The Truth About Cars » General Motors Zombie Watch http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Thu, 04 Dec 2014 17:24:11 +0000 en-US hourly 1 http://wordpress.org/?v=4.0.1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » General Motors Zombie Watch http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com/category/editorials/general-motors-zombie-watch/ Was The Government’s Divestment of GM Stock Insider Trading? http://www.thetruthaboutcars.com/2014/05/was-the-governments-divestment-of-gm-stock-insider-trading/ http://www.thetruthaboutcars.com/2014/05/was-the-governments-divestment-of-gm-stock-insider-trading/#comments Fri, 23 May 2014 14:43:01 +0000 http://www.thetruthaboutcars.com/?p=829450 Back in 2004, perfectionist homemaker and well known TV personality Martha Stewart was charged with insider trading. As presented, the facts in the case were simple. Martha owned stock in a medical research company called ImClone and, like a lot of people who invest in tech firms, she was hoping for a big payout when […]

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Department of the Treasury

Back in 2004, perfectionist homemaker and well known TV personality Martha Stewart was charged with insider trading. As presented, the facts in the case were simple. Martha owned stock in a medical research company called ImClone and, like a lot of people who invest in tech firms, she was hoping for a big payout when their product, a promising new cancer treatment, went on the market. Unfortunately, the FDA chose not to approve the drug and the value of the stock looked set to take a beating once the decision was announced. According to the charges initially brought against her, Martha and many of the company’s top executives learned of the FDA’s decision though their inside connections the day before it was publicly announced and were able to sell their shares before they crashed. That’s against the law and many of the people caught up in the scandal, including Martha who was convicted on the charge of making false claims to a federal investigator, ended up going to jail.

The above case is a useful example because it offers a clear cause-and-effect pattern and plays out along such a short timeline. Despite Martha’s protestations that she was innocent, the dots here appear to be easily connected. Most insider trading cases, however, require a little more imagination. The connections aren’t always so clear cut and sometimes the cases play out over a period of years. Take, for example, the US Government’s recent divestment of its massive amount of GM stock and the subsequent recall debacle that now threatens to drive that company’s stock prices through the floor. Coincidence? Some people think not.

Last December, the US Government sold its remaining shares in General Motors and ended a controversial bailout program that ultimately cost the American taxpayer something on the order $10 billion. At the time, the move puzzled many investment experts who argued that the government could have lessened its losses by simply holding onto the stock, which was trending upward at the time, and selling when its value was higher. It makes sense, right? The USG bought high and then sold low, even a novice investor like me knows that’s the opposite of what you’re supposed to do, so why not simply wait?

Recalled GM ignition switch

The move that looked so stupid then looks like genius today. In February of this year, just a couple months after the sale, GM announced the recall of 1.4 million cars for faulty ignition switches. In the months since, more GM vehicles have been recalled for other problems and, if you have been following the reports here on TTAC, you know that that the number of vehicles involved now exceeds GM’s total sales for the past 5 years! The question is did the government have inside knowledge that this was on the way? Well, evidence is emerging that GM had data going back to at least 2007 that the ignition switches were failing to function properly and the government’s own safety watchdog, the National Highway Traffic Safety Institute (NHTSA) shows the company was actively investigating the problem during the 2009 bailout. At some level, then, the government did know.

Whether or not the timing of the stock sale rises to the level of insider trading, however, remains to be seen. The US Government is bigger and more complex than most of us will ever know and the individual agencies don’t always communicate with one another with the efficiency we might expect. The NHTSA has an entirely different focus than the Treasury Department and the chances of their reports coming across the desk of the person charged with maintaining that portfolio are extremely small. Still, the appearance of malfeasance is enough to send the tin foil hat wearers into a frenzy and damage the public’s confidence in the markets. The matter needs to be looked into.

GM RenCen

Thomas Kreutzer currently lives in Buffalo, New York with his wife and three children but has spent most of his adult life overseas. He has lived in Japan for 9 years, Jamaica for 2 and spent almost 5 years as a US Merchant Mariner serving primarily in the Pacific. A long time auto and motorcycle enthusiast he has pursued his hobbies whenever possible. He also enjoys writing and public speaking where, according to his wife, his favorite subject is himself.

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Great Moments in GM Marketing: The XP-75 http://www.thetruthaboutcars.com/2013/03/great-moments-in-gm-marketing-the-xp-75/ http://www.thetruthaboutcars.com/2013/03/great-moments-in-gm-marketing-the-xp-75/#comments Fri, 22 Mar 2013 20:07:05 +0000 http://www.thetruthaboutcars.com/?p=482122 Facing tough German competition, the people at General Motors come up with a large-displacement supercharged contender that outpowers but also out-weighs the BMW-and-Benz-powered entries. The look of their new model is controversial, but we’re told that it has to be that way due to existing platform constraints. And, of course, they’ll need a massive cash […]

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Facing tough German competition, the people at General Motors come up with a large-displacement supercharged contender that outpowers but also out-weighs the BMW-and-Benz-powered entries. The look of their new model is controversial, but we’re told that it has to be that way due to existing platform constraints. And, of course, they’ll need a massive cash injection from the United States Government to make the whole thing happen, and they’ll get it, even though the aforementioned government wants them to build something completely different.

Wait a minute. Did you think I was talking about the CTS-V? Pas du tout! Set the wayback machine for the big band era, and let’s hear a story about how General Motors (allegedly) sabotaged the strategic plans of the United States in order to further their own economic interests.

The story goes like this: The year was 1942. While the man on the street still fretted and fussed about victory over the Japanese, and plenty of those men on the street would yet leave the street and return in zippered canvas bags, the men who ran the country could read production charts and they knew the war was as good as won. Sure, a lot of people would have to die in the realization of said victory, but in the long run the Japanese could build maybe one tank or bomber or aircraft carrier for every ten the Arsenal of Democracy could crank out. The smart money and the long-term thinkers were already considering the much more important war for market share after the shooting war ended in 1948 or thereabouts.

With that in mind, the War Department’s order that GM retool the Fisher Body facilities to focus on B-29 Superfortress production seemed unnecessary. GM didn’t plan to be in the plane business after the war. It would be better to leave the plants as they were, building B-29 nacelles in makeshift locations. Meanwhile, the bulk of the tooling slumbered, waiting for the future when steel-bodied cars, not aluminum-bodied aircraft, would be the product in demand. And yet GM wasn’t quite in the position to refuse the government’s demand. Only something more important than the B-29, which was pretty damn important and had taken almost as much time and money to engineer as the atomic bomb, could stand between GM and a very annoying bit of reconfiguration.

Enter the XP-75 “Eagle”. The idea behind the Eagle can be summarized as follows: Jet fighters? Yeah, man, they’re, totally, like, not ever gonna work. In order to win this war, we will need the fastest, highest-powered, piston-engined aircraft possible. So we’re gonna put two V-12 engines together, dude, and we’re, like, gonna supercharge ‘em, and then we’ll stuff the whole thing in a fighter plane. But check this, bro, the airplane is totally gonna be made up of parts of other airplanes, so we don’t have to design anything new!

The fifty-six-liter Allison V-3420 consisted of a pair of Allison V-12s put together to produce 2,600 horsepower. Kind of like the way Aston Martin created that ultra-exclusive V-12 of theirs out of two Ford Taurus Duratecs. Originally intended as a makeshift engine for B-29s just in case the advanced radial engine that was under development failed to arrive in time, the V-3420 had very little reason to exist in an world that already recognized jet power as the propulsion unit of the future. To put this whole thing in perspective, the XP-75 Eagle and the Lockheed P-80 Shooting Star, which was the country’s first jet-powered fighter, were developed pretty much at the same time. Still, the V-3420 already existed, which meant it was tailor-made for GM’s purposes. More importantly, tooling for the V-3420 could be paid for by the War Department, and after the war that same tooling could be used to build cars. What a great idea! Instead of being stuck with an airplane factory after the war, the General could build an additional engine plant on the public dime!

The XP-75 itself was designed in-house by GM. A hodgepodge described by Wikipedia as “the outer wing panels from the North American P-51 Mustang, the tail assembly from the Douglas A-24 (SBD), and the undercarriage from the Vought F4U Corsair in a general layout much as in the Bell P-39 Airacobra,” the XP-75 was revised during early prototyping to use the cheaper and simpler wings from the P-40 Warhawk. The amount of unique engineering required to design this plane was presumably much less than it took to make the Buick Verano out of the Daewoo Lacetti.

The GM public-relations machine took the case for the XP-75 to the American people, who to a man were singularly ignorant of what jet power would mean for the skies of 1946, and the government acquiesced to their ideas with predictable rapidity. The B-29 project was denied the use of additional Fisher Body facilities, those facilities being earmarked for Allison V-3420 and XP-75 production. The stage was set for the XP-75 “Eagle” to be an all-American rip-roaring success.

Or not. While it’s documented in several sources that the purpose of the XP-75 was to spare GM from doing B-29 production, the assertion I’m about to make is a step beyond that and is entirely my own theory. I would suggest that the GM honchos never wanted the XP-75 to succeed. After all, full XP-75 production would still have been an annoyance for GM, even if it would have been considerably less troubling than building B-29s. The best thing that could have happened would have been for the XP-75 to fail spectacularly at government expense, leaving the plant idle.

And that is, indeed, what happened. In flight tests, the XP-75 understeered at the limit like whoa. The fit and finish was reprehensible. It weighed too much, consumed too much fuel, and didn’t appear to be durable. In short, it was a typical GM product (wink, wink). In 1944, the project was canceled and production facilities designated for the XP-75 were not reassigned. The War Department paid GM nine million bucks (about $120M today, or the price of four thousand new base-model Cadillacs of the era) for the dozen or so planes that were completed.

It’s possible, of course, that the above story is completely unfair to the General Motors leadership of the era. The XP-75 may have been a good-faith effort that simply failed to compete effectively, like the current-generation Malibu or the new Impala. In any event, the war ended ahead of schedule, the B-29s that would have been produced by Fisher were never truly necessary, and as Bob Dylan famously sang, everybody was forgiven and became friends. The ungainly Eagle itself has a kind of odd musclecar sexiness to it. Can’t you just imagine a group of them taking off from an airfield near San Francisco, gleaming aluminum and twenty-four cylinders of majestic power, roaring into the clouds to face long-range bombers from Japan? Ringing the airspeed indicators to five hundred miles per hour, the C5 Z06es of their day, charismatic, flawed, and visceral? It’s a lovely thing to consider. It’s as American as a CTS-V chasing down 911s around the Nurburgring, huh?

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GM’s AmeriCredit Deal: Awaiting Approval http://www.thetruthaboutcars.com/2010/07/gms-americredit-deal-awaiting-approval/ http://www.thetruthaboutcars.com/2010/07/gms-americredit-deal-awaiting-approval/#comments Fri, 23 Jul 2010 17:59:44 +0000 http://www.thetruthaboutcars.com/?p=361460 Now that GM’s acquisition of the subprime lender AmeriCredit has had 24 hours to sink in, howls of protest are starting to surface. The charge is being led by Senator Chuck Grassley, who has requested a review of the deal from the SIGTARP, saying If GM has $3.5 billion in cash to buy a financial […]

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Now that GM’s acquisition of the subprime lender AmeriCredit has had 24 hours to sink in, howls of protest are starting to surface. The charge is being led by Senator Chuck Grassley, who has requested a review of the deal from the SIGTARP, saying

If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first.  After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.

And though Grassley’s criticism could be read as mere partisan gamesmanship from a leader of “the party of no,” there are a number of very good reasons for opposing the deal.

A look around the blogosphere reveals that opposition to the AmeriCredit deal largely falls into three categories: one camp, led by Grassley, believes that GM is burning cash on the deal that should be going to taxpayers, another worry is that the deal is an excuse for GM to fall back into bad habits, while a third objection concerns the deal’s effect on GM’s former captive lender GMAC (now known as Ally Financial). Each of these criticisms has its own valid points, and together they form a solid basis for opposition to the deal for government overseers, taxpaying citizens and potential IPO investors alike.

Grassley, who was a leading critic of GM’s “payback” ads frames his criticism of the deal by holding up full taxpayer payback as the deal’s opportunity cost. Though Grassley is on the right track with his criticism of GM’s profligate spending, $3.5b would hardly make a dent in GM’s obligations to the taxpayer. The Treasury’s stake in GM currently stands at about $43b, or over 12 times the amount GM spent on AmeriCredit. Though paying back taxpayers would likely help GM’s sales by eliminating the sense of obligation to taxpayers, the idea of GM buying back equity from Treasury is nothing short of laughable given that its cash pile stands at about $30b (or about $14b short of what it needs).

But even if you remove the taxpayer angle from the equation, there are still good reasons for sharing Grassley’s misgivings about the deal. Perhaps the best-articulated criticism of GM’s deal from a cash-management perspective comes from the NYT’s Deal Professor Steven Davidoff, who argues

With more than $35.7 billion in cash and marketable securities on its balance sheet as of the end of the first quarter of this year, G.M. is paying cash for AmeriCredit, something it certainly could not have done without the tens of billions of dollars that it received in government assistance. G.M. is also paying a 24 percent premium to AmeriCredit’s closing stock price on the day before the deal was announced.

If I were an owner of G.M., and I suppose I am in part as a taxpayer, I would wonder if that cash might not be better used as a special dividend to G.M.’s shareholders. Certainly, the fact that G.M. is spending $3.5 billion will be noticed by its unions and seen as a sign that there is cash available for them too.

Taken with TTAC’s latest analysis of the GM IPO, it’s clear that GM still doesn’t understand that its government-supplied cash pile paints a huge target on its back. Given the political overtones to anything related to subprime lending, it’s hard to imagine the UAW not seeing this deal as a sign for it to start pushing concession rollbacks. Meanwhile, $3.5b might not be enough to make an impact on taxpayer ownership, it does represent a healthy amount of R&D spending, or most of the amount needed to rescue GM’s European division, Opel, or enough to affect any of the other cash outlays that GM will not be able to get away from over the next five years. Instead of looking at looming medium-term costs, GM jumped into AmeriCredit because, as Davidoff points out

Managers with too much cash to burn will burn too much cash. If you want a real-life example, simply read the beginning of “Barbarians at the Gate” and Ross Johnson’s epic struggle to spend all of the money that RJR Nabisco was throwing off in the 1980s.

If GM could expect a serious improvement in its business by acquiring a subprime lending arm, these criticisms might be easy to dismiss. Unfortunately, the “bad habits” critique offers strong evidence that this is not the case. Davidoff lays out the case thusly

First, when G.M. owns a captive lender, it subsidizes the plants, labor unions and dealers. Captured finance means nonmarket financing for buyers when they receive a loan. Think zero percent financing. In connection with the acquisition, AmeriCredit will also re-enter the lease financing business, raising similar issues. Lease financing for automobiles usually results in artificial residual pricing for the buyout price at the end of the lease. All of this helps empty dealer lots and keeps plants running. But it oversupplies cars. The problem of artificially oversupplying new cars (like new houses) is put off for another day.

Second, the subsidy ensures that people who may not otherwise qualify to buy new cars do so. They overconsume and overspend as they shift their buying from used cars to new cars. This may be an immediate net gain for an economy in distress, but it may be a drag as well, as consumers divert income that could be used for other things that would perhaps create more wealth over all.

And, as the Peridot Capitalist points out, fueling another boom-bust cycle through lax standards is a recipe for, well, another bust.

While I am sure those in the industry will praise this deal as a way for GM to maximize unit sales, we need not completely forget how cyclical economies work. Subprime lending pays off when the economy is improving but when the business cycle inevitably turns (as every economy does), the loans turn sour, the losses are crushing, and the cycle starts all over again. To me this highlights one of the core problems our domestic economy has developed over the last 10 or 20 years. We continue to follow the path of loose credit when things are going great and at the first sign of a downturn, credit standards increase dramatically. Once things stabilize, we hear that banks are slowly reducing their standards and loan volumes increase again.

Of course, this line of reasoning is vulnerable to exaggeration. The Atlantic’s Daniel Indiviglio notes that

The auto market also doesn’t really have to worry about the kind of bubble that struck the mortgage market, specifically because autos are a depreciating asset. Millions of people are going to hope to get rich quick by flipping their cars, for example. There’s an old industry adage that most people will keep paying their auto loan even after they’ve defaulted on their mortgage, because they need their car to get to work. They can default on their mortgage and rent, but they probably don’t want to have to walk if they lose their car. Moreover, if times really got tough, and they did lose their home, they could always live in their car temporarily.

Indiviglio’s defense of subprime auto lending is cogent and well-argued, but even that isn’t enough to convince him that the AmeriCredit deal was a good idea. He concludes

Of course, none of this means to imply that it makes sense for GM to purchase Americredit. While most other auto companies, particularly foreign ones like Nissan and Honda, have found it sensible to keep a captive finance company in-house, none of those are subprime. They generally cater to people with very strong credit so they don’t have to worry about strategy and can simply earn interest on loans that are a very safe bet. So it’s puzzling that GM wouldn’t just focus on building up a new prime borrower-driven captive unit instead. And it’s even stranger that the government wouldn’t raise its eyebrows when GM is making an acquisition rather than engaging in additional divestitures to try to pay back the billions it still owes Uncle Sam.

Underlying these criticisms are the obvious incentives that GM has to improve its short-term performance even at the expense of its long-term health. IPOs are notorious pressure-cookers, focusing an entire company on projecting a certain image for one discrete moment. Given GM’s history of overproduction and volume-boosting tricks that inevitably must be paid off in either falling resale or diminished profit margin, this line of criticism can’t be ignored. Especially because we already know that much of GM’s cash is essentially spoken for over the medium term.

The final criticism of GM’s AmeriCredit acquisition involves The General’s former captive finance unit Ally Financial. The criticism is a simple one: though Ally will continue to provide floorplan financing to GM dealers as well as some retail loans, AmeriCredit will inexorably grow closer to GM once its credit rating improves on the strength of its consolidation to GM’s balance sheet. Already losing out on GM retail loans, Ally could find itself replaced by AmeriCredit as GM’s main floorplan lender, dealing Ally a devastating blow. The WSJ [sub] puts the relationship between Ally and GM into context

Ally financed 33.5% of GM’s U.S. customers in the first quarter, compared with 30.3% as of Dec. 31. It financed 87.7% of the inventory in GM’s U.S. dealerships during the same period, compared with 90.9% in the fourth quarter.

The problem is that Ally still owes taxpayers $16.3b, and by buying AmeriCredit instead, GM may have doomed Ally to a much longer payback timeline, effectively increasing its impact on taxpayers. After all, GMAC might not have been rescued from its subprime mortgage mess had it not enjoyed its close relationship with GM, which the government was set on rescuing. It’s galling enough that GMAC was rescued as a “stealth bailout” for GM, but the fact that GM is now throwing Ally to the wolves is one serious twist of the knife.

On the other hand, had GM bought Ally, it would have been doing a great disservice to its balance sheet. Not only would buying GMAC have been expensive, it would have brought more government debt on board, and would have faced regulatory issues as well, as Ally is a bank holding company. Ultimately, it’s impossible to fault GM for not going with Ally… the blame belongs to the auto task force, which saw GMAC/Ally’s importance to GM without facilitating their long-term cooperation. Both GM and Ally insist that their relationship remains strong, but it’s hard to imagine GM acquiring a lender and not moving aggressively to consolidate its credit business with that lender. And once again, the taxpayers will be left holding the bag.

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GM’s IPO: For King, Country, or Cadillac? http://www.thetruthaboutcars.com/2010/07/gms-ipo-for-king-country-or-cadillac/ http://www.thetruthaboutcars.com/2010/07/gms-ipo-for-king-country-or-cadillac/#comments Thu, 15 Jul 2010 19:38:43 +0000 http://www.thetruthaboutcars.com/?p=360935 After ending the first quarter of this year with $35.7b in cash and equivalents, GM was in the best position it’s enjoyed in decades. And yet, with an IPO prospectus looming, The General is seeking a $5b line of credit and trotting out EBITDAPRO as its in-house measure of financial success. Both of these tactics […]

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After ending the first quarter of this year with $35.7b in cash and equivalents, GM was in the best position it’s enjoyed in decades. And yet, with an IPO prospectus looming, The General is seeking a $5b line of credit and trotting out EBITDAPRO as its in-house measure of financial success. Both of these tactics are hallmarks of companies that are doing poorly, and GM has already learned how problematic loading up on debt and sliced-and-diced financials can be. So why is The General inviting criticism from outlets like Edmunds Autoobserver, which characterizes GM’s push towards an IPO as the rebirth of old bad habits? The simple answer: “business execution.” In other words, GM may have a lot of cash, but it’s got nearly as many demands on its resources as well… and these cash drains hardly add up to a coherent strategy.

GM still has yet to announce its Q2 financial performance, but already it’s clear from anecdotal evidence that GM is spending a lot more money than it has in several years. Much of it is going to marketing, as GM sponsorships have re-emerged post-bankruptcy for everything from Public Broadcasting to the giveaway of Corvettes to baseball players and business leaders. With a new marketing boss, GM is also re-shuffling its ad agencies, and has been buying up ads for new products like the Buick Regal, as well as older products with sagging sales, like the Chevy Corvette. Add increases to R&D for a number of canceled powertrain programs ($42m of which had been written off as losses at the end of last year) and the development of a number of potentially expensive new products (more on this in a bit) and you’ve got a sure-fire recipe for rising costs.

Meanwhile, GM’s sales have remained relatively stagnant. “Core brands” were up nearly 32 percent in the first half of 2010, but overall GM is outperforming its H1 2009 performance in US-market sales by a mere 13.2 percent, as the economy falters mid-recovery. Against a backdrop of sharply-increasing costs in marketing and R&D, the underlying mechanics of GM’s business are a crunch that will eventually require either another cutback in long-delayed marketing or R&D spending, or a real turnaround in sales not driven by profit-sapping fleet sales.

And that’s just the background to GM’s real dilemmas. The General will need to spend about $6b on its Opel and Daewoo divisions in this year alone, a move that will cut its cash pile by at least a fifth. Since these divisions develop the platforms and products that have made GM competitive once again, The General can’t afford to not keep them open, and no government seems willing to step in and help out.

Meanwhile, The General needs to be saving cash for a rainy day as well: it will have to pay $5.9b in unfunded pension costs in 2013, and another $6.4b in 2014. That’s roughly $18b of GM’s $30b cash pile spoken for before a single new car is developed, not counting any operating losses accrued along the way.

And new car development is a must if The General’s turnaround is to stay rolling along. Powertrains are one area where GM is said to be spending big money, and a new generation of full-sized trucks and SUVs are also in the works. A whole new RWD platform, known as Alpha, is under development at Cadillac and is said to provide the underpinnings for Cadillac’s new 3-Series competitor (ATS) as well as the next-gen CTS and Camaro. Though the costs for these projects aren’t being released, it seems safe to assume that capital expenditures in Q2 and beyond should accelerate significantly from Q1’s $800m number simply on the strength of these investments.

And here’s where it gets interesting: with Chairman/CEO Ed Whitacre now running product planning, a RWD Cadillac flagship is coming back onto the table, backed internally by both Whitacre and GM NA boss Mark Reuss. Though a modified Zeta platform is under discussion for the range-topper, GM had previously declared the platform unfit for luxury car duty, and there are reports of a new RWD platform known as “Beta” under development at GM Shanghai. If a new platform is being developed, the cost could easily amount to another billion dollars (if not more), which begs the question: does GM need a full-blooded flagship? How this plan impacts the Epsilon II+ XTS “flagship” that is probably even further along in development isn’t clear; the XTS was supposed to be the cheap route to a Caddy flagship, but now it seems more likely to be canceled or become a hybrid-only model.

But while Whitacre dreams of a world-class RWD Cadillac (and purportedly fights for the Chinese-market RWD Buick Park Avenue to come stateside), yet another force is stirring beneath GM’s feet. With the election of Bob King, the United Auto Workers have taken a distinct turn towards the internationalist left, as the union struggles for relevance in the post-bailout environment. And with profits at Ford inspiring talk at the UAW of rolling back long-overdue concessions, any sign of consistent profits by GM by next year’s bargaining session will be seen as an excuse for King’s fired-up negotiators to put the squeeze on GM. Especially if the union is able to dump most of its VEBA account holdings of GM equity, it would have no compunction in once again bleeding the goose that lays golden eggs.

In short, GM’s expenditures are rising even as sales remain sluggish. After a solid five years of starving powertrain and platform development, GM conservatively faces $5b in annual capital expenditures, plus an additional $6b in annual expenditures for 2010, 2013 and 2014 to maintain its pension plan and overseas divisions. That accounts for The General’s $30b cash pile right there, before making the investments needed to fulfill Ed Whitacre’s desire to make Cadillac a world-class luxury brand, or accounting for demands made by a newly invigorated UAW led by Bob King’s firebrand vision. Either of these could add billions to GM’s survival bill, especially during the 2011-2012 respite from pension and overseas obligations.

And then there’s the final piece of the puzzle: what this all spells for the government’s 61 percent stake in GM. Because of political pressure to exit its unwanted investment as soon as possible, the Treasury’s priorities are last in the growing line for GM’s cash pile. This is hardly surprising given that the cash came from Treasury in the first place, but GM also can’t ignore the deleterious effects that a huge taxpayer bath would have on its image with consumers. GM doesn’t owe Treasury full payback out of a moral obligation, but because its potential customers are footing the bill for their turnaround. With King, Country and Cadillac all lining up for a piece of GM’s dwindling cash pile, someone is going to get left out in the cold.

So, what’s a bailed-out automaker to do? Holding a hard line on the union is crucial, as it’s the one component of this balancing act that can be taken for granted (on the other hand, British Leland). And as much as we disdain GM’s plan to saddle Cadillac with the mass-market platform-derived XTS flagship, there’s no guarantee that Whitacre’s cherished RWD flagship would be worth the $1b-$2b it would cost to develop. If anything, GM should prioritize taxpayer payback for the simple reason that its obligation to the taxpayer (rather than, say, the fact that the government controls its day-to-day decisions, which it doesn’t) is a significant factor in its sluggish sales relative to Ford.

But the fact that GM is pursuing a $5b line of credit and diving into an IPO indicates that GM is willing to take a hit on its initial valuation and let Treasury take the loss, rather than forgo a number of expensive new development programs. This will serve only to extend GM’s financial burden beyond the 2014 window for its pension obligations, further hurting its long-term investment value. And this debt also hurts its short-term value compared to Ford, because the Blue Oval’s overleveraged balance sheet is one of the only things that makes GM look good by comparison.

With King, Country and Cadillac all lining up for GM’s liquid assets, it’s too soon to abandon austerity measures in the RenCen. There are more than enough tough choices ahead for General Motors.

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GM’s IPO: Faster, Harder And Less Satisfying http://www.thetruthaboutcars.com/2010/07/gms-ipo-faster-harder-and-less-satisfying/ http://www.thetruthaboutcars.com/2010/07/gms-ipo-faster-harder-and-less-satisfying/#comments Mon, 05 Jul 2010 17:33:01 +0000 http://www.thetruthaboutcars.com/?p=360265 Despite having more cash than debt for the first time in decades, GM is going back to Wall Street in search of fresh debt. Over the weekend, The General has been in talks with several banks to secure a $5b revolving line of credit to shore up its liquidity position ahead of an IPO that’s […]

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Despite having more cash than debt for the first time in decades, GM is going back to Wall Street in search of fresh debt. Over the weekend, The General has been in talks with several banks to secure a $5b revolving line of credit to shore up its liquidity position ahead of an IPO that’s rumored to take place in August. At $5b, GM’s desired line of credit would essentially replace the $5.8b the automaker has repaid to the Treasury, and will help it deal with a number of pressing cash needs to maintain its shaky global empire. But with so many pressing uses for the cash, and political pressure mounting for a rapid IPO, can GM deal with its issues and take on more debt and be worth what the government wants it to be worth? Troublingly, the answers to these questions are not to be found on GM’s balance sheet.

GM’s money-losing European Opel division has lost over a billion dollars since the firm emerged from bankruptcy, and will require nearly $5b in restructuring funds, to be paid by GM since state aid from Germany fell through. On the other side of the Eurasian continent, another crisis is racking GM’s other most important overseas division, GM-Daewoo. Tradingmarkets reports that GM-DAT’s creditors (including the Korean Development Bank) have agreed to roll over some $900m in debt. And not just because they’re sweet people either. The payback was postponed on the condition that GM

transfer key auto technologies to its South Korean unit and dispatch an official to take charge of the subsidiary’s finances to keep it afloat

Needless to say, this $6b overseas money pit is a nasty bit of business given GM’s desire to hold an IPO this summer. Which is where the $5b credit line comes in. Unfortunately, GM isn’t having an easier time getting money from Wall Street than it did trying to get money from the German government.

In fact, GM is even keeping its options open to include asset sales, according to the FT. Possibly up for sale: GM’s stakes in Delphi and GMAC (now known as Ally Financial). But with nobody breaking down doors to get at either of those two struggling firms, credit is GM’s first line of defense against looming cash problems. After all, as IHS Global Insight’s Rebecca Lindland tells the Freep

Alan Mulally taught the industry, you can never borrow too much cash

And here we were thinking that the bailout proved that you could take on such crushing debt loads that the government has to rescue you. Speaking of which, Reuters reports that fellow TARP recipients, Bank of America, Citigroup, JPMorgan Chase and Morgan Stanley, have agreed to each provide half a billion dollars to the GM revolving credit cause. The other $3b? No word on that front yet… and that’s not exactly great news when you’re about to ask the market to out a value on your stock.

GM says it has two weeks to line up the remaining $3b in credit, and sources tell Reuters that

GM is more likely to cut the valuation on the IPO than delay it and is looking for a broad investor base

And at this point the size and valuation of GM’s IPO is the crucial question. Treasury is staying cagey about just how much of its 61 percent stake in GM it will float, but 20-24 percent is being mentioned as a possibility. That would make sense, as it would be just barely enough to take the Treasury’s below the crucial 51 percent mark, theoretically freeing GM from the stigma of majority government ownership.

Reuters says that this 12.2-14.6 percent stake could be worth $10b-$12b, numbers that would give GM an overall value of around $80b. With GM planning to sell $3b worth of convertible securities, the Canadian and Ontario governments looking to move 20 percent of its 11.7 stake, and the UAW moving an undisclosed amount of its stake, Reuters reckons GM’s IPO could reach $15b-$20b. That would make it one of the biggest IPOs in American history.

If everything goes to plan, anyway. But here’s a problem: the $80b-ish market cap that this hypothetical IPO supports, is over twice the market cap of automakers like Ford Motor Company, Nissan (which stands on the brink of an EV breakthrough) and Volkswagen. Though smaller than Toyota’s $107b-ish market cap, this valuation would make GM one of the most valuable automakers in the world, despite modest post-bankruptcy operating profit, looming overseas division issues and $27b in pension shortfalls. That last issue alone could cost the company as much as $12b by 2014.

No wonder then, that GM’s IPO hypsters are using Ebitdapo, or earnings before interest, tax, depreciation, amortization and postretirement benefits to tout its financial health. But pretending like those pension obligations don’t exist doesn’t make it so. Is GM in better shape than it once was? Undoubtedly. Is it one of the most valuable automakers in the world? Almost certainly not. The fact that GM is determined not to delay its IPO is a product of political needs, not market-related concerns. If a mid-term election weren’t looming, the Treasury would wait to let GM deal with its numerous remaining issues before releasing the automaker into the wild. But it can’t have its cake and eat it to: if GM’s IPO launches this August, it will do so with so many potential cash sucks hanging over it, that an $80b valuation isn’t likely to be the result.

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It’s Buick Again! http://www.thetruthaboutcars.com/2010/05/its-buick-again/ http://www.thetruthaboutcars.com/2010/05/its-buick-again/#comments Sat, 29 May 2010 21:01:23 +0000 http://www.thetruthaboutcars.com/?p=357582 As yesterday’s sales graph proves, this is not the greatest time to be re-launching an entry-luxury brand. With Kias and Fords offering the kind of tech gadgets once found only in the upper echelons of true luxury brands, and with well-regarded import luxury marques moving into the front-drive, mass-market, the so-called “premium” brands are finding […]

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As yesterday’s sales graph proves, this is not the greatest time to be re-launching an entry-luxury brand. With Kias and Fords offering the kind of tech gadgets once found only in the upper echelons of true luxury brands, and with well-regarded import luxury marques moving into the front-drive, mass-market, the so-called “premium” brands are finding themselves caught in the middle and losing sales. But in spite of these damning dynamics, GM is moving to overhaul its entry-luxe Buick brand at top speed. Why? Because it can…

Ask Buick’s paid representatives when the much-maligned brand began its turnaround, and they’ll point to the 2007 launch of the Buick Enclave. And sure, the Lambda-platform crossover helped slow Buick’s precipitous decline into “don’t trust anyone under 70″ status, but the brand didn’t truly start reversing its terminal sales (and demography) momentum until the Buick LaCrosse became a fixture on showroom floors. Through the first four months of this year, the LaCrosse has already sold just under half the volume it sold in all of 2009 put together.

And no wonder: though not without its flaws, the LaCrosse is a capable mid-to-full-size car, with distinctive Buick cues like the “Sweep-Spear” character line. It manages to look more thoroughly modern than any other recent Buick, while still looking unmistakeably “American” (despite having been styled in Shanghai). Considering the dearth of modern-era inspiration for a contemporary Buick flagship, this is no small accomplishment, and it makes the LaCrosse the natural starting point for a rebirth of the brand.

Apparently though, this is not to be. Whereas the LaCrosse development team took global GM components and created a unique body that captures Buick’s traditional, professional-class values (now alive and well only in China, it seems), the plan going forward is shaping up to be far less sophisticated. With the new Regal, we are seeing the first example of what appears to be Buick’s new strategy: rebadging Opels.

With the bad-old days of badge engineering finally drawing to a close (don’t let the door hit you on the way out, Mercury), it’s being replaced with a new paradigm: global badge-engineering. Fiat-Chrysler is doing this with its Lancia and Chrysler brands, cherry-picking the best from both lineups, and selling the resulting recombination as Lancias in Europe, and Chryslers elsewhere. At GM, the practice centers on leveraging the high-quality Opel products that would otherwise remain trapped in Europe’s brutally competitive and contracting market.

But how will the decision to base Buick’s new products on rebadged Opels affect the Buick brand? At the Regal launch last week, Buick’s PR folks seemed unconcerned with this question. “The plan was always to bring this car to America,” said GM’s midsized and full-size sedan supremo Jim Federico (also VLE for Opel Insignia/Buick Regal). What’s changed is that the Saturn brand, which was going to be Opel’s American-market vessel, is now defunct. Having developed a fresh lineup for Opel, GM had to sell them as something in the US. Too good for Chevrolet (“Excellence For Everyone” tagline notwithstanding) and incompatible with Cadillac’s Art and Science styling, the only way to bring Opels stateside without major restyling was as Buicks.

And though this “market-engineering” approach is all-too reminiscent of GM’s poor past practices, the Buick strategy is surprisingly pragmatic. Instead of starting with a brand image (which, in Buick’s case was badly damaged anyway) and adapting existing technical underpinnings to it, GM is bringing high-quality European products to the US market and letting the Buick brand fall where it may. The quality of these products, say Buick’s reps, will define the Buick brand going forward, instead of the other way around.

The other side of this equation is the death of the Pontiac brand. Without Pontiac’s volume, former Buick-Pontiac GMC dealers (now just Buick-GMC stores) need something other than trucks, crossovers and mid-sized sedans to stay healthy. Buick must expand its offerings into the untested waters of the compact (C-segment) sedan and crossover segments in order to drive business to Buick-GMC showrooms and hedge against another possible gas-price spike that might otherwise scuttle the two-brand channel. Again, Opel is the obvious source of these products, offering already-developed models like the compact Astra and the subcompact Meriva MPV.

Thanks to Buick’s new emphasis on the Chinese market, we already know what comes next: a Buickified Astra sedan has already been caught on camera looking a lot like a half-sized Regal. Less of a pure Opel re-badge than the Regal, this new Jetta/Civic competitor still maintains the brand’s new Opel-bred stylistic subtlety without the sweep-spear and ventiports that make the LaCrosse so obviously a Buick. A Regal wagon is also being talked about, but with Federico telling C&D that this unpopular bodystyle would also offer diesel engines and all-wheel drive, we’re going to take the rumor with several grains of salt. Still, these vehicles confirm the momentum towards making Buick a vessel for lightly-modified Opels.

The only confirmed Buick product that bears much speculating on then, is the compact/subcompact MPV that will be the final piece of a 2013 Buick lineup of which the Regal will be the oldest product (the Enclave and LaCrosse will apparently have been refreshed by then). Referred to in-house as the “baby Enclave,” this MPV will be built alongside the Aveo at Orion Township, strongly hinting at Gamma II platform underpinnings (Buick reps say it will be “either Gamma or Delta”). Given that Buick is otherwise being revived without investing in materially new products, the picture looks clear: this MPV will be an Opel Meriva.

But will this Euro-confection retain the suicide rear doors that will surely satisfy America’s constant craving for novelty? And just as importantly, will it feature styling cues from that other another spot-on Chinese interpretation of modern Buick-ness, the Buick Business Concept? One high-up but new-to-the-job Buick exec I spoke to did not even seem to be familiar with the Business Concept. With the Business’ styling influencing the larger next-gen, Chinese-market-only GL8 minivan, and with Buick’s 2013 lineup otherwise being made up of lightly-retouched Opels, the signs seem to be pointing towards a relatively mild restyle of the Meriva.

There are plenty of very rational arguments for making Opel and Buick interchangeable between markets, the way Chrysler and Lancia will be. If you accept the reasonable premise that Opel’s products are neither Cadillacs nor Chevrolets, then the logical way to build their global volume is to market them as Buicks in the US and China (surely all reasonable people agree that GM needs another US-market brand, Opel in particular, like it needs a hole in the head). The real issue then is how distinctive GM will make the Buick versions compared to their Opel predecessors, the answer to which appears to be not much at all. And there are two reasonable arguments for this: first, that Opel’s design is subtly classy enough to embody a new Buick aesthetic, and second that the money GM might have spent differentiating Buicks will probably be spent rescuing Opel.

In other words, rather than completely re-thinking the traditional approach to entry-luxury branding, GM is simply playing the same old rebadging game across global markets instead of within a single market. That the new Buicks are simply rebadged mass-market Euro-cars is not likely to occur to many buyers, means there’s none of the traditional rebadge strategy downside. For Buick, anyway. The problem with the strategy is that Ford is practicing the exact same strategy, but with its mass-market Blue Oval brand. Rather than bringing its latest European products stateside to revive its nosediving Mercury entry-luxe brand, Ford is using its Fiesta, Focus, Kuga and C-Max to burnish its Ford brand to a shiny finish and (apparently) letting Mercury die alone. Instead of taking on Acura, Lexus and company, Buick could just as easily find itself battling with the mass-market Ford brand for customer consideration. Especially if it falls into the trap of believing that the Opel look is “Buick enough” and that new Buicks don’t need at least some kind of heritage branding element.

Of course, the new Buick-as-Opel strategy is a lot smarter than GM’s immediate post-bankruptcy plan to sell Opel and rebadge Saturns like the Vue for Buick. Once Ed Whitacre decided keeping Opel made more sense than keeping Fritz Henderson, there was no going back from the Opelification of Buick. But Ford’s apparent decision to jettison Mercury in favor of a two-brand strategy that strengthens its mass-market Ford brand seems to point out that, like Henderson, Buick might have been better left behind. Don’t get me wrong: Buick’s current strategy will absolutely strengthen the brand in the short-term (and relatively inexpensively to boot),  but over the long haul it will also severely limit Chevrolet’s ability to keep up with Ford’s Euro-premium makeover. In a world of Hyundai-branded luxury cars, this will be a bad situation for GM’s most important brand to find itself in.

So, what’s the answer? As GM’s experience with brands and platforms teaches, differentiation is everything. Though the current batch of Opels are, by all acoounts, attractive, high-quality vehicles, they’re also mass-market European vehicles designed around a brand that means nothing in the US. With entry-luxury brands under assault in the US, GM has to look to the emotional power of a MINI brand to understand how to make Buick fundamentally strong enough to thrive even as Chevrolet steps up its game to keep up with Ford. Clearly the globally underleveraged Opel vehicles are the place to start, but LaCrosse, not Regal is the model to follow.

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Editorial: Mr Whitacre Goes To Washington http://www.thetruthaboutcars.com/2010/04/editorial-mr-whitacre-goes-to-washington/ http://www.thetruthaboutcars.com/2010/04/editorial-mr-whitacre-goes-to-washington/#comments Mon, 19 Apr 2010 18:14:27 +0000 http://www.thetruthaboutcars.com/?p=353214 GM’s government-installed Chairman/CEO Ed Whitacre hasn’t been wildly popular with Detroit insiders, earning dismissive raspberries from more than a few corners of the industry’s peanut gallery. But now that his reign of executive terror is over, Detroit seems to be learning how to stop worrying and love the former AT&T man. As Whitacre prepares for […]

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GM’s government-installed Chairman/CEO Ed Whitacre hasn’t been wildly popular with Detroit insiders, earning dismissive raspberries from more than a few corners of the industry’s peanut gallery. But now that his reign of executive terror is over, Detroit seems to be learning how to stop worrying and love the former AT&T man. As Whitacre prepares for his first visit to Washington DC as head of GM, the local media and other members of “Team Detroit” are making their peace with Whitacre. So what lies beneath the new united front?

GM’s Ed Whitacre is not your father’s car chief, screams the headline of Daniel Howes’ rehabilitation of the feared-rather-than-loved exec. According to Howes, Whitacre’s disruptive presence at GM isn’t a question of merely being an outsider armed with a government-sanctioned license to terminate executives with extreme prejudice. Though certain decisions, such as the re-assignment of designer-turned-Cadillac-boss-turned-designer-again Brian Nesbitt, seem to indicate that Whitacre simply sets goals and fires those who fail to meet them, there’s a method to Whitacre’s madness. Howes explains:

In a place that elevated bureaucracy and ponderous presentations to high corporate art, Whitacre is routinely moving in the other direction. Give him less data, he says, in favor of more facts, more answers and more solutions from the people closest to the problems.

It’s hard to overstate how challenging that turnabout can be to GM’s often-constipated culture, where studying something to death (products, business deals, whether to prepare for bankruptcy) too often was mistaken for actually getting things done. Not in what’s taking shape inside the GM of Whitacre, named CEO last December.

Monday meetings of his 13-member “Executive Committee” are typically wrapped up in a couple of hours — unless Whitacre is on a tear — compared with the daylong “Automotive Strategy Board” confabs of old that had a corporate ritual all their own.

Monthly sales reports have been simplified, and hourly updates on the final day of each month were abolished. Forward-looking production plans no longer are reported because Whitacre couldn’t understand why GM routinely aired such competitive information when many rivals did not.

Spending within GM’s multibillion-dollar capital budget now requires fewer approvals once the overall budget is approved. Operating executives, such as North American President Mark Reuss or product development chief Tom Stephens, are encouraged to tap resources already approved in larger budgets by Whitacre and the company’s board of directors.

The takeaway: Whitacre is a delegator, focused on creating a lean, efficient management structure that he can leave to its own devices. And in his struggle with GM’s infamous bureaucracy, he is courting rank-and-file workers with down-home Texas charm, touring plants in jeans and a sweatshirt. Even UAW boss Ron Gettelfinger appreciates Whitacre’s common touch, noting to Automotive News [sub] that both Whitacre and Chrylser CEO Sergio Marchionne are a breath of fresh air in the industry because:

they’re down to earth, not a showboat. This industry has had too many showboats.

But Whitacre isn’t making the effort to cozy up to Detroit’s workers, media and union leaders because he needs new friends to go rattlesnake killing with. GM may have had its balance sheet rinsed clean in bankruptcy, but it still faces plenty of challenges, and Whitacre needs allies in place to ensure the future of his company. The Detroit News reports that Whitacre will head to Washington DC this week to meet with members of Michigan’s embattled congressional delegation, coordinate with new members of GM’s paid lobbying staff, and hold an Earth Day pimp session with the Chevy Volt on the National Mall. What the DetN leaves out is Whitacre’s actual agenda for the trip. With Detroit now safely behind him, what will Whitacre request from his government sponsors?

One clue to the Whitacre agenda comes from the Wall Street Journal [sub], which reports that the Alliance of Automotive Manufacturers is already lobbying auto task force boss Ron Bloom for increased tax benefits for electric vehicles. Having heard President Obama’s call for 1m plug-in vehicles on the road by 2015, the industry lobby is gearing up to make sure the feds offer plenty of incentives for its ambitious goal. Having peeped a letter to Bloom by AAM president Dave McCurdy and Michael J. Stanton of The Association of International Automobile Manufacturers, the WSJ reports:

The administration has awarded funds from a $25 billion Department of Energy program to help auto makers retool plants to build electric cars. And the U.S. will offer a temporary $7,500 consumer tax credit for plug-ins. The administration has also awarded stimulus funds to electric-vehicle component makers and companies that build charging stations.

In their letter, Messrs. McCurdy and Stanton urged many of those programs to be extended, though their requests were conceptual and didn’t cite dollar amounts. The requests could add up to billions of dollars, though, given the cost of existing programs.

The lobbyists also criticized an aspect of the administration’s new fuel-economy standards, released last month, that will require auto makers to eventually score against electric cars carbon dioxide emitted from electric-power plants. The change will make it harder for auto makers to meet fuel-economy targets that call for a U.S. fleet-wide average of 35.5 miles per gallon by the 2016 model year.

“This policy discourages future production of plug-in electric vehicles by making automobile manufacturers responsible for the electric energy mix of the country or a given state,” Messrs. McCurdy and Stanton wrote.

With the Volt due to launch later this year, this is exactly the kind of issue Whitacre will want to discuss on Capitol Hill. The Volt will likely be priced at a disadvantage to competitors like Nissan’s Leaf, and (even more) government subsidies are the only realistic way for it to break into the market in any appreciable volume. And with the upstream C02 emissions issue, as well as the Volt’s official EPA rating still up in the air, Whitacre will want to be sure GM’s DC staff are going after regulatory opportunities as well as possible subsidy increases. After all, GM’s number one priority is to launch an IPO and free itself from government ownership, but that outcome is unlikely to happen until the Volt is commercially viable.

But that’s not all, folks: GM needs help from the government in areas that have nothing to do with the Volt as well. A recent GAO report exposing GM’s $27b in unfunded pension liabilities presents a similarly dire risk to GM’s long-term viability, and another entry on Ed Whitace’s DC to-do list. And once again, the advance guard of GM’s influence machine has already sprung into action. Senator Sherrod Brown and Rep Tim Ryan, both democrats of Ohio, have already written a letter to the Treasury [in PDF format here], urging GM’s masters to prevent the dumping of GM and/or Delphi pensions onto the struggling Pension Benefit Guaranty Corporation. The congressmen write:

According to the GAO, we are now facing an even greater liability in auto sector plans. The failure of additional auto sector plans would not only cost retirees tens of billions of dollars in lost benefits, it would also require the Pension Benefit Guaranty Corporation to assume an estimated $42 billion in unfunded liabilities.

As a majority owner of General Motors, the U.S. government must not put itself in the pensions [sic]. It also would be a poor outcome for the U.S. taxpayer to sell our interests in the auto sector only to have the U.S. government to assume [sic] the unfunded liabilities in their pension plans.

We would like to request a meeting with to discuss how Treasury and the Auto Task Force plan to resolve the outstanding pension issues in the auto sector and how you will ensure that the federal funding in the Automotive Industry Financing Program will protect pension plan participants and the PBGC from assuming the unfunded liabilities.

In short, we have the beginnings of the justification of another billion-dollar bailout of GM. No wonder Whitacre is rallying support in Detroit. Snagging more Volt-stimulating handouts, and tens of billions of dollars for bad pension plans will take another epic battle on Capitol Hill, and The General will need all its allies in the media and organized labor at its side in order to emerge with what it wants. Ed Whitacre has some wind at his back going into his Washington visit, but he’s also sailing into a politic environment that shows little appetite for more industry bailouts. Forget the bureaucratic shake-ups, Whitacre needs his folksy charm to go over well in Washington if he wants his company to move towards independence and viability.

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GM Zombie Watch 22: International House Of Panic http://www.thetruthaboutcars.com/2009/12/gm-zombie-watch-22-international-house-of-panic/ http://www.thetruthaboutcars.com/2009/12/gm-zombie-watch-22-international-house-of-panic/#comments Sun, 06 Dec 2009 19:02:36 +0000 http://www.thetruthaboutcars.com/?p=338142 News that GM is selling a control-shifting single share in GM Shanghai to its Chinese partner SAIC was the toads-from-heaven flourish at the end of an epic week for the RenCen. The day after the last of GM’s lifer CEOs left the building, Opel’s CFO followed suit. One management re-organization and a rough LA Auto […]

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Panic in Detroit. And Shanghai. And Russelsheim. And Bupyeong...

News that GM is selling a control-shifting single share in GM Shanghai to its Chinese partner SAIC was the toads-from-heaven flourish at the end of an epic week for the RenCen. The day after the last of GM’s lifer CEOs left the building, Opel’s CFO followed suit. One management re-organization and a rough LA Auto Show later, came this symbolic surrender of GM’s largest market for a measly $85m. Accompanied by news that The General would buy out Suzuki’s stake in CAMI for an estimated $46.5m, no less. Oh yeah, and something about India. Freshly-minted CEO and notorious rattlesnake killer Ed Whitacre isn’t about be accused of not trying to shake things up. The only question is where will everything land?

The true impact of GM’s loss of control over Shanghai GM will take time to asses, in part because Shanghai’s role on GM’s balance sheet is not clear. And no, not just because bloggers are lazy. GM’s Asian financial results were notoriously opaque way even when they were GAAP-compliant. Moreover, GM’s claim that the sale will not functionally change the partnership’s “cooperative spirit,” further clouds the situation. In any case, neither of these unknown quantities will prove to be net positives: the only question is how much GM will suffer by becoming a junior partner in Shanghai GM.

But as apocalyptic as the symbolic handover in China might seem, the India-market gambit was by far the more significant late-week maneuver. SAIC will become the first Chinese firm to establish itself in India, a prospect that Tata, Bajaj and the gold-rushing multinationals have likely been dreading. This alone is no mean feat, considering the deep suspicions between China and India. In essence, it gets to piggyback on GM’s existing GM India infrastructure of dealers and, less helpfully, factories. In return, it will invest some $350m into the venture in hopes of improving on GM’s 65,702 unit sales in 2008.

Ironically, the firm that GM parted ways with on Friday is also the reason for GM’s gambit. Suzuki’s Indian JV, Maruti, sold 711,818 units in India in 2008, and with strong market growth and SAIC investment, GM imagines it can make major inroads on that number. Indeed, GM’s India sales will have to double on the strength of SAIC’s investment to make the deal worthwhile. As a global player, GM has made a momentous decision to share half of its future in one of the world’s most untapped markets. Why then, if GM was willing to walk away from half of India’s future growth, did it not get more free cash (as opposed to Indian-market investment) out of SAIC?

The short answer is that India is seen as the next China: an underdeveloped, underserved market of vast potential. It goes without saying that GM doesn’t have the cash to match Indian offensives by Ford,  Renault, Honda, Hyundai, and Toyota, but GM does have a relatively strong position to start from (#5 in sales in 2008). Early entry into China was key to GM’s success in that market, and it surely sees India through the same lens. This influx of foreign competitors has created a gold rush environment that has GM trading in its long-term strategic position for a short-term boost. Unlike those competitors though, GM has more to worry about than merely falling behind in the Indian market.

GM’s global woes, specifically cash influx needed to right its struggling Opel and Daewoo units, are a far bigger threat than mere also-ran status in India. After all, these two divisions are responsible for developing GM’s most successful global products, and should it lose them GM’s status as a global power would become little more than a fading dream. After all, the Buicks that Shanghai GM builds and sells with great success in the Chinese market were developed by Opel. The Cruze, Aveo and Matiz Creative (Spark) that form the backbone of GM’s developing-market (i.e. India) strategy were developed (and in many cases, built) by Daewoo. Without these products and their successors, GM and SAIC’s cooperation will be for naught. So why didn’t this latest flurry of wrangling result in a solution to these crucial divisions’ troubles?

Probably because, even if SAIC’s $350m came as free cash, it wouldn’t even make a dent in the problem. Daewoo lost $2b last year on foreign exchange hedges, and out of credit, it’s staying alive on $413m that GM injected into the firm a few months ago. Opel, meanwhile, needs about $5b for its restructuring, some 20 percent of which GM has said it will contribute to the cause. But the rest of that money will have to come from European governments, an unlikely prospect considering how unloved GM is on the Continent. If the Europeans don’t come through with restructuring aid, GM will have to burn through a good quarter of its government-supplied cash pile in hopes of keeping a division it has admitted it can’t survive as a global player without. And that’s not counting the real amount needed to keep Daewoo developing new products, which could easily be in the billions.

There’s no doubt that GM needed to make faustian bargains to remain a global player, post-bankruptcy. Fritz Henderson’s approach saw Opel as the most expensive and expendable dillema on GM’s plate, and his deal to sell the German division would have represented a major setback to GM’s ambitions. But in calling back the Opel deal, new CEO Ed Whitacre sent the message that Opel’s development capability was too valuable to give up. And so Whitacre made a faustian bargain of his own, in which GM gave up control in China and half of its future in India. Though this deal hurts less in the short-term than seeing Opel become independent, the long-term strategic implications are just as worrying, and more importantly, it does nothing to resolve GM’s underlying global challenges. Fritz’s deal with the devil was an act of necessity, Whitacre’s has the air of a desperate gamble.

Having survived on international profits for decades, it’s ironic that GM’s post-bankruptcy era is  being defined by trouble abroad. Moreover, it’s troubling that GM is ceding leadership in the growth markets that have sustained it to its Chinese partners, especially since the deals haven’t created any more certainty or security for The General on the global development front. On the other hand, if GM is stepping back, sustaining its overseas presence by bringing in its Chinese partner, perhaps that same strategy will save the day when GM finally deals with its crumbling cornerstones in Germany and Korea. SAIC was mentioned as a possible partner in the Daewoo rescue, and since its future is so closely tied to GM  maybe the cash-rich Chinese firms will take stakes in Opel and Daewoo.

This week’s news is as much the story of SAIC’s rise as GM’s continued decline. With the Chinese government pushing for consolidation in the auto industry, SAIC may see GM as a dying host from which to springboard into international prominence. With half of GM’s mega-market efforts, GM’s Chinese tail need only take stakes in Opel and Daewoo to truly begin wagging the dog. After all, GM’s alternatives to more cooperation with SAIC are expensive, messy and will most likely involve sending taxpayer money overseas. But with pressure for an IPO looming, GM has to get its international house in order. Though this week’s manuevering hasn’t secured GM’s position, it may just point the way towards The General’s Chinese-led future.

(imagine if GM and Suzuki’s ill-fated cooperation had included India in the first place)

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GM Zombie Watch 21: Headshot! http://www.thetruthaboutcars.com/2009/12/gm-zombie-watch-21-headshot/ http://www.thetruthaboutcars.com/2009/12/gm-zombie-watch-21-headshot/#comments Wed, 02 Dec 2009 03:40:13 +0000 http://www.thetruthaboutcars.com/?p=337578 Recently, it’s become popular to believe that when a zombie loses its head, it dies. With today’s resignation of Fritz Henderson, the reanimated corpse of General Motors is testing that theory. Henderson was the latest in a line of GM lifers to hold the company’s reigns, hand-picked by ousted CEO Rick Wagoner and put in […]

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Recently, it’s become popular to believe that when a zombie loses its head, it dies. With today’s resignation of Fritz Henderson, the reanimated corpse of General Motors is testing that theory. Henderson was the latest in a line of GM lifers to hold the company’s reigns, hand-picked by ousted CEO Rick Wagoner and put in place by a presidential task force that couldn’t say no to another insider. In theory, Henderson’s resignation shouldn’t come as a surprise, let alone a disappointment. In practice though, the move leaves the zombie GM in a precarious position at a challenging moment. For the first time since (your guess here), GM is in the hands of an outsider.

Though Fritz Henderson’s decision to resign was officially made by “Fritz and the board,” the man of the moment is clearly Ed Whitacre. Had GM posted Chrysler-like 25 percent sales decline today instead of its two-percent drop, there would be little question as to why Fritz was being shown the door. And had Whitacre not recently overturned Henderson’s Opel to Magna sale and repudiated his CEO’s assessment that a 2010 IPO was worth talking about, one might even believe that the decision really did belong to “Fritz and the board.” Clearly, Whitacre laid down the law.

But the real surprise isn’t that Whitacre wanted Henderson out, it’s that he wanted Henderson out so badly he was willing to compromise this week’s coverage of the Volt, Cruze and CTS Coupe debuts at the LA Auto show. Three enormously important US-market products will now be surrounded by questions of GM’s executive turmoil instead of the PR-prepared talking points, especially since nobody from GM has properly answered a question about the situation yet. Like his decision to halt the Opel sale precisely when Angela Merckel was visiting D.C., Whitacre’s seems not to have considered the timing of Fritz’s defenestration. That might indicate that Whitacre is tone-deaf and egotistical, and it might mean he’s a hardass with a low tolerance level for failure. One thing is for certain: we’re about to find out what kind of auto executive Whitacre is.

Remember, even though the head of the presidential task force on autos, Steve Rattner, described GM’s Henderson-run finance department as “the weakest any of us had ever seen in a major company,” he allowed Henderson to take over for Wagoner. Rattner was spooked by Wagoner’s warnings against bringing in an outsider to GM, and ended up letting the next lifer in line take the top spot. Just as GM was considered “too big to fail,” the corporate stance has always been that GM is too big to be run by an outsider.

And if there ever were any truth to that position, it would be doubly valid now. After all, GM is not only without a permanent CEO, it also lacks a CFO with any kind of job security. It was reported back in September that current CFO, Ray Young, would be replaced. Though he has yet to officially leave his position, it’s fairly clear that Young won’t be around for much longer. In a firm that traditionally replaces its CEOs with its CFOs, this means Whitacre has to replace the top two levels of leadership, in addition to the several vice-presidents, GM International’s CFO, the head of GM Europe and other recently-vacated spots in GM’s org chart.

And filling those positions won’t be easy, as GM is still subject to pay limits which severely limit Whitacre’s ability to hire outside talent. Promoting another insider like Sales Manager Susan Docherty or Chevy Boss Brent Dewar would be foolish and counterproductive for Whitacre’s campaign for change, but there aren’t exactly a wealth of alternative candidates. And here we find yet another reason why Whitacre’s coup d’corporation might have been poorly timed: had he waited until GM’s escrow account closed in June, the firm would have been free of the government pay restrictions, even if GM had not fully repaid the loans. GM’s pay restrictions are part of its credit agreements with the Treasury, not a condition of taxpayer ownership.

But, as usual, GM is between a rock and a hard place. There’s little doubt that the government wants an IPO to happen before the 2012 election, if not next year’s mid-terms. And yet, clearly GM was not going to be able to attract private investment with Henderson behind the wheel. Though Whitacre’s hiring options will be limited by government pay restrictions, at least the next CEO will have an opportunity to create a track record prior to GM’s IPO.

Meanwhile, GM faces a host of pressing issues. From its teetering Daewoo division to its unfunded Opel Rescue, from the legislative wrangling of culled dealers to a raft of failed brand sales, Whitacre will have his hands full. If he’s the guy for the job, his ouster of Fritz will be helpful, having consolidating power in his own hands. His preference for action over timing and deliberation indicate that this might be the case, and we may be in for a few months of Whitacre’s forceful change. On the other hand, if this was an impulsive ouster, driven by ego and frustration, Whitacre could have just destroyed a crucial sense of stability that the company has clung to in the wake of its traumatic bankruptcy.

If the sense of stress and confusion surrounding the announcement of Henderson’s resignation is anything to go on, this second scenario can not be discounted. As an industry outsider, Whitacre’s ability to operate an automaker as large and troubled as GM remains very much to be seen. And in the precarious position where GM finds itself, that’s a gamble with truly existential implications. Whitacre may have eliminated a thorn in his side, but he’s also discarded one of the last of his ancien regime scapegoats. If he purges the few remaining notable lifer holdouts (here’s looking at you, Docherty and Dewar), hires some sharp outsiders and takes decisive action on GM’s major challenges, the zombie spell might be broken. Just as likely though, is the possibility that GM’s inertia, infighting and external challenges will thwart Whitacre’s impulsive attempts at reform, and keep GM shuffling lifelessly towards a future that shows no sign of ever arriving.

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GM Zombie Watch 20: IPO Or Bust http://www.thetruthaboutcars.com/2009/11/gm-zombie-watch-20-ipo-or-bust/ http://www.thetruthaboutcars.com/2009/11/gm-zombie-watch-20-ipo-or-bust/#comments Mon, 16 Nov 2009 22:12:23 +0000 http://www.thetruthaboutcars.com/?p=335724 GM’s first post-bankruptcy financial data has arrived, underscoring in red ink the folly of the government “investment” in the shambling zombie once known as General Motors. Bankruptcy-driven improvements in cost structure have not prevented GM from turning a non-GAAP-certified loss since emerging from Chapter 11, and GM is already warning that 4th quarter results will […]

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Time to head.. out... uh... somewhere! (courtesy:squidoo.com)

GM’s first post-bankruptcy financial data has arrived, underscoring in red ink the folly of the government “investment” in the shambling zombie once known as General Motors. Bankruptcy-driven improvements in cost structure have not prevented GM from turning a non-GAAP-certified loss since emerging from Chapter 11, and GM is already warning that 4th quarter results will be even less attractive. More importantly, beneath all of the interpretation of this latest batch of weak results, rests the biggest lie of all: GM will be paying back the taxpayers. GM has simply defined the terms of its debt as $6.7b, or about half the amount remaining in its $16b bankruptcy-present escrow account. The plan is to have the taxpayers pay off GM’s debt to the taxpayers, and collect the remaining $6b or so for operating cash.  When called on the ruse, GM CEO Fritz Henderson has only one defense: Taxpayers will receive their just reward only when GM’s IPO relieves them of their 60 percent equity stake. But even with the goalposts moving up in hopes of a PR win, there’s little evidence that GM will come close to paying off their full bailout bill.

The timing of GM’s planned IPO is perhaps the major question in this equation. Henderson said over week ago that an IPO could be contemplated for the second half of 2010. Shortly after he made that statement, GM’s Chairman Ed Whitacre contradicted him, saying it was too early to even contemplate a GM IPO. The Government Accountability Office revealed that no plan for GM’s IPO has been formulated on the government end, citing a few of the difficulties facing a public offering. Stranger still, the GAO report indicated that the decision was neither Whitacre’s or Henderson’s, but that the call would be made by the Treasury Department. Of course, it also noted that the Treasury appears to be woefully understaffed and unready to prepare an IPO strategy for GM.

Since GM exited bankruptcy, persistent rumors have placed a possible IPO at around Henderson’s indicated target of Q2-Q3 2010. The GAO report backs up these assumptions, as its only hard date on GM’s path to private ownership is the expiration of its escrow account in July of next year. When that happens, GM will have declared its independence from obligations to taxpayers, and will receive the remainder of its escrow account, which could be as much as $7b at that point. A reinforced cash position, some good PR and a decent lineup of new models will have GM looking as IPO-worthy as it’s been in a while, and with both GM and the government anxious to disentangle themselves, IPO plans for that time frame seem more than justifiable.

Or, as Henderson put it today in an apparent rejection of Whitacre’s cautious approach, “there are a lot of factors suggesting [an IPO] should be ready to go in the second half [of 2010].” A mid-2010 IPO is looking especially attractive considering GM needs to fund its VEBA pension funds to the tune of $13b by 2013. CFO Ray Young has said that the automaker is looking into the possibility of beginning payments to the pension funds this year, but with payments on GM’s government loan going forward, there will only be enough cash to pay down just enough pension liability to make an IPO look more attractive. If that.

And the longer GM waits on an IPO, the greater the likelihood of a meltdown at Daewoo or Opel, both of which are being kept in the fold with taxpayer money and all the charm GM’s executives can muster. The specter of a sustained slide in US market share is another reason an IPO won’t wait past 2010. GM can only walk its current tightrope for so long before one of a number of IPO-blowing scenarios is going to erupt.

But for every motivation for GM to launch an IPO sometime next year, there are other pressures to wait. Though GM’s post-bankruptcy results show a cleaned-up balance sheet, EBIT is still negative, and North American Operations are still bleeding cash. And, as Henderson has admitted, the fourth quarter results for 2009 are only going to bring worse news. Paying the government back a billion bucks, plus the nearly $3b Delphi rescue have basically guaranteed that GM will burn cash through year’s end. And that’s before we have any idea of how the return of Red Toe Tag sales will affect incentive levels and earnings.

Nor is 2010 expected to be an ideal year for an automaker IPO. US SAAR is being widely projected to hold flat or climb slightly, with plausible estimates ranging from 10m to 10.7m. Even if GM does hold onto market share through 2010, those market levels will test GM’s 10.5m SAAR break-even pledge. If market share falls, GM will be losing money right into the summer. If that happens, GM could even hold off on final repayment of the $6.7b of outstanding government loans, adding to its pre-IPO debt levels. Incidentally, current debt levels are at $17b, not counting the $13b in VEBA obligations or the value of the Treasury’s 60 percent stake.

If there’s a final piece of this puzzle though, it’s the Volt: GM’s hail-mary will provide a speculative upside to GM’s value as long as it’s still just around the corner. An IPO in the midst of the Volt’s inevitably messy launch won’t attract anyone; an IPO just before the Volt launch will bring long-shot investors and problem gamblers out of the woodwork.With the rollout to selected customers beginning in Q4 2010, GM’s single product-related argument for an IPO seems to demand a 2010 offering.

Despite the apparent ongoing debate between Whitacre and Henderson, a mid-2010 IPO looks increasingly likely. GM will only be a year out of bankruptcy, and thusly blessed with ample excuses. A much-hyped new product will be right around the corner, tantalizing investors. Opel and Daewoo can likely be held in check until then. The last bump of federal cash will become unrestricted. Best of all, GM will have been trumpeting its alleged pay-back of government loans (conveniently leaving out the fact that taxpayers are merely repaying themselves) for months, giving it a fresh head of (misleading) PR steam.  The only thing missing from the equation: the $66b-and -change market valuation that GM would need to actually pay back taxpayers.

But for all the pressure being exerted on GM right now, the element most lacking is pressure to fully repay the entire $50b-and-change that GM received from the taxpayers. GM has to prove some kind of short-term financial improvement (which its bankruptcy-improved cost structure already largely has), some short-term sales results (which it did in October, although only with massive incentives) and some future upside to attract at least some investment. The government increasingly sees its stake in GM as a political liability, and will rid itself of its stake before the 2012 election season at nearly any cost. All of which will add up to somewhere between $25b and $40b in lost taxpayer money. GM’s future success in the market depends on being able to hide that cost, creating a new cultural cancer (not to mention a potential market-share cancer) in the resuscitated patient. Without a clean break from its bailout baby past, GM seems doomed to wind up on the table again.

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General Motors Zombie Watch 19: You Get What You Don’t Pay For http://www.thetruthaboutcars.com/2009/10/general-motors-zombie-watch-19-you-get-what-you-dont-pay-for/ http://www.thetruthaboutcars.com/2009/10/general-motors-zombie-watch-19-you-get-what-you-dont-pay-for/#comments Thu, 22 Oct 2009 16:43:47 +0000 http://www.thetruthaboutcars.com/?p=332822 Not so delightful, really. (courtesy 2.bp.blogspot.com)

OK, so, GM is a nationalized automaker. I know, I know: nationalization is for third world dictators. But there it is. Thanks to outgoing president George Bush, the feds used $50 billion from the Troubled Asset Relief Fund to bail out General Motors, in exchange for majority ownership. So no matter what W's political successor says about his administration's "hands off" non-management of Government Motors, he who owns the gold makes the rules. And when it comes to running a federal-funded organization, Uncle Sam plays by different rules than, say, any private enterprise extent. The bottom line is that there is no bottom line. Amtrak, the U.S. Postal Service, Medicaid---they're all run at a tremendous, ongoing loss. Which means there's zero sense of accountability. Which means they will never, ever be able to fully and fairly compete with privately held corporations. Why should GM by any different? Answer: it isn't.

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Not so delightful, really. (courtesy 2.bp.blogspot.com)

OK, so, GM is a nationalized automaker. I know, I know: nationalization is for third world dictators. But there it is. Thanks to outgoing president George Bush, the feds used $50 billion from the Troubled Asset Relief Fund to bail out General Motors, in exchange for majority ownership. So no matter what W’s political successor says about his administration’s “hands off” non-management of Government Motors, he who owns the gold makes the rules. And when it comes to running a federal-funded organization, Uncle Sam plays by different rules than, say, any private enterprise extent. The bottom line is that there is no bottom line. Amtrak, the U.S. Postal Service, Medicaid—they’re all run at a tremendous, ongoing loss. Which means there’s zero sense of accountability. Which means they will never, ever be able to fully and fairly compete with privately held corporations. Why should GM by any different? Answer: it isn’t.

The truth of GM’s status was revealed the moment the then-head of the Presidential Task Force on Automobiles, Steve Rattner, fired failed GM CEO Rick Wagoner. If anyone on planet earth deserved summary dismissal, Wagoner was it. But as so often happens in life, an important principle was sacrificed on the altar of pragmatism or “political reality.” Yes, Wagoner needed to go. But the feds had no business running GM. Period. And even if you can get past that—which you shouldn’t—it’s not a good idea for elected officials and their appointed minions to decide who should be the head of a commercial enterprise. That’s like asking a serial killer to raise an an abandoned baby; no matter how good the intentions of all concerned, it’s going to end badly.

Yesterday, the aforementioned Mr. Rattner gave us a glimpse into GM prior to the automaker’s nationalization. For those of us who’d been following GM’s descent into bankruptcy, Rattner’s descriptions of executive incompetence and arrogance came as no surprise. Powerpoint mania and an elevator straight from the penthouse to the parking lot? Who knew? The real story here: the timing of Rattner’s so-called revelations. They arrived in the mainstream media the day before the staff of the federal government’s unelected “Pay Czar” let it be known that Kenneth J. Feinberg was going to cut the pay packets for GM’s top 25 earners, by some fifty percent. Connect the dots: crap managers, cut compensation. Fair enough?

Not, not at all. The problem is that the pay cuts only make sense if you accept the idea that it’s OK for the federal government to run a car company. Yes, I’m repeating myself. But it bears repeating: private enterprise and government represent fundamentally incompatible ideologies. The former requires financial accountability. The latter political. In the former case, a company must attract, retain and manage people capable of selling goods or services for more than it costs to produce them. In the latter case, politicians must convince people to vote for them. Put another way, politicians promise. Companies deliver. Or, in GM’s case, not.

Reducing executive compensation at GM will score political points, allowing Obama’s army to claim that its sticking it to the fat cats (that helped fund both his presidential campaign and the democratic party but don’t get me started). But limiting pay to $500k per suit per year (plus “shares” in a future entirely theoretical IPO) will do nothing for GM’s ability to repay its government “investment.” Or prevent further federal payments. Or forestall Chapter 7. Indeed, it will hasten the end of the end.

Limiting pay guarantees that GM will continue doing the same thing that’s brought it to this parlous state of affairs in the first place: hire from within. Make no mistake: GM “boasts” the mother of all inbred corporate cultures. The fact that it’s still led by lifer Fritz Henderson tells you all you need to know on that score. And speaking of scoring . . . Given the ongoing chaos at RenCen and the inviolable rules of supply and demand, GM can’t attract top turnaround talent from outside its shallow genetic pool unless it pays top dollar. In fact, GM would have to pay ABOVE the odds to hire anyone capable of keeping the artist formerly known as the world’s largest automaker from total self-immolation.

But that won’t happen. Can’t happen. Because commercial prudence and political acceptability are two different things. Which is why companies are not run as democracies and governments are not based on the profit motive (obviously). The wider point is also well worth making. The Pay Czar’s interference in GM’s management sets a dangerous if not entirely unexpected precedent. Although Feinberg’s pay and compensation mandates only apply to companies who’ve suckled on the federal teat, who “get what they deserve,” his rulings are a warning shot across the bow of executive suites across the country: a public proclamation of how much money is “enough” for the management class.

Thanks to America’s movement towards Bailout Nation, class warfare is breaking-out all over. In that sense, GM’s failure can’t come soon enough. Yes, I said it: I want GM to fail. I didn’t start from this perspective. I didn’t want to have this perspective. But I’m a proud American. This country was founded on the belief that government is the single greatest threat to an individual’s life, liberty and pursuit of happiness. The sooner GM’s “temporary” takeover collapses, the sooner we will realize that the Nanny State is not for us. It is, in fact, against us.

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General Motors Zombie Watch 18: Hire Buickman http://www.thetruthaboutcars.com/2009/10/general-motors-zombie-watch-18-hire-buickman/ http://www.thetruthaboutcars.com/2009/10/general-motors-zombie-watch-18-hire-buickman/#comments Sun, 18 Oct 2009 15:59:42 +0000 http://www.thetruthaboutcars.com/?p=332409 J'accuse!

Back in the day, GM really pissed me off. As the American automaker continued its inexorable slide into bankruptcy, executives, analysts, journalists, loyalists and camp followers scoffed at the prospect of disaster. Their scorn fueled my anger or, as Angus Mackenzie would have it, pompous indignation. When the feds bailed-out and then nationalized GM, the company's refusal to overhaul (keelhaul?) its executive "talent" kept my ire alive. A few months and $50b-plus dollars later and I'm rapidly approaching the point where I couldn't give a NSFW. How many times can you sing the chorus of "Where have all the flowers gone?" without saying FTS and cranking-up the MC5? Before I abandon this pursuit entirely, one last gasp . .

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Back in the day, GM really pissed me off. As the American automaker continued its inexorable slide into bankruptcy, executives, analysts, journalists, loyalists and camp followers scoffed at the prospect of disaster. Their scorn fueled my anger or, as Angus Mackenzie would have it, pompous indignation. When the feds bailed-out and then nationalized GM, the company’s refusal to overhaul (keelhaul?) its executive “talent” kept my ire alive. A few months and $50b-plus dollars later and I’m rapidly approaching the point where I couldn’t give a NSFW. How many times can you sing the chorus of “Where have all the flowers gone?” without saying FTS and cranking-up the MC5? Before I abandon this pursuit entirely, here’s a quick rant about GM’s inability to realize American’s favorite mantra: hope and change.

In the run-up to nationalization, critics of GM’s nationalization focused on the possibility that the feds would force “Government Motors” to produce “Nancy Pelosi-mobiles.” GM’s would lose its ability to make, market and sell profitable (i.e. gas guzzling) products. Wrong answer.

GM is under no more regulatory pressure than any other automaker in the American market. Besides, there are enough loopholes in the Corporate Average Fuel Economy standards to keep a thousand macrame artists knitting for a thousand years. More to the point, history tells us that GM is fully capable of making an entire range of uncompetitive products with or without the government’s “help.”

Other critics sounded the alarm re: political interference in New GM’s manufacturing and retail choices. Massachusetts Representative Barney Frank set the standard in that regard; ringing-up GM CEO Fritz Henderson and arranging a stay of execution for a GM parts distribution facility in Frank’s district.

Since then, we’ve heard nothing about political tampering with factory fade-outs. The masters of accommodation strike again! Of course, this “peace at any price” comes at a price: more of your tax money. The Delphi’s “hidden” bailout and the Department of Energy’s $10 billion GM retooling loan are only the most recent and prominent examples.

Meanwhile, the shit-canned GM dealers’ “revolt” has gone underground. GM and the National Automobile Dealers Association (NADA) are holding secret negotiations on how to raid the public purse. In time, NADA’s umbrella dwellers will hive-off several billion dollars from government coffers for these aggrieved dealers.

So, once again, GM is doing what it does best: maintain the status quo.

Nowhere is this more apparent than in their executive ranks. While one member of the old guard has finally departed, the same bozos who ran GM into the ground are running it into the ground again. Still. And here’s where the feds have proven most helpful.

In September, someone at or around GM decided that CFO Ray Young was not the man for the job. Young’s sword-falling cash-out routine provided the perfect opportunity for GM CEO Fritz Henderson’s newly formed executive committee to find . . . wait for it . . . an outsider! Never mind that each of the nine-member committee boasts an average of 29 years of service at GM. Viva la revolution!

Yes, well, as a $50 billion TARP recipient, GM’s executive compensation is now subject to federal diktat. The Wall Street Journal [sub] reports that “GM executives recently met with the Treasury’s pay czar, Kenneth Feinberg, and left with the understanding that the company would be able to offer [a new CFO] a significant amount of stock but no more than a $1 million annual salary.” A million bucks p.a. and stock in a company that’s not publicly traded, and may never be? Yeah, that’ll work.

Actually, it will. Truth be told, GM wants to fill its executive ranks with outsiders about as much as the U.S. military wants to promote openly gay commanders. Probably less.

In recent board meetings, Mr. Henderson has been pressed by directors on the issue of hiring outsiders, according to people familiar with the meetings. Mr. Henderson has said he is worried that Treasury’s pay caps will discourage qualified outsiders. He has also said GM has a wealth of internal talent to pull from.

GM and the United States government are a match made in heaven—at least for their leaders. Of course, the symbiotic nature of the not-so-dynamic duo means that GM is about as likely to pay down its debt as Uncle Sam. But let’s not go there. It’s way too depressing.

Instead, let’s ignore GM’s inevitable date with dissolution and offer the American automaker one more shot at a genuine turnaround. For there is a way for Fritz and Co. to send a message to their benefactors that they are willing to create real change within their organization and, possibly, do so: hire Buickman to run Buick.

Jim Dollinger is uniquely qualified to run Buick. He knows Buick’s products, dealers and customers. He knows what GM has to do—and not do—to reinvigorate Buick as the all-American “elegance” brand. He’s got honesty, integrity, vision, talent, drive, determination and good old-fashioned moxie. Buickman would take that million bucks and that [literally] fantastic stock option plan in a New York minute. Not because he needs the money. Because he believes.

Hiring Buickman—the ultimate outside—would send a clear message to GM insiders that their days are numbered. Yes, they’d fight Jimbo tooth and nail. But even if Henderson failed to ensure sufficient organizational cooperation (the rat bastard), Buickman would triumph. Free from GM’s code of omerta, the perpetual “loose cannon” could “out” the defenders of the status quo.

And there you have it: the one way General Motors could re-engage my interest. It’s left field stuff alright, but I’m tired of GM Groundhog Day. Without anything even remotely resembling real change at the top, there is no hope for a happy ending. Not for GM’s employees, customers or taxpaying patrons. Dollinger or die. That’s my final offer.

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General Motors Zombie Watch 17: May the Best Automaker Win http://www.thetruthaboutcars.com/2009/09/general-motors-zombie-watch-17-may-the-best-automaker-win/ http://www.thetruthaboutcars.com/2009/09/general-motors-zombie-watch-17-may-the-best-automaker-win/#comments Fri, 11 Sep 2009 17:46:01 +0000 http://www.thetruthaboutcars.com/?p=329214

General Motors is a nationalized automaker. But it can't stay that way forever. Its federal taskmasters have decreed that GM must return to public ownership before the Congressional mid-term elections, in 2010. Makes sense. If GM is still on welfare at election time, GM will be an enormous political liability. A symbol of Big Government gone bad. But GM can't possibly achieve profitability within that time frame. Even if it had the brains, it doesn't have the time or money to build what needs building, to fix what needs fixing. The new car market sucks and GM's product planning, reputation and branding are in tatters. So New GM's doing the only thing they can do: putting lipstick on the product pig and sending it off to market. This "May The Best Car Win" advertising strategy will backfire. Badly.

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General Motors is a nationalized automaker. But it can’t stay that way forever. Its federal taskmasters have decreed that GM must return to public ownership before the Congressional mid-term elections in 2010. Makes sense. If GM is still on welfare at election time, GM will be an enormous political liability. A symbol of Big Government gone bad. But GM can’t possibly achieve profitability within that time frame. Even if it had the brains, it doesn’t have the time or money to build what needs building, to fix what needs fixing. The new car market sucks and GM’s product planning, reputation and branding are in tatters. So New GM’s doing the only thing they can do: putting lipstick on the product pig and sending it off to market. This “May The Best Car Win” advertising strategy will backfire. Badly.

You can certainly understand the thought process involved. The campaign is, after all, Bob Lutz’s brainchild. For more than half a decade, the former Car Czar has been claiming there’s nothing wrong with GM’s products (especially the vehicles developed during his watch). Lutz has consistently blamed the so-called “perception gap” for GM’s epic fall from grace. Our products used to suck at some indeterminate point in the past, but they don’t anymore, starting . . . now! Wait . . . NOW! In other words, it’s not the product, stupid. It’s the perception of the product.

I have no idea how Lutz seized on the idea that perception and reality aren’t part of a feedback loop. For someone who never saw combat, he has an extremely cynical view of human nature. Less perplexing: why New GM is allowing Lutz to bet the entire company on Maximum Bob’s belief that carpet-bombing consumers with “enlightenment” will somehow save the day. Again, GM has no choice. They don’t have the time to create the incremental improvements they need to build, market and sell the genuinely competitive products which would generate a profit in the North American market.

Speaking of loops, Lutz would say that my assessment of GM’s competitiveness is just my [biased, GM-hating] opinion. But it’s also the opinion of millions of American consumers over the last three or four decades, who’ve been abandoning GM for other car companies. I mean, ipso facto, right?

In truth, GM’s comparison tests will offer little more than invidious distinctions. To wit: GM’s new ads will pit the Chevy Equinox against the Honda CR-V, and the Buick LaCrosse against the Lexus ES350. And so on. According to Automotive News, “Lutz said in the rare cases when both cars match each other feature for feature and warranty for warranty, the difference will be illustrated in sticker price.” So we’re talking about feature comparisons and price comparisons. What was that about the definition of insanity?

Lest we forget, GM’s been driving down this road for some time. Howie Long’s Chevy ads, focusing on relative mileage and manliness, have done exactly nothing to stem the Bow Tie brand’s sales slide. The ads were arrogant, condescending and, at the end of the proverbial English day, ineffective. So ineffective they always ended in a plug for “the deal.” What’s different this time?

Nothing. GM’s “May the Best Car Win” head-to-head ad campaign completely glosses over the fundamental question that a real bankruptcy forces a company to face: “Well, how did I get here?” With a few not-so-notable exceptions, the products that GM is about to present as class-leading are the same products that ushered the company into [its first] bankruptcy. Discount the idea that customers are to blame or the competitors suddenly got worse, and you’re left with an inescapable conclusion: same as it ever was.

The “May the Best Car Win” campaign also reveals Lutz’s ongoing and misplaced belief in symmetrical warfare. Ironically enough, the larger-than-life fly-by-the-seat-of-his-pants suit has convinced his bosses that rational comparisons will finally convince consumers of his paycheck provider’s product superiority. But, Bob, that’s not what sells cars. Brands sell cars.

This is no small point. GM’s fall from grace is not about its products, per se. It’s about the company’s ongoing and abject failure to create compelling brands that sell products (and services) that embody the brands’ promise. Never mind the LaCrosse vs. the ES350. Who would buy a Buick instead of a Lexus? Or a Chevrolet instead of a Honda? The people who would are, and the ones that don’t, won’t. No head-to-head model throwdown is going to change the overall dynamic, and/or the minds of people who vote with their wallet.

There’s only one way Lutz and Co. can win this “debate”: frame it in the context of a battle of the brands. But first they have to create four tightly-gathered, clearly expressed branding concepts (e.g., Cadillac as the “standard of the world”), then build products and services that realize that promise. Until and unless New GM grasps that nettle, potential customers will see “May the Best Car Win” as bilious bailout braggadocio, while existing customers will see it as an invitation to jump ship.

Never mind. Time’s up. While we await the inevitable, GM has placed the cart before the horse, and invited potential customers to tell them they’ve gone about it the wrong way. Only this time, when they make their choice, when the best car company wins, everyone loses.

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General Motors Zombie Watch 16: The Russians Are Coming! http://www.thetruthaboutcars.com/2009/09/general-motors-zombie-watch-16-the-russians-are-coming/ http://www.thetruthaboutcars.com/2009/09/general-motors-zombie-watch-16-the-russians-are-coming/#comments Tue, 08 Sep 2009 14:01:28 +0000 http://www.thetruthaboutcars.com/?p=328737

Ron Bloom is a Harvard MBA grad, investment banker and former advisor to the U.S. Steel Workers. He's also the head of the Presidential Task Force on Automobiles, now that Steve Rattner is busy defending his investment firm against bribery charges. Over the weekend, the Obama administration has added Manufacturing Czar to Car Czar in Ron Bloom's portfolio of power. "Bloom is to work with government departments including Commerce, Treasury, Energy and Labor to develop new initiatives affecting the manufacturing sector. The White House said Obama is committed to partnering with the private sector to spur innovation, invest in the skills of American workers, and help manufacturers prosper in global markets by promoting exports." In other words, after nationalizing GM, Obama's mob are now looking to screw-up all the other parts of America's manufacturing base. A quick joke . . .

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Ron Bloom is a Harvard MBA grad, investment banker and former advisor to the U.S. Steel workers. He’s also the head of the Presidential Task Force on Automobiles, now that Steve Rattner is busy defending his investment firm against bribery charges. Over the weekend, the Obama administration added Manufacturing Czar to Car Czar in Ron Bloom’s portfolio of power. “Bloom is to work with government departments including Commerce, Treasury, Energy and Labor to develop new initiatives affecting the manufacturing sector. The White House said Obama is committed to partnering with the private sector to spur innovation, invest in the skills of American workers, and help manufacturers prosper in global markets by promoting exports.” In other words, after nationalizing GM, Obama’s mob are now looking to screw up all the other parts of America’s manufacturing base. A quick joke . . .

As GM headed for oblivion, the executives shielded themselves from responsibility by blaming everyone else. The contention that the American automaker was on the cusp of recovery (again, still)—only to be waylaid by the entirely-out-of-its-control global economic meltdown—was only the final excuse for their epic mismanagement. Before that, GM had an entire litany of alibis for their slide into Chapter 11. Number one on the “it wazzunt me” hit list: Washington.

The carmaker bitched and moaned that it was being strangled by Washington’s safety regulations, fuel economy mandates, health care policy (take our legacy costs, please!) and foreign policy (plagued as it wasn’t by Japanese currency manipulation and import restrictions). But when it was time to face the music, GM’s suits leaped into Uncle Sam’s loving embrace, glad to become America’s first nationalized automaker.

See, now that’s funny.

Only not really. In truth, companies like GM—and there are more than a few of them—love federal regulations. They happily pass the cost of meeting governmental diktat directly to the consumer. Or, better yet, they get the government to pay for the cost of meeting government regulations. Case in point: Section 136 of the Energy Independence and Security Act of 2007. This greenwashed piece of pork directs the Department of Energy (DOE) to hand out $25 billion worth of no- to low-interest 25-year loans to automakers to retool factories to build cars that satisfy new federal corporate average fuel economy (CAFE) regulations.

Note the hidden dynamic: the federal regs provide an enormous barrier of entry to smaller car companies, who can’t afford to pay for meeting the regs, pass on the costs to their customers or lobby Congress for their share of the pie.

What smaller car companies, you ask? Well, exactly. Electric sports car maker Tesla Motors is the exception that proves the rule: a Silicon Valley start-up that managed to secure itself a $465 million mega-suckle on Uncle Sam’s teat. Otherwise, brash automotive independents are a thing of the past. They’re consigned to the industry’s early history, when federal regulations (and related subsidies and tax credits) were notable by their absence.

The counter to the “Uncle Sam killed the creative cluster” contention: if the feds hadn’t stepped in, automobiles would still be gas-guzzling, toxin-belching, rickety baby killers. The government HAD to sort out the chaos of competition for the public good.

But is that true? If so, why did it take Tesla to finally spur GM’s [previous] Car Czar Bob Lutz into action on the EV front? More to the point, do we really believe that car makers would have failed to provide seat belts, crumple zones, air bags, clean-running engines, etc. if Uncle Sam hadn’t spent huge amounts of time and money twisting their arms?

I know the idea that the carmakers would have done the right thing anyway—simply to remain competitive—runs against the commonly held belief that big companies are fundamentally amoral (i.e. “Capitalism: A Love Story”). As a former GM Death Watcher, I’ll admit that there’s more than a little truth to that assertion. But how did these big companies get to have such a stranglehold on the marketplace in the first place?

Again, you have to look at the role of government regulation and oversight in creating the monolithic manufacturers—before Uncle Sam decided they had to be dragooned into saving lives and protecting the planet and other social goals.

Whether you’re talking about making things or providing health care, President Obama’s “public private partnership” is not new, nor will it do anything to help the American economy get back on its feet. American history is littered with examples of the negative effects of excessive government control of/interference with the private sector. In this I refer you to Jonas Goldberg’s rambling rant, Liberal Fascism. And point my finger at GM.

By promoting Bloom to “fix” America’s manufacturing base, the Obama administration would have us believe that his main man has already “fixed” GM. At best, you could say the jury is still out. At worst, you could mention the fact that GM is a headless, nationalized chicken, running around in a vain, mindless attempt to avoid an inexorable fate brought on by its taxpayer-provided protection from accountability. Or, if you will, it’s a zombie.

To let Ron Bloom loose on other parts of our industrial sector, to encourage him to impose the government’s will upon large companies, is madness; regardless of how willing these large companies are to accept government assistance. The intervention ignores Ronald Reagan’s warning that the most dangerous words in the English language are “We’re from the government and we’re here to help.” Or the message behind that message: that America’s true economic strength lies in its free markets, engendered, fostered and protected by a lack of government interference.

Meanwhile, the Germans are pressuring the Americans to convince GM to let the Russians (fronted by the Canadians) buy GM’s German-financed Opel division. Maybe Big Ron should go sort that shit out. Or not.

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General Motors Zombie Watch 15: Volt Jolt for Dolts http://www.thetruthaboutcars.com/2009/09/general-motors-zombie-watch-15/ http://www.thetruthaboutcars.com/2009/09/general-motors-zombie-watch-15/#comments Fri, 04 Sep 2009 20:47:50 +0000 http://www.thetruthaboutcars.com/?p=328412

It's been a while since I've written a General Motors Zombie Watch. Time keeps on slipping, slipping . . . into the future. Only when you're dead, there is no future. You're dead. Oh, I know: New GM's got new plans for new cars with new advertising that will win new (old?) customers. And the new Board of Directors' Chairman Ed Whitacre is busy threatening to fire New GM's old (new?) execs if they don't get their shit together. But they haven't, as their farrago of product plans and the botched launch of the new Buick LaCrosse proves. In fact, the current crop of GM suits will be fired. And?

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It’s been a while since I’ve written a General Motors Zombie Watch. Time keeps on slipping, slipping . . . into the future. Only when you’re dead, there is no future. You’re dead. Oh, I know: New GM’s got new plans for new cars with new advertising that will win new (old?) customers. And the new Board of Directors’ Chairman Ed Whitacre is busy threatening to fire New GM’s old (new?) execs if they don’t get their shit together. But they haven’t, as their farrago of product plans and the botched launch of the new Buick LaCrosse prove. In fact, the current crop of GM suits will be fired. And?

And nothing. As I’ve said before, Uncle Sam kept CEO Fritz Henderson and the GM Lifers on center stage for one reason: to throw them off when taxpayer tomatoes start hitting RenCen’s windows. Which will be soon after GM’s third quarter financials hit the press. When it becomes abundantly clear that GM will burn through ALL of its taxpayer loot within two years. Or less.

Politicians from both sides of the aisle (though one more than the other) will proclaim that something must be done! And something will: the management that should have been shit-canned when GM was nationalized—actually long before, but that’s another story—will be shit-canned. The feds will press an entirely theoretical reset button.

New suits will take over. The fact that the auto industry is on a three to five-year cycle, the fact that New GM’s new brooms face dust devils the size of Montana, the fact that any genuine GM turnaround would take a decade and over $100 billion in addition funds, will be lost in the shuffle.

Never mind. The corporate cull will achieve its intended goal: it will unleash the puppies of prognostication. The media will be abuzz with speculation about the new new new new new new new New GM, for another financial quarter. Maybe two. Possibly three. Meanwhile, the feds will continue readying the GM pig for its IPO, lipstick and all.

You want to talk about a perception gap? The Obama administration’s Presidential Task Force on Automobiles is trying to widen the gap between the perceived value of General Motors and the actual retail price of the government’s automotive showcase. Mark my words: the feds ain’t done propping-up the unproppable. They’ll shovel more and more money at GM, dressing-up the nationalized automaker for the Great Pre-Mid-Term Election Sale.

Lest we forget, GM is counting on—as in factoring into their current balance sheet—a $10.3 billion loan from the Department of Energy’s Advanced Technology Vehicles Manufacturing loan program. It’s the same money previously denied the American automaker. You may remember that GM was deemed non-viable by someone figured out that 1 minus 120 billion is something less than one. Guess what’s changed.

Nothing much. While GM has shed a mountain of debt, restructured its labor contracts, dumped dealers, paid lip service to cultural change, and found another sucker to foot the bills (thank you, America!), it’s still taking in less money than it spends. And we all know how that picture ends.

Before the closing credits, we’ve got to sit through a chase scene between Chevy’s plug-in electric/gas hybrid Volt and the Toyota Prius.

There’s no way GM can catch ToMoCo’s four-wheeled planet cooler. Even if GM can get the Volt to work, they can’t sell it for anything even close to the Prius’ $22,000 price tag. Unless . . . Unless . . . Government Motors does it anyway and takes the hit.

Of course, a “hit” is not a good thing for a company that wants to offer shares to the general public. So . . . how about we subsidize the shit out of the car so that it appears as if the car is somewhat profitable-ish? Or, at the very least, take the costs off GM’s books?

The federal government has already cash-injected the battery makers developing the Volt’s power supply, to the tune of $100 million plus. Your elected representatives are going to use your taxes to subsidize the plant making the car [see: DOE loans above]. And the car itself (via a $7,500 tax credit). Not to mention signing over $62 billion to a company that can’t even set a timeline for the Volt’s potential profitability.

Before a hundred or so hand-built Volts hit Chevy showrooms, the feds will re-up the battery research grants and find some other eco-friendly way of “helping” the halo car that the Presidential Task Force on Automobiles rejected as delusional, pre-nationalization.

Yes, there is that. It can’t be said enough: the feds own GM. The GM zombie has no will of its own; it’s controlled by its political taskmasters. When the truth about its [most recent] parlous finances are revealed, GM will become far more than a failed automaker turned undead manufacturer. It will become a political liability. If you think GM shareholders were slow to abandon ship, you’re right. If you think the Obama administration will be slow about jettisoning its GM-shaped political baggage, you’re wrong.

But first, GM CEO Fritz Henderson and his motley crew will be packed off in their golden lifeboat, so that the illusion of change can be re-energized. Like any good magic trick, the “GM will pay back it federal loans” routine depends on a suspension of disbelief. As Tufts University supporter P.T. Barnum said, you can’t fool all of the people all of the time.

When the IPO time rolls around, real investors (as opposed to taxpayers dragooned into paying for GM’s nationalization) will not want to own GM stock. Why would they? So the government will have to subsidize THAT boondoggle as well. In other words, papers will be shuffled once again, the taxpayer will still be on the hook, and GM will continue wandering through the wilderness.

One way or another, sooner or later, what’s left of GM will fall into the hands of its rivals. A few names will be all that’s left of what was once the world’s largest automaker, and the world’s most profitable company. But make no mistake: this is less of a transition than it seems. GM is already dead.

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Editorial: General Motors Zombie Watch 14: 2012 Lineup http://www.thetruthaboutcars.com/2009/08/editorial-gms-2012-lineup/ http://www.thetruthaboutcars.com/2009/08/editorial-gms-2012-lineup/#comments Thu, 13 Aug 2009 02:27:42 +0000 http://www.thetruthaboutcars.com/?p=325970

General Motors has always been long on talk about the future. The company that invented concept cars and pioneered planned obsolescence has always kept consumers focused on the next big thing(s), and that tradition is ever more important now that GM is a publicly-owned entity. Future products are the justification for current investments and subsidies, and GM knows it. Though details are sparse and largely sifted out of the murk of PR leaks, teases and hearsay, a picture of post-IPO GM's 2012 lineup is beginning to form. The success of these vehicles depends on a number of difficult-to-predict factors, but assuming fairly conservative projections (steady increases in US economic growth, auto sales and gas prices), it's not too hard to tease out a few early conclusions on GM's strategy. So let's hop in the time machine and set the dial for the Fall of 2011.

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General Motors has always been long on talk about the future. The company that invented concept cars and pioneered planned obsolescence has always kept consumers focused on the next big thing(s), and that tradition is ever more important now that GM is a publicly-owned entity. Future products are the justification for current investments and subsidies, and GM knows it. Though details are sparse and largely sifted out of the murk of PR leaks, teases and hearsay, a picture of post-IPO GM’s 2012 lineup is beginning to form. The success of these vehicles depends on a number of difficult-to-predict factors, but assuming fairly conservative projections (steady increases in US economic growth, auto sales and gas prices), it’s not too hard to tease out a few early conclusions on GM’s strategy. So let’s hop in the time machine and set the dial for the Fall of 2011.

City/Mini Class

The Chevrolet Spark will be all-new for the 2012 model year, hitting dealerships just as our time machine arrives two years into the future. Based on the basic-by-third-world-standards Daewoo Matiz, the Spark is Geo Metro redux with a Chevy badge and styling. With a 1.2 liter engine and a goal of 50 mpg on the highway, Spark is clearly GM’s insurance policy against another sharp spike in fuel prices.  US production of about 25k-30k units annually (about current Aveo sales levels) is reportedly planned. Most of GM’s competitors plan on bringing more premium offerings to this segment (e.g. VW Up!, Toyota iQ), making Spark a potentially unique value (though probably less profitable).

Subcompact Class

GM will replace its unloved Aveo as a 2011 model, a year before our time machine lands. Chinese/Korean engineered on the new GM-Daewoo “Gamma II” platform and styled by GM’s Brazilian studio, the new Aveo is supposed to be built at Orion Township. Strangely though, Automotive News [sub] reports that Aveo will “likely” be produced at San Luis Potosi, Mexico. Styling and space should be improved compared to the outgoing model, but the model will probably struggle under the Aveo name thanks to its predecessor’s weak reputation. Name continuity is a good thing, but Bob Lutz’s apparent decision to keep the Aveo name may not have been the example for GM to start the habit with.

Both the Spark and Aveo will struggle to hide their developing-market roots and will likely do little to change the perception small cars are an afterthought for GM. The Spark in particular should face some trouble, given that most economists see economic recovery and rising gas prices arriving hand-in-hand. In that scenario (and considering GM’s desperate need to improve its small-car rep), Toyota and VW’s premium city car approach seems to be the better choice. And with the Aveo upsizing to near-Cobalt size, GM will also be selling it as a hatchback only for fear of cannibalizing the Cruze. This will further limit its appeal in the American market.

Compact Class

The Cruze will debut alongside the new Aveo in 2011, and will be built on the global Delta II platform in Lordstown, OH. Early reviews from Europe and Australia where local versions have already debuted are . . . mixed. Reviewers praise the space, styling and interior quality, while criticizing the car’s weight, engines and dull handling. All in all, though, it’s hard to conclude that the Cruze won’t be a huge improvement on the Cobalt. This should go a long way towards building some kind of reputation for GM in a segment where it has never really been competitive. Unfortunately, for every positive step there’s at least one regression.

A Delta II-based Buick is planned for model year 2012, which has been conceived as a way of returning lost Pontiac volume to the Buick-GMC dealer network. “Unique sheetmetal” is promised, but the model (like all Buicks going forward) will essentially be a tweaked Chinese-market offering built alongside the Cruze at Lordstown. GM’s level of cynicism in executing this model will be a defining choice. With the Cruze already offering a relatively high quality interior for the segment, differentiating the Buick compact will be tough. Especially if Buick-GMC dealers are counting on it for real volume.

In addition to badge-engineering, GM is also saddling its compact portfolio with its other age-old sin, the fleet special. Though the weary Cobalt will no longer be offered at retail when our time machine lands, GM is considering a fleet-only version of the Cobalt to soldier through 2010 and possibly into 2011. Though fleet specials are understood to have a negative effect on brand image, old habits die hard. And as we will see later, the Cobalt “Fleet” won’t be the only image-dragging holdover model in GM’s portfolio come 2011.

EREV

The Volt should be available at dealers when we arrive to witness GM’s 2012 lineup. 10,000 units of production are planned for 2012, with an MSRP of $43K and GM will lose money on every one. A Cadillac Converj version could be available by 2012, but the chances are not good. If it is available by 2012, expect either a rebadge of shocking cynicism or a super-limited halo car. Neither of which will help GM. As reality sinks in and hype fades, the Volt could well be the cause of a few GM PR headaches by 2012.

Compact MPV/CUV

Entering the magical world of crossover utility vehicles, GM’s 2012 product planning begins to show signs of yet another classic GM sin: overlap. Chevrolet’s Delta II-based Orlando looks to be a relatively solid contender as a cheap seven-seater in the Kia Rondo mold. But will those two extra seats be useful enough to tempt Americans away from GM’s slew of five-passenger vehicles? Given the limitations of the platform, the answer is probably no. Unless, of course, a gas price shock creates more interest in the micro-van segment.

A Gamma-II based five-seat CUV is planned for Buick, in yet another attempt to bring more volume into the Buick-GMC sales channel. As with the Buick Cruze rebadge, this weak motivation could easily tempt GM into the old cynical rebadge trap. Though GM-Shanghai’s Business concept shows the possibility of an attractive small Buick CUV, putting concept into practice could prove difficult. The challenge: attracting a premium over the upsized, five-door Aveo, without cutting into GM’s four Theta CUVs. Or a possible 2012 GMC “Sub-Terrain” CUV based on either the Gamma II or Delta II platform.

Given GM’s history and limited resources, expect the Buick CUV to be tough to distinguish from the Aveo and the GMC to be similar to the Orlando. Execution is everything with this much potential for overlap, and GM has only so much time to create meaningful differentiation in this cluster-NSFW.  And as we move into the meat of GM’s planned lineup, that problem appears everywhere. No way can GM make sense of all of it.

Midsize CUV

Here in 2009 this is one of the hottest segments in the market, as Americans downsize from Detroit SUVs into CRVs, Rav4s and Foresters. And GM is only a little bit late to the party, banking on the 2010 Equinox and Terrain to fight for the remainder of the cute-ute boom. But GM is already having difficulty explaining how consumers should choose between these offerings. For 2011, Buick will add to the confusion by offering what appears to be an only mildly rebadged version of the Saturn Vue, which will bridge the already-narrow gap to the “Theta Premium” Cadillac SRX. Further complicating the Theta competition will be the Saturn Vue and the Saab 9-4X, which will likely both be sold by the former GM divisions in 2011.

The problem with GM’s Compact CUV offerings isn’t that GM misunderstands the market; this segment should continue to sell well through 2012. The problem is that GM is set on flooding the segment with models that, while distinguishable to buffs and designers, will only serve to confuse consumers. The Buick Vue rebadge seems to be a particularly senseless and cynical decision, justified only by the 2012 option of a plug-in drivetrain that should really be an option on the SRX. Retaining the Equinox name could also keep one of GM’s most important products in the shadow of its (ironically) forgettable predecessor, while the Terrain will share lot space with the Buick Vue. For such a crucial segment, GM has some major (and sadly familiar) issues to sort out. Fast.

Fullsize CUV

Though one of its more-recent platforms, the Lambda is already one of GM’s most egregious examples of latter-day brand engineering. Pre-bankruptcy, GM had four poorly-differentiated versions of the platform. In 2011, GM will likely have four poorly-differentiated versions of the platform. Traverse will be soldier on unchanged, while the Buick Enclave and GMC Acadia are scheduled for a 2012 refresh. Though the Saturn Outlook will probably still be on sale at Penske’s Saturn dealers (just to keep things fun), the fourth GM model is likely a 2012 Cadillac Escalade replacement. Though there’s talk of stretching the platform for ‘sclade duty, don’t expect it. GM will either do a quick-and-dirty Lambdasclade or allow the old GMT 900 beast to live on (truck/SUV strategy, as we will see later, is in chaos).

Either way, the Lambda glut caps a potential eleven-model swath of CUVs in GM’s lineup, not counting the five-door Aveo or the CTS Wagon. Four-brand GM dealer lots will be a maze of the rounded-off wagon-utes, with salesfolks guiding bewildered shoppers through a seemingly infinite palette of family vehicles. The CUV segment is a melting-pot of automotive styles anyway, where lines are already blur into unfamiliar form (and bland looks). And despite the huge number of models, nowhere in this mix is a credible compact off-roader or a modern family/commercial van (ala Ford’s Transit Connect). In model year 2012, it seems, variety in the heart of GM’s lineup will still only be skin-deep.

Midsize Sedans

Chevy’s “perception-shifting” 2008 Malibu will not be updated until after the 2012 model year, and for 2013 it will actually be downsized (except for the trunk). Which is hard to understand, considering that the aging Impala has hung close to the ‘bu in sales, seemingly on the strength of its interior size alone. But that’s a concern for 2013; for the purposes of our time-traveling, the Malibu will remain unchanged. But will its sales still be consistent?

By Fall 2011, the Opel Insignia-based Buick Regal will have been on sale for about a year. By then it should be fairly clear if the new model drives the kind of volume that Buick dealers need to make up for the loss of Pontiac. GM expects the four-cylinder-only Regal to cost “a few thousand dollars” less than its platform-mate, the LaCrosse, and become Buick’s best-selling model. Though the Insignia has been well-received in Europe, it shows less promise for the US market. It will have to be positioned as “more sporty” than the LaCrosse while only offering a four-banger to avoid overlap. Stuffing the Regal between LaCrosse and Impala/Malibu means limiting options, a compromise that hurts its chances as a volume model. And it may be the motivating factor in the ill-advised 2013 Malibu downsize.

Fullsize/Premium Sedans

GM’s decision to allow the W-body 2006 Impala to soldier on until 2014 is perhaps one of GM’s greatest sins. Though the Impala currently sells at about the same levels as the Malibu, one can’t help but feel that by 2012 the Impala will be bought only by curious students of 20th century automotive technology. It seems that GM has almost completely given up on large FWD sedans as a competitive volume product, perhaps assuming that the segment will be abandoned for the CUVs that it has bet the farm on. This assumption is by no means a sure thing. Meanwhile, the Impala will be an inescapable reminder of the old, bad GM.

Worse still, anyone who wants a remotely competitive fullsize GM sedan will have to look at one of its luxury brands. Specifically, they will have to look at Buick or Cadillac’s flagships, the LaCrosse or the XTS. The 2010 LaCrosse is seven inches longer than its Regal stablemate will be, and offers V6 and AWD options. Does that make the LaCrosse a “flagship” as GM claims, or does it make the Regal a hamstrung, would-be cannibal?

Cadillac’s “flagship” similarly fails to generate any unique appeal. Though Cadillac is supposed to fight BMW as a high-tech, dynamically-driven line of vehicles, the XTS will be a bloated “Super Epsilon,” possibly with standard AWD. This compromise (born of the inability to develop a true Cadillac flagship) places pressure on the entire GM sedan range by dint of its placement so close to the LaCrosse (itself to close to the Regal, Impala and Malibu). Somewhat larger than the CTS, there’s little chance it will better embody the brand’s world-class dynamic ambitions. That would be the job of the Alpha-platformed ATS sedan, a long-rumored BMW 3 Series fighter. Which will be expensive to develop, and difficult to justify considering the CTS is due to be downsized for 2013 or 2014.

Trucks And SUVs

Once GM’s bread-and-butter, truck and SUV development is in chaos as GM grapples with upcoming CAFE standards, the fear of gas price shocks and a buying public that appears to be “over” the body-on-frame craze. Expect Tahoe, Yukon, Suburban and Yukon XL to soldier on until at least 2013, unless GM rushes out more Lambda clones in the meantime.

Long term, the only apparent plan is to remake the Avalanche in the mold of the Ridgeline, also on the Lambda platform (Acadia SUT anyone?). Silverado and Sierra are in a holding pattern until at least 2013. Colorado and Canyon will be discontinued in 2012, possibly to be replaced by a global small pickup developed by GM of Brazil. The fact that GM is seriously considering abandoning the compact pickup market speaks volumes about GM’s jaundiced view of the future of body-on-frame.

Conclusion

By 2012, GM’s offerings will have become more narrow in positioning, with the exception of the Spark at the low end and the Volt at the high end. Between the upsized five-door Aveo and the premium brand “flagships,” GM’s products will be more tightly positioned than they have been in years. Overlap and brand dilution are likely to be the result, as many of the planned models serve only to make up for lost Pontiac volume at Buick-GMC dealers. Ironically, this flood of Buick product is both starving and cannibalizing Cadillac, which no longer has the resources to properly differentiate itself from Buick (in terms of aspiration, if not dynamics and styling).

Reviving Buick also means that one of GM’s least competitive products, the Impala, will stick around long past its best-by date. This will be corrosive to the Chevrolet brand, which won’t be able to compete with Ford’s Taurus without threatening the Buick/Cadillac balancing act. How many Epsilons can you fit on the head of a pin anyway? And if the Impala is going to slouch towards ignominy, why not a post-Cruze fleet special Cobalt too? Or maybe squeezing a few more bucks out of the HHR wouldn’t hurt too much?

One bad habit leads inexorably to others, especially for institutions so steeped in bad habit-as-tradition. GM’s executive never miss an opportunity to insist that change is here, telling us that they’re not fans of rebadging, and that every product must be class-leading. But the tight positioning, slumming holdovers and acknowledged volume-chasing to support dealers for model year 2012 show that these executive statements are either misleading or just crazy. Unless we are about to see one of the greatest achievements in the history of product differentiation, GM’s bright dawn will remain just out of reach. Same as it ever was.

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Editorial: General Motors Zombie Watch 13: Manic Street Preachers http://www.thetruthaboutcars.com/2009/08/general-motors-zombie-watch-13-manic-street-preachers/ http://www.thetruthaboutcars.com/2009/08/general-motors-zombie-watch-13-manic-street-preachers/#comments Wed, 12 Aug 2009 02:46:12 +0000 http://www.thetruthaboutcars.com/?p=325837 While General Motors has downsized physically and financially, the nationalized American automaker still suffers from a monumental mental disorder. Today's F5 PR tornado made that point pellucid. In fact, it's hard to know where to begin the diagnosis. We might as well start with the "big news" on the vehicle destined to become GM's Edsel. The General would have you believe that the Chevrolet Volt will achieve 230 miles per gallon in city driving. Yes, well, the Volt is supposed to surmount the first forty-miles on battery power alone. So I make that . . . zero miles per gallon; you know; as it's not using any liquid fuel. Hey! Anyone remember [former] Car Czar Bob Lutz's hand-wringing re: the Volt's gas supply fouling because owners would never use the internal combustion engine? Like that. Quick question: what drugs are these guys on? More accurately, why aren't they taking their meds?

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While General Motors has downsized physically and financially, the nationalized American automaker still suffers from a monumental mental disorder. Today’s F5 PR tornado made that point pellucid. In fact, it’s hard to know where to begin the diagnosis. We might as well start with the “big news” on the vehicle destined to become GM’s Edsel. The General would have you believe that the Chevrolet Volt will achieve 230 miles per gallon in city driving. Yes, well, the Volt is supposed to surmount the first forty-miles on battery power alone. So I make that . . . zero miles per gallon; you know; as it’s not using any liquid fuel. Hey! Anyone remember [former] Car Czar Bob Lutz’s hand-wringing re: the Volt’s gas supply fouling because owners would never use the internal combustion engine? Like that. Quick question: what drugs are these guys on? More accurately, why aren’t they taking their meds?

News flash: General Motors is bi-polar. The company’s currently in the midst of a prolonged manic episode. To wit: on this very day, GM trumpeted the Volt’s [literally] incredible mileage claims AND unveiled a two-year product plan involving twenty-five models AND promised a new Cadillac to best BMW’s 3-Series AND revealed plans for a new internet microsite for its Advanced Design studio (“The Lab”) AND told taxpayers it would increase its $1.81 billion ad spend AND unveiled two new concept cars. That’s after yesterday’s announcement that GM is launching four websites to sell new cars via eBay, albeit in California and not Cadillac. It’s a wonder GM CEO Fritz Henderson didn’t promise to change GM’s constipated corporate culture while he was at it. Oh, wait. He did.

Extreme manic episodes can lead to psychotic symptoms, such as delusions and hallucinations. As it has in this case. The necktie-challenged CEO—Good God, man! I don’t have time to tie a Windsor knot!—clearly believes that he’s going to “do” the cultural transformation thing. And he’s going to do it via . . . committee! Yes, Fritz has appointed an executive committee to wean GM from its reliance on executive committees. A committee that includes the aforementioned aspiring octogenarian, GM lifer and CFO Ray Young, and former Caddy killer and current dealer eliminator Mark LaNeve. Expecting this carefully selected cast of recently elevated (at least in GM time) careerists to reform the automaker is like asking an orthodox Jew to run a Louisiana rib shack.

A person in a manic state has a short attention span. GM may be new (as if), but this symptom is not. How many nameplates is it now, Fritz? Anyone want to dig out Rick Wagoner’s protege’s promise on that score? And while you’re rooting around in GM’s fevered imagination, how about sourcing the press release for the “new” Cadillac STS? HUMMER H3 SUT? Saab anything? How far back do you want to go? Chevy Vega? X-Cars? Always with the promises. Never with the results. Do we really need to analyze the inherent inanity of today’s roll call of make-believe hits to prove the point? OK, then . . .

GM says it’s going to position the new Chevrolet Spark below the Chevrolet Aveo. Is that even possible? What are the chances that Buick will find sales with a car based on the same platform as the Chevrolet Cruze, only more beautiful and slightly longer? Who in their right mind thinks Buick has a future as a full-line automaker, sporting six models (à la Lexus)? Cadillac’s “flagship” XTS is going to be the same size as a Mercedes E-Class? I see fish. They’re swimming in a barrel. My finger grows weary.

I used to believe that GM would end with a whimper. They’d downsize, and downsize some more, and then a bit more, and then, eventually, after a few more mega-suckles on the taxpayer teat, after their market share faded into gray, they’d disappear into some other automaker’s portfolio and die. Now, I’m not so sure. While today’s product announcements are either complete bullshit or the same old bullshit in a new wrapper, and we can discount reports of an increased advertising spend as JALCOS (Just Another Lutzian Crock of Shit), GM seems to be heading for a massive crash.

As always, cash burn is the key. Come September’s financials, we’ll have a rough idea how long GM’s $50 billion federal infusion will last. Obviously, as long GM takes in less money than it spends, the only way is down. Expanding the number of models within the remaining four GM brands will do nothing to delay the company’s next face plant, and much to hasten it. But don’t tell New GM’s executives that. They’re in the midst of a hypomanic episode, joyfully creating plans for reinvention, oblivious to the fact that they’re recycling previous patterns. On the other hand, GM is already living within the confines of institutional care. How great is that?

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General Motors Zombie Watch 12: Fear of Music http://www.thetruthaboutcars.com/2009/07/general-motors-zombie-watch-12-money-talks-but-its-not-saying-anything/ http://www.thetruthaboutcars.com/2009/07/general-motors-zombie-watch-12-money-talks-but-its-not-saying-anything/#comments Fri, 24 Jul 2009 18:48:11 +0000 http://www.thetruthaboutcars.com/?p=324028

When columnist Daniel Howes at the Detroit News gets pissed off enough at GM to write anything other than "we shall see what we shall see," you know the former bankrupt is doing something very, very wrong. The object of Danny's ire: the lack of fresh faces at The New GM. "To read the announcement of GM's new nine-person executive committee, the promotions and the retirements, as I did minutes after it was made public, is to hear the faint strains of Talking Heads singing 'same as it ever was, same as it ever was' and to hear more wailing about the chronically clueless GM." Mind you, Howes isn't calling GM chronically clueless (that's our job). He's angry that "the feds' pay-and-bonus restrictions essentially make it impossible for CEO Fritz Henderson to woo outside talent for inside jobs." Woo-hoo! Howes is on the money; out in the real world, $500K doesn't buy you a reasonable Human Resources manager. But hey, did someone forget the GM stands for Government Motors?

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When columnist Daniel Howes at the Detroit News gets pissed off enough at GM to write anything other than “we shall see what we shall see,” you know the former bankrupt is doing something very, very wrong. The object of Danny’s ire: the lack of fresh faces at The New GM. “To read the announcement of GM’s new nine-person executive committee, the promotions and the retirements, as I did minutes after it was made public, is to hear the faint strains of Talking Heads singing ‘same as it ever was, same as it ever was’ and to hear more wailing about the chronically clueless GM.” Mind you, Howes isn’t calling GM chronically clueless (that’s our job). He’s angry that “the feds’ pay-and-bonus restrictions essentially make it impossible for CEO Fritz Henderson to woo outside talent for inside jobs.” Woo-hoo! Howes is on the money; out in the real world, $500K doesn’t buy you a reasonable Human Resources manager. But hey, did someone forget the GM stands for Government Motors?

In many ways, GM was born to be nationalized. Over a hundred years or so, the American automaker has gradually evolved to resemble nothing so much as the federal government. Same farrago of competing fiefdoms. Same lack of accountability. Same stifling bureaucracy. Same budgetary constraints (i.e., both too many and none at all). Same global aspirations. Same lack of strategic focus. Same inability to appreciate conditions on the ground. Same inability to make decisions in a timely fashion.

“Reinventing” GM would require massive and sustained root and branch reform; from the top down and the bottom up. Howes [rightly] seizes on Uncle Sam’s pay cap as the central impediment to GM hiring the kind of management that could even begin to refashion its dysfunctional corporate culture. But the curmudgeon fails to connect the dots. The automaker doesn’t want a shake-up.

More specifically, the idea that GM CEO Fritz Henderson’s hands are tied by the Troubled Asset Relief Program’s pay and bonus restrictions is ridiculous. Henderson is a GM lifer. The former Chief Financial Officer. Fellow GM lifer, fellow former Chief Financial Officer, and Ex-CEO Rick Wagoner’s hand-picked successor. Henderson owes his livelihood to the GM status quo. In other words, if Henderson was dedicated to upending the GM’s ossified apple cart, he’d start by firing himself. Since he hasn’t, we must assume that reshuffling GM’s motley crew of proven losers is a labor of love. An ennobling endeavor.

No joke. By convincing the feds to keep GM out of the garbage disposal of a real C11, Fritz has protected the paychecks, pensions and benefits of hundreds of white collar compatriots. Top executives like Gary Cowger and Troy Clarke must have kissed Fritz’s feet when he knocked on their door with the “bad” news. In a genuine bankruptcy, these proven losers would have been ejected from the Renaissance Center without so much as a fare-thee-well (excluding any monies they may have stashed away during decades of serious rooting). You can hear failed Car Czar Bob Lutz’s gleeful cackles echoing through the automaker’s increasingly empty cubicles, as New GM’s new marketing maven tries (and fails) to assimilate his reversal of fortune.

As far as Henderson being “forced” to promote from within, does Howes really think that the CEO considers fast-tracking GM insiders to positions of greater power is bad for GM? Brent Dewar, Chevy’s new VP of Chevrolet, started working for GM in 1978. Bryan Nesbitt, new GM of Cadillac, is a relative piker, but he’s relatively young AND he’s been with GM for eight years. C’mon; these guys are Henderson’s people. Presidential Task Force on Automobiles or not, Fritz Henderson’s desire to protect, preserve and extend his BFF’s careers (to protect, preserve and extend his own) runs so deep it’s instinctive. It’s what GM employees do.

Howes had the strange idea that the New GM would be a new GM. He’s going through the grieving process, as the writer and his fellow cheerleaders realize that GM’s talking a lot, but it’s not saying anything. In fact, the moment Old GM accepted new federal money (and thus ownership) any meaningful idea of a re-imagined GM disappeared. The whole point of the federal bailout: preserve the status quo. And so it has.

New talent? Government agencies—for that is what GM is—are not known for hiring outsiders to create and implement radical change, to improve efficiency and foster accountability. Even in those rare cases where such appointments are made, the existing workers inevitably drag their heels and destroy the outside “virus” before it has a chance to reproduce.

There is only one way GM can truly “reinvent” itself: surrender to the creative destruction inherent in genuine capitalism. It’s an answer that Howes and GM and many, many others find too horrible to contemplate. But it’s the truth.

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General Motors Zombie Watch 11: Cadillac Must Die http://www.thetruthaboutcars.com/2009/07/general-motors-zombie-watch-11-cadillac-must-die/ http://www.thetruthaboutcars.com/2009/07/general-motors-zombie-watch-11-cadillac-must-die/#comments Fri, 10 Jul 2009 13:50:19 +0000 http://www.thetruthaboutcars.com/?p=322568

General Motors has left bankruptcy behind. The MSM is greeting GM's graduation with guarded not to say advertiser-sponsored optimism. Meanwhile, the populist backlash has begun. Yesterday, for the first time, I heard a "civilian" refer to GM as "Government Motors." And then, another. Even if you discount the protest as right wing rhetoric (I was listening to Fox Talk), it's clear that General Motors is becoming a lightning rod for anti-government sentiment. With tax hikes looming and the federal deficit ballooning, the public is starting to see the "new" General Motors as a symbol of federal impudence, intransigence and impotence. In fact, GM could be President Obama's Iraq: the Gordian knot that strangles his political fortunes. To fully understand the futility of this financial folly, consider Cadillac.

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General Motors has left bankruptcy behind. The MSM is greeting GM’s graduation with guarded not to say advertiser-sponsored optimism. Meanwhile, the populist backlash has begun. Yesterday, for the first time, I heard a “civilian” refer to GM as “Government Motors.” And then, another. Even if you discount the protest as right wing rhetoric (I was listening to Fox Talk), it’s clear that General Motors is becoming a lightning rod for anti-government sentiment. With tax hikes looming and the federal deficit ballooning, the public is starting to see the “new” General Motors as a symbol of federal impudence, intransigence and impotence. In fact, GM could be President Obama’s Iraq: the Gordian knot that strangles his political fortunes. To fully understand the futility of this financial folly, consider Cadillac.

Cadillac is supposed to be the ne plus ultra of automotive brands: the “standard of the world.” Since its pre-War heyday, Cadillac’s brand management has rivaled Neville Chamberlain’s foreign policy for craven expediency. Cadillac has been a deeply damaged division for decades. In 2007, TTAC’s Paul Niedermeyer charted Cadillac’s decline and fall in gory detail. Since then, the brand’s rep has retreated even further into its last redoubt: the consumer’s imagination.

“We all use the expression ‘the Cadillac of toasters’ or ‘the Cadillac of something else,'” deposed Car and Driver Editor Csaba Csere reassures the Detroit News. “It still means ‘the best of’ to a lot of people.” News flash: my thirty-something appliance guy calls KitchenAid the “Lexus of dishwashers,” without apparent irony. Cadillac’s brand expectations have been unrealized for so long that even the idea of Cadillac as the ultimate object of desire is rapidly disappearing.

This transition reflects reality. At best, Cadillac’s current cars are competitive (CTS, Escalade). At worst, they’re pathetic (STS, DTS, BLS). Somewhere in between, they’re inappropriate (SRX, EXT, forthcoming CTS SportsWagon and Converj plug-in hybrid). None of these Cadillac models are class-leading—never mind world-beating.

Cadillac’s mid-year sales stats tell the tale. At 33,043 units, they’re neck and neck with Acura (32,637), trailing Lexus (44,942) and getting crushed by Mercedes and BMW (65,160 and 75,443 respectively). Meanwhile, Audi’s in hot pursuit (28,347).

Equally disheartening for fans of the Cadillac brand, the automaker’s margins are nowhere near those of its competitors. Cadillac is discounting heavily to move the metal—sending exactly the wrong message about the brand’s inherent “value,” eroding Caddy’s cachet to ever-lower levels. Not to put too fine a point on it, they’re in a death spiral.

There’s only way for Cadillac to recapture faded glory. Cut the crap and build the best. The best no-holds-barred luxury cars. Stylish, no excuses vehicles, meticulously engineered, rock solid. And then they have to create a dealer network that kisses customers’ asses like none before.

Never. Gonna. Happen.

Even if we assume Cadillac’s rebirth could happen—that GM could find the courage to cull Caddy’s cancerous cars and trucks, that it could summon the creative and financial resources needed to be the best of the best—the U.S. government can’t let it happen. It’s the wrong image.

America is not as class-bound as, say, any other country on Earth. But using tax money to cater to high society’s personal transportation needs is about politically palatable as a tax cut for the top two percent of income earners. And that’s before we talk about the product-related demands of the Democratic party’s environmental oath of allegiance. Simply put, you don’t put “the people’s money” into a company that builds leather-lined luxury land yachts sold at ritzy palaces of automotive art.

So why not just let Caddy go? Surrender the top of the market to the Axis of Axles, retreat into the mass and mid-market (with some upscale Chevys badged Buicks) and call it good? Other than the inevitable Cadillac dealer backlash, there’s one main reason the company can’t eliminate Cadillac from their rancid roster: corporate psychology.

Old GM was once the standard of the world: the world’s largest car manufacturer and the planet’s most profitable company. Cadillac represents Old GM’s zenith, its ability to put the world to shame. Like the U.K., GM is not ready to face Empire’s end. Even if Cadillac’s become hopelessly tarnished, even if its crown has been stolen by foreign usurpers, you can’t sell the Crown Jewels! For GM, losing Caddy would be tantamount to admitting defeat.

Sadly, facing reality is the one thing that GM—Old or New—cannot do. All of which means that New GM is not about reinvention. It’s about revisionism. We made a few mistakes, got a bit big for our britches, got battered and bruised by the slings and arrows of outrageous fortune. But we’re good. And soon we’ll be better, better than we ever were. Cadillac will rise again!

Cadillac’s survival, its planned model expansion and move down market, highlights the fact that GM still suffers from the worst kind of hubris: taxpayer-funded hubris.

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General Motors Zombie Watch 10: Fritz Henderson Must, Uh, Go http://www.thetruthaboutcars.com/2009/07/general-motors-zombie-watch-10-fritz-henderson-must-uh-go/ http://www.thetruthaboutcars.com/2009/07/general-motors-zombie-watch-10-fritz-henderson-must-uh-go/#comments Tue, 07 Jul 2009 02:34:56 +0000 http://www.thetruthaboutcars.com/?p=322287

So how long before New GM fires Uncle Fritz? In the most pragmatic of all possible worlds, where the Presidential Task Force on Automobiles (PTFOA) looked out for the taxpayers' $50 billion as if it were their own---Fritz wouldn't even BE GM's CEO. Henderson would have been defenestrated along with Rick Wagoner. You know: the ex-CEO who groomed Henderson as his replacement. (How hard is it to connect those dots?) Henderson has assured his place in The Peter Principle Hall of Fame, capping his career as the PTFOA's toady. And now, best case, he should follow Old GM onto the scrap heap of history. Not a chance.

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So how long before New GM fires Uncle Fritz? In the most pragmatic of all possible worlds, where the Presidential Task Force on Automobiles (PTFOA) looked out for the taxpayers’ $50 billion as if it were their own—Fritz wouldn’t even BE GM’s CEO. Henderson would have been defenestrated along with Rick Wagoner. You know: the ex-CEO who groomed Henderson as his replacement. (How hard is it to connect those dots?) Henderson has assured his place in The Peter Principle Hall of Fame, capping his career as the PTFOA’s toady. And now, best case, he should follow Old GM onto the scrap heap of history. Not a chance.

The fact that Henderson wasn’t terminated with extreme prejudice the moment the United States government assumed complete control of General Motors tells us that Uncle Fritz is no Richard Nixon; the PTFOA will have Henderson to kick around some more. I repeat: the man’s a patsy.

Fritz didn’t decide to kill thousands of GM dealers. Fritz didn’t decide which GM brands to keep. Why would he? They’re family. White collar cull? Heaven forfend! We’ll use attrition. Mr. Henderson, it’s Congressman Barney Frank on the other line, asking for a stay of execution for a GM parts distribution facility in his constituency. Mary, why didn’t you forward this to the PTFOA? If I told you once—Barney! Hi! What’s that? I’ll check. Rest assured, I feel your pain. [Joke deleted].

Anyone harboring illusions that Uncle Fritz is large and in charge should note: Henderson didn’t take the stand and tell federal bankruptcy court that New GM had to be created by July 10—or die. It was Harry J. Wilson, a heretofore unknown member of the PTFOA. “We have no intention to further fund this company if the sale order is not entered by July 10,” Mr. Wilson told Judge Gerber. “It’s better to cut one’s losses.”

One’s losses? Hey Bub, those are MY losses you’re talking about. Anyway, who talks like that? Not Uncle Fritz. In fact, let’s pay a little attention to the man behind the curtain  . . .

“Prior to joining Silver Point in 2003, Mr. Wilson was a principal in the private equity business at The Blackstone Group, where he completed a number of private equity investments and leveraged buyouts,”youthinc-usa.org reports. “Mr. Wilson began his career in the Investment Banking Division at Goldman, Sachs & Co., where he worked in the Energy & Power group on a range of merger and corporate finance transactions.”

Hang on; the same Blackstone Group that competed with Cerberus to buy Chrysler? Yup. Although my wife destroyed my tin foil hat whilst heating-up some chicken nuggets, it’s clear that’s a cabal of investment bankers—led by Steve Rattner and Ron Bloom—are deciding the fate of the artist known as the world’s largest automaker. While Barack Obama has publicly stated his intention to “let GM run GM” [presidential paraphrasing], nothing could be further from the truth. Uncle Fritz is so not The Man.

So why keep him around? First, remember that the general public couldn’t give a damn who’s running GM. In fact, they’ve never heard of Uncle Fritz. If they see him on the tube, well, he looks nice. Avuncular. Credible. Non-threatening. So why not?

Second, as GM’s former CFO, Henderson is an excellent pencil pusher. If you were a member of the PTFOA and wanted to grab some numbers upon which to base your otherwise uninformed decisions about the automaker’s fate, Henderson’s the go-to guy. He couldn’t save GM if his life depended on it, but Uncle Fritz knows his onions.

Most importantly of all, Fritz is a terrific fall guy. If/when GM’s NA sales fall [further] into the trash, the PTFOA can throw Henderson on the pyre. The President has taken new steps to put General Motors on the path to profitability; a management shake-up is on its way!

The PTFOA should, of course, dump Henderson now. What better way to celebrate New GM’s birth, to draw a line under Old Skanky GM, than offing the bureaucratic bumbler who helped bring The General to the brink in the first place? Passing the torch PR, and all that.

Yes, well, who would replace Uncle Fritz?

As TTAC’s Ken Elias has pointed out, there are only a handful of auto executives capable of running GM, even in its truncated form. The number who could turn the ailing American automaker around is even smaller. And none of these talents is likely to do so for $500,000: the salary cap dictated by Congress for TARP (Troubled Asset Relief Program) recipients. Also, any CEO who’d take on the job (for real) would want independence from the PTFOA. And the PTFOA can’t have that, now can they?

So Uncle Fritz will soldier on. Or not. Either way, GM is unlikely to receive the one thing it needs to survive: leadership.

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Editorial: GM Zombie Watch 9: GM Announces “Buy and Say Goodbye” Sale http://www.thetruthaboutcars.com/2009/07/editorial-gm-zombie-watch-9-gm-announces-buy-and-say-goodbye-sale/ http://www.thetruthaboutcars.com/2009/07/editorial-gm-zombie-watch-9-gm-announces-buy-and-say-goodbye-sale/#comments Wed, 01 Jul 2009 14:17:13 +0000 http://www.thetruthaboutcars.com/?p=321610

General Motors is launching a fourth of July sale: "Buy and Say Goodbye." From July 1 to July 6, the bankrupt automaker's offering 0% financing for up to 72 months on "most" of its dead brand walking Pontiac models and "some other vehicles." More specifically, "select 2009 and 2010 vehicles in dealer stock including Chevrolet Silverado and GMC Sierra regular, extended and crew cab light-duty pickups; Chevrolet Suburban and GMC Yukon XL SUVs; Chevrolet Impala; and the Pontiac models: Vibe, G3, G5, G6 and G8." But wait! There's more! "Many other vehicles will have reduced rate financing of 0 percent for up to 60 months for well-qualified buyers. A full list of current offers, conditions, and eligible vehicles, is available at: http://www.gm.com/shop/currentoffers/." Not yet it isn't. So that's number six on our list of reasons why this sale is dumber than toast. Counting down . . .

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General Motors is launching a fourth of July sale: “Buy and Say Goodbye.” From July 1 to July 6, the bankrupt automaker’s offering 0% financing for up to 72 months on “most” of its dead brand walking Pontiac models and “some other vehicles.” More specifically, “select 2009 and 2010 vehicles in dealer stock including Chevrolet Silverado and GMC Sierra regular, extended and crew cab light-duty pickups; Chevrolet Suburban and GMC Yukon XL SUVs; Chevrolet Impala; and the Pontiac models: Vibe, G3, G5, G6 and G8.” But wait! There’s more! “Many other vehicles will have reduced rate financing of 0 percent for up to 60 months for well-qualified buyers. A full list of current offers, conditions, and eligible vehicles, is available at: http://www.gm.com/shop/currentoffers/.” Not yet it isn’t. So that’s number six on our list of reasons why this sale is dumber than toast. Counting down . . .

5. Blowing Bubbles — Isn’t this exactly the kind of fiscal irresponsibility that led to GMAC’s 11th hour, backroom bailout, not to mention the previous, company-killing new car bubble? In its defense, GM says the “Buy and Say Goodbye” sale’s six year loans are reserved for “well qualified buyers.” Yeah, right. What are the odds that beleaguered/doomed GM dealers are going to turn away the last possible customers for moribund metal? Anyone for anyone with a pulse deals again? How about rolling that backwards SUV into the deal! Sure! Look how well that worked out the first time! Or is the old “bait and switch” routine? Sorry, you don’t qualify for zero percent, but let’s talk. Either way, is this how a federally financed, [soon-to-be] taxpayer owned automaker should behave?

4. Damp Squib — Yes, GM’s got to do something to get rid of the dealers’ “rabbit in the python” inventory problem. If they can goose their sale numbers so that the newly nationalized automaker smells less like crap coming out of bankruptcy, so much the better. But wouldn’t it have been more effective if GM had offered cash on the hood—OK, lots more cash on the hood—than trying to entice car buyers with cheap loans? Hello? Consumer confidence is lower than an ant’s abdomen. Didn’t GM get the memo about Hyundai and Ford’s “if you get fired” guarantees? The exact same people who want/need six year loans are either how-low-can-we-go FICO folk or shit-scared of losing their jobs. So . . . good luck with that.

3. Another Bottom Line Boondoggle — The “Buy and Say Goodbye” sale reaffirms GM’s rep as America’s discount car company. To paraphrase Robin Hood’s merry men in Shrek, that’s bad; that’s very very bad. Still, it can’t be helped. More importantly, the sale continues GM pattern of obfuscation (an obfuscatory word for “misleading”). As Buickman has ranted for years, GM has so many special offers it’s virtually impossible for dealers to ascertain which discounts apply to what vehicle for whom. The bottom line: nobody knows the bottom line. Zero percent on what? This gimmick may mop up the remaining four-square suckers, but it runs completely counter to CEO Fritz Henderson’s transparency pledge. No surprise there.

2. The Timing Sucks — While car companies and Fourth of July sales go together like Rick Wagoner and a Gulfstream G4 (Dammit, I miss that plane!), now’s not the best time for GM to launch a Fire Sale, however fleeting. Surely someone at GM knows it has one chance to draw a line in the public’s mind between “Old GM” and “New GM.” Oh, wait, they’ve already done it! So, if the New “reinvented” GM is already a-born, whose sale is this anyway? Is it New GM’s garage sale or Old GM staggering to its grave? And why is it only 72 hours? What’s New GM going to do with the old vehicles that Old GM doesn’t sell? Not discount them? Sorry, guys, your customers are trained. Once again, GM shows its propensity for feeble half-measures.

1. Worst. Sale. Name. Ever. — “Buy and Say Goodbye”? WTF? The marketing geniuses at GM decided to meld their Fourth of July fire sale with a pitch for Cash For Clunkers custom. Hence the “Say Goodbye” bit. But who’s going to make that connection? And even if they do, the more obvious meaning remains: Say Goodbye to GM. Quick! Buy a car ’cause we’re about to take a dirt nap. Alternatively, “Buy A Car and Piss Off.” In fact, “Buy and Say Goodbye” has to be the worst name for a marketing campaign in the history of the world, ever.

As any recovering entrepreneur will tell you, there’s only one way to run a “going out of business sale”: discount the merchandise by a fixed percentage across the board. And call it by its real name. That GM’s suits couldn’t grasp this fact tells you all you need to know about their future prospects.

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Editorial: General Motors Zombie Watch 8: “7 Reasons Why The New GM Might File for Bankruptcy” http://www.thetruthaboutcars.com/2009/06/editorial-general-motors-zombie-watch-8-7-reasons-why-the-new-gm-might-file-for-bankruptcy/ http://www.thetruthaboutcars.com/2009/06/editorial-general-motors-zombie-watch-8-7-reasons-why-the-new-gm-might-file-for-bankruptcy/#comments Thu, 25 Jun 2009 22:12:29 +0000 http://www.thetruthaboutcars.com/?p=320763

Communist witch hunters called Americans who supported the battle against Francisco Franco before World War II "premature anti-fascists." In other words, they were right for the wrong reasons. There's a lot of that going around these days. For example, Chrysler and GM's claim that they need to cull dealers is spot on. But trimming overheads, as the automakers claim, ain't it. [see: number three after the jump]. By the same token, it's also true that New GM is doomed to failure. But not for the seven reasons that Seeking Alpha sets forth. Still, Jason Mathew's analysis is worth a closer look . . .

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Communist witch hunters called Americans who supported the battle against Francisco Franco before World War II “premature anti-fascists.” In other words, they were right for the wrong reasons. There’s a lot of that going around these days. For example, Chrysler and GM’s claim that they need to cull dealers is spot on. But trimming overheads, as the automakers claim, ain’t it. [See: number three after the jump.] By the same token, it’s also true that New GM is doomed to failure. But not for the seven reasons that Seeking Alpha sets forth. Still, Jason Mathew’s analysis is worth a closer look . . .

1.) $1400 in per vehicle costs went untouched to ensure re-election and voter satisfaction rather than shareholder value

Not exactly. GM’s “reinvention” is facilitating a rapid decrease in the number of GM employees (despite Senator Stabenow’s “jobs, jobs, jobs!” pro-bailout rallying cry). Many of these disappeared have agreed to buyouts that limit their pensions. In any case, as the employee count decreases, as the old guard shuffles off to the great assembly line in the sky, GM’s pension costs are going down. Pension costs for retirees come out of the pension, not GM’s bottom line. For whatever that’s worth.

2.) Bankruptcy court ruling did not establish labor rate parity with Toyota (TM) or Honda (HMC)

GM’s direct labor wages were already close to parity with the transplants. As TTAC’s Ken Elias taught us many, many moons ago, the domestic automakers set the bar for automotive assembly workers’ hourly pay. GM’s real excess labor costs: the Other Post-Employment Benefits (OPEB) paid out to GM’s massive retiree base (e.g. health care). The real labor problem: highly paid workers who don’t contribute bupkis to production (thank you UAW work rules).

3.) Reducing dealer count will have nominal impact on GM’s cost structure yet significant downside impact on market share

Dealer count, market share, dealer count. Chicken egg chicken. GM needed to cull dealers to eliminate overlap, lower inventory costs and kill brands (to focus branding, products, marketing, etc.). In theory, less inventory on the ground should reduce GM’s carrying costs, reduce bureaucracy (improve accountability) and speed-up cash flow/turnover.

Any way you look at it, there are too many GM dealers to support the bankrupt automaker’s diminished—and diminishing—market share. What’s not clear: whether GM can sell the same number of vehicles (at retail) with fewer dealers. Or, if you prefer, what is the right number of GM dealers? I’m not sure I’d want the same GM suits who were working the old dealer system without complaint to establish the new one. In fact, it’s a really bad idea.

4.) Government and UAW as majority owners = poor management

Ya think? But the United Auto Workers (UAW) likely won’t have, nor do they desire, a strong influence on GM’s management. For one thing, the UAW doesn’t want accountability. The more it interferes, the less it can bitch and moan and (when needed) duck and cover. They’ve done just fine without saying anything about GM’s current plans. Why start stopping now?

Besides, the UAW’s “independent” union health care VEBA owns GM stock, not the UAW itself. The UAW has publicly stated that it just wants to get full value for its stock and cash-out ASAP. Believe it or not, I believe them.

[Seeking Alpha’s scribe would have been better off just saying “Government = poor management” and be done with it.]

5.) GM will be at a strategic competitive disadvantage with no ability to financially engineer sales with 0% loans and extend consumers credit

Wrong. GM will not be at any disadvantage in this regard; GM pays GMAC for those financially engineered deals, and the government more or less owns both organizations. Bottom line: if GM wants to hold fire sales, toe tags sales, zero percent deals, cash back specials and get America rolling promotions, you, the taxpayer will pay for it.

6.) GM Europe operations will only get worse, supply base is weaker than the U.S. and surviving brand equity is weak

Huh? GM’s off-loading its European operations to someone at some point soon. Or not. Either way, the corporate mothership is busy washing its hands of the whole deal.

7.) 35-MPG energy requirements in 2016: GM currently has one vehicle that meets that standard today

First of all, loopholes. Lots and lots of loopholes. Secondly, do we seriously expect the Feds to put its $50 billion investment in GM and Chryco at risk by regulating GM (a.k.a. themselves) to death?

The real problem for New GM is the same one that led it to its first bankruptcy: it doesn’t know how to make the products that Americans want to buy at a sufficient profit to take in more money than it spends. In other words, it can’t compete. To think that a government-run GM can make that happen when a privately held GM could not is the worst sort of folly. The folly for which I have to pay.

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General Motors Zombie Watch 7: One Way Out http://www.thetruthaboutcars.com/2009/06/general-motors-zombie-watch-7-one-way-out/ http://www.thetruthaboutcars.com/2009/06/general-motors-zombie-watch-7-one-way-out/#comments Wed, 24 Jun 2009 01:43:20 +0000 http://www.thetruthaboutcars.com/?p=320533

I can't decide whether GM's "reinvention" will fail through government action or inaction. On one hand, I share the commonly held belief that GM's product portfolio will be skewed towards small cars, to satisfy the Obama administration's love of all things green and beautiful. Even without express orders to do so, GM's craven executives will seek to please their elected overlords' politically-driven desires. On the other hand, paralysis. The last thing GM's cumbersome, dysfunctional management needs is another layer of command and control---especially one where accountability is measured in votes and patronage, rather than dollars and cents. The tendency to do nothing slowly, as is the way of all government, is great. If I had to guess which way this is going to go, I'd say both.

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I can’t decide whether GM’s “reinvention” will fail through government action or inaction. On one hand, I share the commonly held belief that GM’s product portfolio will be skewed towards small cars, to satisfy the Obama administration’s love of all things green and beautiful. Even without express orders to do so, GM’s craven executives will seek to please their elected overlords’ politically-driven desires. On the other hand, paralysis. The last thing GM’s cumbersome, dysfunctional management needs is another layer of command and control—especially one where accountability is measured in votes and patronage, rather than dollars and cents. The tendency to do nothing slowly, as is the way of all government, is great. If I had to guess which way this is going to go, I’d say both.

There’s a superabundance of evidence that the Obama administration will actively intervene in GM’s affairs. First and most incontrovertibly, the feds are on the brink of nationalizing the company, assuming a sixty percent share of “New GM.” In fact, the administration’s promises to be a “hands-off” owner reminds me nothing so much as Rasputin’s philosophy: sin is the key to redemption. We have to be hands-on to be hands-off. You have to wallow in sin to know the value of repentance. We had to fire the CEO to find a CEO who could operate effectively without government influence. Same deal.

More metaphorically, the feds have broken their interventionist cherry. Why not continue to fuck with GM? The government’s already bobsledding down that slippery slope; from appointing the entire GM Board of Directors to killing brands to killing dealers. The Presidential Task Force on Automobiles (PTFOA) says the changes are necessary, but that it will back off when post C-11 GM finds it sea legs. In this case, momentum speaks louder than words. Once a pattern of behavior is established, continuing it is easier than changing it.

Ah, yes, change. In announcing its one trillion dollar health care reform package, the Obama administration is once again showing us its willingness to enter a realm formerly reserved for free enterprise. Just as Obama wants a federal health care program to go toe-to-toe with private insurers, a federally owned GM will be soon be competing with privately held automakers.

The rationale underlying Obama’s intermingling of private and public organizations: Something must be done! As Obama said today, “the status quo is untenable.” GM can’t fail. Health care can’t fail. Same deal. Here’s another quote:

The German and American New Deal may have been merely whatever Hitler and FDR felt they could get away with. But therein lies a common principle: the state should be allowed to get away with anything, so long as it is for “good reasons” . . . It represents the triumph of Pragmatism in politics in that it recognizes no dogmatic boundaries to the scope of government power.

Author Jonah Goldberg is dismissed as a right wing crank by his many detractors, but there’s no getting around the fact that president Obama is shunning free market principles to boldly go where Chrysler’s previous elected saviors didn’t dare go before (federal loan guarantees are a far cry from public ownership). The conflict of interest in is inherent. The same government that regulates the entire automobile industry will now have an enormous stake in one of its biggest players.

This will undoubtedly lead to unwelcome distortions, and, ultimately, disaster. Because even as the feds attempt to literally reform GM, they will be unable to institute the dramatic changes GM needs to survive. It’s not just a matter of political meddling, of which there will be plenty. It’s also a question of corruption.

If you think GM’s previous Board of Bystanders was incapable of policing GM’s arrogance, stupidity and sloth, wait to you see what won’t happen when Uncle Sam is paying the bills. Actually, there’s no need to wait. In today’s New York Times, we learn that the United States trustee overseeing GM’s bankruptcy case (another layer of management) called the fees collected by GM’s bankruptcy consultants “staggering” and “excessive.”

In one year, Alix Partners and Evercore soaked the taxpayer to the tune of $130 million, including a $17.9 million “success fee.” Oh and an as-yet-unknown “discretionary fee” with “no boundaries in amount and scope . . . calculated in an unknown manner.”

As anyone familiar with government procurement knows, that’s small beer. Suffice it to say, in this regard, New GM will not be a microbrewery. Anyone who thinks that the feds will cancel these fees—or institute the kind of product planning, brand building and financial controls that New GM needs to earn a profit—is as delusional as a government that thinks there will be a graceful exit strategy for this unbridled adventurism. There’s but one way out of this mess, and the Obama administration isn’t even looking for the door.

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General Motors Zombie Watch 6: CEO Henderson: “I Hate Myself” http://www.thetruthaboutcars.com/2009/06/general-motors-zombie-watch-6-fear-and-self-loathing-in-detroit/ http://www.thetruthaboutcars.com/2009/06/general-motors-zombie-watch-6-fear-and-self-loathing-in-detroit/#comments Fri, 19 Jun 2009 13:02:48 +0000 http://www.thetruthaboutcars.com/?p=320004

That's not exactly what GM CEO Fritz Henderson said to BusinessWeek, as part of the bankrupt automaker's charm offensive. The exact quote was "I know I have to re-prove myself." So, just as there's a "bad" GM (the one that latched onto the federal teat) and a "good" GM (the other one that latched onto the federal teat), there's now a "bad" Fritz Henderson (the one who weaseled his way to the top of GM's dysfunctional corporate culture) and a "good" Fritz Henderson (the one who wants to reform the stultified system that spawned him). As we say in these parts, good luck with that. Those of our Best and Brightest who've seen large companies try to reform their not-so-wikkid ways will recognize the resulting lip service . . .

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That’s not exactly what GM CEO Fritz Henderson said to BusinessWeek, as part of the bankrupt automaker’s charm offensive. The exact quote was “I know I have to re-prove myself.” So, just as there’s a “bad” GM (the one that latched onto the federal teat) and a “good” GM (the other one that latched onto the federal teat), there’s now a “bad” Fritz Henderson (the one who weaseled his way to the top of GM’s dysfunctional corporate culture) and a “good” Fritz Henderson (the one who wants to reform the stultified system that spawned him). As we say in these parts, good luck with that. Those of our Best and Brightest who’ve seen large companies try to reform their not-so-wikkid ways will recognize the resulting lip service . . .

In the meantime, Henderson is tackling GM’s glacial decision-making process. A couple of four-hour meetings have been cut in half. Gone are the “premeetings,” when the agenda for the real meeting was set. “I don’t have time for that,” Henderson says. Delegation, never GM’s strong suit, is now an imperative. In early April, just after Treasury made him CEO, Henderson and several executives were discussing whether to add some pricey features to a future Buick model. Some wanted to save a few bucks while others figured they needed to step out and show consumers that the brand is truly upscale. After some debate, Henderson turned to Buick-GMC boss Susan Docherty. “You’re the vice-president of Buick,” Docherty recalls him saying. “Make the call.” She opted to spend the money, and that was fine with the CEO. “Fritz is creating a culture where we don’t need 17 meetings,” Docherty says. “In the old GM, we would have to hear from everybody.”

A couple of points . . .

1. Did Fritz have a pre-meeting before the meeting to decide whether or not to lose the pre-meeting before the meeting that eliminated the pre-meeting? What’s that about SEVENTEEN meetings? Is that hyperbole or “out of the mouth of bankruptcy babes”?

2. Where are the consultants? Promoting this kind of stuff—both internally and externally– is what helps America’s consultants afford/drive BMWs. Oh here they are!

Last month, Henderson hired Booz & Co. consultant Jon R. Katzenbach to help make GM’s middle managers less risk-averse and more willing to make decisions. Katzenbach and his team have begun scouring the company for mavericks adept at getting their ideas past a recalcitrant bureaucracy. Katzenbach asked each department chief to name five candidates. In most cases, he says, they aren’t top managers or people on the fast track. Typically they have toiled at GM for a long time and know how to game the system. The plan is to make their attitudes and work habits the norm, not just a rarity among the few who will buck the system.

Did I say “good luck with that” already? But rest assured that Booz & Co. understand automobiles. Well, engines. OK, “empathy engines.” Katzenberg’s paper is full of piercing glimpses into the obvious, but one of his bullet points is worth repeating vis à vis GM. “A fundamental misunderstanding, by a company’s executives, of the real nature of the customer experience their company provides.” How does Mandark laugh again? Haa ha haa, haa ha ha ha ha!!!

You want to talk about self-delusion?

In a June 1 blog post to employees, Henderson asked for suggestions and criticism. Several workers said people are afraid of challenging the status quo. When pressed in an interview on the culture of fear, Henderson said he gets criticism all the time, and then added: “I’ve never had a situation where people were afraid to speak up.” Maybe so, but that doesn’t mean managers further down won’t discourage new ideas from their underlings.

A perfect example of using “maybe so” to mean “you’ve got to be fucking kidding me.” Translation: Henderson is so insulated from genuine criticism, so drunk on GM Kool-Aid, he thinks he’s drinking coffee. A point which BW can’t resist making. Ish.

Henderson also says GM’s product planning group is just fine. Yet it has routinely missed major trends and rarely sets them. GM’s top-selling Chevrolet division, for example, is just this year launching decent crossover SUVs; rivals have been selling them for years. Plus, the product planners’ indecisiveness has led to many delays on new programs. It’s not that GM’s designers and engineers can’t work fast. They often wait for the “numbers dummies,” as GM product adviser Robert A. Lutz calls them, to hash over the research. By the time the green light comes on, GM has missed the moment.

So Lutz blames GM’s culture for his own failure. No wonder they’re keeping him on; he’s just stupid enough to blow the lid off of GM’s global incompetence. Of course, by thy bankruptcy thy shall be known, guys.

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Editorial: General Motors Zombie Watch 5: Cross-Eyed and Painless http://www.thetruthaboutcars.com/2009/06/general-motors-zombie-watch-5-cross-eyed-and-painless/ http://www.thetruthaboutcars.com/2009/06/general-motors-zombie-watch-5-cross-eyed-and-painless/#comments Sun, 14 Jun 2009 01:25:03 +0000 http://www.thetruthaboutcars.com/?p=319108

I had an interesting conversation with PCH101 about New GM's governance. Like many observers, the TTAC commentator is not ready to dismiss The Presidential Task Force on Automobiles (PTFOA) out of hand. I, of course, am. Have done. Will do. But before I do (again), consider PCH101's logic. He credits the PTFOA for clearing out the deadwood: finally ridding the failed automaker of the troublesome man who guided the company on its final descent into bankruptcy. He also believes that the 25-member PTFOA is a better bet for GM than the original plan for federal oversight: a car czar. "I remember a study in B-School that concluded a committee of managers without any direct experience in an industry made more effective decisions than a single autocratic insider." With all due respect, crap. And completely irrelevant.

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I had an interesting conversation with PCH101 about New GM’s governance. Like many observers, the TTAC commentator is not ready to dismiss The Presidential Task Force on Automobiles (PTFOA) out of hand. I, of course, am. Have done. Will do. But before I do (again), consider PCH101‘s logic. He credits the PTFOA for clearing out the deadwood: finally ridding the failed automaker of the troublesome man who guided the company on its final descent into bankruptcy. He also believes that the 25-member PTFOA is a better bet for GM than the original plan for federal oversight: a car czar. “I remember a study in B-School that concluded a committee of managers without any direct experience in an industry made more effective decisions than a single autocratic insider.” With all due respect, crap. And completely irrelevant.

What’s GM’s single largest problem? Uncompetitive vehicles? Yes, well, there is that. Dead brands? Sure. Too many dealers? Doesn’t help. But it’s executive torpor that’s the root cause of the automaker’s longstanding inability to take in more money than it spends. The automaker has far too much bureaucracy, and all of it’s deeply dysfunctional. Ipso facto.

In fact, GM’s management ethos is so obviously broken it’s become a PTFOA talking point. Despite President Obama’s semi-pledge to kinda keep his distance from GM’s [hand-picked] executive team, PTFOA jeffe Ron Bloom recently promised to tackle GM’s moribund culture in a non-interventionist way (presumably).

Good luck with that. Before we calculate the odds, let’s be clear about the problem.

The majority of GM’s executives don’t care about the customer. They may pay lip service to the people paying the bills (before the U.S. taxpayer stepped in). But their day-to-day decisions are not motivated by a desire to provide GM customers with the best possible products and services.

Their single, over-riding concern is . . . themselves. Their career. Every decision that GM’s suits make is made with an eye to protecting and (perhaps) extending their territory within the automaker’s byzantine structure. CYA is their modus operandi. “Yes” is the operative word.

No surprise there. That’s how they got where they are in the first place. Case in point: VP of sales and marketing for GM North America Mark LaNeve.

From 1981 to 1995, LaNeve worked his way up Cadillac’s executive ladder. When he assumed the General Manager’s job, LaNeve knew Caddy’s survival depended on remaining resolutely upmarket. “Young people should aspire to owning a Cadillac,” LaNeve said back in the day. “They shouldn’t be able to afford one.” And then LaNeve joined the corporate mothership. He did what had to do: “modify” his beliefs. Go along to get along. STFU. Entry-level Caddies arrived without debate or delay.

Actually, it’s worse than that. GM’s suits don’t even care about the company. Yes, even now. Especially now. If anything, Chapter 11 means they’re even LESS motivated than before. Think of it this way: if GM’s overlords screw the pooch (again), what are the feds going to do? Declare bankruptcy?

PCH101 believes the PTFOA will, eventually, clean house. Even if we accept the idea that all the president’s men kept a GM insider at the helm in order to fire him in favor of a genuine reformer who will eliminate and/or replace, say, 25 percent of GM’s upper management, the bigger picture still sucks.

“Hands-off” or not, the 25-member PTFOA adds another level of bureaucracy above the existing GM bureaucracy. If each PTFOA member fires off fifty emails a day, that’s 1,250 more internal comms per day. The PTFOA also has a staff. Meetings. Agendas. Targets. Reports. Memos. The federal quango is a shadow governing body for a company that needs less management, not more.

True story: New GM is inherently worse than old GM. And it’s going to get worse from here.

At the moment, Ron Bloom and Steve Ratter are running GM well. I freely admit that President Obama’s minions are outperforming GM’s previous administration. (Of course, Captain Kangaroo could do a better job than the last mob, and he’s dead.) If the PTFOA orders the night of the long knives at RenCen, if they clear the forest of deadwood, I’ll publicly acknowledge the appointees’ collective wisdom.

And then what? By the time the PTFOA’s new brooms fail to sweep GM to a rapid turnaround—a virtual impossibility given the depth of GM’s decay and the car biz’s timelines—Bloom and Rattner will be long gone. Leaving . . . what? Administrative kudzu.

If President Obama wanted to save GM, he should have let it fail. There’s only one way to change deeply-ingrained habits: pain. GM’s management will not change its slavish devotion to its fundamentally inefficient way of doing business until and unless it’s more painful for them to keep doing what they’re doing than to do something else.

By making bankruptcy painless for GM’s upper echelons, by adding complexity rather than removing it, the President has effectively sealed GM’s fate.

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