By on September 18, 2006

61210.jpg The idea that Ford and GM will merge or, as they say these days, “form an alliance” is yet another sign that we’re reaching the End of Days, Detroit style. Sorry, haven’t you heard? This morning’s Automotive News quotes proverbial “senior executives” and “sources familiar with the talks” as saying GM contacted Ford shortly after GM investor Kirk Kerkorian invited Nissan to crash The General’s going away party. Or was it the other way around?  Automotive News is wildly, absurdly, irresponsibly vague on the whole story. Suffice it to say, any merger between America’s Number One and Number Two automakers would kill both of them.

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

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

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

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

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

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

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

Get the latest TTAC e-Newsletter!

64 Comments on “General Motors Death Watch 91 / Ford Death Watch 8: GM and Ford To Merge?...”


  • avatar
    Matthew Neundorf

    The thought of a Ford/GM alliance corssed my mind a couple of weeks ago while looking at the Blue Oval’s blunders.

    They were/are actively searching for new bedmates, so was GM. Automotive odd couple? Why not…

    Thing is, it was more of a “wouldn’t it be funny if…” kinda thought.

  • avatar
    Frank Williams

    This reminds me of a headline in Car and Driver several years back: “HELL FREEZES OVER!” The article dealt with GM and Toyota opening their jointly-owned plant in California. No one thought anything like that could ever happen.

    I wonder if the denizens of the underworld have started scanning eBay for thermal underware again.

  • avatar
    BuzzDog

    Hmm…forming a GM-Ford alliance would only seem to compound the issues of a model proliferation, a bloated dealer network and too many “suits” working to call the shots in a manner that protects their silos, versus making decisions that benefit the customer – and eventually the company.

    Not to mention that Mr. Farago is absolutely correct: It does nothing to alieviate a major issue facing both companies, which is the crippling power wielded over the domestic industry by the UAW.

    As I’ve commented earlier, a well-planned and structured bankruptcy/reorganization would allow major changes to occur with the dealer network and the unions. But a GM-Ford alliance? Sadly, it makes so little sense that I’m beginning to think it’s inevitible.

  • avatar

    Sensational article.
    The chances of both companies going into bankruptcy is nil.
    Let’s face it: if GM goes into bankruptcy, Ford reaps immediate benefits and if Ford goes into bankruptcy, GM immediately benefits.

  • avatar


    Excellent point ThriftyTechie.

    Lest we forget, Ford listed a GM bankruptcy as a major competitive threat in an SEC filing.

    At some point in the Chapter 11 scenario, one of these automakers wins and the other loses.

    But which one?

  • avatar
    Zarba

    Such a merger means that when the final reckoning comes, and it will, then the results would be devastating to the American economy.

    As it stands now, at least we’ll have some time to get over one bankruptcy before the other shoe drops.

    Here in Atlanta, they’ve closed the GM Lakewood plant (Rear-drive GM Full size), the Ford Hapeville plant (Taurus/Sable), and soon the GM Doraville plant (GM minivans).

    See a pattern here? Crap vehicles yields closed plants. Good vehicles yields open plants.

    This business is not that complicated. Build good cars, and we’ll buy them. Build crap, and we buy Toyota/Honda.

  • avatar
    phil

    “and BM’s (Bold Moves)” – nice one! i have to wonder what you were doing when this revelation struck ;o)

  • avatar
    naif

    And there folks in paragraph #5 is the reason why GM has been going down the tubes (is this why they bought the ren-cen) for the last 30 years. That people IS the bottom line.

  • avatar
    phattie

    How many brands would the General Ford Motors have? 16? ..i lost count. Hey, breaking news…Ford has a plan to cut 600 urban dealerships.

  • avatar
    mikey

    Yes indeed,naif said it all, but paragraph 5 nails it.Everyday I see thousands if not millions wasted on enept management people that contribute nothing to our product.
    We on the lower end of the workforce,shake our heads,and ask ourselves,is this a company on the brink of chapter 11?
    Frankly a lot of us[the ones that are literate] are scared.It is like watching a train wreck,trouble is we are on the bus thats stalled on the track.

  • avatar

    When I read about this merger idea, I thought right away about the British car and bike industries in the 70s. They tried this as well, going for the one-big-company approach. Now none of those companies are around at all (except Triumph motorcycles, whose name was bought up and ressurected). Hard to imagine that anyone takes this seriously.

  • avatar

    This would be like the Titanic merging with the Lusitania.

    Neither would benefit, but it would make a more attractive target for the government to bail out, like the Penn Central merger of several failed eastern railroads in the late 1960’s. If the government was still in the mood for bailing out “critical” infrastructure of the nation… which it no longer is.

  • avatar

    Two words: British Leyland.

    –chuck

  • avatar
    radimus

    It appears that you are starting to see the light on the situation, Mikey. Good for you. If there is some way for you to have your GM pension fund reinvested into an account that won’t disappear should GM actually file for bankruptcy, now might not be a bad time to do that.

    “And that’s because the only way they could affect the requisite root-and-branch change is… bankruptcy.”

    Been saying that all along. And I still think both companies are heading towards this in a deliberate manner, albeir deceptively so. Trodden carefully, they can manage to keep the stock prices up just long enough to cash out just before publicly stating that “due to unforeseen market dynamics” or “due to poor management decisions on the part of [insert CEO name here]” they have no choice but to file for bankruptcy protection.

    However, I don’t agree that such a filing on the part of Ford or GM or both will have very drastic economic repercussions. First, filing for bankruptcy protection will not mean they will stop producing cars. They’ll continue to do so although not at the same capacity they currently do. The ripple effect from those cuts will absorbed by the rest of the industry sooner or later. People will still buy cars, and if they are scared away from one company because of a bankruptcy filing they’ll buy that car from another. The increase in sales at the other companies will necessitate an increase in production, helping to even out the ripple. It also doesn’t necessarily mean they warranties, as meaningless as they seem to be in the real world, would instantly be rendered worthless. That would all be dependent on how the judge rules.

    The biggest loser I see in the whole mess is the UAW. Bankruptcy on the part of either Ford or GM will likely mean their contracts with them are worthless. The UAW’s long time method of contract negotiation will be shot, and they’ll be forced to deal with the companies that didn’t file on an individual basis. If both Ford and GM file, then the UAW is truly finished in the auto industry as DCX will see little or no need to give in to any strongarming. Once the company that filed comes back out, their plants will be non-union and the employees paid well enough that they won’t give much consideration to organizing.

  • avatar
    mikey

    RADMUS

    I hope your future vision for G.M. and FORD is dead wrong,but part of me knows your right.

    Ps. If G.M.or the government would let me get my hands on my pension money I would be gone on Friday

  • avatar
    miked

    insightOwner – great point about PennCentral, I forgot about them. People are always saing “GM (or Ford) can’t go bankrupt, they’re too big”, or “they’ve been around too long”. But If you told people in the 1960’s that the Pennsylvania Rail Road was going to go under in under a decade, no one would have believed you because they were the GM at the time, with tons of money and great products. but by the end they were just an overmanaged out-of-touch with the times compnay. Then they merged with their major competitor, New York Central, and turned into PennCentral briefly and then turned into Amtrack and Conrail (with help from the US Government) which was just broken up and sold. If GM and Ford do the same type of merger, then I fear they’re in for the same fate and will be unable to rebound and with out the government stepping in (and I hope they don’t) they’ll be gone.

  • avatar
    Cowbell

    I think this whole discussion can be summed up by Mr. Farago’s astute line “Automotive News is wildly, absurdly, irresponsibly vague on the whole story.”

    Hopefully there will be some actual auto news to discuss in the near future.

  • avatar
    gearhead455

    The expansion of commercial aviation after WW2 deserves an honorable mention in the overall downfall of the PRR…

  • avatar
    Don Whitefield

    I actually think that a merger makes a lot of sense.

    It would yet be another step in which US companies mirror the action of the British automobile industry on the way into oblivion and nobody has made any case yet why the US car industry would be going anywhere else.

  • avatar
    PandaBear

    I don’t think a merger would be beneficial to any party involved (GM, Ford, Delphi, Visteon), but on the other hand, the following scenario will:

    GM sources their parts from both Delphi and Visteon, and Ford sources their parts from both Delphi and Visteon.

    Then, if any one of the 4 goes under, the remaining 3 parties can at least survive on a limp.

    The long term solution for GM and Ford is actually to source parts from Denso and Bosch, and redesign their complete line up. The long term solution for Delphi and Visteon is to sell to others like Toyota (already did on batteries, radiators, and alternators but they f***ed up the alternators) and Honda. However, with UAW involved I seriously doubt that would happen, unless they move all plants to Mexico and China.

  • avatar
    jazbo123

    I think “American Leyland” might be a better name. Same results though.

  • avatar
    Claude Dickson

    I second radimus’ comments. Bankruptcy does not mean either company will go out of business. If you want a preview of how this works, look at all the legacy airlines that went into bankruptcy. The planes kept flying. The major impact was on pensions (gone) and union contracts. Expect the same here.

    The big difference between the airlines is that the airlines sell a consumer commodity which is largely based on cost. More than cost is involved in a car purchase. At the end of the day, all the cost savings in the world will not save your company if you don’t produce cars that people want to buy. I really don’t think GM or Ford get this.

  • avatar
    C. Alan

    I think there is a snow balls chance in Hades that a Ford/GM merger could take place. Even if the companies got serious about it, the FEC would not allow it to happen.

    Right now I think it is a race to see whom will go into bankruptcy last.

    I am still betting GM will go first, mainly due to the Delphi situation.

  • avatar
    CliffG

    Good job Claude for mentioning the airline industry, you might also have mentioned the business Mulally comes from, the airplane manufacturing business. Note that MacDonald Douglas did a reverse takeover, that is Mac was failing, Boeing bought them and the Mac executives all ended up running Boeing. Weird how that one worked, but please note how many domestic airplane manufacturers now exist – one. A Ford/GM merger would only occur if someone in government decided that the only way to maintain a domestic auto manufacturing business was a merger (the only reason that the Mac/BA merger occured was because government blew off all the monopoly rules to allow that consolidation). Otherwise it is a ridiculous notion, but if I was long GM or F I might float these ideas to keep the stock prices up. The continuing frightening part of this series is that nothing has changed in a year regarding these companies’ problems.

  • avatar
    miked

    gearhead – you’re right, commercial aviation (and cheap cars) were greatly the cause of the demise of the PRR. The point I was trying to make was not why it happened, but that the PRR went from the largest publicly trade company in the world to virtually nothing in a very short time (especially considering it’s 100+ year history!). And that we see the same things with the Big 2.5, they are huge and it seems almost unthinkable that they’ll go under, but things can change very quickly.

  • avatar
    Justin Berkowitz

    I think the idea of a loose alliance certainly is possible, however. GM and Ford both contributed to the development of a 6-speed automatic transmission to help them both dump the 4-speeds and not have to buy expensive units from other companies like Aisin. Who is to say they wouldn’t collaborate on other capital intensive products that don’t, in and of themselves, determine the character of a car?

  • avatar
    Glenn

    C. Alan – I agree, I think GM will “go” first into bankruptcy, perhaps Chapter 11 (followed by an inevitable and immediate 2/3 decline in sales) then Chapter 7. They may as well cut to the chase and do Chapter 7, to be honest.

    Why? Because a huge majority of people who have continued to help GM by making tons of excuses (including here in TTAC on these comments) will completely bail on GM when Chapter 11 is declared. Recently a poll was done and some 2 out of 3 people would NOT buy a car from a car corporation which was in Chapter 11. Indeed, why should they, when there are plenty of other healthy and not-so-healthy car companies to choose from?

    Kind of like what GM (and Ford) salesmen did to Studebaker, Packard, Clipper, Nash, Hudson, Kaiser – in the 1950’s. A whisper campaign against the “independent” car manufacturers (i.e. “independent” of being owned by GM, Ford or Chrysler) became a self-fulfilling prophesy. “Oh, well, those cars are all right, but they’re likely to become orphans – you don’t want that, do you? Nobody will want them in trade, then. Your resale value will go down.” “But then, here’s this nice… (Buick / Mercury / Edsel / Chevrolet / Ford)”

    Shoe’s well and truly on the other foot, now, isn’t it?

    I see in the automotive news that Toyota and Honda are getting ready to take advantage of the demise of GM and Ford – massively increasing US and international production capacity as quickly as possible. Like in the order of 40%. GM has 23% of the market, Ford has 15% or so and both dropping…
    even with Toyota and Honda increasing production by 40% the other car manufacturers will need to increase production, too if both GM and Ford go KAPUT. In other words, not all of the market share abandoned by GM and Ford (or one or the other) will go to Toyota and Honda, that just simply isn’t how it works.

    When AMC’s Ramblers sold well enough (temporarily) and outsold Plymouth in the early 1960’s, then eventually faded away, GM didn’t get the entire market share that AMC had possessed; see my point?

  • avatar
    pete

    …and now I read elsewhere that Ford wants to buy the Rover brand from BMW. Is there a sickness currently raging in the automotive capital of the US. Is it characterized by severe fever and bouts of lunacy.

    How many weak brands do these guys need?

  • avatar
    Jordan Tenenbaum

    Pete, Ford only bought the name.

  • avatar
    Jan Andersson

    If you have got two soups on the menu that no one orders, how likely is it that someone will order soup if you mix them together?

  • avatar
    pete

    Jordan,

    I know they only bought the name – but what for? Do they really need it for “Range Rover” purposes? Will they try to flip it to the Chinese?

    Just now and then I long for some tired old brands to just go away…

  • avatar
    Jordan Tenenbaum

    Pete, Perhaps the Chinese were planning on bringing Rover stateside, much as they plan to do with MG.

  • avatar
    pete

    I don’t want to go off on a tangent but I remain puzzled as to why Ford would spend any money buying a morbund brand. In my parents day a Rover meant something but after Honda mucked with it and then BMW made their expensive mistake I can’t see what Rover stands for any longer other than “too expensive for a very average car”. Personally I separated the Landrover, Range Rover names from “Rover” in my head years ago.

    IMO – if *anyone* brings Rovers to the US it will be a flop. (as a further aside, MG might be one too)

    So my question standards – why is Ford spending money it can ill afford on the Rover brand?

  • avatar
    Spartacus

    “Recently a poll was done and some 2 out of 3 people would NOT buy a car from a car corporation which was in Chapter 11.”

    Glenn,

    Only 1 out of 4 are buying cars from GM now. Does that mean that bankruptcy would have no effect, or that GM’s potential customers would be 1 out of 6? (2/3 of 1/4)

  • avatar
    pete

    So perhaps I can answer my own question. Ford now control the Rover name but will not use it except in the context of Landrover and Range Rover (no new Rover cars?). This prevents SAIC from devaluing the “Rover” name.

    Is it money well spent? How much did they pay?

    …oh and I will type more carefully :-)

  • avatar
    starlightmica

    Heck, is the brand name Sterling still available? or some of the other brands BMW still owns, such as Triumph, Wolseley, Riley or Leyland?

  • avatar
    Terry

    Hello!
    The thought of a GM/Ford merger reminds me of 2 people drowning, then grab eachother for help…and both go down.
    Remember Renault taking over AMC? 2 losers in the US market, both gone now(‘cept maybe Renault’s influence at Nissan)

  • avatar

    I’d love to see what happens to the Chevy Trucks vs. Ford Trucks flame war when they become the same truck. Teenage-redneck heads would explode.

    So… there IS one reason this would be a good thing if it happened.

  • avatar
    Robert Schwartz

    “both The General and The Blue Oval have too many factories, assembly workers, executives, health care costs, pension costs, brands, models and dealers”

    And not enough smarts.

  • avatar
    Robert Schwartz

    Those of you who are old enough may remember the merger of the Pennsylvainia Railroad and the New York Central. The two roads had dominated the east coast for many years, but were in poor financial condition when they merged in 1968 and within 2 years the merged entity went bankrupt.

  • avatar
    Terry Parkhurst

    Because I know people I consider friends who work for both GM and Ford, it genuinely pains me to say this: two losers coming together, don’t make a winner – at least in the long term. One partner needs to be stronger. That’s probably why DaimlerChrysler is doing better than Ford and GM.
    Looking back over 50 years ago, Nash and Hudson came together to form American Motors Corporation. Mostly likely, the only reason AMC survived as long as it did (until late 1987), was its acquistion of Jeep, from the former Kaiser-Jeep Corporation (can’t recall the exact year, but believe it was 1970).
    Then too, Studebaker and Packard came together in 1957 and that was surely a marriage made in hell; ask any Packard buff. Of course there were also what economists call “externalities” that impacted Studebaker – such as the assasination of President Kennedy in the same year that Studebaker was trying to convince Americans that they weren’t going to also pass away in history. (Studebaker left South Bend, Indiana at the end of December, 1963 and continued to make cars, using the long-in-the-tooth Lark which became the “Daytona” and finally, the “Cruiser,” using a Chevrolet V8; but in 1966, Studebaker quit making cars entirely.)
    There’s a lot of aspect to a Ford and GM merger, some of which have been discussed here. But I think Robert has really made the best point: the corporate cultures are dissimilar enough, that most likely GM would become the “stronger” voice; and is that going to help either one? I think it is doubtful indeed.
    Then too, there are new “externalities” none of us really want to dwell on. Charles Krauthammer (sic) had a column that is being syndicated today saying we should expect President Bush to send in forces to destroy Iran’s nuclear capability, within a year. If that happened, it’s not bloody likely that many people will be shopping for a new car – least of all from two companies struggling to survive.
    As Lou Reed once sang, “Sometimes, it takes a busload of faith to get by.” Maybe we don’t have enough faith in these once giants of American industry. In capitalism, once you lose face with the consumer, it usually signals your demise.
    Maybe F. Scott Fitzgerald was correct when he asserted, “In America, there are no second acts.”

  • avatar
    Terry Parkhurst

    Small correction: meant to write “a lot of aspects to this…”

  • avatar
    suohtil

    I would think more than “tens of thousands of jobs destroyed”. My guess is GM has over 100K U.S. employees and counting dealership jobs and suppliers that would make hundreds of thousands of jobs. But you only tell the truth so I’m sorry for mentioning it. Oh, but you threw that word “from” in there so all is OK you weren’t misleading. I see.

    “to millions of GM warranties rendered worthless” – is there any underwriters for their warranties?

    “With no immediate prospect of relief.” – i like prepositional phrases.

    “If you think that GM’s product range makes no sense” – does that mean that it makes no sense for them to have a range such that they offer the Aveo (small car) and large vehicles and everything in between and they shouldn’t (more like Honda or Hyundai)? B) states it as “product line” i see now.

    “Would it even be legal?” – not sure if you realize this but there are a few car companies that sell in America and they think they are American companies (they have names like Honda America and stuff) but you can tell the difference because they have ADRs associated.

    “Big Red One” – that’s clever of you to use that great military might to make fun of American companies. I think our kids should remember those words in the negative sense, very good, I like it.

    “BM’s (Bold Moves)” – i like that too.

    “Of course, they’re been” – that means “they are been”, i like that a lot.

    that is some great stuff, you equating Farago = farrago. that is good.

  • avatar
    Steven T.

    I think the most important question that this posting raises is: Why is the reporting of Automotive News so consistently mediocre? It’s the Crown Vic of the automotive journalism world. These guys (yup, pretty much guys) need to have a fire lit under their complacent asses.

  • avatar
    suohtil

    “Ford and GM’s products lines” – that makes good sense. here i would have written “Ford and GM’s product lines”. my ears hear things worse than yours.

  • avatar

    If the auto industry made any sense, would there still be a Mitsubishi? This is all terribly confusing for a logical person.

  • avatar
    Rastus

    Notice how this time around Toyota chose to announce yet another series of production increases. “No, I’m sorry Ford and GM, business is business…we will no longer increase the price of our best selling Camry by $300 in an effort to ‘hep ya’. Last summer we were just joshing ya, you bloody idiots…as IF to think…”.

    Besides, no need is necessary…afterall, Toyota “taught” GM how to build small cars in the 80’s, right there at NUMMI!!! You passed with flying colors, there GM. You had such a bright future…did you go and shack up with that nasty crack-whore I warned you against?? Naughty, naughty… A mind is a terrible thing to waste. I can assure you GM, this NEW crack-whore (Ford) is equally bad news.

  • avatar
    Rastus

    I just wish Toyota didn’t admit to recalls like they did. Makes me look bad.

  • avatar
    allen5h

    I believe things will get worse before they get better for GM and Ford, but I remain optimistic. They will not merge.

    These two car companies are going to have a revolving door of CEOs for some time, each getting MMDSBes (Multi Million Dollar Signing Bonus) going in and golden parachutes on the way out, but they will have very little success improving the firms. About the best that can be expected from this run of CEOs will be a somewhat reduced dealer count and a smaller organization with reduced production capacity, a string of bankruptcies that will yield reduced (but not elminitaed) legacy costs, and the start of a run away from NA (North American) UAW final assembly production into China. But they will not end this lunacy of over 100 models between these two firms, and they will not build better vehicles other than low volume one hit wonders like the Solstice or GT.

    Eventually, they will land a great CEO that will take their respective company into its final bankruptcy and then steer it out of bankruptcy as entities with a changed corporate culture from bean counting to “a passion for cars,” and they will also bring the lunacy of this multiplicity of car models and brands to a final end. These CEO’s will be more in line of the caliber of a Herbert D. Kelleher or Frederick W. Smith, except they will come from an engineering background (not necessarily automotive). They will be honest, humble and capable individuals who have no sense of entitlement and prize the chance of leaving a great legacy over cash and will thus forego the usual MMDSBes. (Don’t you worry – their results will get them their cash – they just wont get it up front.) GM and Ford will become great product driven outfits, with model names that will not be discarded every ten years, and with very little emphasis on the finance deal. (The exact opposite of what they are today.) In this regard, they will become BMW-like in scope, with a highly focused emphasis on product, product, product. BMW does not make bulletproof cars like Lexus or Acura, but they do make cars that are highly desirable. Ford and GM will emulate this, only at lower price points to compete with Toyota and Honda.

    For example, they will exploit the weaknesses of the Camry and Accord (they have many) and eventually match the sales of these two models. Toyota and Honda have done very well so far with these two models – not because they are great cars, (they are not, they are somewhat better than mediocre) – but because GM and Ford have failed so miserably in this mid-sized four door sedan segment of the market. This segment will be Ground Zero, the defining trenches for their fight for survival. The mid-sized sedan plays on the American subconscious mind unlike any other type of vehicle in any other new car market. Many NA new car buyers of other vehicle segments will unwittingly base their decisions on the outcome of Ground Zero. Toyota and Honda will raise their bread and butter up to a higher level, they always do; but GM and Ford must win this fight, and they will win.

    They will come out of bankruptcy as viable businesses with consistent operating net profit margins of around 2-3% but not much more, since their debt loads are huge and they must pay interest on their debt. (Their remaining legacy costs will slowly unwind as their retirees die off.) These reduced margins due to debt loads is the primary reason that their total model count will be very limited. However, this will be a good thing since with LESS (total models) they will do MORE (product updating).

    GM will be a viable business with a market share of about 8-10%, and a total model count no greater than Honda/Acura of today.

    Ford will be a viable business with a market share of about 5-7%, and a total model count no greater than Nissan/Infinity of today. The majority of Ford’s volume will come from 4 or 5 models at most, including the F-150, Mustang, a foor door mid sized, and maybe 1 or 2 other models. The rest of Ford’s volume will come from a few more models that will complete their line up of vehicles.

    These things can not happen at Ford until the Ford family gives up control since any good CEO candidate will know they can not be effective while the Ford family is busy fanning themselves and getting in the way. Until this happens, Ford can only expect to get CEOs who are only in it for the MMDSB. (i.e… Molally.)

    These two companies will have a very small manufacturing footprint in NA. They will be importing most of their cars from China, and some from Eastern Europe and Latin America. This will be so because it is difficult to build a competitive product at a UAW plant. (Relax; Ford and GM will build their own factories in China, and with their great leadership they will enable the Chineese worker to build great cars as good as any other place on Earth.)

    Look for this transition from finance organizations to product organizations to start about 15 years or so from now. I think it will take that long because there is still more room for their downward spiral, and still a lot of market share to give up. The owners of their vast dealership networks must experience sufficient enough pain before enough dealers will agree to go out of business, but this will take some time as their market share winds down.

    However, the exportation of final assembly production capacity to China will begin soon enough. It is already happening at GM, and Ford is now sourcing billions of dollars a year in parts from China. This will accelerate at both firms with successive CEOs.

    Off Topic: Now if you are asking me about Chrysler/Dodge, I will tell you that these two name brands will be history. Whatever legacy costs concessions GM and Ford win from the UAW from their bankruptcies will not apply to Chrysler since their German parent company will not be doing bankruptcies, and the UAW will not look at Chrysler as a candidate for extinction. Instead, Mercedes will simply continue to subsidise their NA Chrysler/Dodge losses to the tune of ever growing billions of dollars a year into the foreseeable future, as they will elect not to transition away from the UAW into China. (So much for all of this talk about Chrysler being the smaller, more nimbler competitor: The sub-compact they are now looking to import from China will not be their own design, and will not be built at their own production facility. It will not be any better than a dang Suzuki Forenza.) But no company can continue to subsidise tens of billions of dollars in losses every year, only Governments can do this. Eventually, Mercedes will try to save itself by pulling the life support on Chrysler/Dodge, or join it in MADUAWS (Mutually Assured Destruction, UAW Style).

  • avatar
    Rastus

    I really love you guys over here at TTAC. Over at other sites they are mean sometimes and don’t like when I try to be stupid and bash GM and Ford. Ganging up is more funner.

  • avatar
    suohtil

    i agree, if Farrago had a Miata he’d do stuff like this:

  • avatar
    Rastus

    Nice!!! Robert F. needs to update the S/W on this website to automatically eliminate phoney (duplicate) login-names.

    The funny thing is, I’m not even a Toyota fanboy. Never have owned one in my life. But I admire any company who goes the distance against some 800 lb. gorilla and comes out on top. Not through brute force, but through will-power. It has nothing to do with nationality…but the spirit of competitivenes! It’s all very cool. But yet the same people who slam Toyota will be more than happy to admire a cute Korean girl ice skating in the Olympics. Go figure. Maybe they don’t feel threatened by the Korean girl skating, as she’s not going to take away someone’s lame-ass job screwing bolts for a living.

    Toyota, you show more “American” competitive spirit than GM and Ford combined.

    This Bud’s for you!

  • avatar
    seldomawake


    The long term solution for GM and Ford is actually to source parts from Denso and Bosch, and redesign their complete line up. The long term solution for Delphi and Visteon is to sell to others like Toyota (already did on batteries, radiators, and alternators but they f***ed up the alternators) and Honda. However, with UAW involved I seriously doubt that would happen, unless they move all plants to Mexico and China.

    Well said, Pandabear! Where does one find out this information?

  • avatar
    gearhead455

    I really love you guys over here at TTAC. Over at other sites they are mean sometimes and don’t like when I try to be stupid and bash GM and Ford. Ganging up is more funner.

    Congratulations, you are finally accepted! Who wants cake?!

  • avatar
    stryker1

    “As it has for the last thirty years, the 800-pound gorilla in the room calls the shots. And it’s feeding time at the zoo”

    Good line. Good article

    KUTGW

  • avatar
    Glenn

    Spartacus, GM’s 23% US market share minus 67% of same = 7.6% market share. That’s less than 1/12th of the market place. If they’re lucky. Because a lot of their market are rental car companies – some of which would “run away – run away!” from GM if GM were to go bankrupt, as well. So, could GM’s market share plummet to 5% or 6% if GM declare Chapter 11?

    On the flip side, a lot of people are liars (especially in polls), and would sell their grandmothers for a “good deal” – plus the GM dealers (of which there are way too many now, and how much more desparate would they be if GM declared Chapter 11?) would be “piling them high and selling them cheap” and marketing like mad. Plus a certain number of pro-GM redneck die-hards would be purposely going down to their GM dealer and buying their first new car in years (if ever) despite a credit score just below minimal (whoops, too late – they’re doing that now, huh?).

    So, GM’s “natural” market share may actually only go down to 10-12% for awhile, who knows?

    And I daresay, most of the GM CARS would be sourced from GMDaewoo in South Korea, as are Chevrolet Aveo cars now (GM could bring to the US market the GMDaewoo “Chevrolet” Epica and Optra sold in Canada right now, for example) or from GM-SAIC in Red China (such as the Buick LaCrosse) instead of the US. (This may put-off a couple of buyers in the mid-west, but then, Wal-Mart does well everywhere in the US by selling Chinese stuff cheap, right?)

    Pickups? Mexico and Canada. Chevrolet Equinox? Already contracted out to Suzuki (Cambridge, Ontario plant) and engines from Red China, anyway. Pontiac Matrix? It’s a Toyota in drag, built by NUMMI in California.

    In other words, the UAW might find themselves with little or no GM work – but that would assume Chapter 11 bankruptcy for GM, not Chapter 7 (total and immediate closure and sell-off of assets to try to pay back a penny on the dollar to creditors). In Chapter 7, most of the money would go to the lawyers, anyway, IMHO.

  • avatar
    JustAnotherGMer

    If GM and Ford have been screwed up for so long – what’s all that admirable about Toyota coming in and “taking them on”? I’ll never understand that – the admiring – unless you also are a big fan of Jerry Springer. Revelling in the misery of others.

    If anything, the proper metaphor is not that Toyota “took on” an 800 lb. gorilla. More like they snuck into the zoo and took some of the gorilla’s food while he was sleeping.

    Gorilla hungry!

    Gorilla mad!

    Why zookeeper let them take my food?!?!

    And what’s with all the “What Would Toyota Do?” bracelets I keep seeing…

  • avatar
    mikey

    A few thoughts:The unions/800 lb gorillas didn`t make the decisions that put GM and FORD in the position they are in now.The management are 100%
    responsible.
    Folks that buy domestic are not all G.M die hard red necks with lousy credit.
    Some folks prefer domestics.
    If G.M. and FORD survive,and the jury is still out on that one It will come about from the hard work of all partys concerned.
    All of us union, management,dealers and everybody that makes money from the domestic industry.We all have to learn to do it better and cheaper than the competion.
    None of this will happen if management doesn`t take thier collective heads out of the sand,and see the writing on the wall

  • avatar
    Lumbergh21

    My brother-in-law works for Delphi as a design/production engineer. He related a story to me a few months ago about a trip to a factory in Europe (Germany, I believe) that he said was a complete waste of time but typifies the typical way of doing business at Delphi or GM before Delphi split off. He went over their and toured the plant to try and get a grasp on what was going wrong. However, he said they didn’t give him nearly enough time to dig into the production methods and problems. As a result his report on the issues was not to his satisfaction in terms of its depth and he said probably won’t score points with his boss’s boss who will ultimately make the decisions because he fears it doesn’t agree with what he sees as the preconceived notions of the upper management.

    As far as GM or Ford being “too big” to go bankrupt, I’ve got an example from the west coast, Pacific Gas & Electric (PG&E), which is I believe the largest utility in the US. They filed for bankruptcy following the horrible “deregulation” (it invovlved more but diferent regulations) attempts by California, some horrible and possibly corrupt management decisions (sound familiar), and the price fixing of companies like Enron. On the other hand, PG&E has come out of bankruptcy and has reported quarterly profits for the past eight quarters, at least. Their stock that bottomed out at $6.38 when they filed for bankruptcy has been above $30 for over a year now (haven’t checked it lately though), and they are now paying dividends again to their stock holders. So, all is not necessarily lost if Ford or GM file for bankruptcy. They could come out of it as leaner more productive companies. I do fear for the employees. Not so much in terms of losing their jobs or future benefits, thte future is never guaranteed, but more so in terms of existing pension benefits and the health of the pension funds, benefits that have supposedly already been paid for and are owed based on past contracts.

  • avatar
    rtz

    You’ve read that GM is going to make 100 fuel cell vehicles?

    You should read this too:

    http://ergosphere.blogspot.com/2006/08/europe-passes-death-sentence-on-hype.html

  • avatar
    ktm

    We all have to learn to do it better and cheaper than the competion.

    Which means ditching union contracts, which is why the labor cost per vehicle is significantly higher for the domestics than the imports.

    mikey, you are correct that management’s arrogance and ignorance is the primary cause for their current plight. However, the union’s intransigence and greed has driven up the labor costs significantly.

    Management needs to make the correct decisions on the cars that you build. Labor needs to be flexible and reduce its costs.

  • avatar
    ttilley

    JustAnotherGMer wrote:

    “If anything, the proper metaphor is not that Toyota “took on” an 800 lb. gorilla. More like they snuck into the zoo and took some of the gorilla’s food while he was sleeping.

    Gorilla hungry!

    Gorilla mad!

    Why zookeeper let them take my food?!?!”

    I regularly backpack in bear country. I can’t imagine a bear “sleeping”
    while there’s food about. Nor can I imagine a wild bear whining about a
    zookeeper. What’s the “gorilla”‘s explanation?

    Tom.

  • avatar
    Glenn

    With Daimler-Chrysler’s $1.5 BILLION deficit for the 3rd quarter of 2006, maybe we should be seeing a DCX Death Watch 1 soon, and start contemplating whether it would be absolute suicide for GM, Ford and DCX to simply merge.

    Wow. What a train wreck that would be!

    Kind of like the equivalent of merging the disasterously miserable and awful nations of Cuba, Iran and North Korea. Like, that would work, right?


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Contributing Writers

  • Jack Baruth, United States
  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Vojta Dobes, Czech Republic
  • Matthias Gasnier, Australia
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Cameron Aubernon, United States
  • J Emerson, United States