By on May 12, 2008

ok-corral.jpgWhy would gunslinger/investor Kirk Kerkorian want to buy Ford? After two decades living high off the [gas] hog, Ford’s still suffering the Mother of all Hangovers. The night before the day after, FoMoCo headed down to the Vegas strip and got hitched, polygamy-style (Hertz, Aston-Martin, Jaguar and Volvo). While town father Bill Ford's sobered-up and hired sheriff Mulally– whose drawn-up the divorce papers and cleaned-up the town– it still looks like tornado fodder. And here comes Captain Kirk, all guns blazing, looking to take over the joint. Why now? 

Thanks to his investment “experience” with Chrysler and GM, Kirk’s mob have had a good look at the automakers’ books. They know that GM and Chrysler are doomed. But they also know that the domestic auto industry is too large for all three to sink at once– if only because of brand/national loyalty and popular access to Detroit dealers. In Motown’s game of last man standing, Ford's become the odds-on favorite. That said, it takes a practiced eye to see it.

In April, Ford, Lincoln and Mercury racked-up 189,247 sales. Retail sales (down seven percent) are not falling as fast as fleet sales (down 12 percent), but both are still headed for the outhouse. Zoom in. The refreshed, Volvo-derived Taurus is a flop. Comparing ’08 Taurus to the ’07 Five Hundred, sales were down 21.3 percent last month. Zoom out. Jaguar, Land Rover and Volvo added just 11,480 units. Ford sold Jaguar and Land Rover to Tata Motors; Volvo now accounts for less than 5 percent to Ford's U.S. sales volume.

Yes, the Edge, Fusion trio and revised Focus are still helping to staunch the wounds. But Ford’s share of the U.S. new car market is down 15.1 percent from last year, to 15 percent.  And while there’s an upswing in car sales, none of these vehicles are generating the profit margins Ford needs to survive.

Now that the Explorer is lost (April sales were off by 38.5 percent, down 25 percent year-to-date), that task rests squarely on the F-150 pickup’s shoulders. What are the odds? Forthcoming refresh be damned; April sales of the country’s most popular vehicle fell 21 percent. 

The market is beginning to wake-up to Ford’s cash conflagration. The money they’re burning is all OPM; Ford hocked everything down to the executive china and its famous Blue Oval. Liquidity is now a life or death issue. Although Fitch Ratings has downgraded Ford on that basis, the agency seems to think that Ford will turn the corner and achieve a positive cash flow by 2009.  Unless, of course, more shit hits the fan.

The problem is, of course, product. There’s no doubt that Alan Mulally is kicking ass and taking names behind the scenes. Ford is becoming a smaller, leaner, faster and fitter organization. But Big Al’s done little to reenergize Ford’s branding or products. We still don’t know what a Ford is, Lincoln and Mercury are still gussied-up Fords, and Volvo overlaps everywhere. The new Flex, Fiesta, MKS and Taurus will all do well, but the competition isn’t standing still.

In short, where’s the vision thing? In truth, at the moment, as Kirk Kerkorian knows, Ford doesn’t need it. Assuming Chrysler files this summer– a probability of which Captain Kirk is not unaware– both Ford and GM will get a dead cat bounce. At that point, all Ford has to do is hang tough and not be GM, with eight brands stuffed with 40-plus lackluster products. When GM finally goes down, Ford wins. They’ll have all the time they need to [continue to] get their shit together. 

Meanwhile, Kerkorian can’t lose. Ford’s stock will rise on the news of Chrysler’s fall. The head of Tracinda can sell his shares and walk with a gigantic profit. Even if he doesn’t bail at the new zenith, Kerkorian knows that Mulally’s Ford has the best chance of going the distance. Perhaps with a little strategic intervention…

As it stands, CEO Alan Mulally can ignore Kerkorian (and his minion Jerry York’s) advice. Thanks to the Ford family’s SuperShares, which give them 40 percent control, Mulally’s got “You Can’t Touch This” on his Sync. On the other hand… Ford has a long history of lynching outside CEOs. Donald Petersen turned Ford around in the dark days on the 1980s. Chief Executive Magazine named Donny "CEO of the Year" in 1989. In 1990, he was "retired" for resisting the naming certain family members to powerful board committees.

Short of shooting itself in the Mulally foot, Ford will be Detroit’s last man standing. Long term, there’s a line of gunslingers ready to take on the Blue Oval Boys. By that time, Captain Kirk will have cashed-in his chips, perhaps in more ways than one.

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45 Comments on “Ford Death Watch 44: Captain Kirk Bets on The Last Man Standing...”


  • avatar
    Matthew Danda

    Mulally will be the most sought-after CEO in America after all this is over. Maybe he’ll end up running Boeing, or even GE (!)

  • avatar
    NickR

    the agency seems to think that Ford will turn the corner and achieve a positive cash flow by 2009. Unless, of course, more shit hits the fan.

    At what gas price does the shit officially hit the fan, I wonder?

  • avatar
    Sid Vicious

    Off topic but what could possibly be Cpt. Kirk’s motivation here? It can’t be money – he’s 90 and a frickin’ multi billionaire. Thrill of the chase I guess. A never ending power grab?

  • avatar
    mudhen

    “FoMoCo headed down to the Vegas strip and got hitched, Mormon style (Hertz, Aston-Martin, Jaguar and Volvo).”

    FYI, polygamy was outlawed by The Church of Jesus Christ of Latter-Day Saints (the Mormons, or LDS church) in 1890. The Fundamental LDS (FLDS) church is the one in Texas with multiple wives, and they are in no way affiliated with the LDS church.

  • avatar
    umterp85

    This editorial should be renamed Kerkorian Death Watch 3 as he will be a 3 time loser in his quest to buy a Detroit auto maker

  • avatar
    starlightmica

    Interesting tidbit from Bloggingstocks.com: Ford is now the most shorted company listed on the NYSE.

    Ford has made a big deal about its turnaround. Some investors are buying the story. Ford’s shares are up 20% this year. But short sellers have a case, and it’s is a powerful one. Ford’s US sales are still down by double digits most months. Sales of its most profitable cars and trucks, including its flagship F-150 pick-up, are dropping sharply, probably because of the rising cost of gas.

  • avatar
    guyincognito

    Interesting take. To me, it seems capt. Kirk is up to less good. What about this secured loan Ford has taken? If Ford can’t repay the debt can Kerkorian parlay that into a takeover? I’m sure he loves money but at his age I somehow doubt he’s going after some easy millions.

  • avatar
    dwford

    Mullaly’s not stupid. Ford’s anticipated cash burn as well as development costs for the entire next-gen Ford lineup are factored into the equation. Ford’s business will be fixed, lean and mean by the end of next year, then all the new product comes in the ’09-’12 timeframe. For 2009 you get the F150, Flex and MKS. For 2010 you get the Fusion, Fiesta, Taurus, Milan MKT and MKZ. For 2011 you get the Focus, Explorer, Escape and 2012 a new Ranger. All will be global platforms.

  • avatar
  • avatar
    brownie

    I think Mulally’s doing all the right things here. Branding can wait – cost-cutting and efficiency are not long-term strategies, but neither is branding is a viable short-term strategy either. Job number 1 is to stop the bleeding, and he’s doing that quite well as far as I can tell.

    Besides, the truth about car branding is that the product itself is most of the brand. Build quality cars at a reasonable price for long enough and there’s your brand – no focus groups needed.

    I think his Boeing experience is invaluable on that point. Or do you think Boeing spends a lot of time trying to differentiate its branding from Airbus?

  • avatar
    KatiePuckrik

    I don’t think Kerkorian will interfere too much in Ford’s operations.

    People slate him for trying to interfere too much in Chrysler and GM’s operations, but the fact is the reason he “interfered” is because he was the only one at the table that stood to LOSE money if the company went down. Managers like Wagoner and Lutz could still walk away with their pockets stuff with gold, whereas KK would be left with nothing.

    Ford sales are not yet where they should be, but the question is “WHERE should they be?”. I agree with the editorial that a Ford should be a Ford. But then, all it takes is a overpaid, useless individual who knows jack about anything consultant to tell management to “leverage their assets” and then before you can say “badge engineers” we have Volvo platforms on Fords, rebadged Fords as Mazdas and Mazda parts on a Lincoln.

    There is also a death knell in the editorial.

    “Now that the Explorer is lost (April sales were off by 38.5 percent, down 25 percent year-to-date), that task rests squarely on the F-150 pickup’s shoulders.”

    So, the one product line that can help Ford get some cash flowing into the company, is the one product line which is part of a dying segment?

    But despite ALL of this,I still maintain that Ford is in the best shape of the big 2.801 to weather this storm and survive. So it gives you an idea of how bleak things are at Chrysler and GM…..

  • avatar
    geeber

    KatiePuckrik: So, the one product line that can help Ford get some cash flowing into the company, is the one product line which is part of a dying segment?

    It’s a shrinking segment, not a dying one. There are still people who need a full-size pickup. Ford also sells F-150s to corporate customers (municipalities, utilities, etc.). They will still need pickups, even with higher gas prices.

    Ford sold a fair number of full-size pickups before the light-truck boom, and Ford will be one of the last ones standing after gas prices have whittled away the weaker entries in this shrinking segment.

  • avatar
    KatiePuckrik

    geeber,

    Shrinking? Dying? The end result is the same, less profit. Which is exactly what Ford DON’T need right now….

  • avatar

    Kerkorian isn't done yet. From Bloomberg, dated May 9, 5:04 PM: Billionaire investor Kirk Kerkorian said he may boost his Ford Motor Co. stake above 5.5 percent and provide cash for the automaker's revival, signaling increased confidence in Chief Executive Officer Alan Mulally. Kerkorian's Tracinda Corp. made the disclosures today as it followed through with a plan to offer $170 million for an additional 20 million shares. Kerkorian, 90, also said he bid last year to buy Ford's Jaguar and Land Rover and that he has been asked by Chairman William Clay Ford Jr. to discuss his stake. Ford's board is reviewing Kerkorian's tender offer. "To have a guy buy in worth a couple billion dollars, who is very familiar with the auto industry, I don't see how you take that in any way except a huge positive," said Bernie McGinn, president of McGinn Investment Management Inc. in Alexandria, Virginia, which owns 300,000 Ford shares. The announcement, in a U.S. filing, indicates Kerkorian's deepening involvement in Ford since he revealed his stake 10 days ago. His adviser Jerry York initially labeled the purchase as "purely for investment purposes" and an endorsement of Mulally's efforts to restore the Dearborn, Michigan-based automaker to profit following a combined $15.3 billion of losses in 2006 and 2007. That same day, Ford released this statement : The Board of Directors of Ford Motor Company (NYSE: F) today recommended that its stockholders take no action at this time in response to the announcement by Tracinda Corporation that it has commenced a tender offer to acquire up to 20 million shares of Ford’s common stock at a price of $8.50 per share.  The company’s Board said it will review and consider Tracinda’s offer and will advise stockholders of the Board’s position regarding the offer by May 22, 2008, as required under applicable securities law.  

  • avatar
    Samir

    Or do you think Boeing spends a lot of time trying to differentiate its branding from Airbus?

    I really doubt it’s a fair comparison. Planes, especially large ones like these, aren’t bought by Joe and Jane Average. They’re bought by institutional buyers who will have engineers, buyers, lawyers, executives, consultants, advisors, shareholders, etc., all contributing to the decision in some way.

    Branding is far more important for the retail buyers who don’t bother doing any research and are programmed to think things like “PRIUS = SAVE GAS” and “HONDA = LAST LONG”. What does FORD = ?

  • avatar
    Pch101

    Ford is in a very different (and better) position than is GM because it can accomplish by doing less.

    If Ford can simply grab or maintain market share with the Focus, Edge and Fusion (or their equivalents) and sell a reasonable number of F-150’s, and possibly get a decent seller for Lincoln, then it can save itself. A few vehicles selling in decent volumes should be enough to provide the revenue needed to stabilize operations.

    GM’s problem is that its operations are so sprawling is that it needs many hit products, and not just a few, to create the revenue needed to feed a higher burn rate. It needs to do so much more than does Ford that it almost can’t help but fail.

  • avatar
    Jonathon

    I’m going to have to object to the “hitched, Mormon style” line. Real Mormons have not practiced polygamy in a hundred years or so. The only “Mormon” polygamists are those who split off from the main church decades ago and bear little resemblance to real Mormons. All I’m saying is that it would be nice if we could kill the “Mormons are polygamists” stereotype.

  • avatar
    Geotpf

    I absolutely agree with this:

    Assuming Chrysler files this summer– a probability of which Captain Kirk is not unaware– both Ford and GM will get a dead cat bounce.

    The first of the Detroit Three to go out of business will save the other two, possibly for a fairly long period of time (years, maybe even a decade). If you split the Dodge Ram’s sales 40-40-20 to the F-150, Silverado/Sierra, and Tundra, that will go along way to restore sales to close to traditional levels. Same goes for moving sales from the Durango to the Explorer and GM’s nine million different SUVs and CUVs. Just because Chrysler Corp goes away doesn’t mean it’s customers do; that demand stays and gets redistributed amoungst the other players. And Honda and Toyota can’t absorb it all.

    And I do say “go out of business” as opposed to merely “bankrupcy”, because I believe Chapter 11 will inevitably lead to Chapter 7. Nobody will buy a vehicle from a bankrupt automaker; people will be afraid of their warranties and future parts availability.

  • avatar
    Dynamic88

    Assuming Chrysler files this summer– a probability of which Captain Kirk is not unaware– both Ford and GM will get a dead cat bounce. At that point, all Ford has to do is hang tough and not be GM, with eight brands stuffed with 40-plus lackluster products. When GM finally goes down, Ford wins. They’ll have all the time they need to [continue to] get their shit together.

    But Ford is GM, only with 3 brands instead of eight.

  • avatar
    willbodine

    I would not put any champers on ice just yet. Don’t forget, from the ashes of Chrysler’s demise will come an independent (and self-sustaining Jeep.) Does anyone think that Chevrolet and Cadillac will not be major players in a post GM world? Ford will not be immune to the same sort of legacy-cost meltdown that kills the others. I happen to think that re-organized Jeep, Ford, Chevrolet and Cadillac will be much more able to compete in world markets than they do now. More shall be revealed…

  • avatar
    brownie

    Samir :

    That’s exactly my point. The two examples you point out are not the result of branding efforts by Toyota and Honda – they are the brands because that’s what people have come to believe about the products based on long-earned reputations (the Prius is hardly new at this point).

    That’s what I was getting at with the Boeing comment. Boeing does have a brand, even if its products are only bought by a small number of firms. But by focusing on things like “gets from A to B”, “doesn’t fall out of sky”, plus aerodynamics/efficiency and maintenance costs, the Boeing “brand” takes care of itself. Just like focusing on things like “fuel efficient” and “runs forever” makes the Toyota and Honda brands take care of themselves.

    I do think Ford (the brand, not the company; Mercury and Lincoln are other stories) is having some success rebranding just by focusing on their product. My personal view of Ford in the past 2 years or so has changed from “you get what you pay for” to “good value for money” (in terms of styling and features – e.g. Sync, AWD on the Fusion, etc.). And that’s just from reviews and basic advertising – no slick marketing that I can recall. Reliability remains to be seen of course (only time will tell) but so far so good. If the cars hold up, then there’s your brand: Good cars, decent styling, more features than you expect for the money. Kind of what Ford was always supposed to be, no?

  • avatar
    jthorner

    Just for the record, there was no mention of Mormons in the version of this editorial I submitted. Things change on the editors desk.

    I agree with Geotpf, if Dodge trucks leave the marketplace the slack will be taken up by the other players. The only fly in that ointment is if Ghosn picks up the Dodge truck line and keeps it on life support.

  • avatar

    I think Mulally’s doing all the right things here. Branding can wait – cost-cutting and efficiency are not long-term strategies, but neither is branding is a viable short-term strategy either. Job number 1 is to stop the bleeding, and he’s doing that quite well as far as I can tell.

    Besides, the truth about car branding is that the product itself is most of the brand. Build quality cars at a reasonable price for long enough and there’s your brand – no focus groups needed.

    I think his Boeing experience is invaluable on that point. Or do you think Boeing spends a lot of time trying to differentiate its branding from Airbus?

    Everybody knows that Mulally is doing a good job. The question is whether or not the Ford family will let him do that job for as long as it takes to turn Ford around. Even then, Mulally will have had to completely restructure Ford’s bureaucracy. The Ford family will have to permanently stop putting their hands into Ford’s corporate system. Bosses, executives, and individual workers will need to be hired on the honor and merit system. The UAW will need to increase the quality control at UAW-controlled plants.

    Do you think those people will be able to do all that? Or will want to? Or will actually do it?

    As for brand–Ford is trying to position itself on quality and reliability and be a mainstream brand like Toyota. Can Ford beat Toyota at reliability? The only place Toyota has failed is in some Camrys and the Tundra. These were epic failures on Toyota’s part and will lead to some questioning eyes, but it’s not enough. The new Corolla will tell the tale as to whether Ford’s long term product-placement strategy has a chance of succeeding.

  • avatar
    brownie

    Can Ford beat Toyota at reliability?

    There’s an old joke about Albert Einstein, Niels Bohr and a bear. The punchline applies here. They don’t need to beat Toyota at anything to thrive – they just need to beat GM (and beating Chrysler wouldn’t hurt).

    The mere fact that a Toyota executive is responding to Ford’s volleys (see today’s TTAC headlines) means that Ford’s effort is succeeding. If Ford creates the perception that they are “in the discussion” with Toyota then it hardly matters whether their cars beat Toyota’s on reliability or not – they will have already beaten the people they need to beat.

  • avatar
    menno

    I did a very small quick study on what might happen if BOTH GENERAL MOTORS AND CHRYSLER GO UNDER. As in, Chapter 7 bankruptcy and worldwide closure. The only possible portions of GM which could survive would be the JV’s, including Shanghai General Motors of communist China, and GMDaewoo of South Korea.

    Let’s concentrate just on North America. We already know that there would be economic disruption; that goes without saying. Let’s look at the auto market in this thesis. There would be a production loss of between 4.5 million and 5.9 million vehicles. Let’s assume 4.5 million, the minimum.

    Let’s assume a 10% overall North American car sales drop due to the recession which would inevitably follow GM and Chrysler going TU (tits up). Given this WAG (wild ass guess), this would mean a potential gap of 4 million vehicles that the surviving automakers would have to fill.

    Problem 1. The remaining auto manufacturers, especially a downsized Ford, and expanding Toyota, Hyundai, and Honda are near enough production peak worldwide to make it difficult to fill the gap. All of the worldwide automotive car companies selling vehicles in North America could only do so much to fill the gap. Let’s do a WAG and figure on a gap of 2 million vehicles per year, between demand and supply. It takes time and a lot of money to build new plants in North America.

    Problem 2. US certification of vehicles is expensive and time-consuming, making it difficult for new players to come onstream, or for the big players to try to fill the market with additional vehicle lines quickly. Some import increases could happen, but this would lead to increases in the US trade deficit.

    Problem 3. Remaining car manufacturers would not be willing to take on the UAW infested ex-GM and ex-Chrysler plants, designs, or brands, even if the courts allowed same after Chapter 7 bankruptcy.

    Problem 4. Many auto parts suppliers used by the remaining auto manufacturers would be in financial difficulties due to GM and Chrysler going TU, and since many of these suppliers also work with Ford and the others, parts disruptions and and production losses are likely.

    Problem 5. Thousands of new car dealers would have unsaleable stock, especially in the heartland where there is a relative dearth of non-big 2.801 dealers. This would obviously mean financial problems for established dealers wishing to obtain non-GM and non-Chrysler franchises.

    Problem 6. Even if GMDaewoo could survive, it is not large enough or financially sound enough to be a large player, and even assuming that the prior 350 Daewoo dealers could be enticed to sell cars again (since remember, GM would not be extant with their lawyers holding up the “stop” sign), major parts of some Daewoo cars come from ex-GM plants (specifically the 2.0 litre engines from GM Holden in Australia) and are not easily or quickly replaced. I doubt if Shanghai GM or GMDaewoo would have any rights to sell any GM-branded vehicles to a GM dealership network.

    THEREFORE it may be concluded that;

    1. The US automotive market immediately post-GM and post-Chrysler, would most closely resemble the post-World-War-II auto market

    a). Prices would go up for new vehicles.
    b). Popular vehicles would have waiting lists.
    c). Quality of new vehicles might decrease due to a ‘rush’ to fill as much of the void as possible.
    d). Black markets, and dealer price “padding” would likely occur.
    e). Bankers, being bankers, would likely raise loan interest rates so they could gouge/get their piece of the pie.

    2. After the initial “shock” and price increases, some buyers would belatedly snap-up the rotting corpses of GM and Chrysler NOS (new old stock) at the remaining surviving dealers, but this phase would not last long – perhaps 6 months.

    3. Eventually, perhaps within 18 to 36 months, a few selected Chinese and Indian auto producers could begin to sell vehicles in the No. Am. market, though this would be extremely expensive and difficult. No doubt, any surviving ex-GM and ex-Chrysler dealers would have already taken on franchises if possible, or gone TU themselves. So the quality of dealerships available to the Chinese and Indians would be below average, along with the perceived (and probably, real) quality of their products (if the other manufactured stuff from their countries is anything to go by). So I’m going to surmise that this would not be the “gift” to the Chinese that some would suppose.

    4. Used car prices would increase, less so for GM and Chrysler products and especially so for later (newer) vehicles with dead warrantees.

    Well, what does everyone think?

    Is this nightmare scenario enough to bring the socialists into play and pull money out of all of our pockets to bail out GM and Chrysler?

    I personally say “no way” because I’ve seen what the British taxpayers got for their money in bailing out (nationalizing) British Leyland from the 1970’s on through the 1980’s. Sod all. Except they got the “opportunity” to have higher taxes and the chance to buy unreliable leaky crap with light switches having 3 positions “short”, “flicker” and “dim”.

  • avatar

    THEREFORE it may be concluded that;

    1. The US automotive market immediately post-GM and post-Chrysler, would most closely resemble the post-World-War-II auto market

    a). Prices would go up for new vehicles.
    b). Popular vehicles would have waiting lists.
    c). Quality of new vehicles might decrease due to a ‘rush’ to fill as much of the void as possible.

    This could be where Toyota falters against Ford. Toyota starts building too many Corollas too quickly for too high a price, in the mold of the Toyota Tundra and Camrys’ poor showings in CR as of late, to try to fill the void. Horrid reliability of the newbies convince Toyota owners to try a new vehicle. They see Ford’s “on par with Toyota quality” and pleased Focus buyers (assuming the new Focus is good reliability-wise), and give Ford a shot.

    I still say Ford could go two ways. You have a point Brownie, if GM and Chrysler go under Ford will most likely get nearly all of their sales (I think most people who still buy Chrysler and GM products will be highly unwilling to buy a Japanese car), and that would give Ford a huge advantage in sales. If Toyota starts to crumble as current reliability studies seem to be trending towards, Ford could even cannibalize some of Toyota’s sales.

    But Ford needs Mulally to make it happen. I think that’s a moot point. So I say the Ford family holds the keys to their company’s success. If they let the good times roll (so to speak) things could go very well for them. If they choose to intervene or fire Mulally too early, they will suffer the consequences.

  • avatar
    Geotpf

    menno : GM isn’t going to go out of business any time soon. Neither is Ford. Both will limp along for years, probably decades.

    They both have three advantages Chrysler doesn’t:

    1. They both are bigger than Chrysler.
    2. They both have significant overseas sales in emerging markets (China, Eastern Europe, Russia, etc.); Chrysler does not.
    3. Their products are better. Chrysler’s current line up is amazingly bad.

    Of the Detroit 3, only Chrysler has a large chance of going out of business any time soon. And by doing so, it will help save the other two.

  • avatar
    yankinwaoz

    I distinctly remember on a previous deathwatch post about how the first the file bankruptcy would be the first to win. So if KK is betting that GM will file BK before, doesn’t that give GM the advantage?

    GM can use the BK to close franchises they no longer need, get out of union contracts, get out of pension and healthcare obligations. Basically come out with nothing holding them back.

    So a debt free GM would be bad for Ford.

  • avatar
    EJ_San_Fran

    Mr. Kerkorian is taking a big risk. The last man standing could be horizontal on a hospital bed forever.

    I think he should buy out the Ford family at $8/share and take all of Ford private. Let’s see if he has the balxs for that. Can Ford really compete with Toyota and Honda?

  • avatar
    menno

    Hi yankinwaoz – my post was about Chapter 7 bankruptcy (closure) not chapter 11 (reorganization), because I wanted to surmise what might happen if both GM and Chrysler flopped around about the same time. (It would be possible for a company to actually FILE Chapter 11 and the bankruptcy Judge could order Chapter 7, closure, as well – bang goes the chance of reorganizing – it’s “shut down and go home time, boys”).

    That is one risk of going Chapter 11 b/k, the judge might just say “fugedaboudit” you haven’t a chance in hell and no point in dragging this out.

    The other problem with Ch. 11 is that a huge portion of car buyers would shy away from buying a car from a company reorganizing. They’d be rightly concerned that the company COULDN’T reorganize, and that the bankruptcy judge would flip the company over to Chapter 7 and – bang goes your warrantee, your “$2.99 per gallon” gas cards, your reliable (?) parts supply (for your unreliable cars?).

    Would you buy a car from a bankrupt company? I wouldn’t.

    Hi Geoptf, I’m not hoping for GM and Chrysler to go under, but I do see it as a distinct (and growing) nightmare scenario possibility that both WILL go TU.

    Look at the prior GM Death Watches and figure out for yourself how little the company is worth vs. the projected cash burn this year alone.

    GM’s demise is a very REAL possibility within 24 months, especially if gas prices don’t go down. Significantly. Which isn’t going to ohappen on planet earth unless there is some kind of miracle.

    Chrysler’s is even MORE likely to go TU. Partly because they build crap even more craptastic than GM.

  • avatar
    jolo

    yankinwaoz wrote:

    GM can use the BK to close franchises they no longer need, get out of union contracts, get out of pension and healthcare obligations. Basically come out with nothing holding them back.

    Delphi did not get out of union contracts and they did not send their pension and healthcare obligations to the government. People need to stop thinking that if any of the det2.8 file for chapter 11, they will get out of these obligations.

    Chapter 7 is a whole different story…

  • avatar
    yankinwaoz

    So we need to clarify what what GM scenarios help or hinder Ford.

    (1) GM files Chapter 11. Bad for Ford. GM will have dropped some weight to make it a nimble competitor.

    (2) GM files Chapter 7 and closes the doors. Good for Ford. Ford gets the business.

    (3) GM files Chapter 7 and then reopens. Bad for Ford. GM drops a ton of weight and can run circles around Ford.

    (4) GM gets their act together and becomes a profitable company. Not likely… not enough money and time left.

    You can switch Ford for GM on the first 3. I think that Ford at least has a chance at 4.

    Chrysler doing 1 to 4… inconsequential to Ford and GM at this point.

    So do I have this right?

  • avatar
    RedStapler

    I wonder who will end up picking up Jeep once Chrysler goes TU?

    My 1st pick would be Nissan-Renault.

    While commercially viable in the US as a stand alone niche player, CAFE regs will may require it to pare up with a truck-lite portfolio player.

  • avatar
    jthorner

    Even if GM or Ford’s US divisions somehow ended up closing up shop that would not mean the complete elimination of factory output. Third parties would buy bits and pieces at the fire sale and carry on from there. When airlines go under the planes don’t drop from the sky, the profitable planes and routes get snapped up by others.

    Chrysler is by far the closest to being parted out IMO. For example, VW could buy the minivans designs and factories, Renault/Nissan could pick up the Mexican truck and engine factories and Ford might snap up Jeep to complement it’s truck business. VW is already in a deal to buy minivans from Chrsyler, Renault/Nissan is already signed up to buy output from the Mexican factories and Ford built Jeeps alongside Willys during WWII. I doubt anyone would want Chrysler’s car lineup, but perhaps a Chinese or Indian company would jump on those pieces.

    GM and Ford have massive international operations and are highly unlikely to simply close down. Chrysler, on the other hand, is a special case of a mostly North American company which is rapidly loosing market share in it’s one and only sizable market.

  • avatar
    Geotpf

    menno : GM is “too big to fail” within two years. A company that size has to, and will, sell itself off piece by piece (and have sales slowly go down) before completely disappearing. Look at the slow motion collapse of Rover in the UK for what would have to happen. It took decades before it finally went POOF, starting with the break up of British Leyland in the 1980’s.

    GM has already started the dismembering process (selling off things like Allison Transmission), but they are still in the very early stages. They still sell a quarter million vehicles every month domestically and a similar number overseas. They are still “too big to fail”. Now, after they shrink further, that may change, in five or ten years. But if one has, say, ten billion in the bank and owes twenty billion in debts, one can stay afloat for quite some time.

    Chrysler, however, is not “too big to fail”. They are much smaller both domestically and overseas (especially the latter). And the disappearance of Chrysler will give a significant second wind to the remaining players.

  • avatar
    Vetteman

    To me the survival of GM or ford hinges on which one of the two can finally come out with a sedan that can best accord and camry in a way that is fresh new and exciting. Ford did it with the taurus and Gm did over fifty years ago with the 55 chevy. America wants a fuel efficient high quality sedan that gives them a choice besides Camry and Accord. Malibu is a good effort but is not going to be marketed or positioned as a flagship car for the brand.

  • avatar
    mikey

    Geotpf: “One can stay afloat for quite some time”I do like the way you think.

  • avatar
    Rix

    Old saying: Owe the bank a thousand dollars, the bank owns you. Owe the bank a billion dollars and you own the bank. GM has so much debt outstanding and so many stakeholders that the government will never let it die. Cerberus has no stakeholders. The government wont lift a finger to help.

  • avatar
    menno

    Out of our “regulars” and anyone else who would like to play the WAG (wild ass guessing) game, as things stand right now, what chance do you give of:

    a) GM going Chapter 7 worldwide within the next 2 years (i.e. total closure/nothing surviving)

    b) Ford going Chapter 7 worldwide within the next 2 years

    c) Chrysler going Chapter 7 within the next 2 years (they are not a global company)

    My guesses are (sadly enough)

    a) 25% / b) 20% / c) 90%

    This does not preclude the possibility of any company going Chapter 11 (attempting to reorganize) first.

    jthorner, I agree that it is possible that bits and bobs could be sold off before Chapter 7. I even agree that Ford would be a great fit for Jeep (and historically, it even fits – WWII Ford built many Jeeps along with Willys-Overland, using the Willys pattern).

    The downside (if one is superstitious) is that every company that ever bought into Jeep ended up failing to retain their independence!

    Willys-Overland. Bought up. Kaiser. Bought up. American Motors. Bought up. Chrysler. Bought up – twice.

  • avatar
    menno

    BTW I DON’T think GM is too big to fail.

    There are tons of examples of huge companies failing. Just one example; Pan Am was huge.

  • avatar

    Neither GM nor Ford is going to go Chapter 7 anytime soon, and Chrysler probably won’t either. Not only would there be immense political pressure to provide assistance/loan guarantees to the companies.

    Now, if one of them goes into Chapter 11 reorganization, the first one to do so will be able to drastically restructure and reduce costs, giving it the ability to compete more fiercely with the remaining 1.8. That will pinch the other two companies so that they will probably fall into Ch. 11 within a year or two of the first one (unless Chrysler is first; they may not quite be big enough to drive the other two down). The end result will be that much healthier, leaner companies will emerge.

    The Big 2.8 won’t do Chapter 7 for probably another few decades, if ever.

  • avatar
    Geotpf

    Pan Am was huge at one point. But by the time it actually failed in 1991, it was much smaller. Plus, the government had, via poor policy, basically doomed Pan Am (deregulation allowed domestic carriers to fly internationally but didn’t allow Pan Am to fly domestically, so Pan Am had to purchase National in 1980 to add domestic routes, a merger that went extremely badly for a variety of reasons and which started Pan Am’s downfall).

    That is, it took 11 years for Pan Am to fail-and Pan Am, even at it’s peak, was probably smaller by any measure than GM is today.

  • avatar
    menno

    It’s taken General Messup 38 years to date, to fail, Geotpf! I’d set the start-date of their demise at 1970, with the UAW strike, and the Chevrolet Vega. See my other post in the 3 strikes & you’re out heading for details of how I think the Vega helped GM into the deathbed. Of course, it was GM executives who ultimately were at fault.

    After all, if executives can take credit, huge salaries, massive bonuses and other perks when a company goes well, they certainly must also take the hit when a company fails. Even if they don’t want to.

    As for Ford, I hope they (possibly the best run of the Detroit 2.801) do survive, but I’d still guess that there is a 10% chance that NONE of them will survive 2015.

    As of now, GM management and the board of bystanders are all delusional. Paying 33% increases to upper management in a time where 1/3 of the company’s value is going to be burned over a span of 12 months and while union contracts are being settled, is unconscionable.

    And, GM will end up paying the price. Unfortunately, so will thousands of workers and GM dealers (who are after all local businessmen and stand to lose a LOT of money when GM fails).

  • avatar
    ihatetrees

    menno:
    And, GM will end up paying the price. Unfortunately, so will thousands of workers and GM dealers (who are after all local businessmen and stand to lose a LOT of money when GM fails).

    I have some sympathy for GM’s rank and file (although they could all use a Econ101 course from the U of Chicago).

    I have no sympathy for the so-called businessmen known as GM dealers. They’ve got state laws and legislatures in their pockets – with subsequent legal protections that most small businesses don’t have. In UAW country, they have captive customers.

    There’s a reason that NO automaker can roll out a national marketing campaign that says, “Get a New V6 MaliCamCord, Nicely Equipped, For $2x,000”. It’s probably violates many state franchise laws.

  • avatar
    fallout11

    May 22nd followup:
    Ford slashes production, says it will not return to profitability until at least 2010.
    From the NY Times….

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