By on September 25, 2007

braniff-2222.jpgDay two of the UAW strike and media consensus has been reached: chill. Amongst The Detroit News’ (DTN) hopeful headlines: “Gettelfinger: Strike may prod bargainers to end stalemate.” Uh, isn’t that the point of a strike? Anyway, in a piece entitled “GM Can Handle A Short Strike,” the DTN rounds-up the usual suspects to allay fears that the automaker and its union are headed straight to Hell. In sum, “Analysts view GM's tough bargaining as a calculated gamble that is likely to pay off.” That’s a bit like saying Russian roulette offers its players terrific odds.

The party line: GM is finally getting tough with the UAW. According to auto insiders, that’s a good thing (unless the strike goes on too long and then it bloody well isn’t). But those analysts who view the UAW’s company-wide walkout through the prism of traditional labor relations– it’s high time GM “taught the union a lesson”– fail to understand that this isn’t about GM getting tough. It’s about GM not being able to afford its union.

This is the idée fixe that informed GM’s side of the negotiations. And it’s true. Unless GM pares down its labor costs, overseas profits or no, they’re headed straight for Chapter 11. But, the union counters, that’s only true because of YOUR incompetence. If you designed better cars you'd make enough money to pay us what we want. That’s the UAW’s idée fixe and it’s also true. GM’s erstwhile leadership has shown no ability to get its product-related shit together in the US market. 

So here we have the UAW and GM management blaming each other for the poisoned fruits of their shared arrogance, incompetence, intransigence and greed. The obvious answer: both sides should sit down and figure out the best possible way to work together to right the ship, setting aside all past agreements. That’s about as likely as Tom and Jerry getting married in Mississippi.

The single largest roadblock to union – management cooperation is GM management’s refusal to accept the fact that their entire North American business is going down in flames. GM’s brands are meaningless, its products uncompetitive and its dealer network bloated beyond any rational idea of sustainability. “Tweaking” the underlying business model– whether through a $51b union health care superfund or a reduction in union salaries– won’t rescue GM from the abyss.

What’s needed is radical surgery. Given the franchise law strait-jacket prohibiting the required dealericide, and the union’s satisfaction (indeed love of) the status quo, there’s only one way GM management could sort out both its labor problem and its business fundamentals: Chapter 11.

Most people consider Chapter 11 a way to jettison union contracts and hire scab labor. This is far from the case. GM would a very hard time indeed finding a federal judge willing to [risk life and limb and] toss the UAW aside. The situation over at bankrupt parts maker Delphi illustrates the point perfectly; UAW workers worked under their “old” contract from bankruptcy declaration (October ’05) to July ’07.

Even in Chapter 11, GM would have to work with the UAW to find a way to reinvent their relationship. Why wait? GM could use this strike as an opportunity/excuse to approach the UAW ahead of a bankruptcy petition and say “We’re all in this together guys. Let’s find a way to start with a clean slate. What would a commercially successful, American-based, fully unionized automaker look like?”

And then I woke up.

It’s a Catch 22. The sort of management team who could even consider this strategy is not the sort of management team that would have put the company in this position in the first place. The fact that GM’s top brass drew down millions in compensation as the company’s market share sank, profits dwindled and union negotiations loomed is all the proof– if proof be needed– that GM management doesn’t have the humility required to admit that everything they know is wrong.

So, will the UAW strike last more than a week? If so, GM is doomed. An analyst for Lehman Brothers told the Associated Press that the UAW strike would cost GM around $8b per month. Speaking to the DTN, BNP-Paribas analyst Brad Rubin pegs the cost of a month-long GM strike at $4b, and adds that the hit would likely tip the automaker into bankruptcy. And therein lies the tale…

Is it really possible that GM is now so weak that a “mere” $4b loss could send them into federal court clutching bankruptcy papers, hoping against hope that they have enough cash to recover? If so, it doesn’t really matter if the UAW and GM sign a new contract. The ongoing slide in GM’s US profits will top that number by year’s end. Chapter 11? Anyway you look at this, they lose.

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77 Comments on “General Motors Death Watch 147: Everything You Know is Wrong...”


  • avatar
    Landcrusher

    RF –

    It’s a Catch 22. The sort of management team who could even consider this strategy is not the sort of management team that would have put the company in this position in the first place.

    Yep. There’s the rub. GM has been running off the revolutionaries and innovators for a looooong time. Their only hope is spontaneous evolution by a highly placed and charismatic member of the management. It can happen, but it’s a good warning to other large institutions to figure out how to stop running those folks off all the time.

    Things have gotten even worse in our society recently, where a non-PC gaff or even a goofy idea can end your career. Compare Trent Lott to Newt Gingrich, and you will understand completely.

  • avatar

    RF,
    Do you think after Chapter 11 there might be a fire sale of GM factories or brands, or will the whole thing stick together?

  • avatar

    insightOwner :

    Fire sale.

  • avatar

    I am of the opinion that this is all going to end in bankruptcy, as well it should. The US automakers have been staggering under the weight of UAW obligations for the last 20 years and a collapse would give them an opportunity to work things out. Also, the execs will make millions and millions while taking concessions from the union, which disgusts me, but that’s neither here nor there.

    The should start a new bankruptcy classification for US automakers called Chapter Catch 22. The whole US automaker business model is so screwed up that it has to be dismantled entirely before a working model can be built.

    Unions are good when times are good, but GM is hogtied here and this strike will give them something to blame for their upcoming bankruptcy.

  • avatar
    GS650G

    This is like driving into a dark tunnel with no lights, not knowing if the tunnel is straight or curves to one side. GM going chapter 11 under a strike is enough to affect the US economy in a way we have never seen before. Even though GM stock is back up, indeed it is on life support. How many companies are part of the parts network whose paper is owned by mutual funds we all in turn own?

    The call for a gub’ment bailout will be real indeed, I would expect a presidential candidate or two to promise action on “saving ” GM and all those Union workers from the reality of the cruel marketplace.

    this is going to be a bitch no matter which way it turns out. Smart squirrels would have saved enough acorns the past few years working at GM to move on and get out, sadly many thought there was nothing to worry about and will be in dire straits.

  • avatar
    mlbrown

    When did David Halberstam write “The Reckoning?” 1985?

    -Matt

  • avatar
    26theone

    I see no reason why GM couldnt just lower production, reduce the number of vehicles shipped to dealers, and let the dealer network get “right sized” by itself. Is GM required to deliver a certain number of vehicles per mo/yr to its dealers?

  • avatar
    guyincognito

    I still don’t see why even this management team wouldn’t just let the strike carry them to chapter 11. I mean just think of the bonuses they’d get once GM emerged! This way they could even pretend it wasn’t their fault.

  • avatar
    mlbrown

    26theone,

    You want to pay $30,000 for a Cobalt?

    -Matt

  • avatar
    glenn126

    You’re right in that no bankruptcy judge is going to allow GM to survive and cut out the UAW.

    The only possible answer is, while the strike is on, for GM to hive off it’s North American Automotive Operations – retaining International Operations and NA Automotive Sales in the “mother ship” of Opel (turning the corporation literally upside down) – and allowing the North American Automotive Operations (US, Canada, possibly even Mexico) to go Chapter 7.

    Then do Chapter 11 on the US side of the NA Automotive Sales operation, in order to cut out unwanted (extraneous) brands and dealers.

    As for GMNA manufacturing operations? Close the doors. No GMNA, no UAW, no CAW, no jobs, no plants, no nothing.

    Then import (into the US) what cars it can from China, Mexico (if it still is running), Australia, South Korea, Europe, Brazil, Thailand, etc.

    But it’s too complex and a lot of the public would not be pleased by the obvious immediate export of so many jobs.

    So perhaps it’s just going to be Chapter 7 for the entire GM operation.

    Talk about being painted into a corner….

  • avatar
    rtz

    Can GM wait them out? Can GM hire temp replacement workers? Does GM have any excess capacity available anywhere else on the planet? Can they strictly import foreign models? Load the contents of the factories and ship it all over to China and have China pay for and transport the contents(and run the factories, owned by the Chinese government)(I think they’d go for it.)?

    GM should state to the Union: “We don’t negotiate with terrorists”.

    Set up shop down in Mexico? Move everything to non union states?

    I’m surprised GM doesn’t have some of the smartest people alive working on how to deal with their current financial situation.

  • avatar
    ex-dtw

    If you designed better cars you’d make enough money to pay us what we want.

    This is only partially true. In reality GM’s decision making has been altered by their financial position. Foreign automakers can afford to risk, they can afford to have a product not catch on. That thinking allows one to be more risk tolerant, and Finance 101 clearly states that higher risks engender larger rewards.

    GM can only afford hits, which leads to a MUCH more conservative approach, which in turn, is leading to NO hits. In fact all of the domestics (except for the odd Chrsler) are suffering from the “play it safe” mentality. Quality is improving, but bland/(safe) design is proving near fatal. Might seem couterintuitive, but it is clearly having an effect.

  • avatar
    glenn126

    Does anyone know if the NUMMI plant (with UAW workers), which builds Toyota cars, trucks and the Pontiac Vibe – is still up and running?

    If Toyota lose production over a JV (joint-venture) company with GM – i.e. NUMMI – can you see Toyota ever wanting to deal with the UAW?

    I can’t. Could anyone blame them?

    Incidentally, will the UAW workers at supplier plants – such as Delphi – quit working? If so, won’t that stop production of certain Ford, Chrysler, Toyota, Nissan, Subaru, Mazda, and Honda products if said suppliers stop shipping parts? Or will there just be lay-offs (assuming that GM provides these supplier companies with a certain percentage of their work – I’d assume a corresponding number of workers would be laid off)?

    I’m just wondering how far this will all go….

  • avatar
    ex-dtw

    That’s a bit like saying Russian roulette offers its players terrific odds.

    Beautiful.

    I like to think of it like GM showing up to a Mexican standoff with a waterpistol while the UAW is clearly holdong a 44 Magnum. ($950M strike fund works out to something like 63 weeks for 73K members).

    GM is telling analysts not to worry, we’ve got it covered, our aim is immaculate. Nice try, but as RF points out, they really have no choice.

    Because only an idiot would show with a watergun, unless that is all he had…

  • avatar
    KatiePuckrik

    I believe that it’s 25% the UAW’s fault for being inflexible, 40% GM’s management’s fault for incompetence and 35% for the so called “perception gap”. You see, whether we care to admit it or not, the “perception gap” is one of the main reasons that customers are staying away from GM (and most of Detroit). If GM and the UAW got together (unlikely) and designed a car that blew the Camry and Accord out of the water (highly unlikely) and built with reliablity and quality in mind (even more unlikely), it would all be for nothing, unless 1 million people in the United States (that’s 1/260th of the population) are willing to spend about $20,000 (assuming that GM and the UAW can make it at that price) of their money against a company which has burned them with shoddy products in the past. This scenario becomes even more unlikely when you work out that of the 260 million people in the United States, how many are children, people on low income, people who are brand loyal to other companies etc, you realise that GM would have to convince more likely about 1 in every 150 to buy this mythical car. Forget Tom and Jerry getting married, try Rupaul and Sam Kinison!

    Another point is their so called “perception gap”. Management could have kicked this into touch a long time ago. SAYING that your products are as good as the transplants is no good. Talk is cheap. PROVING your products are as good as the transplants, that’s a different issue. If you’re not willing to stand by your products, why should we? If you’re cars are as good as the transplants, then you won’t mind giving us a 5 year, bumper to bumper, totally transferable warranty, with no arguments! That warranty should cost you nothing because, your products are as good as the transplants, remember? If you want more details on how to kill a perception gap, talk to Hyundai, I’m sure they can help you.

    My final point is how GM’s turnaround was badly handled from start to finish. Mr Farago is right in that GM has gone beyond the “trim up” stage and now needs a total overhaul. GM now needs a swift and savage turnaround in order to stave off Chapter 11 (which is now much closer). Firstly, they’d need to build a car like the one mentioned at the beginning of this ill thought out rant and times it by 5 in order to keep GM afloat. Then, GM needs to have its corporate culture changed from the top all the way down, in order to change its focus from “short term profits” to “long term vision”. This would mean a cull of GM management and a rethink of how workers are structured.

    But the trouble is, all of this (the mythical killer car, the total overhaul) needs one ingredient which is lacking, co-operation. Unless the UAW, GM and the dealers all co-operate together, nobody will win. If the UAW don’t co-operate, then they’ll have all the benefits they want for a company that can’t afford them, If GM don’t co-operate, then they’ll have a demoralised workforce who hate them and if the dealers don’t co-operate then a huge drain will be put upon GM. The dealers need to tell GM what customers want in a car so that GM can design them and the UAW can build them. If every pulls in different directions, nothing is solved.

    Nissan’s swift and savage turnaround was only possible because of everyone’s co-operation. The Unions said to Mr Ghosn “Do what cuts in workforce you need to, to keep Nissan alive”, the workforce gave management all the support they needed and management gave no reason to the workforce to doubt their judgement. The end result was a company, back in the black, with no debts, a fresh line up, most of the laid off staff re-hired back to pick up the extra work and a vision to work towards. That’s what’s needed at GM.

    But, I can write to my heart’s content on TTAC about what GM need. The fact is, if GM’s management can’t work out how to fix the problem, how the hell could I possibly know……?

  • avatar
    jolo

    glenn126, Delphi is not part of GM, except for the retirement costs, but the uaw workers are not included in the strike, just like Chrysler and Ford uaw workers are not included. Now it could get to the point where JIT will catchup to the Delphi assembly worker and they would be laid off. I do not know how that works for pay and benefits, considering there are bunches who are temp workers and lower tier. Anyone know? Mikey?

  • avatar
    oboylepr

    Incidentally, will the UAW workers at supplier plants – such as Delphi – quit working? If so, won’t that stop production of certain Ford, Chrysler, Toyota, Nissan, Subaru, Mazda, and Honda products if said suppliers stop shipping parts? Or will there just be lay-offs (assuming that GM provides these supplier companies with a certain percentage of their work – I’d assume a corresponding number of workers would be laid off)?

    I’m just wondering how far this will all go….

    I don’t think UAW workers at Suppliers will join this strike as they will have their own contracts but they will certainly be impacted by layoffs. UAW Suppliers who ship to both GM and other manufacturers will continue to ship to non-GM customers. The layoffs will likely be in proportion to the percentage of GM and non-GM work a supplier has. I cannot see Ford, Chrysler et al being affected at this point.

    They say the first casualty in war is the truth. looking at the various players in this drama reveals a wide variety of views and convictions and they cannot all be right. I think that TTAC’s take on this strike is the most likely given that we do not really know for sure what GM’s cash reserves are or if Rob and Ron are in some sort of collusion with each other. On the face of it, it does seem as if GM can no longer afford the kind of agreement the UAW is accustomed to. If this is the case we may be witnessing the final act in the tragedy known as GMNA.

  • avatar
    ex-dtw

    @Katie,

    I do agree that the perception gap is a real issue and your fault breakdown is an interesting exercise.

    That said, in terms of quality, GM has already built cars that surpassed the Camry. They’re called Buicks. (According to J.D. Power 3 year numbers)

    Unfortunately(?), they don’t make them anymore, but however unlikely it may appear, they have proved they can do it.

  • avatar
    RyanK02

    Briggs & Stratton used to have all of their manufacturing operations in a compound in Milwaukee. They still have the compound, but it is mostly empty. When faced with a strong union, they closed down a lot of the operations and moved them to southern states. They still have union workers, but not enough to cripple them. And now, none of the workers (that I have talked to) would consider trying to unionize because they are sure B&S would do it again.

  • avatar
    jthorner

    ” Does anyone know if the NUMMI plant (with UAW workers), which builds Toyota cars, trucks and the Pontiac Vibe – is still up and running? ”

    NUMMI has it’s own UAW contract and remains up and running. The only thing they build for GM is the slow selling Pontiac Vibe.

    I don’t know if NUMMI sources any critical parts from GM plants which are shut down. This probably isn’t a problem as most of the parts making operations were split off to Delphi.

    One of the good things about decoupling Delphi and GM is that the non-GM customers for parts are not automatically shut down when GM is.

  • avatar
    jthorner

    “Briggs & Stratton used to have all of their manufacturing operations in a compound in Milwaukee. They still have the compound, but it is mostly empty.”

    Which is probably why they are still in business at all. Honda is taking market share from Briggs & Stratton.

  • avatar
    ex-dtw

    PROVING your products are as good as the transplants, that’s a different issue. If you’re not willing to stand by your products, why should we? If you’re cars are as good as the transplants, then you won’t mind giving us a 5 year, bumper to bumper, totally transferable warranty, with no arguments!

    No one does this.

    The Korean warranty isn’t transferable and on top of this the domestics have experimented with this and continue to try it.

    The C/D/J 7 year Powertrain warranty of a few years ago, the lifetime of today. Back then it was said that the warranty didn’t “move” additional units. Maybe the execution wasn’t great or that they cared about the wrong thing (units over longterm perception changes, etc). But the point is it was tried.

  • avatar
    KatiePuckrik

    ex-dtw,

    In the UK, Hyundai’s warranty is transferable.

    As for Buicks being better quality than the camry, that’s pretty much my point. Awards don’t mean much to the customer who’s going to spend money on the car. They want a cast iron assurance with no welching. That’s what I’d want….

    Also, the warranty they provided before was powertrain only. I’m talking bumper to bumper. Maybe it didn’t shift many more cars, but this is just one facet of GM’s problem. In addition to being reliable, they have to look and drive well! Mind you, Toyota seem to have gotten away with it!

  • avatar
    hltguy

    According to news reports this morning, the Teamsters are going to honor the strike, thereby not transport the goods to dealers. Chapter 11, as stated in this site before will kill sales and the perception gap will grow even larger.
    That said, I am not an expert by any means, but it certainly appears Chapter 11 is unavoidable.
    The price of property in Michigan is going to get much cheaper.

  • avatar
    CliffG

    We have finally arrived at the magic point the GMDW has been pointing towards for 3(?) years now, the inevitable and dreaded contract talks between GM and the UAW. Note how wondrously this long anticipated point has been prepared for by the GM management. Hunh?

    “Oh, we did sell a bunch of stuff to get cash, although we also made the decision to have one entire brand, Saturn, lose money on virtually every Opel they sell, we have a substantial backlog on vehicles nobody wants to buy, and a marvelous vaporware vehicle known as the Volt.”

    Meanwhile nothing has really changed in so far as GMNA has continued its’ process of negative cash flow now going into it’s 12th year. VEBA is a great idea unil Calpers decides it doesn’t want to own any GM stock anymore, which will cause an exodus of pension funds from GM. And then the funding problem of the VEBA becomes very difficult.

    Those of us on the outside have been screaming at GM for quite awhile that it is past time to panic. But, if you have a golden parachute multi-million dollar guaranteed situation, panicking is not something you would be prone to do. Thus Aruba bound Ricky and all his mates can’t quite bring themselves to understand the dire straights their company truly is in. Even though they see the true amount of actual cash coming in the door. But the checks have always cleared…

    Muddling through is their default choice, and they are going to stick with it.

  • avatar
    RyanK02

    jthorner:
    I agree, but Briggs is also aggressively pursuing Chinese efforts. The company line is that they are building the engines there so they can sell them there, but somehow, they keep ending up in the States. They tried it once before, but all of the engines leaked oil on their dealers floor. We’ll see what happens when they do it again.

    Honda is not really a threat to Briggs yet, because Honda’s pricepoint is nearly double that of comparable Briggs’ motors. They could readily steal more market share from Briggs if they lower their price, but they haven’t shown much interest in doing that.

    It seems that this market is not as cut throat as the automotive market though. When I worked there, there were rumors of Tecumseh going under. I would have though Briggs would love to take over their market share, but word from the top was that they need Tecumseh around, lest B&S become the cheapest motor on the market. That is outside their scope. They want to be the best value and quality motors, not the cheapest.

  • avatar
    Dave M.

    That said, in terms of quality, GM has already built cars that surpassed the Camry. They’re called Buicks. (According to J.D. Power 3 year numbers)

    Let me extend that statement. In three years, check the interior materials quality and the overall resale value of both cars. Thanks – I’ll take the Camry.

    J.D. Power is asking questions of owners of Buicks (and Camrys). There is an inherent flaw with this – the Buick median age will be much higher. Older people would assumably demand less from their cars since things have improved so much in their driving lifetime.

    Buick is a dead brand – it’s market base is ebbing away as we speak. The only vehicle that anyone under 70 years old will even consider is the new CUV – and that can be easily relabeled as a Caddy and we’re done with it.

    No one in my extended age bracket (30-50) is remotely interested in Buick, nor do we consider it the equivilant of Lexus, etc. Buicks are decent rental cars, or freebies from our company.

    All things must pass.

  • avatar
    Steve_S

    It’s interesting that no financial analyst seems to feel this will be a long strike nor that it will cripple GM. It may put some tier 2 suppliers into bankruptcy but that’s about it.

    My gut says this will last 3-4 weeks and an agreement will be made and it will be back to the same old same old. Eventually it will catch up with them but I seriously doubt come the middle of October GM will be out of business.

  • avatar
    omnivore

    Ironically, the strike could be the solution to GM’s dealer inventory problems. If they have 70ish days of inventory on a lot of their vehicles, the dealers can keep selling for a while. Thought I don’t know if the Teamsters sympathy strike affects this.

  • avatar
    indi500fan

    Steve_S:
    Finally some common sense in the midst of all this misguided doom and gloom punditry.

    The GM Titanic will be sailing for many many months, and if Hillary gets aboard in 09, then probably for 8 years after that.

  • avatar
    Badger

    Excellent piece. That’s why I come here.

  • avatar
    TJ

    Today is day 2 of the strike at GM of what I think will be many days. I say this because I don’t think anyone outside of the negotiators have a good idea of what the issues are. Most of the talk has been about the VEBA but now information is leaking out that really isn’t the issue causing the strike.

    I want to compliment GM for holding onto their part of the agreement in not talking to the press. I haven’t seen GM say much about what is going on in these negotiations. For the most part right up until recently the UAW has been silent also. Now Ron G. is starting to make speeches and talk about different issues.

    A story in the Detroit News this morning stated that the average auto worker makes $27.81/hour not counting benefits. That is about $56,000 per year. Adding overtime that can be up to $70,000+ per year. Now go onto Monster.com and search manufacturing jobs anywhere in the country and see how many pay $20.00+ per hour. You will find exactly zero. $9.50 to $17.50 seems to be the norm.

    Back to GM and Ron G. What are the issues? Not VEBA but are they the usual issues of job security, wages, work rules, job classifications, plant closing, two tier pay systems, management bonuses, etc? This is what Ron G. seems to be saying. But remember Ron is speaking via the press to the UAW membership. GM has said nothing. I have read where many experts say this strike could last anywhere from a few days to several weeks with the only consensus being that it won’t last too long. I disagree.

    GM is fighting for it’s very life. We all seem to agree that it needs product, fewer dealers, more flexible manufacturing, management restructuring, and closure of he so called $1,500 to $2,000 cost per vehicle price disadvantage to the foreign rivals. So what has GM proposed to the UAW to achieve these goals?

    So far the only things I have really heard is Ron G say that GM refuses to meet the union demands half way and that they pushed them off the cliff. I read into the fact that for the first time in 37 years the UAW has called a nationwide strike the issues are major and the union and the GM are a long way away from a settlement.

    I hope that I am 100% wrong but I am afraid that it is going to take awhile to settle this. 60+ days is my guess and no telling what kind of financial implications on GM and the UAW.

  • avatar
    umterp85

    @ Katie:
    For the most part, I do agree with your comments on the perception gap. The one point I disagree on is using Hyundai a standard bearer for closing a perception gap.

    While Hyundai have made big strides in their quality perception—they still have a long way to go. I personally do not know a single Japanese, American, or Euro car ownner that have switched to Hyundai….net it is still a very tough sell. Additionally, their sales numbers are inflated (much as the domestics) with fleet queens—so what are their real retail numbers and growth rate ? Maybe Frank can help on this one.

    Time will tell—maybe Hyundai (and back to topic GM) will successfully eliminate their negative perception gap much as their Japanese counterparts did exiting the ’70′s. I hope so—the more competition—the better cars we will have to choose from.

  • avatar
    yankinwaoz

    Hey TTAC web gurus.

    Can you put a Wiki on the site where basic facts about items discussed here can be posted. For example, most people report that the UAW pays $200 a week in strike pay. Other report it is $200 a day.

    Other subjects that could be explained with the help of a Wiki are the often-mention-but-never-explained State Franchise Laws that seem to allow dealers to force the 2.8 to loose money making cars.

    An entry on VEBA would be nice too. I read in the paper yesterday that a union controlled VEBA was tried at Detroit Diesel and it went bankrupt. First I heard of bankrupt union controlled VEBA.

    With the growth of the TTAC web site, comments, subjects, and visitors, it would be nice to have an encyclopedia of the collective knowledge and wisdom here to refer to.

    Thanks!

  • avatar
    Dynamic88

    I don’t think GM will file chapter 11. I think they’ll settle with the union, and fairly quickly. Maybe they’ll let the invetory diminish first, but they aren’t in a good position to loose money for very long.

    The union members aren’t in a good position either, if the one’s I know are any indication. Most are in debt up to their eyeballs and they need to work to pay the mortgage, the car payments, the boat payment….. They can’t stay out long w/o loosing something.

    I’ve already grown tired of the media saying GM needs union concessions to be competitive. They are getting beat on quality -the perception gap- not on price. When Corollas become cheaper than Cobalts, and lots of Corolla drivers start saying they’d really rather have bought the Cobalt but they just couldn’t afford it, then I’ll start to believe GM needs to become price competitive. As it is, people pay a premium to avoid GM (and the two other Stooges)

    IMO there is one thing of paramount importance, and that is making quality product. W/o that, GM will continue to fade away. It’s time to stop blaming the union, stop blaming the consumer, stop blaming the housing market……… and just get down to the business of learning to make good cars.

    There is also no reason to think styling is going to save them. Styling might buy temporary sales, but in the long run, it’s quality that will win out. If styling was important, it would be hard to explain the success of the Japanese and Korean manufacturers.

    I don’t think GM will die. I think it will continue it’s decline as it’s been doing the past 30 years. I think we have years of Deat Watches coming our way.

  • avatar
    ex-dtw

    If styling was important, it would be hard to explain the success of the Japanese and Korean manufacturers.

    And yet Chrysler’s bread is buttered on/with style…

  • avatar
    Sajeev Mehta

    And yet Chrysler’s bread is buttered on/with style…

    Which is exactly why they are cursed with short-term success. Nobody outside of Wall St. wants that.

    Styling IS important, but there’s no magic bullet in this industry. To think otherwise is a bit foolish.

  • avatar
    KixStart

    umterp85: I know several people that have abandoned US makes and gone with Hyundai. The only complaint I have heard is that, compared to Japanese cars, the Koreans don’t get very good fuel economy.

    I have considered it, myself. $K or thereabouts for a guaranteed 10 years of driveability? That sounds very attractive to me. I might even be able to unload it for a little money at the end of that time or it might even be driveable for several more years.

    KatiePuckrik is on the right track but I think the longer-term transferable powertrain warranty is more attractive than extending the bumper-to-bumper coverage; it would help prop up resale values if a prospective used Buick purchaser knew he’d be able to get X years / Y Miles of operation out of a used Buick. The used market is in it for value and failed power window switches, blower motor repairs, things like that are part of the price of doing business when you save money on a used car. The used buyer’s big concern is that the transmssion and engine last a good long time and the car remains driveable.

    Of course, then you run up against warranty claims resistance at the dealer. A 10-year, 100K mile powertrain warranty does the used auto buyer no good at all if every claim on a previously owned GM is met with “the previous owner must have abused it, so repairing it will cost you.”

    From my perspective, GM’s 5 year / 100K mile warranty looked like a shell game. I didn’t think they really exhibited faith in their powertrains with this offer. It looked more like they’re playing the odds that the greater proportion of highway miles necessary to get high mileage in a short time frame is somewhat easier on the car (starting is wear-intensive) and the few people who do that will disqualify enough people at 5 years to keep real claims from getting out of control without any real improvement in quality or durability.

    And then, of course, there’s the dealer’s part in the game of warranty denial.

  • avatar
    Orian

    umterp85,

    I’m an American vehicle owner that has switched to Hyundai/Kia. There is a very large percentage in central Ohio that have Hyundai’s and Kia’s now too.

    Hyundai is a very good example, and once again, here in Central Ohio, they are not fleet queens. I see more Toyotas in the rental fleets around here than I do Kias or Hyundais.

    Hyundai has closed the perception gap significantly. They are doing very well in sales comparatively, and are introducing new models much more frequently than the domestics and some foreign makes are.

  • avatar
    ihatetrees

    Re RF’s
    What would a commercially successful, American-based, fully unionized automaker look like?

    We may know in 3 years. The current soup sandwich is more complex than an NSA encryption algorithm.

    Current labor costs and practices, make it tough sledding against nimble, non-union Toyohondissan. I don’t know how they make it work – the clock has run out…

    GM’s management know this. Ronny G hinted at the fact – he wants job guarantees (and probably the jobs bank) – which means GM’s labor costs cannot be reduced if sales tank or via upcoming NA worker retirements.

    Chapter 11 doesn’t solve all problems. However, I think a judge will act quickly to toss retirees’ pensions and health care under the bus. (With apologies to Delphi retirees who’ve been placed under GM’s ‘protective’ wing). The feds will pick up the pieces. The dealer situation will also get ‘right-sized’.

    I don’t see a way out of the box… Audi and BMW have great business models for high cost labor production – but they’re much smaller and they make vehicles people want… And they have socialized medicine to control retiree costs.

  • avatar
    ex-dtw

    @Sajeev

    Completely agree.

  • avatar
    TP

    I am ex GM dealer that sold out a few years ago to the public companies. I guess I was one of the lucky ones, as the Generals business has gone in the tank. As a long time reader of ttac, I have a few observations.First and foremost I agree 100% with RF on the GM death watch. I just cant believe how long they have been able to prolong their fall. They have no chance of hanging on even if they get total concessions from the uaw. Their much bigger problem is they have way too many brands and way too many dealers. And we all know iinside the business the state by state franchise laws make it almost impossible to close dealer points. And on the brand side, where would they start, as this is closely related to the number of dealers that they cant do anything about. So basically they are in a no win situation unless some of the bankruptcy situations can let them pare brands and dealers. They must have researched on a state by state and found they are locked in.
    As to what Robert has said about competence of upper management, they dont get it, they are very arrogant and totally self serving. It is unbelievable to me that a board of directors could watch market share plummet and not blow RW out. He must have some good pictures!
    Lastly, the readers of this site know more than uppermangement, they should be reading this website and taking action. Oh well its time to open a bottle of wine and sit on the dock. thanks

  • avatar
    umterp85

    DYNAMIC 88: I agree that the perception of quality is the nut that the Big 3 have to crack. But to paraphrase a post from a recent thread—Honda and Toyota are the quality kings from a brand perception standpoint—all other Japanese manufacturers are riding their coat-tails. Mitsubishi, Isuzu, Nissan, and Mazda do not stand for quality—-neither do Hyundai or Kia from the Korean side. Likewise, to say all American cars are junk flies in the face of the work Ford has done to reclaim quality vs. the quality issues that Chrysler continues to have.

    Net, the days of generalizing on quality from country of orgin are over—-you really need to go to the brand level for the real story.

  • avatar
    ex-dtw

    Net, the days of generalizing on quality from country of orgin are over—-you really need to go to the brand level for the real story.

    I would take it one further and say model level.

  • avatar

    The writing’s been on the wall for ten years – why “analysts” are waking up now is a mystery. GM has never figured out what business it’s in, and by now it’s too late to spend time working the puzzle – the company’s tied itself into an irrational knot that needs to be chopped open with a deep cut.

    Sorry – pushed the metaphor there. But show me another company, the size of GM, which has been mismanaged to this scale?

    What were they thinking? GM business policy has been irrational, as s silly as if Boeing staked the farm on every single person in America wanting to buy and operate a personal airplane. But hey – “rich people don’t care about the price of gasoline” – Lutz and Wagoner, stories will be told, but songs will not be sung.

  • avatar
    confused1096

    And the perception gap starts young. A few nights ago I was driving my daughter to a friend’s house. She pointed at a one or two year old Caddy and said: “That’s pretty, I want one when I grow up”. My response: “Honey, you can get a better car for the money they charge for those”.

  • avatar
    packv12

    Very interesting discussion today, but I figured that it would be. I even did my homework at Detroit News this morning, including Daniel Howes column. I enjoy Howes, but he is no R. Fargo!

    mlbrown : Inquired about “The Reckoning”, Published in 1986.

    ex-dtw : Had mentioned the Diamler Chrysler didn’t move the product, yet that was Chrysler’s strategy in 1965 with the 5/50,000 warranty. It was expressly to move the metal and make a statement about their return to quality products. Not that their quality was any worse that the others, they just rusted away in the garage while you slept. To my knowledge, Chrysler fled the long warranty by ’67 or ’68, once their perceived quality had returned (?) and the metal was moving.

    Katie, always great reading your thoughts and input. I like many of your ideas of what the General will do, just don’t hold your breath. Corporate Governance is now the “ole Boys Club”, and none of them are worried about the companies future anymore, just how the stock is doing. Your point about the perception gap is right on, and since J.D. Powerless’ “quality” reviews are only from the showroom to about three or four years, they don’t gleam any insight to real long range quality. Yes, it’s inconvenient when the car is in the shop for three days, but if the warranty covers it, it’s just a grumble. When the consumer has to pay for the repairs and put up with the inconvenience on a four year old vehicle, now that’s a different story!

    The General saddled itself with great costs with the UAW throughout their past when they were the only show in town. Now, with competition, they are crying foul to all of the union demands, which the General blindly gave into when they were flush and things were rosy. Now, it’s time to change horses (contracts) in the middle of the river. The General (and the other 1.8) are choking themselves with hubris, and they’ve decided they don’t like the taste. Perhaps they didn’t pay attention to my dad’s lecture about the birds coming home to roost, which I had to hear many time in my teenage years.

    I remember the ’70 strike very well. I remember my grandfather’s ’71 Chevelle delivered immediately after the strike. What a representation of quality that car was. My experience with all of GM’s vehicles after the late ’60′s have left me wanting (a Honda).

    The General has morphed itself into an intractable and insolent company who’s only worry is their share price. There will be a settlement, but it won’t be for the good of either the company or the union. It will only be a settlement without really addressing any of the problems facing either the worker or the company.

    I can see it now, Ron W in front of the bankruptcy judge, wringing his hands and explaining away his sins and seeking redemption for his stupidity. There will be a cadre of upper management in the galleries of the courthouse in their Hara-Krishna robes, not understanding how they got there. Ron W. goes home to his favorite chair in front of the fireplace, he uncorks his favorite whiskey, and thinks, if only he could have built the Chevrolet Rosebud he wanted to build. Rosebud . . .

  • avatar
    jthorner

    “It is unbelievable to me that a board of directors could watch market share plummet and not blow RW out.”

    In practice the board members are in fact chosen by management with the CEO having the lead say on it. The idea that the board governs with the shareholder first in mind is a carefully crafted illusion in the case of most public companies.

  • avatar
    umterp85

    ORIAN: The facts on Hyundai’s performance are clear. Despite the new models you mention,they are not growing their retail business (Jan-Aug ’07 vs. Jan-Aug ’06)and their retail share hovers in the 2.5-3.0 range depending on the month. 2008 will not look any better as they have no major product intros scheduled.

    http://ir.hyundaimotor.com/eng/common/dataPDF/sale/america_2006.xls http://ir.hyundaimotor.com/eng/common/dataPDF/sale/america_2007.xls

    So by definition—any year-on-year growth that they report out is fleet. Sounds like the funny math GM had in August.

    In addition, a check on Edmunds incentives link will reveal Hyundai has as much cash on the hood (in some cases more)than comparative domestics…so re-sell will take a big hit.

    Last, a check to JD Power and Consumer Reports will reveal improved quality—yet barely average.

    Net, despite the “Hyundai hype”—they are nowhere near a benchmark business. Mulally has it right—benchmark the best (Toyota) and go for it….it is only the only way Ford will make it.

  • avatar
    carveman

    The strike is like two guys in a boat in the middle of the lake drilling holes in the bottom to get the other guy.

    Bona Sera GM UAW

  • avatar
    Rastus

    “They’re a-workin’ away at our spirits. They’re a tryin’ to make us cringe an’ crawl like a whipped bitch. They tryin’ to break us. Why, Jesus Christ, Ma, they comes a time when the on’y way a fella can keep his decency is by takin’ a sock at a cop. They’re workin’ on our decency.”

    http://www.amazon.com/Grapes-Wrath-Centennial-John-Steinbeck/dp/0142000663/ref=pd_bbs_sr_1/102-9418587-5266565?ie=UTF8&s=books&qid=1190757052&sr=1-1

    Rick, are you ready to suck the teat of the dirty gipsy woman yet?

    She’s waiting!!!!!!

    Rastus

  • avatar
    TJ

    yankinwaoz

    FYI according to an article in the Detroit News it is $200 per week and is taxable income.

  • avatar
    Rastus

    TP, I’ll have a Jim Beam & Coke w/ you. I’m out here in San Diego…watching the ships come and go.

    If only we (the US) were an exporting nation.

    But hey, those $800M Buicks being sent to China will save U.S.

    :)

  • avatar
    Orian

    umterp85 – the links aren’t working for me – I get taken to a generic search site with a lot of Hyundai info, but I can’t find the sales data.

    Irregardless of their current condition, they aren’t in the negative and they’ve released cars into the price range that they can manage and are moving metal.

    I believe in the last 18 months they’ve managed to release more new product than GM has. I know a new Sonota, Santa Fe, Elantra, Accent, Azera, and the Veracruz all come to mind. There’s the Entourage (Sedona). The new Tiburon is coming soon in a rear wheel drive variant.

    So while they may not be up to your standards, apparently they are doing something right to be in better shape than the big 3 are at the moment.

    As for incentives, they’ve always had incentives that I can recall.

    Long term? Who knows.

    I do know that once they developed their own engine/drive train programs and ditched the Mitsu pieces they were putting in they could put the warranty on the cars and their reliability started going way up.

    I also know that warranty requests at the dealership we purchased from have been completely hassle free, including one on my 2k Tiburon a few years ago that was my fault.

    We just had the Kia in for a power seat switch yesterday. No problems at all. Oddly the service desk asked that we give them 10′s, but I could honestly look at the guy and tell him that in the 8 years we’ve dealt with them their service has always been a 10. I guess some practices never change (The dealership is a multi-brand dealership), but I can honestly say the service was a 10.

  • avatar
    hltguy

    Questions:
    1) Is an autombile manufacturer required (under any state of federal law?) to honor warranties if the company is in bankruptcy?
    2) Does Ford and Cerebrus have any obligation to honor any contract worked out between GM and the UAW?
    3) If F and C do not agree to the same contract terms, do you think there will be a strike on those companies also?
    4) The dealers who expect the monies from the rebate check they get when customers do not choose to obtain the checks and instead put the rebate money on the down payment, does bankruptcy include those checks to dealers/customers?
    5) Do dealers get paid for the warranty work in a manufacturer bankruptcy?
    6) Are the suppliers required to continue to supply products?

  • avatar
    Nicholas Weaver

    1: It depends. Chapter 11? Probably, its a continuing obligation. Chapter 7? Well, no, the company ceases to exist.

    2: No, but traditionally they have.

    3: Undoubtedly

    4: Those checks are quickly issued, so the window is very small.

    5/6: Depends.

  • avatar
    nonce

    The point of bankruptcy is that the party cannot meet its obligations. While I could see some state being so foolish as to demand a bankrupt company honor its warranty, you can’t get blood from a stone.

    Bankruptcy law generally places the creditors into groups, and the members of each group must be satisfied completely before moving onto the next group.

    The first group is nearly always employees, who get their salary for work done. After that we get secured creditors — people who have secured up their debts with assets owned by the debtor. Then we get unsecured creditors. Then we get bondholders. Last is shareholders, who nearly always end up with bupkiss.

  • avatar
    hltguy

    Nicholas and Nonce: Thanks for the responses, kind of what I figured. Essentially a GM bankruptcy will pretty much kill off their sales, who in the world would buy a car from a company that is in bankruptcy and not honoring the warranties?
    If GM (or the other 1.8) do file, it would seem that would pretty much finish them off. There again, if they do not file, they may be finished anyway. What a mess.

  • avatar
    Dynamic88

    umterp85 :
    September 25th, 2007 at 4:35 pm

    “DYNAMIC 88: I agree that the perception of quality is the nut that the Big 3 have to crack. But to paraphrase a post from a recent thread—Honda and Toyota are the quality kings from a brand perception standpoint—all other Japanese manufacturers are riding their coat-tails. Mitsubishi, Isuzu, Nissan, and Mazda do not stand for quality—-neither do Hyundai or Kia from the Korean side. Likewise, to say all American cars are junk flies in the face of the work Ford has done to reclaim quality vs. the quality issues that Chrysler continues to have.

    Net, the days of generalizing on quality from country of orgin are over—-you really need to go to the brand level for the real story.”

    What we have to keep in mind is most car buyers are not pistionheads. I agree that many Japanese companies are just riding on Toyohondissan’s coat tails, but I think that will continue.

    As for the D3, yes, they’ve improved quality. That won’t be enough to get back the tens of thousands they’ve enraged over the years with their shody goods, and it’s really not enough to get people to try them instead of a Toyota or Honda. The D3 don’t seem to have realized yet that it will be a long slow process requiring more than a slogan.

    (They don’t seem to have learned anything at all from Demming)

  • avatar
    umterp85

    Dynamic 88: Not all of the D3 have improved quality—Chrysler is still pretty bad—thus my comment not to generalize based on country of orgin.

    Of the 3, I think Ford “gets it” the most—Mulally comes form the right background (engineering) and is benchmarking the right quality processes; recent product launches seem to back up Ford’s return to quality. I hope Mulally can do it—as Ford is the only one of the D3 I am truly rooting for.

    Orian: You made my point—Hyundai has almost completly turned over their line in the last 24 months with nothing to show. Although Hyundai is vastly improved vs. where they were 15 years ago—the D3 should not look down at the 2.5% share brand that offers them very little in the way of learning other than a warranty scheme—they need to look up and benchmark the real leaders.

  • avatar
    409

    Hargrove, Gettlefinger and all their lackies are constantly whining about buying Domestic vs. foreign. Painting Japanese, German and Korean auto companies as the enemy yet their main priority is to sink the boats that hold them and their membership up. They even have their ‘brothers & sisters’ brainwashed who knowingly poke holes not only in their ship but they are sabotaging the lifeboats as well. The UAW and CAW membership don’t even know who their enemy is. All the while Honda, Toyota and the other foreign auto makers are keeping their mouths shut and trying to wipe the smiles off their faces as the big 3 slowly sink into oblivion. Why aren’t the Union members saying anything about this utter lack of intellegence or foresight?

  • avatar
    Tomb Z

    So.

    When should I short GM?

  • avatar
    NickR

    It reminds me of an old parable about a dog guarding a pile of hay, preventing a bull from going to eat, but also preventing himself from getting water. The bull dies of starvation and the dog dies of thirst.

  • avatar
    zcommando

    I read all this and it all means nothing to me. Long ago Datsun provided what the big 3 did not. Then Nissan was the obvious (great Datsuns) step. Now I drive an infiniti and have never looked back. 30+ years of almost trouble free operation, a whole lot of fun (thanks Z) at this point it makes no difference to me what Detroit produces. I wonder how many others are like me? As I see it they are reaping grain that was sowed in the 70′s.

  • avatar
    alanp

    A major factor is going to include the credit crunch. Not only are buyers now unable to borrow money against their houses, making the interest deductible, but also GM and it’s dealers and suppliers are finding harder looks at loan to them. This plus the OBVIOUS problems with the bloated company, are going to add to a perfect storm. GM’s only hope is the weakening dollar might make their products price competitive overseas. Which is what the Chinese $800 million Enclave deal sound like. But that’s only about 30,000 vehicles which is not enough to keep GM afloat a month.

  • avatar
    Johnson

    Steve_S
    It’s interesting that no financial analyst seems to feel this will be a long strike nor that it will cripple GM.

    Good point. It seems that just like GM management, most analysts are clueless about reality. The reality is that talks went on for 9 days past the original deadline, and still no agreement was reached. People were optimistic when the talks were extended past the deadline, because that showed both sides were serious about reaching an agreement. That is why the strike is a bit of a surprise. The strike is also about issues that are tough for both sides so there is no easy solution. If nothing was reached in the 9 extended days, I doubt the strike will be over soon.

    I agree with TJ, that the strike will last a long time contrary to what most people believe and that it will have a big effect on GM. At this point, we just don’t know what will happen. Ch. 7, Ch. 11 or will the Titanic keep sailing … hard to say.

  • avatar
    Pathos78

    But those analysts who view the UAW’s company-wide walkout through the prism of traditional labor relations– it’s high time GM “taught the union a lesson”– fail to understand that this isn’t about GM getting tough. It’s about GM not being able to afford its union.

    RF: You might have written “It’s about GM not being able to afford its tuition.”

    The union, for all its faults and failings, is not the cause of GM’s peril, nor the solution. With a business plan that plans to fail, something had to give. The union is only the most obvious choke point in GM’s downward spiral.

    The lesson here is not for the UAW: it is for GM, and they cannot afford it. The UAW will learn in its turn, but management must change direction first. The leaders have to lead: no union concessions can fix the rot at the top.

  • avatar
    jthorner

    However the GM/UAW thing turns out, I wonder if this will be the end of the pattern process where the other two US makers sign on to whatever the first company agreed to.

    Ford and Chrysler are now being led by not-from-around-here folks who are not likely to just do like has always been done. They are probably rooting for GM to take this strike to the wall like Caterpillar did, in which case the pattern will sound good. But if GM caves, don’t expect Ford and Chrysler to simply follow along.

  • avatar
    ihatetrees

    Re hltguy…
    Essentially a GM bankruptcy will pretty much kill off their sales, who in the world would buy a car from a company that is in bankruptcy and not honoring the warranties?

    Not necessarily. It would kill off profitable sales. Everything sells at a certain price point. I can just imaging the conversation…

    Chapter 11 Judge: What are we going to do with the 70,000 vehicles on factory lots?

    Creditor #14: We’ll buy the whole lot at X price and sell ‘em on Ebay to keep dealers from messing with prices transactions costs low and maximize return.

    Chapter 11 Judge: Ok. Go for it.

    I’d buy a new, well-optioned (non-warranty) Silverado 4×4 for $12K… How about a (non-warranty) Cobalt for $4K???

    Of course, such fire sale ‘pricing’ may just engulf Ford and Chyslerberus… It may be in their best interest to buy all unsold inventory and drive it into the Atlantic…

  • avatar
    Luther

    This is like a stare-down where niether can afford to blink. In a sane society, the UAW would be charged with extortion (They are not OWNERS) and with the stop-offshoring demands – Kidnapping. With the stock-funded VEBA, the UAW will become owners. What will Gettelfinger et al do then? Co-operate with GM? Actually concern themselves with GM’s General Ledger? It will be a real commedy.

    It would be like a wife telling her husband that she is leaving and the husband using threats of violence to try and stop her. I don’t think a lot of people understand the basics of individual freedom and, as it’s corollary, property rights. Who owns who? Who owns what?

  • avatar
    starlightmica

    Blink.

    Strike over, likely just a UAW bargaining tool.

    http://www.detnews.com/apps/pbcs.dll/article?AID=/20070926/UPDATE/709260415/1148/AUTO01

  • avatar

    As usual, both sides blinked.

    Next GM Death Watch later today.

  • avatar
    Luther

    I’ll Be…..

    The strike must have been for show…Need details.

  • avatar
    Thomas Minzenmay

    This strike might proove to be deadly for GM, but even if GM is on a route without return towards Chapter 11, I don’t think it will happen anytime soon. GM will rather sell off/shut down some more brands, bring in Chinese cars, press for government help and just keep on doing what they have been doing for decades now. And they’ll survive some more years. Barely, neither dead nor alive, but GM will exist.

  • avatar
    Steve_S

    But wait I thought GM was going to file chap 11????

    LOL, happened even faster than I thought. I figured at least 1-2 weeks.

  • avatar

    I’ve thought this strike was just posturing for a while now, I’m glad it’s over so UAW workers don’t have to live off of $200/week. VEBA here we come…

  • avatar
    glenn126

    Looks like the strike is over, which makes Dynamic 88 the pundit of the day – and give RF a chance to do several more GM Death Watches.

    I didn’t even look at the news details closely about what GM and the UAW did.

    Didn’t really need to – because it doesn’t even matter what GM did with the UAW – THEY CANNOT AFFORD WHATEVER THEY JUST DID! (C’mon, let’s be totally honest – the General Messup Corporation has itself painted into a corner, alongside the UAW).

    More like stuck in a corner with a butter knife, in a jousting contest against competitors with long swords, actually….


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