General Motors Death Watch 194: Good Money After Bad

Robert Farago
by Robert Farago
general motors death watch 194 good money after bad

Of all the failures that have led GM to the brink of bankruptcy, the automaker's failure of imagination is the most profound. Never mind the plug-in electric – gas hybrid Chevy Volt. How about conjuring a vision of a company with two or three tightly-focused brands that each produce a handful of distinctive, class-leading and profitable vehicles, that markets them with relentless focus, and stands behind them with a national network of honest, efficient and courteous salesmen and mechanics? Whatever else Car Czar Bob Lutz can say about GM's product strategy, that ain't it. Which begs the question: what does The General want to do with U.S. taxpayer’s money?

The proposed cure is symptomatic of the disease. Like General Motors’ endless, target-less turnaround, the automaker’s plans for low-interest federal loans are utterly vague. GM won’t disclose exactly how much federal money it wants, or what they want to do with it. “We know the legislature authorized up to $25 billion," GM spokesman Greg Martin told the St. Louis Post-Dispatch. "But the amount that could really make a difference likely is much higher.”

Of course, that all depends on who gets how much and what Martin means by the phrase “make a difference.”

If GM wants a share of the proposed $25b in federal loan guarantees to subsidize production of the company’s “game-changing” plug-in Volt, six to ten billion ought to do it. Free marketeers may wonder why American taxpayers should subsidize the producer (GM) rather than the consumer (a buyer of ANY vehicle that meets a certain mpg rating), but hey, Michigan is a "battleground state." American votes jobs are on the line.

Did I say $25b? In the run-up to and (especially) including the Democratic and Republican national conventions, Detroit has been lobbying pols to increase the federal tax cash to $50b. Michigan Senator Debby Stabenow hinted that even more federal funds might be needed (a lot now, a lot later). This desperate doubling down stripped away any pretense that the supposedly eco-friendly federal loans will pay for Uncle Sam's green dreams. It’s bailout bucks, pure and simple.

Well, not so pure and not so simple.

The $25b loan program is part of last year’s Energy Bill. Your elected representatives mandated that the funds be used to develop and build fuel-efficient vehicles. To channel these loans to The Big 2.8, applicants (supplicants?) must use the low-interest (4.5 percent) loans to re-tool U.S.-based production facilities to manufacture gas-misers. The bill also stipulates that The Department of Energy– the agency charged with steering boatloads of Benjamins to Motown– must give “priority” to assembly plants that are at least 20 years old. (Toyota and Nissan have one qualifying plant each, and they don’t want/need the money).

Of course, federal programs are almost infinitely… mutable. Even though the Energy Bill’s wording seems clear enough, Detroit’s spinmeisters are already pointing out that the final rules are yet to be written. (The final definition of applicable vehicle types should be a fun read.) Taxpayer grumbles about federal favoritism aside, dumping more money into this part of Uncle Sam's trough will be easy enough.

Assuming (as we must) that significant federal funds will flow into GM’s new product development, it should be remembered that the tax money will replace GM cash already allocated for that purpose. GM can then use the [former] development money for housekeeping: union buyouts, unconscionable executive compensation, Delphi's pensions, etc.

So, what’s the bet that the $25b to $50b (to whatever) loans won’t do any damn good? And by “good” I don’t mean that GM will end-up with electric Volts or gas-miserly Cruzes. I mean what are the chances that our tax money will provide anything more than a temporary, ineffectual band aid for GM’s arterial spray of red ink?

Even if you gave GM a blank check and said “Here, whatever it takes. Build something that will kick the imports (the other guys’ imports, not yours) ass,” they couldn’t do it. Or do it often enough, what with eight brands selling over 40 different(ish) products.

Heads up feds: tight money has not been– nor is it now– the bane of GM’s existence. The General’s goose was cooked by managerial and union greed, sloth, arrogance and, above all, bureaucratic bungling. As anyone who’s ever worked for a company with its head up its ass will tell you, giving copious amounts of fresh capital to execs in charge of a dysfunctional corporate culture to “fix” their business is like trying to extinguish a log fire with gasoline.

If we used our $25b to buy out every GM senior manager and union worker currently employed by the company, and then let the new guys get on with it (with performance-related pay), GM might dodge the bankruptcy bullet. Or, alternatively, embrace C11 as the best way to create a sustainable American automaking endeavor. In fact, the new team would do whatever they'd have to do to survive. And if they didn’t, they wouldn’t. Imagine that.

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  • Joeaverage Joeaverage on Sep 05, 2008

    The average CEO makes $40,000 (FORTY THOUSAND DOLLARS) a DAY! Roughly 350 times more than the average working person. That means while some make less than that - there are a good number making MORE than that PER DAY. I think we are seeing the erosion of our economy where truly the rich are getting richer and the poor are getting poorer. A economical polarization like that which I saw travelling overseas and never expected to see in America. Maybe it has been here all along and I'm just now noticing it. There is no reason for top level management to make a working man's annual salary EVERY DAY. Things are too far off center here. I don't see any reason for any of the domestic car companies to recieve any gov't money when they have that kind of management costs. Time to throw out a crowd of people and put the guys at the top in touch with the guys at the bottom directly - in pay, in daily planning and in meetings on a regular basis. Those people don't necessarily need to be the same people as now. I want to see these companies flourish but they'll not get any sympathy from me nor would I like them to get my tax dollars in any fashion. I feel a patriotic duty to buy their products and WANT to but I have an equally compelling feeling that I don't want to feed the zoo animals at the big three in any capacity. Maybe I'll do my part and buy a used domestic from a private seller and keep it alive with aftermarket parts... GRIN! I have to wonder if despite what our Founding Fathers might have intended - if America hasn't created a royal class accidentally through simple greed. All our political leaders are rich and some are even millionaires despite a "modest" federal salary. Our corporate managment makes 350+ times more than the average employee per year. Our gov't gives multi-billion dollar corporate handouts, pork barrel projects, multi-billion dollar gov't contracts, and invades foreign countries under the guise of security. At the same time folks point to the nation's poor and says - no, we can't afford to do any more for you. Who is really costing America the most money? Don't get me wrong - I'm not happy handing money out to ANYONE that WON'T (but can) get off their duff and change their situation. You know the type - those who might be underfunded but somehow can't even clean up their property (a no cost project). Yes, for some their shabby property is a sign of their deeper problems. Yeah, I'm not making much sense. Just rambling here. So what is the answer? Quit massive gov't spending and lower the taxes to return the savings to the citizens? Seems to me this would only benefit the elite of America who pay most of the taxes. Shrink the corporate bloat? All that does is impact how many jobs put the bacon on the dinner tables for employees. Shrink the corporate bloat and pass the savings on to the customer? Seems to me folks would just buy more stuff (see discount super-store) which we've established is not really good for our environment (throw away society). Ride this train as fast as it can go until the boiler explodes? Give me some answers...

  • Stan Esposito Stan Esposito on Sep 05, 2008

    This is from the fast lane blog: Myth: GM no longer matters to the U.S. or its economy. Fact: The U.S. auto industry still generates more employment, annual economic output, exports, and retail business than any other industry. It directly employs a quarter of a million people, and supports another 5 million Americans at dealerships, suppliers and service providers. U.S. based carmakers spend more on R&D than any industry – more than $12 billion annually. We also provide healthcare benefits to 2 million Americans, and support nearly 800,000 retirees and spouses with pension benefits. There is also the matter of national pride. GM is one of a handful of U.S. based manufacturing companies that compete head-to-head with the world’s best in global markets. We are proud that we have become a truly global company, and proud that we are a leader in fast growing markets like China, Brazil and Eastern Europe. We are also proud that American brands like Chevrolet and Cadillac known and admired around the world. Myth: GM’s biggest problem in North America is its union contracts. Fact: There is no question that the growth of imports, and of non-unionized U.S. factories owned by overseas competitors, posed a tough challenge for GM and its unions. The only realistic solution was to do what we did — negotiate agreements that narrow this gap. The most recent GM-UAW agreement, signed in 2007, helps close fundamental competitive gaps with our import competitors, and we anticipate significant savings as we implement the key provisions of the agreement between now and 2010. GM’s unionized North American factories compete with the best in terms of quality and productivity. We are confident that a collaborative relationship with our unions continues to be in everyone’s best interest. Myth: GM has too many brands. Fact: GM has grouped its 8 U.S. brands into 4 retail channels: Chevrolet, Buick/Pontiac/GMC, Saturn and Cadillac/Saab/Hummer. This allows GM to offer the broad range of choices that customers want, while streamlining product development and back-office operations. GM has announced a strategic review of the Hummer brand, which will study options ranging from revamping the product portfolio to selling the brand. GM is also using its global operations to develop distinctive new products for its U.S. brands. Fact is, to continue growth, many carmakers have entered new segments or added new brands as the market has grown and fragmented. The number of brands is not the key, but rather GM’s ability to provide strong products and efficient marketing support for them. Myth: GM is not moving fast enough. Fact: Global automakers like GM are among the largest manufacturing companies ever created. GM, for example, builds more than 9 million cars a year in 35 countries, and employs 266,000 people around the world. Despite its size, GM has made substantial changes in just the past eight years. We now design and develop most of our vehicles globally, and this global expertise has helped create award winning products like the Cadillac CTS, Chevy Malibu, Saturn Aura and Buick Enclave. Our global engineers have also helped GM reclaim its place as a leader in energy saving technologies. And we have grown rapidly in new markets like China, Latin America and Eastern Europe. In 2000, just 42% of GM sales were outside the U.S. By 2008, nearly 60% of GM sales were in these fast growing international markets. Also, keep in mind that the auto business is cyclical. The down cycle in the U.S. market that began in 2006 and sharpened last spring is posing short-term challenges for everyone. Weathering these down cycles and continuing to build for the future is simply part of the business GM’s strategy is straightforward: Continue to build toward sustainable success, in the U.S. and around the world. Myth: GM opposes higher fuel economy standards. Fact: GM fully supports new national corporate average fuel economy (CAFÉ) standards of 35 mpg by 2020, a dramatic increase of 40% over previous standards. Along with other interested parties, we will work with the government throughout the rulemaking process on details of the new regulation. GM continues to believe that a single set of tough national fuel economy standards is the best way to focus the industry’s efforts and to reduce fuel consumption and CO2 emissions nationwide.

  • Inside Looking Out "And safety was enhanced generally via new reversing lamps and turn signals fitted as standard equipment."Did not get it, turn signals were optional in 1954?
  • Lorenzo As long as Grenadier is just a name, and it doesn't actually grenade like Chrysler UltraDrive transmissions. Still, how big is the market for grossly overpriced vehicles? A name like INEOS doesn't have the snobbobile cachet yet. The bulk of the auto market is people who need a reliable, economical car to get to work, and they're not going to pay these prices.
  • Lorenzo They may as well put a conventional key ignition in a steel box with a padlock. Anything electronic is more likely to lock out the owner than someone trying to steal the car.
  • Lorenzo Another misleading article. If they're giving away Chargers, people can drive that when they need longer range, and leave the EV for grocery runs and zipping around town. But they're not giving away Chargers, thy're giving away chargers. What a letdown. What good are chargers in California or Nashville when the power goes out?
  • Luke42 I'm only buying EVs from here on out (when I have the option), so whoever backs off on their EV plans loses a shot at my business.