By on October 26, 2006

gme85virginia03222.jpgYesterday, a Yahoo news bulletin popped up: “GM’s losses narrow.” If that’s the way you see it, please don’t tarry here. You know GM CEO Rabid Rick Wagoner’s turnaround plan is “gaining traction.” You know GM’s too big to fail, that the supertanker will change course and avoid the jagged rocks of bankruptcy. The fact that GM’s fundamentals are still broken— too many brands, models and dealers; excessive bureaucracy and crushing union obligations— is not your concern. For those of you willing to stare into the abyss, let’s take a closer look at those third quarter results.

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

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

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

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

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

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

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

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

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72 Comments on “General Motors Death Watch 96: Half Empty...”


  • avatar
    1984

    http://tinyurl.com/yywk82

  • avatar
    JJ

    What are we to make of the fact that GM drew on its secured line of credit in Q3, and then repaid the money?

    What!?!

    So, if I’m reading this right, they took up substanstial extra loans then payed them back within the end of the quarter so that their liabilities look lower on the balance sheet?

    Why would they even do this, it’s not like the shareholders are going to think oh yeah that’s normal…

    I suppose they’ve already took up another loan in the meantime then, which they’re going to pay back before the end of December?

  • avatar
    mikey

    As allways intresting reading.I can,t agree with you though.Change is happening at GM maybe a little too slow a pace but I think that to will change.
    G.M. has to focus on building a good car for good price the rest will fall in place.
    You state that GM has no more room to cut.I don,t think so GM has to look no father than its overpaid,bloated management work force.GM could dump 30% by just getting rid of the dead wood that contribute nothing to our product.

  • avatar

    Correct.

  • avatar
    Luther

    Always like to see corporate Exec MBAs do the Romper Room Do-Bee-(Us) dance. It brings me pride as an American.

  • avatar
    Joe Chiaramonte

    Show me a couple of consecutive quarters in black ink with no fudging, or at least two out of four, and I’ll believe there’s been a turnaround. Maybe it’s still coming, and maybe GM will have time. Maybe.

    Right now, it still looks like GM still needs an alien ship to pull their supertanker up and drop it in healthier waters, and those just don’t exist.

  • avatar
    Frank Williams

    I wonder how long before Kerkorian brings in his own team of accountants and demands to be allowed to do a full audit?

  • avatar

    During his time as a member of GM’s Board of Bystanders, Kirk’s inside man Jerry York had access to all the papers he needed to make a proper assessement. Which he shared with the world in his resignation letter.

    Kirk knows the score.

  • avatar
    NN

    No wonder Rabid Rick Wagoner was talking up the chances of the new Chevrolet Silverado/GMC Sierra pickups and the Saturn Outlook/GMC Acadia crossovers. While these vehicles may do well, they only represent a fraction of GM’s lineup across its eight US brands. The fact that GM’s margins are being squeezed across the board is a far more important financial factor than the Silverado/Outlook’s potential success

    The truth about these vehicles (Silverado, Outlook) is that although they only represent a fraction of GM’s lineup across its brands, they represent a far larger piece of the pie when it comes to profits. These are the kinds of products (the only kinds, unfortunately) that the 2.5 make money on.

  • avatar

    Good point. I've amended the text to further indicate why the Silverado/Outlook won't save GM's bacon.

  • avatar
    aakash

    RF: Just a thought…How about renaming the series to:

    Generous Motors Death Watch :)

  • avatar
    cykickspy

    Does anyone know how much profit GM made this quarter if they adjusted for one time payments such as restructuring costs (buyouts). I heard they made an adjusted profit of over 500 million. Just wondering if this was true?

  • avatar

    Their adjusted net income was $529m.

  • avatar
    kaisen

    I honestly can’t wait for this series to die. Dead horse, as it were. You are regurgitating the same tired banter. Truth told, GM performed better than Ford or DCX, made some gains, and if it weren’t for one-time-charges, MADE money this quarter.

  • avatar

    You see? I told the GM Kool-Aid crowd not to read on, and they just couldn't resist. Again, if you can't stand the truth (or what I perceive to be the truth) don't read the series. Either that or make your case. What does "made some gains" mean? What do you mean by "outperforming"? Are you touting the fact that GM lost less market share/money than Ford and DCX? And don't you mean that GM WOULD HAVE MADE some money this quarter? In fact, they didn't.

  • avatar
    KixStart

    There was some thought that the new Chevy Silverado and GMC clone would do a lot for GM. I have to wonder. I note that GM has raised the list price for the 2007 Silverado by $2K and taken away the standard air conditioning (so the effective increase is closer to $3K).

    At 2006 price and giveback levels, judging by the fleet parked at the nearby Chevy dealer, Silverados were already a tough sell.

  • avatar
    Caffiend

    Don’t listen to the GM crowd on this series. GM’s BK would have a profound effect on the economy. Anything that could save the General should be considered, and this is the place to consider it.

  • avatar
    Luther

    Ill post it here as well.

    Bush has finally agreed to talks with the 2.5 CEOs. The talks may go something like this:

    1. The CEOs will want Bush to put a gun to their competitors heads.

    2. The CEOs will want Bush to put a gun to the Taxpayers heads.

    3. The CEOs will want Bush to repeal the stupid “Labor Laws” that make them so uncompetitive.

    If you guess 1 and/or 2, you are right. If you guess number 3 than you are far to rational.

  • avatar
    WhateverJustCrashIt

    By a certain perspective, the deathwatch series are very entertaining. If you let go and roll with it, it doesn’t provide a horror story, but more of an instructional “video” on how a company should not be run. (not if you want to make money at least)

    If GM lives on, TTAC has lost nothing. But if/when GM does the big 11, TTAC will serve as the almost historical repository of eveything GM (and Ford) did wrong. Every opportunity lost, every resource squanderd, every deal gone haywire, will be here for the world to look back and see. I do not at all think it implausible that these “dead horse” rants will be the source for thousands of economists, business professors, and even politicians to mull over long after the collapse. Heads will be shaking, frowns will be cast, and all will see…the signs were all there. Like your grandpa looking back pre-WWII, seeing the writing clearly on the wall.

  • avatar
    Kevin

    Hmmm, I currently enjoy the freedom to buy any car in the US market, subject only to my budget and my own preferences. I can choose not to give a penny of my money to Detroit automakers — since I don’t utilize their products. Kind of neat, really. So how do the expect George Bush is going to change that?

  • avatar
    KixStart

    I just surfed over to Edmunds and read the owner reviews on the Saturn Relay. These are interesting reading. Apparently, GM has inadvertently tapped in to the market of people dim enough to think grafting a squared-off snout onto a Venture creates an “SUV.” If this pool of customers remains available to GM, perhaps bankruptcy CAN be averted.

  • avatar
    WhateverJustCrashIt

    Kevin,
    They’re called tariffs, and governments use them to force people to buy local. This is ironicaly, the same thing that the 2.5 are arguing that foreign governments do to them. The local stuff is cheaper, so to have the same or less car, you have to pay a greater premium because of the import tarrifs placed on foreign products. I believe something similar happened with Japanese products in the early/mid ninteyes when a mitsubishi gallant suddenly went from 16k to 45k overnight…but im sketchy on this (I was overseas at the time) so don’t quote me.

    My bet, the big 2.5 will demand caps on how much they have to pay in medical healthcare, and demand import tarriffs equal to or greater than what japanese/chinese tariffs are for GM.

  • avatar
    lzaffuto

    Much is always made in this series and other articles about how the UAW is one of the 2.5′s biggest problems and isn’t a problem for the Japanese companies. Regardless of whether or not it is true, what I’ve never seen here is an explanation (to my satisfaction) of why those companies do not have unions. I can see only 3 reasons:

    1. Employees sign an agreement when hired that they are not allowed to form unions so if they decide to do so their jobs can be threatened by the evil corporation. Think Wal-Mart, who actually has specially trained “swat teams” to deal with pro-union activity.

    2. Apathy. They just don’t care.

    3. They are generally satisfied enough with their payrate and benefits that they don’t feel the need to form or join a union.

    I’ve seen many UAW allied employees come on here and bitch about how great the UAW is and how the competition sucks for not having unions… but I’ve never seen someone that works for Honda, Toyota, or Nissan come on here and say either “We don’t need the UAW because (whatever)” or “Our company really sucks because we get paid unfairly and not enough benefits but they force us not to join the union so we can’t do anything about it”.

    So… which is it?

  • avatar
    Jonny Lieberman

    lzaffuto:

    Non-Union US Automakers tend to work in rural parts of the country, where the wage offered by say Toyota or BMW is double what they can make at the only other job available to them — WalMart.

    Of course, the non-union wages are half of what UAW’s are. So, they can’t afford the cars they make, i.e. contribute less to the economy than a UAW worker would, as a UAW worker would have more money to spend. They have no retirement and lousy healthcare. If they are injured on the job they are at the whim of a multinational corp and/or the state to help them out. If they are wrongly terminated, they have no one to back them up. Their children don’t have the opportunity that Unions have provided to the middle class since WW2, especially the Boomers, who are now mostly very loudly anti-union

    Remember, the UAW is Satan, so keep voting non-union!

    Poorer Americans are the answer!

  • avatar
    lzaffuto

    “Hmmm, I currently enjoy the freedom to buy any car in the US market, subject only to my budget and my own preferences. I can choose not to give a penny of my money to Detroit automakers — since I don’t utilize their products. Kind of neat, really. So how do the expect George Bush is going to change that?”

    I think what they mean is this: If the US raises the price of import tariffs to the point where the average American family can’t afford their cars, then those people would look to cheaper (domestic) alternatives. People buy imports because they consider them a good deal and they can afford them. If (and this is just an example) the price of a regular Accord went up to $40k, then the average American family probably would not buy one. I bought a Scion TC for my wife for $17k, and it was a great value in terms of features and content for the price. If import taxes forced Toyota to raise it to higher than $20k, then I would have looked at something else instead.

  • avatar
    keepaustinweird

    Slate has aggregated quite a few cartoons skewering the US auto industry here: http://cartoonbox.slate.com/hottopic/?image=0&topicid=67

  • avatar
    Luther

    Because they are Men !?

    If you do not like your job you look for something else to do. You dont go ganging-up on/threaten your employer.
    Perhaps the UAW could start their own car company and compete with GM/Ford/DCX.

    Or maybe “Land of the free home of the brave” is just a cruel joke.

  • avatar
    maxo

    JJ: I am not sure you did take that right, but now I’m not sure either. I thought the implication was they took the loan so they could have enoguh liquid assets. Basically, GM hit up the “we’ll hold your check til payday” loan shop. That’s kind of a hilarious image, I hope GM had to bring in their most recent pay stub and telephone bill to get the money.

    BusinessWeek dug into the accounting numbers a bit more than TTAC (thats what they are supposed to do) and they say that only $81 million were profits that weren’t from special one-time windfalls. The BusinessWeek article pegs the GM situation pretty much the same (aka perfectly) as TTAC:

    http://www.businessweek.com/autos/content/oct2006/bw20061026_856936.htm

    Oh and they finally got around to correctly noticing that DCX is a fullblown crisis, it just took them a while to get there:

    http://www.businessweek.com/globalbiz/content/oct2006/gb20061025_313879.htm

  • avatar
    miked

    Jonny – regarding your post about unions:

    First I appologize to RF for going off topic here, but I guess the subject of the the UAW has to come up in comments on the Death Watch.

    My problem with unions isn’t the fact that there are unions. Or even the fact that there are things such as job banks, or that it’s all but impossible to fire a union employee, or that they get paid so much. I figure if you can get a bunch of people together who say that they’re going to form a union that gives them better bargaining power with the big evil corporation, that’s fine. More power to you.

    What I have a problem with is the labor laws that give the unions complete control. Let’s say the UAW decides to go on strike, that’s fine, and I think they’re totally in the right to do that. What I don’t like is that GM can’t bring in others who really do want to work for whatever price GM is offering. That gives all the power to one side. You can’t have a fair negotiation with one side having all the power.

    In the south without all the labor laws, if the Toyota employees decided to strike and demand more money, then Toyota can just fire the non working employees and replace them with people who will work for the prices Toyota is willing to pay. If no one is willing to work for those prices, then Toyota will be forced to increase the wages. That’s the way is should be. The labor laws up north put a strain on the equilribrium, they say that the union sets the price, not the sum of all possible workers and the employer.

    In the short term, all is great and wonderful with a union, the employees get all kinds of money and not very much work (who wouldn’t want that?). The problem is that the equilribrium is displaced (to borrow a chemistry term). So over time (i.e. the last 30 years at GM) problems start happening. In GM’s case, (assuming nonincompetant managment which may or may not be the case), if the unions weren’t taking so much money, then maybe there would be more money available for product development and maybe they could recover tooling costs quicker and then have quicker refreshes of their models (everyone on the forum here derides GM for the 10 year life cycles of cars compared to Toyota’s 3 year refreshes/redesigns). This could all translate into increased revenues and in the end the workers and managment would be in a better place (i.e. not bankrupt).

    And to close my rant, you mention that non union people don’t get pensions. I think that’s the way it should be! In fact, I don’t want a pension. I want more money up front, that I can invest the way I want rather than trust that the company is investing my pension money. When you get a large group of people controlling a large group of money, you can definately be sure there will be fraud (GM’s pensions, Social Security, etc). It should be up to you to prepare for your future, not trust someone to take care of you, becuase they don’t care about you, they will screw you as soon as they can.

    /end rant.

    Mike

  • avatar
    Joe Chiaramonte

    lzaffuto: If … the price of a regular Accord went up to $40k, then the average American family probably would not buy one.

    Yes, but we can’t assume the 2.5 would keep their prices static in this scenario. If you need to replace a vehicle, and your choices for new vehicles include a $40k Accord or a $38k Impala or Fusion, it would probably be a boon for the used car market and Chinese manufacturers, instead.

  • avatar

    In order to increase its sales GM needs to hire Karl Rove to work on strategy. Anyone who could get the voters to go for a lightweight like Bush–twice!–can get the American public to buy inferior vehicles for more money.

  • avatar
    Jonny Lieberman

    Miked:

    I humbly and totally disagree. With everything you said.

  • avatar
    Luther

    Again, the 1935 Wagner Act that transfered control from the company owners to the non-owning Labor Unions is the root of all the 2.5s problems. ALL !

    Of course the “Property-Rights-Challenged” will disagree.

  • avatar
    mike frederick

    lzaffuto:
    hey,maybe these “special swat teams” have threatnened employees at Honda,Toyotaand Nissan to not post pro-union views on-line?

    For a company to employ Swat Teams to fight union involvement considering the pay scale is the same as union shops,makes your whole argument really empty.
    Youre qoute——-
    I think what they mean is this: If the US raises the price of import tariffs to the point where the average American family can’t afford their cars, then those people would look to cheaper (domestic) alternatives.

    Please anybody correct me if I’m wrong,Japan already does this & not with just autos.
    Hell—a pair of Levis cost 200 + dollars & they are stitched together in Malyasia.

  • avatar
    mike frederick

    Theres no really FREE TRADE as long as the U.S. continues to let this imbalance to continue

  • avatar
    taxman100

    It’s a little misleading to say the transplants pay scales are similar. Living in Central Ohio, I run into people working out at the Honda plants in Ohio. While it is true the Honda employees may make close to same pay (but not benefits), Honda employs literally thousands of temporary employees at much lower rates of pay.

    I met a guy that has been a temp out there for almost four years – two years on the engine line, and now nearly two years on the exhaust installation line. They dangle the potential of being a Honda employee in order to keep them.

    Transplants are out in rural areas because people out there still have a work ethic – they can survive on $12 a hour as a temp, as what other choice do they have? They are not the type to sit around and collect welfare.

    Sure he counts as someone employed by the transplants, but a lot of them are not making the money that Toyota, Honda, Nissan, etc. claim.

  • avatar
    Joe Chiaramonte

    “Merrill Lynch cut its rating on GM shares to “sell” from “buy,” becoming the fifth brokerage to lower its rating following GM’s earnings report, as tracked by Reuters Estimates.”

    You can’t use smoke and mirrors to stump the numbers watchers.

    http://www.msnbc.msn.com/id/15433374/

  • avatar
    Kevin

    Lieberman, you really are far out of your depth commenting on basic economics, personal finance, and labor in rural areas. You should stick to talking about cars. Do I really have to smack you down?

    No employment but Wal-Mart? Maybe you should visit a red state some time. My family members live in a rural area, and they all have 6-figure incomes (doctors and accountants). There’s not a town in America in which retail stores (much less Wal-Mart by itself) are the dominant employer. Of course not, do you have eyes at all? If those rural citizens have bothered to get educated and groom valuable skills, then they have good employment opportunities. If not, they’re lucky to have jobs at all, we don’t owe them anything.

    They have no retirement and lousy healthcare.

    They don’t have 401ks? They can’t contribute to Roth IRAs? Tax laws that encourage retirement savings don’t apply to them? Oh, I guess you mean you’re a pension fan. You haven’t noticed how idiotic that poorly conceived and short-lived economic construct has turned out to be? Oh, with GM grabbing 3 billion in cash out of the VEBA when the going gets tough, you really want them some company subject to a DeathWatch series to be in control of your financial fate when you’re old and vulnerable? That’s just stupid.

    Lousy healthcare? What, because the have a token co-pay instead of an unlimited free access to scarce resources? Are you telling me they don’t have health care insurance at Toyota plants?

    If they are injured on the job they are at the whim of a multinational corp and/or the state to help them out.

    Oh really? So you’ll confirm they do not have the group disability insurance as a benefit like most workers do? They don’t have state worker’s comp funded by Toyota’s taxes? No Aflac? And they can’t buy a private disability policy? Should I give them my financial advisor’s number?

    Their children don’t have the opportunity that Unions have provided to the middle class since WW2

    Really? Please, just go on record as saying American kids today don’t have as good career opportunities as their grandparents did in the 1950s. I mean who wants to be a software programmer or an IT project manager or an electrical engineer or graphical designer or a free lance blogger/podcaster when you could have been a freakin’ milkman instead. It’s a wonder people in the 50′s didn’t die of boredom.

    So, they can’t afford the cars they make, i.e. contribute less to the economy than a UAW worker would, as a UAW worker would have more money to spend.

    Oh is THAT how the math works? So we’re all better off when some some of us are robbed of too much of our money to ensure that others of us are are overpaid? Well here’s the solution, lets make the minimum wage 1 million dollars an hour. Boy, that’ll really inject a lot of money into the economy. Wait … is it possible you’re forgetting the other side of that equation — which by the way is the side that matters most?

  • avatar
    Jonny Lieberman

    Kevin,

    I won’t go point by point with you here, but no — most won’t have Roth IRAs. Workers comp is a nightmare, Walmart employs more people than the federal government and the idea of Red States vs. Blue States is a myth.

    feel free to continue this with me offline

    jonnylieberman@gmail.com

  • avatar
    CliffG

    Sheesh, this sort of got off on the union thing. Which, I hesitate to say, is no longer germane. Union growth/long term viability in this country is exclusively the province of government employee unions, industrial unions are dinosaurs.

  • avatar
    starlightmica

    Here’s another aside: WSJ today had a Page 1 article about Fiat’s revival under a non-auto industry CEO. And that $2 bilion GM ponied up to get out of the agreement helped quite a bit. I guess it’s a zero-sum game. (Of course, it’s subscriber only, I just happened to be at the library today.)

    One of the interesting points made was that the new CEO didn’t feel that Fiat’s labor costs were high enough to cut, at 6%-7% of total expenditures. No plants were closed, instead, he whacked away middle management, and promoted underlings. And instead of allowing Fiat to take a bad design, redo it, and delay its introduction, he made the team move up the intro by 6 months. Of course, it’s a small company with just a few cars, but a very interesting read.

    Money quote:He’s doing it with an in-your-face taunt: “The leaders of many of the world’s largest auto firms have lost their way,” says Chief Executive Sergio Marchionne. “If you’re going to fix a broken car company, call in an amateur.”

  • avatar
    CliffG

    I hate to hammer this in to the ground, but this latest quarter continues a near 10 year long phenomenon at GM, they continue to have negative cash flow in their NA auto operations. No amount of capital investment can explain it. I guess Merrill is out of the GMAC sweepstakes, eh?

  • avatar
    levi

    Farago: (downsizing does not equal change)

    A parenthetical proclamation of poignantly propitious precision.

    Perhaps this passing parenthesis prescribes the most pressing proverb of American productivity.

    Downsizing equals we can no longer effectively manage our business. An admission of being a victim of change. An admission of following, not leading.

  • avatar
    jerseydevil

    all this union bashing, i dont understand.

    if ford/gm/dcx fold, it wil be the union members who suffer.

    not all u lounge chair quarterbacks

  • avatar

    Mr. J. Lieberman,
    Your beliefs regarding unions are unbelievable. It’s 2006 now.

    And allow me to take this boiling discussion off the burner.

    The number of manufacturing workers – union or non-union – are in permanent decline. We are living in an age where it simply takes less people power to make things.

    So, arguing over the merits of union or non-union manufacturing workers is becoming increasingly moot.

    Just as the % of people laboring in the agriculture sector declined precipitously during the 20th century (http://www.ers.usda.gov/publications/EIB3/EIB3.htm), we are seeing the same trend in manufacturing here in the 21st century.

    While this trend is undeniably painful for those currently employed in the manufacturing sector, everyone benefits in the long-term.

    The net effect of fertilizer and farm machinery increasing agricultural productivity in the 20th century was:
    1. Fewer people toiling in the fields freeing up more people to compose music, look at the stars, design cars, write bad sitcoms, etc. etc.
    2. Cheaper food for everyone.

    The net effect of robots and smart design increasing manufacturing productivity in the 20th/21st century is:
    1. Fewer people toiling in factories, freeing up more people to compose music, look at the stars, design cars, create websites, read websites, write more bad sitcoms, etc. etc.
    2. Cheaper manufactured goods for everyone.

    And please don’t bring up how U.S. jobs are moving to China- China has lost more manufacturing jobs in the past decade than the U.S. because of aforementioned reasons.

    Sorry to be simplistic here, but it seems like some people here needed a primer on macroeconomic phenomena.
    Union workers who make a lot of money don’t make a strong economy.
    Productive people and increased productivity benefits everyone.

    end rant.

  • avatar
    tom

    I think it’s too easy to blame the UAW. Of course, if you want to produce budget cars, you need to save every penny and therefore have more trouble paying UAW wages. But if you want to produce quality cars (which should be the objective here), wages aren’t really a big factor in producing the car.

    GM (as well as Ford and Chrysler) have two major problems:

    1. They don’t produce quality cars. They’re not even trying. If they’d produce good cars, everything would be already much brighter

    2. They didn’t build up enough reserves for their retirees. Instead, they wasted that money for whatever, believing that they’d always have as many employees as during the 1950s who can generate enough revenue to pay the bills for the retirees.

    So it’s not UAWs fault that the Big Three are in the position they are in right now. But now it could be too late. They can’t talk away the health care and pension costs and every downsizing (due to a lack of quality in their vehicles, see #1) will only worsen the problem as it forces less employees to generate more money for health care, pensions or buyouts.

    Of course the UAW could be a little bit more cooperative, but they can’t make all the retirees disappear and it’s those retirees well earned right to get their pensions and health care. It’s not the retirees fault that GM didn’t create big enough reserves, which basically means that GM was stealing from those formes workers when they were still working for GM, hoping that they could steal enough money from future workers so that nobody would ever find out. Well, we did find out…

  • avatar
    Rastus

    With all the downsizing, rightsizing, layoffs, firings, …whatever euphamism you wish to call it…

    Anyone who still “belives” in a pension (regardless of whether you “deserve” them or not) is a total idiot with no self responsibility.

    If you belive in pensions, I bet you can’t wait for Santa to come visit you 8 weeks from now.

    Ho Ho Ho…

    I can’t Wait for the “next” quarterly results from GM. I think ole Saint Nick will deliver coal and switches…as usual!!

    Maybe those unemployed autoworkers can decorate, with lights and tinsel, the old Buick out front…the one up on blocks, instead of a tree. Being unemployed around XMas (and Haunakua (sp) for our Jewish friends) is a real drag.

    And a MERRY Christmas to you, GM “Management” team!! GIve yourselves a “bonus”…it’s well deserved.

  • avatar
    tom

    Rastus:

    You can say that we shouldn’t believe in pensions and I can say that and we can deal with it. But those people who are already retired have no chance to deal with it anymore. They were assured that they’d get their pensions, so they are not to blame if they didn’t get a private pension plan of whatever sort.

    I agree, that in the future there won’t be pensions anymore, but it’s going to be a very slow process (if someone who’s 45 would start now with his private plan, he only has about 20 years left, so he’d still need some sort of pension). This process might prove to be too slow for the likes of GM.

    Also, if you’d officially get rid of pension plans, the Big Three would have to pay higher wages TODAY (instead of putting part of the wages into pension funds), but they would still have to pay pensions for decades to come. So that would be virtualy impossible. If they’d do that, the Big Three would immediately die instead of slowly spiraling down into the Black Hole.

  • avatar
    cykickspy

    Tom:
    I cant comment on your second point but as for your first:

    “GM (as well as Ford and Chrysler) have two major problems:

    1. They don’t produce quality cars. They’re not even trying. If they’d produce good cars, everything would be already much brighter”

    I totally disagree, mind you 20 years ago this was true but not in todays world, GM has been fighting this stigma for 20 years now and they are finally making headway (check out JD Power awards) and you will see that Buick and Cadillac are up there with toyota and honda. So kick the quality myth

  • avatar
    tom

    cykickspy:
    Quality doesn’t equal reliability. There is a lot more to it, like interior quality that the domestics are just lacking. Cheap plastic, fake wood and cheap materials in general are to be fount in almost every domestic car. Plus, they are at least one model cycle behind the foreign competition in terms of technology. Suspension, gearbox, drivetrain, engine and electronics are all far behind of the rest.

  • avatar
    cykickspy

    And another thing… those foreign companies cant make a half decent truck if they tried… new car models are due….just wait for the new models coming out… B. Lutz has some surprises up his sleeve!!!! I hear the heartbeat of america and its pounding louder every day!!! the generals on a comeback… buy your stock now for goodness sake

  • avatar
    Rastus

    “Plus, they are at least one model cycle behind the foreign competition in terms of technology. Suspension, gearbox, drivetrain, engine and electronics are all far behind of the rest.”

    Now, now, Tom…you’d better not say that, else people will think you are calling GM loyalists dim witted, drooling, morons. We can’t have that…it’s not polite!

    There was a very good write-up on this blog a while back on how GM and Ford (I think it was this blog, anyway), since they really can NOT compete in the technology department (definitely true), that they should adapt the Harley-Davidson (hawg) marketing strategy. And yes, I truely believe it. Is it a growth strategy? Probably not. But I don’t know…there’s always the degenerate middle-aged dope smokers who are still “fighting the system” and wish to escape, if even for a ride in a crude, rude pickup truck down to the local wattering hole.

    They can keep the pushrod engines, the 4-speed automatics, the gas-sucking “bad boy” image, along with monster lift kits, stickers, decals, yellow shock absorbers, chrome differential covers, etc…all that and they can start a clothing line too!! (much like the HD leather’s which sell well).

    It’ll be like a trip down memory lane! Nostalgia! “Look, son, this is what we used to drive back in my day…I’m so thankful GM is still making ‘em!

  • avatar
    Rastus

    please ignore my typos…I know I have ‘em, and well…this is a blog.

  • avatar
    tms1999

    This entertaining discussion about usions is pretty pointless.

    Business 101: Income – Expense = Profit

    When Profit is negative, bad things happen. If you run out of cash, you can’t pay your bills. You can’t pay your parts suppliers. Your suppliers can’t pay for raw material, or their employees. You can’t make cars anymore, because you can’t pay for parts. Then if you’re not making cars, it means you can’t sell cars. If you can’t sell cars, you’re not making any money.

    0 – Expense = Bankruptcy

    Banks and friends only have limited trust in GM’s ability to keep the ship afloat. “…drew on its secured line of credit in Q3″

    Key word: secured.

    Unsecured loan: your credit standing is good enough so we lend you money and trust you good enough to pay us back. Like a credit card.

    Secured loan: we need something of a guarantee. Like a factory or something that’s worth some cash. This way if you don’t pay back, we still have something to recoup the cost. Like an ‘equity line of credit’, yes, a mortgage.

    GM is finished with borrowing on its good looks. Banks want a guarantee now. The fact they repaid quickly is a sign of short liquidity: I know some money is coming down the pipe, but my account reads 0 now. Yet I have to pay all these people. Even the guarantee of future money was not good enough for the lender: secured line of credit it is.

    How is the last quarter of the year going to be? Is fall really a good time to buy a new car? How long can GM shift accounts and get creative with accounting before they are forced to admit they are broke? How long can you keep telling to yourself (and the board of directors, and the shareholders, and the media, and the world): “It’s almost over, the Plan is gaining traction, it’s working, it’s turnaround time” and yet pile on the losses by the millions of dollars quarter after quarter?

  • avatar
    starlightmica

    cykickspy -

    If you want to see what fellow readers think of GM vehicles, just go back to to the Ten Worst Cars Today nominations from last week.

  • avatar
    mikey

    I think the name Toyota was mentioned a couple of times in the TWAT nominations

  • avatar
    Sajeev Mehta

    You can’t blame one source for these problems: its not the Unions (and their Job Banks), its not GM upper management’s questionable tactics (and payrolls) and its not the government’s lack of controlling healthcare costs and exporting manufacturing jobs with lax trade policies…its all of them.

    They are all killing Detroit.

    The Unions, the CEOs and the Government need to collectively pull their heads out of their asses if we want to keep our manufacturing base…automobile or otherwise. No single influence takes all the blame.

  • avatar
    sleepingbear

    RF-

    Please re-title # 96 to -”Mostly Empty”

    Thx.sb

  • avatar
    craigefa

    So we’re all better off when some some of us are robbed of too much of our money to ensure that others of us are are overpaid?

    That’s brilliant, Kevin. This succinctly explains the problem a lot of people have with the UAW’s cries that their death will mean the death of the middle class. It’s not my job to keep anyone in the middle class. It’s my job to keep myself and my family there.

  • avatar
    kaisen

    Too much I’d like to counter, but I’ll pick one:

    Technology

    GM’s newest offerings (launched in the past few years) are certainly up to ‘tech’

    The ‘high-feature’ V6 (all aluminum, DOHC, 24 valve, four-cam variable valve timing, direct ignition, etc) This engine makes up to 275hp and 265ft-lbs torque …… as good or better than Toyota or Honda. And the direct injection version due out in a few months (next-gen 2008 CTS) is rumored to be in the 320hp range and still capable of 30mpg freeway. It is currently used in the Cadillac CTS/SRX/STS, Buick Lacrosse/Lucerne/Enclave, Saturn Aura/Outlook/next-gen Vue, Pontiac G6, and european Opels, Saabs, and Vauxhauls.

    The 2.0L LNF Ecotec turbocharged direct injection variable valve 4 cylinder (SKY Redline/Solstice GXP, upcoming Cobalt/HHR SS, and others) currently makes 260hp and 260lb-ft while still earning 31mpg freeway in the Kappa. There are 300+ hp variants ready.

    6 speed FWD automatic. Jointly developed with Ford, this high-tech clutch-to-clutch compact transmission is certainly a truly competitive to 5 and 6 speed Aisins used in the Honda Accord and Toyota Camry. Currently used in Saturn AURA XR, Pontiac G6 GTP, and will be in Outlook/Enclave/Acadia and next-gen VUE and others.

    6 speed RWD automatic. Corvette, CTS, STS, Denalis, Escalades. Soon to be in GM pickups and other upcoming RWD platforms.

    Also, look at the suspensions in the new offerings, especially Kappa, Lambda, and Epsilon platforms. Lots of aluminum, independent rear suspensions, magnetic-hydraulic ride control (invented by GM and sold by Delphi to Ferrari and others).

    Although it is easy to poke fun at GM for sticking with pushrod technology, the LS V8 engine architecture is very compact, fuel efficient, and powerful. The 6.2L L92 V8 (Escalade) is all aluminum, variable valve timing, cylinder deactivation (displacement-on-demand) and makes 403hp and 417lb-ft. Of course the 7.0L LS7 (Corvette Z06) goes further with titanium rods and valves, dry-sump-lube, 7000rpm redline, and makes 505hp and 470lb-ft and still gets 26mpg freeway. Both engines weigh LESS (and are more compact) than Nissan Titan, Ford F150, or Toyota Tundra SOHC/DOHC V8 engines.

  • avatar
    jerseydevil

    ive had alot of cars. if u need more the about 80 or 90 bhp, the car or the driver is prob too fat.

  • avatar

    kaisen

    You’re baking bread while Rome is burning. It doesn’t matter what technology GM is using. Or how reliable their cars are. Or how much better they are than the competition to you, the informed pistonhead. The company is burning through cash, headed for disaster. Deal with it.

  • avatar
    kaisen

    So it is a cash thing and not a product thing? Hmmm

    I thought the point was to increase revenue through healthier products

  • avatar
    geeber

    kaisen,

    There is only one problem…GM is playing catch-up. Other manufacturers are already using those features.

  • avatar
    Zarba

    kaisen:

    Not to pile on here (OK, I will…), but GM’s structural problems are overcoming the product issues.

    GM has some good product and tech now. I agree with what you said there. (For example, few people know that the latest Alfa Romeo V-6 is the same “high-feature” architecture, with Alfa’s heads, engine management, and induction systems. One of the few good things to come out of the GM-FIAT fiasco. “I just spent $2 billion to leave FIAT and all I got was this V-6 engine”)

    The issue is that they’re trying to spread that over too many product lines and models to be successful.

    Honda and Toyota have two product lines, and they can focus their engineering, and more importantly, their resources on those. Let’s see:

    Cadillac CTS/SRX/STS, Buick Lacrosse/Lucerne
    Outlook/Enclave/Acadia
    Tahoe/Suburban, Denalis, Escalades
    SKY Redline/Solstice GXP
    Saturn Aura/Outlook/next-gen Vue, Pontiac G6, and european Opels, Saabs, and Vauxhauls.

    vs:

    Toyota/Lexus
    Honda/Acura

    Even where the Japanese co.’s share platforms (Accord/Pilot/Odyssey/MDX/TL), the resulting vehicles are substantially different and don’t fall under the “badge-engineering” category.

    They’re supporting far fewer brands and nameplates, so they don’t leave any behind (Seen an ad for a Pontiac Vibe lately? GM Minivan? Malibu? Grand Prix?) All these are slowly dying on the vine for lack of resources and marketing. The General’s putting its money into the new models. Unfortunately, the dealers are stuck with unsold thousands of the ones they don’t market.

    GM must shed brands, nameplates, and dealers to quit cannibalizing itself. Let’s face it, do we need the GMC Yukon AND the Chevy Tahoe? They are the same, except for the grills, and so the buyer is simply shoosing one nameplate over the other. But…GM had to develop both, market both, and spread their resources over two namplates and brands instead of one.

    There’s no need for Chevrolet AND Buick AND Pontiac in this market. Nor is there a need for Chevy AND GMC trucks. Not to mention Saturn AND Opel AND Saab AND Vauxhall.

    GM Needs to be

    Chevrolet
    Cadillac
    GMC
    maybe Opel.

    Then maybe they can marshal the resources to properly develop and market the nameplates properly.

    Buick and Pontiac are dead men walking. GM keeps them because they think that it’s cheaper than buying out all those dealers and paying off all the white- and blue-collar workers. But that’s a bad bargain, and it will kill them in the end. Better to take the pain now, suffer through it, and come out the other side competitive, rather than slowly dying from a thousand cuts.

    I won’t put words in Mr. Farago’s mouth, but I think all of us want GM and Ford to survive. Actually, we want them to thrive, to return to being the most envied and studied corporate titans in the world. Because we know how devastating it will be if they fail. Because we’re Americans, dammit, and want to be proud of the things we produce. We’re desperate for them to make the hard choices that will stave off a disaster, but they keep snatching defeat from the jaws of victory with short-sighted decisions and lousy, lowest-common denominator (Impala) product.

    I think they could do it, but time’s RAPIDLY running out for solutions that don’t involve a trip to the courthouse and Chapter 11.

  • avatar
    GMrefugee

    Shout out to MikeD – I agree with your argument about govt constraining the negotiation between OEM and labor.

    As for the watch 96, good pointers made. I appreciate seeing several interpretations on the same information.

    They way I see it, GM needs to limp along best they can until the next UAW contract negotiation next year. This time, the shi% really needs to hit the fan and GM gain some MAJOR concessions or they are doomed. Ford and DCX are in the same boat, just not as close to tipping.

  • avatar
    Event Horizon

    I have often read claims in these pages that GM has questionable corporate practices. An interesting study was just released by Fortune and two other partners, CSR Network and AccountAbility. It ranks companies on things such as management practices, the accountability of executives and board members, if it uses external auditors and if the company listens to critics. GM was ranked 12 in this study and is the top U.S. company.

    GM is neither a client of CSR Network or a partner of AccountAbility.

    Here is the link to an article on this study. You can find the ranking from there.

    http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/30/8391850/index.htm

  • avatar
    EJ

    The American buying public clearly prefers Japanese automobile companies over Detroit ones.
    It almost seems inevitable that the slide of Detroit will continue.
    I think in 10 years Toyota can have 25% to 30% market share in the US. GM then might dip below 15% and Ford and Chrysler below 10%.

    Toyota’s game plan is clear: the pickup truck offensive, cheap hybrids in a few years, more model variety, better styling and lots of technology make gains likely.

    So, what is Detroit to do?
    1. Stop pretending you’re Big; become niche instead.
    2. Get rid of legacy pension and healthcare liabilities. A government bailout would be nice for that.
    3. Get up to par with the Japanese auto game:
    high quality, good value, appealing products, respect for customers, advanced technology (get it through alliances), globalization.
    4. Rebuild respect with customers.
    5. Find niches to fight back in and make a comeback.

    Can the shrinkage be avoided? I don’t see it.
    Can a catastrophic Chapter 11 be avoided? Yes: success with a few hit models can provide enough cash to pay for the next restructuring.

    Anybody thinks my prediction is crazy?

  • avatar
    Ar-Pharazon

    Just a few random comments . . .

    Zorba . . . don’t forget Toyota now has Scion. Although one more brand in their case does not put them on par with GM, it is a 50% error on your part.

    EJ . . . yet another impassioned call for GM to renege on a prior agreement at the expense of some old people. Hey . . . screw the retirees, they’re gonna die soon anyway. Don’t people have any sense of ethics anymore? Either in business, or in general? At least you are not as bad as some who’s opinion is ‘dump the retirees, oh, and don’t you push the cost on the taxpayer!’ I guess their favored alternative is forced euthenasia for anyone stupid enough to have worked for the Big 3.

  • avatar
    Rastus

    Ar-Pharazon,

    Is it right for corporate American to renege on previous agreements, especially ones relating to financial security? Absolutely not. In my opinion, the retirees should be paid before Rick Wagoner receives a dime. But that’s just my belief.

    But here’s the deal: It’s not a far stretch for GM to renege on their retirees, as the company has been reneging on their very own CUSTOMERS for 30-something years!!!

    They sure as hell have.

    And re. kaisen’s list of technology: Kaisen, your time window is MIGHTY narrow my friend.

    In Kindergarten, do you recall the little story called “Cry Wolf”? Every 5 year old kid knows this story. “We’re EQUALLY as good, we have EQUALLY as good technology!, we have EQUALLY efficient manufacturing plants, we’re EQUALLY as fuel-efficient, and we’re EQUALLY as innovative!!!”.

    The absolute TRUTH of the matter is NONE of that has been the case for 30-something years. Are they there, NOW, in 2006? Maybe!! I’ll even give them the benefit of the doubt and say “sure” (though I really don’t believe it).

    Here’s an interesting read…all it does is confirm what 98% of people on this blog already know:

    http://detnews.com/apps/pbcs.dll/article?AID=/20061027/AUTO02/610270353/1148/AUTO01

    Be sure to read the quote “anti-intellectual” and see if that rings true regarding comments of the Toby Keith’s of this world.

    Yes, it most certainly IS true that GM and Ford attract the Jethro’s of this world…in mass. The question is: Is the Jethro-strategy a GROWTH strategy, or a LOSING strategy?

    Hmmmm….

  • avatar
    EJ

    Tragically and sadly, the legacy liabilities are crushing Detroit. It’s simply unavoidable to have to deal with those one way or another. If GM goes Chapter 11, those liabilities will end up in the government’s lap anyway. So why not negotiate some sort of solution between the government, GM, UAW and the retirees?

  • avatar
    rtz

    There is this vacant dealership in town. Now there are about 50-75 ’07 model GM trucks in there. You know those stories of how in certain areas, the manufactures store large amounts of their vehicles? Why don’t they instead of making the dealerships pay up front, give them all the vehicles they want on consignment? That way they won’t have to store them. “Hey, you want 300 vehicles?”


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