General Motors Death Watch 192: Only The Good Die Young
Earlier today, GM’s purchasing chief warned his light truck parts suppliers that he’s looking to halve their number. No surprise there. GM’s SUV and pickup truck sales (and margins) have fallen like a stone thrown in a deep, dark well. But here’s the strange thing: Bo Anderson wants credit for his forward thinking. “The effort is proactive," he told the Traverse City management seminar. "To be sure that we get the best suppliers." Bo’s boast is based on GM’s faith that it will persevere through the current unpleasantness because yes, Virginia, you CAN cut your way to prosperity. Only no, Bo, you can’t. But hey, it’s something to do.
And by God, GM’s determined to do it. On Wednesday, freshly-minted GM CFO Ray Young cart-and-ponied automotive analysts at a JPMorgan conference in Dearborn. Young reaffirmed boss Rick Wagoner’s quasi-religious commitment to cost-cutting. And then he revealed glad tidings! The automaker would realize some of their projected savings sooner, rather than later. “We're accelerating all of this stuff,” Young pronounced.
All this stuff, indeed. Even a die-hard death watcher has trouble keeping-up with all the “normal” calls on GM’s remaining cash pile, versus the company’s efforts to trim its operating overheads, versus the “exceptional” costs of those cuts, versus, and here’s the key bit (to anyone who thinks a company should take in more money than it spends), the automaker’s sinking market share and cratering revenues. This in a declining market that’s undergoing a radical shift in consumer tastes. It’s no wonder that Young’s fellow bean counters chose to focus on cuts. It’s so much easier.
But that doesn’t make it right. And even if it IS right (for management karma), it’s not good enough for those who check the corporate body for signs of terminal cancer. Ask Moody’s. Just before Ray’s presentation, they downgraded GM’s credit, again, to Caa1. That’s seven levels below investment grade. With a negative outlook. The move slams the door even tighter on any chance that GM might borrow money Ford-style to “invest” its way out its hole (you know, if they had something approximating a plan).
Clearly, money’s too tight to mention. Literally. When asked about the $1.5b line of credit GM used in the last financial quarter, Mighty Ray Young claimed The General borrowed the money to ”test the mechanism” and help meet costs at a “seasonal low point.” (Try THAT one when your wife asks you why you put an HDTV on the credit card.) When reporters asked Young when that loan might be, you know, repaid, Young refused to give a date. GM will decide later, after it “monitors the U.S. auto industry's performance over the next couple months.”
Obviously, Young doesn’t expect the U.S. auto industry in general– or The General in specific– to recover by October. GM, once the world’s largest and most profitable company, has been reduced to scrounging behind the sofa.
And if that’s not enough to signal lifeboat lowering, Young also warned that “if the market shrinks further” the automaker will have to “reconsider” its scheduled contributions to the multi-billion dollar union-run health care superfund. And consider “how strategic” its 49 percent share of lender GMAC may be. Oh, and it’s selling more assets, ASAP.
So it’s the market’s fault. Not GM’s. The lack of accountability, the denial of reality, continues apace. Meanwhile, thanks to the festering sore that is former division and bankrupt parts supplier Delphi, the decline could soon become the final death spiral. When (no longer if) Delphi enters Chapter 7 liquidation, GM may not be able to take the monetary hit or supply chain disruption. Speaking of which…
There is nothing on GM’s product horizon that can generate sufficient revenues to slow– never mind stop– GM’s descent into insolvency. Even if the plug-in electric – gas hybrid Hail Mary known (but not yet realized) as the Volt arrived in Chevy showrooms next Thursday, even if it was a smash hit straight out of the box, the vehicle can not, will not generate enough profits (i.e. cash) to save GM.
Someone should tell GM CEO Rick Wagoner that every day he doesn’t file for Chapter 11 brings him one day closer to something far worse.
By selling everything he can to buy more time for a market turnaround that can't come soon enough, propping-up a product renaissance that can't possibly sustain eight increasingly meaningless U.S. brands, Wagoner is in real danger of emptying the larder and destroying any remaining corporate value, leading GM into Chapter 7.
As we’ve said before, there will be a federal loan guarantees, tax credits, perhaps a bailout and for sure a whole lot of wasted tax money before we reach this sad denouement. But reach it we will. Because you can trim a diseased tree all you like, but everything either grows or dies.
Fsquire on Aug 20, 2008
What happens in Europe and the rest of the world? It would be interesting to hear thoughts about what would happen to the Opel/Vauxhall and Chevy (Daewoo) operations if GM went in to Chapter 11. The O/V product is largely strong and distinctive (Corsa, Astra and the strong new Insignia) though the market position is mixed. Chevy/Daewoo is much weaker with no real brand but a position in developing markets. Who might buy O/V, who wants extra Euro capacity? I could imagine that the Koreans would want to buy back Chevy/Daewoo. Any thoughts?
Ken Elias on Aug 20, 2008
To answer the last post - a GM bankruptcy will look like those of Delphi, Dana, Tower, etc. - only the corporate parent and American subsidiaries will file, overseas ops will remain untouched. IIRC, GM also pledged the stock of GM Mexico so it will likely be included in a filing as well along with GM Canada. Essentially, all of GM's NAO.
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