General Motors Death Watch 76: Last Man Standing

Robert Farago
by Robert Farago

When Bob Lutz launched the new-ish Chevrolet Tahoe, GM's Car Czar claimed the SUV and its platform partners would sell to a core group of customers who need (or at least desperately want) the size, power and towing abilities of a traditional American truck. At the same time, Lutz acknowledged that overall SUV's sales were shrinking. Unfortunately, the press neglected to explore the corollary: GM's ability to maintain SUV profits depends on conquest sales from existing owners. Never mind the Dai-san (Toyota, Honda, Nissan) or the "Crisis" Corporation. There's only one way GM can generate life-sustaining lift from this profit-rich segment: hit the weak man. Ford is Job One.

In fact, GM and Ford are locked in a Detroit Death Match. Both companies' finances are in tatters. Their market shares are shrinking. Layoffs and closings are spreading throughout their respective empires. A Delphi strike threatens to shutter their assembly lines. Impossible pension and health care costs are eating into profits. They pay thousands of workers not to work. The unions can't or won't play ball. There's not enough money to invest in new products. Their dealer networks are bloated. Ailing brands are dragging them down, but they can't afford to cut the deadwood. It's like the old joke about the man fleeing a bear who nearly trips over his companion, who's putting on a pair of running shoes. "Are you crazy?" he yells. "You can't outrun a bear!" "I don't have to outrun the bear," his former friend replies. "I just have to outrun you."

Ever since The General's bankruptcy stopped being a paranoid fantasy, GM CEO Rick Wagoner has insisted that Chapter 11 is not on the horizon, or even in play. While GM could use Chapter 11 to cut pay, pensions, health care, brands and dealers, Wagoner claims the move would fatally damage GM customers' trust (such as it is). But, if Ford went to the wall first, broke the UAW's back in court and jettisoned its excess dealers, GM could demand the same treatment from the unions and the courts. GM would enjoy most of the benefits of "re-alignment" without damaging its reputation AND scoop-up market share from its prostrate rival.

Seen though this lens, it's possible that Rick Wagoner's otherwise inexplicable "steady as she goes" strategy reflects a deeper understanding that GM is fighting a war of attrition against its cross-town rival. If so, the sides are evenly matched. Ford has a better pickup, arguably a better car line and better foreign brands (all solid except for ailing, arthritic Jaguar). GM has better SUVs, a more robust luxury line and sheer size. At the end of the proverbial day, these two automaking giants are in such similar straits that Ford (and to some extent Chrysler) feels obliged to equal or better every GM incentive, discount and sales gimmick. Employee discounts, gas cards, zero per cent financing, cash back– the hits to the bottom line keep happening.

Of course, these incentive wars are a dangerous game of "chicken.' The endless discounting has not only damaged all hope of profitability, it's dragged GM and Ford deep into discount car company territory, shattering their once-proud reputations for high-quality products. What's more, the campaigns are only working relative to each other; while GM and Ford (and Chrysler) fight each other over scraps, Dai San continues their slow, inexorable increase in overall US market share. The rot may become so bad that neither company could find their way back– even after bankruptcy levels the playing field.

Besides, the "what's good for the goose is good for the gander" principle has no basis in law. Who's to say a Ford Chapter 11 would force the all-powerful labor unions to be more conciliatory towards GM when their contracts come up for renewal in '07? Why would the myriad of state courts involved in dealership agreements allow a solvent GM to dump its dealers just because a federal bankruptcy judge bestowed this advantage upon a stricken FoMoCo?

If Wagoner and his team are thinking Who Laughs Last, they may have it exactly backwards. The first domestic carmaker to file for bankruptcy could well be the first company to fully recover. Ford as much as admitted this when its quarterly statement listed GM's bankruptcy as a potential competitive threat. So why hasn't either company simply bitten the bullet and filed first? As always, it's about character. Rick Wagoner sees himself as GM's savior. He doesn't want to be the captain who went down with the ship. Billy Ford feels the same way. But events (and their own incompetence) are conspiring against them. Sooner or later, both men are bound to learn that pride goeth before a fall.

Robert Farago
Robert Farago

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  • NotMyCircusNotMyMonkeys dudes off the rails on drugs and full of hate and retribution. so is musky.
  • Big Al from Oz Musk and Trump are of the same ilk, except Musk's IQ is a damn site higher than Trumps. Musk like Trump is only into himself. Musk doesn't care about Trump only Musk. Musk sees more dollars if Trump wins.Hey, I'm Big Al again!3
  • Rover Sig We have a car with two fake exhausts in the bumper, but a large shiny muffler visible hanging down on one side, not aligned with the fake exhaust exits. Horrendous. I had to paint the shiny muffler with high-temp black paint to make it less visible. Exhaust pipes were meant to be round and hang below the bumper, and they can be made quiet or loud as the engineers like. But fake exhausts rank down there with fake intake vents on the side of that old Buick.
  • EBFlex Of course it does. What a silly question
  • Buickman Elon is a phony.
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