By Robert Farago
May 28, 2008 - 6,656 views
“Rich people don’t care [about high gas prices].” Bob Lutz’ statement– made during the launch of GM’s new SUV’s in August 2005– encapsulates the automaker’s history of arrogance, ignorance and self-delusion. Then again, what else could GM’s Car Czar have said? Whether or not GM should have seen the gas crunch coming, the die was cast. Now, as gas prices crest $4 a gallon, as Delphi and GMAC teeter on the abyss, as GM’s stock price hits a historic low, GM’s slide into Chapter 11 is beginning to assume the mantle of inevitability. And why not? There is no Plan B.
Clearly, GM’s Plan A– make better SUVs and pickups– was a non-starter. Not to belabor the obvious, but soaring gas prices gored GM’s cash cow. Year-to-date, the General’s high-profit SUV and truck sales tumbled 22 percent. In April, GM’s truck sales fell by 27 percent. Sales of the once all-conquering Chevy TrailBlazer fell 73 percent. Despite the Chevy Silverado’s perch on America’s top ten list, despite their new CUVs, the company that made billions on high-profit light trucks is making billions no more.
A new charge of the light truck brigade is not a possibility. Even if U.S. gas prices suddenly descended to $3 a gallon, American consumers will continue to approach gas guzzlers with a ten-foot pole. It would take a good year of relatively low– or at least stable– gas prices to lure buyers back to… no. Actually not. Once backwards, twice shy. And if that doesn’t send the pickup and SUVs genres back to their original, pre-90’s market share, federal regulations and fashion will.
What GM needs right now– and for the foreseeable future– is six brands' worth of class-leading, fuel-efficient automobiles that will, at the very least, stop SUV refugees from jumping ship. That it ain’t got. Not now, and not a year from now.
Meanwhile, American new car sales in general, and The General’s share in specific, continue to crater. Cadillac, Chevrolet, Buick, GMC, Hummer, Pontiac, Saab and Saturn are ALL losing market share in an American new car market that shows no signs of recovery. Inventories are piling-up; every single GM light truck has more than 100 days supply. Despite the obvious light truck glut, GM’s outdated business model is forcing the company to restart truck and SUV production. As it does so, GM’s prospect for its unspecified “turnaround” move from bleak to non-existent.
Contrary to popular belief, foreign profits can’t staunch the arterial spray of red ink; the carmaker’s losses in the North American market are too deep and too broad. GM has assured the markets that it has adequate liquidity to weather the storm. On March 31, GM reported a $24b cash pile. That's $6b less than six months ago. No one knows how much that cash pile lives stateside. And given that GM’s accounts are [officially] unreliable, there’s no exact way of knowing what additional calls will be made on that cash. There will be many…
Delphi’s restructuring plan is, once again, in tatters. Given GM’s ongoing reliance on Delphi for parts, the chances are high that this sinkhole will claim even more of GM’s money. By the same token, an unknown number of GM suppliers have hit/are about to hit/will hit the wall. As the American Axle strike and Plastech bankruptcy prove, GM’s only as strong as its weakest supplier. When Chrysler goes down… It’s only a matter of time before other parts makers suck-up GM’s cash.
At the same time, GM’s part-owned ResCap mortgage unit needs $600m to stay afloat; co-owner Cerberus won’t be ponying-up the funds. If ResCap files, it could well take all of GMAC down with it. If GMAC files, GM won’t be far behind… The General will open its wallet to stave-off that eventuality.
In the midst of all this, the central question bedeviling RenCen has now become: what can we do to hold out until the U.S. market recovers? The obvious answer: nothing. There is nothing GM can do in the short to medium term to bank enough profits to save itself from Chapter 11. U.S. franchise laws and GM’s depleted financial reserves make it impossible for GM to do what needs doing: jettison excess dealers and dead brands (everything save Chevrolet and Cadillac) to trim itself down to a sustainable, indeed, profitable level.
Surely GM CEO Rick Wagoner knows this. Logic suggests that if Wagoner knew for certain that GM was condemned to file for Chapter 11, he would unfurl his golden parachute and float off to some exotic tax haven, leaving someone else to suffer the final ignominy. And surely presidential candidate Hillary Clinton knows that only a stroke of fate (so to speak) could propel her to the White House.
The truth is that GM’s refusal to admit the possibility of defeat doomed it from the start.
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May 28th, 2008 at 3:32 pm
I have to disagree that there was no Plan B. Plan B consisted of the Aura and Daewoo. Not much of a plan, as it turns out, probably not even as good as Plan A.
All the hype surrounding the Volt seems to serve as the foundation for Plan C, by casting a halo on the other products. At this point, Plans A and B are starting to sound pretty good…
May 28th, 2008 at 3:50 pm
GM doesn’t really have any options. Ride the train to its’ ultimate train wreck while hoping that the Volt or cheap gas will save it. I don’t consider either of these two options realistic. Maybe the government will come in after GM files and keep the foreign companies from buying up all the goodies. Greed and mismanagement have pretty much sealed GM’s fate. And nothing can be done about it.
May 28th, 2008 at 3:51 pm
At some point don’t they legally have to publicly admit to this. If they go CH 11 after proclaiming everything is fine how is that going to look? Does anyone know if the board of bystanders is even remotely aware of the condition of GM?
May 28th, 2008 at 4:01 pm
I guess they don’t teach plan B tactics at the Harvard Business School.
May 28th, 2008 at 4:21 pm
cheezeweggie,
They also do not teach automotive design and engineering at Harvard Business School.
Finance and accounting guys, not engineers, run GM - that is the real reason GM will fail.
-ted
May 28th, 2008 at 4:22 pm
The question is will GMs next gen products get here fast enough and be good enough to save them from the truck crash. I am thinking no..
May 28th, 2008 at 4:24 pm
This could explain GM’s insistance on a 2010 launch date for the Volt.
They don’t expect to be around to have to explain it.
Bunter
May 28th, 2008 at 4:26 pm
All the hype surrounding the Volt seems to serve as the foundation for Plan C
More distraction than plan. When a company the size of GM cannot point to anything it is currently doing, and instead has to point to the next big thing (coming 2010, promise!), it speaks volumes. The cupboard is bare, and the wolves are at the door…
May 28th, 2008 at 4:29 pm
At some point don’t they legally have to publicly admit to this. If they go CH 11 after proclaiming everything is fine how is that going to look? Does anyone know if the board of bystanders is even remotely aware of the condition of GM?
They never have to admit anything was wrong. They can just loudly say “Well, gee, we thought it was the right decision.”
And it’s up the shareholders to prove that it wasn’t, not up to the board to prove that it was. Even if it’s obvious to you and me, that’s a lot different than being proven in a court of law.
May 28th, 2008 at 4:36 pm
GM does need fresh management and I mean a complete overhaul. It does make me wonder why there hasn’t been a shareholder revolt. In the UK Vodafone posted a £14.9 billion loss and 10% of shareholders wanted the CEO’s (Arun Sarin) head. So why hasn’t there been a similar reaction at GM when their stocks are at their lowest since 1982?
Another problem GM has is they are so low in the public eye that they are realeasing press statements about technologies which they should be keeping quiet about unti, they perfected it. A good example is HCCI. If GM can do it, then it’ll be great for GM, but the bit which is spoken about less often is that Volkswagen, Ford, Toyota and Nissan have been working on HCCI also, they just didn’t shout about it. Which gives one an idea of how desperate GM are to stay in the public eye for the right reasons.
Contrary to popular belief, foreign profits can’t staunch the arterial spray of red ink
Unfortunately, GM are losing this bastion, too. GM Europe posted a £126 million loss in 2007.
Mind you, GM are getting their house in order. They are starting to make Chevrolet and Cadiallac their core brands. In europe, GM has put Chevrolet in direction competition with Vauxhall/Opel. I believe that GM will let Chevrolet cannibalise sales from Vauxhall/Opel and eventually retire those brands. Likwise, Cadillac is doing the same, but with less successful results.
For every successful step forward GM make, Lutz, Wagoner and Henderson drag the company back two….
May 28th, 2008 at 4:36 pm
More distraction than plan.
I should have put “plan” in quotes. Because as Mr. Farago points out, there was never much of a plan to begin with.
Referring to any of these bad moves as a “plan” is to give either A, B or C far too much credit.
The Wagoner “turnaround” (see those pesky quotes again) has been based upon building versions of the same trucks in 2007 that pulled GM from the brink in 1997. That was never much of a plan to begin with.
I’d say that GM’s stock price is foreshadowing the coming decline of oil prices. (You knew that I’d work that into this.) For a bit of time here, we had a GM stock bubble, based upon speculation that GM might pull out of its nosedive.
The only problem with this was that such a leap of faith required the intrepid speculator to ignore most of the indicators. Now, the market is waking up — there is no product to make a turnaround happen. Even the bright spots, such as the Malibu, can’t possibly sell well enough to overcome all of the problems.
Now, they’re just living on borrowed time, their cash reserves. Without profits or credit, the only thing left is burn rate, and the burn is just about as good as it’s going to get.
May 28th, 2008 at 5:02 pm
Put simply, if GM waits too long to file 11, they have to go 7.
May 28th, 2008 at 5:08 pm
Katie - GM’s transitioned from a company that makes cars and truck to one that makes press releases. Cheaper, faster, easier method!
Don’t forget one of the HCCI front runners as Honda has several working prototypes and test vehicles plodding around.
May 28th, 2008 at 5:10 pm
for eight years I’ve been trying to convince them of the errors in their ways. having met with the top of the top at GM, all I found was arrogance, self righteousness, and was subjected to ridicule. three years ago I tried distributing a copy of my plan “Return to Greatness” at the shareholder meeting. Red Ink Rick had security threaten to remove me from the premises.
does the possibility exist that he and his banker cohorts have planned this all along? blow it into oblivion and privatize the pieces without legacy costs and wages reduced by half. perhaps this series should be retitled General Motors Death Wish.
May 28th, 2008 at 5:27 pm
It would be interesting to know what contracts they could get out of under US bankruptcy law, for example dealer agreements? And would it matter?
May 28th, 2008 at 5:34 pm
“Rich people don’t care [about high gas prices].”
I guess GM figured everyone who’s not a millionaire would flock the the … uh … Aveo? (snicker)
May 28th, 2008 at 5:37 pm
boofie59 :
It would be interesting to know what contracts they could get out of under US bankruptcy law, for example dealer agreements? And would it matter?
C11 would allow GM to ditch all its dealer franchise agreements. All of them, across the entire U.S. It’s the single largest reason to file.
They would NOT be able to suspend the UAW agreements; that move requires a federal judge’s court order and he/she is not likely to do so unless and until the union gets arrested for peddling meth (or some such thing). As Delphi’s bankruptcy shows, removing that particular “obstacle” is a matter of endless– not to say endless– negotiation.
The single largest reason NOT to file? Would anyone buy a car from a bankrupt car company? That’s the subject of my next GM DW.
May 28th, 2008 at 5:48 pm
It’s been like watching the world’s largest supertanker aiming straight for the cliffs underneath the world’s largest active lighthouse - engines working at maximum revolutions.
You really have to wonder at the sheer cluelessness exhibited by GM management throughout.
Can you remember a few years ago, when Toyota actually pondered hiking the price of their models, in order to “assist GM.” They saw it coming, and GM continued to pretend all was clear sailing.
I just don’t see how people can even consider buying a GM vehicle, if they know what’s going on behind the facade.
May 28th, 2008 at 5:50 pm
Robert,
they may go 11 but I highly doubt you’d see franchise agreements terminated en masse. they may have a Death Wish and a nefarious plan but the dealers control/own their customers and GM could never reformulate, privatize, and refloat if they pull all the dealer agreements.
May 28th, 2008 at 5:55 pm
You took the discussion to a good point/question:
If GM files C11, it seems like nobody will buy the cars… so it’s the end.
If GM doesn’t file C11, with the current losses the have, it will end in “another” way.
Whatever they do, it seems they’re toast.
So, given that both options are fugly How is GM going to end? No option is good, there’s not even one less bad than the other.
If GM goes kaput, who’s going to buy its “divisions”? Who is going to buy any of the remaining cars?. What’s going to happen with the workers, employees, factories around the globe?. We are talking about near 200 countries with factories and more than 200K employees/workers.
And that is just GM… then you have to add parts suppliers, contractors and a long, large etc of people/business that depend of GM.
This situation has to have a solution, whatever ugly or hard it is.
Those should be the questions Wagoner et al must have at their minds everyday. Or not…
May 28th, 2008 at 5:58 pm
“dealers control/own their customers”
Barkeep, whatever he is drinking, pour me one.
May 28th, 2008 at 6:06 pm
“he single largest reason NOT to file? Would anyone buy a car from a bankrupt car company? That’s the subject of my next GM DW.”
I can answer that question for you. Mr. Farago: no. So pretty much, when any car company files, they are unoffically dead. Nobody would buy a car from bankrupt car manufacturer in fear of not being able to find parts and their warranty not being honored. That is probably the reason why Lee Iacocca went to the White House to get help to get Chrysler on its feet, instead of filing. So in a nutshell: If GM files, all of their customers will run away in droves, and it will be over. If they don’t file, all of GM’s dead brands and useless assets and suppliers will keep sucking up all of their money, and since their management are too dumb to do anything about it, they will just let everything happen as normal, GM will eventually run out of money, and it will be over. It seems that unless the management does something drastic (which I doubt), GM is going to die. It is not a option one or option two kind of thing, because both easy options will lead to GM dieing.
But what Katie said about GM is true. I have long noted the whole “One step forward, two steps back” plan at GM. The most recent example is how GM was on a roll by launching a string of competitive new models: The redesigned Cadillac CTS, the Buick Enclave/GMC Acadia/Saturn OUTLOOK, redesigned Chevrolet Malibu, and the new Saab 9-3. Then the two steps back: Rick Wagoner deciding that the aforementioned step forward was incentive to give himself a pay raise (although I think GM’s R&D team deserves the pay raise more than you for that, Rick), and the American Axle strike.
GM has been doing the whole “one step forward, two steps back” thing ever since they started their nosedive. in fact, the Desert Rose Band song “One Step Forward” has become a theme song for GM for me. “One step forward/two steps back/nobody gets too far like that”. I think all of GM’s upper management needs to give the song a good listen. Scratch that, they need to read this site.
Despite this, the question that has been boggling my mind since GM posted their huge loss last year is “what does it take to get Rick Wagoner fired?” But, I think the biggest problem is that the management seem to think that GM is too big to die. I guess they must have forgotten what happened to American Motors, or Montgomery Ward, for that matter.
May 28th, 2008 at 6:11 pm
“dealers control/own their customers”
Barkeep, whatever he is drinking, pour me one.
not the case probably with the vast majority of knowledgable, independent thinkers who read and post on this site, but in reality this is true to a very large degree. there still is some loyalty in the world and years of service/goodwill lead to
repeat followings.
btw it’s Hennessy.
May 28th, 2008 at 6:21 pm
Pure comedy. People have been saying GM is going bankrupt for over 20 years. And people will be saying GM will go bankcrupt the next 20 year. GM is going nowhere.
May 28th, 2008 at 6:37 pm
I feel the GM death watch is going to continue for a while. they dont seem to want to change. at all.
on the other hand. is it time to consider a Ford Re-Birth Watch? They are the only one of the Detroit automakers that is actually doing what needs to be done. The company is getting itself right-sized. The next-gen of products are going to be world wide products. Quality is on its way up. Heck they even have some good looking cars coming in the near future AND they are relevant to the current market! Eco-boost looks promising. if they could sell off Volvo and Mercury they would be in great shape.
May 28th, 2008 at 6:39 pm
AlmostFamous:
Pure comedy. People have been saying GM is going bankrupt for over 20 years. And people will be saying GM will go bankcrupt the next 20 year. GM is going nowhere.
Glad I could lighten things up a bit. But here’s the thing: GM HAS been going bankrupt for 20 years. I also agree that GM is going nowhere.
May 28th, 2008 at 6:40 pm
How about instead of GM Death Watch…TTAC switches to GM Bankruptcy Wish list? I think the writings on the wall now and that bankruptcy is certainly the most likely outcome so maybe we should all just start looking ahead (unlike the Lutz-zites). I’ll start things off…
1. Destroy the UAW without mercy. Please refer to the Toyota way for the best means of extracting literally life-ending labor out of your workforce (y’know, death before dishonor and all that)
2. Destroy Buick and Pontiac with extreme prejudice (lets be environmentally friendly here and just scrap them, as opposed to the tradition of burning a la France)
3. Destroy the Hummer H2 with hateful prejudice, go full-speed ahead on H4 to take on a dying Jeep.
4. Eliminate, no wait..bulldoze the thousands of seedy, crappy dealerships that inundate my good state of California (and your states too) with much joy and enthusiasm until you’re down to LESS dealerships than Toyota.
5. Put as much money as you wasted on the GMT9000 (which for god’s sake still doesn’t have an IRS or rear-folding third row) into making a small car that doesn’t make you puke or lose your bowels
6. Eliminate Buick and Pontiac…oh wait, did I already say that?
7. Fire, nay, kick out the door…Wagoner and Friends. Lutz is almost retired anyway.
What say you? I know TTAC has done a much much better job of this than I can!
May 28th, 2008 at 6:54 pm
Perhaps this is a good time to unify the USA and EU laws concerning vehicle emissions and safety equipment. That way the Big 2.8 could switch the USA over to the efficient European vehicles (imported or switch the USA factories). Sure, we still wouldn’t see diesel models because of the lack of infrastructure for refining the fuel and the fact that Europe already uses lots of it. However, we could see lean-burn gasoline engines, smaller displacement engines, and lighter and smaller cars quite quickly. Plus, if fuel refining requirements were more in line with Europe’s, we could better share technology as well as do away with much of the “boutique” blends that can sometimes temporarily drive prices sky-high in some regions.
May 28th, 2008 at 6:55 pm
Another question is how long can the GM dealers survive. I think many, if not most, of them are making profits only on sales of used stuff now, but can this be sufficient to cover the floorplan and fixed costs? As I understand it, they are forced to buy certain volumes of new stuff from GM whether they want/order it or not, and it sets on their lots while they pay floorplan for stuff they can’t sell. My local Chevy/Caddy dealer had a HUGE inventory of trucks before the AA strike and now has just too many. According to a sales person there, most of those that disappeared went to other dealers or to brokers at a loss for the dealer after covering floorplan for months. Meanwhile they have to cover their fixed costs. And as sales of new whither, income from the repair shop does the same. This can’t go on even if GM somehow manages to postpone Chapter whatever.
As said above, where the hell are the stock holders? Clearly the board doesn’t give a rat’s, but I just don’t understand the stock holders. I’m ready for Mr. Lutz to describe the happy scenario that only he and Mr. Rick see.
May 28th, 2008 at 7:00 pm
What do you mean,”GM’s slide into Chapter 11 is beginning to assume the mantle of inevitability?”
Hasn’t that been the underlying premise of the GM Death Watch since its inception some time back in the Paleozoic?
May 28th, 2008 at 7:02 pm
“Rich people don’t care [about high gas prices]” is still correct with respect to refueling. What the rich do care about, however, is how those high gas prices create very low residuals as the not-so-rich bid for the lease returns.
Are there examples out there of vehicle pairs only differing in fuel efficiency (and engine power) where the wimpy vehicle has a much better depreciation? I know diesel VWs and Mercedes were doing extremely well until diesel shot through the roof. How about, say, Honda Accord or Toyota Camry models where you compare the I4 to the V6 model?
May 28th, 2008 at 7:07 pm
“Rich people don’t care [about high gas prices].” Bob Lutz’… that might be the case but Bob’s not selling Cayennes or Range Rover Sports so he better wise up.
May 28th, 2008 at 7:14 pm
NoSubstitute:
What do you mean,”GM’s slide into Chapter 11 is beginning to assume the mantle of inevitability?”
Hasn’t that been the underlying premise of the GM Death Watch since its inception some time back in the Paleozoic?
Yes and no. I didn’t really believe GM was going under when I wrote GM Death Watch 1. As the series continued, as I looked closer at the fundamentals, it became clear to me that this dog won’t hunt.
There were several turning points. Reading David Halberstram’s The Reckoning focused my mind. Maryann Keller’s call for a “sense of urgency” at GM sure got my attention. I actually pronounced The General RIP in Death Watch 33.
Somewhere between GM DW 33 and this episode, the idea of a GM bankruptcy gained currency. And then The General convinced the media and industry analysts that they had a plan! There was a turnaround in the works! I found the fact that the mainstream media accepted this plan– which had neither timeline nor goals (still doesn’t)– shocking.
As GM’s stock price clearly indicates, that faith has gone. And while some of my contacts still speak of recovery, there is an increasing awareness that GM might not make it. Considering GM’s impact on the U.S. economy, it’s about time. The question is: now what?
I think onthercks07 has some good ideas. But first, I’ve got to address this C11 = death idea….
May 28th, 2008 at 7:33 pm
Dynamic88 :
May 28th, 2008 at 5:02 pm
Put simply, if GM waits too long to file 11, they have to go 7.
I’ve always argued that 11 leads to 7 no matter what. People won’t buy a car from a “bankrupt” automaker, even if it’s only Chapter 11. They will be afraid the company will go completely kaput, leaving them with a car with no warranty and no source of spare parts. That is, even though 11 allows GM (or Ford or Chrysler) to dump dealers and brands and union contracts, their sales will collapse even further, negating any positives those bring.
Chapter 11 simply isn’t a viable option in the real world, IMHO.
May 28th, 2008 at 7:34 pm
reading which inspired me:
Rats in the Grain (there are Rats in the Glovebox)
Atlas Shrugged (GM led by “looters” not “producers”)
General Motors Death Wish 1
look at market share loss over twenty years and it’s a descending flight of stairs. stupidity is not that sequential, rather it’s all over the place. even a blind cat catches an occasional dead mouse. these are very intelligent people. consider that BK is “the plan”. we may have no idea how deep the evil lurks.
May 28th, 2008 at 7:35 pm
I’d say that GM’s stock price is foreshadowing the coming decline of oil prices. (You knew that I’d work that into this.) For a bit of time here, we had a GM stock bubble, based upon speculation that GM might pull out of its nosedive.
Coming decline in oil prices? LOL!
Let’s talk about speculation. Usually even the outrageous speculation starts with a kernel of truth, which then proceeds to defy the laws of gravity, until it does not.
With the speculation on GM stock, I never saw any reason to believe they were pulling out of the nosedive, other than a rather lame promise of future excellence (”Wait for 2010!”).
I guess patriotism comes into it. People want to believe that GM is getting it, is getting their stuff together, will come out swinging. Memories play a role. Others may believe that GM is really to big too fail. I mean with all the brains they have in their organization they must know how to do this.
But there was never any evidence of a turnaround, even when Mad Jim Cramer was singing their praises.
Now reality has caught up with the hype. As it always does…
May 28th, 2008 at 7:38 pm
Even if GM goes chapter 11, they will still continue selling cars. And whatever form GM takes after Chapter 11, they will continue selling cars. And with obligations to the “old” company. Because otherwise, they wouldn’t be selling any cars at all in the future. Even the sales of today rests on the assurance that GM in whatever form it takes, will continue selling cars for the rest of eternity. Or otherwise, why would anyone TODAY buy GM-products at all? So, all this “If GM goes chapter 11, no one will buy a GM car” is a load of bollocks.
Whatever happens, the factories will be running, cars will be sold. Perhaps sales will go down, some factories will be closed, some lines will disappear, a lot of unionized people will end up unemployed, some cars that wasn’t good in the first place will be discontinued. But that ain’t a bad thing. The Phoenix rising from the ashes will be a better and more profitable company, producing and selling the cars that they are actually good at, and that people actually want. And that ain’t a bad thing.
Even if sales goes down by 50%, profit will go up. And the shares will actually sky-rocket. A leaner, meaner GM is not in the same league as Cerberus/Chrysler. Chryslers portfolio ain’t that thick. Even when all redundancy has been washed away from GM, they will still have a big portfolio of decent, profitable, sellable cars and trucks. I would even say that a chapter 11 combined with shaving off all redundancy and overheads will be the best thing that has happened to GM since, well, forever…
May 28th, 2008 at 7:59 pm
what does it take to get Rick Wagoner fired?
I suspect that will be his lasting legacy. The fact that his sheer incompetence did not get him fired within six months, is amazing. That the Board of Bystanders then (4/2/06) granted him a vote of confidence, is mind-blowing. That they did not attach any goals or timetables for Wagoner to meet with their vote of confidence, is inconceivable.
How does he do it? This guy could teach most politicians (already skilled in the art) a lot about avoiding accountability, and taking credit for the good things that the gullible believe would soon happen. Next quarter. Or the next. No later than 2010, for sure.
And lets not get started on the quality of reporting that surrounds Detroit in general, and Wagoner in particular. Every word is repeated breathlessly, without question or fact-check, as if the great leader just allowed the sun to rise. Again.
This guy will be the inspiration for a whole generation of underhanded CEOs, politicians and other leadership types.
May 28th, 2008 at 8:03 pm
“In Europe, GM has put Chevrolet in direction competition with Vauxhall/Opel.”
Taking the Chevrolet and Cadillac brands into Europe is so stupid it makes me want to scream. After decades of building indigenous brands in Europe there is no reason to try and spread that crap around. OMG.
“Whatever happens, the factories will be running, cars will be sold.”
There is no immutable law of nature which keeps GM going. Ask the good folks of British Leyland how it turned out. Remember when PanAm and TWA were the dominant international airlines? Gone. Remember the Polaroid Corporation, one of the hot stocks of the 1960s? Gone. RCA? Gone. Just because GM is big doesn’t mean it will live forever.
“Even if sales goes down by 50%, profit will go up. And the shares will actually sky-rocket.”
Chapter 11 almost always results in the common stockholders getting zeroed out. Their shares get canceled and are worthless. IF there is a recapitalization, new shareholders buy new shares and MIGHT get to participate in the revival, but anyone caught holding the stockholder bag on B-Day generally gets a big fat nothing.
May 28th, 2008 at 9:27 pm
I’ve said it before. When General Motors goes under, and I mean “Titanic” like - le morte - kaput - tango uniform - DEAD dead - there won’t be a sufficient number of automobile plants to churn out a sufficient number of US specification vehicles for the marketplace, even assuming a HUGE and if I could underline it and bold it, HUGE reduction in sales potential for new vehicles due to the insuing recession following GM going under…
You’ll see how I’m right when -
-State Governors will beg the Chinese and Indian automakers (such as the Indian conglomerate Tata, which is valued at much more than General Motors and has been for several years) to come in and take over ex-General Motors factories to produce new designs, or old. Anything to bring jobs back.
-State Governors will be flying to communist China and India grovelling to have any kind of jobs coming into their states and will offer tax incentives like monopoly money (or, more to the point, like the US Dollar)
-Thousands of dealers will be scrambling to add franchises for Mitsubishi, Suzuki and whatever other minor players have open areas where they are located, in order to have the benefits of a new car dealership (which allows them benefits at car auctions not shared with used-only dealers, for example)
Chrysler is also more than very likely to crap out. Ford may be the last man standing (and having shut down so many plants, they cannot full take advantage of the dead cat bounce to be seen when GM and Chrysler die)
May 28th, 2008 at 9:57 pm
Nobody Will Buy a Car from Company in Bankruptcy
well not quite, depends on the price asked.
May 28th, 2008 at 9:58 pm
Buickman: “there still is some loyalty in the world and years of service/goodwill lead to repeat followings.”
Your optimism about human nature is charming, but not realistic:
“If you want gratitude, buy a dog.”
–Samuel Goldwyn
“If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man.”
–Mark Twain
Robert one for you:
Gegen die Dummheit kämpfen die Götter selbst vergebens
Against stupidity the gods themselves fight in vain.
–Schiller
May 28th, 2008 at 10:29 pm
Looks like the illustrious GM board is still happy with Rick and his helpers. Here’s a quote from the WSJ today:
Despite GM’s troubles, Mr. Fisher, a former Eastman Kodak Co. chairman, said the board supports Mr. Wagoner and believes GM has the “best management team to get us through these difficult times.” He pointed to solid products and strong international growth as benchmarks of Mr. Wagoner’s success.
Another GM board member, Kent Kresa, said in a phone conversation Tuesday night that GM “management has a handle on the situation.”
New restructuring actions could include the elimination of some slow-selling models. Mr. Wagoner also will unveil plans to boost revenue. Mr. Wagoner was counting on GM’s recently redesigned trucks and SUVs to power a turnaround, but it is turning into a costly mistake.
Amazing.
May 28th, 2008 at 10:41 pm
I think Wagoneer keeps his job the same way 20% of American’s still trust the President, cannot admit that he has ever made a mistake, and literally heed his every word - almost worship the ground he walks on (Liberty College which was started by Falwell is a major recruiting station for devout students / loyal bushies into politics and government). I was reading an article on the die hard Bush followers - seems Bush has these followers are psychologically linked (either through 9/11 or some other closeness - maybe devout religious belivers) and cannot see the other side nor will then ever put themselves in that position of enlightenment.
I see it as Wagoneer’s best friends are on the Board and are some of the largest stockholders - so long as they make substantial money off the dividends they are happy. Wagoneer’s friends on the board do not act like bosses - more like golf buddies who love him so much they look past his job performance and the mess that he is making - so far past that they give him a huge bonus.
May 28th, 2008 at 10:52 pm
Oh, Eastman Kodak’s former executive has faith. That’s fantastic. Blind leading the blind if I ever saw it.
The ugly part of this is twofold:
* The shockwave that this will cause will do a lot of harm to the global economy. GM is big and, unlike IBM (but like GE), it’s not that vertically integrated. If IBM imploded, the crater would be deep, but not very wide. GM’s destruction will be both deep and wide as they’ve their tentacles into everything.
* If GM craters anytime in the next two years, it will be titanically bad simply by virtue of how shaky the economy is. Putting thousands (tens of thousands? Hundreds? How wide could it go?) of people out of work, as GM’s insolvency would certainly do, on top of the existing credit crunch, would so contract the economy that we might have to start thinking about the “D” word.
If Rick Wagoner wants to avoid being known as The Man Who Launched the Second Great Depression, he should be looking to sell assets and maintain stability. Yes, parceling GM’s crown jewels off to SAIC, Tata and/or Fiat this would look like a failure of leadership, but, hey, it’s just that now–all we’re discussing is the magnitude of said failure.
If I were running for political office in the US, I’d be leaning very hard on GM’s management about now, because I sure as hell wouldn’t want to be in office during a re-play of the 1930s.
May 28th, 2008 at 11:28 pm
What’s GM got lined up in the pipe line? The Camaro and the Volt. Anything else?
May 28th, 2008 at 11:57 pm
For any business with GM’s core problem - higher cost price/lower selling price than an equivalent product by its competitors - the ultimate result will be the same: bankruptcy. Barring government intervention, the only variable is time.
Given the state of the economy and GM’s cashflows, it’s unlikely that the company has more than a year left. All of which makes my decision to buy an Opel last year look rather silly.
May 29th, 2008 at 12:01 am
I really don’t think bankruptcy is the end of the road for GM…the best example for this may be the airline industry. I mean, here you have an industry that is crippled by high fuel prices and lethal unions and aging fleet designs…sound familiar? So what’s the solution? Merge or declare bankruptcy! The fact that the federal gov’t allows them (w/o any sense at all) to compete at bankruptcy flight rates with their still afloat competitors means that GM can use bankruptcy to its advantage and literally become more competitive by ruthlessly cutting off fat i.e. the UAW, Buick/Pontiac, and dealers. Sure, there are airlines that do not emerge from bankruptcy (Eastern, Pan Am, TWA) but there are plenty of survivors as well (United, US Airways).
May 29th, 2008 at 12:29 am
@Ingvar: You say: “The Phoenix rising from the ashes will be a better and more profitable company, producing and selling the cars that they are actually good at, and that people actually want.”
If they can’t/won’t produce cars now that “they are good at” (whatever that means), how will BK change that?
The factories are running now and cars are not flying off the lots; what makes you think bankruptcy will reverse that?
Ever experienced the morale at a company under bankruptcy? People flee–accountants, engineers, support staff that place materials orders or process orders–to the point that the company limps along. Can’t produce world-class products very easily in that situation.
In a perfect world, bankruptcy restructuring is designed for a fresh start, to allow a company to rebuild its business. Does anyone forsee the golden-parachuted top brass at GM giving all their effort to this task? (see: Delphi)
crickets…
May 29th, 2008 at 12:36 am
At some point GM’s Asian/Euro/South Am operations will have to be cut loose. These would probably be worth more than the entire entity combined. That is, GMNA is probably worth less than zero right now.
May 29th, 2008 at 3:11 am
“If they can’t/won’t produce cars now that “they are good at” (whatever that means), how will BK change that?
The factories are running now and cars are not flying off the lots; what makes you think bankruptcy will reverse that?”
GM has too many brands, too many cars, too many factories, too many dealer franchises, that sell too few cars. A chapter 11 means they could make rid of all redundancy. Kill off or sell the brands they don’t want or need, discontinue all the models that overlap, close some factories, get rid of the UAW in one singels swoop, kill off the entire dealer network as we know it and build something new and better from the ashes, and finally, sell those cars in numbers that are actually produced.
All of this is good and sound business decisions, and should be able to make GM stand for themselves and deliver products and generating money after a restructuring. It would even be a healtier, more sound and more profitable company than it is right now. Last time I checked, Toyota had a net value of twice of that of GM and Ford combined, they are aerning money in the tens of billions every year. That net and that worth is how the market looks at GM of today. A restructrured GM could actually be worth ten or twenty times more in a slimmed down version.
May 29th, 2008 at 3:45 am
See you at GM Death Watch 200.
May 29th, 2008 at 4:56 am
I’ve always argued that 11 leads to 7 no matter what. People won’t buy a car from a “bankrupt” automaker, even if it’s only Chapter 11. They will be afraid the company will go completely kaput, leaving them with a car with no warranty and no source of spare parts. That is, even though 11 allows GM (or Ford or Chrysler) to dump dealers and brands and union contracts, their sales will collapse even further, negating any positives those bring.
I’m not so sure. For one thing, if GM files 11, Ford has to do it too (don’t they?). Some people will still buy “American”. Who are they going to buy from? Also people know the difference between reorganization and a tag sale of all the assets. It will be interesting to see RF’s take on the question.
May 29th, 2008 at 6:29 am
It’s very easy to tell when one of the Det2.8 are about to file for bankruptcy - whichever one hires someone who has taken a company through chapter 11, like when Steve Miller was hired at Delphi. RF - Have you heard of any of them hiring someone or a firm that specializes in bankruptcy? If not, then just read the news flashes as they come down the line and when it happens, get ready for the deathwatch that sends the company down the final spiral to business hell.
May 29th, 2008 at 6:53 am
Which one of GM’s cars would you miss, if all of their models were pulled from the market tomorrow?
AND
Which model(s) have no substitutes from other, better run carmakers who are not in the red?
That’s the double-edged sword hanging over RenCen managers’ heads.
May 29th, 2008 at 7:02 am
once again thee banksters have come out in support of Red Ink Rick. people need to understand that GM truly belongs to the banks who own two thirds of the stock. they enrich themselves through interest on the unbelievable long term debt and by garning large investment banking fees each time an asset is sold, or as in the case of Nissan merger, even when we “consider” such action. how much did we pay for “advice” in deciding not to merge? there is much to be learned by following the money. Fiat alone should have been Wagoner’s undoing.
May 29th, 2008 at 7:04 am
jolo:
It’s very easy to tell when one of the Det2.8 are about to file for bankruptcy - whichever one hires someone who has taken a company through chapter 11, like when Steve Miller was hired at Delphi.
GM hired Alix Partners in 2005. They’re still there…
May 29th, 2008 at 7:50 am
# Ingvar :
May 29th, 2008 at 3:11 am
“If they can’t/won’t produce cars now that “they A restructrured GM could actually be worth ten or twenty times more in a slimmed down version.
Ten or twenty times zero still equals zero. Does anybody know the actual assets versus liabilities? I can’t imagine it’s good nor can I believe the questionable figures from GM’s accountants.
onthercks07 :
May 29th, 2008 at 12:01 am
I really don’t think bankruptcy is the end of the road for GM…
Unlike a vehicle you purchase, you take your ticket and fly in a few days. I wouldn’t purchase a vehicle from a bankrupt manufacturer unless it was at a very steep discount. So steep in fact the manufacturer would be selling at a very serious loss.
May 29th, 2008 at 9:27 am
Gm needs to do what every poor company does- to start real work, and build the house back , brick by brick. A platform by platform. by building themselv they capitalize on expertize, but expertize is the best firewall against fit and finish and quality earthquakes. By the way, here is a little update for my car under construction. What do you think of it?
May 29th, 2008 at 9:31 am
Does anybody know the actual assets versus liabilities? I can’t imagine it’s good nor can I believe the questionable figures from GM’s accountants.
The liabilities already exceed the assets, and it’s likely that the value of the assets are overstated. Of GM’s $146 billion in assets, $43 billion of it is “property,” most of which is the depreciated book value of plant and equipment. It doesn’t seem likely that GM could sell its used factories for anything close to that amount, so in real world terms, they don’t have that much.
Another $17 billion is inventories, which includes that trucks that are sitting around gathering dust. I have my doubts that the $17 billion in inventory will generate $17 billion worth of cash.
They also have $185 billion in liabilities. A large chunk of that is in pensions, so perhaps that is ultimately overstated, in that they could eventually default on at least some of that. But other aspects may be understated. I’d bet that GMAC’s pending problems are not accounted for in the accounting.
Just in case anyone was counting, this means that the net equity of the company is -$41 billion. A big negative number.
May 29th, 2008 at 9:38 am
Stein X Leikanger: “Which one of GM’s cars would you miss, if all of their models were pulled from the market tomorrow?
AND
Which model(s) have no substitutes from other, better run carmakers who are not in the red?”
Vette. Maybe the CTS.
May 29th, 2008 at 10:26 am
Dynamic88: For one thing, if GM files 11, Ford has to do it too (don’t they?). Some people will still buy “American”. Who are they going to buy from?
If Ford files for bankruptcy, the Ford family’s control of the company through their special shares is jeopardized. It represents a big risk for them.
Bankruptcy won’t necessarily lead to a leaner GM, selling only Chevrolets and Cadillacs, free of union obligations and excess dealers. There is no guarantee that a GM bankruptcy filing would smoothly lead to a leaner, more competitive company.
A GM bankruptcy would likely drag on for a very long time, as the union would fight any attempt to abrogate those contracts (imagine the Delphi fiasco, only even nastier and receiving even more publicity).
Headlines would constantly link “GM” with “bankrupt.” To most people, “bankruptcy” means “failure,” which means that GM would be linked with “failure” in the public’s mind. And “failure” is much worse than “ailing,” or “troubled,” just as “dead” is worse than “sick” for people.
Despite all of the talk about people viewing vehicles as appliances (which is usually mouthed by those who are upset that people are buying Japanese vehicles), most people weigh the image of the company that makes a vehicle carefully. No one wants to be stuck with a vehicle branded as a “loser” because the parent company is a loser. That dynamic helped kill Kaiser-Frazer, Studebaker and Packard, and forced AMC to retire the Rambler moniker.
If GM declares bankruptcy, even the best of its vehicles - and the Malibu, CTS, full-size pickups and SUVs, Corvette and Lambda-based crossovers really are excellent vehicles - would become very difficult to sell, even among the buy-American crowd.
Sure, the bargain hunters would consider a GM vehicle, but given that most current GM buyers ALREADY expect hefty discounts and/or rebates, I doubt that these bargain hunters would pay enough for a shiny new GM vehicle to really help the company’s balance sheet.
Dynamic88: Also people know the difference between reorganization and a tag sale of all the assets.
Maybe…maybe not. That is a very big gamble, and represents uncharted territory for a major automobile manufacturer.
What the people like is a comeback story. Filing for bankruptcy, cancelling as many franchise agreements as possible (and every local paper would run stories on the Buick, Pontiac or Saturn dealer who lost his or her franchise because of the bankruptcy filing) and attempting to void the UAW contracts in court strikes many people as taking the easy way out.
A comeback story is what Ford is attempting under Mulally - restructuring the business from the inside out, to avoid making the mistakes that got said company into the mess in the first place.
Stein X Leikanger: Which one of GM’s cars would you miss, if all of their models were pulled from the market tomorrow?
Corvette
CTS
Full-size Pickups and SUVs
Lambda-based crossovers
Stein X Leikanger: Which model(s) have no substitutes from other, better run carmakers who are not in the red?
Corvette, considering the capabilities and the price point. But that is about it.
May 29th, 2008 at 11:30 am
geeber wrote: A GM bankruptcy would likely drag on for a very long time, as the union would fight any attempt to abrogate those contracts (imagine the Delphi fiasco, only even nastier and receiving even more publicity).
One of the reasons Delphi filed when it did was because a few days later, the rules changed and one of them was that you could only be in chapter 11 for 18 months. Delphi did not get rid of the union or pension plans, but if they go chapter 7, all bets are off.
May 29th, 2008 at 12:05 pm
Jolo, if a company goes Chapter 7 bankruptcy, it is’t all bets are off re: union jobs.
It’s all jobs are gone, whether union, or not.
May 29th, 2008 at 12:27 pm
I think with bankruptcy, and Democratic control of both houses and the Presidency, you will see a change in policy with regard to import tariffs. In order to ease the Big Three back to function, It is essential to make all imported vehicles more expensive. Ideally non-NAFTA parts will also be hit with additional levies, it makes sense to nurture suppliers as well.
The three decade war on the middle class will have to come to an end. It has been a while since I mentioned it, but it is a miracle that blue collar workers could lead a middle class lifestyle. I have never understood the antagonism towards high paying jobs, they have a positive benefit to the economy that is more immediate than the boarderless, loyalty-free capital of the wealthy and dispassionate.
American hegemony in the world (such as it is) is coming to an end. I think a vast majority of the globe is in for a rude awakening in the aftermath, having forgotten how most regional powers play rough in the absence of a stabilizing power dedicated to peace and international commerce.
Sheer wealth led America to overlook or ignore the countless asymmetrical trading relationships with other nations, but that wealth has “poppped”, or evaporated for long term reasons, as well as short term acceleration over the past eight years of surreal leadership.
Bottom line, America absolutely needs to get into the business of symmetrical trade relationships. For too long, politicians have bought into the self interested corporate bs of how trade will somehow democratize fundamentally despotic regimes in Asia. There is absolutely no evidence of this, and plenty of evidence to the contrary.
May 29th, 2008 at 12:37 pm
The G3 (Pontiac version of Aveo) convinced me that a GM post Ch11 wouldn’t do anything different and would only require a few years before filing Ch7.
May 29th, 2008 at 12:49 pm
eh_political: I think with bankruptcy, and Democratic control of both houses and the Presidency, you will see a change in policy with regard to import tariffs. In order to ease the Big Three back to function, It is essential to make all imported vehicles more expensive. Ideally non-NAFTA parts will also be hit with additional levies, it makes sense to nurture suppliers as well.
The fiercest competitors for the domestics are Honda, Toyota, Nissan and Hyundai. All of these companies have established a production base located in the U.S. that can be expanded in the (unlikely) event that tariffs are imposed on automotive imports. Tariffs would therefore be a temporary solution at best.
One must also consider the political realities of imposing tariffs. The Democratic gains in the 2006 elections were in areas that had formerly voted Republican. Many of these “swing” areas are white-collar, suburban areas, where people are used to driving Toyotas, Hondas, Nissans and Hyundais. The Democrats are not going to antagonize these voters by suddenly raising the price of their automotive purchase, especially since many of them bought their vehicle precisely because they wanted to AVOID a GM, Ford or Chrysler product.
Unless Senator Obama wants to be a one-term president, and Speaker of the House Nancy Pelosi wants to go back to being just another of the more liberal members of the U. S. House of Representatives.
The Toyota Camry and Corolla and Honda Accord and Civic are among the top-ten selling vehicles in America. A high percentage of these vehicles are built here, by Americans who earn good wages.
Sorry, but the “We must save the Big Three to save the middle class” rings hollow, especially given that the domestics are outsourcing as much production beyond the reach of the UAW as possible.
Or do the people assembling Hondas, Toyotas and Nissans in Ohio, Kentucky, Tennessee and Alabama not count? Are they not members of the middle class? I’d like someone to tell that to them.
Or, more likely, they don’t count because they aren’t unionized, and thus aren’t paying union dues.
Any attempts to impose tariffs on Japanese, Korean and European vehicles is more a case of, “We are sheltering incompetent management and pacifying our union donor base under the guise of protecting the middle class.”
eh_political: For too long, politicians have bought into the self interested corporate bs of how trade will somehow democratize fundamentally despotic regimes in Asia. There is absolutely no evidence of this, and plenty of evidence to the contrary.
If you are talking about China, there are no Chinese cars imported to the United States.
GM imports a fully assembled engine for the Equinox/Torrent (the dreadful 3.4 V6) and sells a considerably more desirable Buick to the Chinese than it does to Americans, but that needs to be taken up with GM management. The source of that problem is Detroit, not Washington, D.C.
Also, the last time I checked, Taiwan and South Korea have become much more democratic over the last 20-30 years.
I therefore have trouble accepting your statement that, “There is absolutely no evidence of this, and plenty of evidence to the contrary.”
Also note that the automobile companies (except for Hyundai) that are giving the domestics the stiffest competition are…based in Japan. Is Japan now a despotic Asian country? I’d like to see proof of that one.
May 29th, 2008 at 1:36 pm
The U.S.A without Chevrolet is politically unthinkable. GM’s right to fail will be stayed, especially in an election year. Federal machinations and taxpayer money camouflaged the Bear Stearns fiasco. A GM rescue will be rationalized and financed. Government owned automobile manufacturers are not historically unusual.
Chryslerberus draws little sympathy. It is viewed as a vulture picking at roadkill. If Chrysler goes first, which seems probable, it will quickly disappear leaving few traces but bolstering the political argument for saving GM from itself.
I don’t know if Ford will make it. It has made more right moves than the others. With Chrysler gone and GM mortally wounded it can become America’s car company.
May 29th, 2008 at 2:24 pm
@ geeber
Japan, South Korea and Taiwan/Formosa all had their democracies imposed on them by an altruistic American occupying force. My point, fairly obviously, was that US corporations do huge business with many despotic Asian regimes, while pretending trade will somehow magically transform these nation states into freedom loving democracies. Not likely. But the US military and taxpayer once assumed the role.
Tariffs are likely, a near certainty, in fact and transplants should ramp up North American production. The Japanese in particular have proven adept at turning all the barriers the US have imposed into positives, so where is the problem? The US will be forced by economic realities to stop running trade deficits, no one will be funding additional debt for a long time. My thought is that the US should examine the nature of trade with each partner, to check for fairness, openess of markets/reciprocity and whatever metrics necessary to begin to address this economic crisis. South Korea is not an open market. Japan, Taiwan, are too sneaky by half, call the shots and manipulate everything from currencies to AMERICAN politicians. By contrast US economic policy looks piecemeal and downright incoherent. It should. It is.
China runs a huge trade surplus with the US. Are you seriously going to suggest that they will refrain from adding autos, and whatever else to that surplus? Treating them symmetrically would force them to establish joint ventures with American corporations, with those US corporations calling the shots. American politicians and business leaders have been bought off, choosing to essentially ignore Chinese misdeeds at home and abroad, because both groups have been the major beneficiaries of trade, with lower and middle classes suffering slow, incremental losses.
As the US sinks deeper into economic hardship, it is likely many liberal and loopy policies will be clamored for, and politicians will oblige. I expect Canada and Mexico will be in for the roughest ride, in spite of our complimentary and mutually reinforcing trade and economies. Ideally, I am wrong, and the impact of each trade relationship will be evaluated with an eye to fairness and mutual benefit.
Finally, if you don’t do something to stabilize and enhance your middle class, it will take America many generations, if ever, to recover a standard of living comparable to the one you currently enjoy–and cannot sustain.
May 29th, 2008 at 2:45 pm
Ok, if I ask you this:
Why would anyone TODAY buy ANY GM product?
What’s the difference from buying a car from a company in bankruptcy from buying a car from a company that inevitably will go bankrupt?
May 29th, 2008 at 3:08 pm
menno - I was only responding to the idea that when you file for bankruptcy, you can do away with the union contract. You can’t, as shown at Delphi. And yes, ALL bets are off on ALL jobs for chapter 7.
There is also the possibility that someone would buy Delphi’s pieces if they go chapter 7. They could buy the divisions for the ECMs and the audio systems, for example, and want to retain the engineers so that they can qualify the product as soon as possible. That way, they are a proven source and can resume product to their customers, with GM being the largest and the one who has the most to lose if Delphi pulls the chapter 7 pin.
May 29th, 2008 at 3:23 pm
eh_political: Japan, South Korea and Taiwan/Formosa all had their democracies imposed on them by an altruistic American occupying force.
They still became democracies…and are not despotic by any means. And given that Japan and South Korea are the home of the companies that are beating the American auto makers, it makes little sense to complain about despotic countries unfairly shielding their pet companies to take on America.
eh_political: My point, fairly obviously, was that US corporations do huge business with many despotic Asian regimes, while pretending trade will somehow magically transform these nation states into freedom loving democracies. Not likely. But the US military and taxpayer once assumed the role.
And China is hardly the same nation it was even 20 years ago. Is it a democracy today? No. But is it as closed and repressive as it was even 20 years ago? No. The transformation of China’s economy is slowly driving the change of China’s social structure, and thus, its government.
Plus, we import exactly zero vehicles from China right now, so, as far as the automotive industry goes, China is a red herring.
eh_political: Tariffs are likely, a near certainty, in fact and transplants should ramp up North American production. The Japanese in particular have proven adept at turning all the barriers the US have imposed into positives, so where is the problem?
The problem is that you are selling tariffs as a cure for what ails the domestics. The catch is that their toughest competitors all have an established production base here in the U.S., so any tariff will quickly be overcome, and the domestics will be right back where they started (i.e., in deep financial trouble).
Tariffs aren’t going to solve a darn thing, in the long run. They aren’t going to eliminate brand overlap, decision making that favors delaying tough choices, or product planning that has favored Escalades over a true Civic competitor.
From a political standpoint, the Democrats are unlikely to slap tariffs on motor vehicles for several reasons.
One, they would alienate the more moderate voters who have been crucial to their electoral gains since 2006. Do you really think that the Democrats want alienate those young suburbanites in Kentucky, the Carolinas or California by driving up the cost of that Hyundai Accent or Honda Fit with tariffs? That sounds like a good way to reverse the political gains they’ve made since 2006.
Perhaps Karl Rove is secretly advising them to push for tariffs?
Second, any imposition of tariffs would risk retaliatory measures by other countries on U.S. exports (there are more of those than you think).
Third, one of the biggest criticisms of the Bush Administration by Democrats has been that it has been heedless of world opinion and has alienated allies with its bull-in-the-China-shop actions.
I seriously doubt that an Obama or Clinton administration would be dumb enough to further alienate our allies (the great majority of imported vehicles come from Mexico, Canada, Japan, South Korea, Great Britain, Sweden and Germany - last time I checked, they were still our allies) by slapping tariffs on their automotive exports.
eh_political: South Korea is not an open market. Japan, Taiwan, are too sneaky by half, call the shots and manipulate everything from currencies to AMERICAN politicians. By contrast US economic policy looks piecemeal and downright incoherent. It should. It is.
There is no proof that South Korea or Japan, as a whole, have benefited from their protectionist policies. The Japanese economy has been in the dumps since the early 1990s, and has underperformed the U.S. economy in virtually every important measure.
The currency manipulation strawman has been shot down numerous times on this site. ALL countries manipulate their currency - including the U.S. No matter what the level of the yen is as compared to the level of the dollar, the Japanese have still stolen market share from GM, Ford and Chrysler. Must be some other factors at work…
eh_political: China runs a huge trade surplus with the US. Are you seriously going to suggest that they will refrain from adding autos, and whatever else to that surplus?
They can send us whatever autos that they want to, as long as said vehicles meet American safety and emissions standards. There is no guarantee that anyone will buy them. Most reputable analysts agree that the Chinese are 10-15 years away from making vehicles suitable for export.
GM, Ford and Chrysler are getting beaten TODAY by Honda, Toyota, Nissan and Hyundai because said companies make more attractive vehicles, not because they are necessarily cheaper.
Bringing up the China bogeyman only distracts from this uncomfortable truth.
eh_political: Finally, if you don’t do something to stabilize and enhance your middle class, it will take America many generations, if ever, to recover a standard of living comparable to the one you currently enjoy–and cannot sustain.
With tariffs on imported automobiles, you’re not stabilizing the middle class. You’re robbing Peter, who has to pay more for either his Hyundai, or his Chevy (as the domestics have demonstrated repeatedly that they will raise prices at the first opportunity, and raising prices is what they will do when import prices increase), to pay more to UAW member or white-collar GM worker, Paul.
That’s not stabilizing or enhancing anything. It’s taking money away from one group to pay off another, more politically favored, group.
That type of economics may appeal to Lou Dobbs listeners or UAW members, but most Americans can see right through it.
May 29th, 2008 at 4:28 pm
I think many of us purchase Asian and in my case Toyota vehicles because over the years, over 22 years in my case we have been not overjoyed to have purchased Domestic maker vehicles and have them either in the Service department a lot or just sitting around dying of Rust and old age, my GMC product has had a Roof leak ever since New, it was never repaired despite many tries and its engine was a Gas user too. At one time I tried to buy North American and used to promote same, what a stupid person I was way back when! I have learned the hard way!and never again will I trust GM, Ford or Chryslerberus period.
May 29th, 2008 at 5:08 pm
I expect Canada and Mexico will be in for the roughest ride, in spite of our complimentary and mutually reinforcing trade and economies. - eh_political
Over the next few years nearly 3-million barrels of oil per day will flow south into the U.S. from Canada, making it America’s No. 1 petroleum supplier by a considerable margin.
Hillary Clinton and Barack Obama recently speechified for the rubes they will reduce trade with the Great White North. The Canadian government gave notice it will alter oil export terms. Hilly and Bama don’t talk about it any more.
May 29th, 2008 at 5:44 pm
@Gardiner Westbound:
I still think we are in for a rough ride on trade with the US, just look at how softwood was resolved. Do bear in mind the latitude the US has to cut fat in energy consumption, and how dire the effects of trying to play hardball with the Americans would be to Canada. Inconvenience for them, catastrophe for us. Plus, they could walk in and take the oil if things ever became desperate. Unlikely at the moment, but temptingly easy.
just sayin
May 29th, 2008 at 6:45 pm
@geeber :**my argument was for symmetrical trade policy based on a country by country examination of trade irritants. Korea, Taiwan, and Japan sell mere handfuls of American made cars. Why? And why not require them to purchase some American made vehicles from Nissan, Honda, Toyota, Hyundai? Say for every car sold stateside, another must be shipped back to the home market, to compensate for imbalance of trade? Just one thought.
China has replaced Canada as US #1 trading partner. It is a police state. It lacks the most basic of freedoms, and dissent is met with immediate jailing and potentially execution. Hi tech US companies have assisted in the extending of monitoring capabilities over the populace, and as a result it is the most surveilled society on the planet. I would not want to be an average citizen in that country–nor would I argue the leadership is making any moves to relinquish its grasp. Again, China #1 trade partner, huge imbalance of trade, and it would be prudent for the US to address those issues, even if it were a democracy.
Tariffs, symmetrical trade, balanced trade would all be of enormous assistance to US manufacturers, their employees, the tax base and spin off a great deal of economic activity besides. They have the potential to do short, intermediate and long term good, it’s about application and modification–because what America is doing at present is not working. China could not have an automotive industry without the political will, good policy, and a long term view. It would appear now that America won’t have an industry without all three.
Japanese problems are twofold, both of which America is about to experience firsthand. First is demographic, and while the US will not have the same level of aging as Japan, it will still be pronounced, and it will still “overtax” your shitty public health infrastructure.
Second is asset value collapse. Banks and Financial institutions are loaded up with staggering amounts of worthless securities. Assets are plummeting in value, the dollar is imploding, and household and government debt are insane. Very similar to Japan, but potentially more severe, according to O, say Paul Volcker.
Please don’t lump me in with Lou Dobbs. I have merely made some observations, and wondered how to prevent further decline in American industry, because it has major ramifications for my own country. We may well get a chance to see how further laissez faire techniques would impact the US economy as a whole, but I seriously doubt it. It seems quite logical to turn the tables on unfair competition, to play by similar rules. Since the loan guarantees granted Chrysler, that company has added untold billions to the American economy. Frankly, the vehicles by and large sucked, but they also permitted families to buy houses, boats, send their children to schools and countless other activities that would not be possible to the same extent if the US auto industry was exclusively foreign owned.
US trade policy will change, both with regard to cars, and in general. How much and to what effect is anyones guess at this point. The only questions are how soon, and how much. We are living in interesting times.
May 29th, 2008 at 7:03 pm
Tariffs on goods coming from China and other Asian countries could, and should IMO, be justified on issues like lack of human rights, lack of environmental protections, etc. Fact is, our companies, even if they did have competent management and workaholic employees couldn’t compete with Asian workers making squat. I don’t know the numbers, but didn’t the employment numbers of auto suppliers dwarf the numbers of the Big 3 assemblers before the heavy off-shoring start?
No matter who gets the Whitehouse and Congress, this is going to be a hell of a mess to wade through, and even with wise decisions, it’ll take years and lots of luck to fix. Add in the fact that the opposition, especially the Republicans if the Democrats get power, will sabotage as much as they can. I think the country might be ungovernable or nearly so by the Democrats just because there’s so much animosity on the right.
Then there’s climate change which we haven’t even begun to address, unless you count ethanol and carbon dioxide coming out of politicians mouths.
May 29th, 2008 at 7:06 pm
Plus, they could walk in and take the oil if things ever became desperate. Unlikely at the moment, but temptingly easy. - eh_political
No kidding! In 1981, during a previous energy crisis, U.S. President Reagan declared Canada’s oil, gas and water continental resources.
We don’t have any weapons of mass destruction, but that little technicality didn’t help Saddam Hussein.
May 29th, 2008 at 8:55 pm
Gardiner said, “We don’t have any weapons of mass destruction, but that little technicality didn’t help Saddam Hussein.” Whew, thanks for that disclosure! Our troops won’t have to wear all the heavy gear for protection from radiation and chemicals that slowed us down in Iraq. Now, let’s see…we should take warm clothing, but there’s an ample donut supply up north, right?
As for the doom and gloom on this thread, I discount it because the media is always excitedly predicting the apocalypse. But I think eh-political is right that political conditions will lead to more protectionism. Still, it’s good to remember that such tactics can backfire. On August 15, 1971 President Nixon announced a 10% tariff on Japanese goods. (Our economic relationship with Japan then was much like the current situation with China.) The next day, figuring the price could only go up, I bought a Japanese car.
May 30th, 2008 at 8:06 am
# eh_political :
May 29th, 2008 at 5:44 pm
@Gardiner Westbound:
I still think we are in for a rough ride on trade with the US, just look at how softwood was resolved. Do bear in mind the latitude the US has to cut fat in energy consumption, and how dire the effects of trying to play hardball with the Americans would be to Canada. Inconvenience for them, catastrophe for us. Plus, they could walk in and take the oil if things ever became desperate. Unlikely at the moment, but temptingly easy.
just sayin
Your post reminded me of a book I read many years ago. Do a search on “Exxoneration”. It was a fictional account about the US attacking Canada for oil. I won’t tell you the outcome.
It doesn’t seem nearly as implausible now as it did then.
May 30th, 2008 at 10:19 am
A small question comes up from time to time here regarding who buys GM, besides its pick up trucks.
My 73 year old, still very alert and active brother recently bought a Buick. He ignored my negative predictions.
The headliner fell down on his head as he drove the new Buick home, a distance of about 4 miles. The front part started down before he got across I-285 and it was holding on in the back when he returned to the dealership. He did not make it home in that car for 2 days. Soon the On Star system or some other Gremlin was announcing loudly that the car was soon to be out of gas and an emergency fill up was needed. Of course, this loud announcement had nothing to do with actual gas in the tank. It took the dealer’s ace service department 3 days to fix that annoying problem.
The built in GPS system, again against his little brother’s buying advice, never worked. Neither did the replacement unit. Now there is a vacant space there.
I am not making this up.
The passenger front door leaks when it rains too, but we are in a drought of sorts around here so he is ignoring that.
Survey him and he will probably say it is a great car.
May 30th, 2008 at 11:51 am
I went on a family trip up to the UP of Michigan two summers ago - and the Wal-Mart parking lot was full of GM cars (the most I’ve ever seen; down here in Tejas, you see Japanese cars and trucks; and lots of American trucks; but hardly any American cars, and most of those are Chryslers or Fords).
Economic desperation plus misidentified solidarity, I think.
May 30th, 2008 at 1:24 pm
Bill Wade said “Do a search on “Exxoneration”. It was a fictional account about the US attacking Canada for oil. I won’t tell you the outcome.”
I did just that. A 1974 Time article on Canadian nationalism mentions the book and “its stridently nationalistic author, Toronto Lawyer Richard Rohmer.” In it, “the U.S. invades Canada [to grab oil and gas, of course) but is beaten back by Canadian forces with some help from the Soviet Union." [Remember them?] One has to wonder, however, why the US would go to the bother. As Time revealed in that article, “Canada’s present oil reserves will run out in about eight years [i.e., 1982], and there is no adequate technology to exploit the deeply buried oil deposits in the Athabasca tar sands.” So what IS all that black liquid Canada keeps selling to us? Tim Horton coffee?
June 1st, 2008 at 2:27 pm
Of course, in the 1980’s the technology for extracting oil from the tar sands cost about $70/barrel and the price at that time was below $20/barrel. Now oil is at $130/barrel. The cost for extraction is now about $30/barrel and falling. Of course, environmental cost impacts to downstream residents are largely being deferred for the moment.
June 1st, 2008 at 10:53 pm
“@geeber :**my argument was for symmetrical trade policy based on a country by country examination of trade irritants. Korea, Taiwan, and Japan sell mere handfuls of American made cars. Why? And why not require them to purchase some American made vehicles from Nissan, Honda, Toyota, Hyundai? Say for every car sold stateside, another must be shipped back to the home market, to compensate for imbalance of trade? Just one thought.”
Warren Buffett advocates a similar program to restore America’s balance of trade.
eh_political , I’m giving you about a hundred arms length claps at the moment. You are the official winner of TTAC’s unofficial and completely unsanctioned ‘Post of the Week’.
June 2nd, 2008 at 4:05 am
I doubt that US economy will recover. At least it will never see again economic expansion based on real indicators. Us will continue to simulate the growth by low credit interest rates, borrowing more and more from Asia, as dollar has no backup by gold or silver, just the oil supply , it will continue to loose value, because Fed is printing money out of thin air like crazy. GAs prices will get close to 6 dollars a gallon. Those who prepared for the perfect storm, like Toyota, will survive and flourish. While GM put too many cards on trucks, which are useless today in USA, because farming is not increasing, and people are fleeing to cities. Trucks are fashion statement, but if prices soar, you think of surviving, not vogue. By the way Gm is slow to adopt. It took for god`s sake 20 years for Gm to realize that body fit and finish matters, and that between bumpers and fenders and headlights there shouldn`t be 2 inch gaps. i guess gm will continue to fake compact car manufacturing by heavy badge job on korean daewoos.Guess where the profits go from Daewoo?
And slowly bleed to death. I can`t think of any single manufacturing branch within USA, that deals with precision complex engineering and stamping and that would excel.
And this is to everybody-
Seems that there is God out there. No matter how hard you try to be best avoiding honest means, you fail. Unless you with your own hands and honest sweating build your market share step by step, there is no other way to succeed. No bimmer has foreign platforms, no Lexae has foreign platforms. Seems only second tier lacklusters adopt this principle of heavy borrowing. And God kicks them in rear bumper, and they go off the track.You see, you had subpar engineered pure American cars, that failed. Now you have quality products that look like american products. Still failing. Extensive rebadging- Gods curse again. Beancounting on materials- Commandments from heaven again. Manufacturing is dying in USa, so is the middle class with it. Guess what will the purchasing power of the proposed truck buyers be?
Right, so people will swap seats to small subcompacts. wait a minute…what subcompacts does GM engineer? Right, Daewoo .How many Johnsons , Timkens, Davidsons, And Robertsons work on Daewoo, whether assmebly plant or engineering units? Guess none. The last page before diving in history books always has the smell of generic. Always had. Always will, at least in US.
June 2nd, 2008 at 6:58 pm
eh_political: my argument was for symmetrical trade policy based on a country by country examination of trade irritants. Korea, Taiwan, and Japan sell mere handfuls of American made cars. Why?
There are several reasons:
1. The domestics have made no real effort to sell their products over there. For years, they couldn’t even be bothered to move the steering wheel to the other side of the car (the Japanese drive on the opposite side of the road). Hardly a sign of true commitment to cracking the market. Imagine how many cars Toyota and Datsun would have sold in America in the 1960s if the steering wheel had been placed on the “wrong” side of the car.
2. The domestic strategy, since the 1930s, has been to penetrate other markets by either buying established companies (Opel, Vauxhall and Holden, in GM’s case), or building local plants that will produce models tailored specifically for that market (hence, Ford of Europe and Ford of Australia). That is why Ford has a controlling interest in Mazda, and why GM, until recently, owned shares in Japanese auto companies (including Subaru). It’s also why GM now owns Daewoo.
Ford, GM and Chrysler have not exported North American-built vehicles in large numbers for well over 50 years.
3. The domestics make vehicles that COULD succeed in Japan because of their distinctly “American” character - the Mustang, Corvette and even the PT Cruiser - but do not bother to sell them there. The Chevy Caprice wagon and Chevy/GMC Astro van have been cult vehicles in Japan for several years. The domestics haven’t bothered building on this opening. That’s a management failure, not a trade failure.
5. If Americans aren’t exactly clamoring to buy most American vehicles, one wonders why Asians would do so. Does one really think that there are 300,000 or so Asians eagerly waiting to buy a Buick LaCrosse, especially when their homegrown models are better in almost every way?
You are aware that, in the 1990s, Toyota attempted to sell the last Chevrolet Cavalier in Japan…and couldn’t move them, because local buyers wanted no part of them? Fit-and-finish were far below Japanese standards, and most people couldn’t see why they should purchase a Cavalier instead of a Corolla or a Civic.
6. The most popular vehicle class in Japan is the microcar class. U.S manufacturers make NOTHING that would compete in that class. The Chevrolet Malibu is the best domestic mid-sized sedan, followed closely by the Ford Fusion, but both are still considered large in most Asian countries, which means most people can’t afford them. They just aren’t going to sell in large enough numbers to really make a difference.
If the Japanese market is so closed, then someone needs to explain why the Germans have been successfully selling vehicles in Japan for years…Mercedes, BMW, Audi and Porsche are quite prestigious over there, and do a pretty good business in that region.
The Cadillac CTS would have a good shot over there, as it’s distinctive, performs well, and sports a luxury nameplate, so most buyers would have the money to register it and keep it running…but GM isn’t selling it there. The Germans can do it…why not GM?
eh_political: And why not require them to purchase some American made vehicles from Nissan, Honda, Toyota, Hyundai? Say for every car sold stateside, another must be shipped back to the home market, to compensate for imbalance of trade? Just one thought.
Because it unfairly punishes Americans who want to purchase vehicles made by those companies if residents of their home countries don’t want to buy American cars.
One of my cars is a Honda Accord. Please explain why I should be faced with the possibility of paying more for another Honda just because Asian car buyers have rendered the same judgment on American cars that other Americans have?
If GM (or Ford, or Chrysler) wants my business, it can gain it the old fashioned way - by building a product that makes me (and others) pick it over the Toyota, Honda, Nissan, etc., competition.
eh_political: China has replaced Canada as US #1 trading partner. It is a police state. It lacks the most basic of freedoms, and dissent is met with immediate jailing and potentially execution. Hi tech US companies have assisted in the extending of monitoring capabilities over the populace, and as a result it is the most surveilled society on the planet. I would not want to be an average citizen in that country–nor would I argue the leadership is making any moves to relinquish its grasp. Again, China #1 trade partner, huge imbalance of trade, and it would be prudent for the US to address those issues, even if it were a democracy.
China does not sell cars in the U.S. Chinese cars won’t be ready for primetime for another 10 years, at the least. And there is no guarantee, that once they are here, people will automatically line up to buy them because of a low sticker price.
Hyundai initially sold well in the U.S., but once the cars started falling apart, buyers deserted the company in droves. It has taken 20 years for Hyundai to recover, and even then it still relies heavily on fleet sales to stay in business.
eh_political: Tariffs, symmetrical trade, balanced trade would all be of enormous assistance to US manufacturers, their employees, the tax base and spin off a great deal of economic activity besides. They have the potential to do short, intermediate and long term good, it’s about application and modification–because what America is doing at present is not working. China could not have an automotive industry without the political will, good policy, and a long term view. It would appear now that America won’t have an industry without all three.
Really…Toyota, Honda and Nissan building cars here don’t count? They are part of the new American automobile industry that is being born right before our eyes.
eh_political: Japanese problems are twofold, both of which America is about to experience firsthand. First is demographic, and while the US will not have the same level of aging as Japan, it will still be pronounced, and it will still “overtax” your shitty public health infrastructure.
No. Japan’s population is MUCH older than that of the United States. Japan is actually worried about a population DECLINE. The U.S. is nowhere near that point. The U.S. has one of the fastest population growth rates of any industrialized nations, and our population is also younger.
As for our “shitty” public health infrastructure - if that is it’s proper descriptive term, then the word also applies to the public health infrastructure of countries with nationalized health care. People who rely on Medicaid (the federal program for low-income people) or charity care receive the same level of care as people in other countries who depend on nationalized health care.
Meanwhile, people with private insurance, or who depend on Medicare (the federal program for the elderly) receive FAR better care than people who depend on nationalized health care in other countries. Which is why people come from all over the world for U.S. health care.
eh_political: Second is asset value collapse. Banks and Financial institutions are loaded up with staggering amounts of worthless securities. Assets are plummeting in value, the dollar is imploding, and household and government debt are insane. Very similar to Japan, but potentially more severe, according to O, say Paul Volcker.
The reason Ja