In Friday’s interview with Automotive News (AN), Rick Wagoner snapped. When confronted with the fact that Toyota is set to overtake GM as the world’s largest automaker, the CEO stopped making sense and started talking to himself. “I can't argue that if you keep drawing the trend lines, your conclusion is correct. Is it inevitable? No. No it's not inevitable. If Toyota passes us, I guess they pass us. Do I like it? No. Am I willing to take us off our plan or to sacrifice our profitability or the implementation of our marketing strategy here? No, I'm not willing to do that. If we're going to stay ahead, we're going to stay ahead doing it the right way and a sustainable way."
So, here we are at Death Watch 100, and nothing much has changed. The good ship GM is still taking on water and it’s still steady as she goes. Rick’s turnaround plan– cut costs and build stuff people want to buy– remains unaffected. Don’t get me wrong: it’s a great plan, something along the lines of the classic “take in more money than you spend.” Only it’s not working. Quite aside from the fact that GM is still losing money, and has done so with remarkable consistency since we began the series (including a few truly spectacular financial quarters), Rick has failed to address the fundamentals dragging his employer into bankruptcy.
The General still has too many brands, models, dealers, legacy costs and overheads. Its UAW contracts and overcrowded smorgasbord of lackluster vehicles still make it a high cost automotive producer trying to sell heavily discounted products in a highly competitive market. And Rabid Rick is still talking as if simple persistence– rather than radical change– is the key to GM’s survival. Wagoner’s comments to AN about the infamous jobs bank– the ultimate symbol of GM’s management stupidity and union intransigence– tell you everything you need to know about Wagoner’s reformatory zeal.
"We'd like to reduce the cost of the Jobs Bank, yes. There are plenty of ways to do that… A lot of times people want to jump to the sort of extreme answer and that very well might not be acceptable to the UAW. If we've learned anything over the last decade, it's that if we sit down and work over the tough issues, most of the time we can make some progress."
He’d “like” to reduce the jobs bank? “Most” of the time we can make “some” progress? Methinks Rabid Rick may have learned too MUCH in the last decade; applying the rules of GM’s past labor negotiations (“give ‘em what they want”) to the current crisis. And make no mistake about it: GM is in crisis. The General has sliced production, sold off everything except GMAC, burned through the cash and still isn’t making enough money to stop the rot.
It can’t be that bad, can it? After all, Automotive News claimed that Wagoner is “unwilling to return to heavy incentives and fleet sales to stimulate sales.” So I guess GM’s just announced, much anticipated (by customers anyway) Toe Tag Sale– offering $5k discounts on selected ’06 vehicles and $3.5k on some ‘07’s– doesn’t count. And the same goes for the large number of generic GM vehicles that still find their way into fleets (roughly 25% of production). The truth is Wagoner has failed to reverse the increasingly accurate impression that GM is the overstock.com of cars.
For those who’re listening, the klaxons are sounding loud and clear. Check this excerpt from a GM press release regarding an upcoming $1.5b seven year secured loan (tied to machinery and equipment and special tools at US production plants).
"GM's ability under some of its existing bond indentures to pledge U.S. property, plant and equipment is likely to be affected in the future by new rules applicable to pension and OPEB accounting, which could cause GM's shareholders' equity in its year-end 2006 financial statements to be negative.”
In other words, the well has run dry. With 51% of its GMAC finance unit (a.k.a. cash cow) set for sale, GM can no longer borrow from this once dependable internal source. As of next year, GM still won’t be able to take out unsecured loans, while the terms of its bond indentures rule out secured loans. With a negative cash flow from its North American operations and no ability to borrow, with debt payments due AND the need to fund Wagoner’s turnaround plan (new products, severance pay, depreciation, etc.), GM’s cash crunch is going critical. The only money available: $8.5b (plus another $4b over three years) from the GMAC sale.
How long will that last? We’re going to find out. Or not. Rick says he’s “optimistic” that the GMAC sale will go through by year’s end. Should it fail, so will GM. In any case, watch GM’s dividend payments. If and when they’re suspended, that's it: the beginning of the end. Either that or just another stop along the way.
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One word: YIKES!
Break out the ballons and the party favors! GM Death Watch has reached 100 essays!
I’m not being sarcastic. I think it is a real accomplishment to chronical the demise of the worlds largest auto company in particular and of American industry in general. I have saved everyone of these essays so that I can look back on it some years from now to see where the analysis was right on and where it was off.
Hats off to you Robert and the other contributors who have kept this series going. The discussions that it has sparked alone have made it worthwhile.
I read AN’s interview and didn’t get the impression that Rick ’snapped’.
And ‘Tag it and Bag It’? A little premature perhaps.
In any event, congratulations on 100 installments
GM Ford & chrysler share the same union and work rules. This is because of pattern bargaining the UAW has used for decades. I see the scenario like this one of these three will bail out with a bankrupcy, they will get relief from the courts where the jobs bank will be eliminated and the entire contract with the UAW will be amended, includeing the pensions and medical benefits. Finally this company will emerge from the reorganization in about the same shape as to the costs of operation asthe Japanese plants here in the US with one of the three unionized companies now reformed can the other two carry on the party alone much longer?
Whoever dclares bankrupty first wins.
the last chance the 2.5 have is for the federal government to bail them out on pensions and retirement costs. Look for this to become an issue next year during contract talks and beyond.
All these new models from the 2.5, I am just waiting for some chronic mechanical problem to come up that affects nearly all of them. transmissions, head gaskets, or something else that destroys resale value. What few customers they have left will be sitting in a Hyundai or Toyota dealership.
Will we make 200 deathwatches? how far wild Ford’s go and when will Chrysler join the party?
Rick didnt seem that Rabid, maybe sadly resigned to the obvious.
Funny thing is, we’d be up to “Death Watch 5000″ if TTAC was around at the beginning of GM’s fall (the 70s maybe?).
Sure there is always a glimmer of hope, always a promise of “Things are gonna get better… We promise!”
I used to root for GM, I really did. Heck, I even thought the Allante was nice, and I even loved the look of all that plastic body cladding on my ‘95 Grand Prix.
It’s like the just don’t get it… Always releasing their “next big thing” at the worst time, like new full size SUVs when gas prices hit an all time high. Refusing to learn the importance of small cars and a decent mid-size sedan. Always failing to capitalize on their strong products.
Like rooting for an inept sports team… It just gets too depressing to root for GM after a while.
"negative cash flow from its North American operations"
Shut down the NA operations? Just build cars in Mexico, Canada, Europe, and China? That might send a message to the UAW. Move the corporate HQ to China? Sell GM to Chery?
I don,t no much US law,in the delphi saga the courts are reluctant to do Delphi’s dirty work like taking on the UAW.
I can’t see the courts doing it for GM either.
Fall of 07 UAWs 5yr contract comes up.Lets not forget it was GM that wanted 5yr deal instead of the traditional 3.
If GM is still alive and Rick is still behind the wheel, then we will see what sort of stuff he is made of.
Any way I can get my info fix from death watch.
Mr. Farago,
Do you expect Rick Wagoner to say anything substantial about the “jobs bank” one year before the contract is up?
They most likely haven’t even started talking yet.
Gettelfinger has to take time to bring the “true believers” down several notches (…and brother, those “saints” believe!). He already pretended to expect the “jobs bank” to stay in a speech earlier this year.
I don’t think Wagoner wants to stir the pot until it needs stirring–and not a moment sooner. Let Ron do the heavy lifting till the last moment.
You may argue that he should simply lay it on the line and resist talking “peachy”, but that makes for a demoralized workforce–one that is notoriously sub-par even on the best of days.
I didn’t expect him to say anything about it, but he did. And what he said qualifies as premature conciliation.
mikey–
if i recall, you work for GM in shipping and receiving (warehouse area?). are you part of the UAW, or are there other unions working for GM?
Note how Rabid speaks as if the UAW controls GM…Oh Wait… They do! (1935 Wagner Act)
GM is a retiree support company that happens to build automobiles as well. Hope they can extract high profits from their new CUV line because – 2008 Toyota Tundra.
Ugh.
Canadian auto workers nicknick our contract is up in 08 so I’m watching the US situation very closely
somethingtosay the sub par comment would be the moral right?Im sure you wouldn’t be slamming the folks working on the floor
GM’s only answer will be for the North American operations to split up – much as Studebaker separated manufacturing from sales before pulling the plug on South Bend Main and importing cars from Canada.
That way, the GM Manufacturing Corporation (or whatever name they come up with) can go Chapter 7 (total bankruptcy), close down, and GMCanada, GM-EU, GMdeMexico and SAIC-GM of communist China can export cars to GM Sales Corporation of North America (or whatever name they come up with).
Bye bye UAW contracts because – no UAW for GM. Instantly, production levels are cut down to the size required for the sales operation (which would shrink out of sheer shock).
Look at a 1964 Studebaker owner’s manual some time – it does not say Studebaker Corporation, it says Studebaker Automotive Sales Corporation.
December 22, 1963 – bye bye UAW and bye bye South Bend Main.
Think I’m nuts? They why else would GM-Europe be trying to buy the ex-Daewoo factory in ROMANIA if not for the extra capacity needed for exports to guess where?
Even more scary for the UAW – FORD is also trying to buy the Ro-Dae factory in Romania.
Boy, this Death Watch thing is really thrilling. I can’t wait for installment # 200.
Perhaps I can interest you my Toyota Death Watch series?
After all, perhaps 20 years from now Toyota will also be in financial trouble. After my Toyota Death Watch # 5,000, I could look like a real seer.
Regards,
Hal.
“For example, looking at carsdirect dot com, I can get a brand new ‘06 Aveo for $9,469. Now apply my 5k discount.”
No.
But higher priced models, the ones that carry more profits, are the one with the potential bigger rebates.
From the same website you point at, a 2007 Chevrolet Tahoe 4×4 LT, lists at 39,120, can be had for 34,194. And it’s just an example.
This is far from the ‘value pricing’ i.e. the price is the price. But it’s not the first time RW claims no more rebate to just turn around and announce red tag/employee/total clearance firesale.
From this 100th death watch article, I wonder, can GM be saved by their international arm?
In the US, we see GM as a domestic manufacturer, however, they are selling in a worldwide market, so I wonder if the (profitable) foreign arms of GM can sustain the NA operations waiting for the turnaound?
I’m one of those with rose colored glasses. Sure, I read TTAC death watch series, and I think to myself “wow, this is some scary situation, if I was RW, I’d be soiling my pants now”, but I can’t imagine GM filing for chap11 (or 7, double load in RW pants)
If RF can see the money being drained, the (ineffective) measures being taken, RW can too. I find it hard to believe there is no planned deus ex machina for GM to save them all.
They’re heading right to their giant iceberg, everyone is screaming at them, and yet, stay the course…
kinda sobering that they might actually go into receivership – but all is not lost. I have not been on a solvent american ariline in like 10 years, i think. Still got to where i was going.
So, here we are at Death Watch 100, and nothing much has changed. The good ship GM is still taking on water and it’s still steady as she goes. Rick’s turnaround plan– cut costs and build stuff people want to buy– remains unaffected.
Are you ignoring some of the recent TTAC articles showcasing GM cars?
Billons in the hole to almost breaking EVEN.
Increased warranty to 100K…
Union concessions…
52 week stock high
Just about every company except for Toyota lost money last quarter. GM lost only a small amount.
Last October was a record sales high for October.
“nothing much has changed”?
To say nothing has changed is ridiculous and a insult to everyone’s intelligence.
1984: Thankyou
Yawn. Yeah congrats on copying and pasting the same stuff 100 times. This is starting to make TTAC look bad.
The Truth about Regurgitation.
There are interesting points brought up now and again but it’s so annoying when the same argument comes up every episode. You could probably halve the number of deathwatches due to repertition, happy half century TTAC.
Please make it more interesting its getting boring now. Maybe just concentrate on Fords Demise for a while or start something new with Chrysler, the new housing market and how its failing and how the knock on effect of the US economy and its debts etc. SOMETHING thats going to provide new thought provocation until you can come up with something new.
I hate to say it but when the new product starts rolling out, you may just end up eating your words.
How do I get a job at this job bank? I get a paycheck now, but I have to like, wake up and go to work and stuff. It really blows.
Good point Boston Tea party,lots of new stuff coming But how about the old stuff, Impalas are selling like hot cakes,then theres the new truck.We ain’t dead yet.
I think the problem is that the new product may not be enough to save GM.
Despite the gains being made, there are fundamental difficulties that it faces–not the least of which are healthcare and pension burdens.
Any good news has to be viewed in that light.
Those costs need to go away (somehow) in order for GM to really make full speed progress.
The point is not that GM doesn’t have the right people, but that these people don’t have the resources to do what they do at full speed for too much longer.
I am unwilling to think, however, that Wagoner doesn’t realize this. If he has any plans, he’s keeping them close to the chest.
Congrats on running your chicken little “the sky is falling” installment on GM.
Impalas are selling like hot cakes
Yeah, with the help of an additional $1500 rebate on 06 and 07 models.
then theres the new truck.
Which has just now hit the market. I have yet to see one on the streets. (And last year it was “then there’s the new SUVs.”)
We ain’t dead yet.
No, but the breathing is getting shallow and raspy at times.
When i came over from europe i couldnt believe that people could be ‘fired/laid off’ yet still get 90% pay in so called job banks. What a joke. That has to be addressed with new negotiations. In this sense the UAW is the enemy of GM. We compared the various the benfits they receive to what regular non union GM workers get and its unbelievable what they get cost wise. No wonder UAW doesnt want to give much up, they’re onto a real free ride. sooner it dies the better. Bring on the free to work state in michigan for everyones sake. The rules you have to abide to to keep the UAW happy are unbelievable too. In Britain the unions were the original deathwatch for the UK auto industry, hope you yanks learn quickly. I really hope RW takes a leaf out of Maragret Thatchers book and crushes ‘em where they stand.
If you did an apples for apples comparison, then i think you would find GM’s not in as worse a state as you think, remove all that UAW crap and the picture would be a whole deal different.
Boston Tea Party
I can assure that most Americans have no clue what a job bank is…that’s sort of a remnant of the “rust belt” region, from an era when jobs were literally life-threatening and there was no OSHA or other regulators to keep a watch on worker safety.
Here in Alabama, we have three world-class auto plants (Hyundai Sonata, Mercedes GL/ML/R, and Honda Odyssey/Pilot), and every line worker in them makes equal or better wages/benefits than any other employer in those areas can offer. No unions at all. They are known to get 10,000 resumes for every 100 open positions. And that doesn’t even count the 3-fold additional amount workers that the tier1 suppliers bring to those areas.
Sometimes it feels like GM management is just “phoning it in”, just like the last Elton John live concert. Say the words, hitting the notes, but not really connecting. Going through the motions.
There is no way that a GM lifer has what it takes to radically rip up the rule book and re-create General Motors. Old Sloan probably could have done it, because he understood the business at a level far deeper than Rickster does.
GM plays russian roulette with it’s brands and models. At any given time a few vehicles are given some needed attention, while the rest of the line suffers. There is no earthly reason for Buick and Pontiac to go onward. There is nothing these brands bring to the party which couldn’t be divided up between Chevy, Saturn and Cadillac. The Saab experiment is a bust as well. In fact, the best thing that the Swedes could do would be to have a home team buy Saab from GM (for $1 ) and whatever it takes to get Volvo away from Ford and combine the two into a national champion. Get some home team pride behind those two and make them something special while there is still a chance.
Now the only question is who goes Chapter 11 first, Ford or GM? I wonder if the Vegas bookies are laying odds yet.
I’m always amazed at how many commentators on this series fail to address the facts contained within a post. It’s easy to criticize the DW series for its existence, but it wouild be more informative if you could suggest specific areas where you believe I’m spinning or just plain wrong.
As for 1984’s suggestion that I’ve missed GM’s rebound, it’s important to note that
1. GM’s recent “narrowed losses” are due to the fact that it’s put off downsizing expenses and taken on a great deal of questionable debt– both of which will come home to roost. [see: GM DW 96]
2. The increased warranty hasn’t increased sales.
3. Union concessions consist of accepting generous buyouts, forgoing a $1 per hour raise and (instead) banking $3b for health care costs.
4. The high stock price does not reflect sound fundamentals. Most analysts now recommend “sell,” including the pump and dumpers at Merrill Lynch.
5. Just because GM isn’t the only one getting its ass kicked by Toyota doesn’t make it any better for GM
6. GM’s October sales rose in comparison to last year’s cataclysmic post Fire Sale For All, helped by the launch of new products. It’s going to be a long, cold winter.
As I said, I’m happy to debate/discuss the specific issues involved with GM’s performance, and future. But to simply flame the site or me personally for raising the alarm on the most important automotive story of our time is, well, short-sighted.
I think that TTAC is one of the best autoblogs around. It still has some very good reviews and some excellent editorials.
However, the whole GM Death Watch thing is getting a little tired. I’m not sure if repetitive, catchy insults and phrases translate into quality writings.
Since the pros at TTAC don’t seem to mention much about the positive things happening at GM, but grind at GM for anything that TTAC finds bad, the Death Watch comes across as a crusade.
Proving that TTAC is tough, hard hitting and beholden to no one is a good thing, but you might have lost your objectivety here.
Naturally, when a few readers post their doubts about the Death Watch, you get a little defensive and pile on some more. Frank Williams’ post above is a good example.
Thanks for the opportunity to say my piece.
Regards,
Hal.
Merrill Lynch recommended the stock as “buy” when the stock was absolutely in the toilet. Now that the stock has hits a 52 week high and doubled the money of anyone that purchased it when they said… How in the world would Merrill Lynch NOT recommend sell?!
The increased warranty hasn’t increased sales.
No one knows what it has done, not even GM. Nor am I aware of any data or studies that have been released.
Mr. Farago,
My guess is that you’ll continue to be amazed….
Hal.
I won’t put words in Mr. Farago’s mouth, but I’d guess he’s like most of us who want GM to succeed, and hope that they’ll right the ship before it hits the rocks. We all know the disaster that a GM or Ford Chapter 11 would bring to our economy, and hope that it can be avoided. I think we’d all like to see the day Robert can write about GM’s historic turnaround, and cite the products and managers that made it happen. Sadly, that column may never get written.
Unfortunately, what he’s chronicling shows that GM may not have the money to make it, because they failed to address the major issues early in the game, i.e., the bloated dealer network, unnecessary brands, and exorbitant cost structure.
Case in point: The Acadia/Enclave/Outlook. Does GM really need three versions of the same CUV? And the development and marketing costs associated with bringing three nameplates to market?
Ummmm, NO.
It may be a great truck, but GM can’t support three nameplates. This should be a GMC. But because GM has Saturn and Buick dealers screaming for a crossover (and if it sells well, don’t ya know Chevy’ll want one), we end up with three trucks cannibalizing from one another, and GM has to spend precious marketing dollars supporting all three. I’d rather they were able to focus their efforts on one nameplate and do it well, than to spread themselves too thin on three.
You can shoot the messenger all day, but it won’t change the facts on the ground.
Why do most of the bloggers here actively root for the collapse of GM? Is it an anti American thing? What do they feel might be the upside of an event like this? Just curious.
Flame the site??!!
Robert does not want to see the 2.5 go out of business. He is a pistonhead afterall. I however do not care one way or the other. I just read this site for the repetitive, catchy insults and phrases.
Yes it tiresome watching gm go down, but farago is not off the mark. In manufacturing more is better and gm has been building less for years on end. When I knew them (1998-99), they said less than 30% could not be tolerated. Now it’s less than 25% of the market and who knows what can finally be tolerated as a bottom in market share? However, the legacy costs, have to be carried by less and less product each year. The question is can they downsize the legacy costs faster than the sales are tumbling? Even a bigger point is can they make a profit building cars? (ispo for ford & chrysler). Case in point the cadillac sts now being redesigned for China has dropped 25% in sales here in one year. This was a new model targeted directly at the foreign upscale cars. People still don’t consider GM for luxury cars and they don’t trust that any one will buy a used cadillac for anything close to it’s purchase price. Without this, all of the billions spent on cadillac will come to naught.
Sometimes Luther, you read whats been written and you have to wonder….
I would prefer GM to stay in business, albeit in a different form.
RF, why is that?
Because I love cars.
finger:
November 20th, 2006 at 5:36 pm
Why do most of the bloggers here actively root for the collapse of GM? Is it an anti American thing? What do they feel might be the upside of an event like this? Just curious.
I think you’re reading too much into this…I don’t read it that most respondents (I despise that “blogger” word) “actively root” for collapse of GM.
But it’s important to speak up. Public school educations notwithstanding, some of us have learned how to do mathematics….and we can see what’s on the horizon. And never forget, we’re pistonheads. We have expectations. Expectations not being met by GM.
You don’t seem to love GM ones, which do you think should be saved/concentrated on?
BostonTeaParty:
November 20th, 2006 at 5:55 pm
You don’t seem to love GM ones, which do you think should be saved/concentrated on?
Robert has written about this extensively in other editorials.
But ultimately, GM should be the one to make that decision, don’t you think? I have begun to wonder if they are even capable of making difficult yet fundamental business decisions about their own business?
The quotes in the first paragraph sound exactly like Donald Rumsfeld
I think my comments while regurgitated from a previous Death Watch comment address one of the points Mr. Farago brought up. The big problem at GM based on what I’ve heard from my brother-in-law, who worked for GM and now works for Delphi, is a CYA, don’t rock the boat attitude. He’s a design/production engineer and has been sent to manufacturing plants when there are problems. First he is expected to find what needs to be corrected in a couple of days, quality and quantity production problems. This are not simple, oops rivet xa3476 isn’t being installed correctly issues, either. Second he runs his recommendations by his boss, a middle level manager, who is certain to remove anything that might upset the upper muckity mucks. This ensures business as usual. Finally, nobody appears willing to stick their head up at the decision making level for fear of getting beat down.
I, too, think that these GM Death Watch articles are a bit redundant as well. It appears at times that the only purpose in the next Death Watch article is to post another one, not that there is anything really new to report.
One thing that seems to continuously come up when discussing Rick Wagoner’s tenure is his (and the current management’s) belief that next month/quarter/year will be better. Even though things aren’t quite the way we’d like to see them now, there’s hope. To justify this attitude, selective news and distorted facts are used (eg: huge leap in October 2006 sales!).
While I think Rick really does think he can save GM this way (without drastic action, no one has really changed the course over the last 35yrs), I’m still convinced most upper management are just in it for the money, to get every last drop until it all falls down.
On a side note, I’m really tired of all these people commenting “gee *another* GM deathwatch” – if you are so bored with it, why comment? The topics brought up aren’t even often discussed, suggesting some people don’t even bother reading the whole thing. What’s really starting to look repetitive is the comments section of a deathwatch series, which too many seem to use to reiterate their general opinion (pun…not intended) of a manufacturer.
They are recommending sell because they know that at any moment the stock will tank, and its best to reap your rewards when you can.