By on June 26, 2008

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

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

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

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

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

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

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

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

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

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

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

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

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64 Comments on “General Motors Death Watch 183: Credit Where Credit’s Due. Or Not....”


  • avatar
    Engineer

    Finally… TTAC comments on what may turn out to be an important turning point in the history of GM.

    Given GM’s double digit sales declines and sub-20 percent market share, Wagoner’s “we knew this was going to happen” can only strike a handful of people as even remotely credible.
    Fortunately for GM half of them are reporters for the MSM, the other half are congressmen…

    But I suspect that the people running GM couldn’t give a shit about GM.
    Fitting finale for one of the final GM DWs?

    What can one say? Gotta love capitalism?

  • avatar
    Gardiner Westbound

    GM is paying the price for allowing itself to get fat, stupid and complacent.

  • avatar
    NICKNICK

    I’ve been worried about GMAC as well, especially considering their exposure to unconventional mortgages. Having sold the majority of GMAC, perhaps GM is somewhat insulated, but I doubt it.

    I wish they would file chapter 11 and regroup and get good again. After all, though GM screws up royally, it’s not like Honda is offering anything RWD with a V8.

    I think you’re right on the money with ChryCo disappearing and no one noticing due to the contraction of the new car market. With rental fleets keeping their cars longer and new buyers not clamoring for sebrings, I don’t think anyone will give a hoot.

    I’m not not sure about Kerkorian’s Ford bet. I could see ChryCo evaporating and GM crashing and burning and either boosting Ford for the ‘Murican buyers or totally destroying confidence in Detroit and dragging Ford to the bottom as well.

    If GM and ChryCo have any kind of bankruptcy disruption, even if they restructure and get bailed out, there could be tens of thousands of employees that miss a house payment or two. What if Red Ink Rick’s do-nothing attitude is what launches the snowball that brings down the house of cards that is the US financial system…

  • avatar
    jerry weber

    Bob, I was one of the people who would look at these endless GM Ford. & Chrysler editorials as being overkill, even though I agreed with the basic premises of your themes. Now however, we have a perfect storm brewing for Detroit with GM and Chrysler at the epicenter. I wrote in one of your Chrysler series that Dieter Zetsche has got to be the luckiest or most esp person in the World. Not that he sold out high, but that he got out at all with his Mercedes empire still intact had to be the high wire act of the decade. Now for the General. When I was involved with a GM agency in the late 90’s, it was said by the(then marketing exec for GM)& former soap salesman Ron Zarella, that GM would need to recapture and hold 30% of the US market to stay profitable. We were at 28% at the beginning of 98 and by Spring hit 30%. We sold 22 new Buicks that month and things looked better. Then came a general strike for 4 or 6 weeks and guess what GM lost that last brief hold on 30%, this time forever. What one has to remember, Zarella was marketing the same franchises not including Hummer that GM has today. Almost 12% of a diminishing market is gone, and the chevy,pontiac, buick, olds, caddy,
    gmc, hummer & saab have to share this with all of the overhead and infrastructure this represents. Add to this the weak dealers that are the result of too many locations and poor selling products, and you have the front half of the perfect storm. The backhalf is the rotten American economy particularly the big banks. Even if they wanted to help GM, the banks are still up to their eye balls in real estate bad debt. Today the 300+ point mini-market crash was due to banks.
    So the lame can’t help the blind in this case. The other problem creeping up on the banks is that the consumer (read car buyers) credit card pyramid is tottering and may collapse late this year or next year. This is the market that is closest to car finance. No car company is going to look good if they can’t get the cash to finance their iron. This is the perfect storm that GM only half created, but will fully have to deal with for the next couple of years. The question is, do they have the next couple of years?

  • avatar
    Ashkan

    Mr.Farago, your Deathwatch editorials are getting closer to ‘classic’ status everyday. It really is an amazing piece of work, and in a short time when GM goes down it will be reality for everyone. have you though about publishing the whole series as a book?

  • avatar

    Ashkan:

    have you though about publishing the whole series as a book?

    No, but I have thought about watching TV.

  • avatar
    truthbetold37

    You are right. The people “running” GM don’t care about GM. That’s been the biggest problem for the last 30 years. Toyota/Honda/Nissan – The Japanese care what happens to their company. The Big 3- it’s every woman/man for themselves.

  • avatar
    HEATHROI

    Did he say ‘we’re good’ or ‘I’m good’?

    and his ‘end of the year’ statement; is that the subtle code for the timing of the C11 filing?

    What will that mean for the 2013 launch of the the Volt?

  • avatar
    Rix

    If you really want to assess GM’s fortunes, keep an eye on the price of GM bonds due 2033. These are going for about sixty cents on the dollar. The people who trade these are well paid, smart, and unsentimental.

  • avatar
    obbop

    As I go through daily life, whenever the opportunity arises, I inform others about how Chevy/GMC weaseled their way out of not fixing the numerous defects in my 2004 Silverado that warranty should have covered.

    For the record, I possess decades of experience operating, maintaining and repairing many equipment-types and also possess business knowledge to know when I am being given the shaft.

    I have heard numerous replies from others of their disgust with GMC regarding sub-par warranty coverage.

    That disgust, if spread across enough people, has to have a negative effect.

    In a different area… when corporate leaders earn enough in ONE year to live a lifetime of luxury, earning more in a year or less than the majority of Americans do in a lifetime of labor, what incentive is there to keep a firm viable?

    Seems to little old me that the greedsters at the top were more concerned about bonuses from the latest quarterly profit statement that ensuring long-term profitability.

    Let GMC fall. Wouldn’t it be nice if those corporate elites suffered alng with the common workers? It’s time for America’s elites to suffer along with the common folks. Hey!!! Let’s draft them and put them to work digging ditches… then send their jobs overseas and make those elites live out of their cars and trucks.

  • avatar
    Bill Wade

    In 10 years GM’s demise will be studied in business schools around the country as what not to do.

  • avatar
    ttacgreg

    Here comes the Volt! Here comes the Volt! Here comes the Volt! Such anticipation! Volt talk is getting tiresome.
    Folks, if that thing ends up priced at $40,000 bucks, its gonna be a total turkey. I’d bet even at $30,000 it would be.
    What else does GM have up its sleeve? Oh yeah, the Camaro, just in time for pricey fuel. There’s a corporate ass saver, yup indeed!

  • avatar
    theflyersfan

    If someone at GM had three working brain cells, they would swallow whatever corporate pride is left and just s***can the Camaro ASAP. We’ve seen “spy shots” for, what, 4 years now and…mmm…where’s the actual car again? It just has The Mother of All Letdowns written all over it. Figure in that Ford is refreshing the Mustang soon and their headstart with the retro-Pony car is too large for GM to catch up.
    If I was the dead duck in charge of whatever is left of GM right now, I’d tear through each and every model they sell around the world. Screw the exchange rates. Move steering wheels to the other side if needed. Translate. Ship here now. Business as usual is killing the company. I’ve heard their corporate speak on how the exchange rate would hurt them and it will cost too much to convert to the US market, but they are already losing money on each car and the cash on the hood is so high so what do they have to lose.
    “But shutting down Hummer and betting on the Volt and Camaro will save us!” Sure. I think we’ve heard the same thing with the pickup/SUV combo, the G8 and the Malibu. So many brands and average cars and trucks and yet so little market share.

  • avatar
    Slare

    The people clamoring for the downfall of GM or Chrysler because they had a bad experience with a car, or a dealer, or simply don’t like them…

    You obviously haven’t thought out the long term downhill ramifications of the complete failure of either GM or Chrysler. These companies employ either directly or indirectly, so many of your friends, neighbors, and relatives that anyone so asinine enough to clamor for their downfall deserves a swift kick in rear end right out of the US.

    Do I think GM and Chrysler could have avoided where they are at? Absolutely. Do I think they’ll pull their game together to recover to the glory days? Probably not.

    Do I hope and wish that they’ll do the right things to get back where they need to be and become stable, competitive companies again. Correcting problematic management, dealers, and forcing all of their workers to finally wake up and realize everyone’s contribution matters?

    We should all hope so.

    If you are hoping for their failure, you are more foolish than those managing either company.

    Having said all of that I can’t process Chrysler outlasting GM.

  • avatar

    You guys have been predicting the death of GM for at least three years. Can’t you guys admit to being wrong?

  • avatar
    Campisi

    You guys have been predicting the death of GM for at least three years. Can’t you guys admit to being wrong?

    As I always say… See you at GM Death Watch 200.

  • avatar
    poobearer

    To the narrow-minded patriot whining about workers losing their jobs at loser companies, why not wish GM/Cry-slur their (well-deserved) graves? Why should we cheer on these walking corpses? And why should those who fairly deride these losers be chastened and expelled from the country?? It’s not like the ex-employees of these soon to be defunct companies are going to be taken out back and shot. Google “Joseph Shumpeter” to see what creative destruction is all about. I suppose the sudden (though not unexpected) loss of employment would be tough on the workers who are too lazy/boneheaded to get out and generate something new and innovative on their own, but the American Way is about entrepreneurship, not fretting about the worthless sludge at the bottom of the (social) barrel. Have a little faith – future worldbeating companies will rise from the ashes of these former giants.

    I work in an auto-related field, and recently a group from the office were trained by a qualified PPAP/AQAP trainer. The trainer was effusive in his praise about Honda quality, Honda manufacturing processes and remarked at how superior Honda was to the domestics. He only drove Honda products and he was from Detroit.

  • avatar
    dpeppers

    GM has a birthday coming up. 100 for Chevrolet isn’t? Thats in September. There is no way in hell that they would file before that event.

  • avatar
    GS650G

    GMAC is looking to restructure 60 billion in debt and the bankers are balking. No one wants to get stuck with worthless home and auto loans. If the economy slips any more, or there is a serious terror action, hundreds of thousands of people are not going to pay their mortgages or car loans. It’s that simple. Failure to pawn this debt off will cause RenCen to tank, making Countrywide look like a simple S&L crisis.

    Next thing to happen will be C11 at Dodge. They can’t go on much longer or the assets left won’t be worth much to anyone. I think Ford would get more of the Dead Cat Bounce than GM leaving it with stronger competition from Ford and more cash in Ford’s coffers.

    ToyHonNisHyunKia continue to make cars people want to buy with warranty and reliability along with good gas mileage. This is not going to change soon. Without this pressure the 2.801 could find a way to survive. I don’t think all three can,

    Put me down for Ford in the 5th at Belmont.

  • avatar
    jerry weber

    It would be nice if we were punishing the execs of the major domestic car companies by seeing them go C11. However, life is not what it seems. In the last twenty years or so the balance of power has shifted in corporations from the board of directors and stockholders to these high powered execs. They have written their own ticket, and it includes golden parachutes into and through early retirement. When you add that to the unseemly annual salaries and fringes, you are simply putting a 50+ multi-millionaire on the golf course a few years early. The rise of the super uber-mensch executive has really been the down fall of many corporations and the auto industry is perhaps one of the worst examples. There was a time when these execs would take minimal salaries and peg their bonuses to the price of the company’s stock, (ie Iacocca in 1980 at Chrysler) now their are no performance parameters at all. You have the superstar running your company, and all bets are off.

  • avatar

    For years oil prices have been rising, but GM never took the decisive action to reinvent themselves.

    GM has 92 models in their US lineup. Nevertheless, they look like a single product company: it’s all about the GMT-900 truck platform. With GMT-900 collapsing they don’t have much left and the lineup looks amazingly unappealing.

    Their small vehicles are junk, they’re marginalized in cars, they’ve wasted a lot of effort on Saturn, Cadillac is an also-ran, they’ve destroyed GMAC and are way behind with hybrids.

    Isn’t it about time to change management at GM?

  • avatar
    Martin Schwoerer

    So, what’s so bad about TTAC having predicted the death of GM for the past three years? Jimmy Goldsmith did the same around 1990, when he considered launching a hostile takeover. Back then, he called the bosses at GM “timeservers” and “pygmies”. The more things change…

  • avatar
    Richard Chen

    Didn’t Enron have a few people who called them out a couple of years in advance of their implosion? (Ironically, I have a copy of Worth magazine from spring 2001 featuring Jeff Skilling on the cover calling him the #2 CEO in the country.) Likewise, GMDW has been calling GM out a few years in advance; by the time the bad news and the B-word is all over the front pages of the general press, it’s far too late to stop the trainwreck.

  • avatar
    geeber

    I disagree that the people running GM don’t care about it. That would be criminal, and they are not crooks. Do not confuse incompetence with criminality. Accusing them of deliberately running the company into the ground is also, in a perverse way, comforting, because it shows that, all along, they really DID know what they were doing.

    The real problem is that, except for Bob Lutz (who really isn’t running the company), all of GM’s upper management are GM lifers. They simply don’t know anything different. They have been thoroughly marinated in the GM culture. I truly believe that if you asked them whether they are doing, and have done, everything possible to save the company, they would answer, “yes.” And sincerely believe it. Which is all the more frightening.

    GM is like many government agencies (and the UAW, for that matter) – so big, with such insular management, and successful for so long, that its leaders simply cannot fathom any other way of doing business. They cannot imagine an American new-vehicle market where some sort of full-size, large vehicle – first the old, full-size Chevrolet Impala/Caprice, then the Chevrolet Silverado – is not the favored choice of at least 800,000 people annually.

    This is why Alan Mulally’s appointment to the head of Ford is so important…he brings to Detroit what is so desperately needed. A new perspective.

  • avatar
    Conslaw

    What GM needs is a massive infusion of equity so that it can execute a business plan. Ok, well it needs a real business plan too. The problem is any new infusion of equity will dilute current shareholders to the point that their equity interest is little better than it would be after a Chapter 11, that is to say, essentially nonexistent.

    What GM should have done two years ago is tried to raise money in the equity markets through a rights offering. GM should have issued a stock option dividend to its shareholders.

    Realistically, GM needs to raise at least $20-30 billion. I come to that figure because if we assume GM will burn $10 billion this year alone, it will need that much and more going forward to restructure its business. It’s hard to raise that much money in equity markets. Just to give you an idea. Visa conducted the largest-ever IPO this year, with proceeds in the 16-19 billion dollar range.

    To attract that much money, investors would have to be confident of a certain level of profits. How much would it take? Toyota currently has a market cap of $149 billion with a price to earnings ratio of 9.4. Let’s assume the market would require a risk-adjusted P/E ratio of 5/1 for General Motors. Let’s assume current shareholders contribute 5 billion to the Market Cap and they raise $25 billion in new money. GM’s would have to convince its shareholders that it can (reasonably promptly and reliably) make net profits of $6 billion per year. Is it possible? Toyota made about $17 billion in net income last year, so it’s possible, but it’s not likely with current management.

  • avatar
    Conslaw

    What GM needs is a massive infusion of equity so that it can execute its business plan. Ok, well it needs a real business plan too. The problem is any new infusion of equity will dilute current shareholders to the point that their equity interest is little better than it would be after a Chapter 11, that is to say, essentially nonexistent.

    What GM should have done two years ago is tried to raise money in the equity markets through a rights offering. GM should have issued a stock option dividend to its shareholders. Now it may be too late.

    Realistically, GM needs to raise at least $20-30 billion. I come to that figure because if we assume GM will burn $10 billion this year alone, it will need that much and more going forward to restructure its business. It’s hard to raise that much money in equity markets. Just to give you an idea. Visa conducted the largest-ever IPO this year, with proceeds quoted at 18.8 billion, with net proceeds significantly less.

    To attract sufficient new capital, investors would have to be confident of a certain level of profits. How much would it take? Toyota currently has a market cap of $149 billion with a price to earnings ratio of 9.4. Let’s assume the market would require a risk-adjusted P/E ratio of 5/1 for General Motors. Let’s assume current shareholders contribute 5 billion to the Market Cap and they raise $25 billion in new money. GM’s would have to convince its shareholders that it can (reasonably promptly and reliably) make net profits of $6 billion per year. Is it possible? Toyota made about $17 billion in net income last year, so it’s possible, but it’s not likely with current management.

  • avatar
    menno

    The parallels between GM now and Studebaker-Packard in late 1954-1955-1956 are stunning.

    In 1956, despite a “promise” by Metropolitan Life, Prudential and a consortium of bankers on a line of credit to tool-up all-new 1957 cars, this line of credit was suddenly declined when S-P went to draw on it. The bankers and money lenders simply broke their promises and said “no”.

    The all new cars would have been manufactured and sold as Studebakers (120″ wheelbase), the new mid-priced Clipper marque which had simply been a sub-series of Packard until dedicated dealerships were set up late in 1955 (125″ wheelbase) and the senior Packard (130″ wheelbase), using much shared technology and many shared pressings under the different skins (we’d say in modern parlance, that they used the same platform, in a cost saving measure, but were reskinned for distinct looks, just as Chrysler did with their various car makes). GM even did this in 1959, on all-new cars which were moved up a year (shades of the 2007 GM pickups!) – a DIRECT result of having the pants scared off them by the public acceptance of the new, low 1957 Chrysler/DeSoto/Dodge/Plymouth cars (along with the corresponding media coverage). This leads me to believe that S-P might have survived had they concentrated production at the lower cost, newer Studebaker facility and the new Detroit facilities, and been able to go ahead with the highly advanced cars being planned.

    These cars were more advanced than the soon to be introduced Chrysler/DeSoto/Dodge/Plymouth quad make line-up which were equally low to the ground and modern looking (to the 1957 public). Studebaker-Packard had several exclusives including a new Twin-Traction (locking axle) option, new electric push-button automatic transmission (a first), new alloy case automatic transmission (a first), locking torque convertors on automatics, self-levelling Torison Level suspension, and (important for that day) also had the most powerful engine on the market, a 310 horsepower V8 for the ultra-luxury Packard Caribean.

    Plus, Packard had a nearly new V8 engine plant; a new one story body plant; and Studebaker had just started assembling their new eye-catching Hawk at their smaller Chippewa Avenue plant (which could have been used for the new cars, too, reducing the crippling overhead of the old plant in downtown South Bend by abandoning it for car production, for a near new plant which had been used to manufacture trucks until 1956).

    This is pretty much exactly like the current New York crowd sending a “signal” to the other elites that GM is toast, and don’t bother sending any more money to THAT particular sink-hole, just as GM is busy, (busy, I tell you) developing that new VOLT car for introduction in what year? Oh yeah, the magical 2010! For $30,000 whoops no, um, $30,000 plus lease the battery whoops no, um, $40,000 plus lease the battery…. maybe or – not.

    The Volt is intended to compete with Toyota’s Prius which costs $22,000 and started in production 11 years ago…

    So unlike S-P, where $25 million early in 1956 could have made the difference between success and defeat, I actually suspect that this time, the NY crowd is right and there ISN’T any good reason to send any more money into the GM sink hole/money pit.

  • avatar

    Martin Schwoerer,

    I know times have changed, but if GM didn’t declare bankruptcy back when Roger Smith was running them almost into the ground, I just don’t see them declaring bankruptcy now. A massive bailout is likely, but I don’t think politicians would like to see the once-mighty GM go C11. That’s just me.

    Oh, and I’ll never get the whining about Saturn. Didn’t car enthusiasts want the stuff GM’s making in Europe? And now that we have it, you guys are complaining about that? GMC I can see being offed since their product is mostly rebadged Chevrolet trucks, but Pontiac and Saturn have enough original product to continue on, IMHO. Saab probably has a fan following, so they won’t be offed. Sold, maybe, but not offed. Ditto Hummer. They’ll be sold to a foreign company soon enough.

  • avatar
    fisher72

    GM’s Market Value Is Only $7 Billion—Half That of Avon

    http://www.cnbc.com/id/25392542

  • avatar
    KatiePuckrik

    I think TTAC should do an article about how “Rabid” Rick Wagoner and (maybe) “Maximum” Bob Lutz, will be remembered in automotive history?

    Bob Lutz, for me, will be remembered as “car guy” big on reputation, small on results.

    “Rabid” Rick is a bit more complex. For all his faults, I think he geniunely thought his turnaround plan (whatever it was) could have saved GM. And when you’ve got the BOD backing you all the way, why wouldn’t you think otherwise?

    But the thing I think they will be remembered for is their business savvy, guile and hard bargaining skills……in discussing their bankruptcy proof pensions and outrageous salaries!

    It’s amazing how those business skills suddenly emerge when something of THEIR’S is under threat!

    Prior to being Chairman and CEO of GM, what was his track record then? Did Bob Lutz REALLY make that much of an impact outside of GM? (If the Ford Sierra is anything to go by, then, probably not!).

    It’s worth exploring I feel.

    Back to credit.

    GM liquidity problems are coming to a head with many potential killers lurking. The exorbitant interest to pay, managers’ salaries, blue collar pay offs and lack of profitability, to name but a few. But the real killer for me, will be when one of GM’s suppliers goes under.

    Think about it, if GM is so dire for profitability on cars (especially small cars) then the squeeze on suppliers will be great. So great, in fact, that we might see a few “Plastechs” heading our way. The credit crunch and rising oil prices will affect them as well and, more importantly, affect their tight profit margins.

    You can drive a car on fumes for so long before it finally stops…..

  • avatar
    Rix

    I wonder how much GM could get for GM china…somebody would pay for that. Enough to keep the wolves from the door for another year or two? Quite possibly. And at some point, the Chinese might just buy GM and move all the production to China. It would probably be profitable even at a far lower market share.

  • avatar
    Ralph SS

    “I suppose the sudden (though not unexpected) loss of employment would be tough on the workers who are too lazy/boneheaded to get out and generate something new and innovative on their own, but the American Way is about entrepreneurship, not fretting about the worthless sludge at the bottom of the (social) barrel.”

    As a card carrying member of said barrel, I find this remark offensive, loathesome, and possibly, the most anti-American remark I’ve read in a long time.

    You will go far, my friend.

  • avatar
    M1EK

    If you harbored any kind of optimism that the Volt crew would save GM, read this thread and weep. These folks really think GM was serious all along about the Volt; has always made good cars; and has no problems going forward.

    And these are the people who don’t want to buy big SUVs/cars.

  • avatar
    1996MEdition

    Someone correct me if I am wrong….but didn’t the bankruptcy laws change so that corps couldn’t shelter their offshore operations any more? I think this was a big reason why Delphi rushed to file before the laws changed.

    Isn’t kibitzing what they caught Paul Reubens doing in a theater a while back?

  • avatar
    menno

    If you are right, 1996MEdition, then GM will “have” to either divide itself into two separate entities GMNA (North America) and GMG (GM Global). The way that the US/Canadian and Mexican operations are co-dependent, they would not be able to exclude any of the three.

    If you see a new company set-up in Nevada called GMNA LLC, you’ll know that Ch 11 (or 7) is very very near. Because looking at the money left over in GM as a whole, if they are going to hive off the non-North American operations, they’d better hop to it. There’s precious little money left for the GMG side of the operations out of the entire kitty, and they’ll need “some” money in the bank to declare bankruptcy for GMNA.

    Alternately the entire enchelada will collapse world-wide. I’m not totally certain if GMDaewoo would die since GM only own a portion of it, and I’m fairly certain that GM-SAIC in China might survive since GM only own 50%, per Chinese law.

    Wouldn’t it be ironic if “Daechevy” and “Sinobuick” were the only things left of GM?

  • avatar
    Stingray

    The collective 3 fail will fuck your industrial base to hell. Even if one of them sinks, you, as a country/nation will lose.

    That you Americans fail to understand that, amuses me every time I read an article of this series.

    Well, I have to say, you are an empire on decline. Maybe Mr. Farago should write an “US empire deathwatch” (THAT would be fun, but politically incorrect). In 20 years you won’t even have half of the influence you have now, in part, because you’re no longer an industrial and/or know-how power.

    There are countries out there that are learning how to make cars and are also trying to establish an automotive industry. This business moves a lot of things: engineers are needed, workers, materials, suppliers, it moves the economy like the construction does.

    Anybody can argue that yes, they’re late to the party, and that the models are obsolete, that they can’t get to US, Japan or European markets in like 10 years and blah blah blah. But just as example, Iran is the BIGGEST middle east car producer. The chinese are in the rise, the indians… too and I bet some other countries are in this race.

    But no, the best is that GM, FoMoCo and Chrysler tank, or go the way of the british auto industry.

    If I was from the USA, because I’m also american since we happen to live in the same continent, I’d be sad and worried about what’s going on in this industry.

    See you on DW 300

  • avatar
    Stingray

    menno :
    Alternately the entire enchelada will collapse world-wide. I’m not totally certain if GMDaewoo would die since GM only own a portion of it, and I’m fairly certain that GM-SAIC in China might survive since GM only own 50%, per Chinese law.

    Wouldn’t it be ironic if “Daechevy” and “Sinobuick” were the only things left of GM?

    Ummmm, it’s enchilada.

    But can get even more interesting… GM do Brazil, GM Mexico and GM Canada, if taken by a local “investor” can still continue to produce the cars, since these 3 have the ability to manufacture the whole car. has car design capability… if someone snaps that.

    The rest of the world would have to join one of the remaining companies to keep the plants running…

  • avatar
    psarhjinian

    Katie,

    To your point about Bob Lutz. Bob likes big and/or flashy and/or exclusive. He does not like (or doesn’t bother with) small, boring, reliable and competent cars. If he were allowed to run only Cadillac, Pontiac and possibly Buick, he’d do ok. He’s a car guy, and that’s really his failing, because he’s not interested in making cars for normal people.

    He fits in a GM, because, quite frankly, they don’t want to make cars for the masses, either.

    You can see this in their products: great trucks, an amazing sports car, excellent concepts and some pretty good luxury cars. Nothing at the low end excepting rebadged Daewoos, mediocre Delta-platform cars and a pretty good Malibu that they had to be dragged kicking and screaming to make.

  • avatar
    mikey

    Hmmm… doing a litle surfing here looking for some positive news.It seems the main stream media is jumping on RFs gig.USA TODAY is beating on GM as is Forbes.The dreaded BK thing is being dragged around.Hope you trade marked Death Watch RF.

    Some poster who goes by the name of poo has got us blue collars at the bottom of some barrel.RalphSS defended us,and I thank you Ralph.

    OK lets see oil breaks another record, couple of more Silverados won’t get sold.Goldman and Sachs says sell!

    But wait shares are up 5 cents!Rick is softening up Obama for a little loan.Toyota is cranking up thier prices.

    But the best news of all Its corp.wide shutdown and I’M OUTTA HERE!

  • avatar
    97escort

    There will probably be a technical rally of GM stock over the next 10 days to try to fill the gap made yesterday. Maybe on spin that June sales were not as bad as expected or some such.

    The idea that American market volume will return to “normal” in view of gas prices is delusional. Japan is the model for Post Peak Oil auto sales as they have to import all of their oil and have high gas prices.

    Japanese yearly domestic auto sales have peaked and are in decline. The sales of whoever files first will not be picked up by the other 2 Detroit manufacturers. Those sales will disappear down the black hole of Peak Oil never to be seen again.

    The American auto market which now demands fewer trucks and SUVs will be divided up among those who have something to offer in the way of small and fuel efficient. That mostly leaves out any of the 2.8 domestic manufacturers.

  • avatar

    fisher72 :

    To put things into further perspective, a NeoGAF post on this topic suggests that GM has about as much market value as uber-video game retail chain GameStop…

    http://www.neogaf.com/forum/showthread.php?t=319574

  • avatar
    Autobraz

    Back on the day when I worked at GM Brazil (2002) I had as a bad image of Rick as I have now while following the DW series, but at the time I only read the corporate news in GM’s intranet!

    (At the same time, I remember noticing that we had several excellent engineering directors and middle management)

    I can’t believe Rick has remained in power for so many years.

    My first post on TTAC – great site, have been reading for over a year now.

  • avatar
    M1EK

    Why oh why can’t Ford, who actually has:

    1. some ability to sell small cars without betraying a deep and fundamental loathing for their buyers

    2. a good medium-term supply of additional acceptable small car designs

    3. an understanding, although imperfect, of what hybrids are good for

    have the cash stockpile of GM? Or the public profile necessary for the inevitable bailout?

    Instead, the taxpayer money will doubtlessly go to GM, who will proceed to waste it on more crap. Hooray.

  • avatar
    Bunter1

    The strutural and electrical issues that seem to be being rushed through (per the Atlantic article yesterday, that thread looks dead) raise some strong ethical concerns for me as an engineer.

    This is not aggressive innovation. This is potentially deadly for customers. On the US moonshot program the guys in the capsule knew they were taking considerable risks.

    GM’s customers believe they are getting thuroughly engineered safe vehicles.

    This is a desperate looking company that appears to be taking some stupid dangerous risks.

    Not proven I grant.

    A bit off topic but I had to vent. At this moment it would be very hard ethically to recommend any of their products.
    If a friend got hurt/killed because of GM’s corner cutting…well I can’t accept the risk they appear to.

    Bunter

  • avatar
    Redbarchetta

    Taking risks aer the customers expense doesn’t seem like anything new for GM to me. Faulty brake pedals and airbags that don’t open could be prety fatal and they have been doing that already.

    These are just complaints on the DeVille, which I own one of. Here is the best one but you can look for yourself.

    CONSUMER COMPLAINT: ODI Case Number: 8012049

    Component: SERVICE BRAKES, HYDRAULIC:ANTILOCK

    Details: VEHICLE WAS INVOLVED IN A FRONTAL COLLISION WITH ANOTHER VEHICLE, SPEED OF IMPACT WAS UNDETERMINED AT THAT TIME, AND BOTH AIR BAGS DID NOT DEPLOY. DEALER AND MANUFACTURER WERE NOT NOTIFIED AT THIS TIME. *AK CONSUMER ALSO STATED THAT THERE IS A POSSIBILITY OF FAULTY BRAKES BECAUSE ONE SIDE LOCKED WHICH WERE PREVIOUSLY REPAIRED BY DEALER UNDER WARRANTY, THERE WERE 2 INJURIES. *SCC

    Occurrences: 1 Injuries: 2
    Fail Date: 06/13/2002 Deaths: 0
    Date added to datbase: 6/18/2002

    Cadillac DeVille

    Bunter do you have link to that article I would like to read it. Thanks.

  • avatar
    rtz

    A whole six months of cash before they go bust?

    Their current offerings are not and will not increase their sales. Oil at $150 plus, and fuel going up, housing a bust, stock market on it’s way down.

    GM thinks it can turn a profit or even turn things around in six months? With what?

    The big boys don’t care though; they’ve got so much cash in their bank accounts; they only work because of either their ego’s or their masochist. I sure as heck wouldn’t work any 9-5 job if I had any amount of money that allowed me not too.

    A lot of things aren’t made in America anymore. Maybe some day Fords, Chevys, and Chryslers won’t be made here either.

    Remember when the Japanese took over the electronics industry in the 1970’s?

  • avatar

    The Day I Realized GM was Headed for the Toilet.

    It’s actually a number of years ago. I had a hand in the international advertising for Saab, and we would meet with GM managers to get approval for our advertising and marketing proposals.

    I was told that GM had a program which was supposed “to assist in fast-tracking cross-platform synergies.” This program, apparently, chiefly consisted of shunting GM-managers about – none were allowed to stay at any one brand longer than two years. The idea being that they would be able to cross-pollinate, I guess.

    This meant that they would be “on a brand” just long enough to get it, but not sufficiently long to begin applying what they had learned.
    And clearly the goal was to go for those much favored cross-platform synergies, rather than to mine each brand for its strengths.

    I went from having to see a luxury Saab 9.5 prototype (one meter longer than the one which ended up going to market) to being told that our proposals about Saab heritage and quirky individualism were such that we had to be taken off the project, as it was sabotaging GM’s efforts to “project the brand into the luxury niche presently occupied by Jaguar and BWM.”

    That’s the day.

    The GM appointed clueless fool who was briefing us told us that “my job is to move the metal, and move the metal I will.” A term he must have picked up at some GM manager-shunt workshop.

    Go to gm.com

    That site is an absolute travesty, and the clearest Rorschach test you’d ever require as to why this brand is doomed. GM should never have been in the business of selling cars – that was the job of the individual brands.
    Wagoner got seduced by the notion of passing off a range of brands as distinct cars, while mining the potential synergies in building them all off “the same” platform.

    It’s terrible to behold – but I’ve been confident and certain this was going to happen since that day in 1997 when I was told that GM managers stayed in charge of a brand for two years only – “in order to mine cross-platform synergies.”

    And being told that my job was to move metal was just the nail in the coffin, both for my work on Saab and for the slow-motion avalanche that GM has become.

    There is Karma.

  • avatar
    geeber

    M1EK: Why oh why can’t Ford…have the cash stockpile of GM?

    Everything I’ve read says that Ford is in a better position cashwise than GM.

  • avatar
    rtz

    General Smolders.

    Who’s going to buy an expensive Camaro in this economy with these fuel prices?

    An electric Camaro that can beat the Tesla in any race?

    Reminds me of the GT40 program in the 1960’s. Winning the Le Mans in 1966, seven, eight, and nine. You know why? Because they wanted to. And they did.

    http://en.wikipedia.org/wiki/GT40

    They going to beat a Tesla with a Volt? Pit their electric Camaro against it.

  • avatar
    Dynamic88

    GM is like many government agencies (and the UAW, for that matter) – so big, with such insular management, and successful for so long, that its leaders simply cannot fathom any other way of doing business. They cannot imagine an American new-vehicle market where some sort of full-size, large vehicle – first the old, full-size Chevrolet Impala/Caprice, then the Chevrolet Silverado – is not the favored choice of at least 800,000 people annually.

    But then there’s the fact that GM had 34% market share in ’92 and has 19% today. You’d think that fact might have been noticed, even if they can’t get their minds around the idea that people really do want small efficient cars.

    The thing about numbers is that 34 is bigger than 19, and there is no way to spin it so that it seems smaller.

  • avatar
    ZoomZoom

    EJ_San_Fran :

    For years oil prices have been rising, but GM never took the decisive action to reinvent themselves.

    This is a serious problem, but it cannot be laid at one company’s feet.

    I think we are all to blame for this.

    1. Nobody understands “all gone” anymore. We don’t even teach our kids this reality of life (and death).

    2. We vote for people who won’t drill. Yes, this seems to be in contradiction with #1 above, but we need to address current needs.

    3. Instead of voting for people who can ACTUALLY DO MATH, we vote for people who use our tax dollars to prop up alternative energy programs that are efficient, unable to stand on their own in a capitalist economy, or just plain unworkable on the scale necessary for effectiveness.

    4. When we buy ourselves big gas-consuming vehicles and then proceed to drive one-person-per-vehicle.

    Earth doesn’t make oil anymore. Earth is finite, and at most, the layer that can contain oil is only 7 miles thick. In some places, it’s a mere 3 miles thick. And we keep drilling ever deeper and deeper to find new reserves.

    At some point, there there will be not enough oil in the ground to support food production for the current population. That’s the “all gone” problem that I speak of. When will this happen? Who knows. I hope my loved ones are not alive, because it won’t be a pleasant place.

    Too bad I don’t have Superman’s x-ray vision to be able to see what’s REALLY left down there, huh? But if I couuld see it all, would I tell anybody? A good question. A big burden.

  • avatar
    bvde.commerce

    Perhaps it is time for an article/discussion on which–if any–of GM’s vehicles will be worth a look when the fire sale begins..

  • avatar
    Durask

    The Big 2.8 are still either directly or indirectly responsible for between 1 in 12 and 1 in 15 jobs in this country.

    If they crash, don’t delude yourself that you will be driving Hondas and Toyotas, you probably won’t have the money for them. I’d say start looking at Tata Nano instead.

  • avatar

    @ Durask :
    June 27th, 2008 at 11:24 pm

    The Big 2.8 are still either directly or indirectly responsible for between 1 in 12 and 1 in 15 jobs in this country.

    Which is why the incompetence with which those companies have been run should be considered a criminal act.

  • avatar
    James2

    In 10 years GM’s demise will be studied in business schools around the country as what not to do.

    Um, isn’t GM run (into the ground) by a bunch of MBAs?!? Wasn’t “The Rick” once GM’s chief financial officer?

    Maybe GM needs a few more engineers at the very top of the food chain. Or not. I suspect their best engineers have already sent their resumes to the headhunting firms.

  • avatar
    Rday

    Can someone explain to me why GM can’t pull off a Delphi style division? Split GM into the international and GMNA divisions and just issue stock for the GMINT division. That way GMINT could survive and prosper and GMNA could go chapter 11. At least the shareholders and some of the employees would be able to keep something. Otherwise all shareholders lose and many of the employees too. GMINT could possibly come back and rebuilt GMNA once the automotive mess gets cleared up. Otherwise it is government bailout/socialism or foreigners get to buy up whats left for pennies on the dollar.

  • avatar
    Matt51

    There is nothing magical about a Honda car or a Toyota car. Hyundai, Tata, and others can match them now engineering wise. The US economic model is failing. Exporting all our jobs has led to an unsustainable trade deficit. This means the dollar must go down (remember your first class in economics), however we have nothing left to export, so our standard of living must continue to fall.
    As bad as Detroit MBA management is (pretty poor), Obama must put together a plan to bail out the big three, and launch it in January. With the declining dollar, combined with a new labor agreement, all Detroit needs is to have their debt reduced, and they would be completely competitive. Just as Ronald Reagan did successfully for Harley-Davidson. Everyone thought the Japanese were unbeatable in motorcycles, now they survive in the US market by making Harley clones.
    Business week feature article was, can we bring work back from China? Woman exec could not find a battery manufacturer in the US at any price.
    So we have to change our economic model, we need to put Ford, GM, Chrysler on sound economic footing – otherwise we are going to sink to third world economic status. We no longer have the means to pay for our imports.
    Even if the Volt does not make money for GM, it will pay off tremendously in terms of image and prestige.
    My bet is the big three hang on for Obama and a new deal, similar to how Reagan saved Harley. The big three are now lean mean efficient machines, they just have too much debt.
    Obama can easily win the election, taking Michigan, Ohio, Indiana, if he puts together a realistic support plan before the election, and puts it in place in January. This plan is feasible becaue it is based on 1) massive spike in fuel prices, not the fault of the automakers 2) need to fund alternative energy cars.

  • avatar
    toxicroach

    Anyone have a link to support the 1 in 12 1 in 15 jobs thing?

  • avatar
    skygreenleopard

    I don’t want any of the Big 3 to go – the more we buy (admittedly good) foreign cars, the more money leaves the US and the fewer jobs good Americans have. But with all of them consistently shooting themselves in the foot, I have no choice but to buy a used Acura and feel good about it!

    Seriously – I can name 5 GM missteps without stopping to think – Pontiac Aztek, an underpowered SSR that didn’t get fized until years after launch, any Pontiac from the 90s (the equivalent of shaving stripes into your goatee), Daewoo, HHR, spreading clones of terrible cars across 4 brands… I can keep going. In contrast, any of Honda’s or Toyota’s undesirable cars still have dependability and niche markets behind them (the Element, the Ridgeline, the Corolla). In short, almost any Japanese car these days is a better buy than any similar American product.

    I’d love to see any of these CEOs lose their fortunes, but I shudder at the thought of the largest American workforces also losing their jobs. These execs are going to hell for that.

  • avatar
    skygreenleopard

    Ashkan:

    have you though about publishing the whole series as a book?

    No, but I have thought about watching TV.

    Oh man, you are my idol.

  • avatar
    Durask

    Um, yeah, Obama will save the US auto industry.

    Is it before or after he finds the cure for cancer?

  • avatar
    Morea

    Well, to add just a bit of factual info to this thread I found this on infoplease.com. I can’t vouch for the truth of it but having worked with organic chemicals exporters I know that the US is a leading world exporter in this area. Since organic chemicals are not “things” per se (like cars) they can get overlooked in the “We don’t manufacture anything anymore” discussions.

    Also, I would point out that, for example, Boeing is a world leading exporter of vehicles (just not cars).

    Exports: $927.5 billion f.o.b. (2005 est.): agricultural products 9.2% (soybeans, fruit, corn), industrial supplies 26.8% (organic chemicals), capital goods 49.0% (transistors, aircraft, motor vehicle parts, computers, telecommunications equipment), consumer goods 15.0% (automobiles, medicines) (2003).

    Imports: $1.727 trillion f.o.b. (2005 est.): agricultural products 4.9%, industrial supplies 32.9% (crude oil 8.2%), capital goods 30.4% (computers, telecommunications equipment, motor vehicle parts, office machines, electric power machinery), consumer goods 31.8% (automobiles, clothing, medicines, furniture, toys) (2003).

    Major trading partners: Canada, Mexico, Japan, UK, China, Germany (2004).

  • avatar
    Matt51

    Subtract exports from imports and are you positive or negative? Do you know what percentage of GDP we can tolerate before the dollar declines, according to most economists? Most say 3%. We are now over 7%. US has exports, but nowhere near enough to pay for our imports.

    The Bear Stearns bailout cost US taxpayers $35 Billion. No vote in Congress, just the fed bailing out a bank.

    Write off $35B of Detroits debt, and they too would be healthy.

    McCain says no bailout, Obama has not said yet. Reagan led the bailout of Harley, Sen Lugar of Indiana led the bailout of Chrysler. So this is not a party issue, the question is will one of the candidates, to carry some key states, offer a bailout of the auto companies.

  • avatar
    FromBrazil

    It seems to me that one of the things that happened was that the US (consciously or not), some day around the end of the 70s beginning of the 80s, decided it was not going to do heavy industry anymore. Everyone was gonna work in banks and insurance and Wall Street, design (but not manufacture) clothes and shoes, and all of this would be enough to buy the dirty products from the poor sods in the 3rd world who were now responsible for supplying the world with capital goods and the products of heavy industry. No more dirty drilling, dirty mining, dirty refining! No more dity tanning and no more sweatshops!!

    So all your heavy industry was taken to Mexico, Brazil and Asia, your steel companies and mining companies were bought by foreigners. In the meantime the price of commodities just kept on rising and now your stuck in a situation in which everyone works for like Prudential, and is tryiong to sell the same products to everybody else.

    The reality is, like everything else, life moved on. The aove mentioned dirty industries are not so dirty anymore. They still require a lot of work and physical strength, but technology doesn’t stop. A modern car factory in Brazil is much cleaner and organized than anything in North Amrica. A modern steel plant down here is much cleaner and less polluting than anythin up there.

    The car industry is just following the same logic.

    To reverse this, I think, is almost impossible. Unfortunately the greenies and scial reformers and whatnot have got a hold of Obama’s ears. He won’t be drilling in Alaska! Nor authorizing some extra refining capacity. So you’ll continue treading the same ownward path. At that’s a big,no huge shame, as I love America and its former can-do-anything spirit.


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