“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 Despite the obvious light truck glut, GM’s outdated business model is forcing the company to restart truck and SUV production.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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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…
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.
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?
I guess they don’t teach plan B tactics at the Harvard Business School.
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
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..
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
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…
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.
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….
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.
Put simply, if GM waits too long to file 11, they have to go 7.
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.
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.
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?
“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)
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.
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.
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.
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…
“dealers control/own their customers”
Barkeep, whatever he is drinking, pour me one.
“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.
“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.
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.
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.
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.
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!
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.
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.
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?
“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?
“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.
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….
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.
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.
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…
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…
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.
“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.
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)
Nobody Will Buy a Car from Company in Bankruptcy
well not quite, depends on the price asked.
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
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.
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.
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.
What’s GM got lined up in the pipe line? The Camaro and the Volt. Anything else?
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.
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).
@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…
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.