If there's one thing Wall Street’s wizards are taking away from Rick Wagoner's morning press conference, it's that money's too tight to mention. Meanwhile product is, was and always will be the real meat of the matter. On this score, Wagoner doesn't. "Eighteen of the next 19 products will be cars or crossovers." Sounds good– provided you don't ask "what are they?" The answer to that question flags the fact that General Motors still doesn't realize that they're in a business of building cars and convincing people to exchange their money for those cars.   

While cutting models presents labor and contract challenges, green-lighting new products is even riskier. And GM is approving cars that are either crossovers (sales in the crapper) or niche vehicles (competing in the most volatile, risky market segments). 

Cadillac, for example, is getting a new crossover: the BRX. The SRX it replaces was better than the Lexus RX, but never approached the Lexus's sales. Why follow-up with another trucklette, especially as the market is shrinking? And to this tall Cadillac wagon GM is adding… a CTS wagon. BMW can barely move its 3-Series wagon in the US. Benz passed on offering its new C-Class in wagon form to U.S. customers. So Cadillac is entering a market where even more established competitors fear to tread.

GM's "luxe" brand will add a CTS coupe to its showrooms. It’s the two-door version of the current entry-level Caddy, presented in concept form at the Detroit auto show. Armchair CEOs are fond of describing the coupe market as "fickle." Yes it is. It's also tiny, crowded, seasonal and shrinking.

And everyone knows it. Toyota is killing its Solara coupe. After selling 154 units in June, the Lexus SC430 is on death row. Lest we forget, the last Cadillac coupe– the Eldorado– ended in abject failure. And the current XLR coupe/convertible sold just 117 units last month. Unless you are Porsche, expecting to make money on coupe sales is akin to trying to earn an annual income at the horse track. 

Next up: the new Saab 9-4X. Wagoner announced that the ostensibly Swedish crossover is headed for production. And why not? GM spent a lot of money developing this beast (ahem, sunk cost). It’s the first new Saab product since the Saabaru and Saablazer debacles. But it’s not that simple. 

For one thing, GM's crossover sales have cratered. All of its Lambda-platformed barges are underwater, sinking fast or launching straight into the teeth of a howling gale. We're talking double digit sales declines.

Saab needs less expensive hatchbacks and wagons, not another competitor for the GMC, Chevy, Buick, Saturn and Cadillac crossovers. This is the time to rekindle Saab's green image, or at least offer adequate performance. The 9-4X's planned turbocharged 2.0-liter gas engine won't cut the lingenberry jam.  

Pontiac is getting the Solstice coupe (not a targa) and the G8 Sport Truck. They should be cool-looking and fun to drive. But this is niche within niche. Neither is bound to pass 1000 sales per month.

We now learn that Buick (U.S.) will be blessed a rear wheel-drive (RWD) Invicta sedan come spring 2009. GM’s RWD program is like Homer Simpson at the light switch (on, off, on, off), I’ll believe it when I see it. And anyway, awesome as it might be, Buick dealers are going to sell it alongside the Pontiac G8 GT, across the street from the Cadillac CTS and STS? Oy vey.

Chevy’s ostensibly good news: the mostly somewhat probably partially all new Chevy Cruze compact car is go. From spy shots, the wee bow tie beastie looks promising– especially inside. And the promised 40mpg is extremely appealing in these fuel conscious times– even if the turbo-charged engine will require pricey premium.

Marketing? Who needs marketing? Once again, GM is rolling-out a new product name. The Cruze replaces the Cobalt, which replaced the Cavalier, which replaced the Monza, Chevette and Vega.

Unlike the plug-in hybrid electric gas vehicles destined for the Eurozone, the Cruze will sell in Europe as a Chevrolet. And that means one of two losing options: (A) It's going to be a piece of crap, because Chevy Europe competes at the very bottom of the new car market; or (B) It’s going to be good; in which case they are competing with the established GM Opel brand.

GM’s die-hard (with a vengeance) CEO can talk all he wants about cutting costs and securing flammable cash. At the end of the day, The General’s in the automotive business. If it wants to stay in business, the automaker needs to build and sell the right cars at the right time. And do it better than their competition. This they haven’t done. This they aren’t doing. And it is this failure that will ultimately be their undoing. 

Earlier this morning, GM CEO Rick Wagoner announced a cost-cutting package designed to "better align the business to the current market condition." He's cutting bonuses, pushing salarymen out the door, disappearing the dividend, postponing the union's health care payment, putting truck development on ice, yada yada yada. While the media focuses on the scope and scale of Rick's "right-sizing," the money shot arrives in the last six words of the official press release. Apparently, GM has "an ever stronger and competitive product line-up." Nonsense. And until that's true, GM's doomed. Which means GM's doomed. 

Those of you who've been following this sad saga of missed opportunity, bungled branding, disconnected development and arrogant administration will know that the markets normally react to GM's slicing and dicing with some enthusiasm. And why wouldn't they? Rick's regular rescue remedy is offered by an accountant, for accountants. But this time it's different. The dividend cut is a tacit admission of failure. And Rick tenuous statement that The General's willing to kinda maybe sorta if they have to oh what the Hell hock their last meaningful asset– GM's foreign ops– is a fire sale too far.  

By now it's clear that GM's burning down the house. The automaker is already paying $3b in interest; the last thing they need is billions of additional debt. Especially as GM [still] has no coherent plan for building profitable products for the U.S. new car market. A market which is contracting violently, which has yet to hit bottom. By now, even the money men understand that one.

Wagoner says his new new new new turnaround plan will raise (raise?) some $10b and save another $5b. That should be enough to see GM through, well, until it burns through the money. In fact, this move only makes sense if GM is stocking-up its war chest in anticipation of bankruptcy. No matter how much cash GM stuffs in its coffers, the automaker has too many unkillable dealers, unattractive brands, untenable products and expensive obligations. C11 is the only way out.

The ur-problem is that Rick Wagoner doesn't have the stones for the job. Wagoner simply refuses to do what must be done, and done soon.

Yes there is that. While a GM bankruptcy may be unthinkable for the GM lifer in charge of its fortunes (or lack thereof), there is only a small window of opportunity for a court-protected, dealer-dumping GM restructuring.

In case GM hadn't noticed, the U.S. is in the midst of a major mortgage meltdown. "Solving" the banking problem will require trillions of dollars of federal "assistance." There could well be a political backlash, or, of you prefer "bailout fatigue."

At the same time, it's entirely possible Chrysler will file for Chapter 11 in the next few weeks/months. When the world doesn't stop spinning, the psychological non-impact of a Chrysler C11 could make GM's inevitable bleating at the pre-C11 begging bowl seem less… credible. And let's not forget Ford. Same deal, only on a much larger scale.

If Ford goes C11 first and receives federal loan guarantees, wouldn't GM be more likely to be able to do the same? Maybe. Maybe not. Again, bailout fatigue. And what of the competitive threat posed by a dealer and brand-liberated FoMoCo? Maybe Motown's game of last man standing actually means the first one into bankruptcy wins?

It has been said many times by many people, including Mr. Wagoner, that a GM Chapter 11 would eliminate the American automaker. Bankruptcy's opponents always trot-out the argument that a bankrupt airline (the most common example) is not the same as a bankrupt car company. A plane ticket is not as great an investment as a car. No one would buy a car from a bankrupt carmaker.

This is patently untrue. Everything sells at a price. How about a new Buick LaCrosse for under ten grand? Seven? Six? And a GM C11 would NOT prevent GM (or some third party) from honoring its existing or future vehicle warrantees. And it's important to see this from the other side of the equation. American Airlines is generally considered to be in worse shape than its competitors because it didn't file for Chapter 11.

While bankruptcy would be an enormous shock to GM's system, that's exactly what they need. GM NEEDS Chapter 11 to get their house in order, to perform the root and branch reform upon which their future– if they are to have one– depends. And the longer they deny, dismiss and delay the inevitable, the less chance they have of emerging from the process. Ever.

The Wall Street Journal put itself in the headlines this week. The august paper reported that General Motors may be considering (i.e. thinking about thinking about) shedding brands. While some of us have been saying– for years– that GM should refine, resell and/or retire it's octo-branded U.S. portfolio, this is the first time the mainstream media covered the issue since Oldsmobile was bricked-over in 2002. Not surprisingly, GM issued a flat-out denial, followed by a little deal hand-holding. Apparently, The General won’t shutter brands, only “reduce overlapping models.” Yes, it's the same old song, with a different Beat since you've been gone. 

On May 1, 2008, GM Car Czar Bob Lutz claimed GM was moving “beyond brand engineering.” Writing on his ironically named Fast Lane Blog, Maximum Bob crowed that “The progress we’re making is real. It’s not just chest thumping talk. We have a ways to go yet, but we’re getting there.”  

October 30, 2006: John Larson, General Manager of the newly-formed Pontiac-Buick-GMC "sales channel" tells Automotive News that consolidating those three brands in dealerships will “allow General Motors to eliminate badge engineering.”

March 5, 2006: Bob Lutz tells the Washington Post bluntly “We've put an end to badge engineering." Maximum Bob's mea culpa: “I can’t believe we were so stupid.”

October 16, 2005, in an interview with The New York Times, Lutz declares “We're definitely not going to badge-engineer Saab.”

Since 2005, GM has killed some of its badge engineering disasters. The TTAC Ten Worst-winning “Crossover Utility Vans”– the Buick Terraza, Chevy Uplander, Saturn Relay and Pontiac Montana SV6– were terminated. And yet… GM replaced these models with the badge-engineered Lambda-platform CUVs: the Buick Enclave, Chevy Traverse, Saturn Outlook and GMC Acadia. The Buick and GMC share showroom space, and Chevy’s Traverse (a.k.a. Maliclave) competes on the floor with the Tahoe, Suburban, and Trailblazer SUVs.

While Pontiac missed the big CUV badge-engineering debacle, they experienced cannibalism elsewhere. For 2006, GM rebadged the not-so-hot Chevy Equinox SUV as a Pontiac Torrent. Difference? Logos and Pontiac's raging bull nostrils. In 2007, GM rebadged the Chevy Cobalt as a Pontiac G5 for the American market. Difference? Ditto. Last month, we discovered that GM was planning to rebadge the Chevy Aveo as a Pontiac G3 in the US. Difference? You got it.

In 2006, Pontiac also rolled out the Solstice roadster. Lutz’s “baby”– a two-seat roadster with a top that would confound an MG owner– began competing with its fraternal twin, the Saturn Sky. Different front ends, different rears, mostly different interiors. And yet how big is the market for two-seat roadsters? Not so big, Mr. Bond.

Also this year, GM introduced the new Chevy Malibu. Great car. Seems a lot like the Saturn Aura. Alike as in engine, transmissions, platform, interior components, size, shape, and price. These couldn’t be more directly overlapping products if they tried. And it looks like they did.

Of course, the badge-engineered and exceptionally slow-selling GMT-900 trucks are still competing for the same handful of buyers: the Cadillac Escalade vs. the Chevy Suburban, Tahoe, and Avalance vs. the GMC Yukon and XL.

More badge engineering is on its way. Saab is testing its 9-4x crossover SUV, which will be closely related the SRX-replacement from Cadillac (and both are in GM’s premium sales channel). The 2010 Equinox looks to be competing directly with its sibling, the upcoming 2010 GMC Terrain SUV.

These aren’t products that were in the pipeline before Maximum Bob joined GM. So now, when MB says GM's “not killing brands, only killing overlap,” there's no reason to believe him. Although GM's corporate structure has been consolidated into four sales channels– Buick, Pontiac, GMC; HUMMER, Cadillac, Saab; Saturn and Chevrolet– it's clear GM doesn't have enough distinctive, desirable products to feed even four hungry mouths.  

Did I say HUMMER? HUMMER's dead. Or is it? It's been cut-off from all product development and promotional spending while it's under "strategic review." It's a perfect example of the mixed messages and lack of clarity coming from Rick Wagoner's administration at RenCen. The "sense of urgency" urged by analyst Maryanne Keller MAY have arrived, but it hasn't created the necessary decisiveness. At the very least, GM should cut Daewoo a blank check to build them a small car they can sell. And sell and sell.

This past week, GM made announcements about both the Beat concept car and some product called the Cruze. And for both stories, GM used a bureaucratic passive voice to vaguely imply that they were looking into maybe speeding-up their development. Small cars are the next boom; every engineer should be on them. As President Bush said, “Fool me once, shame on you. Fool me – you can’t get fooled again.”

Now that GM's staring down the barrel of bankruptcy, the artist formerly known as the world’s largest automaker has launched a fresh offensive. Not a product offensive, of course. That would have required forward planning. We’re talking about a PR offensive. Hope for the hopeless. Alternatively, weasel words for the unwary. Here’s the headline, courtesy of unnamed sources, via the Wall Street Journal: a return to profitability by 2010. And here’s the kicker: the target date is “unofficial.” Does it get any more fantastic than that? Yes, it does.

The trick, of course, is for GM to get from here (looming cash-starved bankruptcy) to there (profit). You know: a plan. The only thing is, GM CEO Rick Wagoner has steadfastly refused to publicly declare any details of his “turnaround plan” since the words first passed his lips. Details as in targets. Targets as in accountability. Accountability as in “If I don’t do what I said I was going to do, fire my ass.” You can see the problem with that one.

Instead, GM PR's fed the ailing American automaker's camp followers a steady diet of generalities, dreams and excuses. Back in November ’05, the turnaround plan had four points: health cost reductions, product renaissance, better sales and marketing, and capacity reduction. Obviously, GM’s products were, are and always will be the most important element. If GM had made the right decisions then, they’d be well-positioned now.

“GM North America will continue with its aggressive product assault on all vehicle segments," the '05 press release declared. "To target key growth segments with the right products, GM earlier this year increased capital expenditures, with the vast majority of that increase going toward future car and truck programs…

“Starting in January, GM will begin rolling out more than a dozen all-new versions of its full-size SUVs for Chevrolet, GMC and Cadillac, to be followed in late 2007 with the availability of GM's advanced two-mode hybrid powertrain. In the same year, GM will begin rolling out an entire new lineup of full-size pickups, another segment in which GM is the industry leader.”

Oops. So much for Car Czar “Maximum Bob” Lutz golden touch. Or Rick Wagoner’s leadership. So, what’s the new new plan; the strategy that will rescue GM now that the old new plan is in shambles? According to the Journal’s proverbial “people close to the matter” (i.e. GM PR Spinmeister Steve Harris), The General is “preparing to cut thousands more white-collar jobs and is considering whether it should sell or shutter more of its brands.”

While white collar cuts are no biggie (unless you’re a GM white collar worker), the idea that GM is “considering” slicing dead brands is awe-inspiring. Anyone with a basic grasp of auto industry economics knows that GM's 19 percent U.S. market share mandates brand extinction. Buick, Hummer, GMC, Pontiac Saab and Saturn are all dead brands walking– to the point where no one in their right mind would buy them. At the same time, it’s equally obvious that GM cannot afford to cut the deadwood.

As we’ve pointed-out numerous times, the U.S. franchise system is a patchwork of 50 state laws that all favor franchisee rights. GM can’t just shutter its moribund brands and walk away from thousands of dealers. As long as there is a company to sue, the abandoned store owners will sue it. When GM closed Oldsmobile, the pay offs cost the company a billion dollars (back when a billion dollars was real money). And almost as much again in legal fees. Not to mention lost sales.

GM’s looking to raise $15b by the end of the year. There’s no way they can use the money to pay off six brands. First, it’s not enough. Second, GM needs the money just to keep the lights on. There are only two practicable way to downsize GM’s portfolio. Either GM must starve the brands of product– as it is now doing (not doing?) for HUMMER– or declare bankruptcy and use the court’s protection to git ‘er done.

GM doesn't have enough cash to wait out its dealers, and can’t stomach the nuclear option (C11). Which is why, back in February, Mr. Wagoner dismissed the idea of killing brands as "not a thoughtful discussion." So why, pray tell, is the Journal/GM re-raising the possibility of brand slaughter? Because GM wants that 15 bil and the financial markets have completely lost faith. But not, apparently, GM’s Board of Bystanders.

"[Wagoner] also has support on GM's board. Key directors still believe the management team under Mr. Wagoner is capable of delivering a turnaround and insist ‘we will win or lose together,’ this person said. Despite GM's mounting troubles, the board is anticipating management will soon notch "some victories under our belt," one director said, asking not to be named.’”

The Bystanders will go down with the ship? GM’s going to pull a rabbit out of its hat? At GM, fantasy never goes out of style.

Rick Wagoner is a lame duck. No matter how you look at it, it's clear that the failing, flailing CEO must go. Next week, The General's Board of Bystanders will meet to "discuss" the crisis. GM's dividend will disappear, triggering fresh anxiety (and some atta boys) from the financial markets and the media. The Bystanders should push Rick out of the RenCen penthouse, to glide to Aruba on his golden parachute. But they won't. They can't. Wagoner walking would be the final straw: an admission that GM's forked. And before he goes, Wagoner's got one more job to do… 

Obviously, Wagoner doesn’t want to be GM's CEO when the artist once known as the world’s largest automaker (a.k.a. the world’s most profitable company) files for bankruptcy. Common sense suggests that Wagoner wants to be IN the lifeboat BEFORE the women and children (i.e. assembly workers) make egress… problematic. Or, preferably, he'd like to be watching the ship sink from the safety of a tax-free tropical island.

Remember that Wagoner’s banked well over $100m in pay and benefits during his tenure at the top. And no, they can’t take that away from him. (His pension is bankruptcy proof.) So, really, all Wagoner has to worry about is his “legacy.” He’s proclaimed that GM has enough liquidity to make it to end of ’08 (woo-hoo!), To leave on a high note, Rick's got to raise some money– say, $15b or so– and then quit before the well runs dry (again). There’s only one problem: who’s going to lend GM $15b?

There are two ways GM could secure that kind of cash. First, they could hock their foreign operations. In a way, that’s already happened. Instead of plowing overseas profits back into overseas operations– to fend off increasingly strong competition– GM NA has been using foreign income to prop-up, indeed, justify, the overall corporate bottom line. We don’t know exactly how much, from where and when this transfer has occurred, but we do know that GM NA sucks. Cash, that is.

Putting a lien on GM Europe, Latin America, et al. would be seven kinds of stupid. Although the same old management mistakes are beginning to take their toll abroad (overlapping brands, too many brands, non-competitive products), GM’s foreign empire is in relatively good shape. But the bottom line is the bottom line. The money raised by the loan would only stave-off a GM NA filing, not prevent it. GM has no high-profit replacement for light trucks to pull its ass out of the fire. When the inevitable occurs, the whole Empire would crash and burn.

The second, more likely strategy: secure federal loan guarantees and then hit-up the banks. As mentioned before, it's virtually a done deal; Uncle Sam (that's you) will back-up the notes needed to keep GM from filing for bankruptcy. It will be the perfect time for Rick Wagoner to leave– even though GM will continue to burn through the money and stay on course for Chapter 11.

C11's a good thing for GM. It's the only way it can prune its bloated dealer network and diseased brand portfolio. But again, Wagoner will do everything he can to NOT be the man in charge when– not if– the deal goes down. All of which leaves GM where we started, 183 episodes ago. Well, not quite…

Back at the beginning, I argued that all eight GM brands should be hived off into separate companies. Since then, Wagoner’s decisions have sucked the life blood (cash, distinctive models, brand equity) out of HUMMER, Buick, Saturn, Saab, Pontiac and GMC. What’s worse, he’s rearranged the automaker's structure to further blur their identities. At this point, no competitor, private equity firm or management buyout group would dare touch ANY of GM's brands.

These days, Cadillac and Chevrolet are GM’s only viable brands, and not convincingly so. Does anyone really think Caddy has what it takes to compete with BMW, Lexus and Audi? Even GM’s fiercest supporters are beginning to understand that the Volt will not be enough to rescue The General. Will the plug-in gas – electric hybrid even be enough to rescue Chevy in the face of the well-established Toyota Prius? The Honda Accord? Hyundai? Anyone? Bueller?

I used to believe that a better, stronger GM would arise from the ashes of Chapter 11. I am now resigned to the fact that it's too late. To use Car Czar Bob Lutz' terminology, all of GM's brands are damaged beyond recovery. Still, some good WILL come of this. Someone will sell something worthwhile in GM's stead. 

Meanwhile, THIS is Rick Wagoner’s legacy: an enormous automobile company without a chance at survival. That pays $1m a week to its employees not to work (not including benefits). That pays $250m a month in interest payments. That bought car divisions it didn’t need and sold cash cows it did. That sank from 29 percent of U.S. market share to less than 19. That wiped away tens of billions of dollars from shareholder value. That lied to itself and the world that it was better than it was.

[NB: This is an updated version of the original post.] 

Earlier today, GM CEO Rick Wagoner told the world that the automaker has “adequate liquidity” until the end of the year. So I guess no one believed him the first time. Ipso facto. Wagoner’s reassurance came on the same day GM’s stock price sank to a forty-year low. The same day Goldman Sachs recommended that investors run for the hills. No surprise, then, that Wagoner felt compelled to go beyond his previous “we’re good” guarantee. "We have a lot of options to fund beyond that," Wagoner soothed. Unless they don’t. In which case, it’s fork sticking time.

The idea that GM’s cash burn will force them to go back to the well to keep the flames at bay is gaining momentum. The Bank of America and Goldman both hold this opinion, and peg the amount required at around $10b. And then, today, GM's cost of borrowing increased. Again. Fitch Ratings downgraded the ailing American automaker to B-, six steps below investment grade. That’s not good with a capital S, for hello New York? SELL!

Remember: GM is already paying $3b a year in interest ($250m per month). Also keep mind that Fitch Ratings is not a populist stock picker like Jim Cramer. The agency has access to information that the average investor will never see— including projections. If Fitch jerks your chain, you’re definitely barking up the wrong tree. Even worse: Fitch gave GM a negative rating, leaving the door open for further downgrades. 

How low can GM go? The company’s fortunes and rep can sink to the point where Wagoner’s “other funding options” disappear. If GM's bankers think the automaker is headed for a massive default, the money men are under no obligation to let GM play with other people's money. (In fact, just the opposite.) New lenders? What makes you think the people who can write billion dollar loans are more clueless than the average TTAC reader? I mean, now.

In terms of raising money, credit ratings are more important that GM's horrific stock price/market capitalization. But the sinking share price reflects the general take on General Motors: there's no boffo sequel to virtually extinct high-profit light trucks.

Pawning GM foreign ops to fund GM NA would be even greater lunacy than the current set-up, where cash generated outside the U.S. disappears down the corporate rat hole. There's nothing to stop GM declaring NA kaput and hiving-off the rest of the world, in the same way Delphi’s done. There's everything to lose by NOT doing so. Literally. 

If GM can’t raise additional money, and even if they can, the artist formerly known as the world's largest automaker needs to file for Chapter 11 sooner rather than later. The more cash General Motors has going into bankruptcy, the better the chances are that they can make it out. Not intact– that would defeat the entire purpose of the exercise. But out.

At the moment, there’s only one real glimmer of hope on the horizon: Chrysler files first.

When ChryCo goes, it will NOT be coming back. Their C11 will leave a Honda-sized hole in the American market. Presumably, Chrysler-favoring domestic loyalists will then head for GM and Ford stores. But they may not. They may apportion themselves to other automakers as they do now— which is to say they’d continue leaving Detroit metal for transplant products in ever greater numbers. Alternatively, the U.S. new vehicle market may contract so radically that Chrysler going away wouldn’t make that much difference to anyone.

Meanwhile and in any case, Wagoner is sounding increasingly Nixonian. I don’t know if Rick is kibitzing with a portrait of Roger Smith at the top of RenCen, but statements like “GM has moved quite proactively to address the dramatic consumer shift away from light trucks,” and taken "some very tough measures” sounds both revisionist and, well, nuts. Given GM’s double digit sales declines and sub-20 percent market share, Wagoner’s “we knew this was going to happen” assertion can only strike a handful of people as even remotely credible.

I still think that GM will be felled by something out of left field; some unexpected big ticket item that will do the straw camel’s back thing. A key supplier hitting the wall that GM can’t afford to bail out. A court ruling of some sort. GMAC’s collapse.

But perhaps not. Perhaps GM’s Board of Directors will allow GM’s management to keep flying until the corporation runs out of gas, and falls out of the sky. Which is a shame. Chapter 11 was designed to offer dying companies a chance at a gentler landing and a fresh start. But I suspect that the people running GM couldn’t give a shit about GM.

Earlier today, General Motors announced a "temporary" return to zero percent financing. It’s a clear, unavoidable sign that the automaker’s June sales slump is, as predicted, cataclysmic. Staring down the black hole begun on Black Tuesday, GM had to do something, anything to move the metal. And yet, at the same time, GM also revealed it’s raising its prices by 3.5 percent across the board. This second piece of news is equal parts bizarre and revealing. In essence, in the final hand of the poker game for its existence, GM has just doubled down. And now it’s Toyota’s bet. Here’s the thinking…

GM NA is desperate for cash. It simply doesn’t have enough liquidity to stave off bankruptcy. The automaker’s cash cow– high margin pickup trucks and SUVs– has become an endless supply of mad bovine burgers. So what can they do? They can discount the moribund metal, sacrificing profits to generate some cash flow. This GM's done, via zero percent financing. 

GM knows it’s not going to work. GM dealers know it’s not gong to work. Hell, even the stock market knows its not going to work (the share price reacted by falling to a 33-year low). The fact that some GM stores point blank refuse to accept SUVs and pickups in trade is only one of several unavoidable signs that light trucks– GM’s life sustaining market– is dead. There’s only one other way GM can raise some money fast: up the prices on those vehicles they ARE selling.

With GM’s U.S. market share past the point of sustainability, below 20 percent, all Toyota has to do is hold the line on their prices, amp-up production of its hot selling fuel sippers and wait for GM to die. Even by GM CEO Rick “We have enough cash for ’08" Wagoner’s own admission, it won’t be long. Especially not for Toyota— a company that’s taken the long view of its business prospects since they had a view to take.

Keep in mind that ToMoCo makes more profit it one year than GM’s entire market capitalization. Toyota could afford to give their cars away for the rest of the year and shrug off the loss. Literally. BUT… why would Toyota want GM to go out of business? Answer: they don’t.

GM still sets the floor for vehicle prices in the U.S.; a floor that allows low-cost, no-legacy Toyota to make a healthy margin on their North American products. If GM files for Chapter 11, car prices will crater. Even worse, a post- or even intra-bankruptcy GM– OK, Chevrolet– could emerge a lean, mean competitor, forcing Toyota to engage in some serious trench warfare. For a change. Yes it’s a far-fetched scenario. But don’t think it hasn’t occurred to Toyota, because it has. 

You may recall that the last time GM was generally recognized to be headed for extinction, Toyota’s Chairman offered to raise vehicle prices in North America to help the beleaguered automaker. At the time, Wagoner (for it was he) dismissed ToMoCo’s proposal with the kind of arrogance you’d expect for a man who's led GM to where it is today. But times have changed. Wagoner is up a river of excrement without a rowing implement. So he’s taking-up that offer.

Wagoner’s calculating that Toyota will also raise its prices, either to save GM or, at the very least, add to its mountainous profits. After all, the transplant’s raw commodity prices have risen by a similar amount, and their cars are flying off the lots. Surely they’ll take the path of least resistance– and maximum profits.

I reckon Rick’s right. Toyota is not GM. It will act in its long-term interests by taking a short term profit. (Oh, go on then.) GM will get its 3.5 percent extra margin on those products that are, somehow, making their way into customers’ driveways. If needs be, they can kick back that 3.5 percent to the customer and, hopefully, tread water— as opposed to watching their margins slip even further into the briny deep. 

Of course, even that won’t be enough. The inherent, fundamental, inescapable problem is that Toyondissan, and soon Ford, makes more popular products than GM in those vehicle genres that a U.S. automaker now needs to survive. The General’s general trend towards a declining share of the American pie is not about costs. It’s about a decades-long lack of competitive vehicles and loyalty-inducing customer service. Is there anyone left who genuinely believes that the Cobalt replacement or the Prius-fighter will kick Toyondissan’s ass? That a Buick-Pontiac-GMC dealership's a nice place to visit?

In truth, there are plenty of consumers who wouldn’t buy a GM product at any price. And won’t. This is the sad legacy of GM’s broken branding, dealer bloat and safe-fail engineering. One way of another, it’s only a matter of time before all bets are off.

TTAC’s Deep Throat and I have been talking about GM’s decline and fall for well over two years. My man’s mantra: “follow the cash burn.” And so we have, through foreign misadventures, asset fire sales, union payoffs, supplier bailouts and more. We’ve watched GM CEO Rick Wagoner mortgage the American automaker’s future to conflate the company’s bottom line— to little avail. Throughout this firestorm, we’ve wondered how the automotive and financial press could miss the simple fact that GM’s been taking in less than it spends for a long, long time. And now, suddenly, they’ve noticed. And now the end is near. Here’s how DT sees it going down…

In February 2006, The General halved its dividend to .25 a share. At the time, GM claimed it made the move “to support its ongoing turnaround plan, particularly in its North American business, to reduce costs and business risks, and to further enhance its financial flexibility.” Two years later, GM’s spending $3b a year on interest payments, burning through a reported $1b per month and contemplating borrowing $10b to bolster its liquidity. In short, the dividend is doomed.

Today's GM’s stock price: $13.79. According to DT, when the dividend disappears, the share price will fall through the floor. The elimination of GM’s dividend will have an enormous psychological impact— none of it good. Talk of a GM bankruptcy will erupt once again, driving institutional investors away from GM stock and scaring-off potential customers.

Meanwhile, ResCap, the mortgage arm of GMAC Financial, is headed for bankruptcy. GM will not have enough financial muscle (i.e. money) to rescue the lender. Co-owners Cerberus have already declared their refusal to throw good money after bad. What with all the bad news– June sales are going to be nothing less than horrific– the banks will refuse lend GM cash within their existing credit facilities. There won’t even be ten-foot pole marks on additional large-scale loan applications.

DT surmises that when ResCap goes Tango Uniform, GMAC will follow. Without GMAC as a lender of choice for GM dealerships, the automaker’s stores will find it nearly impossible to offer accessible, low-interest loans. GM’s sales will spiral even lower, even faster. And then…

DT reckons GM will file for bankruptcy protections well before it runs out of cash in North America. When I pressed him on a time line, he estimated it could be within the next three months if sales don’t recover from June. GM’s highly-touted, Hail Mary overseas operations won’t be included in the Chapter 11. Like Delphi, the filing will only cover U.S. ops (GM corporate and GMNA).

The day GM files for Chapter 11, they’ll unleash an extensive advertising and PR assault. The huge (and hugely expensive) campaign will assure customers, dealers and suppliers that the automaker’s business will continue. The offensive (in all senses of the word) will blame GM’s collapse—sorry, “restructuring” on rising gas prices, the general economy malaise, imports, etc. Customers will thrill to the revelation that all GM warranties will still be in force on existing and new cars.

DT says GM will immediately seek– and receive– Debtor-in-Possession (DIP) financing. How many billions they’ll Hoover-up to keep the lights on is anybody’s guess. Congressional hearings? Of course. Federal loan guarantees? You betcha. Strings attached? Plenty.

After six to nine months, GM as we know it will be dead. Under new leadership (one can only hope), the company will carry-out the brand restructuring that was due even before GM went nuts and bought Saab and HUMMER. Buick, Pontiac, Saab (in North America), Saturn and GMC will all be axed. DT has no doubts about what will happen on the sharp end: “dealers get fucked without recourse.” Only Chevrolet and Cadillac will remain in business.

Meanwhile, despite their political influence, the United Auto Workers will not be happy; the Mother of All Health Care VEBAs will not be funded. Period. The union will have to make do with what they have. DT figures the rest of the OPEB (Other Post-Employment Benefits) also face a grim, under-funded future.

DT and I have discussed GM’s post-C11 prospects at length. We both agree that bankruptcy will not stop General Motors from selling plenty of cars. Everything sells at a price, and the deals will be nothing less than astounding. But bankruptcy will definitely cut into GM’s volume. That’s the multi-billion dollar question: how much will Chapter 11 hurt GM’s sales from a “normalized” level?

Make no mistake: GM’s bankruptcy is going to hurt a LOT of people. But not, DT says, one smart cookie: Kirk Kerkorian. Captain Kirk will lend Ford the money it needs to stay solvent. FoMoCo’s stock price will soar on news of a GM C11. To the victor belongs the spoils. The rest is, as always, collateral damage.

Detroit's not flying the white flag just yet, but you can hear the unmistakable sounds of unfurling. Post Black Tuesday, GM CEO Rick Wagoner set about painting General Motors as a victim of unforeseeable circumstances; the switch from truck to car sales was faster than "anyone" could imagine. Chrysler CEO Bob Nardelli simply said everything's fine– a sure sign that nothing is. And earlier today, Ford President Mark Fields pleaded for government intervention to protect/create a domestic electric vehicle battery industry. Clearly, finally, The Big 2.8 are thinking ahead. To government bailouts.

Chrysler will be the first to file for Chapter 11. Ironically, the ailing automaker's also the least likely to receive government assistance. Yes, the feds bailed out Bear Stearns. Yes, the U.S. government provided Chrysler with hundreds of millions in loan guarantees the last time ChryCo was up against the wall– and received handsome rewards for Lee Iaccoca's rescue. But that was then. This is now.

Chrysler owners Cerberus don't want an auto company-shaped millstone around their neck. Any pretense that the private equity firm bought Chrysler to run as a going concern will disappear the day they file. Cerberus will use C11 to break-up the company, sell what it can, sue Daimler, settle out of court and run in the opposite direction. You want federal subsidies/guarantees/loans/whatever to keep this sucker afloat? YOU get ‘em.

No doubt Chrysler's new new owners will receive some kind of public assistance. But the idea that the entire company can be saved will be jettisoned by everyone except the unions– who'll take what they can get.

Even if the Chrysler's dissolution gives GM and Ford a dead cat bounce– and frankly, who could tell in this market?– GM will crank-up its lobbying efforts for government assistance. Massive hybrid tax credit for the electric – gas Chevrolet Volt? It's a given. Credits for "resurrecting" old factories will also reappear. In fact, all the creativity that should have gone into GM's cars will flow into shaping a massive, green-tinged begging bowl.

And then, catastrophe. All these bail-out band aids cannot staunch GM's wounds. The company will have to file. At that point, the tax-funded pity party will REALLY start.

While America doesn't need a nationalized automobile industry any more than England did, there's no question GM will find a willing partner in Washington. For one thing, bailing out Detroit will mean bailing out Michigan. The state is [still] too large and too powerful to let sink beneath the Great Lakes under the weight of a total GM failure– despite massive complicity. For another, the political narrative is pretty compelling. It's not just Detroit that's on its knees (so to speak), it's AMERICA! Let's keep America rolling! (Again.)

Of course, the southern states, where the transplants frolic, will be none too happy watching their patrons' profits attacked by federally-subsidized domestic competition. So there will be conditions placed on these subsidies/guarantees/loans/whatever. Lots and LOTS of conditions.

The days of excessive trough snuffling (i.e. Rick Wagoner's $14.4m annual pay packet) will be finished. Pay will finally be tied to performance. Current management will get a bit of a tongue-lashing on the Hill by the aforementioned southern reps, but the Powers that Were will drift off on their golden parachutes with their money and yes, pride, intact.

The unions will demand– and receive– job guarantees. The feds will stipulate that none of the money provided can be spent building cars overseas, including Mexico and Canada. While GM will sleaze this– building overseas cars here, importing parts– this stricture will condemn GM to complete oblivion. But hey, you can't fight the will of the working man.

And if that's not enough to turn a mediocre car company into an entirely non-competitive corporate entity, there will be enough embedded green initiatives to plant a good-sized forest. The word "sustainable" will echo through the loan agreement like a cannon fired in the Grand Canyon– with about as much effect on the environment.

I'd like to think that a new GM will rise from the ashes of the old. But it seems obvious to me that neither GM's custodians nor the feds will have the foresight, courage or political will to do what really needs doing: the breakup and sale of all GM's brands.

That strategy would "save" GM by destroying it. The talent locked-up within GM would be freed from the stifling, overarching bureaucracy, to emerge in a focused and streamlined fashion. But a life-saving break-up would require a fundamental shift in public consciousness. A politically incorrect recognition that the American free market cuts both ways; helping the losers weakens the system, rather than improves it. You can't create competitiveness through legislation any more than you can outlaw it.

It's a lesson GM will learn soon enough, one way or the other.

In July's Car and Driver, Csabe Csere takes the Secretary of Transportation to task for her ignorance about auto industry lead times. How can Mary E. Peters' department mandate a big increase in fuel economy standards for 2011 when Detroit’s already signed off on those products? Despite the obvious irony– the buff book’s hobbled by their two-month lead time– Csere makes a good point. The corollary: unless GM planned to switch from gas-guzzling light trucks to fuel-efficient cars in 2003, they’re insert F-bomb here. As May’s sales numbers indicate, indeed they are.

Last month, GM's light truck sales sank 22.1 percent. The GMT900 pickup trucks and SUVs touted as the Next Big Thing are No Big Thing. Chevrolet Tahoe sales are down 39.7 percent; the brand's pickups are off 42 percent. The next Next Big Thing after that, GM's Lambda-platformed crossovers, are also a damp squib. Sales of the GMC Acadia are down 27.6 percent. Saturn dealers sold 38.1 percent fewer of its twin under the skin, the Outlook. Add in ALL GM trucks, and May wiped 36.7 off the comparative sales ledger.

Like Richard Nixon before him, GM CEO Rick Wagoner takes all of the responsibility but none of the blame. At this morning’s shareholder meeting, GM’s 14.4 million dollar man had an opportunity to, as CNN mistakenly predicted, “step up.” Instead of [finally] outlining a specific plan for a return to profitability, Wagoner announced that GM is shuttering four truck plants and ramping-up car production. Why in three year’s time, cars will account for 60 percent of GM's North American production (up from about 50 percent)!

Wagoner’s “plan” to shut off GM’s light truck production spigot in the next three years is too little too late. At the end of April– BEFORE the May sales stats– GM had a 125-day supply of pickup trucks and most SUVs (e.g. Chevy Suburban and Tahoe). The truck glut will continue, and continue to drive down prices. GM’s life-sustaining profits will shrink further and their cash pile will burn even faster. Not to mention the fact that the plant closures could bankrupt struggling suppliers and cripple GM’s already fragile supply chain.  

Meanwhile, Wagoner’s put the HUMMER brand on the auction block. Sure, Hummers sales are in the toilet; down by 60.2 percent this month. But from a wider perspective, the CEO’s increasingly familiar refrain of "all options are on the table” is proof (if proof were needed) that GM’s branding strategy is in tatters. Less than two months ago, the automaker created the HUMMER, Cadillac, Saab” division. Why the quick change of heart? Lest we forget, Hummer is GM’s strongest brand, boasting the company’s highest customer retention stats. At least it DID until Wagoner very publicly clouded HUMMER's future….

Don’t get me wrong. The General Motors Death Watch series started with the premise that GM should be broken-up and sold, with HUMMER as the idea’s poster child. But if radical, fundamental restructuring were the goal, as it bloody well should be, Wagoner should have swung an axe on an entire division, not just Hummer. Saturn was a more logical choice. It's a dead brand walking whose recently refreshed product line did sweet FA for sales (down XXXX). But with or without Hummer, it’s steady as she goes brandwise over at RenCen. Still.

Which means it’s only a matter of time before GM’s lobbyists head over to the White House and Capitol Hill with their billion-dollar begging bowl. Can GM hold out until after the presidential election? Perhaps. But the most amazing part of all this is that Rick Wagoner will probably be at the helm when GM’s slow-motion self-petard hoisting reaches its inevitable dénouement.

Truth be told, Wagoner’s “success” at GM has been the automaker’s greatest failure– at least in the last decade. Yes, it's Wagoner's tenth year at the helm (eighth years as CEO) of what was, before his tenure, the world’s largest automaker. Wagoner’s watched GM’s North American market share slide some ten percentage points. He’s seen the company shed tens of billions of dollars of stockholder value– and lose tens of billions of dollars. He’s sold everything that wasn't nailed down and pissed away the future of millions of American workers; all while lining his pockets and securing a bankruptcy-proof pension.  

When the history of GM is written, Rick Wagoner will be easily identified as the architect of the automaker’s final, sad chapter. Wagoner will be condemned for his lack of vision, leadership and, above all else, timing.

“Rich people don’t care [about high gas prices].” Bob Lutz’ statement– made during the launch of GM’s new SUV’s in August 2005– encapsulates the automaker’s history of arrogance, ignorance and self-delusion. Then again, what else could GM’s Car Czar have said? Whether or not GM should have seen the gas crunch coming, the die was cast. Now, as gas prices crest $4 a gallon, as Delphi and GMAC teeter on the abyss, as GM’s stock price hits a historic low, GM’s slide into Chapter 11 is beginning to assume the mantle of inevitability. And why not? There is no Plan B.

Clearly, GM’s Plan A– make better SUVs and pickups– was a non-starter. Not to belabor the obvious, but soaring gas prices gored GM’s cash cow. Year-to-date, the General’s high-profit SUV and truck sales tumbled 22 percent. In April, GM’s truck sales fell by 27 percent. Sales of the once all-conquering Chevy TrailBlazer fell 73 percent. Despite the Chevy Silverado’s perch on America’s top ten list, despite their new CUVs, the company that made billions on high-profit light trucks is making billions no more.

A new charge of the light truck brigade is not a possibility. Even if U.S. gas prices suddenly descended to $3 a gallon, American consumers will continue to approach gas guzzlers with a ten-foot pole. It would take a good year of relatively low– or at least stable– gas prices to lure buyers back to… no. Actually not. Once backwards, twice shy. And if that doesn’t send the pickup and SUVs genres back to their original, pre-90’s market share, federal regulations and fashion will.

What GM needs right now– and for the foreseeable future– is six brands' worth of class-leading, fuel-efficient automobiles that will, at the very least, stop SUV refugees from jumping ship. That it ain’t got. Not now, and not a year from now.

Meanwhile, American new car sales in general, and The General’s share in specific, continue to crater. Cadillac, Chevrolet, Buick, GMC, Hummer, Pontiac, Saab and Saturn are ALL losing market share in an American new car market that shows no signs of recovery. Inventories are piling-up; every single GM light truck has more than 100 days supply. Despite the obvious light truck glut, GM’s outdated business model is forcing the company to restart truck and SUV production. As it does so, GM’s prospect for its unspecified “turnaround” move from bleak to non-existent.

Contrary to popular belief, foreign profits can’t staunch the arterial spray of red ink; the carmaker’s losses in the North American market are too deep and too broad. GM has assured the markets that it has adequate liquidity to weather the storm. On March 31, GM reported a $24b cash pile. That's $6b less than six months ago. No one knows how much that cash pile lives stateside. And given that GM’s accounts are [officially] unreliable, there’s no exact way of knowing what additional calls will be made on that cash. There will be many…

Delphi’s restructuring plan is, once again, in tatters. Given GM’s ongoing reliance on Delphi for parts, the chances are high that this sinkhole will claim even more of GM’s money. By the same token, an unknown number of GM suppliers have hit/are about to hit/will hit the wall. As the American Axle strike and Plastech bankruptcy prove, GM’s only as strong as its weakest supplier. When Chrysler goes down… It’s only a matter of time before other parts makers suck-up GM’s cash. 

At the same time, GM’s part-owned ResCap mortgage unit needs $600m to stay afloat; co-owner Cerberus won’t be ponying-up the funds. If ResCap files, it could well take all of GMAC down with it. If GMAC files, GM won’t be far behind… The General will open its wallet to stave-off that eventuality.

In the midst of all this, the central question bedeviling RenCen has now become: what can we do to hold out until the U.S. market recovers? The obvious answer: nothing. There is nothing GM can do in the short to medium term to bank enough profits to save itself from Chapter 11. U.S. franchise laws and GM’s depleted financial reserves make it impossible for GM to do what needs doing: jettison excess dealers and dead brands (everything save Chevrolet and Cadillac) to trim itself down to a sustainable, indeed, profitable level.

Surely GM CEO Rick Wagoner knows this. Logic suggests that if Wagoner knew for certain that GM was condemned to file for Chapter 11, he would unfurl his golden parachute and float off to some exotic tax haven, leaving someone else to suffer the final ignominy. And surely presidential candidate Hillary Clinton knows that only a stroke of fate (so to speak) could propel her to the White House.

The truth is that GM’s refusal to admit the possibility of defeat doomed it from the start.

According to perceived wisdom, GM's overseas ops will keep the corporate mothership afloat. Some 64 percent of first quarter sales came from outside our borders, as well as ALL of GM’s profits. The General claims that foreign markets will account for 75 percent of its profit by decade’s end. So why not just shut down the NA operations and firewall the rest as “Global Motors?” A closer look at GM’s three international units tells the tale.

GME (Europe) covers the EU15 countries, Eastern Europe and Russia. There might as well be a reverse iron (lead?) curtain when it comes to GM’s sales growth and market share in Europe; it’s all happening on the eastern side.

GM’s woes in Western Europe closely mirror its death-rattle in the US. In fact, Opel/Vauxhall has pulled off a perfect imitation of GM’s US market share free-fall: a 30 percent share drop from 1995 to 2007. Opel’s market share has plummeted 55 by percent in its German home base. The Astra, the perennial number two behind VW’s Golf, now struggles for fourth or fifth place.

GME reported a loss of $514m in 2007, despite “strong demand for GM [Chevy-badged Daewoos] vehicles in Ukraine, Greece and Russia, where sales doubled”. But GM’s recent losing bid (to Renault) for Russian automaker Autovaz puts a crimp on future growth. And Toyota has just opened a modern plant in St. Petersburg.

But GM is throwing €9b at Opel, hoping (once again) that new models will turn things around. Opel’s brand image has morphed from boringly reliable to reliably boring, It’s caught in the pincers of the “premium” brands above it and discount brands below.

Thanks to Latin America’s bubbly economy, GM’s bright spot (for the moment) is GMLAAM (Latin America, Africa and Middle East). But dark clouds are already on the horizon (Argentina’s inflation is up to 25 percent again).

Brazil is GM’s third largest market. Because of numerous constrictions on the market, it has all the symptoms of a seller’s market bubble. Chevrolet’s Vectra (Cobalt) goes for $48k. No wonder GMLAAM booked a $1.3 billion profit in 2007.

But the Latin fiesta won’t last (it never does). Growth is slowing, and the competition is moving in. Toyota sees a 50 percent rise in sales. Hyundai is building a plant. And two Chinese firms are setting up shop in low-cost Uruguay to export to Brazil and Argentina.

That brings us to GMAP (Australia-Pacific). GM’s Australian Death Watch has been well documented here. But then there’s China, and as we all know, when it comes to car sales growth the East Glows. Or not.

GM has minted serious coin on their Buicks; $65k for each Park Avenue sedan. But GM’s China-fest is petering out. GM’s current growth is stalled at 7.4 percent. Meanwhile, the competition racks up big gains: Toyota: 62 percent, VW: 33 percent, Hyundai: 64 percent. Chinese drivers are shunning the aging Buick Excelle (Daewoo) in favor of Toyota’s Camry. But GM has a plan! Rushing our unloved (and now unbuilt) Enclaves and Escalades to China.

China’s most explosive period of growth is over, forever. The stock market is down 40 percent, and the real estate bubble has popped. As the car market turns into a buyer’s market, Chinese consumers will have greater choice in cost, quality, economy and reliability. And this is where GM faces a huge downside, not only in China, but in every other gold-rush market around the globe.

GM’s developing world cars are almost exclusively from Daewoo. Aveo’s US EPA numbers are 26 percent worse than the Yaris, and in China, it’s down 47 percent against a Lifan or BYD. Auto analyst, Jia Xinguang, says that “the Toyota Vios (Aygo) and Yaris will soon snap up a large share and dominate the small car niche”. Sounds familiar, once again.

In the hot global CUV market, the Chevrolet Captiva/Saturn Vue from Daewoo is uncompetitive. It weighs 4325lbs and has an EPA rating of 16/22, compared to 3500lbs for a Honda CRV with 20/26 EPA rating.

GM’s losses in Australia and the increasingly competitive market in China are showing up in the earnings statements. Whereas GMAP booked a $1.2b profit in 2006, in 2007 that shrank to $744m.

GM’s global expansion and profits were the result of two decisions made decades ago: to hang on to its roller-coaster Brazil operations, and to be an early pioneer in China. When these two are/were on the upswing, GM enjoyed oversized profits due to an imbalance in supply and demand. But as these and other hot-spot markets mature, GM will face the same final exam that it does at home: are its sub-compact (Aveo) and compact (Cobalt, Astra, etc.) products truly competitive with the best in the world?

GM may not have jumped the overseas shark yet, but it’s on the ramp.

Once upon a time, the myth of Icarus personified the warning that pride goeth before a fall (literally). These days, the RMS Titanic’s death by iceberg– on its maiden voyage no less– illustrates the dangers of hubris. That’s because the public considers the concept of an unsinkable ship patently ridiculous. In fact, the Titanic should have been unsinkable (save tsunami, torpedo or ballistic attack). The reasons the ocean liner eventually slipped into the depths have much to tell us about the ship’s corporate equivalent, General Motors.

Many students of this maritime tragedy reckon the Titanic should have avoided the iceberg entirely. When First Officer Murdoch heard the lookouts’ cries, he ordered an abrupt turn to port (left) and full speed astern. His subordinates stopped the ship's main engines, and threw them into reverse. Thanks to an outmoded rudder and a speed record-chasing engine design (a turbine-driven central screw that couldn’t reverse), Murdoch’s order actually decreased the ship’s mobility.

By the same token, when Toyota and other U.S. imports capitalized on the first Oil Crisis, GM’s corporate “rudder” was antique and ineffectual. The automaker’s arrogant administration and byzantine bureaucracy made maneuvering around the crisis impossible. By the time GM produced smaller, thriftier products, it was too little, too late. Flash forward to Toyota’s hybrid Prius and the SECOND oil crisis, and nothing has changed. How could it change when GM has never been to dry dock for a retrofit? 

Again, the same sloth that hobbled the Titanic afflicts GM. By refreshing their products more quickly than the General, Toyondissan have kicked the American automaker's ass. Although GM has updated the vast majority of its vast product portfolio (with the notable exception of the eight-year old Cadillac DTS), the refreshes were WELL overdue. The Chevrolet Cavalier lasted almost a decade; the Pontiac Grand Am hung around for six years. How long will GM’s latest products languish?

In “What Really Sank the Titanic," authors Jennifer Hooper McCarthy and Tim Foeke (of the National Institute of Standards and Technology) claim the liner was done-in by the failure of the metal bow plates' seams. Inferior riveters couldn’t produce enough high quality (i.e. slag-free) rivets to ensure sufficient hull strength. The deficiency is partially down to the fact that Harland and Wolff were building THREE of the world’s biggest ships at the same time. In short, the shipyard bit off more than they could chew and cut corners to get the job done.

You don’t have to speak with the millions of customers who've suffered financial and emotional losses due to General Motors’ engineering failures to know that the automaker shares the same over-reach that sunk what should have been Harland and Wolf’s finest hour. But if you did, you’d be shocked at all the corners– both big and small– GM has cut over the years. The world’s largest automaker, the company that OWNED the U.S. new car market, nickel-and-dimed its way into pariah status.

What started as Alfred P. Sloan’s “a car for every purse and purpose” became (and remains) a desperate struggle to produce enough “rivets” (i.e. product) to keep the GM corporate mothership afloat. Is it any wonder that most of GM’s vehicles are uncompetitive when so many must be? We can debate past strategies, but it’s been clear for some time that GM needs just two brands: Chevrolet and Cadillac. Like, say, Toyota (which needs Scion like a hole in the hull).

If GM had just two automotive marques– which could be the plan even as the ship’s lower decks sink beneath the waterline– the quality of each vehicle would be much higher. The company would have had the strength to survive the oil barrel-shaped iceberg.

As most accident investigators will tell you, epic disasters usually occur when there’s a confluence of mistakes. The Titanic wasn’t designed or built properly. It sailed through iceberg-laden waters to set a speed record on its maiden voyage. The First Officer made a lethal mistake [NB: the Titanic may have survived if she’d simply rammed the ‘berg.] Change any one of these factors and the results would have been vastly different.

But none of this alters one important, arguably over-riding consideration: the captain. Titanic Captain Edward J. Smith should have known his ship’s limitations. He should have refused to follow the route chosen for the Titanic’s maiden voyage and/or participate in the record run. He should have trained his crew to execute an appropriate evasive maneuver (or, as above, not) in the face of an entirely predictable event. He should have ensured that there were adequate plans for survival (enough lifeboats). Fate may have dealt him a cruel blow, but he was responsible for his passengers’ safety.

When the history of GM's final fall is written, CEO Rick Wagoner will feature prominently. As well he should.

Dean Radin believes some people are psychic. No surprise there; investigating psychic phenomena is what Radin does for a living. And yet, when author Mary Roach asked the electrical engineer if there's a middle ground between believing that the dead contact the living through electromechanical devices and viewing the whole thing a hoax, Radin said "The middle ground between genuinely true and outright faking is unconscious delusion." Welcome to GM's world. 

I have no doubt that GM CEO Rick Wagoner and his acolytes will face this quarter's $3.25b loss with equanimity. Why not? During the last four years, they've glibly provided every imaginable excuse for GM's inability to book a profit; from "restructuring" costs, to labor buyouts, to the housing crisis and gas prices and beyond. The "turnaround is on course" is burned into their collective unconscious. They murmur reassuring words– to themselves and the outside world– and get back to the business of losing money.

In reality, there was a time when GM had the financial clout to make a $3.25b quarterly loss look like a right cross to a WWE wrestler's chin. But whether or not Wagoner et al admit it, the automaker's $23.9b supply of cash, marketable securities and other available funds– and that's worldwide folks, not North America– simply isn't enough to see the automaker through the current crisis, or the crisis to come.

The key point: GM needs to be analyzed for its cash flow, not earnings. This quarter, GM’s direct operating cash flow was negative $3.9b including special items. Total cash flow after non-operating items: negative $3.4b. Speaking to financial analysts, COO Fritz Henderson' tried to compare GM's current cash levels vs. last year's first financial quarter. But that’s irrelevant. All that matters is cash generated vs. cash spent over the last three months. And that’s decidedly negative.

In fact, GM was only saved from a total C11 meltdown in recent years by asset sales (well north of $10b, maybe as much as $20b). There's no escaping it: GM's business is going up in flames. You can feel the burn at the sharp end.

Henderson said GM NA's dealer inventory in April is around 840k units, the lowest level since 1983. But Fritz also said dealer stocks of full-size pickup trucks– GM's former cash cow– are still "higher than we'd like." Uh, GM has stopped making pickups (thanks to a strike by American Axle workers). And Toyota is about to pile discounts of the hood of its superabundance of Tundras. And Ford is about to launch the new F-150.

But it ain't just lost pickup profits plaguing GM. SUV sales have also cratered. In March, GM's truck and SUV sales (combined) dropped 22 percent. Worse still: falling SUV/pickup residuals trap existing GM owners in their current rigs. They can't be turned into repeat buyers to soak-up truck production– should it ever restart in any meaningful fashion.

Meanwhile, GM has no credible small cars to take up the slack. In a market where B-Class cars are flying off the lot, GM's products come complete with rebates. The automaker has no known programs to develop profitable vehicles in this segment except the Volt– which is (sticking with reality) a non-starter. For traditional domestic car buyers, a resurgent Ford looks set to steal whatever's left of GM's lunch.

In the financial realm, there's blood all over the carpet. Thanks to bad loans, bad management and a bad economy, GM's former financial powerhouse– car and mortgage lender GMAC– is heading for disaster. In terms of that beleaguered cash pile, GM has announced that it will advance up to $650m to its bankrupt former division Delphi in 2008. At the same time, GM's credit ratings are falling. Will the company lose access to its existing credit facilities?

As always, Wagoner and GM's camp followers cling to whatever good news they can pull from the wreckage. Today's Bloomberg headline on GM's Q1 loss sets the standard for self-denial: "GM Has Smaller Loss Than Estimated on Overseas Sales." In other words, overseas markets will keep GM afloat. Only, as discussed here many times and explained above, it won't. As TTAC commentator lprocter1982 points out, "GM's international profits, combined, don't equal even a third of their total loss."

To use the vernacular, stick a fork in GM. It's done. It's all over bar the lawsuits, recriminations, government bail-outs and unfurled golden parachutes. In fact, if GM's management accepted the full reality of the company's situation, they'd file for Chapter 11 now, while the automaker still has enough cash to reinvent itself, before Chapter 7 dissolution.

Of course, that would mean the end of Rick Wagoner's administration, his $14.4m annual compensation package and the sharp exit of his fantastically well-paid people (e.g. Car Czar Bob Lutz). Could the GM Empire finally be destroyed by unbridled personal greed? In truth, it's a done deal.

As a child I loved to play on swings. Leaning back and kicking my legs forward, I could propel myself into momentary weightlessness. Of course, every good swing ended with an acrobatic dismount. At the point of greatest forward momentum, I would let go of the chains and launch myself off the seat. For a brief moment I would be flying. Like an astronaut on NASA’s vomit comet, I would arc across the back yard. The sensation was thrilling. But I wasn’t a bird. Gravity’s hand never failed to pull me back to earth. And so it is with General Motors. 

Today, The General defies gravity. Officially. The global automaker flies near the top of the newly released Fortune 500 list. Corporate revenues of $182b earned GM the number four spot (down one position) on Fortune Magazine’s Fortune 500, trailing only Wal-Mart Stores, Exxon Mobil, and Chevron. As Borat would say, “High five.”

What’s more, General Motors also scored on the list of The World’s 50 Most Innovative Companies. Collaboratively produced by BusinessWeek (BW) and the prestigious Boston Consulting Group (BCG), GM took eighteenth spot on this tally of cutting edge companies. Unlike the Fortune 500, which is strictly a measure of revenue, the BW-BCG list is based on the survey of 2,950 “senior executives” (weighted 80 percent), records of three-year margin growth and revenue growth (5 percent each), and three-year stock returns (10 percent).

GM, who BW dubs a “dark horse,” must have killed on the executive survey because their financials suck. (More on that later.) Fifty-five percent of survey respondents cited General Motors’ products as their most distinguishing innovation (as opposed to innovative customer experience, processes, or business model). 

Clearly, the tens of millions (not to say billions) of dollars The General’s spent greenwashing its image has successfully advanced the automaker’s high tech rep within the business community’s chattering classes. One thinks specifically of GM’s highly-promoted, oft-delayed, completely unproven, Prius-chasing gas – electric Chevrolet Volt. And then of GM’s Green Car of the Year Award-winning dual-mode hybrid SUVs. But not specifically of anything actually selling in any number.  

I’m at a loss to explain how GM ranks eighteenth of fifty overall behind Toyota (#3), Tata Group (#6), BMW (#14) and Honda (#16) while it is second on the top ten list of innovative automakers produced from the same data by BW-BCG. On that list, GM trail Toyota but edges-out Tata, BMW and Honda. Go figure.

Nonetheless, let us imagine GM flying through the air like a boy slung from a swing, intoxicated by the sweet air of high praise and honor. Now picture a speeding Chevy Aveo slamming into the unyielding off-set crash barrier at the Insurance Institute for Highway Safety. Let’s call that wall GM’s financial report.

During 2007, General Motors suffered $39 b-b-b-b-billion in losses. Among the Fortune 500, GM takes first place in that metric (or last place, depending on how you look at it). Earnings per share fell $68.45, revenue fell twelve percent and assets shrunk $26b. 

In fact, General Motors is the only company in the Fortune top ten that lost money, save FoMoCo (who lost a paltry $2.7b). Even the two banks that cracked Forbes’ top ten– Citigroup and Bank of America– managed to turn tidy profits. This despite the ravaging impact of the well-publicized sub-prime mortgage loan losses. To top that off, from 2004 to 2007, GM stock returns slumped eleven percent.

If that number doesn’t put things in proper perspective, consider that General Motors lost nearly as much as Exxon Mobil made ($40.6b). Combine GM’s losses to those of GMAC ($2.3b)– which The General mostly and wisely unloaded during the year– and GM’s losses would have eclipsed the most profitable company in the world.

Unfortunately, conditions in 2008 are no better than ’07. Near-bankrupt suppliers continue to threaten disruption to GM’s manufacturing plants. Commodities market speculation is driving oil and gasoline prices to new highs, and GM has no credible economy car for the vital U.S. market. The American economy continues to flag and consumers are buying fewer new cars. E85, in which GM is so deeply invested, is fast emerging as an eco-fraud and the Volt’s got no batteries. The labor unions are proving that they will yield no quarter so long as the General has a dollar in the bank, no matter how fast their cash is burning up.

Couldda, shouldda, wouldda. Things would certainly be different today if corporate management had started hopping with their new found sense of urgency, say, ten years ago. Or twenty. Or thirty.  Can General Motors get its feet back under itself before it hits the ground or are they going to land squarely on their head? Either way, despite this week’s headlines, the company is in a financial free fall and it’s going to hit the ground.