General Motors Death Watch 57: What the Dickens?

Robert Farago
by Robert Farago

This is a tale of two Tahoes. The first is a wildly successful SUV that's flying off the lots at full price: a Hail Mary pass that will put General Motors back in the end zone, saving them from the unthinkable humiliation of bankruptcy, with only moments to spare. The second is a gas-guzzling truck that's being swept out to sea by the vast receding tide of SUV buyers: a four-wheeled indictment of GM's inability to build what America wants to drive at a price that makes the company enough money to stay in business. For the time being, which vehicle you see depends entirely on which one you want to see.

Over at The Detroit News, Brett Clanton paints a portrait of the new Tahoe as the corporate lifesaver The General needs it to be. His article on the Tahoe's initial fortunes is sprinkled with the kind of upbeat non-contextual factoids that German newspapers relied on at the end of WWII: "Tahoe sales were up more than 50 percent in January. The 2007 model is fetching a higher average selling price than its predecessor… Only on sale since Jan. 10, GM has booked just more than 4,000 sales and is still in the process of shipping Tahoes to dealers." To be fair, Clanton mentions Wall Street's unenthusiastic response and sensibly states that "a true verdict on the vehicle is probably still months away." But the article's overall tenor is reflected by the headline "Hot Tahoe fuels GM Optimism."

If Tahoes are 'hot,' Antarctica is 'tropical.' Four thousand Tahoes per month equals 48k per year– as compared to the 152k examples Chevy sold in '05. Meanwhile, down on the showroom floor, I was offered a $2k discount on a brand new LT without asking for it. No wonder: in his February 6th newsletter, automotive journalist Ed Wallace reports that GM is offering a $1750 fleet rebate on new Tahoes and Yukons. (So much for GM's "Value Pricing Program": the highly-touted plan to keep vehicle sticker prices– and incentives– low.) What's more, GM isn't putting an actual number to '07 Tahoe sales or breaking out sales by model year. In other words, that "50% increase" represents sales of both the new and the old Tahoe. Add in the fact that dealers are selling the '05 Tahoe with an $8k rebate, while the '06 models are leaving dealer lots with $5k off sticker, and the rosy picture takes on a more deathly pallor.

In fact, Wallace's assault on GM optimists extends well beyond carefully shrouded Tahoe sales. The talk radio host points out that The General's dealers sold slightly fewer than 300k vehicles (discounting fleet sales) in January. Yet the company currently plans to build 1.26 million vehicles this quarter. That's 25% more vehicles than it will sell at the current pace. You don't have to be an economist to know that there's only one way prices can go when supply exceeds demand. Talk about duality: GM can't afford to discount its products; it can't afford not to discount its products. Unless sales pick-up quickly and dramatically, GM CEO Rabid Rick Wagoner's recent production cuts won't be enough. The General's death spiral will continue.

Depending on what happens tomorrow, we might be spared the agony of watching GM lingering on life support. We'll know whether or not Delphi has hammered out a deal with the United Auto Workers (UAW) that allows the parts maker to continue making parts for the Tahoe, Yukon and the rest of The General's lineup. The smart money says the UAW will accept some cuts to their members' compensation, while GM foots the multi-billion dollar bill for a continuation of the status quo. The smarter money says the UAW will agree to nothing more than window dressing, while GM foots the multi-billion dollar bill for a continuation of the status quo. If not, the UAW will strike and no one will have to worry about Tahoe sales for quite some time, if ever.

If you hear "deadline extension", think strike. Anyway, either way, this is a fight GM can't win. In fact, we're back to twins, and they're BOTH evil. The world's largest automaker can't survive a strike (UBS analyst Rob Hinchcliffe reckons a moribund GM would burn through its $19 billion cash hoard in about 10 weeks) and it can't afford to subsidize Delphi's UAW workforce (GM is ALREADY on the hook to Delphi workers for $12b). All of which means the new Tahoe's sales are… unimportant. Even if the Tahoe and its platform siblings fly off the forecourt at full retail for months– reversing a deeply entrenched industry trend– it couldn't keep GM's sinking ship above water. So the General's pride and joy, its last, best hope for financial salvation, is destined to become what anti-SUV campaigners saw all along: an irresponsible irrelevance.

Robert Farago
Robert Farago

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  • Golden2husky Have to say he did an excellent job on the C7, especially considering the limited budget he was given. I am very happy with my purchase.
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  • 2manyvettes Tadge was at the Corvette Corral at the Rolex 24 hour sports car race at the end of January 2023. During the Q&A after his remarks someone stood up and told him "I will never buy an electric Corvette." His response? "I will never sell you an electric Corvette." Take that Fwiw.
  • Socrates77 They're pinching pennies for the investors like always, greed has turned GM into a joke of an old corporate American greed.
  • Analoggrotto looking at this takes me right back to the year when “CD-ROM” first entered public lexicon