General Motors Death Watch 106: GM Unplugged

Robert Farago
by Robert Farago
general motors death watch 106 gm unplugged

Last spring, reporters forced GM CEO Rabid Rick Wagoner to confront his company’s demons. At the opening of a Russian assembly plant, in the midst of US plant closures, sell-offs and buyouts; scribes raised the unholy specter of Toyota’s usurpation of GM’s “World’s Largest Automaker” crown. Wagoner told the assembled throng that GM would “like to stay number one” but it wasn’t the company’s "top priority.” New Year, new tune: "I like being number one,” Wagoner told Detroit auto show survivors. “I think our people take pride in it."

So Rick likes being number one. God knows he’s good at it; hanging onto power despite losing billions of dollars and overseeing a precipitous decline in the automaker's market share. And it's reassuring to hear that he “thinks” his people take pride in GM’s mantle (Vince Lombardi’s got nothing on Rick).

But RR's optimism couldn't counteract the bad news at yesterday’s automotive analyst hand-holding session. The beancounters had counted beans and concluded that the General's cash flow will remain negative this year– despite stripping out billions of dollars in fixed costs and plans to jettison sell even more of their remaining assets (e.g. $265m for GM's Arizona proving grounds).

Chief Financial Officer Fritz Henderson attributed some of the company’s predicted cash burn to a $1b increase in capital spending. The extra cash will pay for ongoing transmission upgrades (from four to six-speeds) and foreign expansion.

When pressed on the effect of this increased outlay on the company’s liquidity, Henderson said the company could take the hit, but admitted that GM’s cash flow was 'not anywhere near an adequate position’ (which is a bit like saying a person who’s lost is not as well-oriented as they could be). Equally ominously, Henderson spoke of “serious financial pressure” throughout ’07.

After this downbeat conclave, Rabid Rick launched yet another charm offensive. Schmoozing with Fortune Senior Editor Alex Taylor III, Rick revealed the home team’s latest defense: stop nickel and diming us! “People ask when is the business profitable and our objectives have to be much bigger than that. It is not an issue of can you make a nickel – that doesn't do anything for anybody. We need to get good profit and then it is very important that we generate good cash flow.” So now we know: making a nickel isn't much better than losing $10.6b.

Meanwhile, GM’s product mix continues its troubled evolution. While all eyes were on the plug-in Chevrolet Volt concept car, The Next Big Thing (Malibaura?) and the blingier Cadillac CTS, Henderson confirmed our suspicions that the the forthcoming US-spec Astra won't earn GM a single one of those not-so-precious nickels.

An unfavorable dollar – Euro exchange rate and European labor and transportation costs preclude the possibility of profit. Apparently, the Astra is merely a "bridge" product for Saturn, a temporary replacement for the Ion designed to "prove" Saturn’s new Euro-style handling/performance gestalt. Huh.

At the same time, Henderson said that GM’s recent sale of controlling interest in its GMAC finance unit was critical to lowering the subvention cost to GM. Translation: GM will probably use aggressive leasing tactics in the future– especially if it can boost residuals through lower rental fleet sales.

Of all its downsizing moves, the reduction in GM’s fleet sales is, perhaps, the most telling. It’s a sure sign that GM is fully committed to becoming a vastly smaller enterprise than it was at the beginning of Wagoner’s tenure. It’s a tacit admission that the company can no longer rely on sheer volume to make its crust.

In fact, it's increasingly clear that GM has a new, Delphinian survival strategy: stabilize the US market (at whatever percentage) and expand abroad. Even as it stands, GM sells more cars abroad than it does in the United States. Buick is dead here, thriving in China. GM is tightening its belt stateside, preparing to bid for Malaysia's Proton.

At this point, all Rabid Rick wants to do is stop the arterial spray on his home turf. That’s why he was so sanguine about Toyota’s rise back in June. He was breaking ground on the company’s best bet for survival: Russia, India and China.

Rick’s “bigger” vision could work– if GM has enough time. While GM may make some progress towards a healthier revenue stream in '07 with a better product mix and reduced incentives, the real gains will continue to be made on the cost side. And that’s just not good enough. GM’s weak balance sheet makes it highly vulnerable to setbacks and shocks, which are on their way.

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  • Johnson Johnson on Jan 18, 2007
    More to the point, Hyundai sales remained level in '06. GM's tanked by 8%. Hyundai is profitable. GM is so far from profit in the U.S. it's CEO won't even predict when it MIGHT generate positive cash flow. Hyundai's debt is under control. GM is mortgaged up to the eyeballs. If there's a face plant a comin', I don't Actually, with regards to Hyundai, their global marketshare in 2006 actually dropped compared to 2005, and their US sales remained flat. Their profits also dropped.
  • Z31 Z31 on Jan 19, 2007

    FYI- Cobasys has entered into a deal to develop batteries for the Volt linky

  • El scotto Huge lumbering SUV? Check. Unknown name soon to be made popular by Tiktok ilk? Check. Scads of these showing up in school drop-off lines? Check. The only real over/under is if these will have as much cachet as Land Rovers themselves? A bespoken item had to be new at one time. Bonus "accepted by the right kind of people" points if EBFlex or Tassos disapproves.
  • El scotto No, "brothers and sisters" are the core strength of the union. So you'll take less money and less benefits because "my company really needs helped out"? The UAW already did that with two-tier employees and concessions on their last contract.The Big 3 have never, ever locked out the UAW. The Big 3 have agreed to every collective bargaining agreement since WWII. Neither side will change.
  • El scotto Never mind that that F-1 is a bigger circus than EBFlex and Tassos shopping together for their new BDSM outfits and personal lubricants. Also, the F1 rumor mill churns more than EBFlex's mind choosing a new Sharpie to make his next "Free Candy" sign for his white Ram work van. GM will spend a year or two learning how things work in F1. By the third or fourth year GM will have a competitive "F-1 LS" engine. After they win a race or two Ferrari will protest to highest F-1 authorities. Something not mentioned: Will GM get tens of millions of dollars from F-1? Ferrari gets 30 million a year as a participation trophy.
  • El scotto None of them. The auto industry is full of people with huge egos. It's a case of huge ego = never ever being wrong.GM: The true believers end up at Bowling Green. A fast rising GM executive that just didn't quite make it: Truck & Bus, Fort Wayne isn't really that far from Detroit!Ford: Billy Ford once again, and it seems perpetually, convincing his doubtful relatives not to sell their preferred stock. I give VW a 50/50 shot at buying out Ford; a family buying out another family.Tesla: Straight from Elon: "My Tesla has hidden compartments for handcuffs, ask my latest girlfriend where they're located"Stellantis: Get used to flying to Schiphol. You'll have luggage, lots of luggage.None of the Big 3 will ever admit they were wrong. Tesla will just keep gaining market share.
  • SCE to AUX A question nobody asks is how Tesla sells so many EVs without charge-at-home incentives.Here are some options for you:[list][*]Tesla drivers don't charge at home; they just squat at Superchargers.[/*][*]Tesla drivers are rich, so they just pay for a $2000 charger installation with the loose change in their pocket.[/*][*]Tesla drivers don't actually drive their cars much; they plug into 110V and only manage about 32 miles/day.[/*][/list]