By on September 30, 2008

When a company doesn’t have enough money to pay creditors what they’re owed, it’s considered insolvent. By this definition, GM is insolvent. The American automaker’s working capital stands at negative $20b. Cash outflow for the half year through June 30 remains negative, at over seven billion dollars. And it’s getting worse, as cash calls arrive on a regular– and irregular– basis. There’s no more credit to tap, and GM has few assets of meaningful value left to sell. Oh yeah, GM’s gonna file for bankruptcy. Then what?

The timing of GM’s C11 depends on its management’s psychology. At some point, somewhere around the $10b-in-the-bank mark, CEO Rick Wagoner, COO Fritz Henderson and CFO Ray Young will realize that they can no longer maintain “plausible deniability.” In other words, GM’s managers’ fiduciary responsibilities will compel them to enter bankruptcy protection with some cash rather than none– lest they lose control of their company in the reorganization to follow.

GM will file for bankruptcy late in the day, early or in the middle of month, right before the automaker has to pay its suppliers. The filing will be just a few pages of legalese– nothing grandiose. Only the news media, Washington DC and the general public will react with shock. Wall Street will not be surprised; the stock market won’t crater. By the time the company cries uncle, only true believers will own GM stock. Within hours of the filing, GM will be de-listed from the NYSE. Dow Jones will remove GM from the DJ Industrial Index.

True to their nature, GM’s execs will accept no responsibility for the company’s catastrophic failure. They will blame the economy, energy prices, government regulation, their own bankers, anything, everything, anyone and everyone but themselves. As before, their “victim of circumstance” sob story will convince many that it’s somehow a political failure, even as the men in charge admit defeat, unfurl their golden parachutes and prepare to surrender power they should have never held in the first place.

[In truth, Wagoner should have directed GM to file for bankruptcy in December 2005, when The General still had significant assets to sell. The automaker would be reorganized by now, with fewer dealers, brands and factories. And a clean balance sheet.]

Aside from an uninformed not-to-say oblivious public, the damage to Wagoner and his team’s personal reputations will be total. But the company’s C11 filing will not take down the whole GM Empire. C11 will be limited to the overall corporate entity and GM North America. Europe, Latin America and Asia will be spared the financial ignominy.

Initially, nothing much will change inside GM. The company brass will issue an internal memo to frightened workers promising a bright future. There will be no immediate layoffs or job losses; paychecks and benefits will remain in place. Later in the reorg process, a few key executives will receive “retention bonuses,” while many in the rank and file lose everything.

While the filing will not mention dealer termination, the smarter Buick, GMC, HUMMER, Pontiac, Saturn and Saab dealers (in whatever combination) will immediately understand that their days are numbered. They will either close-up shop or expand/satellite with one of their import brands. Those dealers who try to ride it out will experience a slow death for a year or so– until the reorganization plans outlines the end game for GM’s superfluous brands.

Bankruptcy will not sound the death knell for GM’s sales. Responding to commercials touting The General’s “Next 100 years,” patriotic buyers in the flyover states will flock to GM stores to do their part– especially when they see the mind-blowing bargains GM will use to clear inventory. The General’s public will not foresee the fact that only Chevrolet and Cadillac will survive. The initial sales rush of sales will convince many that the dead brands walking will live again. But they won’t.

GMAC will not be able to bankroll these fire sale purchases; it too will be subject to Court oversight (thank you Rescap). So instead of subvention paid to GMAC to move the metal, GM will use “outside” lenders to the same end. Smart bankers will experience a windfall– financing good credit customers at rates higher than justified (compensated by GM) to make consumer credit available at below market rates. Credit unions will scramble to partake in the new largess. Leases? Forget that.

The biggest casualties from a GM bankruptcy: Chrysler and Ford. Of course, Chrysler’s already toast. It’s only a matter of time before they go into liquidation. But Ford will face an epic internal struggle to avoid C11, and resulting loss of Ford family control. After the initial pall, when GM’s killer deals come on-stream, The General will steal food directly from FoMoCo’s table.

But once Ford files, and Chrysler goes into liquidation, the no-longer-Ford-family-controlled automaker will be able to clean its house and match GM’s deals. The biggest loser in all this? Toyota. We’ll discuss that in our next installment.

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77 Comments on “General Motors Death Watch 201: Carmegeddon Pt. 1...”


  • avatar
    menno

    With too little money left to reorganize properly, will ONE stiffed creditor step forward and say “NO” – forcing GM into Chapter 7? I wonder… Or, isn’t that how it can work?

  • avatar

    in the end it is their ineffective, brand destroying, marketing which has killed The General. for years, I preached and pleaded with them to change but they refused to listen. too bad as this all could have been prevented.

  • avatar
    postman

    Timing is everything. Most likely any action will be delayed until after GM receives it’s share of the federal bailout money. Once the exeutives skim off their share of it, THEN they’ll file.

  • avatar
    Ingvar

    Interesting theory, and plausible. Sounds like doom coming… The future of GM looks bleak, to say the least.

    What I don’t undeerstand is the board of directors and stock holders not holding the management accountable. How in the wide wide world can they still be at large? I mean, money rules? No? How can the people behind the money just stand beside and look at the management pissing the company fortunes away?

  • avatar
    philbailey

    Ford deserves to survive. They’ve got some really good cars out there, they’re not BSing electric cars and they have Mazda as back up. And Mazda is on a terrific roll these days. Ford has done very little wrong by comparison with the other two, so it will be a shame if the baby gets thrown out with the bathwater.

  • avatar
    Rday

    I have faith that congress and its’ lobbyists will come up with some plan to rip off the taxpayer and maintain detroit exec’s in the lifestyle that they have grown accustomed to. Right now plans are in the works to pass the $700Billion bill with just a few minor changes, enough to give congressmen/women wiggle room. And enough to show their constituents that they rejected the ‘original bad plan’ for this much better new plan. Our democracy has been lost to the special interests and the wealthy. We will just ultimately become a second world power that has its’ oligarchy to run/bribe the pseudo politicians that we ‘elect’.

  • avatar
    Casual Observer

    Will Pontiac and Saturn really go by the wayside? Could they not keep them as boutique brands, or will that not be profitable?

  • avatar

    I know that TTAC doesn’t buy into the “nobody buys from a bankrupt automaker” excuse, but I’m a believer. I really want a Camaro, but do I really want one when GM’s future is in doubt? Has a bankrupt automaker ever made a comeback? Should I start pining for the 2010 Mustang?

  • avatar

    Duesenbergs and DeLoreans still bring good money. if GM goes tilt, just keep your Camaro long enough and you’ll be okay. then again, there’s the Pacer, so maybe not.

  • avatar
    Ingvar

    “Has a bankrupt automaker ever made a comeback?”

    That’s a very interesting question. The only answer I can come up with is the Quandt familys take-over of BMW in the 60’s. It is highly unlikely that the BMW 1500 should have been the success it became, hadn’t Quandt injected BMW and their r&D with a massive cash infusion. From Wikipedia:

    “When Günther [Quandt] died in 1954, the Quandt group was a conglomerate of about 200 businesses including the battery manufacturer, several metal fabrication companies, textile companies and chemical companies (including Altana AG). It also owned about 10% of car company Daimler-Benz and about 30% of BMW. After Günther’s death, the conglomerate was divided between his two sons: Herbert and Harald Quandt who was Herbert’s half brother.

    BMW was an ailing company and in 1959 its management suggested selling the whole concern to Daimler-Benz. Herbert Quandt was close to agreeing to such a deal, but changed his mind at the last minute because of opposition from the workforce and trade unions. Instead he increased his share in BMW to 50% against the advice of his bankers, risking much of his wealth. He was instrumental in turning the company around.

    BMW was already planning its BMW 1500 model when Quandt took control. It was launched in 1962 and established a new segment in the car market: the quality production saloon. It occupied a position between the mass production car and the craftsman-built output of the luxury producers. BMW’s sophisticated technical skills put it in a strong position to fill this niche. It was this model that put BMW on the path to success.”

  • avatar
    crackers

    A good article from the perspective of GM. The political perspective will be very interesting to watch. The big question is whether or not the political side will recognize that these companies are the authors of their own demise with relatively minor help from the Government. Will the various lefties succeed in using the bankruptcy of the D3 to enact broad structural and economic changes that will ultimately harm the rest of the country? In Canada we have a lot of calls to “do something” to protect our manufacturing base, especially auto manufacturing, when in reality, you could pour billions into the D3 and it wouldn’t make any difference whatsoever.

  • avatar
    GS650G

    I think Ford will emerge from this intact. They are doing more right than wrong and have a better strategy. Cry-sler is defying the odds at this point, I thought they would have gone down with the finance ship by now.

  • avatar

    Duesenbergs and DeLoreans still bring good money. if GM goes tilt, just keep your Camaro long enough and you’ll be okay. then again, there’s the Pacer, so maybe not.

    Camaros are pretty commonplace, unless you’re talking about an extremely rare COPO model…

  • avatar
    mel23

    There will be some people who will buy a GM product based on patriotism or whatever basis, but not nearly enough IMO. I think they will quickly cease to function. If I were running Ford at that point, I’d blast out ads touting Ford’s strength, their long history, best selling trucks, etc., plus the new energy-efficient models right around the corner as well as the hybrid Escape/Mariner. And then see what happens. If patriotism or tradition draws people to GM, it would do the same for Ford. If it somehow works that GM’s filing is providing advantages that Ford’s path isn’t, Ford could always file too.

    Another issue will be suppliers. Suppliers that depend on both GM and Ford business might go down no matter that Ford could continue otherwise.

    I don’t know how much reserve dealers have now. I read about service absorption; which, as I understand it, refers to how much of the fixed costs are covered by profit from the service operation. Even at 100%, which seems to be exceptional, there’s a lot of floorplan money going out every month. Inventories are down at most dealers, especially the Hyundai guy down the road, and I assume this is to reduce floorplan costs. So, bottom line, we’ll surely see an increasing rate of dealer attrition until GM files.

  • avatar
    Mike66Chryslers

    Bankruptcy will not sound the death knell for GM’s sales. Responding to commercials touting The General’s “Next 100 years,” patriotic buyers in the flyover states will flock to GM stores to do their part– especially when they see the mind-blowing bargains GM will use to clear inventory.

    By stealing future sales with massive discounting, GM would sabotage their own post-C11 recovery. Not that I disagree with your prediction; they’d have to do something drastic to convince people to buy from a bankrupt automaker. Stealing future sales through price discounting is part of what got them into this mess in the first place though.

  • avatar
    NickR

    They will blame the economy, energy prices, government regulation, their own bankers, anything, everything, anyone and everyone but themselves.

    This current financial meltdown is the gift to end all gifts. Talk about the perfect camouflage! ‘We could have made it if it wasn’t for…’

    Duesenbergs and DeLoreans

    Duesenbergs yes, but they cost fortune in their day as well. DeLoreans…not really. Few cars, even high buck collector cars, turn a decent ROI if you’ve owned them since new. The ones that do are were super scarce to begin with…COPO Camaras, ZL1 Camaros, HemicCudas,etc.

    The new Camaro and Challenger will not be good investments.

  • avatar
    dew542512

    You forgot to add that GM will also start blaming their customers for not buying GM product. They will likely say something totally banal like “Their customers just do not understand the competitive quality and reliability that GM offers in their products” – or some similar drivel.

    I just realized I started reading the GM death watch series somewhere back around #95 or so. I have to admit GM is tenacious at hanging around, I really figured they would be gone by death watch #130 to 140.

    If nothing else GM is providing a constant flow of entertainment.

  • avatar
    Stingray

    I want to read your second installment. When will it be?

    That you view an scenery in which Toyota loses made me curious.

  • avatar
    Johnny Canada

    What’s gonna happen to all those Badger car salesmen?

  • avatar
    toxicroach

    I think his argument for Toyota losing runs something like this:

    1)Big 3 market share collapses down to w/e they can salvage. If they come out of bankruptcy, it is as lean competitors, not overburdened, under financed companies they are now.

    2) Toyota is pretty much running at max capacity now anyway, so the market share the big 3 shed will be picked up by other car companies who can move in (Hyundai/Kia, Honda); this will be their watershed moment where H/Kia breaks out of their cheapo wheels image (which has been taken by the big 3’s massive discounts). And of course Honda is very well placed to grow substantially as their selection of small cars is better than Toyota’s at the moment.

    So basically however this plays out, Toyota is going to have some real competition on its hands in the coming years, instead of being able to pick apart the big (fat n stupid) 3 at their leisure for decades.

    Which is why I think Toyota is very sincere when it says it hopes the big 3 can avoid bankruptcy.

  • avatar
    Ingvar

    “You forgot to add that GM will also start blaming their customers for not buying GM product. They will likely say something totally banal like “Their customers just do not understand the competitive quality and reliability that GM offers in their products” “

    Which reminds me of the poem “The Solution” by Bertold Brecht:

    After the uprising on June 17th,
    The Secretary of the Writers Union
    Had leaflets distributed in the Stalinallee
    Upon which was to be read that the people
    Had forfeited the confidence of the government
    And could only reclaim it
    Through redoubled efforts. Would it not be easier
    Still for the government
    To dissolve the people
    And elect another?

  • avatar
    mocktard

    Not an automaker, but Triumph Motorcycles was resurrected after collapse in the 70s and 80s. The bikes that come out of Hinkley (and Thailand) now are pretty good, and the company is growing and profitable.

  • avatar
    menno

    Only one major automaker in the United States ever hit Chapter 11 and survived, and that was Studebaker. In the depths (and I mean depths) of the Great Depression in 1933, after management had foolishly sent dividend checks to stockholders when no profits had been forthcoming, the chickens came home to roost, and Studebaker was forced to file.

    Ironically, the management had worked out a deal to merge with White Motors of Ohio, an ex-sewing maching, ex-steam car, ex-gasoline car, current heavy truck manufacturer which was solvent, had money and was profitable – but a certain White stockholder threw a spanner in the spokes and invoked a state law stating that an Ohio company could not be merged with a “foreign” corporation (i.e. outside the STATE).

    Interestingly, Studebaker would have simply done to White what it later did to Packard from 1954-1958 and that would have been to bleed it dry in order to survive – a little longer.

    Yes, Studebaker survived Chapter 11, but was forever weakened dramatically and truly never recovered, succumbing at Christmas 1963 in the US and early spring 1966 in Canada.

  • avatar
    Redbarchetta

    Great editorial with a lot of interesting points. BUT I think GM is past the point of being able to come out of any bankruptcy I agree in 2005 yes but now, no way. Rick is seeing to it that they won’t go into the filing with enough money to absorb the massive losses to survive 2 years in bankruptcy and get out.

    Bankruptcy will not sound the death knell for GM’s sales. Responding to commercials touting The General’s “Next 100 years,” patriotic buyers in the flyover states will flock to GM stores to do their part– especially when they see the mind-blowing bargains GM will use to clear inventory.

    I think you are really wrong there. Their sales are unsustainable now while they are practically giving them away and the patriotic “flyover” buyers are the ones buying right now. They can’t continue to keep buying even at super discount prices, what are they going to do buy 4 or 5 trucks to keep GM’s sales going. Plus their just aren’t enough of them left at this point or they wouldn’t keep losing money right now. Their sales will dry up even with the give aways. Sure the first month they will probably sell a ton to the poeple who have been waiting. Then what? They will see 50% declines in sales, 60% the next up to 80%. People can’t keep buying when they don’t need it and can’t afford it. There is no way they can sustain sales through out the entire bankruptcy. This will probably leave Ford f*cked, once all the pent up demand buys GM’s super cheap stuff there will be few buyers left for them. I think the Ford family will follow Rick’s lead and screw the pooch by delaying a filing until it’s too late so they don’t lose their control. Chrysler is a waist of time to talk about.

    GMAC will not be able to bankroll these fire sale purchases; it too will be subject to Court oversight (thank you Rescap). So instead of subvention paid to GMAC to move the metal, GM will use “outside” lenders to the same end. Smart bankers will experience a windfall– financing good credit customers at rates higher than justified (compensated by GM) to make consumer credit available at below market rates. Credit unions will scramble to partake in the new largess. Leases? Forget that.

    This one looks all wrong also. What bank in their right mind is going to take a chance on this with the credit crisis we are in and will be in for a while. Banks are dropping like flies if you haven’t noticed, if the ones that are left lend their money out it will only be to the buyers of least risk, the would not be GM. And where is this money you say GM will use to compensate for the higher rates, they have no money and will have even less when they eventually file.

    Plus I really don’t see buyers taking a risk when the economy is so bad and you have no idea how your job outlook will be a few months down the road. All those risk taking buyers are out of the market now. I have a feeling the economy plus bankruptcy will bring lots of the buyers left to Honda and Toyota because they know the risk is minimal. Being stuck without a job AND having a car crap out with no company left to back it is a real fear. That’s is why people buy them now, less risk.

    I can’t wait to see the next Editorial on how this is going to hurt Toyota because I sure don’t see it. Not that I have any love for Toyota, just they plan long term and I bet anything they already have multiple plans for when GM files, everyone could see it coming a mile away.

  • avatar
    Redbarchetta

    mocktard it wasn’t the same Triumph motorcycles that went into bankruptcy. The parts and name were bought up by new investors and they basically started a brand new company under the same name using their heritage. Probably what will happen the Chevy, Cadillac and Corvette.

  • avatar
    ZoomZoom

    Johnny Canada :

    What’s gonna happen to all those Badger car salesmen?

    Well, as I see it, there are numerous possibilities. Here are just a few.

    1. Sell Kirby vacum cleaners.
    2. Go to law school. (Sorry Justin!)
    3. Run for Congress.

  • avatar
    Lichtronamo

    The only remaining question is “when”?

    Sales are circling the drain and will continue to the rest of 2008 and into 2009. Tight credit hurts GM, Ford and Chrysler hardest and the negative impacts to the economy hurt their number #1 customers (fleets) most of all.

    The DOE says they may not dole out the $25B in loans until 2010 – doesn’t do much to help GM finance the new Volt/Delta engine plant, does it?

    Also, $25B divided three ways between GM, Ford and Chrysler is a cup of coffee in light of the rate these companies are hemorrhaging cash.

  • avatar
    geeber

    Ken Elias: [In truth, Wagoner should have directed GM to file for bankruptcy in December 2005, when The General still had significant assets to sell. The automaker would be reorganized by now, with fewer dealers, brands and factories. And a clean balance sheet.]

    Can a company just file for bankruptcy? It’s my understanding that certain conditions must be met before the judge grants the bankruptcy petition. Plus, other parties – the UAW, suppliers, shareholders – can intervene in the proceedings by filing various motions. And there is no doubt that each of these parties would have filed motions in 2005 – and would do so today, even when GM really IS bankrupt.

  • avatar
    metric_tool

    I guess the only reason someone like KKR hasn’t stepped in yet is that they are waiting for the big BK. Unload all the bad debt (and continuing contractual obligations, pensions, entrenched management and associated fiefdoms, etc.), and someone will see GM as a bargain. It’s hard to believe that a stock that was trading at 43.20/share in the past year (and is down to about 9.50 today) isn’t seen as hugely undervauled.

    Either the place is piled high with rotting corpses or someone’s biding his time before he swoops in and makes the killing of his lifetime.

  • avatar
    toxicroach

    Not a chapter 11 expert, but generally you can file whenever you want.

    Also, GMs creditors can kick in an involuntary bankruptcy petition too, though I’d imagine then there would be preconditions to be met before the judge would let that go through.

  • avatar
    Ken Elias

    A few points for clarification:

    1) GM would be filing a voluntary bankruptcy petition. The court would accept it – just look at GM’s balance sheet today, it’s a disaster.

    2) With a filing, GM’s cost structure changes somewhat immediately as payments to financial creditors would be stayed, while necessary payments to suppliers will continue. Bankruptcy in Chapter 11 filing is used to preserve the estate of the debtor while it reorganizes, subject to a fair and equitable resolution to creditors.

    3) GM’s massive sale would become semi-permanent – and people love bargains. The argument of whether folks will purchase from a bankrupt automaker remains unresolved – I argue that they will IF pricing adjusts for the perceived risk. As far as lender financing goes, the credit crisis will pass, and automobile financing depends on both personal credit and the vehicle as collateral. Bankers are greedy – and with the right combo of credit, rate subvention, and loan-to-value, some lenders will step into the fray.

    Please keep commenting…there’s more to come in this series. GM keeps surprising us…and I might be completely wrong…but it sure makes for fascinating but reasoned speculation.

  • avatar
    netrun

    A company can file for bankruptcy protection if management feels it’s the best course of action. Since management has inside knowledge about all of a businesses dealings, they sometimes go Ch.11 even when the balance sheet is strong.

    I forget the name of the company that is used a famous example of this, but they were associated with the whole asbestos fiasco. As I recall, they got one or two lawsuits related to cancer caused by asbestos and immediately filed for bankruptcy. They did it not just to save the company, but really to prevent only the first to file lawsuits from getting their fair share. They wanted the people who found out they got cancer 10-20 years later to be able to collect as well. So they set up a separate trust fund and re-organized under a different name.

    And yes, I think Kirk Kerkorian is going to finally realize his dream of owning a car company after all. For pennies.

  • avatar
    menno

    netrun, The company you’re thinking of is called Federal Mogul, and it owns large companies tied to the auto industry like Champion spark plug, Wagner, Anco, Sealed Power, etc.

    When the company bought up a British brake company called Ferodo, it “inherited” all of the asbestos liability – and this is what you are presumably speaking of. Actually, I think it also was on the hook for asbestos liability since it owned Wagner Brakes, as well.

    Ironically, at one point, Wagner brake and electric were owned by the Studebaker-Worthington conglomerate, which came out of a 1967 merger of the non-automotive operations of Studebaker in the USA, and a Canadian company, Worthington.

    Stude had become a conglomerate, owned Wagner, Onan, Paxton (yep, superchargers), STP, Shaeffer refrigerator, Franklin appliance (they made store-brand appliances, none under their own name).

    GM is doing the opposite. No longer a conglomerate, they are selling everything off in an effort to retain the core business.

    The Studebaker plan seems, in retrospect, to be a better idea – dump the unprofitable automotive side of the biz and concentrate on profitable enterprises to retain the value for the stockholders who’d entrusted the company management with their money.

    What an old-fashioned and novel idea, eh?

    Thing is? It’s too late for GM to do this. All they have left, are unprofitable automotive enterprises in a worldwide economy which is swirling around the plug hole, because of interference in the marketplace….

    http://www.youtube.com/profile?user=themouthpeace&feature=iv&annotation_id=event_413833

    http://www.elliottwave.com/features/default.aspx?cat=mw

    http://www.freebuck.com/articles/dvaughn/080928dvaughn.htm

  • avatar
    Ingvar

    So, how much is GM worth? If someone wanted to buy the company, lock, stock and barrel? How much of an incentive would a buyer have to give, to make people give up their shares? How much are we talking about here? Really? Couldn’t just someone buy the entire company and strip and flip it? or perhaps try to make some money out of it?

  • avatar
    menno

    I just read this morning, Ingvar, that both GM AND Ford are worth about $15.25 billion.

    Chrysler is probably worth at least $1.98 (I didn’t read that, I just “reckon”).

    Same kind of “reckoning” as the idjits in Washington figuring “oh, $700 billion oughta doit”
    (i.e. GUESSTIMATED).

    Back to GM (and Ford). Yeah, we the taxpayers have just signed on to loan more money to GM, Ford and Chrysler THAN THEY ARE WORTH TO THEIR OWNERS, THE STOCKHOLDERS. $25 billion.

    Catch 22: They apparently don’t get a penny until 2010. By which time, all 3 may be history anyhow…

  • avatar
    Ingvar

    So, why doesn’t the government just make a take-over for that 25 billion, and nationalize the entire car industry? From a taxpaying point-of-view, that would be the wisest choise, as the government gets the entire companies as collateral, then, they can handout as much money they see fit to re-organize the industry. Sounds wiser than just giving the stockholders a bunch of the taxpayers money and no strings attatched. But perhaps that’s too socialist? Seriously, something is rotten if they handout is bigger then the net-worth of the companies in question.

  • avatar
    Pch101

    I don’t see how GM could file Chapter 11 in this current environment. Without available credit in the capital markets, it would turn into a Chapter 7 liquidation in nothing flat.

    In addition, GM would have real difficulty selling cars at any price. In addition to consumers behaving with more risk adversity than normal, lenders wouldn’t touch them because of the inability to forecast their residuals. The only interested lender would be GMAC, and they may not have the money to provide the loans, either.

    Chapter 11 would have been a viable option during the economic boom. Today, bankruptcy would equal death. The death may be inevitable, anyway, but a bankruptcy filing would kill the company promptly. Too bad, because a few years ago, 11 would have been very helpful. Times have changed, and not for the better.

  • avatar
    tulsa_97sr5

    How would they manage inventories heading into ch11? Would it make sense to ramp production to 100% in all plants 60 days prior to filing, then wipe most of the cost of manufacturing all those vehicles off the books? Labor costs would still be paid no doubt, but I think they could end up ducking some huge bills to suppliers for those vehicles they make in the last months. It would give them lots of room to discount their cars and trucks post filing and might be something to watch for.

  • avatar
    billc83

    Menno, you beat me to the Studebaker reference. Granted, they never again would achieve their dominance of the marketplace, but I disagree a bit that Studebaker came out weakened – it survived another 30 years and its prewar turnaround was truly amazing (they were posting profit by 1936). Studebaker’s downward spiral was at least slowed, until postwar management misdirection, rising labor costs, and healthier, stronger competitors aligned against them, until they finally abandoned the automotive business. This is strikingly similar to what General Motors is facing now!

    Elias’ scenario is extremely plausible, and though I feel Chapter 11 will bring about more solutions than problems, I am very skeptical about the American public’s willingness to purchase from a bankrupt automaker, especially with the economy flirting with collapse.

    @ The “Cars as Investments Posts:” Cars are almost never a good investment when bought new. One would need a limited production run, preferably rare options/colors/etc., and a lot of time, as the value is judged by used car values (i.e. will not appreciate) for some time. You’d have to hold on to a new Camaro for a LONG time for that thing to turn a profit. Duesenbergs are prewar luxury vehicles, sought after because they were the best of the best (along with Packard, Pierce-Arrow, and Peerless) of their day, and command exceedingly high values today. A DeLorean still command high prices because of their relative scarcity and “failed experiment“ appeal, but it wouldn’t be a horrible idea to pick one up now, if it was in good condition and at a reasonable price, as values have stabilized and have started appreciating, if slowly. (Personally, I’d like a 1948 Tucker, a 1974 Bricklin, and a 1981 DeLorean in the BillC83 Museum! – Then again, I‘m a bit out of left field)

  • avatar
    NickR

    succumbing at Christmas 1963 in the US and early spring 1966 in Canada.

    Menno, how did that going bankrupt in Canada 3 years later come about? That seems like a curious turn of events.

    Nearly picked up a Studebaker Hawk a few years back…white with red interior and a 259 cid engine. Fortunately, sanity prevailed and I didn’t.

  • avatar
    billc83

    In 1963, Studebaker shut down their South Bend plant, but their plant in Hamilton, Ontario continued producting cars (in limited numbers) until 1966. Studebaker did not go bankrupt in its final years, it just pulled out of automotive operations.

  • avatar
    Steven Lang

    “In truth, Wagoner should have directed GM to file for bankruptcy in December 2005, when The General still had significant assets to sell. The automaker would be reorganized by now, with fewer dealers, brands and factories. And a clean balance sheet.”

    You brought in some good points until you said this. Bankruptcy would absolutely devastate GM’s sales. They would easily lose more than half their remaining marketshare in the event of a C11.

    Overall, I’m still not entirely convinced GM’s management deserves the brunt of the blame. Any management team in this business would have a helluva time trying to juggle GM’s labyrinth of brands (and the lawsuits that would come with dissolving them), the UAW’s exceptionally healthy benefit’s packages, the $2000 cost disadvantage that comes primarily from paying these pensions and medical costs, and the hellacious anti-GM bias that has been swirling in the media for decades.

    $4.00 gas and the current credit crisis are just the perfect storm for GM’s current predicament…. which was already throughly case by the courts and the special interests well before Rick and Bob took the helm. They have the responsibility of ownership. But the blame can come from the fact that GM’s been fighting with one hand tied behind it’s back for quite a long time.

    Other than a fortune teller and some very friendly relations in at least two of the three branches of the federal government, I don’t see how GM, or any of the Big 3, could have turned the corner over these last few years.

    The problems that GM faces are as much structural as they are psychological. But even with all the problems and disadvantages that are there, GM would still be able to overcome most of the obstacles if it weren’t for the entrenched interests and the federal laws that promote their well-being above GM’s.

  • avatar
    menno

    Hi NickR. Studebaker didn’t go bankrupt again in 1963 when they pulled the plug on their South Bend Main plant, they just imported cars for another couple of years from their Canadian rump plant, in Hamilton, then shut it down, too. The South Bend engine plant operated all the way through the 1964 model year, but for the 1965 and 1966 cars, they bought GM (Chevrolet design) engines.

    Interestingly, GM “screwed” Studebaker over the price of the engines – just because they could – and shipped them from New York to Hamilton instead of from GM-Canada plants, which added to Studebaker’s costs with tariffs. Most of the profits from selling Studebaker cars (which were finally profitable after dumping the way out of date, oversized/underutilized, expensive to run South Bend plant) was going to – GM!

    So I have to sometimes wonder if what goes around, comes around? Kizmet? Karma?

    GM’s goose is now nearly cooked, too…

    BTW, I HOPE the US government does NOT nationalize GM, Ford and Chrysler – all it will mean is a slow, costly drain on taxpayers.

    Look at British Leyland in the UK. It just delayed the inevitable and cost ratepayers (taxpayers) in the UK tons of money – year after year after year after year…..

  • avatar
    geeber

    billc83: Duesenbergs are prewar luxury vehicles, sought after because they were the best of the best (along with Packard, Pierce-Arrow, and Peerless) of their day, and command exceedingly high values today.

    This is off topic, but during the 1940s and early 1950s, many prewar classics were worth very little…some were even scrapped during the World War II scrap-metal drives.

    As for Studebaker – the continuation of production in Canada was a way to avoid dealer lawsuits. When Studebaker closed South Bend, it received enormous media coverage, and most stories treated it as “the death of Studebaker.” Importing cars from Canada allowed Studebaker to fulfill dealer franchise agreements.

    But the negative publicity drove customers away, and as the dealers dwindled away, Studebaker was able to shut down the Canadian operation. (Too bad Studebaker management hadn’t been that clever in running the automobile operations in the first place.)

    Maybe GM should take a page from the Studebaker playbook and simply shut down production in the U.S. and Canada, pare back its lineup, and announce that all future vehicles will be sourced from China and Mexico…

  • avatar
    CarnotCycle

    While Chapter 11 looks inevitable, I don’t think taking all the brands out behind the barn is necessarily in the cards.

    GM’s old five-brand formula worked for a long time, and it can work again I think. GM definitely has way too many in NA ops, and will have to get rid of some. However, I don’t think that means killing them so much as selling them.

    Take Saturn for example. The cars are re-badged Opels, and that’s alright I guess but it is not where the value in that outfit is. Its in the fantastic dealer network Saturn has, and has maintained through its existence. If I was a foreign automaker looking to make inroads in the US, Saturn would be a great buy, especially with the assured discount to value at the big corporate firesale GM will undoubtedly be having soon. If you get the Tennessee (right-to-work state!) plant in the deal, you’re six months from crushing the union out of the facility and controlling it completely. Or strip the excellent production tech out and ship it to your foreign (China!) operation. Cold, hard, capitalism.

    There are places for Buick and Pontiac, especially if they and their products are targeted at the demographics the Mothership claims they do. Pontiac itself isn’t broken, but no one will see the potential value in the brand until a suit stops throwing stickers on a Cobalt and calling it a G5 or whatever.

    Dropping a JDAM on a mud-hut won’t clean the hut, just destroy it completely. Sell the trinkets in the hut first.

  • avatar
    Steve_S

    It would really suck that there is a car I can afford that does everything I want andteh company may go ou of business.

  • avatar

    Ingvar :

    So, how much is GM worth?

    Someone over at NeoGAF suggested that Nintendo has more market value than GM. Not surprising, imho, since everybody wants a Wii (and yes, I have one). Maybe GM needs their own Shigeru Miyamoto…

  • avatar
    CarnotCycle

    Ferrarimanf355:

    GM probably has had a few Shigeru Miyamotos. But they fired or layed him off each time someone of his talent came through. It’s like my old man says, “the cure for cancer died twice from malaria last night”

  • avatar
    Dynamic88

    Other than a fortune teller and some very friendly relations in at least two of the three branches of the federal government, I don’t see how GM, or any of the Big 3, could have turned the corner over these last few years.

    By putting some of their SUV/Truck profits into a small car program. Hell, Ford already had (has) a good small car, but they’ve let it rot on the vine rather than keep up with competition.

    Fact, people pay $3K more for a Civic than for a Cobalt. There’s $3K profit right there if they could make something comparabe and sell it at a comparable price.

    It’s not like RIR took the helm last Thrusday. There’s been time for long term planning, they just havn’t done it.

  • avatar
    Dynamic88

    To file or not to file, that is the question. Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles, and by opposing end them?

    I think there is no choice but to file. It may not save them, but the current course of inaction isn’t going to save them either.

    It’s important to emphasize that C-11 is a last minute Hail Mary strategy. It’s no one’s idea of the right way to run a company, but there is no longer time to run GM right. W/o reorganization, there is no chance of survival. Even if the bailout keeps them afloat a few more years, their end will come if they continue on the same course.

    Whether or not people will buy from a BK automaker depends on public relations. If the BKcy is sold to the public as a reorganization, rather than as a termination, (and of course the intent is reorganization, not termination) then I think people will still buy – but they’ll still want a bargain price.

    GM’s troubles won’t be over until they both reorganize and make products (not just one or two) that are as good as the competiton. For a long while, they are going to have to sell on price, and that means low profits and not much money for product improvement. Their only hope is to renegotiate union contracts so that some profit margin can be had at the expense of UAW members. Working cheap is better than unemployment.

    Ford will file within days of GM filing. Why not. They’d like lower labor costs as well. Chrysler will also file, if they are still around, for the same reason. It won’t be so hard to sell if the domestic competition is also in C-11.

    I don’t see how Toyota will get hurt significantly (I’m anxious to read the next insallment to see how that reasoning goes). Lack of production capacity can be overcome, but I’m thinking we’re headed for a few more years of reall bad auto sales. If Toyota resists the temptation to increase production, and re-focuses on quality/reliability, they’ll come out way ahead in the long run.

  • avatar
    billc83

    @ CarnotCycle – Though Alfred Sloan’s five brands strategy did work well for some time, it required two essential ingredients: (1) dominance in terms of market share and (2) clearly defined brands’ image/pricing.

    GM’s market share has been steadily eroding for the last four decades. While it may have been acceptable for GM to have five brands when in had a majority share of the U.S. market, but that is no longer the case. Now that GM has a much smaller percentage or that market, simple math dictates it needs fewer brands.

    GM officially pissed away Sloan’s “car for every purse and purpose” philosophy. By bringing Cadillac downmarket. By making top-of-the line Chevrolets. By making Pontiacs with no performance. By letting Buick become the official pace car of geezers everywhere. Badge-engineered dreck, epitomized with the J-Cars, has erased the brands’ identities.

    Cutting (or even sale of) brands is necessary at this point. If GM comes back leaner and meaner, they could perhaps regain some market share which could then perhaps reincarnate some brands.

  • avatar

    CarnotCycle:

    I do not blame you for thinking that. Maybe GM needs a Miyamoto, a Eugine Jarvis (Robotron 2084, Defender, the Cruis’n games, Target: Terror), a Toshihiro Nagoshi (Daytona USA, Yakuza, Super Monkey Ball), a Yu Suzuki (Virtua Fighter, Out Run), a Tetsuya Mizuguchi (Rez, Space Channel 5, Sega Rally), a John Carmack (id Software’s programming genius), a Michel Ancel (Rayman), a Sam and Dan Houser (the founders of Rockstar Games), a Stephen Cakebread (Geometry Wars), a David Jaffe (God of War, Twisted Metal), AND a Toru Iwatani (Pac-Man).

  • avatar
    jurisb

    Dear Robert Farago, and honorable readers, I would like to ask you a question. Why do you blame only executives? How come that only those executives that run companies of mechanism manufacturing, continuously flunk, fail and go belly up in USA? Why all 3 car manufacturers fail, but not a single toothpaste manufacturer in US would have a bad CEO? Why Johnson&;Johnson, Colgate -Palmolive, Tupperware, Wrigley`s, Kraft Foods never have bad CEOs but every single company in US that deals with movement, mechanism, actuator or electronics manufacturing, somehow have bad executives that run these companies in ground. Coincidentally, Hamilton Watches, Zenith TV sets, RCA electronics, IBM computers, Elgin, US Robotics,McDonnellDouglas etc. have had nasty executives, while food manufacturers, leisure businesses, insurers have always enjoyed smart bosses. How come, Microsoft can be a leader in programmes but can`t create anything tangible besides a mouse? How come General Electric can build engines, but can`t assemble a single refrigerator of their own, and have to rebadge Samsung ones? How come Hershey`s is fine, but Apple is struggling -either hit or miss, Ditto Bose, Harley-DAvidson, Tesla, you name it.WHy don`t you guys wake the hell up and admit that your freaking education system is so much screwed up with complying to plummetting average scores of ( ancestors of)immigrants ,plus white people who want to be brokers and free thinkers, but never real job doers, that the graduates are simply unable to deal with engineering real ,tangible items.50k engineering graduates every year, from which 49 900 want to be mouthpieces and managers, for they are to lazy to sweat their muscles, and too dumb to sweat their brains. Here we go the economy..

  • avatar
    Ken Elias

    The predicament facing GM’s management today – essentially boxed in as pointed out by Steven Lang – would make any turnaround nearly impossible. But GM’s problems go back to the 1970’s in part when the Japanese gained a toehold during the two energy crisis of that decade. GM’s response – the Vega – failed to match in quality, both mechanics and fit/finish, to the Japanese. In the 1980s, during a period of voluntary import restrictions, GM failed to improve its quality and instead coasted on profits of large vehicles while consumers paid ever higher prices for scarce Japanese vehicles. GM’s X-cars, touted as import fighters, were anything but. I could go on and on…but the market tape tells the story. Consumers voted and sought alternate sellers. ‘Nuff said.

    I’d also point out to Mr. Lang that there is no doubt that GM would lose significant market share in a Chapter 11 filing. Exactly how much is the big unknown and is what keeps management to avoid bk land at all costs. But as TTAC has pointed out, there is no road to recovery for GM by continuing muddling through trying to support the false notion that eight, soon to be seven, brands makes sense with a 20% market share, especially given badge-engineering and fuzzy brand definition. Better to reorganize and fight another day than continuing a losing battle.

  • avatar
    Orian

    Whoa there Jurisb!

    I think I get the jist of what you are saying, and I think it boils down to the board of directors at GM continually allowing Rick to run the ship smack into the iceberg at full throttle. They should have removed him and replaced him ages ago, but they have clung to old traditions for far too long.

    As for the education system – it is broken and needs an overhaul. I have two kids in school, two step kids in school, and one that will be in school in about three more years. The US public education system is a mess right now and I honestly am not sure even where to begin to fix that mess.

  • avatar
    Geotpf

    I disagree with this editorial. Consumers, even Detroit Three loyalists, will avoid GM like the plague if they file Chapter 11. They’ll buy Fords and Dodges instead (or, if they aren’t Detroit Three loyalists, Hondas and BMWs and Kias and Hyundais and Toyotas and Suzukis and…). Chapter 11 will trigger the equilvalent of a bank run at GM, with warranties and future availability of spare parts being the catalyst.

    It won’t be all buyers; just, say, 50% of them. But that’s clearly enough to prevent GM from ever escaping Chapter 11 and instead turning the 11 into a 7.

  • avatar

    Ken,
    I see a more ominous scenario. Just like you can have a run on a bank, you can have a run on a car company: a sudden evaporation of the public’s trust in that company, causing sales to drop to zero.

  • avatar
    CarnotCycle

    One thing that would happen if GM filed for Chapter 11 would be anyone who has a pristine example of a well-engineered piece of GM metal, from any year, would see the value of that ride go up considerably.

    Chevy ‘Vette Z06 would sky-rocket in value as the last truly excellent piece of iron to come out of one of the most storied industrial combines of all time. Kinda like having a cool antique statue from the old Palatine hill that witnessed the Vandals burn the joint down in 455.

  • avatar
    Steven Lang

    “Fact, people pay $3K more for a Civic than for a Cobalt. There’s $3K profit right there if they could make something comparabe and sell it at a comparable price.”

    Nope, doesn’t work that way. If Honda already has a $2k cost advantage it would be very hard for Ford to make the Focus a high profit vehicle. On the flip side, I agree with your assertion that Ford should have redesigned the Focus back in the 04/05 period. But Honda is pretty much a unique entity when it comes to small car development. Even Toyota tends to have far longer model runs for their small cars.

  • avatar
    Accords

    Hmmmm
    Ken.. what a fantastic job of a comment. I completely.. and holeheartedly agree with you.. 110%.

    As I read your post…
    I could just hear a mixture of loud gongs going off…

    Or the last pathetic minutes of the RMS Titanic.. sinking below the seas on April 15th 1912 at 220a.

    Such majesty, such power, such POLITICS!
    It if wasnt the lifeboats, then it was the design.
    If it wsnt the design then it was the Poltics, It could also be the British Board of Trade.. that doomed her fate.. and how many lifeboats she could carry (a standard that wasnt updated since the Great Eastern of 1898.)

    That boat.. is going straight down.

    I have no compassion for GM.
    No epathy
    No humor
    And no good thoughts about how that cockeyed, maladjusted, filthy, domestic, leaching, mooching bastard of a ship was run.
    She pushed her luck, she didnt do as she should have,and it bit her on the ass!

    The basic elementaty concepts.. of designing, testing, examining, QTing and releasing an automobile, at the correct times, with correct updates, with features and longevity past a model cycle.. HAVE FINALLY CAUGHT UP.

    The hell with RICK, and LUTZ!

    How can LUTZ go crashing down with a man who has no concept of how to run a company, and takes no responsibility for how its run, or the losses its incurred. I just wish his silver parachute bust a nice big GM SUBURBAN SIZED HOLE. Let that ignorant leach of a human pay for the errors he’s caused to thousands of GM workers.. who toiled.. only to get boned in the ass.. with him at the wheel!

    LUTZ, was from Chrysler.. when they were C h r y s l e r. Not that shell they are now.

    But now, he’s is just as bad as Rick. He pushed them towards more SUVS, less fuel economy. The best cars for efficiency, space, value and design got denied, for more SUVS. His products that got pushed to sell.. arent. (see Sky / Solstice).

    Ol Lutz apparently cant shove that foot far enough into his mouth. Id love to help him.. GAG ON IT.

    And I.. am tired of hearing about the shit.

    The hell with them all, they made their bed.. let them die in it.

  • avatar
    Petra

    Great article, but all speculation. There seems to be an unspoken consensus that going into bankruptcy will somehow miraculously cause GM to wake up and smell the figurative coffee, and start killing brands, dealers, and bloat. Just once, I’d like to see a Deathwatch that does not suggest that GM will necessarily emerge better, stronger and faster from bankruptcy.

  • avatar
    rtz

    Honda and Toyota really have their heads buried in the sand in regards to EV’s. That or they have so much invested in hybrids.

    Mitsubishi, Subaru, and Nissan have a huge head start over the Asian big two.

    Is Ford the only one with no electric lined up?

  • avatar
    jurisb

    By the way, is the TTAC planning on creating a corner for posting commenters own creations in metal, otherwise we are all smartasses and stuff, but have no proof of our own abilities to create anything worth seeing.We are good preachers, are we good craftsman?

  • avatar
    guyincognito

    The one point I disagree with is the theory that RW and his team will unfurl their golden parachutes as they are ushered out of the company in shame.

    I predict that the board of bystanders will overwhelmingly support and lavish praise upon them and demand no changes be made to the management team. Rick will agree, give himself a $30 million dollar bonus and $10 million to his VP’s and carry on running the company until it is insolvent.

  • avatar
    John Horner

    Count me a skeptic on the notion that Chapter 11 means stable or increased sales. A car company starts every day with almost no backlog (other than fleet deals). The retail business has to be won one transaction at a time in a vastly decentralized operation. A bankrupt car company with a history of poor quality and poor customer service is not well suited to survive that environment. Maybe if it has been done in 2005 in a quasi-orderly fashion, but during a widespread panic … not going to work.

    Say GM files, and at the same time Ford makes a deal with a white knight to get more capital (Kerkorian?) in return for some dilution of the family without filing. Ford doesn’t have a massive brand hangover problem to deal with. The number of stand alone Mercury dealers is next to zero and Volvo is small potatoes as well. Heck, most Volvo dealers could be given a Mazda franchise without putting much hurt on Mazda. The Ford family, faced with either big dilution thanks to a Kerkorian or a total wipeout in bankruptcy court would choose the lesser of two evils.

    Ford then carries on as the one relatively healthy US based car company while GM and Chrysler are flailing around in the courts. Maybe the US government even goes with the all-the-wood-behind-one-arrow approach and does things to back Ford, like shifting all government fleet purchases their way and making capital readily available to Ford Credit while GMAC flounders. The Ford as last-man-standing scenario is, to me, more plausible than GM triumphing by filing C11 first. Remember, the same decision makers would be in charge on D-day +1 as have run the ship aground. I don’t think the Board of Directors has any good candidates to take over this sinking ship, or they would have done it already. They are not likely to get smarter or wiser anytime soon.

    What happens the day after a C11 filing is a big unknown. The fog of war would be heavy in that situation. My bet is, GM goes down in flames and C11 rapidly becomes C7. Then savvy buyers pick up certain assets of the deceased company without picking up the liabilities. This is exactly what Barclay of England did in picking up certain assets of recently failed Lehman Brothers.

  • avatar
    been working with them for years

    Interesting points.

    I work as a vendor with one of the largest auto group in the country. In a recent meeting, my contact gave me his prediction of what a future showroom will look like: one of each model and a complete interactive experience showing options. The consumer will order the car, and then be informed of the progress by the factory in manufacturing the car…kinda like having a baby. dealers wont have huge lots and the significant overhead of flooring. I was told this model is common in Europe today.

    On a sidenote, I would encourage you all to pick up a copy of the book: The Reckoning by David Halberstam…very interesting story of Ford and how it was mismanaged in the early years (do things change?) and a little upstart named Datsun, who came into SoCal and got a foothold. If you havent read it, do so.

  • avatar
    Dynamic88

    Steven Lang :
    September 30th, 2008 at 6:57 pm

    “Fact, people pay $3K more for a Civic than for a Cobalt. There’s $3K profit right there if they could make something comparabe and sell it at a comparable price.”

    Nope, doesn’t work that way. If Honda already has a $2k cost advantage it would be very hard for Ford to make the Focus a high profit vehicle. On the flip side, I agree with your assertion that Ford should have redesigned the Focus back in the 04/05 period. But Honda is pretty much a unique entity when it comes to small car development. Even Toyota tends to have far longer model runs for their small cars.

    The point is not that Ford or GM would be as profitable as Honda, but that a better product would be more profitable than what they are trying to sell now. We already know a substantial portion of the market is willing to pay $3k more for a car that size. If current profit per vehicle is $250, then selling a better product would allow them to make $3,250. If current profit is
    -$500, then a better product might allow them to make $2,500. If the GM (and the other 1.8) want higher profits, they’ll have to build higher quality.

    To put it another way, let’s say that GM gets it’s UAW contracts renegotiated so that GM’s costs are exactly the same as Honda’s. They still can’t sell more Cobalts than Honda sells Civics. The market wants the better car, even when the Cobalt sells at substantially lower price. They still face stagnant or declining market share for their product because it’s second rate. This will be a long term problem at GM (and Chrysler).

  • avatar
    John Horner

    “In a recent meeting, my contact gave me his prediction of what a future showroom will look like: one of each model and a complete interactive experience showing options.”

    During the blood-bath of the late 1970s I was a teenager and my dad was still selling cars. I made exactly the same prediction as above except for the bit about an interactive display of progress (the coming computer revolution hadn’t not been revealed to me yet :) ). His response: It’ll never work. People want what they want and they want it right now! So far he has proven correct. Personally, I would much prefer to order exactly the car I want and I have no problem waiting a month or two for it to be assembled. But, alas, my tastes are not reflective of the public at large.

    One consequence of the endless incentive frenzy has seemingly been the death of the special order car. When my dad was selling cars back then, about one in twenty would in fact be a factory special order vehicle. Dealers loved them because the floorplanning cost was nil. The buyer paid for the car almost as soon as it came off the truck. Contrast that to a “typical” situation where the dealer is borrowing money to keep the car on the lost for 60, 90 or more days until a buyer is found. Today, nearly all incentives call for taking delivery from dealer stock. Who wants to pay thousands of extra dollars to get a special order car, never mind that such a business model is better for everyone!

    Dell computer builds to order and has grabbed a ton of market share and industry leading profits with that model. But, automakers and their dealers in the US seem too steeped in the pile ’em deep then push ’em away from the curb mindset. So far, dad was right. Thirty plus years and counting.

  • avatar
    Ingvar

    John Horner:

    I think the european business model could work in america too. It’s not that there’s only just one car of each model, but a limited number of the most popular choices, and the rest is supply-on-demand. The cars in the showroom is the most popular models, most popular trim, a couple of extras, most popular enginge choice, and with the least offensive color options. The point is, the cars already in the showroom should cater for perhaps 60% of the potential buyers need, and the rest is ordered from the factory. If you want a car right now, you can have either the blue or the silver metallic one. If you want a red car, you’ll have to wait. And so on.

    That means, the dealer can show and sell cars to most people without a big inventory. And for those with special needs, they can order whatever they want for a price, but then they’ll have to wait four months.

  • avatar
    Pch101

    I think the european business model could work in america too.

    I don’t. Believe it or not, a lot of cars are sold or leased in the US on impulse; we do not have the large executive fleet market that exists in Europe. If inventory had to be pre-ordered, a lot of those impulse sales would be lost. It also wouldn’t help the manufacturers, as they build in volumes too high for the US market to indulge in too much customization.

    In this area, Honda has the right idea, by having set trim levels with minimal manufacturer-installed options. It helps with inventory management, smooths out production costs and simplifies the process for the customer, while allowing the dealers to make their impulse sales.

  • avatar
    geeber

    Pch101: In this area, Honda has the right idea, by having set trim levels with minimal manufacturer-installed options.

    Having bought several new Hondas, what is interesting is that the factory encourages dealers to push Honda-approved accessories that can be installed at the dealer. So the buyer can still “personalize” the vehicle to some extent, and the dealer has a chance to make some extra money.

    I’ve also noticed that, with the Accord, at least, trying to find a lower line model (LX) is virtually impossible. Now most Accords START at $24,000+. Apparently Honda is trying to move the Accord upscale.

  • avatar
    Ingvar

    pch101:

    I didn’t elaborate enough to deliver the whole point. And the whole point is that a limited supply should care for most needs, thus catering for the “I gotta have a car today” and “Any color will do” crowd to impulse buyers just browsing the showroom. The point is to have all those cars on supply-on-demand, that the buyer would wait for anyway. If I were to buy the dream of my life, I wouldn’t do with a color I wasn’t completely satisfied with, just because the dealer had it in stock, and so on. Thus, Most people would be satisfied with most choices in the limited showroom, and those who doesn’t, would rather wait for the right car anyway, than walk out. A Win-win, as they say.

  • avatar
    Morea

    If the customer absolutely must have an exact specification car don’t dealers usually swap with one another? The cutomer may have to wait a few days for the vehicle to be transported from another dealer but that is certainly faster than a ‘factory’ order.

    Also, are cars (from major manufacturers) every made to order? Isn’t a ‘factory’ order just dibs on the next car with the customer’s specs that is slated to come off the production line (or is already parked at the factory)?

  • avatar
    GeorgeM

    Dynamic88: What I think you’re missing is that even if somehow GM were able to build a car as good as the Civic, as well as the Civic is built, and for Honda’s costs – GM’s horrendous reputation would stand in the way for a lot of buyers, such as myself.

    GM’s been selling crap cars with pitiful after-sale service for so long, it would take YEARS to reverse their public perception. Just look at Hyundai – they’ve done an excellent job of improving their cars, but a lot of people still have an “ick” reaction thanks to the Accent, back in the day.

    One of the things that has impressed me about Honda is the emphasis they place on customer satisfaction with their service departments. I get the impression – from the customer satisfaction surveys I get after my car’s been in for preventative maintenance – that Honda Corporate leans on them hard in that regard, apparently seeing customer satisfaction with the service experience as contributory to making a future sale.

    As to the subject of who’d pick up the market share GM could drop in C11 – I have no idea what Honda’s reserve capacity is; my impression was that they were running close to capacity, as someone mentioned Toyota is doing. From what I’ve seen locally here in my part of the Los Angeles area – Civics are in short supply, even despite the credit crunch. And wouldn’t the closedminded “Buy Amurrikin” types be more likely to switch to (say) Ford than Honda/Hyundai/&c.?

  • avatar
    menno

    George, you mean the “buy Amurrikin” buyers who purchase Mexican and Canadian manufactured Big 2.801 cars with Chinese parts, instead of “foreign” cars like my wife’s Hyundai Sonata, which was actually MANUFACTURED in Montgomery, Alabama?

  • avatar
    GeorgeM

    menno: Exactly. Or perhaps even rebadged Asia-built models – just so long as it’s from a “domestic” brand. Chevy Aveo, anyone?

    (There was a “Pluggers” strip years ago that had a character asking his wife, “Do we buy the American car made in Mexico, or the Japanese car made in America?”)

    It seems clear a lot of people just aren’t aware of how the car manufacturing business has changed over the past few decades – you’d think from the way some react that Toyota, Honda &c. had never built a single plant in North America.

    I’ll freely admit that I’m a Honda fan – I love their dedication to R&D, the fact that every CEO has been an engineer, and so on. But if they ever did fall on their face the way GM has done, I’d look elsewhere. One of the main drivers of capitalism is consumers looking for the best product at the best price; that’s what fuels innovation and prods companies to keep up and compete. It gets shocked reactions, but I really enjoy telling people who refuse to consider “foreign” cars that they’re “anti-capitallist.”

  • avatar
    cheezeweggie

    What’s the big deal about buying from a bankrupt GM ? They didn’t like to honor their warranties when they were solvent, so there should be no difference.


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  • Chris Tonn, United States
  • Corey Lewis, United States
  • Moderators

  • Adam Tonge, United States
  • Kyree Williams, United States