What do China, Thailand, India, Mexico, Eastern Europe and Venezuela have in common? They’re not America. Or, if you prefer, the United Auto Workers don't work there. Which is why General Motors is planning on producing its new Gamma Gamma Hey small car platform in these low-cost labor countries– and exporting the wee beastie to the US and other "developed" nations. In fact, it’s increasingly clear that GM is trying to outsource/globalize/synergize its way out of trouble. It seems to make sense: building standardized products in non-unionized factories will save the carmakers billions. But are they going about it the right way?

On one hand, GM seems to know what it's doing abroad. In China, GM uses its proven engineering and manufacturing skills to create the bird-eyed Buick GL-8 minivan and the recently announced Cadillac STS variant (the SLS). Both vehicles demonstrate The General’s ability to modify established products to local tastes. And there’s no question that GM’s reaping the rewards: sales of Chinese Buicks, Cadillacs, Chevrolets, Opels, Saabs and Wulings rose 35.2 percent this year, to a grand total of 665,390 units.

On the other hand, there’s the Cadillac BLS, a Swedish-built Euro-spec sedan riding on GM’s Epsilon platform, powered by a FIAT-sourced 1.9-liter diesel, wearing a US luxury car badge. Or how about the most recent Pontiac GTO, a re-badged Australian Holden Monaro built on an enlarged Opel Omega B platform (formerly used for the Cadillac Catera), sold in the Middle East as a Chevrolet Lumina SS? The failure of these cars to find a sustainable international audience illustrates the challenge of leveraging economy of scale into a viable product– when you start with economy of scale rather than a viable product.

Of course, GM (and now Ford) aspires to the Toyota model: sell the same "world" car (built on the same platform) in as many markets as possible. That’s fine if A) you build the right car and B) you've got deep enough pockets and a lean enough organization to recover from a major bomb. Do we really believe that GM can pull off a Corolla? The new Gamma platform small car was designed by Daewoo; if past history is any guide, they ain't no Toyota. By the same token, when the Toyota Echo went nowhere fast (in every sense of the phrase), the Japanese automaker re-engineered it to become the best-selling Yaris and other local variants. Does GM have the resources it would need to snatch victory from a dud Gamma-woo? 

As Toyota has demonstrated countless times in dozens of countries, “world” cars require a coherent and focused sales, marketing and distribution channel. And that's only possible if the car in question is part of a coherent and focused brand. While analysts tend to think of small cars for developing nations as a commodity– if it's cheap enough, it'll sell– branding plays just as crucial a role at the bottom of the market as it does at the top. A Toyota small car is not an Opel, Daewoo or Chevrolet small car. It's a Toyota, and everyone– designers, engineers, auto workers, marketing execs, dealers, salesmen and customers– know what that means. 

What IS GM's world brand these days? Oh right, it has four: Buick, Chevrolet, Cadillac and Saab. Although there are basic distinctions between these brands, things fall apart at the local level. Chevrolets are many brands and a wide variety of models to many people around the world– to the point where GM decided to create a separate "Corvette" brand in Europe. A Cadillac is a luxury car made of unobtanium in some markets, and a garden variety mid-priced mid-sized sedan in others. A Saab is a sophisticated European-style sedan in some markets, and a Chevy Trailblazer with the ignition key between the seats in others. 

When it comes to international automobile production, GM’s biggest problem isn’t its cost structure; it’s brand management. No matter where they do business in the world, no matter what food items are on the menu, McDonald’s and its customers know who it is. The same can not be said for GM, which, lest we forget, doesn't even exist as a brand. The General's cluelessness on the product branding front threatens any potential production-related savings from multinational platform sharing. Not to put too fine a point on it, low unit costs only create profits if you sell what you make.

This brings us back to the primacy of products over process, and the all-conquering power of coherent brands. GM CEO Rabid Rick Wagoner may be looking around the world and lovin' it, but until and unless GM sorts out its branding issues, globalization will hasten its destruction, not its success. 

Has anyone noticed that Toyota’s new pickup truck production plant is located in the same Texas town as The Alamo? I know: metaphorically speaking, it’s not a perfect fit. The Alamo has come to symbolize the spirit of any small group of believers holding out against overwhelming odds. In that sense, it should be Texas-built domestics pickups facing Mexican-built Toyota Tundras. Only Toyota is the little guy in this battle. Well, sort of. Anyway, no matter how you look at it, this whole pickup truck thing is shaping-up to be a Texas-sized brawl, and anyone who discounts ToMoCo’s chances (so to speak) is making a big mistake. 

The perceived wisdom says Toyota’s Texas Tundra faces insurmountable odds. Last year, The Big Two Point Five carved-up 90 percent of the market. We’re talking 2.25m full-size pickups split between GM (935k), Ford (901k) and Dodge (414k). Thanks to rising gas prices and a falling construction market, ’06 pickup truck sales have taken a big hit. But the segment still generates enormous, life-sustaining profits. No wonder GM CEO Rabid Rick Wagoner publicly declared that his company’s fortunes rest squarely on the broad shoulders of the new Chevy Silverado and GMC Sierra. In short, there’s everything to play for.

Ho-hum. The domestics may not be smug about ToMoCo’s revised entry, but it sure sounds that way. According to an article in yesterday’s Detroit News (DTN), GM Car Czar “Maximum” Bob Lutz doesn’t think his company’s full-size pickups are anywhere near crap enough to lose out to the new Tundra. “Lutz said when Japanese automakers grabbed significant share in the U.S. car market between 1979 and 1981, Toyota and Honda Motor Co. were building better quality vehicles.” Setting aside any debate about the beginning and end points of Maximum Bob’s time line, we can extrapolate his main point: we’re ready. Bring it on.

Fair enough. GM, Ford and Dodge make some mighty fine pickups. As MB said, this is not a case where domestic abuse has thrown open the window of opportunity for higher quality competitors to defenestrate the established players. Pickup truck buyers are also notoriously brand loyal. And if you believe the media, they’re all a bunch of NASCAR-loving red staters (not to say rednecks) who’d rather trade their Budweiser beer for a charming little chardonnay than not buy a gen-u-ine ‘Merican pickup. If ever a market segment was well-defended, this is it.

Yes, well, this time out, Toyota’s not bringing a knife to a gun fight. The '07 Tundra is bigger, tougher-looking and more capable than its predecessor, from its industrial strength air conditioner to its promised "class leading" towing capacity. And Toyota’s going in with their eyes open: "We've been competing with Ford, GM and Dodge for 50 years," Toyota PR flack Denise Morrissey told the DTN. "We know the full-size market is very loyal and smart. Once they get familiar with the Tundra, get to know it, I think they will consider it. Loyalty is definitely key in this market, but it will only get you so far."

If Detroit was paying attention, that little comment would give them major cause for concern. Morrissey is saying that Motown’s pickup buyers aren’t as loyal as the domestics would have themselves believe. While Lutz and his cohorts are right to insist that their products are good enough to withstand a side-by-side comparison with the new Tundra, Toyota is smart enough to know it only has to meet– not beat– the domestic pickups’ capabilities. It can then deploy a secret weapon which will seduce great swathes of brand faithful pickup truck buyers, and carve out an enormous chunk of this vastly profitable market: price.

The GM Silverado starts at $27k. The Dodge Ram starts at $22,135. The Ford F-150 starts at $18,220. The current Toyota Tundra starts at $16,155. While we’d have to turn to Michael Karesh for a proper price comparison, the relative disparity indicated by these numbers is not misleading. Lest we forget, Toyota is a non-union manufacturer without excessive legacy costs and excess production capacity, that’s building its new pickup in a brand spanking new (i.e. extremely efficient) facility. What’s more, pickups trucks are relatively cheap to build and Toyota has plenty of money in the bank.

So, if Toyota builds a competitive product, they’re perfectly positioned to attack domestic pickups on price. Remember: the majority of pickups sold are work trucks. As such, their owners are hardly immune to economic arguments for a different brand; it’s “I’m a businessman” first, “I’m a Chevy guy” second. Toyota says it wants its sell 200k ’07 Tundras. To do that, they’ll have to compete on price– which will put irresistible pressure on The Big 2.5 to cut their margins. Even without capturing significant market share, Toyota’s overwhelming economic force could threaten GM’s survival. Think it couldn’t happen? Remember the Alamo.

The media’s failure to get ahead of The Big Two Point Five’s swan dive from grace is a source of constant amusement. The press’ collective reluctance to investigate the truth behind the automakers’ plight delivers endless wonder. But Motown media’s “eternal sunshine of the big ass automaker” shtick just plain rankles. In “Detroit Can Ride Out These Strange Days,” Free Press columnist Tom Walsh told his readers to hold fast and be of good cheer. ”These are nutty and painful times for Detroit's auto industry. But they are times for resolve, not for panic.” Hey Tom; are you sure about that?

Tom’s sure, and here’s why: “The most formidable challenge, the one so many in the global auto industry are obsessing about, is Toyota. Indeed, the Toyota monster is the underlying reason for GM's stock price drop after Wednesday's good-news earning report.” And there I was thinking that GM’s stock price drop was the “dump” part of Merrill analyst John Murphy’s “pump and dump” strategy. Or perhaps that GM’s sinking stock price had something to do with GM’s cash burn, employee-related liabilities, bloated dealer network and/or less-than-thrilling product portfolio. Nah; it’s all about ToMoCo.

At least Mr. Walsh is realistic about GM’s future prospects, in a denial-oriented, pay no attention to that man behind the curtain kinda of way. “GM is by no means in safe harbor… But whatever the short-term hiccups, Wagoner and Henderson and the rest of GM's management team are taking a disciplined approach to their issues. Costs are way down, revenue-per-vehicle-sold is up, and they handled the Renault-Nissan alliance issue smartly.”

Short term hiccups? You mean, like sinking market share and billions wiped from the corporate ledger? A disciplined approach meaning… the guys aren’t heading off for the links every Wednesday? Or an endless cycle of “no we won’t yes we will no we won’t” on discounts and spiffs? Sure, revenue-per-vehicle is up, but the company is still losing money. And if Walsh thinks GM handled the Nissan merger “smartly,” let’s hope he means quickly instead of intelligently. The really intelligent thing to do: an independent review of the deal (i.e. not putting the man in charge in charge).

Anyway, despite Tom’s stricture to chill, the facts about GM’s predicament are pretty nerve-racking. In the third financial quarter, GM’s cash position declined by $2.5b. (Short-term liquidity now stands at $20.4b.) Cash flow from its automotive operations– including restructuring costs– was a negative $5.1b. During the quarter, GM turned $2b of short term VEBA funds into cash and scored a $500m dividend from its GMAC financing arm. At the same time, GM forked-over $2.5b to GMAC to cover the “buy down” of its Zero Percent sale; a figure that includes additional loan loss reserves to cover deadbeats. Uh-oh.

As we warned, the Anyone With A Pulse sale boosted GM’s sales and reduced inventory– and hit GM’s cash flow like a Silverado driving into a wall. Sure, GM will receive another cash flow boost when its new pickup trucks arrive at dealers over the next several months, just as it did when the GMT900 SUVs rolled onto dealer lots. But The General’s bottom line remains the same: GM can’t generate cash from its automotive operations. That’s got to be stressful. 

Oh, GM also tapped into its secured credit line this summer-– supposedly to “test the mechanics of the line.” In fact, GM needed the additional liquidity to cover payables during plant shutdowns. The amount of the drawdown is [strangely enough] unknown. The borrowed funds were repaid during the quarter. But it was still a completely unprecedented maneuver. Feeling nervous yet?

CEO Rick Wagoner’s claim that GM’s cost cutting will save $9b annually will actually save the company about $5b in cash. Meanwhile, GM says it needs $400m to cover the deal over at bankrupt parts supplier Delphi in the fourth quarter of ’06, and will then pay Delphi around $100m per year for an “undefined period.” GM is also set to make a $1b contribution to the DC-VEBA in 2007, as per the health care “concessions” made by the UAW earlier this year. Without the proceeds of the GMAC sale… fuhgeddaboutit. Ready to freak?

Actually, panic is a highly evolved behavior. When an animal is trapped and fighting for its life, when it’s tried the logical escape route (fleeing) or last-ditch strategy (fighting), all that’s left are illogical and random actions (a.k.a. panic). By the same token, when a carmaker is trapped (heading for oblivion), when it’s tried the logical escape route (downsizing) or last ditch strategy (“bold” new products), all that’s left are illogical and random actions (filing for bankruptcy, merger, leaving the biz Studebaker-style, triggering a union strike, etc.). Of course, you can’t predict chaos (or its aftermath). But you’d think one of Detroit’s auto hacks would at least, you know, try.

Yesterday, a Yahoo news bulletin popped up: “GM’s losses narrow.” If that’s the way you see it, please don’t tarry here. You know GM CEO Rabid Rick Wagoner’s turnaround plan is “gaining traction.” You know GM’s too big to fail, that the supertanker will change course and avoid the jagged rocks of bankruptcy. The fact that GM’s fundamentals are still broken— too many brands, models and dealers; excessive bureaucracy and crushing union obligations— is not your concern. For those of you willing to stare into the abyss, let’s take a closer look at those third quarter results.

First, GM’s cash flow is still negative. GM NA dropped $367m for the quarter. That might not seem like much compared to last year’s $1.67b hit, but it’s not chicken feed— especially considering its origins. As the official press release joyfully proclaims “This significant progress largely reflects improvements in structural costs, as the company executes the pension, health care and manufacturing cost reduction initiatives related to its North American turnaround plan.” In other words, GM has reduced its costs and it’s still taking in less money than it spends. Even worse, there ain’t much more GM can cut.

No wonder Rabid Rick Wagoner was talking up the chances of the new Chevrolet Silverado/GMC Sierra pickups and the Saturn Outlook/GMC Acadia crossovers. While these vehicles offer the prospect of higher profits, their market segments are heating up, driving margins down. And they only represent a fraction of GM’s lineup across its eight US brands. The fact that GM’s margins are being squeezed across the board is a far more important financial factor than the Silverado/Outlook’s potential success. With over a million unsold units on the ground, the pressure to slash prices will grow, reducing margins yet further, and continuing GM’s reputation as the K-Mart of cars.

And there's your fundamental problem: GM is not a price leader. It’s still a high cost producer selling products at a discount. Public demand for its retail products just isn’t strong enough for it to charge prices equal to Honda/Toyota/Nissan. Bottom line: GM makes little to no margin overall on its North American auto business. Not to put too fine a point on it, it’s unclear whether GM can ever make a profit in North America again.

As always, market share is key, and the signs are on the disastrous side of bad. Despite public pledges to reduce bulk sales, nearly 25% of GM's sales still go to fleets. Pull those sales out of the equation and GM's market share at the retail level is only about 19%, spread over eight brands. Take out employee/vendor pricing deals, and the true retail demand for GM products is less than Toyota’s.

Now consider this: GM's third-quarter North American market share slipped a percentage point compared to a year earlier. In light of Ford and DCX' falling market shares, GM’s highly-trumpeted “market share stabilization” actually means it’s losing ground to the so-called imports. That ain’t good. Conquesting sales from Ford and Chrysler is hard enough. Taking on the non-union guys over at Honda, Nissan and Toyota will be just about as hard as it sounds— if not harder.

GM’s balance sheet may not show this sort of mission critical information, but there’s plenty else to set off warning bells (for those who aren’t deaf to the dangers). What are we to make of the fact that GM drew on its secured line of credit in Q3, and then repaid the money? We’ve been saying for quite some time that GM’s wandering on the edges of a liquidity crisis. The sale of half of the GMAC finance unit grows more important by the day— especially considering the rapidly deteriorating asset quality of their mortgage/auto receivables. Are the loan loss reserves adequate? If not, bad things are bound to happen.

There are other "hidden" shoals, such as the psychological impact of federal changes in the rules regarding corporate accounting for pensions and other post-employment benefits. When they kick-in in ‘07, GM will have no stockholder equity. None. While the development won’t have any cash impact, the the development will bring to light the magnitude of the liabilities facing Generous Motors. It’s a huge negative, despite being downplayed by GM’s management. And if that isn't enough to convince GM execs to break out the Prozac, UAW negotiations are set to begin…

In short, GM’s future is far from secure. Wagoner’s highly touted “turnaround” is based on the idea that GM can return to profit without changing its business basics (downsizing does not equal change). It won’t because it can’t. It no longer has the time or the money to do so. But more than that, its management doesn’t have the will. The man who does— investor Kirk Kerkorian— knows that he’d have to destroy GM to save it. If he lives long enough, one way or another, it will come to pass. 

According to the highly credible “Ford and GM set to merge” journalists over at Automotive News, The General has agreed to pay bankrupt parts supplier Delphi’s remaining union workers an unspecified amount of money for an unspecified amount of time to avoid a planet-killing strike. Yes, it’s The Mother of All Extortion Pay-Offs– providing you don’t count that huge pile of money GM’s already agreed to pay twenty thousand not-so-dearly departed members of the United Auto Workers (UAW) who labored on behalf of Delphi. And here’s the funny part: that’s the good news. 

As always, you gotta read the fine print. As part of this deal, Delphi will renegotiate or dump 5,472 unprofitable GM parts contracts. Let’s be clear: by “renegotiate” I mean Delphi got GM to lock-in the contracts the parts maker wants to keep, at a price that will earn them cash money. So there’ll be no more of that margin squeezing routine GM’s been using to torture its other parts suppliers. So Delphi can now afford to pay the base salaries of those UAW employeees that GM didn’t pay to leave, whose paychecks GM is about to top up so they don’t go on strike and kill GM. So it’s win, win, lose. The General's cash flow takes another massive hit and everyone goes back to the business of pretending the next group of vehicles down the line will pay for, well, everything.

Let's get to the really exciting stuff: the looming proxy fight between investor Kirk “The Las Vegas Lion” Kerkorian and GM CEO "Red Ink Rick" Wagoner. The way the Institute of Shareholder Services (ISS) sees it, Kirk stooge Jerry York’s recent resignation from GM’s Board of Bystanders was the first step in his any-day-now nonagenarian boss’s plan to stir up a shareholder’s revolt. For those of us who can’t tell a rabid dog when they see one buying 9.9 percent of the world’s largest automaker, the ISS took a look at York’s resignation and decided them’s fightin’ words! 

To paraphrase the document in question, things suck at GM and they might not get any better. And then… “But frankly, to get to the crux of the matter, I have not found an environment in the board room that is very receptive to probing much beyond the materials provided by management (and too often, at least in my experience, materials are not sent to the board ahead of time to allow study prior to board discussion).” Well now we know. GM’s Board of Bystanders is a board of bystanders who take Rabid Rick Wagoner’s assurances at face value and don’t mind if those assurances aren’t in writing, or, if they are, that they arrive too late to read and digest. Who’d a thunk it?

Only anyone who’s been watching The General’s market share sink like a stone thrown into a deep, dark, well. Mr. York’s description of GM’s most excellent rubber stampers shouldn’t come as any surprise to readers of this series, nor should York’s terse description of GM’s chances. York’s letter adds GM’s negative market share with its negative cash flow to come to a negative conclusion: “I have grave reservations concerning the ability of the company’s current business model to successfully compete in the marketplace with those of the Asian producers." Join the club.

Of course, Jerry's in Kirk's gang. Which makes his final parting words especially ironic: “I will shortly make arrangements to return the confidential company materials in my possession to the Corporate Secretary’s office.” This from the board member who swore to the SEC that he won’t reveal inside information to any third party, then jets off to France to meet with Nissan Prez Carlos Ghosn to offer him the keys to the GM castle on behalf of The General’s largest stockholder and chief boardroom protagonist. Does anyone seriously think Mr. York didn’t use his time in GM’s inner sanctum to gather-up enough damning evidence of management incompetence to convince outside investors to decapitate the capo di tutti capo?

Like I said, this is going to get ugly. And so it should. It’s hard to believe that the man who lost GM more than a dollar per person on planet earth and prestiged GM’s amazing shrinking market share is still large and in charge over at The General’s tower of power. The battle for control of GM is a yin yang thang– only there isn’t any yin. In fact, everyone who wields power in this sad saga of missed opportunity and unbridled greed is their own evil triplet; Kirk Kerkorian, Rick Wagoner and union boss Ron Gettelfinger are all as bad as each other.

The conflict between these three forces will eventually reveal the exact nature of their pernicious perfidy– at least to us. For them, it’ll be last man standing. Whoever wins will oversee a kingdom of sand, washed flat by an tide that’s been forty years in the making.

GM’s September sales figures are out. Despite generous Labor Day incentives, zero per cent financing to anyone with a pulse and an easy year-on-year comparison (GM was in the post-Fire Sale mode last September), vehicle sales are down seven percent. Given GM’s upcoming production cutbacks, there’s only one way sales can go from here: down, taking GM’s declining market share with it. Never mind. According to GM Exec Maximum Bob Lutz, "Whatever our market share stabilizes at in the US— 22, 23, 24 percent— I don’t really care. The idea that GM… has got to get back to 30 percent is a wacky notion with all this global competition we’ve got."

Obviously, Mr. What Me Worry? is a whack job. The fact that the septugenarian ex-Marine has any power whatsoever within GM– never mind his multi-million dollar annual salary, huge pension and Gulfstream perks– tells you all you need to know about GM’s ability to manage itself. At the risk of stating the obvious, shouldn’t the guy who calls [at least some of] the shots for the world’s largest automaker understand that the faster GM’s domestic market share shrinks, the closer The General gets to the tipping point of no return? Call me a weenie (SIR!), but I’d expect an ex-Marine to know when he’s fighting a rear-guard action.

By the same token, you’d kinda hope that GM’s so-called “car czar” would know that The General’s inability to find new homes for their cash cows is putting his employer in a world of hurt. Pardon me for not being a goldfish, but I distinctly remember Mr. Lutz standing on the running board of a new[ish] Tahoe telling the world that GM’s GMT-900’s would take the [declining] market by storm and save GM’s bacon. Well they haven’t. Yukon, Tahoe and Suburban sales are soft, and getting softer. Surely the opposite of success is failure, and the logical response to failure is to acknowledge the damage and formulate a new plan– rather than obfuscation, prevarication and denial.

Top execs like GM marketing maven Mark LaNeve may be happy spinning the dismal parade of declining numbers– claiming that rental fleet sales and limited production are clouding an otherwise bright picture– but the numbers don’t lie. GM is in a death spiral that no amount of “missing” Chevrolet Aveos, Cobalts and Malibus can cure. GM claims its GMT900 pickups are the next next big thing, but they simply can’t create enough cash flow to sustain The General’s distended product portfolio.

In fact, Maximum Bob put his finger on the nub of GM’s problem: the company has lost its ability to fight import owned competition. GM’s September sales results are bad enough, but Toyota’s are far worse– for GM. The Japanese automaker’s sales climbed a staggering 25%. And it wasn’t just parsimonious econoboxes fueling the company’s financial combustion chamber. Year-on-year sales were up for the Sequoia (37.7%), Land Cruiser (1.7%), 4Runner (8.9%), Highlander (16.1%) and RAV4 (93.4%). Bottom line: Toyota’s September SUV sales rose by an average of 54.8%.

The numbers are alarming in extremis. GM's new[ish] GMT900’s have not only failed to sell in absolute terms, they’ve also failed to stem the growing tide of customers abandoning domestic products for import-owned vehicles– on GM's home turf. As for cars… fuhgeddaboutit. “All this global competition” has left The General in a corner, fighting Ford and Chrysler for a dwindling supply of hard core domestic-buying consumers.Unless Ford goes belly-up first, unless GM's new products beat-back Toyota, Honda, Hyundai and the rest of the “newcomers;” the market share stability GM’s Car Czar seeks is almost impossible to imagine.

Meanwhile, reports are filtering in that GM CEO Rabid Rick Wagoner has finally called off the Nissan – Renault alliance talks. This may have a little something to do with new rules enacted yesterday by GM’s Board of Bystanders. The language is a bit convoluted, but the rules make it easier for the Board to remove pro-Renault investor Kirk Kerkorian’s man Jerry York, and prevent Captain Kirk from adding new members. So Rabid Rick’s covered his ass and told Kirk to take a flying leap. As we predicted, things are getting ugly over at RenCen.

The battle for control of GM is just beginning. Kirk is sure to retaliate against GM’s CEO, and The Lion of Las Vegas is nothing if not resourceful. Regardless who ends-up the last man grandstanding, the war's already been lost. GM’s products are falling further and further behind the competition in the sales charts. The recent cuts to the automaker's production and staff will help the bottom line, but they indicate that GM's is fighting harder and harder for less and less. At some point, the company will starve to death.

Yesterday, Automotive News reported that octogenarian GM investor Kirk Kerkorian is "frustrated with CEO Rick Wagoner's lack of enthusiasm for an alliance with Nissan-Renault." That's like the DEA saying it's frustrated with Bolivia's inability to curtail its cocaine exports. Kirk knows that Rick would sooner pull the ripcord on his [bankruptcy proof] golden parachute than green light a hook-up with the French. Which is why the Lion of Las Vegas responded to Wagoner’s “no deal” comments to the Parisian press by threatening to buy up even more shares in the ailing automaker: to force Wagoner into a corner.

We now know that the Nissan negotiations began after GM Board Member and Captain Kirk crony Jerry York held a secret meeting with Nissan boss Carlos The Jackal Ghosn. Forget strategic alliances and supplier synergies; York simply offered Ghosn Wagoner’s job. Setting aside the outrageous not-to-say-criminal impropriety of a GM Board Member launching a clandestine plot against his company’s Chief Executive Office on behalf of an outside investor, the play finally reveals the intent behind the whole lawyer-enriching GM-Nissan mishegos: to remove Wagoner from the helm of the world’s largest automaker. Period.

If you recall, Wagoner fended-off the initial attack by convincing his boardlings to put him in charge of analyzing the potential of the proposed GM-Nissan-Renault alliance (much like a Bolivian drug lord electing himself president to police drug traffic). At the Paris auto show, Rabid Rick did the pro forma meeting thing with Carlos, announced (again) that GM’s turnaround is on track thank you very much, and then, outrageously and ominously (considering GM’s cash position), suggested Nissan should put a couple of bil on the table. Kirk immediately threatened to buy 12 million more GM shares. Message to Wagoner: don’t fuck with me.

Captain Kirk holds 56 million shares or 9.9 percent of GM’s common stock. He bought the shares at an average price of $31.50. At Thursday’s $33.06 per share closing price, Mr. Kerkorian’s paper profit currently stands at $84m. Upping his stake by 12m shares would cost The Lion of Las Vegas a relatively paltry $400m. The purchase would put his total GM investment at well over 10% or roughly $2.25b. Should he make the move, the additional shares would give Kirk more clout to demand an “independent financial review” of the GM-Nissan-Renault deal. To that end, he’s informed the Securities and Exchange Commission that he wants to change his official status from a passive (!) to an “active” investor.

Obviously, there’s no good reason for Kirk (or anyone else) to buy a chunk of GM based on its long-term future. Despite Red Ink Rick’s steadfast claims that his turnaround plan is kicking in now… no wait… now… oh hang on… NOW, GM’s death spiral continues. Kirk’s inside man Jerry York knows that GM’s new pickups aren’t going to pickup enough business to save the company’s bacon. He knows that GM’s summer of deadbeat love, the company’s increased incentives on products both old and new, their aggressive “book the deal when it leaves the factory” accounting and the negative effect of this fall’s heavily curtailed future production all spell disaster.

York and Kerkorian are also aware that the domestic automobile market is only getting more competitive. The so-called imports make stacks of money in the US because their domestic counterparts are high cost producers who set a floor on pricing. It’s an open secret that Toyota, Honda, Nissan, Hyundai et al. could bury GM/Ford/DCX simply by lowering the prices on their vehicles. Toyota’s new Tundra is a step in that direction that’s bound to show that none of The Big Two Point Five’s products are safe from non-union competition.

All of which tell/reminds us that Kirk’s in it for the money. Hence Kirk’s decision to put Wagoner in a classic you’re fired if you do (hello Carlos!) and you’re fired if you don’t (where’s Carlos?) position. Once Captain Kirk replaces Wagoner, especially if it’s with The Jackal, GM’s stock price will rise. Kirk will cash out and that’ll be that– for Kirk. The General will still be in chaos. Whether or not the Jackal could then recreate The General as a profitable car company– without taking it into Chapter 11– is an open question we may yet see answered.

Things will get ugly if Kerkorian doesn’t get his way. For one thing, GM will have to show good financial results– even if they’re less credible than last quarter’s. GM’s accounting department has been sailing close to the wind for well over a year now. Federal regulators may flex their muscles post-November elections, perhaps aided by Jerry York (providing yet another way to axe Wagoner). In fact, this whole Kirk – Rick thing has become a Detroit death match. Anyone betting on Wagoner better hope that GM’s octogenarian investor forgets to take his medicine, or dies in the arms of Anna Nicole Smith.

Even as it struggles for its short term survival, GM has unleashed a cloud of hydrogen-powered publicity. A week ago last Sunday, GM announced that "Project Driveway” will deliver 100 Chevrolet Equinox Fuel Cell “test” vehicles to consumers in LA, Washington and New York City. The following Monday, GM unveiled their hydrogen fuel-cell powered Sequel. And last Thursday, The General delivered a fleet of fuel cell Chevys to the US Army. Does this mean that GM Car Czar Maximum Bob Lutz is finally right about something; that GM’s “moon shot” will put Toyota’s hybrids to shame and save GM?

In these environmentally sensitive times, it’s hard to criticize the world’s largest automaker for developing “clean” hydrogen fuel cell technology. But not impossible. Even if hydrogen fuel cell vehicles were ready to compete with gasoline-powered vehicles, the technology would require a massive new hydrogen production and distribution infrastructure. Even if the trigger was pulled five years ago, we're still talking decades. In fact, Bob’s boasts are more pie-in-the-sky than moon mission. [Note: How about some independent confirmation of the Sequel’s 300 mile range? GM has a bit of a checkered history in this area.]

Bottome line: GM can no longer afford the distraction, currently pegged at $100m per year. But don’t take my word for it. When posing next to the Sequel, Maximum Bob promised to nudge GM’s Board into investing more money in the hydrogen economy. "It would probably replace some other programs that we'd like to have in the high-performance area," Bob admitted. Just in case you thought GM’s resident loose cannon might present a coherent case to the Board, he then declared that fuel cell vehicles would cost less to develop than engineering diesel-powered vehicles that meet the EPA's 2010 Tier 2 Bin 5 regulations.

Meanwhile, Honda has just announced a high mileage diesel engine that meets those stringent new pollution regulations. Although the system still faces some technical hurdles, Honda says it will sell the powerplant stateside within three years. Oh, and they’ve also created a flexible fuel system that can run on any ethanol to gasoline blend between 20 and 100 percent, which they’ll sell in Brazil later this year. Oh, and they’ve figured out a way to make a hydrogen fuel cell stack 20 percent smaller and 30 percent lighter, improving their FCX hydrogen-powered vehicle's operating range by 30 percent, beating the Sequel’s stat by 54 miles (354).

Once upon a time, GM led the world in automotive engineering. While the company still shows the occasional glimmer of greatness (e.g. Magnetic Ride Control), The General has lost/is losing the technological arms race. There may be nothing fundamentally wrong with the company’s pushrod engines, but the market says that hi-tech, high-mileage, variable-valve, free-revving four cylinder powerplants are the business. Gas – electric hybrids may not suit the majority of GM’s customers, but there’s no denying that the Prius has convinced The General’s public that Toyota owns both the high tech and environmental responsibility rep (in addition to reliability).

If Maximum Bob thinks GM is in a financial position to catch up with its rivals in hydrogen fuel cell technology– or any other major technical development– he’s wrong. MB’s suggestion that spending big money on fuel cells would only require the sacrifice of a few high performance models was disingenuous– which is why he later said that the money required might mean a “slight delay” for mainstream products. Although the press failed to push Lutz on the point, one wonders if GM’s Texas turnaround chainsaw massacre has left the company with sufficient warm bodies to engineer new models with existing technology, never mind perform ground-breaking “blue sky” research. 

In fact, there’s only one way GM can catch up with its high-tech rivals: buy their technology. When GM CEO Rick Wagoner jetted off to Japan to meet with Toyota’s CEO and talk about God knows what back in May ’05 , it was widely anticipated that Rabid Rick would license Toyota’s Synergy Hybrid Drive for The General’s vehicles. Whether or not such a deal was even on the table, GM missed an important opportunity to get its shit together. If The General’s new[ish] SUV’s had been released with Synergy Drive powertrains in situ, it would have at least limited the gas shock SUV exodus.

And here comes the bus again! When presenting his new clean diesel, Honda President Takeo Fukui said he was “open to considering” a licensing deal with interested automakers. While GM put a Honda engine into the Saturn Vue, the chances of The General going hat-in-hand to Honda for new engine technology are extremely slim. Despite all the talk about GM’s “new sense of urgency” and its ability to “finally face reality,” the same hubris that got GM where it isn’t today is still in place. If The General really understood the gravity of its position, if it really knew just how bad its products are relative to the competitions’, it would do whatever it takes to rectify the situation. It doesn’t so it won’t. 

The idea that Ford and GM will merge or, as they say these days, “form an alliance” is yet another sign that we’re reaching the End of Days, Detroit style. Sorry, haven’t you heard? This morning’s Automotive News quotes proverbial “senior executives” and “sources familiar with the talks” as saying GM contacted Ford shortly after GM investor Kirk Kerkorian invited Nissan to crash The General’s going away party. Or was it the other way around?  Automotive News is wildly, absurdly, irresponsibly vague on the whole story. Suffice it to say, any merger between America’s Number One and Number Two automakers would kill both of them.

Throughout this Death Watch series, commentators have insisted that a GM bankruptcy defies contemplation. The US economy would be plunged into chaos. OK, with so many foreign-owned automakers plying their domestically-constructed wares, a kind of mini-chaos. But there’s no doubt the knock-on effects of a GM Chapter 11 will be on the major side of major— from tens of thousands of jobs destroyed to millions of GM warranties rendered worthless (ironically enough). Now, imagine if that bankruptcy involved both GM and Ford at the same time. The mind boggles.

Aside from the obvious downside, who in their right mind believes that GM and Ford would benefit from a hook-up (other than some Wall Street Journal fantasists back in July)? The two companies suffer from chronic obesity. As this year’s massive cuts show, both The General and The Blue Oval have too many factories, assembly workers, executives, health care costs, pension costs, brands, models and dealers. At the same time, both carmakers face financial anorexia. They have too few attractive products to generate sufficient operating capital to stay in business—at least in the longer term. In the short term, they’re both failing companies.

With no immediate prospect of relief. If fact, GM and Ford are headed for the massive coronary known as the United Auto Workers (UAW). As it has for the last thirty years, the 800-pound gorilla in the room calls the shots. And it's feeding time at the zoo; their contract is up for “negotiation.” Any merger between the two automakers would require the tacit approval of the unions, who are no more likely to make concessions to a new “Big Red One” than organize Chinese labor.

And what of corporate cultures? Ford is a family firm whose stultifying bureaucracy and deeply entrenched corporate fiefdoms have rendered their business commercially impotent. GM is a confederacy of business school dunces whose stultifying bureaucracy and deeply entrenched corporate fiefdoms have rendered their business commercially impotent. Put them together and what have you got? What’s the opposite of synergy? Overlap, on a scale so epic it makes Ben Hur look like a home movie.

Can you imagine trying to create a single, effective dealer network with a coherent range of products that incorporates both company’s eight brands and [well] over a hundred models? If you think that GM’s product range makes no sense, A) you’re right and B) combining Ford and GM’s products lines would define the word “farrago” for all time. On the dealer level, well, if GM and Ford can’t cut down/amalgamate their retail “partners” as they are, what are the chances the two of them could do it together? Would it even be legal?

Perhaps the most bizarre part of this bizarre unsubstantiated rumor is the fact that anyone gives it credence. The mere existence of this merger idea in the intellectual space normally reserved for turnaround talk and BM’s (Bold Moves) indicates just how desperate things have become. If Wall Street reacts positively to this non-news, you’ll know that the world has gone insane. Of course, they’re been reacting to GM’s obfuscation and Ford’s Jump Down Turnaround (pick a bail of debt) with good cheer, ignoring the broken business basics that are dragging– have been dragging– both companies into oblivion. So, I suppose anything is possible.

But not desirable. Yes, a GM / Ford merger would “reinvent” the American automotive scene, creating a behemoth that we haven’t seen since, um, GM was healthy. But its success would depend entirely on wholesale slaughter— something neither company has been able to achieve on its own. And that’s because the only way they could affect the requisite root-and-branch change is… bankruptcy. You first?  No, after you. No after you. I know; let’s go together! No, after you. No, after you.

Did GM buy a piece of Moller International? The General’s recent TV commercials show its full product range rising off traffic-choked roadways and flying off at tremendous speeds. You can almost hear the Skycar's inventor slapping his thigh and yelling “Now THAT’S what I’m talking about!” Of course, that’s not what GM’s talking about. They’re touting their new five-year, 100k mile warranty. Notice I didn’t say “powertrain.” Neither do the ads, which leave viewers with the impression that GM’s products come with five-year, 100k mile bumper-to-bumper protection. Talk about sins of omission…

Let’s be clear about this. A five-year 100k mile bumper-to-bumper warranty would have been big news. GM’s powertrain warranty only assures buyers that the parts that are least likely to break won’t break. It says GM will fix these parts that shouldn’t break without charge and pick you up from the side of the road for free, should one of the parts that shouldn't break breaks and leaves you stranded. Hang on; is this really a major selling point? And doesn't The General have enough trouble moving the metal without trying to invade Toyota’s turf? Toyota has a twenty-year head start in the reliability business; GM doesn’t have twenty years to catch up.

In his official statement, GM CEO Rick Wagoner asserted that the new powertrain warranty “provides GM customers with an unprecedented level of value and peace of mind.” First and most nit-pickingly, the release specifically refers to “GM customers” rather than “new car buyers.” So, forget conquest sales; just make sure that GM loyalists are happy– er. Considering the automaker’s inexorable market share slide, now reduced to an ironically proclaimed “one out of every four cars sold in America,” Rabid Rick's decision to use a powertrain warranty to recapture lost buyers is, at best, ill-advised and overly optimistic.

Second, Rabid Rick's attempt to stake his company's claim as builder of “value” automobiles thrusts a stake through the heart of its business. Last year’s “Fire Sale for Everyone” program K-Martified the company within the pubic consciousness. Continuing down that road places GM into the worst possible market position: more expensive than the cheapest and less desireable than the best. As an automaker with labor and legacy costs larger than Belize’s GNP, GM can't do cheap (at least not without shipping all the work to South Korea). Going for value– rather than focusing on desirability– makes GM vulnerable from all sides. 

And lastly, GM’s attempt to sell its cars based on “peace of mind” is laughable. Again, Toyota owns that mental space. If you widen the concept to include the single largest cost of car ownership– depreciation– Honda kicks GM’s peace-of-mind ass all day long. More to the point, Eric Hirshberg’s claim that his agency’s “Elevate” campaign proves that GM “shed the baggage and went on offense” is just plain wrong. Saying your product doesn’t suck is not the same as saying its better than the other guy’s. And if GM’s vehicles aren’t better than the other guy’s, well, it’s no wonder they’re talking about value for money and warranties.  

Of course, it’s hard to see where GM could go these days. In the 40’s, 50’s and early 60’s, GM offered some of the most innovative automobiles in the market, if not the entire world. At the same time, Harley Earl’s sheetmetal captured the hopes and dreams of a nation. While there are some standout niche products in GM’s gi-normous portfolio, the gotta have is gone. The vast majority of GM’s products are… generic. Bland. Boring. Vapid. Unrefined. Uncompetitive. They may not break your heart, but neither do they capture it.

Say what you will about the styling and driving dynamics of a bread-and-butter Corolla, Camry, Accord, Fit, Yaris, etc. Their owners love their cars. (And not just because they’re reliable.) Obviously, GM loyalists also love their motors. But the market share says it all: the so-called imports are winning the campaign for US car buyers’ hearts and minds. Concentrating on the “minds” part of the equation with a new warranty puts the cart before the horse. It’s preaching to the converted. It simply won’t work.

Rest assured, the reckoning is coming. The situation over at bankrupt auto parts supplier Delphi remains unresolved. The UAW is flexing its muscles over at Chrysler, while Delphi’s creditor committee breathes down Call Me Steve Miller’s executive neck and a federal judge's seemingly infinite extensions (on the company’s motion to throw out its union contracts) aren’t. The pickup market, upon which Rabid Rick says his company’s immediate future depends, has tanked so badly that Toyota is scaling back production of its next generation Tundra by a third. Meanwhile, here’s a simple question. If GM could make vehicles that lasted forever, would that be a blessing or a curse?

So, General Motors has pulled its sponsorship from Survivor. Flackmeister Ryndee S. Carney claimed GM came to its decision “months ago, before the show made its recent announcement." The announcement in question: Survivor will divide its competitors by race and ethnicity. Carney quashed the idea that GM pulled the plug in response to the controversial formatting in no certain terms: “I think it's just a coincidence.” Think? Carney’s comment brings into question GM’s ability to tell the truth and, thus, to survive its evaporating market share, bloated dealer network, distended brand portfolio, lackluster product lines and horrendous cost structure.

Not to belabor the point (much), GM claims they pulled their $14.7m plug on Survivor three months ago. Yet on May 12th, GM and CBS publicly revealed The General's intention to increase their Survivor ad spend. In any case, Carney played dumb, insisting that GM was simply shifting support to TV shows offering product placement. "There's a limited number of possibilities as to how you can integrate a car or truck in a show [when] people spend their whole time on an island." Despite (or because of) the fact that a Pontiac Aztek played a role in a Survivor episode, Carney’s stab at PR humor set exactly the wrong tone. Instead of addressing a serious issue head on, GM smiled and sang “It wazzunt me.”  

Not to belabor the point (again), is it too much to ask GM to tell the truth? OK, Survivor sponsorship isn’t a big deal– even if would be nice to see one of America’s largest companies declare its distaste for a TV program that engenders racial or ethnic divisiveness. What about the fact that GM is cutting production in the fourth quarter by 12 percent, or 150k vehicles?  Now that’s serious; the move will torpedo fourth quarter revenues. The company’s press release states that the cut "does not reflect a reduction in GM's sales outlook but is consistent with our strategy to reduce low-margin daily rentals, and takes into account the plan to shift production of pickups to the next-generation pickups during the fourth quarter." No shit?

I guess I’m the only one who remembers that GM originally planned to cut production by eight percent, and consider the fact that the axe is falling on GM’s new[ish] gas-guzzling SUV’s somehow related to the increased decrease. To wit: during a recent conference call with reporters and auto industry analysts, GM’s Supreme Spinmeister Paul Ballew declared that GM’s production cutbacks were not a response to “a sudden deterioration in conditions.” "It's new news to you," Ballew said, "but it's not new to us." In other words, we know what we’re doing and we sure as Hell don’t have to tell you about it.

The first proposition is highly suspect, the second highly inadvisable. As I’ve said here before, GM CEO Rabid Rick Wagoner’s failure to articulate a specific, honest, clear and coherent turnaround plan that includes all of GM’s “stakeholders” will be his undoing. Yes, Rabid Rick says he has one, and frequently tells the world that The General’s adherence to this unexpressed timeline proceeds apace. Is it inconceivable that Wagoner’s reluctance to publicly declare his comprehensive recovery strategy reflect his unwillingness to be held to its dictates?

Yes, it’s inconceivable. If I held GM stock, or worked for the company, or ran a GM store, I would be furious at The General’s lack of transparency and accountability. “Keep the faith” is all well and good when you’re minting money, but that and $1.45 won’t get you downtown when the buses are no longer running (so to speak). Clearly, GM adheres to America’s new de facto standard for corporate citizenship: spin, gloss, weasel and waffle.

Take GM’s latest sales results. What are we to make of August’s 3.8 percent retail sales jump? First, it’s a year-on-year result, compared to last August’s cataclysmic post “Employee Discount for Everyone” hangover, when GM’s sales fell off a cliff. Second, sales of GM’s low-profit plain Jane sedans account for much of the rise. And third, we hear tell that GM’s “Anyone with a Pulse” financing continues, a development that will eventually hoist GM by its own petard. According to GM Marketing Maven Mark LaNeve, “Customers clearly are responding to the quality, value, versatility and fuel efficiency of our cars and trucks.”

Maybe so. But GM’s failure to change its business model, the implementation of forthcoming production cuts, the resulting affect on its cash position and the ongoing threat of a strike at bankrupt parts supplier Delphi overshadow any August cheer. And now that Billy Ford has admitted The Blue Oval’s dire straits, it’s clear that GM’s execs continue to live on an island of their own making, facing stronger, smarter and better fed opposition. News flash: GM’s tribe will not survive.

Motor Trend just reviewed the new Saturn Aura. Reading between the lines, it’s clear that GM’s mission critical mainstream motor is another in a long, not-so-illustrious line of “almost” cars. It’s “no sports sedan” with lots of “corner cutting” powered by a “crude” engine with “some looseness in the drivetrain.” The Aura is a “step in the right direction”– that leaves the badge-engineered Opel at least two steps behind the competition. Anyway, does it even matter? I reckon GM’s car business is beyond repair. 

For the first time, the California Motor Car Dealers Association published new car registration data listed by brand. In the second financial quarter, Toyota captured 24.4% of the Golden State’s automotive market. Honda scored second place, at 12.4%. Then it’s Ford at 9.6%; followed by Chevrolet, at 8.2%. If national sales follow California’s lead, GM is toast. There is no way The General can support its vast infrastructure, overhead and labor costs, there’s no way the company can downsize quickly enough, to survive on that kind of market slice.

The automaker’s California conundrum: the resale market. There isn’t one. Hundreds of thousands of California immigrants, first-timer buyers, commuters and elderly consumers swear by used Hondas and Toyotas. Their preference creates a vicious circle: buyers shun new GM products because they can’t unload them. In the mass market, big depreciation is a kind of living death.

Never mind the BS about GM’s products being torpedoed by left-leaning, import-loving— I mean, “foreign-owned automaker”-loving journalists. GM shot itself in both feet and both arms for decades, building rental fleet fodder instead of competitive product. Even if you accept the dubious notion that GM now makes automobiles that match Toyota's and Honda’s (on some levels), even if you swallow the argument that GM is suffering from an indefensible “perception gap,” there’s only way to reverse this death spiral: "must have" products.

Not decent cars. Not reasonably competitive cars. Not cars that only make sense because they’re so damn cheap and no other new car dealer (except Ford) will give me a loan. Not the new Saturn Aura. I’m talking about cars like the Saturn Sky— only with room for four adults and a trunk.

Saturn’s new motto– “Like Always. Like Never Before”– says it all. Here’s a company, indeed an entire corporation that needs to sever its ties to its mediocre, vainglorious past and build spectacular products. It just… can’t… do it. I know; Saturn’s motto supposedly reasserts their user-friendliness. But what does “Like Always” say to people who dismissed Saturn as a boring, out-of-date brand?

By the same token, what does “Like Never Before” say? It’s a po-faced claim that Saturn is better than it was, not better than the rest. It’s that inwards-facing commitment to relative improvement that defines the vast majority of GM’s products and condemns them to also-ran status. Not that GM knows it. The General’s complete obliviousness to the average non-customer’s opinion of their products is one of the most disturbing aspects of GM’s fall from grace. Well that and their failure to acknowledge their competitors’ achievements and beat their best-in-class benchmarks.

Detroit’s unjustifiable arrogance towards the imports in the 70’s is well known. But few people appreciate the fact that this holier-than-thou attitude is still in effect, informing everything the company does– and doesn’t do.  I recently received an email from a GM insider containing a memo from Ed Wellburn, GM’s Vice President of Design. After proclaiming “GM’s turnaround plan is truly working as witnessed by our 2nd quarter results”, Wellburn issued a new edict:

“Design Center is host to journalists, ‘celebrities’ and senior management up to and including the Board of Directors. The confidence we have in our products and people should be evident to anyone who drives on the Technical Center site, especially in the vicinity of the Design buildings and adjacent roads. 

“As such, I am directing that ONLY GM products be parked on the roads around Design and in the parking area in front of our building. Any employees or suppliers/vendors who are not driving GM products may use the west and north parking lots.

“Effective August 15, 2006, this policy will be in effect. After this date, any non-GM vehicles parked on the roadways or in designated parking areas in front of the Design building will be ticketed. In the case of multiple offenses, the vehicle will be towed at the owner’s expense.”

And there you have it: GM management’s desire to shelter in their own little universe, quarantined from the realities of the outside world. Think about it: Wellburn's directive sends both employees and visitors driving non-GM vehicles to the back lots. It also means that GM-driving designers who enter the building upon which their company’s fate depends only encounter GM products. In short, what you can’t see… can kill you. 

A few days after GM's vice president of vehicle sales, service and marketing assured auto industry analysts that his employer will maintain incentive-free “value pricing," General Motors announced two grand cash back on the 2007 Chevrolet Tahoe, Avalanche and Suburban and the GMC Yukon, Yukon XL and Denali. To be fair, nobody took LaNeve’s price promise seriously. By now, everyone knows GM’s new(ish) SUV’s are a drug on the market, and it ain’t Viagra. There’s only way to move the metal: lower the price. Either that or stop making the damn things.

Last Friday (always Friday), GM CEO Rick Wagoner announced that The General will curtail production of its GMT-900 based SUV’s. Rabid Rick tried to minimize the damage by asserting that GM was going to halt “some overtime” on SUV assembly lines and introduce “other products” into the production mix— as if to say demand for GM’s gas guzzlers was still hot, just not sizzling, and besides, we can make some other stuff instead.

Yeah right. At the end of July, in an industry where a 60-day supply is an acceptable maximum, GM dealers were stuffed to the gills with Tahoes (82 days), Yukons (89 days) and Chevrolet Suburbans (75 days). Although the figures are not far off last year's, these are GM's "new" trucks.  August is going to be a bitch.

Meanwhile, Rabid Rick proclaimed that GM's share of the full-size SUV market has “boomed.” According to Wagoner, GM now “owns” 50 to 75 percent of various segments within the SUV genre— which is a bit like saying you’ve scored the best cabins on the Titanic after it hit the iceberg. The executive’s statement was a remarkable piece of spin, but it pales in comparison to GM’s creative accounting. Lest we forget, Rabid Rick ascended to his throne as GM Chief Financial Officer. Here’s a bit of what he’s learned…

Yesterday, The General’s GMAC finance unit signed a three-year, $10b funding facility with a Citigroup subsidiary. Four billion dollars of the money falls into a brand new category for GMAC: “unrated notes”. Unrated notes are papers representing loans that are so far outside traditional credit parameters that the vast majority oif insitutional investors are literally prohibited from buying them.

In other words, GM’s “Zero Percent for Deadbeats” summer blowout left GMAC with billions of dollars of risky loans. No surprise then that GM's finance arm reported that the unrated notes are backed by assets “not typically securitized by GMAC.” OK, here's the "creative" part…

Because the risk is so high, there's a gap between the money GMAC lent its less-than-perfect customers and the amount of money Citigroup paid for the loans. As part of the deal, GM has agreed to cover the shortfall (i.e. securitize the assets). It’s all a bit confusing (by design), but here’s the bottom line: GMAC carries little or no risk for the bad loans. GM buries a “charge” in its sales costs to cover the money paid to GMAC for the dicey loans.

The shell game maintains the illusion of higher average transaction prices, hides huge discounts/rebates and moves vehicles off the lot. Given that GM generates about $28b in North American sales per quarter, $4b in bad debt equals about 15% of sales (assuming 100% financing). Since most of this paper was written in 60 days, as much as 40% of GM's recent sales surge may be directly attributable to bad loans. Put that in your quarterly report and smoke it.

Just like last year’s “Fire Sale for All” program, the “Zero Percent for Deadbeats” program will eventually bite GM in the ass. Can you imagine what these vehicles will be worth when (not if) they’re repossessed? At the risk of sounding, um, deadbeatist, people with sub-basement level credit scores tend to smoke, spill beer, puke, rip up interiors, ding ‘em good and never fix a thing.  And speaking of repairs…

In the second financial quarter, GM downgraded its warranty expenses per vehicle to $325 (compared to $523 for the same quarter in ’05). GM’s improving reliability record is admirable, but it doesn’t justify that kind of drop. The revised figure added $433 million (the equivalent of $0.67 a share) to GM’s second quarter “profits.” Clearly, GM is ducking and diving, window dressing its earnings to mask the company’s true performance, or lack thereof.

The truth is things are not going well at RenCen. While GM has finalized its new credit line of $4.5b (on onerous terms), the company still withdrew an additional $2b from its VEBA on July thirty-first to cover health care reimbursement. GM’s continual need to tap into the VEBA account suggests a cash shortage.

Now that the GMAC sale has been postponed until next year, the need for operating funds could well become critical. While the risk of a GM default may not be imminent, a strike at bankrupt auto parts maker Delphi would be the tipping point. In the event of a work stoppage, GM’s credit line would be reduced by a billion dollars.

Industry watchers still say it’ll never happen. Meanwhile, negotiations at Delphi are stalled and the most recent final deadline arrives in two days. If Delphi goes down, GM goes down. If it doesn’t, the company's descent into bankruptcy will merely be postponed.

Last Thursday, Mark LeNeve declared that General Motors has “turned a corner.” Obviously, GM’s Vice President of North American Sales and Marketing was unaware of the phrase’s historical baggage. To wit: General William Westmoreland’s famous announcement that the American war effort in Indochina had “turned a corner”– just before North Vietnam’s Tet Offensive returned the corner. Since ‘68, any US authority figure announcing an angle exceeded instantly reveals themselves as a master of unintended irony, and sets themselves up for an ignominious defeat.

Metaphorical misstep aside, LaNeve’s triumphalism seems to reflect normal corporate dishonestly. Surely LaNeve was simply lying when he claimed that “interest in new vehicle models such as the 2007 Chevrolet Tahoe SUV and a potential sales lift from upcoming products are helping put GM back in contention after excruciating declines in recent years.” After all, the statement is positively dizzy with spin. “Interest in new models” (as opposed to actual sales) is leading to a “potential sales lift” (as opposed to an actual sales increase) which is “helping to put GM in contention” (as opposed to putting GM back in the black) and reversing “declines in recent years” (as opposed to, say, declines during LaNeve’s tenure). But no, I honestly believe LaNeve honestly believes the unbelievable: that GM’s on the rebound.

You see, the thing is, the above statement about GM’s prospects isn’t a direct quote. It’s paraphrasing provided by automotive journalist Brett Clanton. In a Detroit News article on the GM Veep’s unbridled optimism, LaNeve’s surrogate spinmeister failed to provide any evidence for “growing signs that a massive turnaround effort at GM is gaining strength.” Sure, the article flags several ways GM could be derailed by “factors outside its control.” But its tone, tenor and existence all indicate that LaNeve’s comments reflect an accepted Detroit shibboleth: GM’s on the rebound!

By now, even casual observers know GM’s unofficial turnaround strategy: we’re gonna do what we’ve always done better than we’ve done it in “recent years.” Remember those intractable problems that brought us to the brink of bankruptcy: legacy and labor costs, bureaucracy, a bloated dealer network, badge engineering, ill-defined brands, etc.? Forgeddaboutit. We’ll just sell our best assets, close some factories, pay-off some workers, release a dozen or so new products (most of which look suspiciously like the old products) and everything will be allllllright.

My God, how wrong can you be? At last Wednesday’s press launch of GM’s new(ish) pickup trucks, GM Car Czar Bob Lutz once again explored the possibilities. “The effect [of high gas prices] will decrease over time as people adjust to the thought of $3 a gallon, just as they did when it was $2 a gallon and just as they did when it was $1 a gallon.” In other words, sooner or later, GM’s truck sales will return to “normal” and everything will be allllllright. And then GM CEO Rabid Rick Wagoner stepped up to the microphone and raised the stakes on Maximum Bob's bluff. GM’s new(ish) pickups are “the most important part of our North American turnaround plan.”

If that statement doesn’t send a shiver down Detroit’s collective spine, nothing will. Last month, GM’s pickup truck sales slumped thirty-two percent. While that’s a year-on-year comparison against last summer's Fire Sale For All program, it’s clear that GM’s second string cash cow is being gored by gas prices and, less obviously, a downturn in the housing industry. A SMALL company called BIGresearch says over 50% of pickup truck drivers planning on buying a new vehicle in the next six months are considering a more fuel efficient sedan or… wait for it… a hybrid.

Shrinking market? You betcha. Less profitable market? Uh-huh. Ford’s dropped the price on America’s best-selling pickup (the F150) by $1400. Toyota is about to enter the fray with its keenly priced, full-sized Tundra. Bottom line: the pickup truck market is contracting even as margins are being squeezed. At best, GM is about to make a great landing at the wrong airport. At worst, it’s missing the boat.

In today’s market, small cars are where it’s at. If GM thinks the Cobalt and Aveo can carry the corporation through another gas price escalation— even as Toyota, Nissan and Honda flood the market with their latest fuel-sipping econoboxes— they’ve got another thing coming. I reckon it starts with a “b.”

But even if you dismiss the possibility of Chapter 11, why do GM watchers grant the company turned around status when its leaders [continue to] refuse to provide a timeline or targets for a return to profitability? Mark LaNeve’s and his supporters may hide behind vague claims that they can see the light at the end of the tunnel, but they fail to understand that the beckoning light in the distance is… death.

According to GM, happy days are here again.  Profits are up, costs are down and the company’s turnaround plan is on track.  The automotive media have swallowed The General’s spiel hook, line and sinker.  The financial markets are ready, willing and able to view The General’s second quarter losses through the automaker’s prism of perpetual positivism, sending GM’s stock price to its highest level since last October.  Well folks, it ain’t necessarily so…

First, let’s not forget that a $3.2b dollar loss is a $3.2b dollar loss.  Sure, if GM hadn’t bought out 34,410 UAW workers’ contracts, it might’ve made a $1.2b profit.  And if my grandmother had wheels, she’d be one of those trolley cars that GM removed from city streets in the 40’s.  More to the point, GM’s US market share is still in decline, down 3.1% from last year, to 24%.  Until and unless that changes, the “one time charges” related to production downsizing won’t be enough.  Or, if you prefer, they signal the beginning of a trend, not the end.

So if things are so bad for GM, where did all the profit come from?  As TTAC’s Deep Throat has pointed out, GM’s public promise to wean itself off fleet sales, to boost residuals and transaction prices, isn’t being born out at the sharp end.  In the second financial quarter, GM sold at least 120k high content units to rental fleets.  The General also sold their new LWB GMT-900 SUV’s to dealers, which carry fat margins.  [NB: In this case, “sold” means shipped to dealers.]

And then there’s accounting. For the second financial quarter’s statement, GM made some pension calculation adjustments, reduced their warranty charge (lowering their warranty reserve fund on the supposition that their vehicles are getting better), booked some workers costs (which previously appeared as expenses) against previously charged restructuring costs and benefitted from a strengthening Canadian dollar. 

In fact, if not for the GMAC dividend of $900m, GM’s cash position wouldn’t have changed.  So while it looks like The General’s making earnings, cash generation from operations isn’t getting better.  GM still has an inventory problem at its dealers, which isn’t going to go away without massive incentives.  And thanks to hundreds of thousands of “zero percent financing for anyone with a pulse” deals, the loan rate buy down is probably on the order of several thousand dollars per vehicle. 

Pistonheads have a better grasp of the situation than the bean counters.  They know GM has failed to produce a runaway best seller (or sellers) to replace their [once] hugely profitable SUV’s.  They know that it’s business as usual down at their local Buick, Chevy, Cadillac, Saab, Saturn, GMC and Pontiac dealer— at least from a product point of view.  From a financial perspective, there’s been a huge change.  Again, GM’s dealers have been writing bad paper; lots and lots of bad paper. 

It’s Mitsubishi redux.  The Japanese manufacturer’s US fortunes foundered on the rocks of easy credit, when hundreds of thousands of borrowers defaulted on their loans.  There is every reason to believe GM’s bad paper will also spontaneously combust, leaving dealer lots stuffed with vehicles no one wants and a big old hole in their accounts receivable.  The practice may appear better than offering large discounts on slow selling GM products.  But if you think about the implications of writing bad loans in the medium to long term, it isn’t. 

There are other dark clouds on the horizon. GM watchers seem to have forgotten about bankrupt auto parts supplier Delphi.  While most industry wonks discount the possibility of a strike– now that GM’s paid thousands of Delphi’s UAW workers not to work– there’s still an August drop deadline for union – management agreement, and no agreement.  At the same time, we hear ominous rumblings that other GM suppliers may not make it out of Chapter 11. And while analysts have hip-hip-hoorayed GM’s job cuts and plants closures, they would do well to remember that reducing production in the third financial quarter will create a significant drop in revenue. 

Meanwhile, the list of assets GM put on the line for its new secured credit facility should give GM boosters pause for thought: “certain” North American accounts receivables, unspecified vehicle inventories, the entire Saturn brand, its Canadian operating unit (plants and property) and 65% of GM de Mexico.  In short, The General has wandered into the pawn shop with a large list of assets to secure credit it once enjoyed on the back of its income.  Add GM’s dicey cash position and the situation doesn’t fill me with $30 a share confidence in the company’s future.  But hey, that’s me.

The real bottom line is that GM is a car maker.  There’s only one way out of their current death spiral: produce enough vehicles that people want to buy at a price that makes the company enough profit to stay in business.  It still ain’t happening.