General Motos Death Watch 5: The Perfect Storm

Robert Farago
by Robert Farago

Oh dear. It seems that the long predicted "perfect storm" is massing above the stricken supertanker that is General Motors. Storm cloud one: the Wall Street Journal reports that SUV sales have tanked in Texas.

Never mind today's sales figures, which reveal that GM's light truck sales dropped 17 percent last month, to 209,917 vehicles. Or today's S&P downgrade, which reduces GM's bonds to 'junk' status (raising their borrowing costs). If Texans are abandoning their Conestogas, GM's number one [non-finance] profit engine is running out of gas– without a service station in sight. Unlike Chrysler and Ford, GM doesn't have a plan B: a supply of more fuel-efficient sedans, SUV's and crossovers ready for sale. I'm not talking about hit products like the Mustang or 300C. I mean reasonably frugal vehicles appropriate to these $2.70 a gallon times, like the Ford Freestyle.

Storm cloud two: these vehicles are not on the immediate horizon. That's why GM Chairman Rick Waggner is heading to Tokyo. He's exploring the possibility of GM getting (as in buying) Toyota's help (as in patented technology) on safety and environmental issues (as in engines that don't burn gas like GM's health care obligations burn money). If Wagoner is traveling to the Toyota camp just a week after they humiliated The General with an offer to raise their prices in sympathy, GM's upcoming product plans must be very bad indeed.

[NB: on 5/9, GM officially denied that Wagoner's trip to Tokyo will include meetings with Toyota.]

Storm cloud three: Mr. Kirk Kerkorian. an investor so rapacious they had to name him twice. Mr. K. just bought 22 million GM shares, upping his total stake to 9%. Kerkorian is what the business community calls a "tree shaker"; which is a bit like calling an M1 tank a "peacemaker". He likes to buy his way into the boardrooms of large companies and force them to sell off noncore assets, cut costs and restructure the whole damn shooting match. Sounds like a plan to me. It also sounds like the end of GMAC Finance, Buick and Saturn. At the least.

As far as I'm concerned, that's no bad thing. As far as the unions are concerned, it is. In fact, the UAW recently decided that the huge crisis facing the world's largest automaker requires them to do nothing whatsoever. There will be no union flexibility regarding GM's chronic excess capacity and the company's disastrous labor costs– save keeping the plants open come what may and increasing members' compensation when their contract comes up for renewal in 2007. The idea of dismembering GM to save it is about as high up on their list of priorities as lowering union dues.

The brewing tempest here is union intransigence vs. Kirkorian intransigence. While Wagoner, Lutz and the rest of the GM rat pack are happy to hold the fort, appease the unions, scramble for market share and pray for cheap gas; Kirkorian is just as likely to tell the UAW to go to Hell. (Lest we forget, the guy is an 87-year-old billionaire.) As is the way of such things, if the UAW is going to Hell, they'll take GM with them. How does a UAW workers' strike sound right about now?

How about bankruptcy? Bankruptcy, the room-dwelling elephant that scares the shit out of everyone except real capitalists, would afford GM protection from its creditors: the unions. Obviously, no GM exec with a desire to retire with the respect to which his wife has become accustomed wants to be known as the guy who drove The General into the world's largest Chapter 11. They'd get down on their knees in front of Congress Lee Iacocca-style before accepting that scenario. Kirkorian, by contrast, would not be afraid to go nuclear. He might even enjoy it.

Oh, I forgot to mention that Mr. K also likes companies to turn their huge cash stockpiles into stock dividends. You know, to create a little walking around money for long-suffering stockholders like… him. A cash-strapped GM wouldn't have the wherewithal to fund new product development and their own stupidity (e.g. the $2b+ Fiatsco and ongoing recalls). Denied the opportunity to live off the fat of its finance arm and automotive heyday, hemorrhaging cash at the rate of a billion or so per quarter, GM would, eventually, go out of business.

Could it happen? Sure. Would I want it to happen? Now that's a different question; which a lot of people have been asking me lately In fact, I've recently been accused of wanting to be the instrument of GM's destruction. Well nuts to that. Automakers should sell products that consumer want to buy: stylish, safe, reliable, affordable, efficient and pleasurable to drive. Is that too much to ask? If GM in its current form isn't up to the job and goes under, it's a shame. But rest assured: America will weather the storm.

Robert Farago
Robert Farago

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 1 comment
  • Sherman Lin Sherman Lin on Apr 14, 2007

    The perfect storm has continued to brew over the two years since this article was written. Although Kerkorian looks less like a UAW can go to hell type.

  • Daniel J Until we get a significant charging infrastructure and change times get under 10 minutes, yes
  • Mike I own 2 gm 6.2 vehicles. They are great. I do buy alot of gas. However, I would not want the same vehicles if they were v6's. Jusy my opinion. I believe that manufacturers need to offer engine options for the customer. The market will speak on what the consumer wants.For example, I dont see the issue with offering a silverado with 4cyl , 6 cyl, 5.3 v8, 6.2 v8, diesel options. The manufacturer will charge accordingly.
  • Mike What percentage of people who buy plug in hybrids stop charging them daily after a few months? Also, what portion of the phev sales are due to the fact that the incentives made them a cheaper lease than the gas only model? (Im thinking of the wrangler 4xe). I wish there was a way to dig into the numbers deeper.
  • CEastwood If it wasn't for the senior property tax freeze in NJ I might complain about this raising my property taxes since most of that tax goes to the schools . I'm not totally against EVs , but since I don't drive huge miles and like to maintain my own vehicles they are not practical especially since I keep a new vehicle long term and nobody has of yet run into the cost of replacing the battery on an EV .
  • Aquaticko Problem with PHEV is that, like EVs, they still require a behavioral change over ICE/HEV cars to be worth their expense and abate emissions (whichever is your goal). Studies in the past have shown that a lot of PHEV drivers don't regularly plug-in, meaning they're just less-efficient HEVs.I'm left to wonder how big a battery a regular HEV could have without needing to be a PHEV.