When a company doesn’t have enough money to pay creditors what they’re owed, it’s considered insolvent. By this definition, GM is insolvent. The American automaker’s working capital stands at negative $20b. Cash outflow for the half year through June 30 remains negative, at over seven billion dollars. And it’s getting worse, as cash calls arrive on a regular– and irregular– basis. There’s no more credit to tap, and GM has few assets of meaningful value left to sell. Oh yeah, GM’s gonna file for bankruptcy. Then what?
The timing of GM’s C11 depends on its management’s psychology. At some point, somewhere around the $10b-in-the-bank mark, CEO Rick Wagoner, COO Fritz Henderson and CFO Ray Young will realize that they can no longer maintain “plausible deniability.” In other words, GM’s managers’ fiduciary responsibilities will compel them to enter bankruptcy protection with some cash rather than none– lest they lose control of their company in the reorganization to follow.
GM will file for bankruptcy late in the day, early or in the middle of month, right before the automaker has to pay its suppliers. The filing will be just a few pages of legalese– nothing grandiose. Only the news media, Washington DC and the general public will react with shock. Wall Street will not be surprised; the stock market won’t crater. By the time the company cries uncle, only true believers will own GM stock. Within hours of the filing, GM will be de-listed from the NYSE. Dow Jones will remove GM from the DJ Industrial Index.
True to their nature, GM’s execs will accept no responsibility for the company’s catastrophic failure. They will blame the economy, energy prices, government regulation, their own bankers, anything, everything, anyone and everyone but themselves. As before, their “victim of circumstance” sob story will convince many that it’s somehow a political failure, even as the men in charge admit defeat, unfurl their golden parachutes and prepare to surrender power they should have never held in the first place.
[In truth, Wagoner should have directed GM to file for bankruptcy in December 2005, when The General still had significant assets to sell. The automaker would be reorganized by now, with fewer dealers, brands and factories. And a clean balance sheet.]
Aside from an uninformed not-to-say oblivious public, the damage to Wagoner and his team’s personal reputations will be total. But the company’s C11 filing will not take down the whole GM Empire. C11 will be limited to the overall corporate entity and GM North America. Europe, Latin America and Asia will be spared the financial ignominy.
Initially, nothing much will change inside GM. The company brass will issue an internal memo to frightened workers promising a bright future. There will be no immediate layoffs or job losses; paychecks and benefits will remain in place. Later in the reorg process, a few key executives will receive “retention bonuses,” while many in the rank and file lose everything.
While the filing will not mention dealer termination, the smarter Buick, GMC, HUMMER, Pontiac, Saturn and Saab dealers (in whatever combination) will immediately understand that their days are numbered. They will either close-up shop or expand/satellite with one of their import brands. Those dealers who try to ride it out will experience a slow death for a year or so– until the reorganization plans outlines the end game for GM’s superfluous brands.
Bankruptcy will not sound the death knell for GM’s sales. Responding to commercials touting The General’s “Next 100 years,” patriotic buyers in the flyover states will flock to GM stores to do their part– especially when they see the mind-blowing bargains GM will use to clear inventory. The General’s public will not foresee the fact that only Chevrolet and Cadillac will survive. The initial sales rush of sales will convince many that the dead brands walking will live again. But they won’t.
GMAC will not be able to bankroll these fire sale purchases; it too will be subject to Court oversight (thank you Rescap). So instead of subvention paid to GMAC to move the metal, GM will use “outside” lenders to the same end. Smart bankers will experience a windfall– financing good credit customers at rates higher than justified (compensated by GM) to make consumer credit available at below market rates. Credit unions will scramble to partake in the new largess. Leases? Forget that.
The biggest casualties from a GM bankruptcy: Chrysler and Ford. Of course, Chrysler’s already toast. It’s only a matter of time before they go into liquidation. But Ford will face an epic internal struggle to avoid C11, and resulting loss of Ford family control. After the initial pall, when GM’s killer deals come on-stream, The General will steal food directly from FoMoCo’s table.
But once Ford files, and Chrysler goes into liquidation, the no-longer-Ford-family-controlled automaker will be able to clean its house and match GM’s deals. The biggest loser in all this? Toyota. We’ll discuss that in our next installment.
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With too little money left to reorganize properly, will ONE stiffed creditor step forward and say “NO” – forcing GM into Chapter 7? I wonder… Or, isn’t that how it can work?
in the end it is their ineffective, brand destroying, marketing which has killed The General. for years, I preached and pleaded with them to change but they refused to listen. too bad as this all could have been prevented.
Timing is everything. Most likely any action will be delayed until after GM receives it’s share of the federal bailout money. Once the exeutives skim off their share of it, THEN they’ll file.
Interesting theory, and plausible. Sounds like doom coming… The future of GM looks bleak, to say the least.
What I don’t undeerstand is the board of directors and stock holders not holding the management accountable. How in the wide wide world can they still be at large? I mean, money rules? No? How can the people behind the money just stand beside and look at the management pissing the company fortunes away?
Ford deserves to survive. They’ve got some really good cars out there, they’re not BSing electric cars and they have Mazda as back up. And Mazda is on a terrific roll these days. Ford has done very little wrong by comparison with the other two, so it will be a shame if the baby gets thrown out with the bathwater.
I have faith that congress and its’ lobbyists will come up with some plan to rip off the taxpayer and maintain detroit exec’s in the lifestyle that they have grown accustomed to. Right now plans are in the works to pass the $700Billion bill with just a few minor changes, enough to give congressmen/women wiggle room. And enough to show their constituents that they rejected the ‘original bad plan’ for this much better new plan. Our democracy has been lost to the special interests and the wealthy. We will just ultimately become a second world power that has its’ oligarchy to run/bribe the pseudo politicians that we ‘elect’.
Will Pontiac and Saturn really go by the wayside? Could they not keep them as boutique brands, or will that not be profitable?
I know that TTAC doesn’t buy into the “nobody buys from a bankrupt automaker” excuse, but I’m a believer. I really want a Camaro, but do I really want one when GM’s future is in doubt? Has a bankrupt automaker ever made a comeback? Should I start pining for the 2010 Mustang?
Duesenbergs and DeLoreans still bring good money. if GM goes tilt, just keep your Camaro long enough and you’ll be okay. then again, there’s the Pacer, so maybe not.
“Has a bankrupt automaker ever made a comeback?”
That’s a very interesting question. The only answer I can come up with is the Quandt familys take-over of BMW in the 60’s. It is highly unlikely that the BMW 1500 should have been the success it became, hadn’t Quandt injected BMW and their r&D with a massive cash infusion. From Wikipedia:
“When Günther [Quandt] died in 1954, the Quandt group was a conglomerate of about 200 businesses including the battery manufacturer, several metal fabrication companies, textile companies and chemical companies (including Altana AG). It also owned about 10% of car company Daimler-Benz and about 30% of BMW. After Günther’s death, the conglomerate was divided between his two sons: Herbert and Harald Quandt who was Herbert’s half brother.
BMW was an ailing company and in 1959 its management suggested selling the whole concern to Daimler-Benz. Herbert Quandt was close to agreeing to such a deal, but changed his mind at the last minute because of opposition from the workforce and trade unions. Instead he increased his share in BMW to 50% against the advice of his bankers, risking much of his wealth. He was instrumental in turning the company around.
BMW was already planning its BMW 1500 model when Quandt took control. It was launched in 1962 and established a new segment in the car market: the quality production saloon. It occupied a position between the mass production car and the craftsman-built output of the luxury producers. BMW’s sophisticated technical skills put it in a strong position to fill this niche. It was this model that put BMW on the path to success.”
A good article from the perspective of GM. The political perspective will be very interesting to watch. The big question is whether or not the political side will recognize that these companies are the authors of their own demise with relatively minor help from the Government. Will the various lefties succeed in using the bankruptcy of the D3 to enact broad structural and economic changes that will ultimately harm the rest of the country? In Canada we have a lot of calls to “do something” to protect our manufacturing base, especially auto manufacturing, when in reality, you could pour billions into the D3 and it wouldn’t make any difference whatsoever.
I think Ford will emerge from this intact. They are doing more right than wrong and have a better strategy. Cry-sler is defying the odds at this point, I thought they would have gone down with the finance ship by now.
Duesenbergs and DeLoreans still bring good money. if GM goes tilt, just keep your Camaro long enough and you’ll be okay. then again, there’s the Pacer, so maybe not.
Camaros are pretty commonplace, unless you’re talking about an extremely rare COPO model…
There will be some people who will buy a GM product based on patriotism or whatever basis, but not nearly enough IMO. I think they will quickly cease to function. If I were running Ford at that point, I’d blast out ads touting Ford’s strength, their long history, best selling trucks, etc., plus the new energy-efficient models right around the corner as well as the hybrid Escape/Mariner. And then see what happens. If patriotism or tradition draws people to GM, it would do the same for Ford. If it somehow works that GM’s filing is providing advantages that Ford’s path isn’t, Ford could always file too.
Another issue will be suppliers. Suppliers that depend on both GM and Ford business might go down no matter that Ford could continue otherwise.
I don’t know how much reserve dealers have now. I read about service absorption; which, as I understand it, refers to how much of the fixed costs are covered by profit from the service operation. Even at 100%, which seems to be exceptional, there’s a lot of floorplan money going out every month. Inventories are down at most dealers, especially the Hyundai guy down the road, and I assume this is to reduce floorplan costs. So, bottom line, we’ll surely see an increasing rate of dealer attrition until GM files.
Bankruptcy will not sound the death knell for GM’s sales. Responding to commercials touting The General’s “Next 100 years,” patriotic buyers in the flyover states will flock to GM stores to do their part– especially when they see the mind-blowing bargains GM will use to clear inventory.
By stealing future sales with massive discounting, GM would sabotage their own post-C11 recovery. Not that I disagree with your prediction; they’d have to do something drastic to convince people to buy from a bankrupt automaker. Stealing future sales through price discounting is part of what got them into this mess in the first place though.
They will blame the economy, energy prices, government regulation, their own bankers, anything, everything, anyone and everyone but themselves.
This current financial meltdown is the gift to end all gifts. Talk about the perfect camouflage! ‘We could have made it if it wasn’t for…’
Duesenbergs and DeLoreans
Duesenbergs yes, but they cost fortune in their day as well. DeLoreans…not really. Few cars, even high buck collector cars, turn a decent ROI if you’ve owned them since new. The ones that do are were super scarce to begin with…COPO Camaras, ZL1 Camaros, HemicCudas,etc.
The new Camaro and Challenger will not be good investments.
You forgot to add that GM will also start blaming their customers for not buying GM product. They will likely say something totally banal like “Their customers just do not understand the competitive quality and reliability that GM offers in their products” – or some similar drivel.
I just realized I started reading the GM death watch series somewhere back around #95 or so. I have to admit GM is tenacious at hanging around, I really figured they would be gone by death watch #130 to 140.
If nothing else GM is providing a constant flow of entertainment.
I want to read your second installment. When will it be?
That you view an scenery in which Toyota loses made me curious.
What’s gonna happen to all those Badger car salesmen?
I think his argument for Toyota losing runs something like this:
1)Big 3 market share collapses down to w/e they can salvage. If they come out of bankruptcy, it is as lean competitors, not overburdened, under financed companies they are now.
2) Toyota is pretty much running at max capacity now anyway, so the market share the big 3 shed will be picked up by other car companies who can move in (Hyundai/Kia, Honda); this will be their watershed moment where H/Kia breaks out of their cheapo wheels image (which has been taken by the big 3’s massive discounts). And of course Honda is very well placed to grow substantially as their selection of small cars is better than Toyota’s at the moment.
So basically however this plays out, Toyota is going to have some real competition on its hands in the coming years, instead of being able to pick apart the big (fat n stupid) 3 at their leisure for decades.
Which is why I think Toyota is very sincere when it says it hopes the big 3 can avoid bankruptcy.
“You forgot to add that GM will also start blaming their customers for not buying GM product. They will likely say something totally banal like “Their customers just do not understand the competitive quality and reliability that GM offers in their products” “
Which reminds me of the poem “The Solution” by Bertold Brecht:
After the uprising on June 17th,
The Secretary of the Writers Union
Had leaflets distributed in the Stalinallee
Upon which was to be read that the people
Had forfeited the confidence of the government
And could only reclaim it
Through redoubled efforts. Would it not be easier
Still for the government
To dissolve the people
And elect another?
Not an automaker, but Triumph Motorcycles was resurrected after collapse in the 70s and 80s. The bikes that come out of Hinkley (and Thailand) now are pretty good, and the company is growing and profitable.
Only one major automaker in the United States ever hit Chapter 11 and survived, and that was Studebaker. In the depths (and I mean depths) of the Great Depression in 1933, after management had foolishly sent dividend checks to stockholders when no profits had been forthcoming, the chickens came home to roost, and Studebaker was forced to file.
Ironically, the management had worked out a deal to merge with White Motors of Ohio, an ex-sewing maching, ex-steam car, ex-gasoline car, current heavy truck manufacturer which was solvent, had money and was profitable – but a certain White stockholder threw a spanner in the spokes and invoked a state law stating that an Ohio company could not be merged with a “foreign” corporation (i.e. outside the STATE).
Interestingly, Studebaker would have simply done to White what it later did to Packard from 1954-1958 and that would have been to bleed it dry in order to survive – a little longer.
Yes, Studebaker survived Chapter 11, but was forever weakened dramatically and truly never recovered, succumbing at Christmas 1963 in the US and early spring 1966 in Canada.
Great editorial with a lot of interesting points. BUT I think GM is past the point of being able to come out of any bankruptcy I agree in 2005 yes but now, no way. Rick is seeing to it that they won’t go into the filing with enough money to absorb the massive losses to survive 2 years in bankruptcy and get out.
Bankruptcy will not sound the death knell for GM’s sales. Responding to commercials touting The General’s “Next 100 years,” patriotic buyers in the flyover states will flock to GM stores to do their part– especially when they see the mind-blowing bargains GM will use to clear inventory.
I think you are really wrong there. Their sales are unsustainable now while they are practically giving them away and the patriotic “flyover” buyers are the ones buying right now. They can’t continue to keep buying even at super discount prices, what are they going to do buy 4 or 5 trucks to keep GM’s sales going. Plus their just aren’t enough of them left at this point or they wouldn’t keep losing money right now. Their sales will dry up even with the give aways. Sure the first month they will probably sell a ton to the poeple who have been waiting. Then what? They will see 50% declines in sales, 60% the next up to 80%. People can’t keep buying when they don’t need it and can’t afford it. There is no way they can sustain sales through out the entire bankruptcy. This will probably leave Ford f*cked, once all the pent up demand buys GM’s super cheap stuff there will be few buyers left for them. I think the Ford family will follow Rick’s lead and screw the pooch by delaying a filing until it’s too late so they don’t lose their control. Chrysler is a waist of time to talk about.
GMAC will not be able to bankroll these fire sale purchases; it too will be subject to Court oversight (thank you Rescap). So instead of subvention paid to GMAC to move the metal, GM will use “outside” lenders to the same end. Smart bankers will experience a windfall– financing good credit customers at rates higher than justified (compensated by GM) to make consumer credit available at below market rates. Credit unions will scramble to partake in the new largess. Leases? Forget that.
This one looks all wrong also. What bank in their right mind is going to take a chance on this with the credit crisis we are in and will be in for a while. Banks are dropping like flies if you haven’t noticed, if the ones that are left lend their money out it will only be to the buyers of least risk, the would not be GM. And where is this money you say GM will use to compensate for the higher rates, they have no money and will have even less when they eventually file.
Plus I really don’t see buyers taking a risk when the economy is so bad and you have no idea how your job outlook will be a few months down the road. All those risk taking buyers are out of the market now. I have a feeling the economy plus bankruptcy will bring lots of the buyers left to Honda and Toyota because they know the risk is minimal. Being stuck without a job AND having a car crap out with no company left to back it is a real fear. That’s is why people buy them now, less risk.
I can’t wait to see the next Editorial on how this is going to hurt Toyota because I sure don’t see it. Not that I have any love for Toyota, just they plan long term and I bet anything they already have multiple plans for when GM files, everyone could see it coming a mile away.
mocktard it wasn’t the same Triumph motorcycles that went into bankruptcy. The parts and name were bought up by new investors and they basically started a brand new company under the same name using their heritage. Probably what will happen the Chevy, Cadillac and Corvette.
Johnny Canada :
What’s gonna happen to all those Badger car salesmen?
Well, as I see it, there are numerous possibilities. Here are just a few.
1. Sell Kirby vacum cleaners.
2. Go to law school. (Sorry Justin!)
3. Run for Congress.
The only remaining question is “when”?
Sales are circling the drain and will continue to the rest of 2008 and into 2009. Tight credit hurts GM, Ford and Chrysler hardest and the negative impacts to the economy hurt their number #1 customers (fleets) most of all.
The DOE says they may not dole out the $25B in loans until 2010 – doesn’t do much to help GM finance the new Volt/Delta engine plant, does it?
Also, $25B divided three ways between GM, Ford and Chrysler is a cup of coffee in light of the rate these companies are hemorrhaging cash.
Ken Elias: [In truth, Wagoner should have directed GM to file for bankruptcy in December 2005, when The General still had significant assets to sell. The automaker would be reorganized by now, with fewer dealers, brands and factories. And a clean balance sheet.]
Can a company just file for bankruptcy? It’s my understanding that certain conditions must be met before the judge grants the bankruptcy petition. Plus, other parties – the UAW, suppliers, shareholders – can intervene in the proceedings by filing various motions. And there is no doubt that each of these parties would have filed motions in 2005 – and would do so today, even when GM really IS bankrupt.
I guess the only reason someone like KKR hasn’t stepped in yet is that they are waiting for the big BK. Unload all the bad debt (and continuing contractual obligations, pensions, entrenched management and associated fiefdoms, etc.), and someone will see GM as a bargain. It’s hard to believe that a stock that was trading at 43.20/share in the past year (and is down to about 9.50 today) isn’t seen as hugely undervauled.
Either the place is piled high with rotting corpses or someone’s biding his time before he swoops in and makes the killing of his lifetime.
Not a chapter 11 expert, but generally you can file whenever you want.
Also, GMs creditors can kick in an involuntary bankruptcy petition too, though I’d imagine then there would be preconditions to be met before the judge would let that go through.
A few points for clarification:
1) GM would be filing a voluntary bankruptcy petition. The court would accept it – just look at GM’s balance sheet today, it’s a disaster.
2) With a filing, GM’s cost structure changes somewhat immediately as payments to financial creditors would be stayed, while necessary payments to suppliers will continue. Bankruptcy in Chapter 11 filing is used to preserve the estate of the debtor while it reorganizes, subject to a fair and equitable resolution to creditors.
3) GM’s massive sale would become semi-permanent – and people love bargains. The argument of whether folks will purchase from a bankrupt automaker remains unresolved – I argue that they will IF pricing adjusts for the perceived risk. As far as lender financing goes, the credit crisis will pass, and automobile financing depends on both personal credit and the vehicle as collateral. Bankers are greedy – and with the right combo of credit, rate subvention, and loan-to-value, some lenders will step into the fray.
Please keep commenting…there’s more to come in this series. GM keeps surprising us…and I might be completely wrong…but it sure makes for fascinating but reasoned speculation.
A company can file for bankruptcy protection if management feels it’s the best course of action. Since management has inside knowledge about all of a businesses dealings, they sometimes go Ch.11 even when the balance sheet is strong.
I forget the name of the company that is used a famous example of this, but they were associated with the whole asbestos fiasco. As I recall, they got one or two lawsuits related to cancer caused by asbestos and immediately filed for bankruptcy. They did it not just to save the company, but really to prevent only the first to file lawsuits from getting their fair share. They wanted the people who found out they got cancer 10-20 years later to be able to collect as well. So they set up a separate trust fund and re-organized under a different name.
And yes, I think Kirk Kerkorian is going to finally realize his dream of owning a car company after all. For pennies.
netrun, The company you’re thinking of is called Federal Mogul, and it owns large companies tied to the auto industry like Champion spark plug, Wagner, Anco, Sealed Power, etc.
When the company bought up a British brake company called Ferodo, it “inherited” all of the asbestos liability – and this is what you are presumably speaking of. Actually, I think it also was on the hook for asbestos liability since it owned Wagner Brakes, as well.
Ironically, at one point, Wagner brake and electric were owned by the Studebaker-Worthington conglomerate, which came out of a 1967 merger of the non-automotive operations of Studebaker in the USA, and a Canadian company, Worthington.
Stude had become a conglomerate, owned Wagner, Onan, Paxton (yep, superchargers), STP, Shaeffer refrigerator, Franklin appliance (they made store-brand appliances, none under their own name).
GM is doing the opposite. No longer a conglomerate, they are selling everything off in an effort to retain the core business.
The Studebaker plan seems, in retrospect, to be a better idea – dump the unprofitable automotive side of the biz and concentrate on profitable enterprises to retain the value for the stockholders who’d entrusted the company management with their money.
What an old-fashioned and novel idea, eh?
Thing is? It’s too late for GM to do this. All they have left, are unprofitable automotive enterprises in a worldwide economy which is swirling around the plug hole, because of interference in the marketplace….
http://www.youtube.com/profile?user=themouthpeace&feature=iv&annotation_id=event_413833
http://www.elliottwave.com/features/default.aspx?cat=mw
http://www.freebuck.com/articles/dvaughn/080928dvaughn.htm
So, how much is GM worth? If someone wanted to buy the company, lock, stock and barrel? How much of an incentive would a buyer have to give, to make people give up their shares? How much are we talking about here? Really? Couldn’t just someone buy the entire company and strip and flip it? or perhaps try to make some money out of it?
I just read this morning, Ingvar, that both GM AND Ford are worth about $15.25 billion.
Chrysler is probably worth at least $1.98 (I didn’t read that, I just “reckon”).
Same kind of “reckoning” as the idjits in Washington figuring “oh, $700 billion oughta doit”
(i.e. GUESSTIMATED).
Back to GM (and Ford). Yeah, we the taxpayers have just signed on to loan more money to GM, Ford and Chrysler THAN THEY ARE WORTH TO THEIR OWNERS, THE STOCKHOLDERS. $25 billion.
Catch 22: They apparently don’t get a penny until 2010. By which time, all 3 may be history anyhow…
So, why doesn’t the government just make a take-over for that 25 billion, and nationalize the entire car industry? From a taxpaying point-of-view, that would be the wisest choise, as the government gets the entire companies as collateral, then, they can handout as much money they see fit to re-organize the industry. Sounds wiser than just giving the stockholders a bunch of the taxpayers money and no strings attatched. But perhaps that’s too socialist? Seriously, something is rotten if they handout is bigger then the net-worth of the companies in question.
I don’t see how GM could file Chapter 11 in this current environment. Without available credit in the capital markets, it would turn into a Chapter 7 liquidation in nothing flat.
In addition, GM would have real difficulty selling cars at any price. In addition to consumers behaving with more risk adversity than normal, lenders wouldn’t touch them because of the inability to forecast their residuals. The only interested lender would be GMAC, and they may not have the money to provide the loans, either.
Chapter 11 would have been a viable option during the economic boom. Today, bankruptcy would equal death. The death may be inevitable, anyway, but a bankruptcy filing would kill the company promptly. Too bad, because a few years ago, 11 would have been very helpful. Times have changed, and not for the better.
How would they manage inventories heading into ch11? Would it make sense to ramp production to 100% in all plants 60 days prior to filing, then wipe most of the cost of manufacturing all those vehicles off the books? Labor costs would still be paid no doubt, but I think they could end up ducking some huge bills to suppliers for those vehicles they make in the last months. It would give them lots of room to discount their cars and trucks post filing and might be something to watch for.
Menno, you beat me to the Studebaker reference. Granted, they never again would achieve their dominance of the marketplace, but I disagree a bit that Studebaker came out weakened – it survived another 30 years and its prewar turnaround was truly amazing (they were posting profit by 1936). Studebaker’s downward spiral was at least slowed, until postwar management misdirection, rising labor costs, and healthier, stronger competitors aligned against them, until they finally abandoned the automotive business. This is strikingly similar to what General Motors is facing now!
Elias’ scenario is extremely plausible, and though I feel Chapter 11 will bring about more solutions than problems, I am very skeptical about the American public’s willingness to purchase from a bankrupt automaker, especially with the economy flirting with collapse.
@ The “Cars as Investments Posts:” Cars are almost never a good investment when bought new. One would need a limited production run, preferably rare options/colors/etc., and a lot of time, as the value is judged by used car values (i.e. will not appreciate) for some time. You’d have to hold on to a new Camaro for a LONG time for that thing to turn a profit. Duesenbergs are prewar luxury vehicles, sought after because they were the best of the best (along with Packard, Pierce-Arrow, and Peerless) of their day, and command exceedingly high values today. A DeLorean still command high prices because of their relative scarcity and “failed experiment“ appeal, but it wouldn’t be a horrible idea to pick one up now, if it was in good condition and at a reasonable price, as values have stabilized and have started appreciating, if slowly. (Personally, I’d like a 1948 Tucker, a 1974 Bricklin, and a 1981 DeLorean in the BillC83 Museum! – Then again, I‘m a bit out of left field)
succumbing at Christmas 1963 in the US and early spring 1966 in Canada.
Menno, how did that going bankrupt in Canada 3 years later come about? That seems like a curious turn of events.
Nearly picked up a Studebaker Hawk a few years back…white with red interior and a 259 cid engine. Fortunately, sanity prevailed and I didn’t.
In 1963, Studebaker shut down their South Bend plant, but their plant in Hamilton, Ontario continued producting cars (in limited numbers) until 1966. Studebaker did not go bankrupt in its final years, it just pulled out of automotive operations.
“In truth, Wagoner should have directed GM to file for bankruptcy in December 2005, when The General still had significant assets to sell. The automaker would be reorganized by now, with fewer dealers, brands and factories. And a clean balance sheet.”
You brought in some good points until you said this. Bankruptcy would absolutely devastate GM’s sales. They would easily lose more than half their remaining marketshare in the event of a C11.
Overall, I’m still not entirely convinced GM’s management deserves the brunt of the blame. Any management team in this business would have a helluva time trying to juggle GM’s labyrinth of brands (and the lawsuits that would come with dissolving them), the UAW’s exceptionally healthy benefit’s packages, the $2000 cost disadvantage that comes primarily from paying these pensions and medical costs, and the hellacious anti-GM bias that has been swirling in the media for decades.
$4.00 gas and the current credit crisis are just the perfect storm for GM’s current predicament…. which was already throughly case by the courts and the special interests well before Rick and Bob took the helm. They have the responsibility of ownership. But the blame can come from the fact that GM’s been fighting with one hand tied behind it’s back for quite a long time.
Other than a fortune teller and some very friendly relations in at least two of the three branches of the federal government, I don’t see how GM, or any of the Big 3, could have turned the corner over these last few years.
The problems that GM faces are as much structural as they are psychological. But even with all the problems and disadvantages that are there, GM would still be able to overcome most of the obstacles if it weren’t for the entrenched interests and the federal laws that promote their well-being above GM’s.
Hi NickR. Studebaker didn’t go bankrupt again in 1963 when they pulled the plug on their South Bend Main plant, they just imported cars for another couple of years from their Canadian rump plant, in Hamilton, then shut it down, too. The South Bend engine plant operated all the way through the 1964 model year, but for the 1965 and 1966 cars, they bought GM (Chevrolet design) engines.
Interestingly, GM “screwed” Studebaker over the price of the engines – just because they could – and shipped them from New York to Hamilton instead of from GM-Canada plants, which added to Studebaker’s costs with tariffs. Most of the profits from selling Studebaker cars (which were finally profitable after dumping the way out of date, oversized/underutilized, expensive to run South Bend plant) was going to – GM!
So I have to sometimes wonder if what goes around, comes around? Kizmet? Karma?
GM’s goose is now nearly cooked, too…
BTW, I HOPE the US government does NOT nationalize GM, Ford and Chrysler – all it will mean is a slow, costly drain on taxpayers.
Look at British Leyland in the UK. It just delayed the inevitable and cost ratepayers (taxpayers) in the UK tons of money – year after year after year after year…..
billc83: Duesenbergs are prewar luxury vehicles, sought after because they were the best of the best (along with Packard, Pierce-Arrow, and Peerless) of their day, and command exceedingly high values today.
This is off topic, but during the 1940s and early 1950s, many prewar classics were worth very little…some were even scrapped during the World War II scrap-metal drives.
As for Studebaker – the continuation of production in Canada was a way to avoid dealer lawsuits. When Studebaker closed South Bend, it received enormous media coverage, and most stories treated it as “the death of Studebaker.” Importing cars from Canada allowed Studebaker to fulfill dealer franchise agreements.
But the negative publicity drove customers away, and as the dealers dwindled away, Studebaker was able to shut down the Canadian operation. (Too bad Studebaker management hadn’t been that clever in running the automobile operations in the first place.)
Maybe GM should take a page from the Studebaker playbook and simply shut down production in the U.S. and Canada, pare back its lineup, and announce that all future vehicles will be sourced from China and Mexico…
While Chapter 11 looks inevitable, I don’t think taking all the brands out behind the barn is necessarily in the cards.
GM’s old five-brand formula worked for a long time, and it can work again I think. GM definitely has way too many in NA ops, and will have to get rid of some. However, I don’t think that means killing them so much as selling them.
Take Saturn for example. The cars are re-badged Opels, and that’s alright I guess but it is not where the value in that outfit is. Its in the fantastic dealer network Saturn has, and has maintained through its existence. If I was a foreign automaker looking to make inroads in the US, Saturn would be a great buy, especially with the assured discount to value at the big corporate firesale GM will undoubtedly be having soon. If you get the Tennessee (right-to-work state!) plant in the deal, you’re six months from crushing the union out of the facility and controlling it completely. Or strip the excellent production tech out and ship it to your foreign (China!) operation. Cold, hard, capitalism.
There are places for Buick and Pontiac, especially if they and their products are targeted at the demographics the Mothership claims they do. Pontiac itself isn’t broken, but no one will see the potential value in the brand until a suit stops throwing stickers on a Cobalt and calling it a G5 or whatever.
Dropping a JDAM on a mud-hut won’t clean the hut, just destroy it completely. Sell the trinkets in the hut first.
It would really suck that there is a car I can afford that does everything I want andteh company may go ou of business.
Ingvar :
So, how much is GM worth?
Someone over at NeoGAF suggested that Nintendo has more market value than GM. Not surprising, imho, since everybody wants a Wii (and yes, I have one). Maybe GM needs their own Shigeru Miyamoto…
Ferrarimanf355:
GM probably has had a few Shigeru Miyamotos. But they fired or layed him off each time someone of his talent came through. It’s like my old man says, “the cure for cancer died twice from malaria last night”
Other than a fortune teller and some very friendly relations in at least two of the three branches of the federal government, I don’t see how GM, or any of the Big 3, could have turned the corner over these last few years.
By putting some of their SUV/Truck profits into a small car program. Hell, Ford already had (has) a good small car, but they’ve let it rot on the vine rather than keep up with competition.
Fact, people pay $3K more for a Civic than for a Cobalt. There’s $3K profit right there if they could make something comparabe and sell it at a comparable price.
It’s not like RIR took the helm last Thrusday. There’s been time for long term planning, they just havn’t done it.
To file or not to file, that is the question. Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles, and by opposing end them?
I think there is no choice but to file. It may not save them, but the current course of inaction isn’t going to save them either.
It’s important to emphasize that C-11 is a last minute Hail Mary strategy. It’s no one’s idea of the right way to run a company, but there is no longer time to run GM right. W/o reorganization, there is no chance of survival. Even if the bailout keeps them afloat a few more years, their end will come if they continue on the same course.
Whether or not people will buy from a BK automaker depends on public relations. If the BKcy is sold to the public as a reorganization, rather than as a termination, (and of course the intent is reorganization, not termination) then I think people will still buy – but they’ll still want a bargain price.
GM’s troubles won’t be over until they both reorganize and make products (not just one or two) that are as good as the competiton. For a long while, they are going to have to sell on price, and that means low profits and not much money for product improvement. Their only hope is to renegotiate union contracts so that some profit margin can be had at the expense of UAW members. Working cheap is better than unemployment.
Ford will file within days of GM filing. Why not. They’d like lower labor costs as well. Chrysler will also file, if they are still around, for the same reason. It won’t be so hard to sell if the domestic competition is also in C-11.
I don’t see how Toyota will get hurt significantly (I’m anxious to read the next insallment to see how that reasoning goes). Lack of production capacity can be overcome, but I’m thinking we’re headed for a few more years of reall bad auto sales. If Toyota resists the temptation to increase production, and re-focuses on quality/reliability, they’ll come out way ahead in the long run.