By on May 23, 2009

The Detroit News headline: “Obama Auto Bailout Draws Fire.” Suddenly, without warning, Motown’s hometown newspaper has changed sides. What was “their” bailout has become “Obama’s.” The altered allegiance comes hot on the heels Chrysler and GM’s decision to terminate around a thousand dealers apiece. This is not music to the domestic supporters’ ears; the dealer cull represents the complete, final and unavoidable end of Motor City’s domination of the American car industry. The fact that the domestics’ supporters are suddenly behind the franchisee push back—which could scupper both automakers’ future—shows the depth of Detroit’s denial. While the bailout boosters gave The Presidential Task Force on Automobiles (PTFOA) props for shit-canning GM CEO Rick Wagoner, you can file this one under no good deed goes unpunished.

Like any political battle, the latest front in Motown’s wider war against reality is a race against time. Can the axed dealers’ political allies wrest control of GM’s post C-11 future from president Obama’s “smartest guys in the room” before (as?) the company sinks into complete chaos? We’ll see. The DetN reports that Congress critters are firing multiple salvos against US Treasury Secretary Tim Geithner. Reps Kucinich, LaTourette, Conyers, McCotter and others sent Timbo a missive calling for the Obama administration to hand the whole bailout thing “back” to Congress.

To do what, exactly? Other than saving the dealers cast adrift by Chrysler and GM, they got nothing. Which puts the offended politicians at level pegging with the PTFOA. Remember: the PTFOA decided to arrange a shotgun marriage between Chrysler and Fiat, swap the “old” Chrysler’s liabilities for a worthless promissory note (i.e., shares in “new” Chrysler), give the born-again (and again and again) car maker a multi-billion dollar dowry and . . . call it good.

The plan sounded crazy—and it still does. Strangely, despite the dealers’ howls of protest, no one [who votes] seems to care that the feds sold Chrysler down the river. On Friday, Fiat named the three Board of Directors members who will control the new, taxpayer-supported Chrysler LLC. Ignoring the Wagoner problem (Fiat CEO Sergio Marchionne will be both ChryCo’s CEO and a Board member), the announcement was a tacit admission that Chrysler will now be an Italian company. Protectionist outrage? Nowhere to be seen.

This is no small point. As we count down the final hours until GM’s C11, as Congress bellyaches to no practical effect, we can expect history to repeat itself. Former Chrysler exec Jerry York is active again, desperately seeking a chunk of post-C11 GM to call his own. OK, Renault/Nissan’s AND his own. In other words, GM’s C11 could be Chrysler II.

And why not? In Chrysler’s final analysis, all the xenophobic rhetoric about federal tax dollars “saving America’s industrial base” counted for nothing. Not only have the zombies been “allowed” to shutter plants and jettison American production jobs, they’ve been “encouraged” to terminate tens of thousands of dealership-related jobs.

I’m not saying it was the wrong thing to do. I’m simply pointing out that the original logic underpinning the entire $100 billion (and counting) bailout process has disappeared. Which brings two maxims to mind: nature abhors a vacuum and a week is along time in politics.

Will Renault/Nissan fill the hole where the world’s largest automaker used to be? Given that Uncle Sam didn’t get dime one from Fiat for Chrysler, there’s literally nothing to stop them. And if not them, someone. While the feds’ restructuring plan assumes public ownership of the “new” GM, Obama’s army isn’t stupid enough to cling to the ship as it’s sucked beneath the waves. Congress is—which is a scary thought.

Either way, the clock is ticking, and it’s a time bomb. Voters will not put up with this Motown mishegos forever. And the longer this process continues, the worse GM’s chances of even pretending to be in a position to recover. Immediately after The General files, May’s sales figures will emerge. And after that, June. And so on. Anyone who thinks that the GM sales chart’s arrow won’t point straight to hell is seriously deluded.

Delusion is, of course, GM’s strong suit. It suffuses the company’s management. It blights its unions. It envelops its dealers. It infects its pet media. It even afflicts its customers. That’s how General Motors got into this pickle. And that’s how they’re not going to get out.

Unless, that is, Renault/Nissan or some other outside “investor” repeats Fiat’s “pay no attention to this faux Chapter 7″ strategy, scarfs up GM’s good bits for bupkis and cleans house. In that case, General Motors might survive. If so, it will be a vastly smaller enterprise.

In fact, any GM that emerges from C11 won’t be GM in any recognizable way. That would be a good thing for some of the automaker’s current stakeholders. But by no means all. Whether it’s warfare or bankruptcy, “surgical” doesn’t mean bloodless.

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22 Comments on “Editorial: General Motors Death Watch 253: Life During Wartime...”


  • avatar
    postman

    Excellent analysis. The longer this slow motion train wreck continues in the public eye, the smaller market share whatever remains of Chrysler and GM will be. Why would anyone buy a car from a foreign car maker operating under the brand name of a spectacularly defunct U. S. car maker when there are so many other U. S. based “foreign” car makers that have been operating here successfully for decades?

  • avatar
    Patrickj

    Fact is that this is a brief postponement, for political and economic confidence reasons, of the liquidation and total closure of both Chrysler and GM. Within 24 months, there will be no Camaros, Corvettes, Challengers, or Ram trucks—nothing.

    I don’t believe that anyone in the administration or any independent observer believes otherwise.

  • avatar
    educatordan

    I still believe firmly in my mind that GM and Chrysler should have been allowed to file non-government bankruptcies and allowed the laws of the republic to run their course. Only the viable parts of the company would have survived, to be bought up by other companies at auction or however it would have gone.

    Chrysler and GM have become engines of wealth destruction, not engines of wealth creation as all going business concerns should be. (Yea I graduated college two classes from being an econ minor.) If GM/Chrysler’s factories, excess inventory, parts, and intellectual property was being sold to the highest bidder, at least those companies/people would have a clue how to make some money out of it.

    Yes there would be chaos for a while, yes many of these workers would lose their jobs, but long term it would have been more beneficial to the US economy.

    We need to start thinking long term instead of just to the end of our noses. Yes the pensions of workers should have been guaranteed for what they had already contributed to their pension plans, but beyond that, no government intervention.

  • avatar
    yankinwaoz

    I’m pretty convinced that Congress’ new found “concern” for the dealerships in their districts has nothing to do with helping the US taxpayers or saving the US auto industry. Instead, it has everything to do with congress critters taking advantage of desperate businessmen in order to shake the remaining dollars out of their pocket.

    After all, talk is cheap.

  • avatar
    jpcavanaugh

    educatordan & yankinwaoz

    +1

  • avatar
    gmbuoy

    This is a minor bump on the road to the right sizing of the organization.

    The real deadline is the congressional mid term elections in 18 months. The dealers who get closed in the next 45 days will not be in play for that party.

    And let us recall that the closure of 25% of the dealers representing less than 15% of the volume and (if Mike Jackson’s Stores are any indication) 0% of the NPBBT, while lamentable for those involved is more a pruning of the rose bush then the annihilation of the Domestic Dealer body.

    Now managements are actually taking action on the bloated, franchise legistlation protected dealer body and the pols equivocate ? The dealers that for twenty years have said “yes we need dealer consolidation but not my store”, now that the end is in site and their local politician is doing the righteous indigination dance ?

    Just one more bump on the journey.

  • avatar
    Pch101

    The guys in Congress can bellyache all they want. Actually, they need to — they have constituents who are demanding a performance, and that’s exactly what they are going to give them.

    The Detroit News and Detroit Free Press are in the same boat. They need to tell the (few) readers (they have left) what they want to hear. The Detroit Defenders cannot tolerate the idea of accepting their losses, withdrawing behind their lines and rebuilding, because that would be a tacit admission of failure.

    The task force is already doing what it’s going to do, and short of pulling the plug on the DIP money, there isn’t a damn thing that the Congress can do about it. But hey, just so long as if they appear to care enough that they survive the next election cycle, that’s really all that counts.

  • avatar
    mel23

    Several good points above IMO. If W, Obama and congress had stood aside and let the chips fall where they may, would any production be happening at present? Certainly Chrysler and GM would have been shut down for several weeks. How about their suppliers? Would the supplier collapse, as feared, have taken down the other OEMs? Where would the dealers be? Without Obama getting behind GM/Chrysler warranties, would they have been selling anything?

    Yes we have a mess, and it might all come crashing down anyway, but has this propping up been at all helpful?

    Over in the financial world there are all kinds of conflicting views. Things are getting better, or not. Commercial real estate is wobbly and will take down lots of medium and small banks or not. Just because our elected leaders have pumped and promised $ billions in doesn’t mean this thing will stay afloat. China is making a good many financial deals with oil producing countries that will assure their supply in the coming years. The UK has been warned that their rating is likely going to take a hit, and if ours does, and our currency follows, we could find energy prices a huge drag on our economy in the future. It ain’t over.

  • avatar
    Robert Schwartz

    “If W, Obama and congress had stood aside and let the chips fall where they may, would any production be happening at present?”

    Chrysler has shut down production, and GM will follow shortly. Your next assignment is figuring out what happened to the 100 G$.

  • avatar
    ihatetrees

    Suddenly, without warning, Motown’s hometown newspaper has changed sides. What was “their” bailout has become “Obama’s.” The altered allegiance comes hot on the heels Chrysler and GM’s decision to terminate around a thousand dealers apiece.

    I’ll don my foil hat and point out that domestic car dealers are probably one of the few ad streams left for struggling newspapers. I can under$tand the DTN’s new found displeasure.

  • avatar

    there still is a way out. it’s called Return to Greatness and you can view it at

    http://www.AutoLineDetroit.tv

    see Buickman interview titled “People”

  • avatar
    George B

    GM has been improving their vehicles with each redesign cycle. Their engineering seems to have been trying to do their job. To bad the management wasn’t able to restructure the business several years ago.

    Why would an automaker want to buy Chrysler or GM whole instead of cherry picking the desirable parts after bankruptcy? I understand why the government, dealers, newspapers, and the UAW want to prop up the dead body they feed off of, but why would a successful car manufacturer risk getting infected with GM or Chrysler dysfunction?

  • avatar
    CliffG

    Um, what is the real business case for either of these two companies at this point? Chrysler? 500,000 units per year, maybe. Question: Name a manufacturer of mid line vehicles that has consistently made a profit on that number of sales. The old rule in Detroit (and it is still not that far from true) was that one needed one million sales of a body/frame combination to actually start making money (obviously not all in the same year). How many models and dealers do you actually need to make money on 500k units per year? All, those who feel that the PTFOA smarty-pants guys even THINK they know the answer to those primary questions, raise your hands. Uh, yeah.

    GM? What, 1.5m units? With that overhead situation? Instead of culling 800 dealers, they need to cull about 6,000. Hahahahah. Like that’s going to happen. You all know what a boat is, right? A hole in the water in which you pour money. GM is the biggest fricking damn boat you have ever seen in your life……..

  • avatar
    Pch101

    Question: Name a manufacturer of mid line vehicles that has consistently made a profit on that number of sales.

    For one, you’re lowballing. Chrysler did a million units last year, during a terrible decline and with mostly lousy products. The retail sales alone would have exceeded 500,000 units in 2008.

    For another, these are marginal increases for Fiat. Fiat sold 2.1 million vehicles in 2008. With an economic recovery and some sales gained from an improved Chrysler, that figure could go to 3 million fairly easily. So it isn’t just a matter of selling 500,000 cars.

    As for GM, a shrunken, focused version of it would add even more sales to whoever acquires it. If Renault-Nissan takes the North American business, minus Saturn, and makes it lean and mean, that could expand R-N’s footprint significantly.

    The auto business is about growth, niches or death. If a large company is going to survive, it needs to consolidate and expand its base of profitable sales.

    What GM particularly missed is that sometimes you need to retreat before you can advance, and their failure to pull back and regroup just exposed them to attack on a very weak line with an undefended flank.

    None of this would be a great play for a brand new venture. It only makes sense for a company that is already heavily entrenched in the automotive industry. That’s one reason they’ve been shopped abroad; there is no one in the US who could or would do this. If the effort is to find a new operator AND to make sure that they aren’t Chinese or Russian, then that reduces the choice to just a handful of companies.

  • avatar
    agenthex

    And why not? In Chrysler’s final analysis, all the xenophobic rhetoric about federal tax dollars “saving America’s industrial base” counted for nothing. Not only have the zombies been “allowed” to shutter plants and jettison American production jobs, they’ve been “encouraged” to terminate tens of thousands of dealership-related jobs.

    Those jobs are likely going away in the long term anyway. It’s a matter of pace and the cost to mitigate a crash. You can also see it as a pretty lame last minute attempt to erect an industrial policy before the end, which is rather typical of a government purposely inflected with poor planning.

  • avatar
    folkdancer

    Yes, I read this story in the AZ Republic this morning and couldn’t believe it. If we slow down the bankruptcy/reorganization/give away of Chrysler and GM like these idiot congress people want to do in order to save the dealers who helped cause the mess it will cost the taxpayers even more.

    Is there any possible way we can get a congress that isn’t bought and paid for?

    If these congress idiots have any success and the administration has to walk away then Chrysler, GM, the workers, and all the dealers will be dead.

    Maybe this would be a good outcome but I am amazed that these congress idiots can’t understand that they could be inserting the final knife thrust.

    I hope pcy101 is correct above and this is just a show by the congress idiots pretending to be doing something for the cast off dealers.

  • avatar
    Boraxo

    I’m not so sure that closing dealerships will really cost many jobs. Close to 500 of the Chrysler dealerships being shuttered sold fewer than 35 cars a year – even when you add in warranty service on those cars, what does that add up to, maybe one salesperson and one mechanic – two jobs.

    And I don’t think having to drive another 20 miles to the next nearest dealership will change the brand of car people buy. You’ll end up selling about the same number of cars, just via fewer dealers. Which means you’ll need about the same number of jobs to support that infrastructure.

    There will be job losses related to dealer closures at the corporate level: Chrysler and GM won’t need as many trainers and other staff that handle dealer relations. Which cuts overhead costs, essential to the companies surviving.

    As for selling Chrysler down the river, what is there to sell? A company that owes several times its net worth in debt, is worthless. That’s why Daimler gave it away – they practically paid Cerberus to take it off their hands.

    Fiat’s small car platforms and fuel efficient engines would cost tens of billions to develop, so we actually got a lot of value out of the deal – which means taxpayer’s loans might get paid back. And managed to save most of the jobs, as well as stabilizing the dealer network, all for an ownership stake in a company that’s worthless. This is an incredibly good deal for taxpayers and Chrysler workers, since the alternative was liquidation or another $20-$30 billion to keep the company on life support.

  • avatar
    obbop

    View the entire affair while pondering class war.

    It is easier for me to comprehend the financial ins-and-outs when factoring in powerful elite-class folks attempting to assist fellow elites in amassing wealth and preserving what they already have.

  • avatar
    97escort

    Updated list of closed GM dealers Huffington Post is compiling:

    http://www.huffingtonpost.com/2009/05/15/gm-dealerships-closing-se_n_204031.html

  • avatar
    mel23

    Chrysler has shut down production, and GM will follow shortly. Your next assignment is figuring out what happened to the 100 G$.

    Where do you get your info that GM has shut down (all) production? Vacation downtime was extended at several/most plants, but not all. More importantly, GM is still operating, still shipping parts, paying warranties, etc. Without the US money I don’t see this going on unless someone else would have stepped up with some serious DIP money.

    It’s easy to play Monday-morning quarterback without having to be responsible for the consequences. If nothing had been done I think there’d be PURE HELL to pay by this time with the same wannabe quarterbacks screaming “DO SOMETHING”. The specter of running out of money sure as hell converted Paulson and other died in the wool capitalists in the financial sector and Congress into near-socialists in a matter of picoseconds.

  • avatar
    lw

    GM and Chryslers fate was determine last September / October. Period. End of story. Done deal.

    Once they went public with their woes, sales did not move into their direction. The American people decided that they were no longer required.

    Obama will prolong their lives, but they will come out of this severely maimed. Sort of like having all four of your limb’s cut off so you can keep cancer from spreading and killing you.

    So they will sit in a government provided wheel chair and watch out the hospital window while their buddies (Ford, Honda, Toyota, etc.) move on with life.

    I expect Ford to buy the Jeep brand from Fiat as they wind down their NA presence and by Chevy (to grab the Suburban and the Corvette) in the liquidation that will come when the next president cuts off the funding. By then GM will be so small that nobody will care much when President (you fill in the name) shuts down the flow.

  • avatar
    taymere

    If Congress can slow down the filing for just one week my GRM will pay off 10:1. That’s what I’m hoping for.


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