General Motors is on the brink of a financial disaster. It’s managed to keep out of the abyss through asset sales, hocking the company store, and yes, cost cutting. CEO Rick Wagoner’s “plan” might have worked had the economic winds blown more favorably. But they didn’t. The automaker is months away from a liquidity meltdown. Everyone who supplies GM knows it. The rating agencies know it. And yes, Rick Wagoner knows it. GM has to secure new funding or face a bankruptcy judge in Lower Manhattan. So now let’s talk about Chrysler…

Chrysler Motors LLC is owned by private equity fund Cerberus (save a small chunk retained by Daimler). Since purchasing the automaker, Chrysler has amassed an $11b cash trove. In the main, they assembled their hoard by not spending any money on capital expenditure, R&D, engineering or other necessary essentials to carry on as a car company—to the point where the product well is dry.

No surprise there. Cerberus’ real goal in all this: merge GMAC and Chrysler Financial into a global finance company and exit from manufacturing. It believed that Chrysler Motors could survive with rehash of its existing products and as a distributor of other OEMs’ products for a while– until it could find some sucker to buy it.

Like everyone else, Cerberus never expected the meltdown in the auto or credit markets either. So now the Hades Dog is stuck with a manufacturer with no future. And it still has all the liabilities. A Chapter filing would wipe clean Cerberus’ equity investment; maybe five billion dollars gone. So why not follow GM to the federal bailout trough and wait for better days?

Simply put, it’s not politically feasible to provide loan guarantees to a company owned by private equity. First, it would rescue “Wall Street” guys who pay themselves millions of dollars year. Steve Feinberg’s net worth might still be measured in the billions. Second, even if loan guarantees were provided, Chrysler is nothing more than a shell of company anyways. It would be good money after bad.

Meanwhile, GM needs cash STAT. Washington’s printing press already faces a meltdown, as a voters’ bailout fatigue threatens a political backlash. Given the private equity angle, the feds would look to save GM (and Ford) but let Chrysler go.

Only that won’t work either. It’s simply not equitable to have the government make those kind of decisions when voters (e.g. the UAW, suppliers, dealers, etc.) involved with Chrysler are spread across almost all political districts. Imagine the phones ringing in Congressional offices. Washington would be in a bind– save Steve Feinberg and take the wrath of voters everywhere, or let Chrysler go and just save GM and hear about the inequity of the “playing favorites.”

The best case – and this is how it’s playing out – is to let GM “absorb” Chrysler Motors and give Cerberus an equity piece in GM. No doubt, Cerberus will take a writedown, but something is better than nothing. OR – trade Chrysler Motors for the rest of GMAC. Hmmm. Either way, both Cerberus and GM come out ahead. In theory, the new GM controls 30 percent of US auto sales in market share, 50k more workers (soon to be eliminated but we’re not going to tell anyone), additional plants, and 3k more dealers. But most importantly, it has a larger political footprint.

And so GM will acquire Chrysler. A deal that has nothing to do with synergies, cost savings or parts sharing. Nope, it’s all about guaranteeing that Washington saddles-up to the loan giveaway bar for Detroit. Billions and billions of dollars for guarantees or direct loans, all paid for the American taxpayers– who buy more than 50 percent of cars from foreign auto makers. All justified in saving a great American icon of industrial might, a driver of new automotive technology (Volt anyone?) and preserving jobs in the heartland.

But you won’t hear the truth from the auto execs at GM, or analysts or the automotive scribes. Wall Street will celebrate the deal (deal fees in a lackluster M&A market). The automotive media will herald the “bold stroke of genius” and “the next 100 years of GM” or something to that effect, and the auto execs will point to synergies, efficiencies, and other BS.

Everyone else will simply ask WTF? And we just told you the truth: it’s a deal designed to absolutely, positively insure that Washington provides a massive bailout to GM in early 2009. (Ford will follow along on the gravy train too… but that’s another story.)

So there it is – the real reason this deal will go down. Washington will have to rescue GM now, it has no choice. The private equity guys are out of the picture (and off the hook for Chrysler’s liabilities too). The political dilemma solved. Could you script a better scenario?

GMAC will go bankrupt. The U.S lending giant is cut off from all lending sources. Smart depositors will flee its small bank (relative to GMAC itself). And its majority owner, Cerberus, won’t save it. It’s a pure liquidation play now– with the bank going into FDIC receivership, maybe as soon as this Friday. Whether or not all Hell will break loose is an open question, with many answers…

Let’s start with this: GM’s dealers have been hoodwinked by GM execs. The corporate mothership failed to provide their franchisees with fair warning that GMAC was going to pull the plug on all retail lending– never mind removing itself from the leasing business. Yes, GMAC says it will fund prime customers– with a 700+ FICO. And rates now 75 basis points higher (unless subsidized by GM).

Uh, wait a second – GMAC’s regular lending rates were already non-competitive. Now they’re just stratospheric. And again. that’s for good customers. Non-prime customers– those who buy Aveos, Cobalts, HHRs, G5, G6, entry-level Malibus, Saturns and, well ,mostly everything else GM offers other than Cadillacs, Saabs, and high end big SUVs and Hummers– are now mostly shut out of financing altogether, from any source. If you wonder why car sales are tanking, look no further than the lack of credit availability for this group of buyers.

So GMAC’s out of the market. We know that. GM has even announced an incentive program to spiff dealers who get customers financed with anyone else besides GMAC. Meanwhile, GM still owns 49 percent of a soon-to-be bankrupt GMAC. The only saving grace here: GM’s managers won’t have to blame themselves. If you didn’t know that unloading GMAC was a desperate play for cash/time, and most people don’t, they look smart for unloading half of GMAC to the wizards of Wall Street.

Here’s the crux of the matter. GMAC– formerly known as GM’s captive finance arm– used to gush cash. GM founded the subsidiary in 1919 as a means to finance both dealers and customers, so GM wouldn’t have to rely on finicky banks at the time. GMAC became a model copied by every other automaker of size. The early business model was simple: aggregation of loans written at rates higher than the cost of funding. A basic interest rate spread business. When you start writing billions of dollars of loans, the interest rate spread produces big dollars.

Later, captives found an even cheaper source of funds through securitization of receivables (i.e. bypass the banks and go direct to institutional securities buyers). And if that works for auto loans, it also works for mortgages. Soon enough, GMAC became a huge entity that provided a steady stream of profits and dividends for its owner.

There’s one problem with the model. When the music stops, the gig is over. If GMAC can’t borrow from lenders or sell its securities, it can’t make new loans. In a nutshell, that’s where it’s at today. No one in a sane mindset– given the current credit crisis-– would loan money to this finance company.

Bottom line: GMAC now has $173b of debt against $140b of income producing assets (loans and leases), and some of those assets aren’t worth the paper they’re written on. If GMAC liquidated the loans and leases, it couldn’t pay back all of its debt. If you add GMAC Bank’s $17b in deposits (a liability), the situation only gets worse. No point looking at the rating agencies to tell you there’s a problem here. Good thing the FDIC required higher capital ratios for GMAC Bank; it might survive on its own with its higher quality assets. But everyone else is on their own.

By its own admission in an internal memo to employees this week, GMAC says that it has no access to funding. That means more layoffs. No Christmas bonuses. And probably telegraphing the message that the company could go under. Only the government can rescue GMAC now, adding to that to the pile of bigger rescues going on elsewhere. And any rescue can’t be seen benefiting private equity. So Cerberus will get wiped out. GM will have to write down its investment in GMAC, thus taking another enormous hit to its shaky balance sheet. And there will be further downgrades to its credit rating.

GMAC’s collapse may not be the final death blow for GM, but it’s sure gonna leave a mark. GMAC says they’ll still support wholesale floorplan. But one has to wonder for how long that will last? Given that 80 percent of GM’s dealers use GMAC for floorplan, what happens when that song stops playing? How many dealers will go under? Worse, what will happen to GM itself if even a fraction of its dealers cannot replace GMAC with suitable alternatives? To be continued…

Consumers will not buy a new vehicle from a bankrupt carmaker. That’s the over-arching fear preventing GM from filing for a court-managed rescue: a total collapse of consumer confidence in the company’s products. History suggests that a GM C11 would indeed trigger carmegeddon. Ask an automotive  historian to name an American automaker that filed for bankruptcy, survived, emerged and thrived and you get a doughnut-hole shaped answer. But I submit that GM will reorganize successfully. C11 will be a new beginning for GM, its suppliers, dealers, workers and, yes, customers– not the end of everything. But let’s start from the corporate perspective…

Even though GM’s burning through billions it needs for a successful bankruptcy exit plan, the American automaker will still have a number of important assets which will aid its recovery. First, GM’s already accomplished a considerable amount of restructuring, having lowered its structural costs to almost meet its target goal of 25 percent (down from 40 percent). There is plenty of fat left to cut (Gulfstream jets anyone?), but much of the trimming has already been accomplished. Equally important, the company’s stultifying “job for life” mentality may not be gone, but it’s definitely packing-up its things.

Second, GM benefits from the fact that the entire organization will not be in bankruptcy, just its corporate parent and the North American operations. GM’s ongoing, somewhat healthy foreign ops will provide more than just a semblance of normalcy. They will offer the prospect– only now just becoming realized– of global products that provide tremendous economies of scale. That’s once GM jettisons the bureaucratic fiefdoms inherent within its bloated brand structure. THEN it can really tap into worldwide expertise to reduce costs through global platform sharing and reinvigorate its small car portfolio in the USA.

Third, GM has tremendous political capital. Losing GM (and its supplier base) entirely would be just too much to bear for an American President and Congress. While a Federal “solution” may not be forthcoming in terms of cash money, some of the issues which management will (in some cases correctly) blame for the bankruptcy will get new attention: health care cost containment, tort reform, labor laws which rebalance management/labor negotiations, and possibly some rethinking of Corporate Average Fuel Economy and CO2 emissions standards. Measures in these areas will help a new GM get its bearings.

Fourth, Chapter 11 protections will give GM access to fresh sources of capital.

C11 will give GM the freedom to do what it should have done decades ago, but can’t afford to do now. The company can cut dealers, shed even more labor, close factories, reduce long-term liabilities, trim brands, slice models, eliminate duplication and so on. Yes, once this root and branch restructuring is accomplished, GM will emerge from Chapter 11 with a smaller market share and lower sales. But it will be significantly leaner, with two brands (Chevrolet and Cadillac), and one of the lowest costs structures in NA. This “new GM” will be able to attract both investment and world-class executive talent.

From a customer’s point-of-view, as I stated in the previous installment, consumers will see GM stores (albeit in fewer locations) stocked with vehicles offered at tremendous pricing. Americans are mostly payment buyers of cars– and lower prices mean lower payments. Existing owners and new buyers will get a separate new car warranty policy issued by a major property and casualty insurer as a backstop to the GM warranty, valid at most national repair shops, thus allaying any fears if GM closes up shop. Kind of like FDIC insurance for depositors.

GM will continue its online and national media efforts touting its vehicles as if all is well. Most of this effort will shift to Chevy and Caddy– every other brand will fade from promotion before they’re officially pronounced as dead. The American public may fear buying from a bankrupt company initially, but enough TV advertising will reassure them that the company is alive and well and doing the deal.

During this reorganization period, Toyota will enter a crisis– at least at its executive levels. They’ll know that the tea leaves point to a rejuvenated General– concentrating its firepower at two brands– with a lower cost basis, without excessive debt and labor burdens. The U.S. is Toyota’s big profit generator; it can get away with charging more for its products against a weak field of domestic competitors. If Ford does the same as GM in the USA, the easy profit days for Toyota will be over. Toyota will become the GM of yore, with too many products, an older and more expensive labor force, and no competitive advantage.

GM just has to make it through its reorganization. As always, the key question is leadership. GM’s Board, who precipitated this disaster as they stood by their man, Rick Wagoner, can’t remain in place.  Otherwise, it will just be another opportunity missed as the empire finally craters for good.

When a company doesn’t have enough money to pay creditors what they’re owed, it’s considered insolvent. By this definition, GM is insolvent. The American automaker’s working capital stands at negative $20b. Cash outflow for the half year through June 30 remains negative, at over seven billion dollars. And it’s getting worse, as cash calls arrive on a regular– and irregular– basis. There’s no more credit to tap, and GM has few assets of meaningful value left to sell. Oh yeah, GM’s gonna file for bankruptcy. Then what?

The timing of GM’s C11 depends on its management’s psychology. At some point, somewhere around the $10b-in-the-bank mark, CEO Rick Wagoner, COO Fritz Henderson and CFO Ray Young will realize that they can no longer maintain “plausible deniability.” In other words, GM’s managers’ fiduciary responsibilities will compel them to enter bankruptcy protection with some cash rather than none– lest they lose control of their company in the reorganization to follow.

GM will file for bankruptcy late in the day, early or in the middle of month, right before the automaker has to pay its suppliers. The filing will be just a few pages of legalese– nothing grandiose. Only the news media, Washington DC and the general public will react with shock. Wall Street will not be surprised; the stock market won’t crater. By the time the company cries uncle, only true believers will own GM stock. Within hours of the filing, GM will be de-listed from the NYSE. Dow Jones will remove GM from the DJ Industrial Index.

True to their nature, GM’s execs will accept no responsibility for the company’s catastrophic failure. They will blame the economy, energy prices, government regulation, their own bankers, anything, everything, anyone and everyone but themselves. As before, their “victim of circumstance” sob story will convince many that it’s somehow a political failure, even as the men in charge admit defeat, unfurl their golden parachutes and prepare to surrender power they should have never held in the first place.

[In truth, Wagoner should have directed GM to file for bankruptcy in December 2005, when The General still had significant assets to sell. The automaker would be reorganized by now, with fewer dealers, brands and factories. And a clean balance sheet.]

Aside from an uninformed not-to-say oblivious public, the damage to Wagoner and his team’s personal reputations will be total. But the company’s C11 filing will not take down the whole GM Empire. C11 will be limited to the overall corporate entity and GM North America. Europe, Latin America and Asia will be spared the financial ignominy.

Initially, nothing much will change inside GM. The company brass will issue an internal memo to frightened workers promising a bright future. There will be no immediate layoffs or job losses; paychecks and benefits will remain in place. Later in the reorg process, a few key executives will receive “retention bonuses,” while many in the rank and file lose everything.

While the filing will not mention dealer termination, the smarter Buick, GMC, HUMMER, Pontiac, Saturn and Saab dealers (in whatever combination) will immediately understand that their days are numbered. They will either close-up shop or expand/satellite with one of their import brands. Those dealers who try to ride it out will experience a slow death for a year or so– until the reorganization plans outlines the end game for GM’s superfluous brands.

Bankruptcy will not sound the death knell for GM’s sales. Responding to commercials touting The General’s “Next 100 years,” patriotic buyers in the flyover states will flock to GM stores to do their part– especially when they see the mind-blowing bargains GM will use to clear inventory. The General’s public will not foresee the fact that only Chevrolet and Cadillac will survive. The initial sales rush of sales will convince many that the dead brands walking will live again. But they won’t.

GMAC will not be able to bankroll these fire sale purchases; it too will be subject to Court oversight (thank you Rescap). So instead of subvention paid to GMAC to move the metal, GM will use “outside” lenders to the same end. Smart bankers will experience a windfall– financing good credit customers at rates higher than justified (compensated by GM) to make consumer credit available at below market rates. Credit unions will scramble to partake in the new largess. Leases? Forget that.

The biggest casualties from a GM bankruptcy: Chrysler and Ford. Of course, Chrysler’s already toast. It’s only a matter of time before they go into liquidation. But Ford will face an epic internal struggle to avoid C11, and resulting loss of Ford family control. After the initial pall, when GM’s killer deals come on-stream, The General will steal food directly from FoMoCo’s table.

But once Ford files, and Chrysler goes into liquidation, the no-longer-Ford-family-controlled automaker will be able to clean its house and match GM’s deals. The biggest loser in all this? Toyota. We’ll discuss that in our next installment.

During the Civil War, General George McClellan headed the largest army in the North. McClellan was an astounding capable soldier– except for the part about fighting and winning a war. He was also insubordinate, rude and a potential political rival for President Lincoln. The president’s Cabinet recommended McClellan’s dismissal. “Who should replace him?” Lincoln asked. “Anybody!” they replied. “I can’t give the job to ‘anybody,’” Lincoln argued. “It will have to be a “somebody.” In the same sense, who can replace GM CEO Rick Wagoner?

It’s true: Rick Wagoner’s career is toast. And not a moment too late. By any metric you can name– profits, market share, market capitalization, debt load, brand strength, anything– Wagoner’s administration has been an unmitigated disaster. In fact, the feds missed an important opportunity to eject Wagoner in exchange for bailout billions. Never mind; his day is done.

But replacing CEO Rick Wagoner won’t be easy. Using a more modern comparison, securing a new General Manager for a professional football team is a walk in the park. There are perhaps fifty candidates who are more-or-less qualified to run an NFL team. Anyone who is anyone in the business knows who they are. Finding someone with the experience to run a global automaker– with millions of sales, dozens of factories and worldwide reach– is a relative bitch.

There are far less international automakers than NFL franchisees.The pool of available managerial talent for GM is a lot smaller than, say, The Detroit Lions. While football teams play with one set of rules using more-than-not similar strategies, carmakers must build hideously complex products (on a five-year timeline) that compete for different customers, subject to thousands of rules, all of which are subject to constant change. Finding someone who fully understands the game, never mind how to win it, is “challenging.”

Worse, GM is a closed society. There are fiefdoms within fiefdoms within fiefdoms. Employees have national, brand, departmental and personal loyalties (to name a few). It’s not for nothing that one of today’s blogs revealed that the man in charge of GM’s Strasbourg plant holds a Harvard MBA– just like his CEO and COO. And if you think intra-mural talent is the answer, look at ex-Toyota exec Jim Press’ progress at Chrysler.

Not only would it be hard for an outsider to get accurate information about what’s going on at GM’s sharp end (or filter what info he or she gets), it would be even harder to ensure that necessary changes are implemented.

Mulally at Ford? Nardelli at Chrysler? Apples and oranges. The Ford family owns enough special stock give Mulally the authority he needs. Same goes for private equity group Cerberus and Nardelli. GM has no single shareholder or directors’ block. Anyone who managed to displace GM’s existing mob would need the support of the board and, realistically, the division heads.

Bottom line: unless the GM board was displaced and company’s current infrastructure destroyed, any replacement boss would “have to be” one of GM’s lower bosses. Not that it matters.

Two years after his Cabinet called for McClellan’s head, Lincoln found his “someone.” General Grant discovered that his new/old army was nowhere near the smooth-running machine he’d had out West. One of Grant’s staff offered a simple solution: get Eli Parker (the judge advocate) drunk on the worst whiskey available, give him a knife and tell him to bring back ten major-general’s scalps. Grant was intrigued, “which ones?”

Wrong answer. Grant’s problem wasn’t so much the individual major-generals as the fact there were too damn many of them.

And so it is with GM. Once again, the root of all evil is logistical inertia, or lack thereof. General Motors North America is hamstrung by its surplus of brands; hence products, dealers, marketing and mandarins. Even with GM’s new “four channel” internal and external realignment– HUMMER, Cadillac, Saab; Buick, Pontiac, GMC; Saturn and Chevy– there still are too many hungry mouths too feed. And execs feeding them.

GM’s size was once its main advantage. It’s now its greatest weakness. With the U.S. market shrinking and share dropping, all that once-impressive industrial might just means more to cut. Worse, the sheer size of the company makes it very hard to cut effectively. Every cut must be filtered through the demands of four or more “lines” and double that number of brands. Worse, each change disrupts the balance of power between the divisions within the company and on the market.

Finding another “someone” to create effective regime change at GM, someone who can act decisively then track and balance the progress of his or her changes, could well be impossible. But it’s worth a try. As for the current administration at GM, let’s give “Honest Abe” the last word. “Stand with anybody that stands right, stand with him while he is right and part with him when he goes wrong.”

As our airplane began its final approach into Atlanta’s Hartsfield airport, we flew over the muddy outlines of an enormous new housing development. Phase I was attached. There wasn’t a single construction worker, car or human to be seen. Later, driving through the city’s outskirts, we passed dozens of these brand new ghost ‘burbs. It looked as if someone had detonated a neutron bomb, or unleashed a killer virus. Of course, someone had. Easy credit. And anyone who thinks the new car market is headed for a recovery simply isn’t paying attention.

During our Jeep Cherokee-enabled whistle stop tour of 17 dealers on the way north, we found most GM stores as lonely and hungry as an abandoned wolf cub. The majority of the showrooms were the automotive equivalent of those “starting in the 100’s!” housing tracts– only not as new. No surprise there…

Back when GM was offering zero percent financing to anyone with a pulse (i.e. buyers with low FICO credit scores), we flagged the fact that there would be a reckoning. Clearly, GM’s enthusiasm for putting people into cars they couldn’t afford was bound to boomerang. And so it has. A fetid flotilla of whipped whips is back on GM’s books. This number grows larger with each passing day, with each economic shock. The repo men have never been so busy.

This super-abundance doesn’t include the existing “glut:” the millions of would-be GM customers who are so far backwards on their existing car loan that they won’t be buying another new car for a long, long time. (If ever.) What’s more, the hidden engine of GM’s sales– endless sheaves of bad paper– is kaput. “We’re not writing any GMAC loans,” a dealer told me. “None.” God knows what impact that’s having on GM’s captive finance unit, but it can’t be good. Meanwhile, dealers are turning to local banks for their loans.

And “financially challenged” customers are returning to scary-ass corner lots. We stopped at four of these Hell holes, and they’re doing land-office business. (They eyed our 127k-mile Laredo with obvious rapaciousness.) The lots cater to people who need wheels, any wheels, now. These dealers, who specialize in high interest loans, report that cash ‘n carry is king. It’s a ridiculously small sample upon which to base a conclusion, but the trend, should it exist, doesn’t bode well for GM, whose low-end products are not-so-cheap and certainly not cheerful.

More anecdotal evidence: plenty of GM’s [supposedly] new car dealerships have used cars– many of them non-GM)–lining the street at the front of store. (This is doubly true for Chrysler.) The principal of one of the Chevy dealers told me he now considers himself a used car dealer; new cars are a loss leader. Literally. “Have a look back chair,” he said, waving at a lot full of new pickups. “I’m not ordering any new vee-hicles. Nun.”

GM’s numbers don’t jive with the reality we discovered on the ground. The automaker reports that all of its mainstream models fall below a 100-days’ supply. The most recent sales per franchise numbers are in. While they suck, they’re up: Saturn (47), Chevy (46), GMC (19), HUMMER (13), Cadillac (11), Pontiac (nine) and Saab and Buick (six each). And somewhere in the middle of his campaign for bailout bucks (a.k.a. low-interest federal loans for retooling), GM CEO Rick Wagoner said September’s sales stats will be in-line with this summer’s suffering.

Fleet sales? Fire sale fallout (i.e. lots of sales, little profit)? Closing dealers dumping inventory? Channel stuffing? TTAC’s Frank Williams is on the case. Meanwhile, our southern sojourn left us with an overall impression that the worst is yet to come.

Why wouldn’t it? Like their customers, GM and their captive finance unit GMAC have literally mortgaged their future. Both companies may delude themselves with talk of a market recovery, gently pushing it further and further into the distance as events unfold, but the truth is they’ve only begun to experience the fallout of their own short-sightedness. As credit tightens, as the economy reels, as gas prices continue to push the market into more frugal machines (where the competition has a huge advantage), GM faces a bleak future.

There is but one silver lining to this: GM’s bloated dealer network is contracting. The automaker doesn’t discuss such unseemly events, but we’ve seen the husks. There will be more failures to follow. But here’s the really scary thing: GM is not prepared for, nor welcomes the change.

Bill Heard (a.k.a. “Mr. Volume” or “that bastard”) closed its Arizona Chevrolet franchise yesterday. “It’s in a good area, and the store has a lot of traffic,” GM spinmeister Susan Garontakos said. “GM intends to keep it open.” Volume over profit? Time for a trip out West.

Today is General Motors’ one hundredth anniversary. Ironically, GM reached the century mark in the same year that it ended its reign as the world’s largest automaker. More importantly, the American automaker’s status as the world’s most profitable private enterprise has long been consigned to the scrapheap of history. The former economic powerhouse is now worth less than it owes, as it slouches towards bankruptcy. While The General’s camp followers may wish to set aide this day to bask in past glories, it’s the perfect time for the ailing American automaker to draw a line under the past and face the future.

To begin, GM must abandon its dreams of world domination. The automaker’s well-traveled centurions must surrender their multi-maniacal global ambitions. “World platforms” or no, GM will never again achieve international supremacy, let alone dominance. Not in the UK, China, India, Russia, South America or the United States. Not as Chevrolet or Opel or Saturn or any other of the company’s many guises.

Today’s GM lacks the focus, drive, determination, savvy and resources it needs to mount an all-conquering assault on any of the world’s major territories. Toyota, on the other hand, doesn’t. Hyundai doesn’t. VW doesn’t. Suzuki doesn’t. Not that it matters. All of these car companies (and GM and more) face each other in their international fight for survival. In today’s global economy, everyone is a niche player– even if some “niches” are more equal than others.

Ostensibly, GM has already made this jump from hyperspace. When Toyota wrested the world’s largest crown from Motown’s mavens, CEO Rick Wagoner and his Car Czar Bob Lutz both hummed hakuna mutata. Profits were the new black. Wrong. GM must face a future without profits. I repeat: GM must realize that it can’t make money in its current, bloated, Byzantine form. And it’s not going to make money for a long, long time.

Once GM files for Chapter 11, the automaker will enter the proverbial wilderness. Customers will run for the hills. Dealers will die. Executives will flee. Unions will attack. Regulators will interfere. Opportunists (i.e. lawyers and rivals) will pick at the entrails. Even so, a plan for GM’s emergence from C11 protections will arise. Whatever it is, it won’t be quick. The General’s recovery will require at least two product cycles, maybe more. It may not succeed. But the plan’s backers will, by necessity, take a long term view.

To make that work, GM must sever its ties to its historical business model. Death to CEO Alfred P. Sloan’s formerly transcendent strategy: an ascending range of automotive brands offering a car for “every purse and purpose.” GM must embrace the new paradigm: a wide price range of vehicles within one coherent brand structure (BMW, Mercedes) or two (e.g. Nissan and Toyota, discounting the Scion debacle).

In fact, General Motors as such must disappear, so that Chevrolet and Cadillac may rise from the ashes. And even these brands must be liberated from the weight of the past to find new resonance in the popular imagination. What separates a Chevy or Caddy (made anywhere) from any other existing brand’s products? Reliability? Longevity? Beauty? Opulence? Power? Comfort? Choose one. By euthanizing dead brands and gaining focus, the non-general General can fully capitalize on its squandered and stifled world-class talents.

But most of all, GM NA has to distance itself from GM of old.

No matter how invalid its foundation, the “perception gap” afflicting Buick, Chevrolet, Cadillac, GMC, Pontiac, Saab, Saturn and HUMMER products is a Grand Canyon-class chasm. In other words, GM is already dead to at least two generations of buyers: those who experienced the brands’ horrific quality and indifferent (to say the least) service, and those who never owned a GM product because they’ve always considered the automakers’ octo-branded handiwork deeply and completely undesirable.

Again, this effort requires reinvention rather than re-dedication. GM must be able to speak to customers about the “new” Chevrolet and Cadillac with factual sincerity. They must explain why these brands are different, now. America loves a comeback kid. But it will not tolerate, for lack of a better phrase, the same old shit in a different wrapper.

Of course, the full realization of that task would require GM to come clean about the mistakes of the past– if only internally. And that would mandate at least a notion of the meaning of accountability.

It is this deficit that defines GM’s recent history. For the last fifty years or longer, GM’s been a company in the thrall of executive ignorance, greed, arrogance and hubris. In that sense, the only worthy celebration of GM’s past would be one where the automaker’s guardians could finally declare that its culture of entitlement and insularity has been sent off into the woods to die, alone and unloved. Gone, but not forgotten.

Discovery Channel’s “Mythbusters” takes on urban myths that have been circulating through the culture. The show’s producers go to great extremes to prove or disprove the stories, and establish a coherent, no-nonsense scientific basis for their conclusions. Although copyright prevents them from using the term, GM has decided to play Mythbusters. Their new “GM Facts and Fiction” website claims to  rectify analysts and commentators (including this site) who have been trash talking The General and its wonderful products. Unfortunately, their “busting” consists of a lot of hyperbole. Their responses are short on facts, and constantly cherry-pick the stats they deploy in their defense. Let’s take a closer look, to separate fact from fiction.

Myth: GM didn’t anticipate the growing demand for fuel efficient cars

GM says: Early this decade, GM put a major focus on improving its cars and expanding the number of crossover vehicles that it offers. As a result, of the last 13 new GM products introduced in the U.S. 11 have been cars or crossovers. Of the next 19 launches, 18 will be cars or crossovers.

The Truth: “Crossover” vehicles are barely more fuel efficient than the SUVs they’re supposed to be replacing. Of the “last 13 new GM products introduced in the U.S.,” four are variations of the same vehicle (Lambda), two were based on an existing platform (Malibu, Aura), two were large pickups (Silverado/Sierra), and one is a re-bodied captive import with a gas-guzzling V8 (G8). As far as truly “fuel efficient” vehicles go, the only fuel-efficient car GM has on the horizon is the Cruze, which we won’t get here until two years after it debuts in the rest of the world.

Myth: GM quality is not competitive

GM says: GM quality is very competitive, and it continues to improve, according to both our internal measures and independent surveys. For example, in the most recent J.D. Power and Associates Initial Quality Study, Chevy Malibu and Silverado were the highest ranked midsize car and large pickup in the industry. GM’s 5 year/100,000 mile powertrain warranty reflects our confidence in the durability of our vehicles, as does our 12 month/12,000 mile bumper-to-bumper warranty on GM certified used vehicles.

The Truth: Yes, GM’s quality has improved, especially compared to what they produced in the 80s and 90s. However, so has everyone else’s. The General brags about having two cars as “highest ranked” in the Power IQS. That’s out of over eighty models they sell. Also, as we’ve discussed time and time again, the IQS survey only covers the first 90 days of ownership, when very few problems show up. If GM’s quality is so high, why don’t they offer a 10 year/100k warranty like some other manufacturers, instead of cutting off coverage at five years?

Myth: GM can’t make money selling cars

GM says: Well before the recent dive in truck sales, GM was moving to increase the profitability of its cars and crossovers. This starts with stronger products. Recent entries like the Cadillac CTS, Chevy Malibu and Buick Enclave have won praise from the press and public. Customers are willing to pay more for them, and they are selling strongly, even in a very weak market. Chevy’s next generation small car, the Cruze, should further strengthen GM’s presence in that important segment.

The Truth: This claim that “GM was moving to increase the profitability of its cars” should come as a surprise to the UAW. The fact that GM couldn’t make a profit on cars was the justification for union concessions. So was GM lying then, or are they lying now? And since they won’t be introducing the Cruze here for another two years (at least), how does GM know it’ll be profitable?

Myth: GM is looking for a government bailout

GM says: We are not asking for a bailout, or a handout. The program under discussion – part of major energy legislation signed in December 2007 — is intended to lower borrowing costs for carmakers and suppliers who are investing in energy-saving technologies. This would be done through direct loans, which must be repaid in full, with interest.

The Truth: The only “carmakers and suppliers” who will benefit from these loans are The Detroit Three. The legislation is written to specifically exclude the transplants. If this $50b loan isn’t a bailout, if it really is for carmakers to invest in “energy-saving technologies,” they should be available to everyone. The “loans” are at a much lower interest rate than anyone would give these companies. And if they “must be repaid in full,” what penalties are in place for late payment or nonpayment? And if “early this decade, GM put a major focus on improving its cars” because they anticipated “the growing demand for fuel efficient cars,” why do they need all this money at this late date? What happened to all the development they’ve been doing for the past ten years, and how did they pay for that?

Myth: The Volt is vaporware

GM says: While we can’t comment on the efforts of others, we can assure you, the Volt is for real. On June 3, GM announced that production funding for the Volt had been approved, and that GM’s Detroit Hamtramck plant has been selected as the assembly plant, pending government approvals. Meanwhile, development of both the car and its lithium-ion batteries continues apace. For the latest information, please see our Volt website.

The Truth: OK, they’ve announced the the plug-in electric – gas hybrid Chevy Volt is approved for production. They’ve named a plant that will produce it. They’re developing batteries. So when do we see a road-worthy version of the powerplant and the batteries? Oh, that’s right… they’ve just now decided who’ll produce those batteries for them so they don’t have any to install. And they’ve leaked photos of the headlights of what the “production” version. So where’s the rest of the car? And if they have one, why are they using the concept in all of their commercials? Define vaporware.

Myth: GM still doesn’t make cars that people want to buy

GM says: In 2007, the Saturn Aura and Chevy Silverado won North American Car and Truck of the year. In 2008, the Chevy Malibu was named North American Car of the Year, The Cadillac CTS was Motor Trend’s 2008 Car of the Year. Customers have responded just as enthusiastically as the critics. Despite a very tough market, GM cars and crossovers have enjoyed significant sales increases so far this year.

The Truth: COTY awards have no relevance to sales (e.g. Saturn Aura). GM’s “debunking” lists several cars, bragging about their sales increases this year. However no fewer than two of every ten Vibes and Auras built the first half of this year went to fleets. With the Cobalt and Malibu, it was more like three of every ten. And the G6? Almost half. The hard fact is that GM’s sales for the first seven months of this year were down 26.1 percent from last year and their market share dropped 3.6 percent over the same time, regardless of how well a few individual models sold.

Myth: GM has too many brands

GM says: GM has grouped its eight U.S. brands into four retail channels: Chevrolet, Buick/Pontiac/GMC, Saturn and Cadillac/Saab/Hummer. This allows GM to offer the broad range of choices that customers want, while streamlining product development and back-office operations. GM has announced a strategic review of the Hummer brand, which will study options ranging from revamping the product portfolio to selling the brand. GM is also using its global operations to develop distinctive new products for its U.S. brands. Fact is, to continue growth, many carmakers have entered new segments or added new brands as the market has grown and fragmented. The number of brands is not the key, but rather GM’s ability to provide strong products and efficient marketing support for them.

The Truth: GM has more brands in the U.S. than Toyota, Honda and Nissan combined. All they’ve done by creating these “retail channels” is enforce the point that they have about twice as many brands as they need. Their “streamlined” development and “efficient marketing” of their “strong products” seems to consist of degrading brands by giving everyone versions of the same car or bringing cars from overseas. Other carmakers may be adding brands, but none of them approach GM’s brand complexity, lack of coherent ideentity and model overlap.

Myth: GM opposes higher fuel economy standards

GM says: GM fully supports new national corporate average fuel economy (CAFE) standards of 35 mpg by 2020, a dramatic increase of 40% over previous standards. Along with other interested parties, we will work with the government throughout the rulemaking process on details of the new regulation. GM continues to believe that a single set of tough national fuel economy standards is the best way to focus the industry’s efforts and to reduce fuel consumption and CO2 emissions nationwide.

The Truth: When the new CAFE standards were coming up for vote, GM and the other automakers lobbied Capitol Hill not to pass the new standards. Once again, they protested that the new standards would mean the end of the auto industry as we know it. Now, suddenly, when they see a chance of getting a multi-billion dollar handout for “investing in energy-saving technologies,” they’re the perfect corporate citizen, standing behind the new standards. If they truly supported the standards, they wouldn’t be trying to influence the “rulemaking process on details of the new regulation.”

There are several “myths” that GM forgot to bust. The “myth” that they are the victims of an unforeseen rise in gas prices, and related shift in consumer tastes. The myth that their current business model is sustainable– but for a few hit products. The myth that the Volt could possibly compensate for lost pickup truck and SUV profits within the next five years. And the myth that federal money will not disappear down a rat hole. Then again, I guess that kind of mythbusting is best left to someone who’s willing to tell The Truth About Cars.

[click to gmfactsandfiction.com here]

Ten weeks before the Tet Offensive fatally undermined American support for the Vietnam War, General William Westmoreland embarked on a publicity tour to “sell” the ongoing military campaign. In a televised news conference, Westmoreland famously declared that he could see “the light at the end of the tunnel.” In the same sense, GM’s executives continue to express their faith in the automaker’s “turnaround.” This much is to be expected– especially when The General is lobbying for tens of billions of dollars in public funds. But the mainstream automotive media’s complicity is unconscionable.

For decades, the American automotive press has suckled on General Motors’ bounteous teats. Last year alone, before GM’s cash burn mandated some serious back-of the-sofa scrounging, the automaker spent over $2b on advertising. That kind of money buys you a lot of friends. In fact, The General’s formerly free-flowing ad bucks have supported a lifestyle to which automotive journalists became accustomed.

So it’s not surprising to see these jobbing journos share GM execs’ reluctance to face the grim fact that the artist formerly known as the world’s largest automaker is terminally ill. The scribes and suits adhere to the same delusional notion that all new cars are wonderful, but Detroit’s latest are the most wonderful of all. If not now, then soon. One day. Some day.

Of course, the 50 and 60-something white men who have watched The General’s descent from dominance to disaster share a cultural heritage with the men (and a few women) sailing this increasingly strange ship of fools onto the shoals of bankruptcy. This doesn’t excuse these journalists from their duty to serve the public trust. Clinging to the profound, unspoken belief that “what’s good for General Motors is good for America” is a disservice to the consumer and, ultimately, ironically, General Motors.

Mark my words: in these internet-savvy times, the mainstream automotive press’ failure to fully disclose the denial, hypocrisy and greed surrounding the planned GM et al. bailout– cravenly camouflaged as a green initiative– will be the final nail in both lovers’ coffins. To wit, this from Automotive News:

“General Motors’ employee pricing program helped the automaker sell more vehicles in August than in any month of 2008. But sales still were 20.3 percent below the level of August 2007. GM sold 307,285 cars and light trucks in August, up 31.3 percent from July. Trucks and SUVs delivered a big surprise for GM. Although still down from August 2007, GM’s pickups and big SUVs turned in their best sales performances of the year. In August, GM delivered more than 80,000 full-sized Chevy Silverado and GMC Sierra pickups.”

Silverado sales? Off 24.8 percent from last August. Sierra? Down 17.1 percent. Incentives? Automotive News mentions the profit-killers, but Edmunds estimates them, at $3965 per GM vehicle. And guess which vehicles have the most cash on the hood (‘cause GM ain’t sayin’ nothin’)?

As one of those 50-something white guys (well, 49, but who’s counting), Automotive News’ article is a frightening reminder of the “body count” battle reports from Vietnam, which invariably painted any and all conflicts as a [relative] U.S. rout. As we all know, the military operation may have been a success, but the South Vietnamese government (and many of our supporters in the region) died. And what’s that bit about history repeating itself?

“‘We’re not indicating or pretending in any way that the truck market is snapping back’ [vice president of GM North America sales, service and marketing Mark] LaNeve said, but the numbers indicate that pickup sales have perhaps bottomed out. LaNeve also said that he thinks overall industry sales may have hit bottom in June or July.

‘I think we saw the bottom and are going to start scratching our way up to numbers that are improving.'”

“Up to numbers that are improving?” On what? When? By how much? Is GM really a publicly-traded company? The automaker’s stunning lack of accountability continues apace. For now. One way or another, there will be a David Halberstram-predicted reckoning.

At the very least, our elected representatives will demand an explanation for the situation that has led GM to call on federal tax money for its survival. Given the prospect of publicly acknowledging their epic mismanagement and personal greed, I wouldn’t be surprised if Rick Wagoner and his mob drift away on the golden parachutes before the show starts. Nor would I be surprised if they don’t; their hubris seems to know no bounds.

Either way, like General Westmoreland, Wagoner, Lutz, Henderson and their obscenely compensated brethren will eventually claim that their stunning defeat was actually a victory in disguise: the unavoidable economic “catharsis” American industry needed. Even worse, many media members will affirm this absurd notion. Rest assured that I, and the new legions of uncorrupted commentators, will not be amongst them.

Of all the failures that have led GM to the brink of bankruptcy, the automaker's failure of imagination is the most profound. Never mind the plug-in electric – gas hybrid Chevy Volt. How about conjuring a vision of a company with two or three tightly-focused brands that each produce a handful of distinctive, class-leading and profitable vehicles, that markets them with relentless focus, and stands behind them with a national network of honest, efficient and courteous salesmen and mechanics? Whatever else Car Czar Bob Lutz can say about GM's product strategy, that ain't it. Which begs the question: what does The General want to do with U.S. taxpayer’s money?

The proposed cure is symptomatic of the disease. Like General Motors’ endless, target-less turnaround, the automaker’s plans for low-interest federal loans are utterly vague. GM won’t disclose exactly how much federal money it wants, or what they want to do with it. “We know the legislature authorized up to $25 billion," GM spokesman Greg Martin told the St. Louis Post-Dispatch. "But the amount that could really make a difference likely is much higher.”

Of course, that all depends on who gets how much and what Martin means by the phrase “make a difference.”

If GM wants a share of the proposed $25b in federal loan guarantees to subsidize production of the company’s “game-changing” plug-in Volt, six to ten billion ought to do it. Free marketeers may wonder why American taxpayers should subsidize the producer (GM) rather than the consumer (a buyer of ANY vehicle that meets a certain mpg rating), but hey, Michigan is a "battleground state." American votes jobs are on the line. 

Did I say $25b? In the run-up to and (especially) including the Democratic and Republican national conventions, Detroit has been lobbying pols to increase the federal tax cash to $50b. Michigan Senator Debby Stabenow hinted that even more federal funds might be needed (a lot now, a lot later). This desperate doubling down stripped away any pretense that the supposedly eco-friendly federal loans will pay for Uncle Sam's green dreams. It’s bailout bucks, pure and simple.

Well, not so pure and not so simple.

The $25b loan program is part of last year’s Energy Bill. Your elected representatives mandated that the funds be used to develop and build fuel-efficient vehicles. To channel these loans to The Big 2.8, applicants (supplicants?) must use the low-interest (4.5 percent) loans to re-tool U.S.-based production facilities to manufacture gas-misers. The bill also stipulates that The Department of Energy– the agency charged with steering boatloads of Benjamins to Motown– must give “priority” to assembly plants that are at least 20 years old. (Toyota and Nissan have one qualifying plant each, and they don’t want/need the money).

Of course, federal programs are almost infinitely… mutable. Even though the Energy Bill’s wording seems clear enough, Detroit’s spinmeisters are already pointing out that the final rules are yet to be written. (The final definition of applicable vehicle types should be a fun read.) Taxpayer grumbles about federal favoritism aside, dumping more money into this part of Uncle Sam's trough will be easy enough.

Assuming (as we must) that significant federal funds will flow into GM’s new product development, it should be remembered that the tax money will replace GM cash already allocated for that purpose. GM can then use the [former] development money for housekeeping: union buyouts, unconscionable executive compensation, Delphi's pensions, etc.

So, what’s the bet that the $25b to $50b (to whatever) loans won’t do any damn good? And by “good” I don’t mean that GM will end-up with electric Volts or gas-miserly Cruzes. I mean what are the chances that our tax money will provide anything more than a temporary, ineffectual band aid for GM’s arterial spray of red ink? 

Even if you gave GM a blank check and said “Here, whatever it takes. Build something that will kick the imports (the other guys’ imports, not yours) ass,” they couldn’t do it. Or do it often enough, what with eight brands selling over 40 different(ish) products.

Heads up feds: tight money has not been– nor is it now– the bane of GM’s existence. The General’s goose was cooked by managerial and union greed, sloth, arrogance and, above all, bureaucratic bungling. As anyone who’s ever worked for a company with its head up its ass will tell you, giving copious amounts of fresh capital to execs in charge of a dysfunctional corporate culture to “fix” their business is like trying to extinguish a log fire with gasoline.

If we used our $25b to buy out every GM senior manager and union worker currently employed by the company, and then let the new guys get on with it (with performance-related pay), GM might dodge the bankruptcy bullet. Or, alternatively, embrace C11 as the best way to create a sustainable American automaking endeavor. In fact, the new team would do whatever they'd have to do to survive. And if they didn’t, they wouldn’t. Imagine that.

GM’s North American Operations will go bankrupt. This statement will not come as a “revelation” to many TTAC readers. Of course, there are still some who will continue to claim that this website is “crying wolf” regarding The General's descent into ignominy. But to challenge any outcome other than a Chapter 11 filing borders on lunacy. As its centennial mark approaches, the vertex of the perfect storm now engulfs The General. Like it or not, believe it nor not, it's a tempest that will engulf the ship and send it to a rocky bottom. 

The storm has three main components. First, higher costs for diesel and gasoline.

Not to belabor the obvious, but higher fuel prices have dramatically lowered demand for big rigs. Until recent "End of Days," GM’s domestic production was geared 60 percent (plus) towards fuel-hungry trucks and SUVs. GM’s suits only built cars as a way to satisfy requirement for corporate average fleet economy (a.k.a. CAFE) regulations, and to keep a full line-up of choices amongst six of its seven brands.

GM doesn’t make money on cars. It hasn’t done so for well over a decade. The domestic automaker is the high-cost producer in a competitive car environment, where its passenger cars are mostly inferior to the offerings of Toyondissan. Even when a particular GM car is in demand, it’s still a losing proposition– when you you consider (as you must) the aggregate profit and loss across all of GM’s automotive offerings. Now, without truck sales to bolster gross contribution, the money just drains away.

Second, the finance crisis continues full tilt.

The current “downturn” is mostly a result of the debacle in the housing market (which resulted from a finance system flush with excess liquidity just a few years ago). Lenders find their balance sheets under pressure and contracting. This obviates the possibility of making credit available at reasonable terms, and then only to the least risky of borrowers.

That’s a huge downer for the car market. Without lenders willing to finance a new car to a 650 FICO score borrower, dealers might as well kiss the metal goodnight every evening– since they’ll see it again in the morning. And the next. And the next.

Third, the general economy stinks no matter what the President and the Fed’s Bernanke say.

Americans feel mostly poorer (surprise – they are!) and are acting accordingly. That means big time cash conservation. Anyone who can or needs to defer buying (heck, you can’t lease a domestic car anymore!) will do just that. They’ll sit on the sidelines. The sales numbers for all manufacturers (except Honda) prove the point; total '08 auto industry turnover is now expected to come in at around 14m units. That’s at least two million units under trend. Or think of it this way: at $28k for the average selling price of a new car, that’s $56b in lost revenues.

And there you have it. All three Motown automakers relied on trucks to cover their asses on cars. The plan worked great as long as they shared the big rig market to themselves, gas was cheap and anyone who had a job and half-decent credit could get financing. That’s all gone away and, well, we know where The Big 2.8 stand today: teetering on the abyss of bankruptcy. With GM closest to the edge. (Chrysler’s a black hole of info, but let’s suspend reality and believe Nardelli’s telling the truth.)

All the signs are there. At $10/share, GM’s stock price yields a total market value of less than $6b for a $160B revenue company. The credit agencies all mark the corporate credit of the company just a few notches above default, and that’s a gift. The bond market trades GM’s debt securities at close to recovery values.

The company’s financial statements chart the changes; GM’s just a breath away from insolvency. As of June 30th, GM's working capital stands at a deficit of $20b. Total shareholder equity is a staggering $56b in the hole. GM’s net liquidity (cash less debt) remains underwater at $15b. How can GM escape?

It can’t. There is no light at the end of the tunnel. There’s no amount of restructuring that can save this company. GM will do what automotive suppliers before it-– Delphi, Tower, Dana– have done. File bankruptcy for its North American operations. End the misery, pare the company’s balance sheet, shed brands, complete the transformation.  

The new round of employee pricing marks the last gasp of life prior to a filing. Yes, this time GM's lowered its dealer inventory to 750k units (as of July 31st). That's 300k units lower than the last time General Motors ran its "I'm an Employee, You're an Employee" sale, in June, 2005. But there's no mistaking the urgency involved. The General must get its dealers to order new vehicles at a rapid pace. That's the only way they can keep the factories humming and life-sustaining cash flow coming… for a few more months.

In fact, Captain Rick Wagoner's recent "We're OK through to the end of 2009" pronouncement is more of a timeline for C11 than a RenCen renaissance. Maybe the perfect storm will pass by then? If it doesn’t, it’s lights out. Sooner, rather than later.

Earlier today, GM’s purchasing chief warned his light truck parts suppliers that he’s looking to halve their number. No surprise there. GM’s SUV and pickup truck sales (and margins) have fallen like a stone thrown in a deep, dark well. But here’s the strange thing: Bo Anderson wants credit for his forward thinking. “The effort is proactive," he told the Traverse City management seminar. "To be sure that we get the best suppliers." Bo’s boast is based on GM’s faith that it will persevere through the current unpleasantness because yes, Virginia, you CAN cut your way to prosperity. Only no, Bo, you can’t. But hey, it’s something to do.

And by God, GM’s determined to do it. On Wednesday, freshly-minted GM CFO Ray Young cart-and-ponied automotive analysts at a JPMorgan conference in Dearborn. Young reaffirmed boss Rick Wagoner’s quasi-religious commitment to cost-cutting. And then he revealed glad tidings! The automaker would realize some of their projected savings sooner, rather than later. “We're accelerating all of this stuff,” Young pronounced.

All this stuff, indeed. Even a die-hard death watcher has trouble keeping-up with all the “normal” calls on GM’s remaining cash pile, versus the company’s efforts to trim its operating overheads, versus the “exceptional” costs of those cuts, versus, and here’s the key bit (to anyone who thinks a company should take in more money than it spends), the automaker’s sinking market share and cratering revenues. This in a declining market that’s undergoing a radical shift in consumer tastes. It’s no wonder that Young’s fellow bean counters chose to focus on cuts. It’s so much easier.

But that doesn’t make it right. And even if it IS right (for management karma), it’s not good enough for those who check the corporate body for signs of terminal cancer. Ask Moody’s. Just before Ray’s presentation, they downgraded GM’s credit, again, to Caa1. That’s seven levels below investment grade. With a negative outlook. The move slams the door even tighter on any chance that GM might borrow money Ford-style to “invest” its way out its hole (you know, if they had something approximating a plan).

Clearly, money’s too tight to mention. Literally. When asked about the $1.5b line of credit GM used in the last financial quarter, Mighty Ray Young claimed The General borrowed the money to ”test the mechanism” and help meet costs at a “seasonal low point.” (Try THAT one when your wife asks you why you put an HDTV on the credit card.) When reporters asked Young when that loan might be, you know, repaid, Young refused to give a date. GM will decide later, after it “monitors the U.S. auto industry's performance over the next couple months.”

Obviously, Young doesn’t expect the U.S. auto industry in general– or The General in specific– to recover by October. GM, once the world’s largest and most profitable company, has been reduced to scrounging behind the sofa.

And if that’s not enough to signal lifeboat lowering, Young also warned that “if the market shrinks further” the automaker will have to “reconsider” its scheduled contributions to the multi-billion dollar union-run health care superfund. And consider “how strategic” its 49 percent share of lender GMAC may be. Oh, and it’s selling more assets, ASAP.

So it’s the market’s fault. Not GM’s. The lack of accountability, the denial of reality, continues apace. Meanwhile, thanks to the festering sore that is former division and bankrupt parts supplier Delphi, the decline could soon become the final death spiral. When (no longer if) Delphi enters Chapter 7 liquidation, GM may not be able to take the monetary hit or supply chain disruption. Speaking of which…

There is nothing on GM’s product horizon that can generate sufficient revenues to slow– never mind stop– GM’s descent into insolvency. Even if the plug-in electric – gas hybrid Hail Mary known (but not yet realized) as the Volt arrived in Chevy showrooms next Thursday, even if it was a smash hit straight out of the box, the vehicle can not, will not generate enough profits (i.e. cash) to save GM. 

Someone should tell GM CEO Rick Wagoner that every day he doesn’t file for Chapter 11 brings him one day closer to something far worse.

By selling everything he can to buy more time for a market turnaround that can't come soon enough, propping-up a product renaissance that can't possibly sustain eight increasingly meaningless U.S. brands, Wagoner is in real danger of emptying the larder and destroying any remaining corporate value, leading GM into Chapter 7. 

As we’ve said before, there will be a federal loan guarantees, tax credits, perhaps a bailout and for sure a whole lot of wasted tax money before we reach this sad denouement. But reach it we will. Because you can trim a diseased tree all you like, but everything either grows or dies.

Journalism professors counsel aspiring scribes to avoid deploying numbers in the first paragraph. It’s a sensible prohibition. Although statistics (a.k.a. facts) give journos the imprimatur of authority, nothing’s more narcoleptic than naked numerology. Which is just as well. My math skills are only slightly better than my ability to pilot a Gulfstream IV. But I know a man who regularly rides in the back of one of these airborne ego-carriers, and he’s an accountant. And the CEO of GM. For the weekend, anyway. The question is, who’s next?

Now that GM CEO Rick Wagoner’s mob have reported a $15.5b second financial quarter loss without offering a concrete, coherent plan to recover the company’s lost market share or staunch the arterial spray of red ink, Wagoner’s time’s up. COO Fritz Henderson is generally tipped for the top slot. While the financial community likes Fritz, handing Wagoner’s hand-picked successor the keys to the not-so-magic kingdom would be yet another monumental mistake.

Henderson is, nearasdammit, a Rick Wagoner clone. Though Henderson’s five years younger at 50, both men are accountants. Both men have Harvard MBA’s. Both men occupied GM’s Beancounter-in-Chief (CFO) position (i.e. managed GM’s inexorable decline). Both men can read a spreadsheet like walking a dog, but can’t spot a dog [product] if it pissed on their highly polished brogues. 

Bottom line: Wagoner and Henderson define the world through numbers. While Global Product Veep Bob Lutz’ epic fail indicates that GM needs a red-blooded “car guy” at the helm like they need another Lambda-platformed crossover, now is the time for big ideas, not big numbers. (God knows there are plenty of THOSE hitting the fan.)

One of the big ideas that GM needs, as it goes into and through bankruptcy, is change. If Rick Wagoner’s tenure has taught us anything, it’s that GM’s business model is completely busted. The artist once known as the world’s largest automaker simply can’t continue designing, building and selling vehicles as they have for the last 100 years. Bureaucratic fiefdoms, union intransigence, crushing overheads, lackluster products, over-generous executive compensation, scattershot marketing, superfluous brands and more— EVERYTHING must go.

The salient fact here: Fritz Henderson’s worked for GM since Michael Jackson burned his scalp for Pepsi (1984). He is, in effect, a GM lifer. In terms of the old debate about whether radical reform is best accomplished from within or without, give me a break. The chances that an executive born of GM’s corporate culture will completely destroy that culture are about as great as the chances that Zimbabwe’s Robert Mugabe will suddenly champion genuine democracy.

Like Ford CEO Alan Mulally, The General’s next general should be ready, willing and able to abandon vast swathes of territory. In fact, GM’s leader must accept the fact that The General’s global dominance is dead, and it ain’t coming back for the next ten years (at least). By word and deed, he or she must communicate to the remaining employees that any aspirations in that direction are a dangerous fiction.

The new (yes new) goal: a return to profitability, whatever it takes. If GM must reduce itself to two brands, if GM must constrict until it can make its nut on a 10 percent market share, so be it. A piercing glimpse into the obvious, perhaps, but the wider point is that GM must experience a cultural revolution.

As always, real revolution starts with chaos. To liberate the talent locked-up within GM, the new CEO must fire ALL the suits nurtured by GM’s existing entropic structure. If Bob Lutz and Fritz Henderson are reluctant to unfurl their golden parachutes, the new CEO must push them out of RenCen's executive suite with extreme prejudice. As Machiavelli counseled, the cuts must be deep and profound, leaving not a single member of the old guard to undermine reform.

Many of TTAC’s Best and Brightest have suggested that GM should move its corporate HQ from Detroit to the left coast. This is exactly the kind of take-no-prisoners thinking GM’s new boss must bring to the job. Wagoner and Henderson are oblivious to symbolism’s importance to GM’s future, and the need to communicate forcefully and effectively to all of GM’s stakeholders. Unlike Ford’s Mulally or Chrysler’s Nardelli, GM’s new broom must be a great communicator.

Ultimately, GM’s slide into disaster is a story of personal failure, of board members and CEOs who couldn’t tell their ass from a hole in the ground.  If the American automaker emerges from C11, it will be a story of the personal triumph of its new CEO. GM’s survival is not a question of numbers on a screen. It’s a question of leadership. Fritz Henderson is no more the man of the hour than Rick Wagoner. So, who is?

BMW doesn’t need to advertise their “ultimate driving machines.” After decades building and selling vehicles offering sporting luxury, BMW has trained its customers to intuitively understand their products' appeal. Brands take years if not decades to develop, millions to billions of dollars to engender, and require careful stewardship to sustain. Contrary to much of this website’s commentary, GM’s management is not stupid. They know that Buick, GMC, Pontiac, Saab and Saturn are “damaged brands” in North America. But unless General Motors’ execs follow Bimmer's lead, and soon, the company will fail.

Branding isn’t metaphysics. It’s simple economics. Well defined brands lower the costs of customer acquisition and retention. Last year, GM spent some three billion dollars marketing and advertising in North America. But with eight supposedly unique brands, the vast majority of these dollars are wasted. (This doesn’t include the billions spent engineering and/or badge-engineering dozens of also-ran products to fill-out the eight brands’ portfolios.) Question: why bother?

In 2007, Buick/Pontiac/GMC’s combined market share stood at 6.4 percent. That’s roughly the same share as Dodge (6.6 percent) and only slightly more than Nissan (5.8 percent). Despite a largely revised lineup, Saturn’s mustered a 1.5 percent market share. Saab barely shows up at 0.2 percent.

These five GM brands combined account for 8.1 percent of 2007 total U.S. light vehicle. Honda’s U.S. market share was 8.5 percent. In other words, five of GM’s seven domestic brands (assuming HUMMER goes away) don’t even equal the total sales of a [growing] competitor with a single, well-defined brand image. 

All of these five money-sucking GM brands are damaged beyond repair. Buick’s website doesn’t even offer a strapline (“When better Buicks are built…”). GMCs are all Chevy clones. Pontiac is car? How generic can you get? Again, Saab isn’t on the radar– even if it is “Born from Jets.” Saturn never made money and consumers shunned/ignored/never heard about its recent Euro-flavored makeover. 

Here’s the rub: it’s too late to cut the deadwood. Even with GM’s four new “sales channels” (Buick/Pontiac/GMC; HUMMER/Cadillac/Saab; Saturn and Chevrolet), the automaker can no longer afford to euthanize its zombies. Chief Financial Officer (now COO) Fritz Henderson admits the math doesn’t work; the cost to terminate the brands (a decision that would launch a thousand franchised dealer lawsuits) and the loss of cash flow would doom GM.

It’s the ultimate quandary. GM can’t afford to bolster its brands with distinct and appropriate vehicles and effective marketing. But The General can’t not feed them– else the brands will wither and die and take GM down with them. This is, of course, exactly what’s happening right now.

Bankruptcy protection provides one way out: an escape from all GM’s dealer and brand commitments– at an unknown but cataclysmic cost to consumer confidence in the company. Otherwise, there’s only one option. GM must replicate their HUMMER strategy and stop all corporate support for Buick, GMC, Pontiac, Saab and Saturn dealers.

We’re talking about cutting off all product development and advertising– other than promoting current sales. Crucially, GM must also refuse to pay its franchised dealers to close; the store owners will eventually see there’s no future and take appropriate action to shutter their stores (i.e. disappear like Isuzu).

As GM slices spending on soon-to-be dead brands, it must also pour all of its remaining resources into Chevrolet and Cadillac. 

Any forthcoming product refreshes should be channeled into these two remaining brands. For example, the Traverse CUV remains a Chevrolet, the GMC Acadia and Saturn Outlook go away, and the next Buick Enclave becomes a Cadillac. In this case, GM pares four vehicles into two, and the Lamda- platformed Chevy and Caddy are clearly differentiated in price, design and amenities. 

By the same token, the Australian Pontiac G8 becomes a limited edition Chevrolet, while the rest of Pontiac’s lineup takes a dirt nap. The next Buick Lucerne becomes Chevrolet’s large car (which its current lineup lacks).

GM can and must rearm Chevrolet and Cadillac with unique, differentiated vehicles supported by marketing that best defines each brand. Vehicles that will make consumers stand up and notice.

Chevrolet can take the fight straight to Toyondissan with refined, value-priced Chevrolet products, boldly and widely marketed. Who knows? Chevy might even start a genuine American Revolution. Meanwhile, with unique styling, concentrated engineering and “American” comfort, Cadillac could return to its upmarket roots as the “World Standard,” competing with the Germans and Japanese.

As the Robert Burton said, there’s many a slip 'twixt the cup and the lip. There’s no guarantee that GM could survive with two excellent brands. But it’s a sure bet that it CAN’T survive with any MORE than two brands. The old adage recommending concentrated firepower is no less true for carmakers than military campaigners.

In the ancient Buddhist text Visuddhi-Magga, "name" and "form" are described as powerless in their respective isolation. But when they propitiously combine and mutually support one another, they attain power and "spring up and go forth." GM's announcement that the 2010 Chevy Cruze would [eventually] replace the Cobalt marks a dubious milestone in its continuing struggle to establish a lasting presence in the all-important compact car market. The Cruze will be the recipient of the eightieth name that GM has used on one of its mid-sized or smaller sedans since 1968.

Why 1968? It's the year Toyota introduced the Corolla. We could have started with 1973 (Civic), 1976 (Accord) or 1982 (Camry). But you get my drift: consistency and the lack thereof.

A recent QOTD posed the question "Why are the Japanese so smart (successful)?" Smartness may have little to do with it. Try "tenacious" or "one-pointed." The last Japanese soldiers in the Philippine jungle didn't surrendered until 1974, and then only after their [former] commanding officers were flown-in with written proof that the war was over. The soldiers' rifles and ammo were still in perfect condition. I suspect strongly that my (possible) grandchildren will still be cross-shopping Corollas.

When GM's obituary is written, it will be long and complicated. But this line alone would be adequate: "they failed to execute a consistent program of small car development and refinement." Yes, there were random moments of transcendence: Corvair, Opel 1900, and… your nominations, please. Lots of these vehicles had one, sometimes even two uplifting features. The Vega, for example, was button-cute and handled really well.

But GM's utter lack of a consistent effort to cultivate any continuity, build name and, thereby, brand equity, is distinctly unenlightened. Even with its competitive Japanese captive imports (GEO), GM displayed ignorance. The current version of the Metro, Suzuki's Swift, is a highly regarded sub-compact. It would likely beat the pants off the Daewoo-sourced Chevy BEAT. Oh, right, we're not actually getting that cute hatch, despite almost one million votes cast in favor of the BEAT on Chevy's web site. Another GM exercise in mental masturbation.

Despite GM's claims to have learned from their mistakes, their (re)naming mania continues. The Cruze will supplant/replace the Cobalt. Is this a tacit admission that the Cobalt failed to live up to its makers' grand ambitions when it replaced the Cavalier? While not exactly a class-leader, the Cobalt's not quite the class dunce (you know who you are). It was a substantial improvement over the decrepit Cavalier in every way; it just needed more TLC. Given that the Cobalt and Astra share the competent Delta platform, the requisite interior parts and chassis calibrations are just a Saturn dealer away.

Instead, GM stumbles blindly down the same road of ignorance it has traveled so many times before. When the Cruze arrives in 2010, the Cobalt will continue as the low MSRP/fleet queen special. In GM's high-priest Bob Lutz's own words of prophesy, "the Cobalt is nowhere near the end of its life-cycle." Great; think immortal Buick Century and Chevy Malibu. Classic fleet-mobiles. Not only is GM living in delusion about building name equity, it has become the Shiva of car names.

Ironically, GM religiously guards the one exception, the longest-lived continuous name plate in the whole industry: Corvette. Need I say more? The Corvette is the perfect antithesis to everything that has ailed GM in its passenger car programs. The 'Vette offers its devotees– and they are legion– fifty-five years of focus and improvement, if not always in a perfectly straight line.

I'm not implying that name continuity guarantees success. But it tends to be emblematic of the pride and perseverance that a successful automaker commits to its cars. Think BMW 3-series. Mercedes S-Class. And it sure helps with top of mind name recognition: When a supplicant asks the auto-guru for a recommendation for a good compact car, he can always say "Civic" in an eye-blink without ever having to stretch the brain cells trying to remember what GM's current offerings are called.

For what it's worth, Toyota's only name-and-form stumble corresponded with relatively weak sales. The all-new Yaris (European Car of the Year 2000) was inexplicably called Echo for North America, as well as suffering from an ugly trunk and mug. It ended a long streak of popular sub-compact Tercels. Anyway, Toyota's eleven small and mid-size car names in forty years (Crown, Cressida, Matrix, Tercel, Echo, Yaris, Corona, Mark II, Carina, Camry and Corolla) seem downright profligate compared to Honda.

Civic and Accord. Name and form. The two best selling cars in the land have "sprung up and gone forth" for over thirty years. Automotive immortality attained. Note to GM: endless reincarnation is not a goal worthy of aspiration. Bad karma.