By on August 15, 2006

badcredit_pic222.jpg A few days after GM's vice president of vehicle sales, service and marketing assured auto industry analysts that his employer will maintain incentive-free “value pricing," General Motors announced two grand cash back on the 2007 Chevrolet Tahoe, Avalanche and Suburban and the GMC Yukon, Yukon XL and Denali. To be fair, nobody took LaNeve’s price promise seriously. By now, everyone knows GM’s new(ish) SUV’s are a drug on the market, and it ain’t Viagra. There’s only way to move the metal: lower the price. Either that or stop making the damn things.

Last Friday (always Friday), GM CEO Rick Wagoner announced that The General will curtail production of its GMT-900 based SUV’s. Rabid Rick tried to minimize the damage by asserting that GM was going to halt “some overtime” on SUV assembly lines and introduce “other products” into the production mix— as if to say demand for GM’s gas guzzlers was still hot, just not sizzling, and besides, we can make some other stuff instead.

Yeah right. At the end of July, in an industry where a 60-day supply is an acceptable maximum, GM dealers were stuffed to the gills with Tahoes (82 days), Yukons (89 days) and Chevrolet Suburbans (75 days). Although the figures are not far off last year's, these are GM's "new" trucks.  August is going to be a bitch.

Meanwhile, Rabid Rick proclaimed that GM's share of the full-size SUV market has “boomed.” According to Wagoner, GM now “owns” 50 to 75 percent of various segments within the SUV genre— which is a bit like saying you’ve scored the best cabins on the Titanic after it hit the iceberg. The executive’s statement was a remarkable piece of spin, but it pales in comparison to GM’s creative accounting. Lest we forget, Rabid Rick ascended to his throne as GM Chief Financial Officer. Here’s a bit of what he’s learned…

Yesterday, The General’s GMAC finance unit signed a three-year, $10b funding facility with a Citigroup subsidiary. Four billion dollars of the money falls into a brand new category for GMAC: “unrated notes”. Unrated notes are papers representing loans that are so far outside traditional credit parameters that the vast majority oif insitutional investors are literally prohibited from buying them.

In other words, GM’s “Zero Percent for Deadbeats” summer blowout left GMAC with billions of dollars of risky loans. No surprise then that GM's finance arm reported that the unrated notes are backed by assets “not typically securitized by GMAC.” OK, here's the "creative" part…

Because the risk is so high, there's a gap between the money GMAC lent its less-than-perfect customers and the amount of money Citigroup paid for the loans. As part of the deal, GM has agreed to cover the shortfall (i.e. securitize the assets). It’s all a bit confusing (by design), but here’s the bottom line: GMAC carries little or no risk for the bad loans. GM buries a “charge” in its sales costs to cover the money paid to GMAC for the dicey loans.

The shell game maintains the illusion of higher average transaction prices, hides huge discounts/rebates and moves vehicles off the lot. Given that GM generates about $28b in North American sales per quarter, $4b in bad debt equals about 15% of sales (assuming 100% financing). Since most of this paper was written in 60 days, as much as 40% of GM's recent sales surge may be directly attributable to bad loans. Put that in your quarterly report and smoke it.

Just like last year’s “Fire Sale for All” program, the “Zero Percent for Deadbeats” program will eventually bite GM in the ass. Can you imagine what these vehicles will be worth when (not if) they’re repossessed? At the risk of sounding, um, deadbeatist, people with sub-basement level credit scores tend to smoke, spill beer, puke, rip up interiors, ding ‘em good and never fix a thing.  And speaking of repairs…

In the second financial quarter, GM downgraded its warranty expenses per vehicle to $325 (compared to $523 for the same quarter in ’05). GM’s improving reliability record is admirable, but it doesn’t justify that kind of drop. The revised figure added $433 million (the equivalent of $0.67 a share) to GM’s second quarter “profits.” Clearly, GM is ducking and diving, window dressing its earnings to mask the company’s true performance, or lack thereof.

The truth is things are not going well at RenCen. While GM has finalized its new credit line of $4.5b (on onerous terms), the company still withdrew an additional $2b from its VEBA on July thirty-first to cover health care reimbursement. GM’s continual need to tap into the VEBA account suggests a cash shortage.

Now that the GMAC sale has been postponed until next year, the need for operating funds could well become critical. While the risk of a GM default may not be imminent, a strike at bankrupt auto parts maker Delphi would be the tipping point. In the event of a work stoppage, GM’s credit line would be reduced by a billion dollars.

Industry watchers still say it’ll never happen. Meanwhile, negotiations at Delphi are stalled and the most recent final deadline arrives in two days. If Delphi goes down, GM goes down. If it doesn’t, the company's descent into bankruptcy will merely be postponed.

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87 Comments on “General Motors Death Watch 87: Dead Beat...”

  • avatar
    jerry weber

    Robert you have nailed it. The new full sized suv’s were the necessary ingredient for a GM recovery. Why? They don’t make any money selling cars. The 10 to 15k profits on these 40k mini-motorhomes are the mouse milk GM and ford need to continue. We all know that if you have a real hit (say the chrysler 300) you get at least one year of full production and little discounting. ie. the public let’s you make some serious money. But it you introduce something in Jan and by summer they are piling up on lots, your profit run is too short to be meaningful. In other words GM has one more cannon to fire the full size pickups. If they dethrone the F-150 but start to sputter next year, the same thing will happen as the SUV’s. Wagoner will declare victory (defeating ford) but ignore that the entire segement is fading into to sunset. Neither GM or Ford have yet to explain how non profitable little cars (at least ones they sell) will replace these huge truck profits. And yes Robert no amount of financial dancing will allow that dog to hunt.

  • avatar

    The next year or two is going to be real interesting in the auto industry. It would be a real shame to see the 09 Camaro go down the tubes though.

  • avatar

    Good report, thanks for all the juicy details.

    Two questions:
    1) What is a VEBA?
    2) How can they downgrade their warranty expenses? If they need to pay more for warranties than they want to admit, they could file it as other expenses, but that still wouldn’t affect their reported profit?

  • avatar

    Voluntary Employee Beneficiary Association – a tax-free account to pay for health care expenses.  GM's short-term VEBA is down to $800m.

    GM [supposedly] calculates warranty expenses based on historical costs and production per quarter. A so-called “plug number” is recorded as an expense, which creates an offset to the warranty reserve (a liability account).  When warranty reimbursements are approved, the reserve account is debited and the cash paid to the dealers.

    Theoretically, a warranty reserve account could grow a surplus.  Last quarter, GM cut its warranty expenses AND reversed the warranty reserve.

    As you point out, there is always a reckoning. In any case, all of these developments– loans to deadbeats, reduced warrany costs, rushing refreshened SUV's and pickups to market– smacks of desperation. 

  • avatar

    This kind of reminds me of how George Bush just came back from vacation and declared that Hizbollah (I’ve seen so many spellings) has been defeated. Of course, he wasn’t actually involved in the fighting, and those that were have a different opinion, but it lets him attempt to turn cease-fire into a win for the War on Terror, when in reality he was sunning himself at the ranch while the rest of the world was ****ing their pants.
    In the same way, it sounds like good old Rick is declaring that reducing production of the GMT-900s is a win, while the reality is that the battle has simply moved to other fronts, and the enemy is no less voracious (for market share in this case).

  • avatar

    Wagoner just needs to proclaim “Mission Accomplished” with a big sign and maybe he’ll believe that we will all fall for it. Worked once…

  • avatar

    Come on Guys – lets all leave the political statements out of these comments lest the board get soured and hijacked away from it’s orignial mission – -Intelligent informed comments & feedback about the articles on this outstanding site.

    Mr. Farago… want to weigh in here?

  • avatar

    Mega-dittos. As apt as the analogy may be, please save the Bush-bashing for the political blogs.  You know, in general.

  • avatar

    GM needs creative car-making instead of creative(?) finance book-keeping(infact finance cook-booking)

  • avatar
    Jonny Lieberman

    I tend to agree with Farago, as we should keep these comments as free from personal attacks as possible.

    …but “Mission Accomplished” is pretty frigging apt.

  • avatar

    No Bush bashing?
    Only GM bashing here.
    The constant Hate of GM gets tiresome. They do have some really good cars and trucks. They still sell the most also.

  • avatar

    >>>By now, everyone knows GM’s new(ish) SUV’s are a drug on the market, and it ain’t Viagra.

    No, in fact it’s one of those testosterone blockers they give to people with prostate cancer.

  • avatar

    I deeply appreciate Mr. Farago’s articles like this. I have a little bit of layman’s knowledge about accounting, but having someone with the time and skill to ‘read between the lines’ in company’s financial statements and translate the accounting-ese to simple English is a wonderful resource.

    Keep up the good work!

    Buzz L.

  • avatar

    August 15th, 2006 at 2:48 pm
    No Bush bashing?
    Only GM bashing here.
    The constant Hate of GM gets tiresome. They do have some really good cars and trucks. They still sell the most also.

    It’s not hate. It’s criticism which could be constructive if only GM would listen. As for sales, GM’s have been tanking. They had more than 50% of the US market in the early ’60s, when I started paying attention. Their share is going down significantly every year.

    David (a GM shareholder and former fan whose only new car was a ’93 Saturn SL2, but who wouldn’t buy another one)

  • avatar

    GM’s have been tanking. They had more than 50% of the US market in the early ’60s, when I started paying attention. Their share is going down significantly every year.
    How many players were there in the 60’s?
    The media does not report Toyotas recent recalls with glee like they do when they report all the negativity about GM.

  • avatar
    Jonny Lieberman

    Right it’s a conspiracy.

    The editors turn the glee up when they report on GM’s recalls.


  • avatar

    “If they dethrone the F-150 but start to sputter next year, the same thing will happen as the SUV’s. Wagoner will declare victory (defeating ford) but ignore that the entire segement is fading into to sunset.”

    WTF are you smoking or snorting? Stop hanging out with the Cokeheads!!

    The largest single US vehicle segment, by a huge margin, full size pickup trucks, is “fading into the sunset”?? With all of the hoopla surrounding subcompacts, that entire size class might have total sales this year in line with the single digit market share of the 4th place entry in the full size pickup market, the Toyota Tundra. I agree there will be some decline in the overall size of the full size pickup market, but the term “fading into the sunset” is ridiculous hyperbole.

  • avatar

    What is it with you yanks seemingly wanting to watch your domestic Auto manufacturers go down the plughole? Wheres the support these days??

    At least you seem to be catching onto the fact that gas prices will always escalate and you can’t keep living in your american dreams.

  • avatar

    WV14, the american dream extends quite a bit further then driving an SUV or a full size truck…..

  • avatar

    Just a reminder GM has sold nearly 1.5 million trucks/vans this year (Jan-July). While obviously their sales are down compared to 2005, there seems to be a running theme on this site that no one wants their vehicles. GM has also sold over 900K cars in addition to the numbers above. Whats with all the SUV hating? What is the basis for the “or stop making the damn things” comment?

  • avatar
    Mr K.

    Both corporate and personal finances have seen a lowering of standards as evidenced by “creative” financing like non-traditional mortgages, bizarre stock market trading derivatives, etc.

    Chiding a person for taking credit at the culmination of a long term process is like criticizing a Nobel prize winner for being on vacation the day the award is announced.

  • avatar

    GM is getting to be a tired topic, but i also appreciate the insight into how they spin their numbers. For many years i’ve wondered why GM execs didn’t just go for a spin in a camry/accord and then compare it to their crapmobiles and make the necessary changes. seemed like a no brainer to me; apparently they were happy making $$ on their trucks and just said “rent them” to the cars.

    one point though, when i checked into the zero percent financing a summer or two ago, it was only available to those folks with rather high credit scores, so these wouldn’t be junk loans at all. Is that no longer the case?

  • avatar

    Forget volume. The trick to making money is to take in more than you spend.

    Lesson two: if volume exceeds demand, price falls. Curtail volume to match demand, and prices stop falling. So, if GM stops making so many SUV's, the profits won't disappear.

    Hey! That's what Rick did! Only he doesn't really like to talk about it in those terms…

    As for GM's loans, yes there is a general lowering of credit standards in the biz.  And then there's what GM dealers did during the Zero Percent for Deadbeats sale. The guys getting 120% loans on new cars had ten-foot pole marks all over them. We're talking low 500 FICO ratings and… lower.  

  • avatar

    The constant Hate of GM gets tiresome. They do have some really good cars and trucks. They still sell the most also.

    They do and they do. However:

    Sales – Expenses = Profit

    When Profit is negative, it’s call loss. Selling the most cars and trucks is not what counts, it’s making a profit on them that does.

    GM is hindered by so many factors, internal (burocracy, unions, politics) and external (perceived quality, loss of market share, difficulty to turn a profit, health care expenses) it’s gonna get a lot worse before it gets better.

  • avatar

    Hello I`m MIKEY I am a low life hourly worker at GMs OSHAWA complex all of us in production workers and management work work are butts off to produce the best cars and trucks on the market today period.
    Yes we have had some problems with percieved quality.Yes we made some goofy looking cars.and yes SOME of the dealers should be closed cause of crappy service.I fully understand the anger of many buyers,and I see why you would buy an import.but I ask you go to a GM dealer look at an IMPALA or a BUICK take one for a drive the improvement in the last 3yrs is remarkable
    We in the plant are busting are ass to get that NEW 900 truck to the dealers
    d`ont condemn it yet.look at it drive it.It will blow away any imported truck bar none

    THANX for taking your time to read this

  • avatar

    Sorry to even tilt this discussion towards politics. I know it’s an inflammatory subject, and like the rest of you, I have other places that I prefer to discuss it.

    As regards the complaint of a GM hate-on, obviously if GM is still losing marketshare, they could be doing things better. If no one bothers to tell them what they are doing wrong, how can we have any expectation they will improve? Would it be more supportive to GM to simply shut up and let them screw everything up? (Unfortunately, there are also some apt political analogies here too, but I’ll leave those out)

  • avatar

    Hi Mikey,

    Good for you! As a fellow Canadian, I’m always proud to see the quality awards you guys win. You are probably the brightest spot in GMs future.

    Also, I’m a big fan of the Impala. I think it’s one of the best overall sedans made by any domestic. Unfortunately for GM, it’s sold as more of an old person’s car, with the Malibu and G6 being the “mainstream” models. It’s barely more expensive than the base G6, and if they offered it with a decent 4 cylinder, I imagine it could be a much more popular car. I also like the “Lucerne” quite a bit, I think it looks very classy. But without more great entry-level vehicles, it’s less likely that people will upgrade to these nicer mid-range models.

    I’ve got high hopes for the new trucks (very nice exteriors), but I see $5 gas in the near future (for us Canucks, I wouldn’t be surprised to see it in the $1.60 range), and that’s bad news for any full-size truck, no matter how good it may be on it’s own.

    So you keep working your butt off, tell management to get some dynamite small cars onto your line, and maybe you’ll help build my next vehicle.

  • avatar

    I want a deathwatch for the GM Deathwatch article. I’m thinking 150ish range or so.

  • avatar


    If you really want to get hot under the [blue] collar, have a read of our reviews of the Impala and Buick. When you calm down, ask yourself a question: could these guys actually be right? What would THAT mean?

  • avatar

    This is one editorial which continues to fascinate.
    With reference to Mikey. I really appreciate the effort you guys must be making to build a better vehicle. But, let me give you a couple of examples of my recent experience with hiring GM vehicles.
    Buick Rendezvous – Interior liftgate handle fell off as I closed the door for the last time before returning vehicle – my last impression?
    Chevy Impala – The IP top pad was bowing above the trim strip, right above the center console. The unintended gap was about 1/8th inch. The car had 3 front seats! If you stowed the front center seat you had 2 (only 2) cupholders. There were none in the rear (for my kids).
    Chevy Equinox – I really enjoyed this car. It wasn’t great but it was good. There was nothing really negative about it. The ease of closing the liftgate is one of the best I’ve experienced (except electric). My wife really liked it.
    Chevy HHR – My wife really like this also. She liked the flexibility and the bullet-proof interior (easy to clean). I thought that the doors might detatch from the panel when I shut them. The door panel squeaked. Also, the glass flapped around inside the door while I was driving like it was’t being supported.
    I don’t think Mikey and his colleagues are responsible for any of these issues.
    It might not even be GM. Most of this stuff is designed by suppliers who really should know better.
    These vehicles may represent a great improvement on what GM offered 3 years ago, but this overall level of quality is still not competitive.

  • avatar

    Speaking of politics — Hey I wouldn’t mind some commentary on Rabid Rick’s (and Ford’s Fields) recent theme of complaining that the current administration doesn’t have an energy policy, and doesn’t want to nationalize the healthcare industry.

    I get the healthcare — Rick Waggoner would love it if US Taxpayers would pay GM’s corporate expenses. What CEO wouldn’t like someone else to pay the bills?

    But the energy policy one is kind of funny — wonder what exactly he means by that, considering he’d certainly fight tooth and nail against any REAL conservationary energy policy, such as stricter CAFE standards or huge gas taxes. I suppose he’s faulting the government for not magically making gas cheap again so he can keep selling land behemoths?

  • avatar

    “a real shame to see the 09 Camaro”

    Just get a brand new 1969 model instead:

  • avatar
    Glenn Arlt

    One word. Mitsubishi.

    GM is like Mitsubishi on illegal steroids, and it isn’t a pretty sight.

    For those of you not “in the know”, some brainiac at Mitsu USA decided to move the metal and did it with zero down zero payments for a year, anyone with a pulse please come buy a Mitsubishi. Well, the inevitable happened, and since Daimler-Chrysler owned part of Mitsubishi at the time, the management went to them hat in hand looking for support.

    Instead they were told to go to hades, do not pass go, do not collect $200 or any other amount.

    So Mitsubishi Bank and Mitsubishi Heavy Industries (Mitsubishi Motors’ original parents) bought up the stock from DCX and bailed them out.

    Now, the important question is this.

    Who is going to bail out GM? Answer: nobody.

    The second question is this.

    How long before the Chapter 7 (as in close the doors) bankruptcy happens for GM?

    How about in as little as two days when Delphi goes out on strike?

    If I were a betting man….

  • avatar

    Yes R.F. I have read all the reviews from all of the writers and I never get hot under my blue collar. I tend to do my own reviews the auto writers have been slamming the big 3 for years,a lot of it well deserved.a whole lot is not.
    A few questions for the GM bashers/import lovers.
    Where is all of the old imports I see 12 and 15 yr old domestics every day CHEVYS.FORDS a couple of K cars what about the HONDAS and TOYOTAS where did they go?Repair cost maybe? Nah they never break down those auto writers said so.Remember back in the early 90s we built crap of course that same crap is still rolling down the road.maybe the glove box door won`t close and the trunk leaks but it still runs.I call that quality.
    Why are all the taxi cabs domestic?Can you think of a harder life for a vehicle multiple drivers,24hr 7 days a week,city traffic limited maintinace you think they would being using TOYOTAS or BMWs maybe.
    I get off at midnight, when I walk across the G.M. parking lot in February at -25 degrees and the wind coming off lake Ontario would freeze the nuts off a bridge,I d`ont care if my 6yr old Grand Am G.T.eats brake rotors or the seat belt won`t retract.I KNOW my little darling will start and the heater will work. I call that QUALITY!

  • avatar

    mikey: Hey man, just thought I would point out how many old Hondas and Toyotas are on the road too…I mean I live about 20 minutes from Oshawa myself and I drive an 18 year old Honda Civic that just won’t die! Bought for $100 and it is close to indestructible! There are so many late 80s Civics out there it’s not even funny.

  • avatar

    mikey –

    Depends where you live. In my neck of the woods (WashDC) there are lots of old imports – was followed to work today by a 20 year old Honda Prelude. Taxicabs – very amusing the first time I saw a Scion xB in taxi livery, lots of import brand minivans in yellow, fitted for handicapped/rampvan access.

  • avatar
    Jack Shry

    Your insiteful reporting and insider info “KEEPS ME UP NIGHTS”
    Keep up the good work!

  • avatar

    I worry too about GM’s new marketing effort toward a “buy here, pay here” dealership. For the uninitiated, a BHPH dealer will sell anything to anyone regardless of the customer’s outhouse credit score. What’s new is that these are typically USED car lots, not NEW dealerships.

    The value pricing concept is putting a royal squeeze on the dealer’s margin, and most of the dealers don’t even realize the extent of it because GM is playing a confusing shell game with the margin (MSRP less base cost) of the vehicle and supposedly higher margins on the options (guess who has better information on THAT bit of scorekeeping!).

    There is hope for GM, despite the death march here, but it will require a different cast of characters designing the product. Alas, the lead times required for a product changeover are longer than the cash flow probably, but hope springs eternal….

  • avatar
    Terry Parkhurst

    One can’t avoid bringing just a bit of governance issues into this discussion, since the last time an American auto company teetered on the edge of bankruptcy, the Federal government backed the loan up. Of course, that was heading into a presidential election with a president and Congress amenable to such hijicks. (No, I am not going to count the time that the now Chrysler Corporation was acquired by DaimlerBenz, now DaimlerChrysler, as a time when they were teetering on bankruptcy; but I didn’t see the books, so someone might know but not I.)
    If General Motors goes out of existence before 2008, the repercussions in this country, especially in the mid-west, will be enormous. And believe me, the auto industry will then definitely be discussed in the context of politics – big time.

  • avatar

    I see lots of old Hondas and Toyotas; specifically the 93-97 and 98-2002 Corollas and similar model year Civics. Camry and Accords from the same years were very common, but it’s the 98-early 2000 models I mostly see now.

    Some of the most common vehicles on the road in Van, along with the J-bodies

  • avatar

    Hi, Mikey. There are Prius taxicabs. And some police departments are using the Prius for community outreach cars.

    I’m sure there are many other examples, but I’m a Prius fan these days!

  • avatar

    Self immolation isn’t confined to Dell computers. Toyota is beginning not to care. Why compete in F1 and then not sell a single sports car?
    Because 14 billion in profit means you can.
    (They just canned the 2009 Supra).

  • avatar


    I feel for you and your hard working co-workers. No, seriously, I do. My industry is also faced with overwhelming competition and aging buyers. We’re not fighting bankrupcty, but, like your employer, we have cut back in places and pulled the belt tighter. So I somewhat know how you feel.

    But, unlike GM, we have innovated and evolved. We’ve met our new competition head on and come up with new strategies and new products. By doing so we’ve not only stopped our marketshare loss, we’ve gained a little. It took upper management realizing that the old way of doing things was leading us straight to the crapper and everything had to change.

    The GM you and I know is very near death. One way or another, it’s as good as dead. Either through bankruptcy, merger or (preferrably) with a huge paradigm shift throughout the entire company, the old GM is not gonna cut it much longer.

    I’d love to support you and all the industrious people on the line at GM by buying a GM product, but despite three years of improvement, GM cars still can’t hang with the ever-innovating imports. But even more importantly my family with its limited resources can’t take a gamble on a company that’s burned us (quite badly in fact) in the past.

    So we’re shopping for an Audi, VW or Volvo wagon. I’m hoping the Astra wagon makes it to the States mostly unchanged and I can give GM another chance. We’ll see.

  • avatar
    Martin Albright


    Around here (Colorado), Toyota and Nissan pickups and cars from the early 80’s are quite common. By contrast, the Chevy and Ford trucks from the same era are typically beaters in pretty poor shape.

  • avatar

    “Hello I`m MIKEY I am a low life hourly worker at GMs OSHAWA complex all of us in production workers and management work work are butts off to “””produce the best cars and trucks on the market today period.”””

    Gotta love your dedication and spirit as an EMPLOYEE to make that statement about the company you work for.
    I work for Toyota….and a dedicated and growing group of CUSTOMERS are making the same statement about our vehicles.
    The difference?…those customers are paying the bills. Toyota Corporation now has a net worth of 3 times the value of GM, Ford, and Daimler Chrysler put together.
    Enough of the cheerleading.
    Plain facts….I’ve owned both domestics and “foreign” made cars. My last new vehicle was a 1999 4Runner SR5-V-6. It was purchased for $38,000 in December/98. I drove this vehicle for 5 years and sold it for $13,000 with 278,000 km. on it. In all that time the only money spent on it was for routine maintenance (oil changes every 5000 km.)
    The mechanic who certified it was blown away to discover that this truck had 60% of its original brake lining and that the rotors were unwarped and not in need of turning after almost 300K.
    (most of my driving is highway miles so I would be interested to hear from anyone else with one of these trucks who does more city driving)
    I am presently driving an ’02 Impala as a daily commuter. The air conditioning doesn’t work, the dash lights come on and off intermittently,I just replaced the turnstalk/blinker/dimmer switch at a cost of $580 (wouldnt hold high beam on), the catalytic convertor failed and was replaced, and it has wind noise at highway speeds.
    Why would I drive this POS??? Simple….. it was dirt cheap to buy. I picked it up for less then $7000 with 135k on it. I will run it for 300 k. and throw it out like a Bic lighter. It probably will still be worth a couple of grand when I dump it and then I’ll look for another disallusioned GM owner to sell me his pride and joy for 1/3rd of what he paid for it 2 years ago.
    My daughters car….a 2000 Grand Prix …..purchased for $2000. It sounds like a diesel with that horrible 3.1 piston slap noise but my mechanic assures me that if you can live with the rattle and tolerate complete strangers telling you that your car sounds like the oil plug fell out, that the car will likely go 300 +km (if the head/intake gaskets dont fail and dump all the coolant into your engine oil)
    If she gets 50K out of it I’m ahead of the game.
    So yes, you really can come out a winner with a GM product ……if you let someone else take the kick in the ass that comes with buying a car with severe depreciation.
    In truth I hope GM can stay in business. The Union brothers have set our wages in the auto industry by hanging tough when times were good for the domestics. We are appreciative of that fact. Toyota prefers to match what the Union companies pay rather then risk dealing with a Union themselves. So far it has worked for them.
    It was interesting to note that the last Union auto contract was settled for just enough of a raise to cover the Union dues. Essentially that means a wage freeze for the Union workers for the duration of their contract.
    It also means that Toyota only has to match the Union rates so they get a break from paying the higher increases that were negotaited in the past.
    Lets hope GM can pull it together by next contract time. I’m on your team Mikey!!

  • avatar

    I would suggest that if Mikey wants to see some 12 to 15 year old Hondas that he take a drive outside of Oshawa (a traditional GM stronghold). The rest of the GTA is simply awash with Civics, Corollas, and Accords of those vintages. Many if not most are rolling testaments to metal oxidation (such are the joys wrought by the merger of Canadian winters and sodium chloride), but they run on.

    As for most taxis being domestic, I believe that has as much to do with rampant depreciation and wide availability at police auctions making them cheap second-hand buys.

    I want GM to survive, but only if they can produce something remotely desirable for me to drive. At present, that list contains one vehicle (the Corvette), which costs more than a year’s take-home salary for me, so I guess I won’t be buying it anytime soon. Why doesn’t a Cobalt handle as well as my Mini or have an interior that simply demolishes the GTI I’ve been eyeing up? Why doesn’t the CTS meet or beat the driving dynamics of the 3-series I might just stretch my budget to fit? Why does a Solstice weight several hundred pounds more than a MX-5 (this is a sports car, after all)?

    Since I have no utility or desire for a truck there’s just nothing out there for me to buy except for econoboxes built in Korea or vanilla sedans that offer little or no driving enjoyment.

    That’s really, really sad.

  • avatar
    Captain Tungsten

    Mr. Farago:

    You fail to mention that the days-supply inventory numbers, though high, were lower for July 2006 than they were for July 2005 (Suburban 75 vs. 79, Tahoe 82 vs. 102, and Yukon 89 vs. 103). And this is without the employee pricing fire sale. So apparently production is coming in line with supply. And yes, faster would be better….. (Also, Toyota is sitting on 67 days of Sequoias and 154 days of Land Cruisers, Nissan on 79 days of Pathfinders and 90 days of Xterras,so this problem is not GM-centric)

    The $4b in unrated notes. Two questions about that. Why is Citigroup interested in buying this risk if it’s as bad as you say? And why isn’t the financial press (typically not big fans of GM) making more of a stink about it? Analyst’s comments were generally favorable.

    And you report the adjustment to GM 2nd quarter earnings from reduced warranty expenses at $433 million. GM’s Form 10-Q filing with the SEC claims only a $300 million adjustment. Where is the discrepancy?

  • avatar

    High inventory is high inventory. Bottom line: SUV’s sales are way down. The trucks are stacking up.

    Citigroup doesn’t hold the paper. It sells the high risk notes to other investors. They make a commission. Done.

    I’ll recheck the figures on warranties, 10Q very much.

  • avatar

    Toyota and General Motors decided to have a canoe race on the Missouri River.

    Both teams practiced long and hard to reach their peak performance before the race.

    On the big day, the Japanese team won by a mile. The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

    Their conclusion was the Japanese team had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing.

    So American management hired a consulting company and paid them a large amount of money for a second opinion.

    They advised that too many people were steering the boat, while not enough people were rowing. To prevent another loss to the Japanese, the American’s rowing team’s management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents and 1 assistant superintendent steering manager. They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the “Rowing Quality First Program,” with meetings, dinners and free pens for the rower. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.

    The next year the Japanese won by two miles.

    Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year’s racing team was out-sourced to India.

  • avatar
    jerry weber

    capt tungsten: yes, GM has a little less inventory of suv’s this year than last, however, last year was the end of the line for the tired decade old design of suburbans and tahoes. This year’s inventory is the brand new state of the art “fuel efficient” new ones. As I pointed out in another blog, if you can’t get one year of brisk sales out of a brand new possibly billion dollar overhaul before the stuff stacks up, what are you going to do for the next several years when they are no longer freshened models?

  • avatar

    So, Toyota is sitting on 67 days of Sequoias? Let’s see, they sold 2,653 (and just 238 Land Cruisers) in July so they have rougly 5300 or so, sitting around. Although that’s about 5300 x 10k in profits, that’s a drop in the bucket compared to the almost $1 billion/month that they’ve earned this year.

    Someone want to do the numbers for GM? Rough calculations means they have 80,000 SUV’s on the lots – yikes!

  • avatar

    “And why isn’t the financial press (typically not big fans of GM) making more of a stink about it? Analyst’s comments were generally favorable.”

    The same two reasons that have applied right before dozens of other listed firms filed bankruptcy papers.

    1. People on the Street who make tens and hundreds of millions of dollars a year, make it from the average investor being uninformed. They seldom make that kind of money on rises in market value brought on by rising profitablility. Yes, sometimes the average person can make a little money on the Market. But, it’s like going to Vegas. The house always wins in the end.

    2. Analysts are generally glorified sales dogs. 98% couldn’t provide you with an effective P&L analysis of a 7-11. Their job is to advance the firm’s position, not provide some $100K investor with the keys to the castle. Most have no business experience at all, so (if they’re not asleep during the conference call) they buy some BS line about reducing warranty reserves because ‘product quality has improved’.


    Those of us who don’t live inside a GM plant know how many of those foreign cars are out there still running.

    As to your future ’employment’,I can see your night studies course in revisionist history is going well. There’s always demand for people with delusions and/or the ability to tell someone that black is really white with a straight face.

    The more I hear from people who are so uninformed about finanace as to believe the BS that comes out of GM’s PR ‘droids, the more entertaining it will be when it crashes.

  • avatar
    Captain Tungsten

    Mr. Farago:

    One more followup. In the transactions you describe, at the end of the day, who assumes the risk for these loans? It appears to be the note holder who buys the paper from Citigroup, with a healthy interest rate to make it worthwhile (resulting in increased cost to GM/GMAC). But who is holding the bag when the borrower defaults?

    jerry weber: No doubt even new market leading SUV’s are facing a tough road, and the jury is out as far as whether this investment is going to pay off for GM. It remains to be seen what “brisk sales” means in the full size SUV market. I wonder how Toyota feels about their multi-billion dollar San Antonio investment in full size pickup trucks right about now. They do have the financial resources to absorb a few big screwups. GM doesn’t have that anymore.

    starlight mica: The reason days supply is quoted is to normalize inventory numbers among higher and lower selling vehicles. GM may have 80000 on the ground, but they sell over 10 times as many per month as Toyota does.

  • avatar

    Captain Tungsten, I also thought “hmmm, bad timing isn’t just for GM and Ford, anymore” when Toyota announced their big, new truck factory in San Antonio a few years back, and my position obviously became more relevant o the issue as time went by – and gas prices rose.

    However, now I’m beginning to wonder if lady luck isn’t on Toyota’s side after all.

    Look at the big picture. GM had 51% of the entire US market in the year my classic Corvair was made, 1962. Now it is in the low 20% range and dropping every year.

    Once (not IF) GM does a Chapter 11 (which I’m guestimating would cut their new car sales potential in half to the low teen percentage points), or even worse, Chapter 7 bankruptcy (doors closed, all done, good-bye), the US auto market will be most disrupted in history since 1954.

    For those not up on history of the auto market in the US, 1954 was the year that Ford decided to start trying to beat GM by shipping unordered new cars by the truck-load to dealers, which GM responded with likewise. It nearly was the “end” for Chrysler, DeSoto, Dodge, Plymouth, Hudson, Nash, Rambler, Packard, Studebaker, and it WAS the end of auto manufacturing for Kaiser and Willys by early 1955.

    This time, the disruption will be different, but it will be just as disruptive. I’ve done some figures and Toyota cannot (alone) make-up for their proportion of the GM sales vacuum if Chapter 7 is used, even by maxing out worldwide Toyota production capacity. For that matter, nor can anyone else. Toyota would have to more than double the amount of production in the US in order to grow in sales % above what they now have, and beyond their “percentage” of the lost GM sales. (The thing is, if anyone can, Toyota and Honda can afford to do so – thus, adding jobs into the country. It will just take a little time).

    Bottom line. When GM goes bust, after the initial shock of the job losses and recession (and even during), it will be increasingly difficult to buy cars from the remaining manufacturers and waiting lists may come into play until other manufacturers (i.e. Toyota and Honda) can ramp-up more factories. Especially since Ford is closing out even more factories and planning on running the few they’ll have left at near 100% capacity.

    Thus, Toyota’s San Antonio truck plant may be a God-send for Toyota.

  • avatar

    By the way, philbailey, I laughed out loud right in the office when I read your canoe race, and HAD to forward it to friends.

    A German friend once showed me a cartoon. He translated the captions.

    It was an industrial works. Two buildings. The HUGE, fancy building was translated into English as “management.”

    You know the rest of the story. The tiny out-building (“werks”) was translated into English as – “production.”

  • avatar

    It’s not that GM makes bad, unreliable cars now. It’s that they make boring cars that no one wants unless heavily discounted. Most people would rather have an Altima, Accord, or a Camry rather than an Impala. There isn’t really any “must-have” GM cars except the corvette. They do seem to be doing better though. The Lucerne looks like a great car with a great V8. But who wants to buy an Aveo? Malibu? Monte Carlo? Cobalt (SS not included)?

    Daimler seems to have figured this out and put out some good cars that people want to buy. Like the 300C and the Charger. Ford is kinda figuring it out as well with the Mustang.

    And there’s the problem of perceived quality because of terrible cars that GM made from 1972-1999. GM made some POS cars for an entire generation. They made shameful, hideous, outright criminally bad cars. And they’re paying for that now. Generation X and Y want nothing to do with GM and most domestics.

    SUVs used to be the cash cow for GM. But those days are gone. GM needs to adapt for the new paradaigm of the end of cheap oil. They need to make cars that people want to buy and that get good gas mileage. Unfortunately, GM’s union contracts, inept management, culture, and bungling bureaucracy make it impossible to implement the needed changes. They will go bankrupt, but will not shut their doors. They will emerge out of bankruptcy a leaner, more efficient organization that makes cars people want to buy. I see bankruptcy as tough love for GM.

  • avatar

    As a GM employee I have recognized that much of the fault lies within the customers. Many GM customers are afraid to think outside the fish bowl and except the inevitable: Its a global economy. And we must compete accordingly.
    Many GM customers are afraid to admit that maybe the Japanese are on to something. Perhaps the right track.
    Just because your papaw’s papaw owned a GM vehicle (that still sits behind the barn on blocks) does not mean you O’baby boomer have to keep the curse going.
    We get away with producing shatty subpar vehicles because we are an American company. GM does not manufactur fine automobiles we mock them. We get away with producing shatty subpar vehicles because we have a very loyal,committed American fan base. To purchase a vehicle and stick by it simply because its “American Made” is asinine.
    We have known for years these moments would come to fruit. My superiors calculated and concluded that when the fodder hits the fan, that they would be retired and well tanned. Not if but when.
    Its not personal its business. Its not about cars but money. Its not about you, its about us. The guys with the toothy smiles dangling shiny keys over your head. Keep jumping.

  • avatar

    The most important reason why the public never falls for this crap about how reviewers are simply biased against American cars is the rental car counter. I just drove an Impala in Michigan for a week, and it SUUUCKS. No more interior space than our Prius, and handles like a whale. Big trunk was the only advantage at all.

    I’ve driven half a dozen GM cars over the last 2 years as rentals. The theory that we’d be buying these things if we just gave them a chance falls flat on its face when confronted with the fact that many of us ARE trying these things regularly, albeit not by choice.

    And as for why this bozo sees so many American cars – the row in the parking lot at Wal-Mart up there that I walked through had about 20 vehicles. 2 trucks, 1 SUV. EVERY SINGLE ONE WAS AMERICAN. But times are changing – a brand new Toyota dealer opened up in town…

  • avatar
    Martin Albright

    So here’s a question: If GM goes the Chapter 11 route, what happens to their warranty liability? Are owners of GM warranted vehicles left out in the cold? Chapter 11 is reorganization – some debts may be extended or reduced. Does GM get to reduce its warranty liabilities, limiting them either by time, mileage or total cost of repairs?

    Usually in a bankruptcy, some creditors get stiffed, just wondering who gets priority – the unions, the suppliers, the bankers or the customers who bought the cars? The above topic would, I think, make for an interesting discussion.

    In a similar vein, suppose they go chapter 7 (liquidation) instead. Now, we can’t believe GM plants would just shut their doors, more than likely some entity would buy them up – so does that entity also assume the liability for the warranty work?

    I think rather than discussing when/if GM goes Tango Uniform (which has become a rather tiresome “yes they will/no they won’t” kind of debate) it might be more interesting to discuss what a GM bankruptcy might look like and what kind of phoenix might rise from the ashes.

  • avatar

    And there, Martin, is your next piece for TTAC.

  • avatar

    I think you could look at Rover, and what happened to them this time around. It’s such a ominous similarity between GM and old British Laylend. History is fighting tooth and nail to be repeated…..

  • avatar

    Mikey, I can appreciate your enthusiasm for your employer but on a practical note I would ask that you subject yourself to a severe reality check. They way that the US sides of GM and Ford have been acting of late I strongly suspect that they WANT to file for bankruptcy and are actively seeking to do so under the guise of “poor management decisions”. Both companies have repeatedly handed over entire automotive market segments to competitors due to poor management decisions.

    My advice to you would be to stop believing the rosey picture your managers and UAW handlers might be feeding you and take a look at what’s really happening. Don’t be surprised if you decide to start finding yourself a new job after you’ve done so.

    Don’t take the dire situation of your employer personnally. After all, if you’re on the assembly line there is little that you can do about it. Nearly all of the quality problems have little to nothing to do with the quality of the assembly of the car. You’re not responsible for poor quality components from outside suppliers or the bad designs from engineering. Even in engineering you can have a top grade staff turning out quality designs that later get butchered by the bean counters, legal dept, and marketing. In essence, the problem is most likey high above you.

  • avatar
    jerry weber

    capt tungsten: when you are a company that makes a profit on all the segements that they sell in, you can afford to have one plant not at full tilt. You also have the resources to retool that plant to something that does sell if the entire pickup market goes belly up. Toyota is so well placed and deep with cash and talent that a mistimed pickup truck plant won’t stop their aggresive drive to be number one in the World this year. It’s not sales that matter, it’s profit’s and the asians seem to have that little detail mastered.

  • avatar
    Claude Dickson

    There are certain advantages to bankruptcy as the legacy airlines have demonstrated in the past few years. Bankruptcy allowed the legacy airlines to renege on their pension obligations and help them to shove contracts with lower wages down the throats of their employees. In brief, bankruptcy would, in all likelihood, reduce if not entirely eliminate the extra monies paid by GM for retirement/health benefits.

    Now if you think that will solve GM’s problems, you are living in a fool’s paradise. Cutting costs will only get you so far, you still have to make cars people want to buy. I would wager that the ONLY car GM makes that most piston heads would agree is a good car at a competitive price is the Vette. And therein lies the problem.

    As for what would happen to GM, I have a prediction: it will be sold to a Chinese car maker. Why the Chinese? First, they have the money to buy GM. Second and most importantly, the Chinese are new to the US market and GM would give them an instaneous distribution network in the US.

  • avatar

    Claude, you may be right. But the Shanghai car company which is entangled with GM in China right now on a 50/50 joint venture, already got their mitts burned badly in their attempts to grab MGRover at a bargain price. Or, did they? They were going to fork over big money, balked at the last minute, let MGRover go into the US equivalent of Chapter 7 bankruptcy (the doors closed, warrantees on brand new cars wasn’t worth the paper it was written on, etc).

    So now BMW is apparently selling SAIC (Shanghai auto) the rights to the Rover name, but SAIC weren’t able to buy up the MGRover factory or machinery (they were beat by Nanjing Auto, another Chinese company) however SAIC did purchase the design-rights to the Rover cars. Nanjing got the design rights to the MG cars.

    Kind of like one company getting rights to the Chevrolet Equinox and another, the Pontiac Torrent, the badge-engineered Equinox clone with a different grill.

    The big irony is that SAIC just watched “the master manipulator” GM itself, do the deed to Daewoo, and string along the creditors until the price was right (pennies on the dollar). In fact, both Suzuki and SAIC were “in on the deal” and also bought part of Daewoo for a song, along WITH General Motors. (Two’s company, three’s a crowd, guys).

    So I’d say yeah, SAIC or some other big Chinese outfit may end up owning the Chevrolet BRAND.

    SAIC owns 48% of Ssangyong of South Korea, owns Rover rights, has a license to build Daewoo based Chevrolets and US based Buicks in China and owns part of GMDaewoo. Like an octopus with most arms under water, the threat doesn’t seem big, right now…

    So, could a post-GM Chevrolet line consist of all South Korean and Chinese vehicles? Potentially, yes. They’d only probably have to cover 8-10% of the US market initially because many buyers would be scared away by the bankruptcy of GM, to be honest. They could cherry-pick the best dealers (sorry for the Chinese car “Chery” pun, there).

    Chevrolet dealers could sell: Aveo, Optra (sold in Canada right now as a Chevy, also made in China by SAIC as well as South Korea by Daewoo), Epica (a mid-sized Daewoo sold in Canada right now as a Chevy), Equinox (a Canadian Suzuki contract-built car, with Chinese V6s), Vibe (contract built in California by NUUMI – now sold as a Pontiac and based upon a Toyota Matrix), Kalos (a small SUV built by Ssangyong which could be fitted with their Mercedes derived 2.3 liter four), Rexton (a medium SUV built by Ssangyong with Mercedes-derived 3.2 liter inline six), and Chairman (a luxury sedan on the basis of a 15 year old Mercedes sedan with 3.2 liter inline six), and Allure (the Buick LaCrosse / aka Allure, now built or very soon to be built by SAIC in China with the China built 3.6 DOHC V6). Notice, no pickup trucks? No sucky GM minivans? Maybe SAIC would buy up the Mexican GM factory which could churn out some Chevrolet Silverado pickups using cheap labor. Surely they wouldn’t buy into American UAW factories.

    None of the liabilities of GM would be bought-in either, if a Chinese company waited until Chapter 7 bankruptcy and bought up bits and pieces. Like maybe Opel and GM Europe, as well? GM Europe now sell GMDaewoo cars (not forgetting, part owned by SAIC right now) as CHEVROLETS.

    The Chinese learn fast. GM showed them how to do it with the Daewoo deal.

    Hey, GM? Ain’t come-uppance gonna be a b*tch? The sad part is, the management who are responsible will walk away with money, the workers, nothing. No pensions, no nothing.

  • avatar

    I purchased a 3 year old ’95 LeSabre back in ’98. I got an excellent deal at the Buick dealership and I thought I’d be good to go for a while. Well, let’s just say the agony of all the repairs pretty much cancelled out the thrill of the good deal. Five years later I couldn’t take it anymore, but I gave GM one more chance by purchasing a 6 month old Century. Now I have to admit that after 3 and half years I haven’t had much trouble, but here’s the kicker – After purchasing a new Camry for the wife – WOW, I am done with GM. (Ford and Chrysler not even a consideration in the first place). I can really see now why domestics are going south. I L-O-V-E the Toyota and I can’t wait to replace my Buick and becoming a 2-Toyota family. Just comparing the two cars, well not much of a comparison really other than similar price, is just amazing. I’d love to “Buy American”, but I can’t throw the money away on another crap mobile when I know how glorious Toyota is.

  • avatar
    Claude Dickson


    Maybe this is part of GM’s plan, ie, a bankruptcy filing, in addition to allowing them to skip out on their pension obligations, would also give them a way to reduce the number of brands at GM while raising cash at the same time.

    But the new smaller GM would still have to compete successfully in the market place and selling brand(s) to another car maker only adds to the competition. The scenario you paint would have GM’s remaining brands like Buick competing with a chinese Chevy offering a similar product line at a significantly lower price point, even after the cost savings obtained thru bankruptcy.

    But you can see the opportunities/options a bankruptcy filing might offer. I think it’s only a question of time/timing for the filing.

  • avatar

    Regarding warranty obligations after bankruptcy – looks bad for the consumer, judging by what Daewoo car owners got after GM bought up the parent company, forming GM-DAT.

    The US division of Daewoo went bankrupt, and owners got left holding the bag. GM didn’t honor anything, of course, as they didn’t buy the US division. If history repeats itself, it’s going to be a horror show.

  • avatar

    I hate to burst your collective Bubbles bot GM is NOT going anywhere!
    No chapter 7.
    No chapter 11.
    The turn around has started.
    It is ok to buy a Toyota but I’m not sure why all the GM bashing.

  • avatar

    It’s pretty simple math, really. Up until September 2005, GM was losing about $2800 per vehicle produced world-wide. Then, in order to move the metal, it reduced prices, offering “employee pricing for everyone”, remember? Nobody (possibly not even GM) knows how much money they lost over the next couple of months.

    How long does anyone with a lick of sense think that this kind of thing can continue?

    My local Chevrolet dealer has 400 trucks and only a handful of cars in stock. The radio ads are sounding absolutely hysterical. New Chevrolet Silverado pickups for $12,999.

    Now. These pickups weigh in at about 2 metric tons, 4400 pounds. With the cost of copper, steel, palladium, platinum, aluminum, plastic (made of oil) and everything else skyrocketing faster than the “officlal” rate of inflation, I ask you.

    Do you suppose that GM can “make any money” by selling Silverados from $12,999? Let’s be realistic here, and say, NO WAY.

    That’s not even considering the UAW jobs bank where GM is paying guys to stand around and play cards.

    Let’s look at an analogy of a bathtub with multiple leaks and a dripping tap.
    The tub was full at one time, but the incoming pipes gradually filled with gunk and the incoming flow has essentially gone to a drip. But the drain is now busted and can’t be fixed, plus the bathtub has multiple leaks.

    How long before the tub is empty? Not long.

  • avatar

    If you look at the fine print of your local Chevy dealers ad you would see that the price includes trade or down payment. All the dealers do this. They also show lease payments before tax and tags. Its amazing how closely you follow GM since you have 0 interest in the cars they sell.

  • avatar

    espo19047 –

    Have you heard that saying about watching train wrecks? You know it’s going to happen, and that’s it’s going to be horrible, but you just can’t help it.

    BTW, spinning doesn’t work here.

  • avatar


    You might want to read some of the ads a bit more closely yourself. Those ‘incredibly hot’ brand new Cobalts are being advertised at $9999 – full price.

    I’ve seen the Chevy trucks for $12,999 full price, out the door as well. Obviously that’s not a loaded, 4WD medium-duty. Frankly, that’s about all a light-duty domestic work truck should cost anyway. Problem is, GM doesn’t make a profit on that unit.

    I have not interest in anything GM sells, though I grant the C6 is pretty darn good. I do have a (perhaps a skosh macabre) interest in watching GM get what it has so richly deserved since the late 60’s.

    Everything that will happen to GM was pre-ordained in the early 70’s. The coming fall of GM will only be a surprise to those who believe/d the myths.

    Please, enlighten us all. Tell us how a company that continues to lose money every quarter can continue to even keep the lights on, let alone develop what it has not had for 30+ years: product that is competitive.

    Once they do their bankruptcy, GM might be able to reform into tiny niche player profitable company. But nobody who knows how to use a calculator can find a way for GM to even survive without, if they are incredibly lucky, writing off at least 75b. Since they are having a hard time borrowing even a few billion, seems unlikely that dinero is rattling around in petty cash.

  • avatar

    I have had a couple of clients who were part/component suppliers for GM (and Ford as well). They have described their business environment to me. Apparently, they are literally beat upon to cut prices. GM will even force them to provide their financials to GM on a regular basis. GM will then review and restate them, figure out what relatively small profit the supplier is allowed to make, and then force them to adjust prices accordingly. GM might not allow a deduction for the supplier’s company plane, or certain expense account items that they consider not absolutely necessary, for instance. GM may require a supplier to make an investment in machinery and tooling to supply a certain item, and then drop them overnight like a hot potato if someone else is willing to sell it for less. These suppliers all live in constant fear and buy antacids by the case (not deductible). They often wait months for payment. But hey! They and their employees can get GM employee pricing on new cars.

    This environment, it seems to me, causes parts to be designed to be cheap, and built cheap with cheap materials. Could this explain GM’s dashboards? Their seats? Their vehicles?

    I wonder if this is a trait of the Japanese manufacturers? I am sure that they are constantly cutting costs, but at any cost?

    Is this cost cutting at all cost mentality not part of the reason for the desirability gap between the domestics and “imports”? Are there too many old fashioned car guys still at GM to adjust to the new economy and newly sophisticated consumer? Does this explain all the stripped, ugly, basic cars we see at GM dealers? I guess they think we need to pay for quality.

    Wake up guys! Make all your cars attractive and with quality. Give us a good value, not a $10k option package necessary to get a car that you are not embarrassed to leave in your driveway at night.

    Or we will buy from someone who will.

  • avatar

    PS I almost forgot. There is also a story going around about one of these part suppliers who got tired of the rat race and decided to sell. He entered into an agreement to sell his company. When the unnamed Big 3 company found out, they came to him and demanded a substantial percentage of the sales price. Why? “Because you have a business and it is valuable because we buy from you, and if you don’t pay up, we will cancel our business with you.” The seller was steamed, the buyer was spooked and the whole deal fell through. Who do these guys think they are that they do these things? I’ll bet that many of their suppliers are secretly hoping that these manufacturers go under.

  • avatar

    Entire segment (PU/SUV) fading into the sunset? Where did you get that info? Last time I checked, sales of pickups have barely dropped. Also, what people do not know, is that Japan’s market share of pickups have been declining for much of the last 20 years. Back in 1985 they had 25% of the PU market. As of 2004, they had just 11%. Japan may be doing well in other categories, but for pickups it still is a struggle. Obviously you live outside the South or Southwest. For every compact down there, there is probably 10-15 full-sized truck.

    I agree with the posters about the unfair GM bashing. Yes they had some bad decisions, but where is this same badmouthing about some of the Koreans and European brands? They have consistently been at the bottom of the reliabilty surveys. VW has traditionally been dead last. Nissan, too, had major financial problems just a few years back and had to merge with Fiat. Why no talk about them?

    I do believe that GM and Ford will eventually file for bankruptcy and merge with some other automaker. However, I can’t see their vehicles dissappearing. There are just too many loyal customers. Has anyone been to the Carolinas or Texas? In Texas, the Tahoe outsells both the Camry and Accord. Chevy by itself outnumbers all the foreign cars in parts of those areas.

    By the way, GM’s stock has risen 50% in the last several months – one of the best performers of the S&P recently.

  • avatar

    My Farago, the reason GM is making these SUVs is that there’s money to be made in them. That’s the way it’s always been. Bigger vehicles simply means bigger profits.

    I heard this same thing 25-30 years ago, in the midst of the Arab Oil Embargo, when everyone was bashing Detroit for building big cars. Dire predictions were made on how much time was left before Detroit was finished. 25 years ago they predicted the V8 was as dead as the dodo and everyone would eventually be driving Chevette sized cars. We all know how that one went.

    And why is everyone bashing Detroit for making these types of vehicles? Every automaker is/has copied them. Obviously there’s demand for them. Yes, it makes far greater sense for the average person to drive a Civic or Corolla. Unfortunately, far more automobiles are bought for emotional reasons than practical ones.

    Why would GM waste their energy on building small when all their money is made on big? Particularly when brand loyalty for their large vehicles is intense, unlike their smaller vehicles. And while their SUV sales have taken a small hit, their sales are still very strong.

    I take the contrarian position and do not see the small car trend lasting. Gas prices will eventually come down – it may even collapse, like in 1986. The rise in oil prices is due more to futures speculators than anything else.

  • avatar
    Glenn Arlt

    Just saw a TV ad for new GMC Sierra full sized pickups from $10,900, out the door (not including 6% Michigan sales tax and tag fees, of course).

    As I mentioned before, if GM and the GM dealers lose money on selling these trucks for $12,999, how do you think they make out selling the same trucks (with a different grill) for $10,900?

    Doesn’t take a brain surgeon to figure this stuff out.

    Same ad showed a Pontiac Vibe for a bargain price of $13,900. This is virtually a Toyota Matrix with a few tweaks to the sheetmetal and different trim, grill and interior, yet sells for far under what Toyota can get. The resale value is less, too.

    This tells me volumes about GMs long-term viability, or lack thereof.

  • avatar

    The Delphi hearing has been postponed again, until September 18. Another short breather for GM.

    If UAW walks out on Delphi, it won’t only be GM who’s production stops. But it will probably be GM who’s production never restarts. Unless the GM bosses have requested their Chinese friends to start tooling up for parts to replace ALL of the Delphi components they buy, in huge quantities, that is.

    Wow, that would be “encouraging” to GM buyers who are used to Wal-Mart (Chinese) toasters, microwaves, TVs and other items lasting oh, about 3 years or less.

  • avatar

    Here’s an interesting article on GM, apparently this guy thinks they are making cars we want, we just can’t afford it. I won’t proclaim this as correct or anything, but check it out anyway.

  • avatar

    The Business Week article is very interesting, but I think his point was more along the lines of this.

    The middle class in this country is fast disappearing. Inflation is taking its toll. The official inflation rate is a lie. Manufacturing jobs are going away (and with it, the middle class).

    Once upon a time, like in the late 1960’s, a teenager could mow lawns or work a minimum wage job for a year and buy a new Mustang or Camaro.

    Now, a similar minimum wage job nets about $10,000, which might get you a new Chevrolet Cobalt in one of the “under duress” sales, certainly you couldn’t pay MSRP for a decent car, or anything equivalent to a Mustang or Camaro.

    Likewise for the retired middle class who have been used to buying new Buicks and Mercury Marquis cars every 2 or 3 years, when faced with 70% increases in energy costs like electric bills, and gas at $3 a gallon, are unable to afford what they could before.

    I’ve noticed a lot of these folks are gravatating to Kia Amanti cars, though. I bet they don’t trade every 2-3 years any more, with that Kia warrantee, either.

    Hopefully, manufacturing jobs will start returning to this country as Toyota and other successful manufacturers continue to add production plants in this country.

    It’s happening, but not at the same speed that GM and Ford are shedding manufacturing jobs (and let’s not forget that companies like Electrolux recently moved a lot of white goods – refrigerator and so on – production from Greenville, Michigan to Mexico even though the Greenville plant was turning them a profit).

  • avatar

    I apologize if this has already been addressed, but has anyone considered GM’s market share in China and other large overseas markets? I am given to understand that the picture is quite different there. Further, what do the aforementioned numbers look like when considered in context of the overseas markets?

    Just curious…

  • avatar

    GM is Huge in China!

  • avatar

    GM has 11.2 percent of the Chinese market, up from 9.4 percent in 2003.

    Nearly all GM cars sold in China are made domestically.

    The company has opened a second plant in Shanghai last year and added three new Chevrolet models in 2005, the Sail compact car, Epica intermediate sedan and Aveo hatchback. That pushed China sales for the brand past the 100,000 mark for the first time, establishing China as Chevrolet’s fourth-largest global market.

  • avatar

    This Chinese market is all fine and good except for a couple of flys in the soup.

    GMs Chinese operations (as other non-Chinese companies) is only a 50/50 joint venture (in GMs case, with Shanghai aka SAIC, which also has a 50/50 JV with Volkswagen, and bought rights to the Rover designs before Rover imploded, also SAIC owns a portion of “GMDaewoo” and 49% of Ssangyong in South Korea). So, how “dedicated” is SAIC towards the GM JV? They are planning on building cars in COMPETITION with GM and VW for EXPORT soon.

    The other “catch” is that if GM thinks the 50% owned JV in China is going to carry the rest of their worldwide automotive operations when North American operations is sinking, sinking, sinking – they had better go back to Econ 101. Ain’tgonnahappen dot com.

    In case everyone’s forgotten, the People’s Republic of China is a communist state run by a few, and they can change anything on a whim. Like nationalize auto companies, or prevent profits from leaving from JVs, or raise interest rates (they just did that) to slow down the economy. Whatever.

    The GM guys and the rest of the western JV part-owners had better figure out that they can’t simply control everything down at the Mason lodge any more. As in, the tiller isn’t in their hands. So, they can join the rest of us, who’ve never had a tiller in our hands, controlling billions of dollars and millions of lives.

  • avatar

    The China market in aggregate is still tiny, and is seeing even higher levels of competition. VW is the established player, and there was a boom in local manufacturing. Add to this FDI in factories (Buick, Toyota – Corolla and Camry are both now built in-country in China), and you come up with… a massive case of oversupply. The Chinese auto market, despite growing dramatically, is still growing slower than production capability – prepare for a winnowing ahead.

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