I know it’s hard to believe that the world’s largest automaker is going down– especially when the company’s management swears up, down and sideways that revenues are up, costs are down and market share is stabilizing sideways. But understand this: GM observers will only realize the extent of GM’s peril retroactively. Meanwhile, it’s clear that GM is trying to follow the old English adage “When you’re stuck in a hole, the first thing you do is stop digging.”
Jerry Marks of the Auto Retail Informer reports that GM dealers will end January with nearly 1.1 million units on dealer lots. That’s roughly the same 80-plus days’ inventory level that preceded June ‘05’s Fire Sale for Everyone. Although GM has famously slashed production, they're still failing to cut their supply fast enough to match falling demand. Less charitably, they're still in a death spiral.
Given GM’s cash position, they can’t afford to shut down production for the month or so needed to clear the backlog. Alternatively and perhaps inevitably, GM could hold another clearance sale. A price blowout would spring clean the winter metal– and seal GM’s rep as the “come on down!” cut-price car company.
Another fire sale would also kill GM vehicles' residuals (again) and put the automaker right back where it can’t afford to be: a high-cost producer selling discount product. But what else can they do? Meanwhile, at the sharp end, GM dealers are suffering.
GM retailers are getting hammered by interest rates on their “floorplans” (unsold vehicles). To keep GM stores sweet, The General pays its dealers’ floorplan costs from day one through day 60 (standard industry practice). That’s all well and good when vehicles move off the lots in three months. When they don’t, as is the case now, dealers’ inventory costs soar.
To help GM dealers foot the bill for moribund metal, The General has agreed to pay roughly half the interest rate charges for vehicles still hanging around its dealers' lots, from day 61 to day 160. From day 151 onwards, any unsold GM vehicle is blessed with an additional $500 “consumer incentive.”
We spoke to several dealers who are unhappy with the new program. Stores who can’t afford to “age” their inventory for 150 days miss out on that $500 spiff. They claim this puts them at a competitive disadvantage. (A GM dealer’s deadliest competition is another GM dealer.)
What’s more (or less), many dealers complain that the program offers no short term help; they’re already stuffed with unsold ‘07’s and not a few ’06's. GM's program only applies to freshly ordered 2007 models– although it's good up to and including, wait for it, November 3.
One dealer described the program as a blatant attempt by GM to seduce its dealers into taking more inventory than they can sell. Even if you call it good business, sales channel stuffing has clear implications for GM’s bottom line. Well, they might be clear when GM eventually files its 2006 financial results.
According to GM CFO Fritz Henderson, the company is working on yet another restatement of earnings (that's seven restatements over the last eight financial quarters) and waiting for results from GMAC. Given that the recent sale of GM's finance unit to Cerberus must have been preceeded by some pretty rigorous due diligence, there are two possible reasons for the delay. Either GM's recent accounting kerfuffles resulted in understating GMAC's worth, or overstating it. If it's the latter, payback will be a bitch.
I digress. As we’ve stated here many times before, GM’s story these days is all about [negative] cash flow– rather than earnings (or the manipulation thereof). And here’s the thing: while Henderson confidently predicted that GM’s '06 accounts will be back in black, the overall numbers will be distorted by many factors, including the booming Chinese market and current exchange rates (the relative strength of foreign currency helps GM).
But the most important factor to consider is GM’s cash pile and the dealer situation described above. That’s because industry practice allows GM to book all vehicles sent to its dealers as “sold.” So the real results– the amount of customer cash generated by new product sales– always lags behind the reported numbers by at least one financial quarter.
As GM launched its new[ish] high margin GMT900-based pickups at the end of the fourth financial quarter, you’d expect a big old positive blip. But if sales tank, if GM’s “sold” vehicles stack up like cordwood on the dealers’ lots, the blip becomes a bust, the cash flow dries up and, well, bad things happen.
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The same ploy was used by the Case Tractor Company in the early 80’s. They piled product on their dealer’s lots, called it sold inventory and applied “profits” to the bottom line. Worked OK for a while but they were eventually bought for a song by FIAT AG.
Even if GM made money last year (maybe I should just say “if it can be made to look like GM made money last year”), their position is nowhere near as good as Toyota, Honda, Nissan, BMW, and many others.
Like this DW points out, the GMT900 release is going to provide a temporary boost to profits, but I see no indication they are turning the truck world upside down. How is that going to improve profitability next year? It won’t.
Before all the GM’ers come pouring in here, note that GM is well on its’ way to ELEVEN straight years of negative cash flow in its’ automotive business. GAAP always presumes a sale ends in cash sooner or later, and if later never occurs (at least at the price originally expected), you have those marvelous “one time financial charges” to make up the difference. Ever notice how many of those our D2.5 tend to have? Management always tends to try to gloss over those little mega-billion charges, but they do/did represent real money at some point…What was it that Everett Dirksen said about billions?
I also note that RF put in parentheses a core problem of GM, the fact that the greatest competition to a GM dealer is another GM dealer down the block.
This story should be required reading for the flagwavers on the Edmunds’ forums. They’re tripping over themselves proclaiming that GM is out of the hole and is on the way to profitability.
Then, they keep dragging Toyota and Honda through the mud, repeating the old news about the “record” recalls for the former and the transmission woes of the latter.
What’s really hilarious is one of the most ardent GM-firsters is trying to defend the new Sebring, of all things!
And Cliff, you reminded me, one poster even mentioned that without those pesky one-time charges, GM actually made money in 2006. Yeah, like such charges can be swept under the rug — it is real money.
I have said before it’s the $1200 to $1400 added cost for pensioners helalth care benefits that’s the real problem. Tag that to the cost of your goods and you have either over priced vehicles or bankruptcy looming. Thank you UAW you have just strangled the golden calf.
Further complicating this nest of snakes is the impossibility of increasing market share when the main competition is a fellow dealer.
The fire sale will soon begin–but these cars will have to be damn cheap to lure back the hordes now driving Oriental quality.
As we say on the the street, “they’e pretty much f&*#ed”
Sooo a good chunk of the media believes GM is emerging from the swamp,and others have a different view.Fair enough.
I think we need to ask ourselves some questions
1 Is GM in a better place than a year ago?
2 Is GM still number one?
3 Has GM done huge cost cutting?
4 Has GM stock price increased from Feb 2006?
5 In the past year has Toyota seen some negative press?
6 Has GM put the bankrupt rumours to bed?
7 Has GM quality improved backed with a 100,000 mile warranty?
8 Last year the DELPHI situation was gonna kill GM,Is it gonna kill GM IN 2007?
If you ask your self honestly, will GM come out of this?
The only sensible answer is yes.
If GM improves as much in 07 as it did in 06,where will GM be in 09?
mikey:
What’s your take on the specific points raised by this editorial?
Not wanting to get into the tired old domestic v. import debate either, I will agree with RF on the GM dealer situation.
Where I live, GM products are 45% of the market, but the three GM dealers in town see each other as the main competition. I should know, I worked for one of them.
A few of my sales at this dealership were the stock “oh, I can get this Grand Prix for $xxx down the street at X Chevrolet dealer” and we undercut them to get the sale.
Mind you, our bread and butter was Optimum, and everybody knows the money is in used.
Sooo a good chunk of the media believes GM is emerging from the swamp,and others have a different view.Fair enough.
I think we need to ask ourselves some questions
1 Is GM in a better place than a year ago? NO
Won’t ev2 Is GM still number one? Just Barely but not for much longer
3 Has GM done huge cost cutting? Very little in real terms
4 Has GM stock price increased from Feb 2006? So what?
5 In the past year has Toyota seen some negative press? Wont even slow the juggernaut down
6 Has GM put the bankrupt rumours to bed? Absolutely NO
7 Has GM quality improved backed with a 100,000 mile warranty? Smoke and Mirrors, has not changed anything
8 Last year the DELPHI situation was gonna kill GM,Is it gonna kill GM IN 2007? It could
If you ask your self honestly, will GM come out of this?
The only sensible answer is yes. Not a chance
If GM improves as much in 07 as it did in 06,where will GM be in 09? China!
Sorry Mikey but you are an eternal optimist. The hard data does not back up your position. That said, I wish you were right.
This story should be required reading for the flagwavers on the Edmunds’ forums. They’re tripping over themselves proclaiming that GM is out of the hole and is on the way to profitability.
delray, for that you ought to check out http://www.gminsidenews.com/forums/
Seth et al., you’ll find this link more germane to the discussion at hand:
http://www.gminsidenews.com/forums/showthread.php?p=921509#post921509
Specific points RF?
OK 80 day inventory, not outragous, not good either,but not umcommon.Cash on hand? 24 billion thats a chunk of change.
I don’t begin to understand GMs relationship,financial or otherwise,to its dealerships.Having said that I don’t see many dealers here in Ontario going belly up.
CFO Fritz figures, your better off delaying the news.[good or bad] rather than getting it wrong.The lesser of two evils,so to speak.
I fail to see the logic in your statement, GM can’t afford to shut down for a month to clear the back log?
Of course they can,GM and every other car company has been doing just that for years.If your selling 6000 cars a month and building 8000.Shut er down one week a month, short term problem solved.
If the problem persists, and you still can’t sell cars.slow the line down.This aint nothing new been going on as long as I can remember.
All I’m saying is Feb 2007 looks a helluva lot better than Feb 2006.Let just see what unfolds
It’s really sad to read sites like the one posted by 86er; kind of like having a mentally challenged person in the family. No one wants to admit the disease that GM has is widespread in American industry. When corporate compensation and the tax laws are totally biased to short term gain, the rule is set; any but the most bold executives in the U.S. would be viewed as crazy to do some real strategic planning. Their job is not to produce product, it is not to keep workers working (or happy with their jobs), it is not to ensure the stock is a long term value, or even to do what they can to make the company survive; the job, as defined by the stockholders, is to spin the truth so that the stock price is not sacrificed to the realities of the marketplace. GM, Ford and DC have all shown they can produce brilliant vehicles, but none of them have the commitment to put them over the top. The CTS – an incredible chassis saddled with ridiculous “styling” and crap parts-bin interior pieces. The LS – another superb chassis which may well have put Lincoln back into the luxury market that exists today, but it simply sat on the shelf waiting for help and selling at incentivized pricing. The 300 and Magnum both are competent platforms looking for an interior that wouldn’t embarass a VW Golf.
But look at the Corvette, or the Ford GT! Both show the world-class abilities of world-class engineers and designers. These glimpses of light only make the story more tragic.
The problem is not a lack of talent among the 2.5; it is the result of 40 years of spin and lack of executive courage.
edgett:
I assume you’re talking about the first generation CTS? The new one, from the photos from auto shows, looks pretty sharp to me and certainly not parts bin.
…GMInsideNews.com… and the Deathwatch 108 post there…
Funny. That thread didn’t last long, one of the site admins has already locked it, saying, “screw this…”
Even if one doesn’t care for TTAC’s point of view, one must agree that TTAC has more class than some.
Nice fellows over there.
Ooooof!
I fail to see the logic in your statement, GM can’t afford to shut down for a month to clear the back log?
Of course they can,GM and every other car company has been doing just that for years.If your selling 6000 cars a month and building 8000.Shut er down one week a month, short term problem solved.
If the problem persists, and you still can’t sell cars.slow the line down.This aint nothing new been going on as long as I can remember.
All I’m saying is Feb 2007 looks a helluva lot better than Feb 2006.Let just see what unfolds
But by slowing down the lines, don’t you lose the efficiency that the line is designed for? By doing that, I feel you’re winding up with fewer even MORE expensive units.
And wouldn’t the same be true of shutting down the line one week a month? Other than your direct material costs, where else are you saving? Your land, insurance, benefits costs are the same and don’t change whether you’re open or not.
What is needed is for the lines to have manufacturing flexibility where they can easily be converted to produce other, more popular car lines.
To be a little fair, GM is FINALLY putting their best engine, the 3.6 liter DOHC V6, in pretty much all of their car lines. Pairing this with the 6 speed automatic transmission will at least make it possible that those units languishing in dealer inventory will have a decent enough powertrain if somebody decides to get one at discount.
As the Valley Girls (and now most teens) used to say, “Oh my Gawd!” Isn’t the General introducing the 2008 models in a few weeks – or now? I loose track from the olden days when it was September – then, March – before a new model year rolled into the dealer showrooms (and back lots).
I never thought I’d feel sorry for car dealers; but this sure does make me feel that way. No wonder that the financial manager and two salesmen from Huling Brothers in West Seattle, WA sold a “mentally-disturbed man” (as he was described in each Seattle daily paper) a GMC truck for $30,000 then, as they used to say in the old days of The System “moused him, front and back.”
But wait, there is indeed more.
When the guy ended up in the hospital – after a police officer, responding to a noise disturbance, noticed fecal matter on the floor of the guy’s apartment – he contacted his pal at Huling Brothers. It seems he was afraid that his truck would get towed.
His “pal” took more money, to pay purported tow fees, etc. etc. – this was all in cash, so far – and got the truck back. Then, assuming there was more money, back at the apartment, the finance manager and two salesmen, broke in, rummaged through the place and found about $50,000, in cash.
Then, to add injury to injury, the poor bugger was evicted, whilst still in stir.
Somehow, word came out – word up! – and recently (this story started last summer) the perps were arrested. Word got out – nope, won’t do that old Cameo thing again – in the newspapers and, despite the fact that the dealership had changed hands again, one of the Huling Brothers gave a check for the entire sum taken – about $80,000 – to a deputy prosecutor, for safe keeping, until the guy in the hospital is released – hopefully, with someone to watch over his affairs and money.
So that’s how desperate one GM dealer’s people got. It was indeed a GMC Truck dealership.
Maybe it’s time for David Letterman to send Rupert into a GM dealership, acting like a “mentally disturbed man.” (No, Robert I am not doing that for TTAC.)
But seriously folks, let’s hope GM survives long enough to build the Chevrolet Volt; if for no other reason than that it would make a neat collectible.
When corporate compensation and the tax laws are totally biased to short term gain, the rule is set; any but the most bold executives in the U.S. would be viewed as crazy to do some real strategic planning.
You make a good point edgett. This is mostly due to SEC “laws” that mandate quarterly reporting. The “law” encourages hiring quarterly song-n-dance men at the top. These buffoons get tiresome and obnoxious like a bad Vaudeville act and also borderline fraudulent. It takes many years to turn around a company like GM and at the same time you dont want to scare off [quarterly] investors since Executive pay is tied to Stock performance.
In general the way floorplan financing is set up is that a financial institution (bank) provides the cash for paying off the manufacturer and the dealer pays this bank interest on that loan until the car in question is sold off, at which time the dealer pays of the bank. Just to make it more convoluted, the manufacturer often subsidizes a portion of this interest, say for 60 days. Basically the dealer takes out a short term interest only car loan with a baloon payment due when the car is sold to a retail buyer. Said buyer most often borrows a large fraction of the price of the car from a bank, maybe even the same one which lent the money to the dealer to buy the car from the manufacturer.
That said, the manufacturer gets the bulk of their cash in whatever the payment terms time is after shipping regardless of when a retail customer takes delivery. Of course sometimes the finance subsidiary of the manufacturer is taking on the role of the bank, and the finance subsidiary is then often selling short-term debt onto the markets backed by these dealer receiveables. In either case, shutting down the factories for any period of time creates both a sales and a cash hole for the manufacturer.
Personally if I were the federal regulators I would require all automotive and similar companies to only report sales when an end customer sale is delivered, but that isn’t how the rules work.
All of you missed the really interesting thread over at the GM site:
http://www.gminsidenews.com/forums/showthread.php?t=43810
Remember, it ain’t just the floor plan interest that hurts; other costs of holding excess inventory (lot boys, insurance, storage) exacerbate the pressure on profits.
The first point made here was: “GM has 80 days inventory in January. They might clear it with a fire sale”. But GM had 80 days inventory LAST January (and in June ‘06 as well….) Didn’t need one then, why expect one now? Why imply that somehow things are worse now then they were a year ago? And also, don’t forget that inventory levels have remained fairly constant (bouncing between 1.0 and 1.1 MM units) even though the corporation has been pulling significant volume out of daily rental, and has also taken steps to reduce the number of vehicles it churns through it’s company vehicle programs. That is real, demonstrable progress.
And GM increases support to dealers floorplan costs, and that’s a bad thing? I’m sure it’s not that tough to find a few pissed off dealers to try to help make your points. But I’ll believe there is a general dealer problem when LaNeve is sent packing (ala Joe Eberhardt).
Captain Tungsten:
Keep in mind that the 80-day inventory figure includes sales to rental fleets, which must go through a dealer, which only takes a few days. The "actual" inventory figure would be closer to 100 days. (I've talked to dealers with 145+ days supply.) Also, GM's market share has decreased over this time.
As for GM's 120k first half of '06 fleet reduction (see: today's post), you're right: it's the right thing to do. On many levels. But this is not long term thinking. GM's shutting down factories because of lost retail market share. The rental shutdown is a welcome by-product.
Almost 2 years and not bankrupt. I would be happy to bet any taker (I need to send my kids to college) that 2 years from now we will be on GM Deathwatch 200+ and GM will still not be bankrupt.
And a single month for a DSO calc is crazy. Use a 3 month moving average at least. 1100K units would be the 2nd lowest Jan month end inventory total in 5 years.
The real issue is too many dealers as each as has to have vehicles and the competition between GM dealers is killing those dealers while degrading the product (it becomes a bidding war, dealer against dealer rather than about a product).
I see a potential winner in the new Outlook, Enclave and Acadia. Spot on for families with 3.5 children or less that can`t stomach a minivan or a big truck.
It would be so neat if they could be a little hard to get and stay that way for 2 years.
TheGM dealers that are just 5 miles apart can make money on a vehicle that is desirable and a little scarce.
Why is that De Beers are the only distributors that really understand this very successful concept ?
the question with gm and all the US companies is, are they making money on the sales of whatever new lower level they have tumbled to? If they are profitable at half their old size, they survive. If you say that they still lose money on every car they sell, then losing less because you build less is still no model for the future.
The American companies must build at the same cost as everyone else, and then they must market more efficiently (ie less dealers) and then they must have a constantly improving product line to stay in the game. With gm, I believe this is impossible as long as they build as many different models as they do now.
Toyota, who will pass gm has exactly two types of dealers in the US. toyota and lexus. They also have far fewer stores to compete with each other. Check the average number of monthly sales for each brand and see who has profitable high volume dealers. Toyota dealers do over 100 new per month. Buick I believe sells 8.
You can't go on like that, it doesn't justify having that seperate brand, dealers, parts, advertising, developement etc. for that small of a division. gm cannot sell even the same amount as toyota in the US with 5 divisions to their 2. (Owe I missed GMC) sorry.
From virgule’s link:
Hey-we are building them so you have them on the lot. A lot of saturdays are scheduled and even the vacation down period is being set aside to build new Cobalts & G5s. I hope you are selling them and not stock piling
HAHAHAHAHA! I guess they didn’t hear the adage about stopping digging.
RF:
Re: days supply vs. units on the ground: If you are correct (and I’m not disputing that poing), it will quickly become evident in the inventory reports, since, for a given inventory level, the reduced daily sales rate will increase days supply.
Re: shutting down factories; actually there are multiple reasons, lost share is only one. (You can look at it another way, share never claimed e.g. minivans, Doraville never had a chance with the product they were building, original vans were nice products, but too small to be competitive in the US because they had to be engineered for Europe, where they also failed)
Improved productivity is another, migration of manufacturing out of the US and Canada is a third (e.g. new Mexico assembly plant, import of Daewoo, (soon) Opel, and (formerly) Holden vehicles.
If the “real issue” is too many GM dealers (and I grant you, it IS “one of the issues” dragging GM down), then obviously it would benefit GM and the surviving dealers to lose a portion of their dealers.
Let’s look at it another way. In 1962, at it’s zenith, GM had 51% of the US automobile market, with Chevrolet having probably 1/2 of that or 1 of 4 cars sold in the US, approximately. VW had about 5% of the US market alone, and the rest of the imports made up maybe 2% of US sales in total. Merely a boil on GM’s toe.
Now, in California, I understand that non-US brands make up over 50% of retail sales. I also understand that however California goes, thus goes the rest of the country in these matters, within a few years to a decade. Right? Right.
So, going back to GM, we have almost (less Oldsmobile) the same size dealer network for Chevrolet, Pontiac, Buick, Cadillac and GMC – PLUS Saturn dealers, compared to 1962, yet the total US market penetration for GM (including fleet sales) is about 25%.
The math does not add up well, to say the least, does it? Taking into account the (rapidly reducing) number of and (changing) purchasing habits of the pro-GM crowd, little wonder that GM dealer’s worst enemies are other GM dealers.
And some folks can’t see how GM could potentially collapse?! GM have essentially sold off all of the family jewels, silver, anything profitable, anything not bolted down and pin their hopes for the future on a 50% owned communist Chinese operation, and pro-GMers are saying “don’t worry, be happy”?! It boggles the mind.
GM, at the least, need to lose the GMC franchises, Pontiac franchises, probably Buick franchises and certainly Saturn, which has never made GM dollar one profit ever, and dump Saab at a fire-sale price just to get one more millstone from around their neck.
"A lot of saturdays are scheduled and even the vacation down period is being set aside to build new Cobalts & G5s."
From the Warren, OH Tribune-Chronicle in an article about the Lordstown assembly plant, where Cobalts are built:
New work techniques and equipment has helped the complex cut losses to an estimated $1,000 or more per Cobalt — less than it lost on each Cavalier — but GM is pushing profitability as one way to decide where to assign vehicles.
So they're losing $1K on each Cobalt they build but they're taking "saturdays … and even the vacation down period" to build more. Am I the only one who sees something inherently wrong in this business plan?
Frank:
Right! See, this is what bugs me: something isn’t adding up. I’ve asked this before: where’s the disconnect?
Another thing that just doesn’t add up: the band continues to play while the Titanic sinks.
I recall reading a story about the last days of American Motors when Castang (sp?) from Renault was at / near the helm of the US / Canadian operations.
Most folks don’t recall that AMC contract-built Chrysler/Dodge/Plymouth rear drive cars at Kenosha alongside the AMC (Renault) Alliance (Appliance?) and hatchback version, the AMC Encore (Eyesore?)
Castang apparently said to the executives in a meeting “well, I have good news and bad news. Alliance sales is down, which is bad news, but since we lose money on every one, that’s actually good news!”
And so, just where is American Motors today? Point taken?
GM has 33% of the US dealer base and about 18% of retail sales. GM (as with most OEMs) dealers do very little fleet (sub 5 vehicle fleets mostly). Dealer base needs to get cut in 1/2 especially on the coasts.
“I have said before it’s the $1200 to $1400 added cost for pensioners helalth care benefits that’s the real problem.”
The problem is that GM underfunded their pension when times were good. It’s not some “competitive disadvantage”, it’s mismanagement, pure and simple.
Actually GM’s pension is $17 BILLION overfunded. Its healthcare which is pay as you go and is not required to be funded under ERISA.
And healthcare wasnt even required to be shown on financials until the early 90s (remember last time GM lost $20b?). This is an issue in governement right now as the state and local governements are just waking up to the fact that they owe A LOT of money to retirees (to the tune of $1-2 TRILLION. The problem is far bigger than just GM, they are just symptomatic of our larger societal issues.
Groovdog:
U.S. franchise laws means that GM can’t cut its dealers. Killing Oldsmobile cost them billions.
So GM inventory remains about the same as last year … how exactly is that a good thing? Real progress would have been a lower inventory level than last year, but we can see that is not the case.
There was a recent news story about how some GM dealers still had unsold 2005 models on their lots.
And sure 80 days inventory level is “common” (among the American Big 3), and all 3 also happen to be in tough situations and having a lot of problems. If you compare the 80 day inventory level to Honda or Toyota, then it definitely is not “common”. Toyota’s inventory level for their vehicles on average hovers around 30 days, and for Honda about 40 – 50 days. Those numbers are significantly better than the “common” 80 days of inventory.
One dealer described the program as a blatant attempt by GM to seduce its dealers into taking more inventory than they can sell.
Hmmm, reminds me of another company that did something similar … I think they go by the name of Chrysler. Look at the mess that turned into.
The GMT-900s are not selling all that great either. Some models are seeing increased sales, while some are seeing dropping sales. Overall mixed results, and certainly not what GM was claiming would happen.
Reminds me of the joke going around Detroit before American Motors was bought out. AMC wasn’t a business- it was a hobby, as IRS rules required you to make a profit in at least one out of the last five years. If not, it was presumed you were trying to run hobby expenses through a fake company.
So they are losing $1,000 per car at Lordstown and that is a good thing ? Only in America. Now lets negotiate higher wages.
So they are losing $1,000 per car at Lordstown and that is a good thing ? Only in America. Now lets negotiate higher wages.
The amazing thing is that they're proud to be losing less on each Cobalt than they did on Cavaliers. Considering how long the Cavalier was in production and how many of them they built, just how much did they lose on it? And how could they lose money on a model they didn't make any substantive changes in for years, when the tooling and design costs should have been paid for after the first few years of production?
I guess it didn't really matter that much to them at the time since the obscene profits on SUVs and trucks kept everything afloat. But their cavalier attitude towards production costs then are really biting them in the ass now!
GM’s Credit Default Swaps, financial instruments bought as insurance against GM defaulting on its bonds (Ch 11 Bankruptcy) are the cheapest they’ve been in several years. Translation; the world’s highly efficient, highly liquid debt markets think GM is in the best shape, with their lowest chance of Bankruptcy since before the GM Deathwatch series began.
RE: Glenn A.,
Foreign branded cars must have a much higher market share in California than 50%. The foreign branded cars have taken about 70% of the market in New Jersey.
Jerry Webber:
Toyota, who will pass gm has exactly two types of dealers in the US. toyota and lexus.
Um, make that three, Scion.
Groovdog:
February 1st, 2007 at 11:50 am
GM has 33% of the US dealer base and about 18% of retail sales. GM (as with most OEMs) dealers do very little fleet (sub 5 vehicle fleets mostly). Dealer base needs to get cut in 1/2 especially on the coasts.
I love this armchair, anecdotal analysis.
I work in a town 45 minutes from the next closest car dealers. This town has a lone Chrysler/Jeep/GMC combo dealer. Guess what kind of cars and trucks a huge percentage of local residents drive? The market share here of Sebring’s has to be the highest in the US outside of a Thrifty rental lot. There are some advantages to having a large dealer network. But if you live in Suburban LA with you head stuck up your ass you’d never know it.
Frank Williams:
February 1st, 2007 at 10:32 am
“So they’re losing $1K on each Cobalt they build but they’re taking “saturdays … and even the vacation down period” to build more. Am I the only one who sees something inherently wrong in this business plan?”
Frank et. al., could it be that GM made both the Cavalier and now the Cobalt at a loss for the CAFE credits? That way they can sell their more profitible but less fuel efficient large cars (and trucks?) for a profit. This has been done before. I remember one of the goals of the Neon for Chrysler was that it would turn a profit, meaning that the previous generations (Saundance & Shadow, and the Omni & Horizon before it) did not.
airglow: Where I live scion is a sub set of toyota sold in the toyota store, maybe they have independent stores in other places but not in Pa. So they didn’t increase their costs that much to market scion in an existing toyota store. That being said GM has consolidated their franchises and there are few stand alon buick stores. The problem now is the model proliferartion will drive a multi-franchised domestic dealer nuts. How to inventory so many differen kinds of products? We have at home a chrysler, dodge, jeep dealer. How would you like to have twenty some models with all their variations in stock? And if you don’t that’s the one the customer out front is looking for. As Farago says you can’t let these franchises die by cutting product say dodge cars or pontiac & buick. So you badge engineer onward losing money and weakening the dealers along with the factory.
Scion don’t have a stand-alone dealer network, to my knowledge. They’re sold within Toyota stores.
airglow, yeah, I agree with you in that some small towns (such as Honor Michigan) have a single new-car dealer. The one there happens to be Dodge-Chrysler-Jeep. It also sold Suzuki’s in a dealer near a larger town, but then the local Chevrolet dealer bought it all up and closed Suzuki – drove past on the way home from work on a Friday, Suzuki dealer. Drove past on Sunday to go to town for some shopping – what the?!?! No Suzuki dealer, totally empty lot, not even any used cars. Curiousity got the better of me. I drove onto the lot, got out, looked in the store. Waste paper baskets had trash, plants standing there in pots, paperwork on desks. No cars. Everything, gone. Jobs, gone. Pretty dumb in a way, since Suzuki’s sales is up like 27% on the year. But hey, if you can’t beat ‘em, buy ‘em and close ‘em I guess.
Historically speaking, in fact, Studebaker managed to “hang on” until 1966, because it had little mom & pop dealers in small towns. Kaiser-Jeep, too.
Interestingly, Toyota and Nissan started out using such a strategy in the 1960’s. “Nobody” selling “real” cars wanted to handle these weird Japanese things from a nation the great big bad-ass US of A had kicked in the hiney in a war. A lot of used car dealers in smaller towns are now millionaires.
Perhaps this is how the Chinese or the Indian car manufacturers will start out in the USA.
My short take on what GM needs to do to survive in North America, after watching the auto industry with high interest for about 40 years.
1) Cut down to Chevrolet and Cadillac, only, in NA. Even if the company has to go through Chapter 11 to do it. To make it more equitable for all GM dealers, and to improve the remaining dealerships, pull ALL GM franchises and only re-assign Chevrolet and Cadillac dealerships to the BEST dealers in any given region. Doesn’t matter if they used to be a Saab dealer, Saturn dealer, GMC dealer, Hummer dealer, Chevrolet dealer, Pontiac – Buick dealer or what.
2) Close out the plants which are not in the top 30% of efficiency, low production costs and flexibility. Make the remaining plants into flexible production plants. Do it within 60 days, so as to not let the dealers run out of product. Introduce new product, but only introduce it once it’s RIGHT.
2b) Resurrect some of the dead brands’ better cars as a Chevrolet, such as the Toyota built Pontiac Vibe (becoming the Chevrolet Vibe), and maybe Saturn 2 seater.
3) Stop producing low quality product! Toyota and Honda, Subaru and even Nissan, Mitsubishi, Hyundai and Kia can and do build a better product than GM on the whole. It’s not brain surgery, FIGURE IT OUT AND DO IT.
4) Adopt the Toyota methods of actually helping suppliers to make a profit AND reduce costs only if possible, instead of brow-beating the suppliers into bankruptcy.
5) Take the extra money from the pension plan and plow it into the medical plan for retirees. Tell the pensioners, hey guys, this is reality. There’s only so much money to go around; we screwed up and are taking the hit for it now and unfortunately, so are you.
6) With this in mind, take a new broom and replace most of the executive ranks, with just enough of the current, best executive ranks left over to carry over some of the better parts of GM corporate culture (assuming same exists).
7) Tell the UAW and CAW – we have got this many jobs here, here and here. We want flexiblility to run our own plants and place people where they’re needed. Either sign on with this,
-or- we simply move our machinery to China, South Korea, Brazil, Mexico and import. And mean it. No bluffing.
8) Lose the “talk, talk, talk” culture of “well, our NEXT cars are the ones that are going to be better” (i.e. we know our cars suck) and just make good cars, or nothing at all in any given segment.
9) Put a REAL bumper-to-bumper 10 year 100,000 mile warrantee (not “oh, sorry, the brake rotors warping aren’t covered – it’s in the fine print” sh!t like what finally drove me away from GM over an $80 bill on a 2 year old Cavalier). Make sure the dealers actually back it up. Oh yeah, include all oil changes, servicing and maintenance as part of the price of the consarnat vehicle right through 10 years 100,000 miles, so there is no excuse on anyone’s part. Won’t this by God be an incentive to make the cars right the first time? YES.
If GM can’t build a car to withstand that, then GM should close up shop, roll over and die. Modern cars should be able to go 250,000 miles. Many Toyota Corollas and Honda Civics can, and do.
10) Send the shell-shocked, remaining dealer network employees to customer training courses, and adopt Saturn-style fair pricing for all across the new, smaller Chevrolet and Cadillac dealership networks. Then, ONLY BUILD CARS WHEN ORDERED FOR SALE BY DEALERS OR INDIVIDUALS.
30 days of inventory on the lot, MAX, 15 days MIN.