to thwart the will of the American people and shoehorn them into uncomfortable cars. Bob’s subsequent proposition– higher gas prices are a fairer and more compelling way to get Americans to drive “very small cars”– is not without merit. Of course, MB quickly assures his readers that he’s not advocating higher gas prices. No, bio-fuels are the “real way to save fuel”– until GM can realize the “electrification” of its vehicles (which, presumably, the government won’t encourage force anyone to buy).

According to Maximum Bob, as long as gas costs around $2 a gallon, “people will exercise their freedom to buy the vehicle they want, V8 engine and all.” In other words, Americans are selfish bastards who will buy gas-guzzling land yachts– unless they can’t afford to. Even if you agree with this sentiment and reject my depiction of MB as a clueless blowhard whose ideas date back to the days when Detroit dismissed small (yes small) imported cars as “Jap crap,” you have to admit that he’s making all the wrong noises. 

The question is, who’s listening? The comments immediately following Bob’s post indicate he’s preaching to the choir. Our own ThriftyTechie spoke for many: “Couldn’t have said it better myself.” But after Bob’s message hit the mainstream media, the comments grow more… impatient. “Quit whining,” Chris R chides. “GM should be faster to market with products that people want to buy.” As GM’s PR bouncers pre-approve all published comments, one wonders how many more vitriolic reactions were swept under the e-rug. Plenty, I’d guess.

But again, the more important audience for Bob’s “Season’s rantings” lies within GM. If GM’s Car Czar can slam CAFE standards with irrational, bellicose, self-righteous and petulant impunity, in public, what effect does his anti-efficiency argument have on the thousands of designers, engineers, pencil pushers and bean counters further down the GM food chain? With Maximum Bob Lutz calling the shots for GM's product portfolio, The General doesn't have a hope in Hell of pulling itself out of its current tailspin. Blog that Bob.

[Click here  for "Season's Rantings" on GM's Fastlane blog.] 

Gary Cowger recently sat down with Wards Automotive for a good old kvetch. GM’s group Vice President of Global Manufacturing and Labor Relations complained that news of his employer's financial woes was overshadowing their brilliant new products. Gary blamed excessive media coverage and speculation. “There’s a lot of noise in the system, and that’s because we live in an age of transparency like the world has never seen before… It’s almost too much information out there.” As you might expect from such a staunch defender of bridled free speech, Cowger has taken steps to rectify the situation– at least in-house.

In 1999, Cowger installed a “communicator” in every GM plant and office. He's charged these management mouthpieces with explaining GM's hopes, dreams and schemes to their co-workers. Gary’s convinced that his network of [dis]information specialists has already delivered big dividends. “I think the open communication with people at all levels helped facilitate our ultimate health-care deal, because everyone was convinced there was a problem and everyone was willing to work to solve it.”

At the risk of bringing the noise, note Gary’s unintended irony. Deploying a bunch of company stooges "communicators" to “convince” employees to rubber stamp a bogus health care deal window-dressed by both management and the UAW doesn’t sound like the definition of “open communication” to me. Yes, but– you gotta give Gary credit for holding his nose and dipping his e-toes into the “new media.” His department now conducts regular on-line chats with 40 GM employees from around the world.

Cowger proudly asserts that participants in his electronic confabs aren’t required to reveal their identity– at least not to each other. (Cowger selects the group.) Gary assured Wards that these “what’s up with that?” cyber chats stimulate the proverbial frank and open exchange of ideas. “They will tell you honestly and in volumes what we should be doing,” Cowger revealed. “I think it’s great for not only cutting through the clutter and getting to the heart of things, but it’s a way of building a better GM.”

A better GM. If only. In all probability, Gary’s electronic forums do nothing more than give a small group of inherently disgruntled employees a chance to blow off some steam– and raise expectations that won’t be fulfilled. Although Wards didn’t press him on this (or any other) issue, can Mr. Cowger point to a single important change in GM’s process or products that stems from his twisted take on electronic Glasnost?

While I have no doubt that ramming a faux health care concession down employees’ throats constitutes a victory of some sort ($3b health care VEBA anyone?), the methodology involved indicates that GM’s culture of paranoia, unaccountability and corporate constipation continues unabated.

In fact, I reckon nothing significant has changed over at RenCen since we began this chronicle of GM’s declining fortunes. Factories are closed. Departing workers have been paid off. Output has declined. New products have been launched. And? GM is still staggering around under the weight of the same old stodgy leadership, cannibalistic dealers, obstreperous unions, half-baked products, marketing misfires, "not an incentive really" fire-sales, Bacchinalian auto shows (how much is that Carmen in the window?), backdraft cash burn, etc.

These days, the company talks-up global platform development as The Big Change. But GM NA still consists of eight increasingly nonsensical brands– and their attendant fiefdoms– all fighting for corporate resources. The fact that they’re going to do it on an international basis isn’t a game changer. Saturn now sells an Opel-derived car alongside a rebadged Pontiac. So?

According to turnaround specialist Gregory Charleston, any business experiencing a rapid, seemingly endless decline in its market share must make radical changes. The Managing Director of Conway MacKenzie & Dunleavy says that companies facing flagging income must cut deep, across the board. While big old companies like GM are reluctant to prune their pals in middle management, prune they must.

“If you have to do things in a new way, you need new people– or less people– to do it.” So how’s that particular part of the program going over at GM? “My sense is that there’s still a LOT of room there.” 

Charleston’s focus on GM’s stultified middle management reflects his belief in the overriding importance of corporate culture. Charleston says members of GM’s entrenched bureaucracy should be pushed out the door, and fresh blood brought in. So where does that leave CEO Rick Wagoner, a man who never worked a day of his life outside GM?

“I’m always leery of corporate executives who grew up within an organization… Can Wagoner turn around GM’s corporate culture when he’s known nothing else?  I imagine that’s a question that GM’s Board of Directors has been grappling with for years.”

Or not. Maybe Gary Cowger should recruit a random sampling of blue and white collar workers and put them online with GM’s Board of Bystanders. They could discuss Rabid Rick’s ability to lead a cultural revolution within GM. Or would that be too much information?

About three years ago, GM CEO Rick Wagoner made a critical decision about his company’s products. Rather than radically revamp The General's full-sized SUV’s or divert serious time, energy and money into small car development, Rabid Rick decreed that GM should rush through a “refresh” of their current Tahoe, Yukon, Suburban and Escalade. At the precise moment that these new[ish] four-speed gas guzzlers arrived, safety, environmental and fuel prices whacked the genre. Strangely, both pundits and PR flacks were nonplussed. These things are good. They’ll sell. How wrong can you be? Oh, I’m sorry. Didn’t you hear? The GMT900’s are a flop.

Perhaps you remember the hoopla surrounding the GMT900’s. I do. And I remember the scorn, derision and invective aimed at this website when we declared GM’s new[ish] SUV’s a mediocre misallocation of effort. Well read ‘em and weep. Some 120k full-size GMT900 SUV’s are out there, somewhere, waiting for customers willing to pay $5k or more below list. The Chevrolet Tahoe, for example, currently lingers on dealer lots for 77 days. Many of these are ’06 models. Hence GM’s decision to halt GMT900 production in January for two weeks. After that they’ll reduce throughput by over ten percent.

When the GMT900’s debuted, GM Car Czar Bob Lutz confidently predicted that his employer’s new[ish] behemoths would capture a profitable slice of the diminishing pie. So far this year, the SUV market has contracted by 24%. In that time, GMT-900 SUV sales fell 16.9%. (Toyota's large SUV sales fell 23.7%, but we're only talking about the difference between 40k and 30k units.) Meanwhile, overall, GM's light truck sales sank 11.6%, while Toyota's climbed by 12%. So… great landing, wrong airport.

And now Maximum Bob has become maxim Bob: the poster child for that old saw about repeating your mistakes 'cause you were busy dreaming of flying combat jets against the Ruskies when you should have been paying attention in history class. This time out, Maximum Bob’s telling the world that the automaker’s GMT900-based pickup trucks– upon which his boss said The General’s recovery depends– will rack up over a million sales this year, and more next.

Yes, the same man who tut-tutted the demise of the full-size SUV two days before Hurricane Katrina decimated the Gulf region’s gasoline production predicts that “pickups will pick up” a few hours before the Fed warned that the U.S. housing market faces a “substantial” cold spell. A significant housing slowdown is the pickup truck equivalent of a category five hurricane. And The Vice Chairman of Global Product Development still can’t see it coming.

Now don’t get to thinking Maximum Bob is spinning a tale to bolster his beleaguered troops/GM’s stock price. This man is deluded past the point of crazy-like-a-fox credibility. To wit: when pressed on the impact of the deep discounts offered on pickups produced by The Blue Oval and the Dodge Boys, Maximum Bob admitted "This level of discounting on the pickups is uncharted territory… But the good news is that incentives of $7,000 to $8,000 a vehicle is not sustainable.”

Huh? Is Maxi Bob saying his competitors are about to go under? Or that they’ll come to their senses, stop discounting and use their unsold vehicles for artificial reefs? OK, so what about next year’s debut of the new Toyota Tundra? Surely, that's going to put the hurt on GM’s pickup truck margins. “The Tundra will take share, but [it] will steal from the older Tundra and from the Tacoma," Lutz said. "I don't think we'll see that much switching from American truck owners to the Tundra." Now that’s what I call confidence! Or, more accurately, complacency!

Even if the Silverado and Sierra somehow manage to cling to their current volumes in a collapsing market, the General’s margins are about to get hammered. Neither Ford nor Dodge can afford to surrender market share; they’ll do are doing will continue to do whatever it takes to keep the pickup pipeline flowing. And Toyota didn’t build that truck plant down in Texas just for show. If they have to slice prices to move the metal, they can surely afford to do so. And by God they will.

This, folks, is Rick’s bad. Instead of holding off and building game changers– vehicles that can recover lost ground with undeniable, unassailable superiority, GM’s CEO thought it best to get the new shit out the door as fast as possible, regardless of its ability to wow the non-faithful.

One wonders what would have happened if Rabid Rick Wagoner had sat down with his execs and said “Build me a truck that gets 25mpg in the city, feels like an Audi inside, tows more than anyone else and outlasts Ron Jeremy. I don’t care if you have to stick a hybrid synergy drive under the hood. I don't care if we make a plug nickel. Just do it.” Or, alternatively, "Lutz, you're fired."

I recently received a review of the Cadillac BLS by a South African scribe. While the writer responded to my revisions by retreating to the pub, I couldn’t stop thinking about the obscure object of his ire. The execrable BLS– a Saab 9-3 reskin with neither style nor grace– was born in the middle of GM’s so-called product renaissance. BLS sales projections started at 20k units per year, then fell to 10, then seven. And now I learn that instead of killing this poor-selling, po-faced, brand-defiling half-breed, GM has appointed one Wolfgang Schubert to “save” the BLS.

In case you thought GM might send in a car guy to make the BLS more competitive, please note that Schubert hails from GM's Brussels office, where he “coordinated European Union affairs.” According to The General, increasing the BLS’ fleet and leasing sales is the red tape wrestler’s main task. James Vurpillat, Cadillac's director for international marketing and brand development, confidently predicted that Caddy will sell 3k BLS’ to the fleet market– roughly twice the number of mock-Caddies Trollhatten will produce this year.

Many of the GM faithful will read this sad tale of misbegotten motorcars and misplaced marketing and condemn me as an eternal pessimist, blinded by a relentless search for the dark clouds inside The General’s silver lining. Why focus on one crap car [not] sold to Europeans and South Africans when there’s so much good news flying through the media ether? For example, GM has finally sold 51% of its GMAC financing unit, adding $14 billion to the corporate coffers over the next three years. The cash ought to give GM CEO Rick Wagoner’s turnaround some much-needed breathing room.

OK, Generous Motors’ current cash burn is producing neither heat nor light, the last piece of furniture has just been thrown in the fire and the temperature (i.e. market share) is still dropping. But hey, November sales are up six percent! We’re talking double digit increases in the sales of GM’s high profits trucks and SUV’s! OK, that’s compared to a cataclysmic ’05 and Toyota pulled further ahead with a 22.8% sales increase. But hey, the new Lambda-based crossovers are coming! OK, GM’s chances of conquesting a transplant customer with their me-too, late-to-the-party CUV’s are smaller than the decreased margins vis-à-vis GM’s full-sized SUV’s.

But hey, costs are coming down! Workers are leaving! Oh right, so is Kirk. Yes, there is that. When GM’s largest private investor says screw it, I’m out of here– banking a mere $100m to [partially] cover his lawyer’s fees– you’d be forgiven for thinking GM is a lost cause. Lest we forget, Kirk Kerkorian had his main man Jerry York on GM’s Board of Bystanders, snuffling through the books. Oh, and about those books… GM is still the focus of seven SEC investigations.

And what about that Delphi thing? You know; the bankrupt former GM subsidiary and current parts supplier that’s determined to suckle on GM’s tit even if it kills them, GM and the UAW. Despite enough legal extensions to add a couple of chapters to Kafka’s The Trial, it’s still not sorted. Experts reckon that if Delphi goes off-line for a month, the corporate mothership will founder. At the same time, a sharp up-tick in domestic gas prices would strangle demand for GM’s mission critical cash cows. But hey, GM’s products are getting better! Better interiors, better mileage, better design!

And where are these mainstream products that will kick the transplants’ collective ass and save GM? Coming. Now it’s dual-mode hybrids. Or was that plug-in hybrids? Hydrogen fuel cells? Flex fuel? Diesels? (No, not diesels.) Anyway, when the good stuff arrives, will it be better than the competition, or somewhere closer to just about as good? The truth is GM needs a series of grand slam home runs, and the hits ain’t happening.

You don’t need to drive a BLS to know that GM isn’t keeping up. In fact, Rick Wagoner’s administration has consistently bet on the wrong horses– from ill-advised foreign alliances, to poo-pooing hybrid technology, to putting all its eggs in an SUV-shaped basket, to gently refreshing rather than boldly re-imagining its products. While Wagoner is right to attack GM’s unsustainable cost base, all his company’s structural problems flow from product-related failures.

Maybe I am a pessimist. But the GM faithful need to read the following exchange and ask themselves a simple question: if GM’s turnaround is doing so well, why can’t the man at the helm spread a little love?

Automotive News: When would you realistically like to see North America return to profitability?

Wagoner: As soon as possible.

Automotive News: Do you have any kind of target that you'd like to share?

Wagoner: Not that I'd like to share.

Plenty of pundits predict the world's largest automaker will jump down, turnaround, pick a bale of bucks and survive. We can debate this delusional supposition all day. You say new CUV's are a comin'; I say it takes two CUV’s to make the same profit as one old school SUV. You say union givebacks; I say dream on. But let’s face facts: GM is toast. Uber-investor Kirk Kerkorian knows it. GM CEO Rabid Rick Wagoner knows it (along with his in-house bankruptcy expert Jay Alix). The sooner GM throws in the towel the better.

Whether or not GM sells 51% of its GMAC finance unit, The General's NA operatives are set to burn through the company's remaining cash before it even gets close to posting a profit. Why wait? If GM files for Chapter 11 now, it can use its financial hoard to retain the people and plants it needs to become leaner, keener and more competitive. If it hangs on and files with an empty bank balance, The General faces the final curtain: dissolution and/or total annihilation under Chapter 7.

You can argue about who’s to blame for GM’s sky high labor costs and restrictive work rules (including the infamous jobs bank), but there's no question that GM needs to cut its labor costs across the board and re-structure its working practices. In bankruptcy, the United Auto Workers (UAW) couldn't frog march GM into a contract which would force the automaker to spend more than it can afford, or agree to terms that make it uncompetitive. If the union digs in its heels, the bankruptcy court can throw out the union contracts. In theory, GM could even up stakes and move its domestic operations into right-to-work states.

Each active GM worker currently carries 2.6 retired workers on their proverbial shoulders. Generous Motors' health care costs alone account for $1,525 per vehicle. Chapter 11 would allow GM to end what George F. Will called “the latest welfare state.” While the idea of cutting retired workers’ pensions and health care benefits is abhorrent to anyone who appreciates the value of keeping a promise to someone who's given you the best years of their life, common sense says it’s better to have some pie than none. Make no mistake: there is no “gentle” cure for this situation; Chapter 11 is the only way GM can shuck the beneficiary burden that’s dragging it into oblivion.

Under Chapter 11, GM can also cull its bloated dealer network. GM NA can’t sustain the enormous disparity between their decreased (and decreasing) market share and the huge number of dealers (and related internal bureaucracy) that the remaining business must support. Under US franchise law, GM can’t close up Buick, Hummer, Pontiac, Saab and Saturn stores and walk away. (Lest we forget GM is still paying costs related to Oldsmobile's demise.) Under Chapter 11, the dealer deadwood can be trimmed without razing the entire forest.

The ability to kill diseased brands is arguably the single greatest potential advantage of a GM bankruptcy. The need to feed The General’s eight US automotive brands with new[ish] products and mondo marketing dollars has been dragging GM’s design, engineering, production, sales and marketing creativity into the dumpster for decades. If a post Chapter 11 GM had three brands– Cadillac, Chevrolet and GMC– selling a limited range of products, the company would unleash all the talent locked up inside its bloated bureaucratic structure. It could finally take on its transplanted competitors with unfettered American grit, imagination and know-how.

To that end, a GM Chapter 11 would recapitalize the company’s balance sheet. Think about it: GM’s real problem isn’t debt. It’s negative working capital and crippling legacy obligations. Eliminating these problems under bankruptcy protection would allow GM to emerge as a lower cost producer (albeit with a smaller dealer footprint and sales). With lower costs and a tighter focus, GM could be what it’s supposed to be: a producer of high value vehicles for the general public– rather than an automaker that relies on steadily diminishing (if high profit) truck sales for its survival.

Rick Wagoner’s primary argument against bankruptcy: no one wants to buy a car from a bankrupt company. GM’s sales would tank beyond recovery. And yet millions of passengers have continued boarding Delta's jets since the airline filed for bankruptcy on September 14, 2005. Surely quality, price, service and warranty (which would not be affected) would remain customers’ primary concerns. That said, the enormous disruption to GM’s vast supply chain would cause massive headaches. So… best to get on with it. 

Not to get all Wall Street here, but the Chinese military strategist Sun Tzu said “There is no instance of a country having benefited from prolonged warfare.” GM has been fighting the inevitable for too long. It’s time for GM to file for bankruptcy, regroup, gain a competitive advantage, and start again.

In Friday’s interview with Automotive News (AN), Rick Wagoner snapped. When confronted with the fact that Toyota is set to overtake GM as the world’s largest automaker, the CEO stopped making sense and started talking to himself. “I can't argue that if you keep drawing the trend lines, your conclusion is correct. Is it inevitable? No. No it's not inevitable. If Toyota passes us, I guess they pass us. Do I like it? No. Am I willing to take us off our plan or to sacrifice our profitability or the implementation of our marketing strategy here? No, I'm not willing to do that. If we're going to stay ahead, we're going to stay ahead doing it the right way and a sustainable way." 

So, here we are at Death Watch 100, and nothing much has changed. The good ship GM is still taking on water and it’s still steady as she goes. Rick’s turnaround plan– cut costs and build stuff people want to buy– remains unaffected. Don’t get me wrong: it’s a great plan, something along the lines of the classic “take in more money than you spend.” Only it’s not working. Quite aside from the fact that GM is still losing money, and has done so with remarkable consistency since we began the series (including a few truly spectacular financial quarters), Rick has failed to address the fundamentals dragging his employer into bankruptcy.

The General still has too many brands, models, dealers, legacy costs and overheads. Its UAW contracts and overcrowded smorgasbord of lackluster vehicles still make it a high cost automotive producer trying to sell heavily discounted products in a highly competitive market. And Rabid Rick is still talking as if simple persistence– rather than radical change– is the key to GM’s survival. Wagoner’s comments to AN about the infamous jobs bank– the ultimate symbol of GM’s management stupidity and union intransigence– tell you everything you need to know about Wagoner’s reformatory zeal.

"We'd like to reduce the cost of the Jobs Bank, yes. There are plenty of ways to do that… A lot of times people want to jump to the sort of extreme answer and that very well might not be acceptable to the UAW. If we've learned anything over the last decade, it's that if we sit down and work over the tough issues, most of the time we can make some progress."

He’d “like” to reduce the jobs bank? “Most” of the time we can make “some” progress?  Methinks Rabid Rick may have learned too MUCH in the last decade; applying the rules of GM’s past labor negotiations (“give ‘em what they want”) to the current crisis. And make no mistake about it: GM is in crisis. The General has sliced production, sold off everything except GMAC, burned through the cash and still isn’t making enough money to stop the rot. 

It can’t be that bad, can it? After all, Automotive News claimed that Wagoner is “unwilling to return to heavy incentives and fleet sales to stimulate sales.” So I guess GM’s just announced, much anticipated (by customers anyway) Toe Tag Sale– offering $5k discounts on selected ’06 vehicles and $3.5k on some ‘07’s– doesn’t count. And the same goes for the large number of generic GM vehicles that still find their way into fleets (roughly 25% of production). The truth is Wagoner has failed to reverse the increasingly accurate impression that GM is the overstock.com of cars. 

For those who’re listening, the klaxons are sounding loud and clear. Check this excerpt from a GM press release regarding an upcoming $1.5b seven year secured loan (tied to machinery and equipment and special tools at US production plants).

"GM's ability under some of its existing bond indentures to pledge U.S. property, plant and equipment is likely to be affected in the future by new rules applicable to pension and OPEB accounting, which could cause GM's shareholders' equity in its year-end 2006 financial statements to be negative.”

In other words, the well has run dry. With 51% of its GMAC finance unit (a.k.a. cash cow) set for sale, GM can no longer borrow from this once dependable internal source. As of next year, GM still won’t be able to take out unsecured loans, while the terms of its bond indentures rule out secured loans. With a negative cash flow from its North American operations and no ability to borrow, with debt payments due AND the need to fund Wagoner’s turnaround plan (new products, severance pay, depreciation, etc.), GM’s cash crunch is going critical. The only money available: $8.5b (plus another $4b over three years) from the GMAC sale.

How long will that last? We’re going to find out. Or not. Rick says he’s “optimistic” that the GMAC sale will go through by year’s end. Should it fail, so will GM. In any case, watch GM’s dividend payments. If and when they’re suspended, that's it: the beginning of the end. Either that or just another stop along the way.