Editorial: General Motors Zombie Watch 8: "7 Reasons Why The New GM Might File for Bankruptcy"

Robert Farago
by Robert Farago

Communist witch hunters called Americans who supported the battle against Francisco Franco before World War II “premature anti-fascists.” In other words, they were right for the wrong reasons. There’s a lot of that going around these days. For example, Chrysler and GM’s claim that they need to cull dealers is spot on. But trimming overheads, as the automakers claim, ain’t it. [See: number three after the jump.] By the same token, it’s also true that New GM is doomed to failure. But not for the seven reasons that Seeking Alpha sets forth. Still, Jason Mathew’s analysis is worth a closer look . . .

1.) $1400 in per vehicle costs went untouched to ensure re-election and voter satisfaction rather than shareholder value

Not exactly. GM’s “reinvention” is facilitating a rapid decrease in the number of GM employees (despite Senator Stabenow’s “jobs, jobs, jobs!” pro-bailout rallying cry). Many of these disappeared have agreed to buyouts that limit their pensions. In any case, as the employee count decreases, as the old guard shuffles off to the great assembly line in the sky, GM’s pension costs are going down. Pension costs for retirees come out of the pension, not GM’s bottom line. For whatever that’s worth.

2.) Bankruptcy court ruling did not establish labor rate parity with Toyota ( TM) or Honda ( HMC)

GM’s direct labor wages were already close to parity with the transplants. As TTAC’s Ken Elias taught us many, many moons ago, the domestic automakers set the bar for automotive assembly workers’ hourly pay. GM’s real excess labor costs: the Other Post-Employment Benefits (OPEB) paid out to GM’s massive retiree base (e.g. health care). The real labor problem: highly paid workers who don’t contribute bupkis to production (thank you UAW work rules).

3.) Reducing dealer count will have nominal impact on GM’s cost structure yet significant downside impact on market share

Dealer count, market share, dealer count. Chicken egg chicken. GM needed to cull dealers to eliminate overlap, lower inventory costs and kill brands (to focus branding, products, marketing, etc.). In theory, less inventory on the ground should reduce GM’s carrying costs, reduce bureaucracy (improve accountability) and speed-up cash flow/turnover.

Any way you look at it, there are too many GM dealers to support the bankrupt automaker’s diminished—and diminishing—market share. What’s not clear: whether GM can sell the same number of vehicles (at retail) with fewer dealers. Or, if you prefer, what is the right number of GM dealers? I’m not sure I’d want the same GM suits who were working the old dealer system without complaint to establish the new one. In fact, it’s a really bad idea.

4.) Government and UAW as majority owners = poor management

Ya think? But the United Auto Workers (UAW) likely won’t have, nor do they desire, a strong influence on GM’s management. For one thing, the UAW doesn’t want accountability. The more it interferes, the less it can bitch and moan and (when needed) duck and cover. They’ve done just fine without saying anything about GM’s current plans. Why start stopping now?

Besides, the UAW’s “independent” union health care VEBA owns GM stock, not the UAW itself. The UAW has publicly stated that it just wants to get full value for its stock and cash-out ASAP. Believe it or not, I believe them.

[Seeking Alpha’s scribe would have been better off just saying “Government = poor management” and be done with it.]

5.) GM will be at a strategic competitive disadvantage with no ability to financially engineer sales with 0% loans and extend consumers credit

Wrong. GM will not be at any disadvantage in this regard; GM pays GMAC for those financially engineered deals, and the government more or less owns both organizations. Bottom line: if GM wants to hold fire sales, toe tags sales, zero percent deals, cash back specials and get America rolling promotions, you, the taxpayer will pay for it.

6.) GM Europe operations will only get worse, supply base is weaker than the U.S. and surviving brand equity is weak

Huh? GM’s off-loading its European operations to someone at some point soon. Or not. Either way, the corporate mothership is busy washing its hands of the whole deal.

7.) 35-MPG energy requirements in 2016: GM currently has one vehicle that meets that standard today

First of all, loopholes. Lots and lots of loopholes. Secondly, do we seriously expect the Feds to put its $50 billion investment in GM and Chryco at risk by regulating GM (a.k.a. themselves) to death?

The real problem for New GM is the same one that led it to its first bankruptcy: it doesn’t know how to make the products that Americans want to buy at a sufficient profit to take in more money than it spends. In other words, it can’t compete. To think that a government-run GM can make that happen when a privately held GM could not is the worst sort of folly. The folly for which I have to pay.

Robert Farago
Robert Farago

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  • Wsn Wsn on Jun 26, 2009
    7.) 35-MPG energy requirements in 2016: GM currently has one vehicle that meets that standard today -------------------------------------------- I think that's the least of GM's worries. I mean, if "financial institutions" means "any organization" (see official TARP explaination), then I have no doubt Chairman will change the definition of "gallon" (to something like 10 liters, assuming the definition of liter doesn't change) before he leaves.
  • U mad scientist U mad scientist on Jun 26, 2009
    There is plenty of blame to spread around, but defending inflexibility as a means of gaining efficiency is flawed. The difference is that one party is hired to work like grunts, and another hired to direct them in an efficient way. Putting responsibility on the grunt side to come up with a solution assumes symmetry in an asymmetrical problem. Also, while some flexibility is good, a mass production line does not perform the same kind of work as white collars so a direct comparison is not valid.
  • Teddyc73 As I asked earlier under another article, when did "segment" or "class" become "space"? Does using that term make one feel more sophisticated? If GM's products in other segments...I mean "space" is more profitable then sedans then why shouldn't they discontinue it.
  • Robert Absolutely!!! I hate SUV's , I like the better gas milage and better ride and better handling!! Can't take a SUV 55mph into a highway exit ramp! I can in my Malibu and there's more than enough room for 5 and trunk is plenty big enough for me!
  • Teddyc73 Since when did automakers or car companies become "OEM". Probably about the same time "segment" or "class" became "space". I wish there were more sedans. I would like an American sedan. However, as others have stated, if they don't sell in large enough quantities to be profitable the automakers...I mean, "OEMs" aren't going to build them. It's simple business.
  • Varezhka I have still yet to see a Malibu on the road that didn't have a rental sticker. So yeah, GM probably lost money on every one they sold but kept it to boost their CAFE numbers.I'm personally happy that I no longer have to dread being "upgraded" to a Maxima or a Malibu anymore. And thankfully Altima is also on its way out.
  • Tassos Under incompetent, affirmative action hire Mary Barra, GM has been shooting itself in the foot on a daily basis.Whether the Malibu cancellation has been one of these shootings is NOT obvious at all.GM should be run as a PROFITABLE BUSINESS and NOT as an outfit that satisfies everybody and his mother in law's pet preferences.IF the Malibu was UNPROFITABLE, it SHOULD be canceled.More generally, if its SEGMENT is Unprofitable, and HALF the makers cancel their midsize sedans, not only will it lead to the SURVIVAL OF THE FITTEST ones, but the survivors will obviously be more profitable if the LOSERS were kept being produced and the SMALL PIE of midsize sedans would yield slim pickings for every participant.SO NO, I APPROVE of the demise of the unprofitable Malibu, and hope Nissan does the same to the Altima, Hyundai with the SOnata, Mazda with the Mazda 6, and as many others as it takes to make the REMAINING players, like the Excellent, sporty Accord and the Bulletproof Reliable, cheap to maintain CAMRY, more profitable and affordable.
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