I have some sympathy for GM’s rank and file (although they could all use a Econ101 course from the U of Chicago).

I have no sympathy for the so-called businessmen known as GM dealers. They’ve got state laws and legislatures in their pockets – with subsequent legal protections that most small businesses don’t have. In UAW country, they have captive customers.

There’s a reason that NO automaker can roll out a national marketing campaign that says, “Get a New V6 MaliCamCord, Nicely Equipped, For $2x,000″. It’s probably violates many state franchise laws.

After all, if executives can take credit, huge salaries, massive bonuses and other perks when a company goes well, they certainly must also take the hit when a company fails. Even if they don’t want to.

As for Ford, I hope they (possibly the best run of the Detroit 2.801) do survive, but I’d still guess that there is a 10% chance that NONE of them will survive 2015.

As of now, GM management and the board of bystanders are all delusional. Paying 33% increases to upper management in a time where 1/3 of the company’s value is going to be burned over a span of 12 months and while union contracts are being settled, is unconscionable.

And, GM will end up paying the price. Unfortunately, so will thousands of workers and GM dealers (who are after all local businessmen and stand to lose a LOT of money when GM fails).

That is, it took 11 years for Pan Am to fail-and Pan Am, even at it’s peak, was probably smaller by any measure than GM is today.

Now, if one of them goes into Chapter 11 reorganization, the first one to do so will be able to drastically restructure and reduce costs, giving it the ability to compete more fiercely with the remaining 1.8. That will pinch the other two companies so that they will probably fall into Ch. 11 within a year or two of the first one (unless Chrysler is first; they may not quite be big enough to drive the other two down). The end result will be that much healthier, leaner companies will emerge.

The Big 2.8 won’t do Chapter 7 for probably another few decades, if ever.

There are tons of examples of huge companies failing. Just one example; Pan Am was huge.

a) GM going Chapter 7 worldwide within the next 2 years (i.e. total closure/nothing surviving)

b) Ford going Chapter 7 worldwide within the next 2 years

c) Chrysler going Chapter 7 within the next 2 years (they are not a global company)

My guesses are (sadly enough)

a) 25% / b) 20% / c) 90%

This does not preclude the possibility of any company going Chapter 11 (attempting to reorganize) first.

jthorner, I agree that it is possible that bits and bobs could be sold off before Chapter 7. I even agree that Ford would be a great fit for Jeep (and historically, it even fits – WWII Ford built many Jeeps along with Willys-Overland, using the Willys pattern).

The downside (if one is superstitious) is that every company that ever bought into Jeep ended up failing to retain their independence!

Willys-Overland. Bought up. Kaiser. Bought up. American Motors. Bought up. Chrysler. Bought up – twice.

GM has already started the dismembering process (selling off things like Allison Transmission), but they are still in the very early stages. They still sell a quarter million vehicles every month domestically and a similar number overseas. They are still “too big to fail”. Now, after they shrink further, that may change, in five or ten years. But if one has, say, ten billion in the bank and owes twenty billion in debts, one can stay afloat for quite some time.

Chrysler, however, is not “too big to fail”. They are much smaller both domestically and overseas (especially the latter). And the disappearance of Chrysler will give a significant second wind to the remaining players.

Chrysler is by far the closest to being parted out IMO. For example, VW could buy the minivans designs and factories, Renault/Nissan could pick up the Mexican truck and engine factories and Ford might snap up Jeep to complement it’s truck business. VW is already in a deal to buy minivans from Chrsyler, Renault/Nissan is already signed up to buy output from the Mexican factories and Ford built Jeeps alongside Willys during WWII. I doubt anyone would want Chrysler’s car lineup, but perhaps a Chinese or Indian company would jump on those pieces.

GM and Ford have massive international operations and are highly unlikely to simply close down. Chrysler, on the other hand, is a special case of a mostly North American company which is rapidly loosing market share in it’s one and only sizable market.

My 1st pick would be Nissan-Renault.

While commercially viable in the US as a stand alone niche player, CAFE regs will may require it to pare up with a truck-lite portfolio player.

(1) GM files Chapter 11. Bad for Ford. GM will have dropped some weight to make it a nimble competitor.

(2) GM files Chapter 7 and closes the doors. Good for Ford. Ford gets the business.

(3) GM files Chapter 7 and then reopens. Bad for Ford. GM drops a ton of weight and can run circles around Ford.

(4) GM gets their act together and becomes a profitable company. Not likely… not enough money and time left.

You can switch Ford for GM on the first 3. I think that Ford at least has a chance at 4.

Chrysler doing 1 to 4… inconsequential to Ford and GM at this point.

So do I have this right?

GM can use the BK to close franchises they no longer need, get out of union contracts, get out of pension and healthcare obligations. Basically come out with nothing holding them back.

Delphi did not get out of union contracts and they did not send their pension and healthcare obligations to the government. People need to stop thinking that if any of the det2.8 file for chapter 11, they will get out of these obligations.

Chapter 7 is a whole different story…

That is one risk of going Chapter 11 b/k, the judge might just say “fugedaboudit” you haven’t a chance in hell and no point in dragging this out.

The other problem with Ch. 11 is that a huge portion of car buyers would shy away from buying a car from a company reorganizing. They’d be rightly concerned that the company COULDN’T reorganize, and that the bankruptcy judge would flip the company over to Chapter 7 and – bang goes your warrantee, your “$2.99 per gallon” gas cards, your reliable (?) parts supply (for your unreliable cars?).

Would you buy a car from a bankrupt company? I wouldn’t.

Hi Geoptf, I’m not hoping for GM and Chrysler to go under, but I do see it as a distinct (and growing) nightmare scenario possibility that both WILL go TU.

Look at the prior GM Death Watches and figure out for yourself how little the company is worth vs. the projected cash burn this year alone.

GM’s demise is a very REAL possibility within 24 months, especially if gas prices don’t go down. Significantly. Which isn’t going to ohappen on planet earth unless there is some kind of miracle.

Chrysler’s is even MORE likely to go TU. Partly because they build crap even more craptastic than GM.

I think he should buy out the Ford family at $8/share and take all of Ford private. Let’s see if he has the balxs for that. Can Ford really compete with Toyota and Honda?

GM can use the BK to close franchises they no longer need, get out of union contracts, get out of pension and healthcare obligations. Basically come out with nothing holding them back.

So a debt free GM would be bad for Ford.

They both have three advantages Chrysler doesn’t:

1. They both are bigger than Chrysler.
2. They both have significant overseas sales in emerging markets (China, Eastern Europe, Russia, etc.); Chrysler does not.
3. Their products are better. Chrysler’s current line up is amazingly bad.

Of the Detroit 3, only Chrysler has a large chance of going out of business any time soon. And by doing so, it will help save the other two.

a). Prices would go up for new vehicles.
b). Popular vehicles would have waiting lists.
c). Quality of new vehicles might decrease due to a ‘rush’ to fill as much of the void as possible.

This could be where Toyota falters against Ford. Toyota starts building too many Corollas too quickly for too high a price, in the mold of the Toyota Tundra and Camrys’ poor showings in CR as of late, to try to fill the void. Horrid reliability of the newbies convince Toyota owners to try a new vehicle. They see Ford’s “on par with Toyota quality” and pleased Focus buyers (assuming the new Focus is good reliability-wise), and give Ford a shot.

I still say Ford could go two ways. You have a point Brownie, if GM and Chrysler go under Ford will most likely get nearly all of their sales (I think most people who still buy Chrysler and GM products will be highly unwilling to buy a Japanese car), and that would give Ford a huge advantage in sales. If Toyota starts to crumble as current reliability studies seem to be trending towards, Ford could even cannibalize some of Toyota’s sales.

But Ford needs Mulally to make it happen. I think that’s a moot point. So I say the Ford family holds the keys to their company’s success. If they let the good times roll (so to speak) things could go very well for them. If they choose to intervene or fire Mulally too early, they will suffer the consequences.

Let’s concentrate just on North America. We already know that there would be economic disruption; that goes without saying. Let’s look at the auto market in this thesis. There would be a production loss of between 4.5 million and 5.9 million vehicles. Let’s assume 4.5 million, the minimum.

Let’s assume a 10% overall North American car sales drop due to the recession which would inevitably follow GM and Chrysler going TU (tits up). Given this WAG (wild ass guess), this would mean a potential gap of 4 million vehicles that the surviving automakers would have to fill.

Problem 1. The remaining auto manufacturers, especially a downsized Ford, and expanding Toyota, Hyundai, and Honda are near enough production peak worldwide to make it difficult to fill the gap. All of the worldwide automotive car companies selling vehicles in North America could only do so much to fill the gap. Let’s do a WAG and figure on a gap of 2 million vehicles per year, between demand and supply. It takes time and a lot of money to build new plants in North America.

Problem 2. US certification of vehicles is expensive and time-consuming, making it difficult for new players to come onstream, or for the big players to try to fill the market with additional vehicle lines quickly. Some import increases could happen, but this would lead to increases in the US trade deficit.

Problem 3. Remaining car manufacturers would not be willing to take on the UAW infested ex-GM and ex-Chrysler plants, designs, or brands, even if the courts allowed same after Chapter 7 bankruptcy.

Problem 4. Many auto parts suppliers used by the remaining auto manufacturers would be in financial difficulties due to GM and Chrysler going TU, and since many of these suppliers also work with Ford and the others, parts disruptions and and production losses are likely.

Problem 5. Thousands of new car dealers would have unsaleable stock, especially in the heartland where there is a relative dearth of non-big 2.801 dealers. This would obviously mean financial problems for established dealers wishing to obtain non-GM and non-Chrysler franchises.

Problem 6. Even if GMDaewoo could survive, it is not large enough or financially sound enough to be a large player, and even assuming that the prior 350 Daewoo dealers could be enticed to sell cars again (since remember, GM would not be extant with their lawyers holding up the “stop” sign), major parts of some Daewoo cars come from ex-GM plants (specifically the 2.0 litre engines from GM Holden in Australia) and are not easily or quickly replaced. I doubt if Shanghai GM or GMDaewoo would have any rights to sell any GM-branded vehicles to a GM dealership network.

THEREFORE it may be concluded that;

1. The US automotive market immediately post-GM and post-Chrysler, would most closely resemble the post-World-War-II auto market

a). Prices would go up for new vehicles.
b). Popular vehicles would have waiting lists.
c). Quality of new vehicles might decrease due to a ‘rush’ to fill as much of the void as possible.
d). Black markets, and dealer price “padding” would likely occur.
e). Bankers, being bankers, would likely raise loan interest rates so they could gouge/get their piece of the pie.

2. After the initial “shock” and price increases, some buyers would belatedly snap-up the rotting corpses of GM and Chrysler NOS (new old stock) at the remaining surviving dealers, but this phase would not last long – perhaps 6 months.

3. Eventually, perhaps within 18 to 36 months, a few selected Chinese and Indian auto producers could begin to sell vehicles in the No. Am. market, though this would be extremely expensive and difficult. No doubt, any surviving ex-GM and ex-Chrysler dealers would have already taken on franchises if possible, or gone TU themselves. So the quality of dealerships available to the Chinese and Indians would be below average, along with the perceived (and probably, real) quality of their products (if the other manufactured stuff from their countries is anything to go by). So I’m going to surmise that this would not be the “gift” to the Chinese that some would suppose.

4. Used car prices would increase, less so for GM and Chrysler products and especially so for later (newer) vehicles with dead warrantees.

Well, what does everyone think?

Is this nightmare scenario enough to bring the socialists into play and pull money out of all of our pockets to bail out GM and Chrysler?

I personally say “no way” because I’ve seen what the British taxpayers got for their money in bailing out (nationalizing) British Leyland from the 1970’s on through the 1980’s. Sod all. Except they got the “opportunity” to have higher taxes and the chance to buy unreliable leaky crap with light switches having 3 positions “short”, “flicker” and “dim”.

There’s an old joke about Albert Einstein, Niels Bohr and a bear. The punchline applies here. They don’t need to beat Toyota at anything to thrive – they just need to beat GM (and beating Chrysler wouldn’t hurt).

The mere fact that a Toyota executive is responding to Ford’s volleys (see today’s TTAC headlines) means that Ford’s effort is succeeding. If Ford creates the perception that they are “in the discussion” with Toyota then it hardly matters whether their cars beat Toyota’s on reliability or not – they will have already beaten the people they need to beat.

I think his Boeing experience is invaluable on that point. Or do you think Boeing spends a lot of time trying to differentiate its branding from Airbus?

Everybody knows that Mulally is doing a good job. The question is whether or not the Ford family will let him do that job for as long as it takes to turn Ford around. Even then, Mulally will have had to completely restructure Ford’s bureaucracy. The Ford family will have to permanently stop putting their hands into Ford’s corporate system. Bosses, executives, and individual workers will need to be hired on the honor and merit system. The UAW will need to increase the quality control at UAW-controlled plants.

Do you think those people will be able to do all that? Or will want to? Or will actually do it?

As for brand–Ford is trying to position itself on quality and reliability and be a mainstream brand like Toyota. Can Ford beat Toyota at reliability? The only place Toyota has failed is in some Camrys and the Tundra. These were epic failures on Toyota’s part and will lead to some questioning eyes, but it’s not enough. The new Corolla will tell the tale as to whether Ford’s long term product-placement strategy has a chance of succeeding.

I agree with Geotpf, if Dodge trucks leave the marketplace the slack will be taken up by the other players. The only fly in that ointment is if Ghosn picks up the Dodge truck line and keeps it on life support.

That’s exactly my point. The two examples you point out are not the result of branding efforts by Toyota and Honda – they are the brands because that’s what people have come to believe about the products based on long-earned reputations (the Prius is hardly new at this point).

That’s what I was getting at with the Boeing comment. Boeing does have a brand, even if its products are only bought by a small number of firms. But by focusing on things like “gets from A to B”, “doesn’t fall out of sky”, plus aerodynamics/efficiency and maintenance costs, the Boeing “brand” takes care of itself. Just like focusing on things like “fuel efficient” and “runs forever” makes the Toyota and Honda brands take care of themselves.

I do think Ford (the brand, not the company; Mercury and Lincoln are other stories) is having some success rebranding just by focusing on their product. My personal view of Ford in the past 2 years or so has changed from “you get what you pay for” to “good value for money” (in terms of styling and features – e.g. Sync, AWD on the Fusion, etc.). And that’s just from reviews and basic advertising – no slick marketing that I can recall. Reliability remains to be seen of course (only time will tell) but so far so good. If the cars hold up, then there’s your brand: Good cars, decent styling, more features than you expect for the money. Kind of what Ford was always supposed to be, no?