General Motors Death Watch 81: GM For Sale

Robert Farago
by Robert Farago

GM swears up, down and sideways that they will not stage a repeat of last summer’s Fire Sale for Everyone discount program. And yet inventories are up, sales are down and if they look sideways they can see their competitors printing up blowout banners. “Value Pricing” be damned. The General knows that every sale surrendered to Ford, Chrysler and Toyota eats into its already dwindling market share, rendering GM’s production cuts less and less effective. Besides, the cuts are expensive. GM needs dealer cash now. So it’s not a question of “if.” It’s a question of “what then?”

This is the GM death spiral: larger and larger production cuts in response to a smaller and smaller market share. When GM CEO Rabid Rick Wagoner stepped-up to the microphone a little over a year ago and announced he was going to cut 25k jobs, the media was aghast. American manufacturing is under attack! Our industrial base is shrinking! These days car hacks and Wall Street celebrate the fact that GM and Delphi workers are rushing for the exits by the tens of thousands. I guess someone stashed that old saw about “not being able to cut your way to profitability” in the wood shed and forgot about it. Well, at least until the next financial quarter’s [delayed] results prove that a corner turned can lead straight to a dead end.

Meanwhile and still, stabilizing the patient is Rabid Rick’s first priority; otherwise the amputations will be a success and the patient will die. A great deal of attention has been lavished on the financial details of GM’s union buyout plan. Little has been said of the timing. While GM’s 113k union members are busy weighing up the pros and cons of trading “secure” employment for cash money and [somewhat] reduced benefits, their factories are busy churning-out vehicles no one wants to buy. Rick’s mob can’t shut off the spigot. All The General can do is whatever it takes to keep the pipeline open.

And that means discounts. Of course, GM will not call the next big US incentive campaign an Employee Discount. For one thing, it won’t be long before they don’t have any employees left. But seriously folks, Rabid Rick has once again given himself enough wiggle room to accommodate Greg, Jeff, Murray, Anthony and their entire international fan base. In a recent interview, Wagoner said GM would stick to its policy of “simpler pricing.” In case you missed it, those are the new code words for what was previously called “value pricing.” It’s the difference between “here’s what you pay” and “here’s what you pay and we’re not offering any discounts.”

Because, of course, they already are. GM’s $1000 “free gas” promotion is already out there, attempting to lure Californians into gas-guzzling SUV’s. And it’s spread to Florida. How long before the gas cash come-on gets a national rollout? Free gas, 0% financing, rebates– whatever you call it, however you dole it out, the money comes off GM’s bottom line. But it’s Hobson’s choice: lose more market share or lose more money. Of course, GM could tell its dealers to hold the line on price, watch inventories swell, and do both. That’s not only the worst case scenario, it’s the least likely. And speaking of timing…

GM has just convinced its banks to lend it additional money to pay for its union buyouts, plant closures, Fire Sales, etc. The loan is fully secured. Hence, S&P has lowered its rating on GM’s unsecured debt to B- . That puts GM perilously close to the point where Cerberus can walk away from the GMAC deal, denying The General the long-awaited cash infusion. Equally important, GM now admits it will draw on this line of credit to meet liquidity needs. The good news for camp followers: GM won’t go bust today. The bad news: the noose is drawing tighter.

And make no mistake, the UAW hasn't stepped off the scaffold. While last week’s UAW convention in Las Vegas had analysts betting that the union bosses are in a conciliatory (a.k.a. “realistic”) mood, when was the last time the UAW made any concessions to the automobile industry? The recent “health care giveback” was actually a $3b union-administered fund. Buyouts are not a concession. If we believe that Delphi is serious about reducing its workers’ pay, if we believe GM can’t fund the difference, the union will have to make concessions. Past history says it ain’t gonna happen dot bomb.

That’s because past history is the only reliable guide to future behavior. When GM launched its Employee Discount for Everyone program last year, the company pronounced it a tremendous success– and waltzed straight into a sales drought and catastrophic financial losses. What’s changed since then? The levels of unsold inventory are higher.

Robert Farago
Robert Farago

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  • Satire Satire on Jun 23, 2006

    Save GM? Easy. Kill Saturn. Kill GMC. Sell Saab. Kill Hummer. Rip Corvette out of Chevy's hands into a stand alone model/division. Reduce the number of models each manufacturer makes. Chevy should have an economy car. A mid-size family car. A large, rear wheel family car. And all of the trucks. Pontiac takes the sports entries. Four, five models at best. Buick makes two cars...mid-size near luxury and a full size near luxury. Buick can also offer a luxury van and SUV. Caddy gets the biggest load of cash up front to redo all their cars. EVERY car will be rear wheel drive and have the same fit and finish as Lexus but be consistently priced 10-20% less than Lexus. All domestic engineers must rotate thru Holden before being given the green light to build a domestic car. And to reward me for my outstanding suggestions, Chevy gets an El Camino based on the Holden version. Now, any other problems you need solved?

  • EnglishPaul EnglishPaul on May 06, 2009

    It's not nice to say but General Motors will not make up the lost ground in our lifetimes, if at all. As well as being hopelessly lacking in innovation and imagination regarding safety features and cabin goodies the utterly awful build quality has helped tarnish previously good brands. The most obvious example is Saab. Today, in England, I sat in a 2009 Saab 9-3 with a view to making a purchase. I've always fancied a Saab and now I can actually afford one I don't think I'll be bothering. The plastic-y interior and rather flimsy looking steering wheel are in stark contrast to the ones to be found in my friend's 1999 model, which incidentally has 180,000 miles on the clock and is still going strong. The Saab brand used to mean something - prestige, discernment, all-round reliability and quality. Today's Saabs remind me of Hong Kong imitations - at first they look like the real thing but upon closer inspection the flaws and the failings become obvious. What is tragic is that this inferior quality has been allowed to invade the entire GM stable and everybody knows it. Shame on you, General Motors. By lowering standards to maximise short-term profits you have brought your empire to the brink of collapse.

  • NJRide So this is an average age of car to be junked now and of course this is a lower end (and now semi-orphaned) product. But street examples seem to still be worth 2500? So are cars getting junked only coming in because of a traumatic repair? If not it seems a lot of cars being junked that would still possibly worth more than scrap.Also Murilee I remember your Taurus article way back what is the king of the junkyard in 2024?
  • AMcA I applaud Toyota for getting away from the TRD performance name. TuRD. This is another great example of "if they'd just thought to preview the name with a 13 year old boy."
  • Jeff Does this really surprise anyone? How about the shoes and the clothes you wear. Anything you can think of that is either directly made in China or has components made in China likely has some slave labor involved. The very smart phone, tablet, and laptop you are using probably has some component in it that is either mined or made by slave labor. Not endorsing slave labor just trying to be real.
  • Jeff Self-driving is still a far ways from being perfected. I would say at the present time if my car took over if I had a bad day I would have a much worse day. Would be better to get an Uber
  • 2manyvettes Time for me to take my 79 Corvette coupe out of the garage and drive if to foil the forces of evil. As long as I can get the 8 track player working...