General Motors Death Watch 121: On the Fritz

"We have a continued sense of high urgency." Last Sunday, I ressurrected auto industry analyst Mary Ann Keller’s 2005 call to GM to face its problems with “a sense of urgency.” Yesterday, GM’s CFO reassured analysts and reporters by seeing Keller’s heightened mental state and raising it a Mel Brooks. High urgency? What the bleep is that? Whatever it is, it better be the management equivalent of Viagra.

"Our business is not generating the kind of returns we expect,” Fritz Henderson told the money men and journalistic jackals, announcing a 90 percent drop in GM’s first quarter earnings (from $602m to $62m). Ya think?

At the risk of overthinking this, I find it a bit strange that Fritz said GM’s not getting the returns they “expect” not “expected.” I take that to mean there’s an ongoing discrepancy between management expectations and market reality, in a “what the Hell do we do now?” kinda way.

Just in case we hadn’t quite grokked the overarching irony of GM’s circumstances, while Fritz was busy yap dancing, Car Czar Bob Lutz told a hack that GM’s on-again, off-again, on-again, off-again Zeta platform cars are on again. Maybe. Meanwhile, GM's [theoretical] world-beating small car is still stuck in global limbo.

Despite ongoing product confusion, results from GM's overseas operations (net income up $264m to $304m) indicate that it would be relatively smooth sailing for the corporate mothership if it weren’t for the gaping hole in its side known as the North American automotive unit (GMNA).

Although GMNA's first-quarter net losses narrowed from $292m to $46m, Fritz [rightly] credited structural cost savings. In other words, we’re cutting our way to prosperity! Only, you know, not. But hey! GMNA's revenue per vehicle (RPV) rose by $1,064!

Yes well, in a perfect world, an uptick in small car sales would have lowered the number. While GM is selling larger, more highly contented vehicles, they're flogging fewer of them (sales down 9.5 percent in April, 100k fewer vehicles sold during the quarter). And the revenue figure doesn’t include the cost of the additional content. In fact, the actual cost per vehicle could well be rising faster than the RPV.

Addressing the subject of sinking sales, Fritz flagged the fact that GM’s rental fleet cutback accounted for 60 percent of the automaker's reduced throughput. U.S. retail sales were “only” down four percent. Yes but– sales of the vehicle carrying the hopes of [s]a nation[/s] the company– the refreshed Chevrolet Silverado pickup– tumbled 7.2 percent.

And things are about to get even trickier. GM’s urgently high— I mean “highly urgent” CFO acknowledged the United Auto Workers (UAW)-shaped storm clouds gathering on the increasingly bleak horizon. Fritz played the “we’re all in this together” card.

“We have to continue to make significant improvements,” Henderson admitted, continuing the automaker’s unspoken policy of not speaking about long- or short-term targets. “That is on our minds as we go into collective bargaining, as well."

As predicted, GM’s almost about to gonna sort its union problems at its Lordstown and Fairfax factories. This proto-success returns the Delphi UAW UXB (unexploded bomb) to its rightful position under the Chairman’s chair.

To prepare for a UAW payoff at their bankrupt former subsidiary and mission-critical parts supplier, GM's allocated an additional $100m (up to $500m) for the first year of any Delphi deal. They've also increased the ongoing estimated cost of a Delphinian solution by an additional $100m per year (now $100m – $200m per year). And they still insist they're going to save $2b on parts costs over the next five years. (Someone should tell Delphi's private equity owners.)

Short term, the Delphi problem pales in comparison to the ongoing disaster over at their GMAC finance unit. Thanks to sub-prime loan implosion, their former cash cow has turned into a vampire bat.

This quarter, GM’s 49 percent share "earned" it a $115m loss. (GMAC dividend RIP.) Fritz took a stab at singing the sun will come out tomorrow, but his heart wasn’t in it. ”When you're in the midst of the kind of maelstrom we're in with nonprime, I think it's important to take it quarter by quarter.” And take it like a man.

Bottom line: with its continuing cash conflagration, GM needs to start selling a whole bunch of profitable vehicles in North America, and soon. Goldman Sachs analyst Robert Barry isn’t optimistic. He told Automotive News that GM’s NorAm results were weak "given that we are at the peak of GM's product cadence."

Barry may not know the half of it. According to TTAC’s Deep Throat, as bad as GM is doing overall, it’s far worse on the coasts. In particular, California is becoming more and more of a GM-free zone. That situation needs sorting now, in a super highly urgent way.

But how? As long as Toyota is the price leader and GM has to discount its vehicles to sell, GMNA can only hope for breakeven or slightly better. And face much, much worse.