Category: GM Death Watch

By on November 7, 2005

 For over 30 years, Maryann Keller's kept tabs on The General. The auto industry analyst has watched GM lose billions in overseas investments, surrender great chunks of market share to its rivals and sacrifice shareholder value in an endless pursuit of The Next Big Thing. According to Keller, GM's inability to face-up to its structural weaknesses is nothing new. Nor are the excuses coming from RenCen. "It's one big idea after another," Keller said. "This time it's crossovers. Well, they've used that 'there's a new product in the pipeline' routine for years. GM's problems are NOT temporary." OK, but are they terminal?

Like most observers, Keller's brain balks at bankruptcy. For one thing, The General is sitting on an estimated $30b cash pile– which will grow by another $12b or so when GM jettisons controlling interest in its GMAC mortgage and financing business. For another, Keller says bankruptcy would have a cataclysmic effect on GM's business. "Customers would disappear," Keller says. "They'd think, who's going to pay for my warranty claims? What will my car be worth? And what bank would write a loan for a car sold by a bankrupt company? Would fleet customers do business with them? I don't think so. The long-term damage to GM would be incalculable."

That said, there's no doubt in Keller's mind that GM's current situation is extremely bad, and getting worse. "In October, GM pulled down a 22% market share. If you remove fleet sales from those numbers, they actually had a 13 to 14% share. That's less than Toyota. November and December aren't going to do anything for them, and if Delphi goes out on strike, there's no telling how long current inventories will last. Even as it stands now– 14% of the market, eight brands, 70 plus models– it's simply not sustainable."

Keller is convinced that this doomsday scenario's increasing likelihood will motivate GM's management to address the company's flawed fundamentals. Call it the cornered car company concept. Keller points to Nissan and Chrysler's comebacks as examples of automakers brought back from the brink because… they didn't have a choice. Keller predicts– and clearly longs for– a signal from inside GM that reality bites. She hungers for a bold and comprehensive recovery plan that acknowledges the full extent of GM's problems and pledges the company's full resources to solve them. She calls it the "moon shot solution":

"What I'm hearing is platitudes. What I'd like to hear is a plan. A plan that says we're going to the moon. We're going to spend as much money as it takes to rebuild the brands– even if we don't make a profit on a single car for ten years. We're going to use that money to build substantially better cars than the competition, and significantly under price them… This is not rocket science. GM needs to give customers more than they expect at a price they can't ignore."

Keller doesn't see the unionized elephant in the room as an insurmountable obstacle to this as yet unexpressed turnaround plan. In fact, Keller says GM's recovery is doomed without "shared sacrifice" from management, the United Auto Workers (UAW), suppliers, bankers and dealers. In that sense, Keller feels the UAW is getting a raw deal in the court of public opinion. "It's currently in vogue to blame GM's ills on runaway health care costs, but if things are that bad, why is GM 'giving away' money in the form of stockholder dividends… The only way GM's going to solve its union problems is if they solve all the other problems at the same time. There's no way out of this mess except for GM to fix it."

While I agree with Keller's analysis, I don't share her optimism in the power of self-preservation. Keller says "People buy one car at a time." By the same token, people contemplate their employer's future one person at a time. Nothing I've read, heard or seen convinces me that any of the participants pulling the levers of power in this twisted saga have enough at stake to make them, as Keller puts it, "do things that are not in their character". Even on the fateful day they clamber aboard their golden lifeboat and watch the mother ship sink beneath the waves, they will insist that they did the right thing. To paraphrase Richard Nixon, they will accept none of the responsibility, and none of the blame.

Capitalist enterprises have a way of bouncing back from adversity. Even so, it takes more than a comprehensive plan. It takes leadership. Until and unless GM dumps Wagoner, Lutz, et al. from their lineup, and finds a team with genuine backbone, the company will not have the will nor the skill to sidestep the looming disaster. As Keller says, "Despite its success, Toyota operates with a sense of urgency. I still don't see that from GM. I wonder if I ever will."

By on October 31, 2005

 While GM models continue to debut and disappear like Manolo Blahniks, the Chevrolet Corvette stays the course, slowly evolving towards excellence. To mark the retirement of Chief Engineer Dave Hill, Car Czar Bob Lutz posted a short honorific on GM's fastlane blog: "Dave was often disruptive, stubborn, unwilling to take direction, unwilling to take advice, unwilling to accept constraints or limits — in other words, the perfect man for the job." In other other words, Hill was a successful guardian of the Corvette flame DESPITE GM, not because of it.

Lutz' unintentional condemnation of his employer's corporate culture won't surprise anyone who's had dealings with The General. I've received dozens of emails from GM workers and suppliers. They describe an organization so complex it makes the legal system in Kafka's The Trial seem like basic addition. One story convinced me that the phrase "institutional paralysis" was coined by a seat bracket designer. Another persuaded me that "matrix management" and "total chaos" are synonymous. And another reminded me of A Confederacy of Dunces, and left me wondering why more GM managers haven't followed author John Kennedy Toole's example.

In all the discussion about GM's perilous financials, it's often forgotten that the company itself is a disaster. Think of it this way: no one at GM wakes up in the morning and says, right, let's go make some vehicles that are two product cycles behind the competition at a price that will bankrupt The General within the next year. [Mr. Hill would have probably sacrificed his left testicle to equip the 'Vette with Audi-esque soft touch plastics.] But something happens between morning muesli and Miller time that kills GM workers' creativity and stifles the company's competitiveness. That something is bureaucracy.

It's not about size. It's about focus. Toyota is living, breathing, money-making proof that a multinational automaker can produce millions of vehicles without tripping all over itself. To do so, to create an organizational structure lean enough to consistently produce genre-dominating cars, a carmaker must maintain laser-like focus. It must first decide EXACTLY what it wants to do, and then it must do it better than anyone else. As a corollary, the manufacturer must accept that it can't– shouldn't– do everything. It's about choosing your battles wisely, fighting them tenaciously and then protecting your territory with steadfast ferocity.

Domestically, GM has eight brands: Hummer, Buick, Pontiac, Cadillac, Saturn, Chevrolet, Saab and GMC. Which one of them has focus? Which one of them sells a coherent lineup, where every single model does [the same] one thing better than anyone else? Are all Chevy's economy cars? Do all Buicks lead their competition in interior quietness? Are all Pontiacs sexy? What do all Saabs, Saturns or GMC trucks do that no other vehicle in their class can match? Sure, all of GM's domestic brands sell cars that don't fall apart, get reasonable mileage, are reasonably comfortable and don't cost a fortune compared to the competition. But what's their unique selling point? Why bother buying one?

It's General Motors by name, general motors by nature. Once you go down that road, it's no wonder that the Chinese walls separating the brands disappear, and dozens of models across the eight brands emerge on their respective forecourts courtesy of the bloodless process known as badge engineering. Since all the cars within each of GM's eight brands must do everything pretty well, but none are asked to excel in any one area (save Hummer, but give it time), it makes perfect sense to save money by sharing management, designers, workers, models, parts, marketing, etc. Is it any wonder that GM's company culture rewards measured uniformity rather than breakthrough creativity?

Of course, inside any large organization, there will always be employees striving to realize their personal vision of product excellence– despite the internal forces ranging against them. Dave Hill was one of GM's "mavericks'; I'm sure he could tell plenty of stories of missed opportunities, needless compromise and administrative lethargy. In any case, Hill's success is an anomoly: the exception that proves the rule. Just think of all the nameless managers who were prevented from creating something great because they had to satisfy GM's overarching desire to do something good…

We've said it before. We'll say it again: GM must die. You can't fix this company. Even if GM's unions agreed to join their Chinese colleagues and work for $1.50 per hour, even if several of GM's 14 (count 'em 14) crossovers are a runaway success, the company is deeply, fundamentally, culturally flawed. Shuttering Buick, Saturn and Saab would help, but nothing can save a car company that's a jack of all trades and master of none.

By on October 24, 2005

 Details of The General's highly-touted secret accord with the United Auto Workers (UAW) have finally filtered out. Even a cursory glance at the fine print– which promises to get finer in the days to come– reveals that the "landmark" deal is not the company-saving "historic giveback" the mainstream media, UAW and company officials would have us believe. In truth, it's not even too little too late. It's nothing at all.

The UAW's new agreement with GM stipulates that 118k active union members forgo a $1 per hour pay increase scheduled for '06. That works out to about $2000 per worker, per year. So, by not paying its workers an extra buck an hour, GM saves $236m. Only "saves" isn't the right word. It's more like "redirects". The $236m that won't appear on GM workers' payslips will now go straight to… healthcare. In other words, GM "saves" the money by spending it on healthcare rather than wages, and its workers go right on enjoying the free and full benefits they've enjoyed since tires were ply.

Even if we operate on the assumption that this money counts as an economy because The General won't have to dig into its pockets for ANOTHER $236m, it's still not the stuff of which corporate turnarounds are made. The amount represents just over 4% of The General's current annual health care bill. As costs in the health care sector are rising by well over 4% per year, it's actually a loss. Anyway, where's the rest of that supposed billion dollar UAW give back?

GM has 500,000 retired employees receiving free health care for both themselves and, where applicable, their family. The new GM – UAW agreement asks them to start carrying some of the financial burden through increased co-pays, slightly larger deductibles and exclusions for "lifestyle drugs" like Viagra (I kid you not). This extra expense works out to be roughly $370 per year for an individual retiree, to $752 for a family. (Workers who receive less than $8k per year from their GM pension still get a free ride.) And there's your remaining $750m in health care savings. Or not.

If you were laboring under the impression that the UAW would give up benefits for the good of General Motors– in the sense that even a blood-sucking parasite knows to drop off the host before it dies– think again. As part of this arrangement, GM will create a special fund for retirees to help them pay for their additional health care costs. The amount going in is… wait for it… a billion dollars. And that's just the first year. In the second year of this scheme, GM will pay in… another billion dollars. And guess who gets the interest on the $2b?

Add it all up and GM saves nothing on healthcare for the next two years. Nada. If you consider the fact that GM also agreed to assume $12b worth of pension liabilities tied to UAW workers left high and dry by Delphi's bankruptcy– PLUS a $1b sweetener– they've actually lost money on the deal. Or, if you prefer, GM and the UAW have successfully negotiated an increase in The General's labor costs.

Not to put too fine a point on it, who cares? Whenever GM's critics lambaste the company for its gi-normous "legacy costs", management always points their finger at health care; that's what's weighing us down! Well, it ain't necessarily so. Just ask CallmeSteve Miller. Delphi's President is asking his UAW members to take a 70% pay cut. That's not what I'd call pissing around. Pissing around is arguing for months about 1/6th of your health care bill, and then paying it anyway. GM and the UAW have done nothing more than paper over the tectonic cracks that threaten to swallow both of them, whole.

Meanwhile, the family silver sale continues. Majority interest in The General's GMAC Golden Goose is still on the block, with both corporate raiders KKR and uber-shark Kirk Kerkorian browsing the catalogue. Hot on the heels of the Fuji Heavy Industries sell-off, GM has announced that they're selling a majority interest in their Australian truck business to Isuzu. South Africa is next. Perhaps GM is building a war chest for the upcoming UAW strike of parts maker Delphi, which will shut down GM's production lines. In any case, Rabid Rick Wagoner recently went on record to say bankruptcy isn't an option. He's right: it's a certainty. Now's the time to short GM stock.

By on October 18, 2005

 To paraphrase Bullwinkle J Moose: "Hey Rocky, watch Ricky pull a rabbit out of his hat!" On the very day when Rabid Rick Wagoner revealed that GM had lost $1.6b during the third financial quarter, The General's CEO announced that he'd cut a deal with the United Auto Workers (UAW). The long-awaited, deeply-desired agreement allegedly reduces the automaker's health care costs. Its announcement had an invigorating effect on the press ("Can UAW deal spur turnaround?") and GM's stock price (up $2.11). What's more, it's quelled the chorus of anti-Rick rumblings. How he gets away with this shit is beyond me.

First of all, the accord's exact details are secret. As of this writing, no one outside of the GM – UAW executive loop knows how this "historic agreement" will lop a claimed $3 billion a year from the automaker's health care costs. The most likely instrument is an increase to UAW member's health care co-pays, premiums and deductibles. Which is why Rabid Rick and union boss Big Ron Gettelfinger are keeping shtum; the UAW rank and file must OK the cuts. Say what you will about Big Ron's leadership, but there's a good chance his membership will tell him to take his increased health care costs and put them where the sun doesn't shine.

So what we have here is a tentative deal; as in a long way from done and dusted. Oh, did I mention that the $3b in savings are before-tax dollars? Give Uncle Sam his due and GM's economy shrinks to $1 billion per year. Hmmm. Let's put that in perspective. This year, GM shelled out $5.6b for its workers health care. So the theoretical savings represent, at best, a 25% reduction. With inflation in the sector running at 15%, you're actually looking at a savings of… 10%. Wow. No wonder GM camp followers believe salvation is at hand.

While we're at it, keep in mind that the General lost $1.6b this quarter after increasing sales by five per cent. (Yes, increasing.) That brings GM's total annual losses in the North American market, so far, to about $4.1b, with current sales dead in the water. If we're conservative and deduct another couple of billion from GM's cash reserves for a piss-poor fourth quarter, we're looking at a $6.1b loss for the year. So, if the UAW deal had been in place this year, GM would have lost "just" $5b. Oh, that's alright then.

Also, lest we forget, GM has this annoying habit of losing a billion here, ten billion there. Forbes writer Jerry Flint reckons GM has already pissed away some $21b on its foreign "alliances"– without figuring the cost of what else GM might have done with the cash. Shuttering Saturn, Saab or Buick (an idea whose time came five years ago) would cost GM billions more. Who knows what other billion dollar bombshells lurk in GM's future? While I don't make enough money to call a billion dollars chump change, forgive me for not considering a billion bucks the difference between life and death for The General.

But wait: it gets worse. Much worse. As you'd expect, the UAW's tentative deal was not a one-sided affair. Again, GM's concessions are shrouded in secrecy, but ye olde sources close to The General report that Rabid Rick agreed to assume Delphi workers' pension costs. Previously, GM had claimed that their liabilities to its former workers might be… nothing. Apparently, Rabid Rick will now ADD money to their pension fund, from the previously estimated high ball figure of $9b to a staggering $12b. What will THAT cost The General on an annual basis?

Alarmist? I don't think so. Anyone who didn't hear that Rabid Rick also announced plans to sell off a "majority interest" in GMAC is deaf. GM's finance arm is it: the cash cow. Sure, the estimated $10b in cash from the sale would see GM through the tough times ahead– right until it doesn't. Think of it this way: if GM is losing $1b plus per quarter NOW, with its factories churning-out HHR's and the like, how much will they hemorrhage during the inevitable Delphi strike, when those factories fall silent?

One person who won't remain silent for long is Mr. Las Vegas, Mr. 10%, GM investor Kirk Kerkorian. You may have noticed that we haven't heard a peep out Mr. Kerkorian's Tracinda Corporation since The Rick and Ron Show pulled the wool over the industry's eyes. Anyone who thinks that's because Rabid Rick's last minute UAW deal– sorry, tentative deal– has rescued his reputation underestimates both Mr. Kerkorian's business chops and the true extent of GM's union-related woes. It's only a matter of time before Rick's forced to say "Maybe I should get another hat."

By on October 16, 2005

GM CEO Rick Wagoner, pasted behind the ill-fated Chevrolet SSRGod knows where Rabid Rick Wagoner got his reputation for being clever. Obviously, you don't get to be the CEO of the world's largest automaker by being stupid. The GM Empire is so vast that simply remembering who does what would vex Jeopardy maven Ken Jennings. But smart is not the same as clever; clever men make the right decisions at the right time. By that standard, Wagoner can't cut the mental mustard. He's consistently failed to grasp the proverbial nettle– from slicing UAW benefits and pensions (come what may) to axing the forest of deadwood cluttering GM's product portfolio. He's long on assurances, short on results and devoid of courage. And as of Monday, he's toast.

When GM's third quarter financial numbers are released, when stockholders learn that GM has failed to staunch the billion dollar arterial spray, that the Employee Discount For Everyone program was a textbook case of robbing Peter to pay Paul, that sales have declined more than 50%, that there is [still] no substantive deal with the UAW over health care costs or pensions, Wagoner will admit only that times are tough. Aside from some mention of gas prices, Rabid Rick's piercing glimpse into the obvious will not be accompanied by excuses. Instead, he will rely on his usual stock in trade: promises.

We're streamlining engineering and production, saving the company some $1b per year! We're importing cheap cars from foreign lands, without paying UAW labor costs! We're importing cheap parts from communist countries, without paying UAW labor costs! The UAW is playing ball! Hybrids are coming! Crossovers are coming! Once again, Rabid Rick will be singing The Chairman of the Board's classic hit 'Give Me Just a Little More Time' when he SHOULD be quoting Simon and Garfunkel's summation of Benjamin Braddock's tryst with Mrs. Robinson: any way you look at this you lose…

Rabid Rick's Eternal Sunshine of the Spotless Executive speech wasn't true when he took control of GM, and it's not true now. But it was effective. Rabid Rick understood that GM's stockholders viewed the auto industry as show business. Supposedly, The Big Three carmakers are never more than a 300C away from salvation. With a seemingly inexhaustible supply of 'new' cars just around the bend, Rabid Rick has repeatedly sold the Powers That Be the old 'light at the end of the tunnel' bill of goods. Even as GM's health care costs top $5.6b a year, you can STILL hear the mantra coming from RenCen: product, product, product. Combine the hype with the average investor's five-minute attention span– G6! Solstice! New Tahoe! Saab crossover!– and you can understand how Rabid Rick's public pledges have allowed him to maintain power despite his monumental timidity against the enemies within.

Thanks to a combination of Delphi's bankruptcy, the UAW's foot dragging and the cataclysmic loss of sales, market share and cash; Rabid Rick's promises will now, finally, ring false. Even the most dim-witted investor will understand that GM's business is deeply, fundamentally flawed. Union contracts and bureaucratic bungling render them incapable of building the vehicles that consumers want, in quantities that reflect demand, at a price that guarantees an adequate profit. Anything Rick says about rescuing GM that doesn't include unilateral cuts to the UAW's compensation, a dramatic downsizing of GM's production capacity and the immediate termination of lackluster brands will be [rightly] perceived as too little too late.

Of course, nothing Rabid Rick could say would soothe the savage beast known as Kirk Kerkorian; an investor who's as determined to reap profit from the break-up of GM as Rabid Rick is to maintain the automaker's integrity. There's no doubt whatsoever that Kirk and his pals rely on an ancient Italian principle when analyzing the reasons for a company's financial failures: the fish stinks from the head down. It's an especially apt principle in this instance; assuming as it does that the fish is dead. And just in case you think our reports of GM's demise have been greatly exaggerated, there is a growing school of thought which says that GM should declare bankruptcy NOW, before the UAW's inevitable strike drains The General of its remaining resources.

Imagine if Rabid Rick Wagoner made THAT move on Monday. Declaring bankruptcy would be a preemptive strike against the UAW that would give GM time to re-imagine itself. To create an entirely new business model of ad hoc suppliers, manufacturers, marketers and service technicians that can respond to market trends with confidence, clarity, flexibility and speed. That sort of company would be more like a series of interlocking partnerships than a vast fiefdom run a benevolent dictator. Which is, ultimately, what not-so-clever Mr. Wagoner is fighting so hard to protect. Which is, ultimately, why he can no more win this battle than he can save his career.

By on October 10, 2005

 So Delphi is bankrupt. The automotive parts manufacturer will now use the courts to reduce their labor costs, so they can make a profit and stay in business. We're talking about trimming workers' wages from $60 per hour to $10, eliminating $400m dollars in annual payments to idled employees, slicing pensions, closing a couple of dozen factories, that sort of thing. Considering the union's complete intransigence on these issues, Delphi's move into Chapter 11 is entirely sensible. From GM's point of view, Delphi has let slip the dogs of war; dogs that will rip The General to pieces.

Yesterday, we learned the true cost of GM's Delphi-related pension obligations: eleven billion dollars. The figure makes The General's $2b FIAT payoff seem like a tip. It makes the $2.4b GM has burned through this year seem like an ink stain on the corporate ledger. It makes the $800m pissed away in the Fuji deal seem like change lost down the back of the sofa. Of course, pensions are paid out over time, and The General's lawyers are busy preparing to argue that GM doesn't owe Delphi a dime. But they do, and the hit will hurt.

Never mind. When push comes to shove, GM has enough family silver to cover its Delphi-related pension problems. Insiders estimate that the General has about $40b in cash and $50b in credit left. No, the real problem with Delphi's deconstruction is this: the parts maker's bankruptcy will eventually force GM to shut down its assembly lines.

In mid-December, after two months of fruitless negotiation, a federal judge will terminate the UAW's contract with Delphi. The union will strike. They have to. They cannot allow a judge to eviscerate every wage increase, working condition and benefit they fought for since 1935. For one thing, the rank and file won't tolerate anything but a symbolic roll-back in their standard of living. For another, any cut inflicted upon Delphi's 25,000 union members would form the basis of the UAW's new contracts with GM, Ford, Chrysler, etc. That's… inconceivable.

Bottom line: unions are in the business of protecting and enlarging workers' rights, not overseeing their elimination. The UAW's continued existence demands that they draw a line in the sand– which Delphi's management has already crossed, and will cross again, as and when. Although Delphi lost the opening round of the predictable (and pointless) post-Chapter 11 blame game by giving its top brass a pay raise moments before the company filed, there's no escaping the fact that you can't structure an auto parts business in today's highly competitive market using the UAW's current level of compensation.

The inevitable UAW strike will starve GM of parts and force them to shutter US factories. Lest we forget, Delphi WAS GM until '99. Every single vehicle The General makes still needs every single part Delphi makes for it. There is no way GM can build its products without all of its Delphi-produced components. The UAW knows this, and they've got nothing to lose. What's more, they believe a strike will force Delphi, GM and all the rest to get in line, or, as Ron Gettelfinger recently remarked, "we all go down together".

For its part, GM is engaged in some major league damage limitation/distancing/ denial. The General's official response to Delphi's Chapter 11 points out that they've been paying a $2b annual "premium" for Delphi parts. Their supplier's bankruptcy will save them money! Never mind that the savings are entirely theoretical; YOU try and plug a new supplier into GM's Byzantine production matrix. And anyway, a part's price is secondary to its existence: if you can't get one, it's literally priceless.

The UAW's Delphi strike will costs GM billions. Per month. By now, there's nothing GM can do to forestall this eventuality. Rabid Rick Wagoner was right not to pay Delphi blood money to keep the [union] peace. It would have shown weakness to GM's mortal enemy, drained yet more billions from the company's coffers and postponed the inevitable. In fact, all GM can do now is prepare for the coming disruption, and devise a strategy that would allow it to "pull a Delphi" and walk away from its union contracts. Something like… bankruptcy.

By on October 5, 2005

 In a news article entitled "UAW, GM near deal on Health", Detroit News reporter Daniel Howes claims that the United Auto Workers and General Motors are about to sign agreement that will trim $1b off The General's health care payments. The doyen of Detroit sums-up the current state of play in his usual comprehensive and no-nonsense style, but a thorough read of his report reveals that his premise is based entirely on rumor. And the rumor is based on hope. And the hope is false.

It's easy to understand why even seasoned journalists would give voice to such illogical optimism. While we've been charting and predicting GM's demise for some time, the actual implications of that cataclysm are so enormous they defy rational exposition. When a GM lawyer enters federal court holding the General's bankruptcy petition, the entire US automotive industry will change forever. Initially, everyone will suffer. It's no surprise that industry insiders hope against hope that the main players will see sense soon enough to dodge the bullet that will kill the status quo.

What observers fail to understand is that GM and the UAW signed a suicide pact a long time ago. Back in the day, when GM's profit-gorged, short-sighted management traded job security for freedom from strikes, they backed the union into a corner. That's right: the union. Once union members were made fire proof, the union could never, ever agree to their dismissal. Pay raises, working conditions, pension contributions, even health care– they're all negotiable. But any UAW boss that says to one of his members "The company doesn't need you anymore. That's it, you're done; you're outta here" wouldn't last five minutes.

Make no mistake: guaranteed employment is killing GM. While everyone is talking about health care payments, the key fact is this: a large percentage of The General's workforce is completely unnecessary. And yet GM is forced by its UAW contract to keep paying these workers, either by continuing to spew out cars no one wants or by putting them in a "job bank" where they receive full salary and benefits for doing nothing whatsoever. While most people understand the insanity of the job bank, few realize that one of the reasons GM makes far too many products is that the union deal means it would cost them almost as much NOT to make them.

All the UAW can say is, well, it's your fault for not designing, marketing and selling vehicles that people want to buy, which would create enough demand to keep our people employed and help you make enough money to pay our salaries. It's not a bad argument, really, but it was formulated at a time when GM owned the US auto market lock, stock and barrel. And even if it's true, it's not important. The chances of GM's design team pulling a dozen or so rabbits out of its hat are now smaller than a Chevrolet Aveo.

Despite all the media hype and hope, the current situation is a Gordian knot. GM can't live with their UAW contract, they can't get out of it without a strike, and they can no longer afford a strike. Meanwhile, the General is bleeding out. Their market share has evaporated, their new products aren't cutting it, Delphi is about to saddle the company with a $7.5b pension bill (and a catastrophic interruption in the flow of parts), their credit rating will soon be sub-junk (nuclear waste?), their losses are completely unsustainable, and so on. Today's fire sale of their stake in Fuji Industries to arch enemy Toyota is just more proof that their time is up.

In fact, GM is already dead. They're already locked in the corporate version of John Kennedy's plane crash: a death spiral headed straight to a violent, inescapable conclusion. Accepting this premise, we can understand GM's recent behavior in terms of Dr. Elisabeth Kubler-Ross' Five Stages of Grief. We've heard the denial (our products are great!); we've felt the anger (the media hates us!) and now… bargaining. As you read this, GM and UAW reps are at the bargaining table, trying to find a way to deal with their mutual loss. They may establish what Ross called a "temporary truce", but they will eventually have to move on.

When Delphi goes belly-up, I reckon the whole lot of them will make the transition to the final stage: depression. When GM itself follows suit, the depression will become chronic. The media will bemoan the loss of American pride and jobs, the UAW will get all sullen and melancholy, and GM's current management will sulk off into the distance, riding their golden parachutes without comment. All that will be left will be acceptance. Kirk Kerkorian and his pals will take charge of this final stage of the healing process, telling the world that it's over. Deal with it. And after that? Who knows? Hope springs eternal.

By on September 29, 2005

Buzz Hargrove, President of the CAW and master of Pyrrhic victoryToday's 11th hour deal between GM and the Canadian Auto Workers (CAW) is yet another example of The General's singular inability to take the bold action needed to avoid bankruptcy. Instead of reasserting its ancient right to fire workers it doesn't need, GM once again agreed to subsidize idled employees. The General will point to the 1000 jobs sliced from its Canadian operations, but the cuts will be achieved through attrition. CAW President Buzz Hargrove knows what's what, and he isn't afraid to spell it out: 'People will either have work or wages."

The idea that an auto worker deserves full salary for not working is insane. But it's not half as crazy as subsidizing the concept with shareholders' money. In case you thought, well, at least GM exchanged impregnable job security for some benefit reductions, forgeddaboutit. The General's 16,400 Canadian blue collar workers also received a 3.5% pay increase over the life of their contract AND increased pension contributions. Industry experts estimate that the pension top-up will cost GM an EXTRA $179m during the three-year period.

As a warm-up for the '07 negotiations with the United Auto Workers (UAW), GM's Canadian caving expedition is roughly equivalent to a prize fighter preparing for a title bout by working on his tan. The General's crack negotiators couldn't even get CAW assembly line workers to reduce their break time by two minutes. Of course, GM's abject failure to stem the spurting artery of red ink known as "legacy costs" is neither new nor surprising. Rabid Rick Wagoner and his minions have continually staked their fortunes on changing the bandages covering the company's wounds, rather than radical surgery. And by surgery, I mean a strike.

There's no question that a tough stance by GM against its Canadian workers would have triggered a walkout. It's equally true that a strike would have severely dented GM's US operations. In 2004, The General's Canadian factories built 824,619 transmissions, 682,000 engines, 603,660 cars, 320,055 trucks, 24.6 million parts and shipped 117,022 tons of steel. Even if the UAW didn't walk out in sympathy with their neighbors to the north, the disruption to GM's food chain– and its effect on beleaguered suppliers like teetering Delphi– would have been catastrophic.

But survivable. GM's Gulfstream-friendly execs wimped-out because A) they're chicken and B) they don't think they need to draw a line in the sand, ever. Simple logic will convince the UAW to surrender members' entitlements. Shrewdly enough, the UAW has catered to this delusion by commissioning an "outside review" of GM's financial health. GM's leaders believe the UAW will read the report, see the writing on the wall and take one for the team. The General's generals figured a Canadian showdown would have put the UAW in the wrong mood for the conciliations to come.

Hello? Am I the only one actually listening to Big Ron Gettelfinger? When asked about the possibility of surrendering union benefits to ensure GM's continued existence, the UAW Prez said: "There comes a point in time where you think, 'We either move forward or we all go down together…' You can't just take, take, take, take, take and that's the mood that's out there right now.' I'm no labor relations expert, but Big Ron doesn't sound like the kind of guy who will extend the hand of friendship across a bargaining table in the name of mutual self-interest. I mean, if Big Ron thinks he's being abused NOW, what hope is there in '07?

None. GM should have forced the CAW to strike. Considering the inescapable fact that GM will eventually face a UAW strike (and/or Chapter 11), it would've been better for The General to have its labor showdown start in Canada. From a PR point-of-view, Americans would be a lot less likely to support a strike on behalf of Canadian workers than one mounted on behalf of UAW employees. This is also a time when GM's inventories are low, and the company's prospects dim. Better to have it out now, heading for the winter doldrums, than later, when sales will be there for Toyota's taking.

A crippling strike would've also offered GM an excellent opportunity to kill half its brands– and blame someone else. But hey, who am I kidding? You only have to look at the timing of the Solstice, HHR or any one of the company's "new" gas-guzzling SUV's to know that the word "proactive" simply isn't in The General's vocabulary. They're used to playing defense. That's what they'll do until the opposition rips off their head and uses it for a football.

By on September 24, 2005

The L39 burns 130 gallons of aviation fuel per hour.In his first podcast, Maximum Bob Lutz insists that the full-size SUV market will survive the changing economic climate, albeit in a diminished form. What, no Cat 5 devastation? Nope. GM's Car Czar reckons around 750k Americans "genuinely need" a jumbo SUV (down from last year's estimate of over a million). Yes, well, a man who flies an L39 fighter jet for fun may not be the best judge of how gas prices affect the average SUV buyer. In fact, I reckon MB's market estimate is too optimistic by half.

Lutz' cigar-scarred voice claims that the full-sized SUV's core clientele need their gargantuan gas-guzzler because they 'tow a boat' and 'carry lots of kids". Where's the data for that assertion? In truth, it's highly unlikely that even 50% of full-size SUV drivers ever tow a boat. What's more, there are plenty of capable sprog carriers out there– most now available in four-wheel-drive– that don't suck gas with the jumbo SUV's unrelenting extravagance. So unless these owners of full-sized SUV's tote more than three kids AND a boat, they're free to downsize.

Or not. Now that buyers of large SUV's are almost as rare as Oprah magazine cover girls, now that all the low-fertility, non-boating SUV owners who can afford to jettison their land yachts have done so (or will do so at trade-in time), the value of pre-owned XXXL SUV's has collapsed. A large percentage of full-size SUV owners owe significantly more money on their behemoth than it's market value, leaving them unable to escape their loan/vehicle. That's bad news for GM's new Tahoe, Escalade, Yukon, Yukon Denali and the eight (yes eight) other GMT900's headed for dealers' parking lots in '06.

Even those who can afford to pay the freight for these sleeker, more cosseting SUV's won't. The General's previous party line– that people who can buy a $40k to $70k SUV aren't overly concerned about $3-a-gallon gas– is moot. Despite Lutz' belief in his customers' maritime/progeny-based buying motivations, the popular movement into large SUV's was fashion-led. The popular movement OUT of them will be equally stylish– with one important distinction. The current fug of anti-SUV negativity is so poisonous it will only take a few months to destroy an automotive trend that was decades in the making.

For GM stockholders, employees and suppliers, it's a tragedy of the worst kind: preventable. While you can't blame The General for making full-sized hay while the sun shined, the automaker should have seen this coming. Unless you believe that GM's market analysts were paid to play Tetris, unless it's OK to enrich a CEO by $7m+ a year when he can't tell which way the wind's blowing in a howling gale, GM had time to get it right. GM could have– should have– dedicated every resource in their Empire to designing, manufacturing and selling the world's most fuel efficient SUV's. A 20 – 30% improvement in fuel economy would have forestalled much of today's "truck flight".

Of course, arrogance is the engine of tragedy. When Rabid Rick Wagoner met with Toyota Chairman Fujio Cho in May, he should have bowed with appropriate reverence (to put it politely), bought the Japanese automaker's hybrid technology and ordered it installed in all GM SUV's– even if it meant a two-year production delay. Instead, Wagoner-san flew back to Detroit, pulled the trigger on GM's great SUV giveaway and ordered production of GM's "refreshed" SUV's brought forward. Vehicles that get one mpg more than the old ones.

Wagoner's hubris stems from his profound faith in the power of perseverance. (It was the key to his rise within GM.) Rabid Rick clearly believes GM will answer the clarion call for improved mileage with new, world-beating technology… eventually. As in too late. Lutz, on the other hand, is a Marine. His hubris comes from his conviction that a warrior's heart conquers all. Listen to his podcast. Check out Maximum Bob's strange combination of bravado, bluster and battle fatigue. We HAVE what it takes. We CAN bunker down and hold out until the hybrid cavalry arrives. We WILL be OK. Except when Bob says "we" he means "I". [Business Law Number Seven from Maxi Bob's book on Chrysler: 'Teamwork isn't always right.]

I digress. Bottom-line: I'd be surprised to see large SUV sales top 400k a year. And yet Lutz' podcast tells us GM's winning: their new-shape SUV's will maintain a 60% share of the disappearing market. Meanwhile, over at the other tables, the croupier is busy shoveling The General's chips in Japan's direction. If it wasn't so funny, it would be sad. Actually, it is sad. Once upon a time, America's largest companies were known for their ability to bring technologically advanced products to market quickly, cheaply and efficiently. If the world's largest automaker can't re-engineer its vehicles fast enough to avoid a completely predictable market meltdown, then maybe it shouldn't BE the world's largest automaker. Ipso facto.

By on September 21, 2005

 Imagine Maximum Bob Lutz and Marketing Mark LeNeve heading for the unveiling of GM's new 'full-size' SUV's. At the precise moment when another hurricane is eyeing-up Gulf oil refineries, the dynamic duo is charged with selling the idea that The General's latest fuel-sucking land yachts will stop the automaker's financial fibrillation. Never mind all the other diseases eating away at GM: viral benefit payments, broken brands, model metastasis, bubonic incentive programs, hybrid anemia, etc. This SUV thing is where GM gets its first glimpse of the corporate crash cart. So, how did the boys take it?

Denial is a useful psychological condition. It allows humans to maintain hope in the face of ridiculous odds. By that token, Lutz and LaNeve's inability to confront the full horror of GM's situation is both understandable and indefensible. After all, they're the guys behind the wheel of a multi-billion dollar company launching a fleet of the wrong vehicles at the wrong time. And yet they're pathologically incapable of accepting this fact or, more importantly, its implications. I'm serious. This is not the usual corporate spin. These guys are delusional.

As TTAC's invitation to the SUV launch was lost in the mail, we make our diagnosis based on past history and reports in the automotive press– whose own inability to grasp the nettle is equally worrying (The Detroit News headline "Can new lineup of big SUV's revive GM?" should have preceded the world's shortest article.) According to AutoWeek, Mr. Lutz admitted that "It is realistic to assume that this segment won't grow". How about roll over and die? Not in Bob's world. "I think we may maintain our volume at other people's expense, even if the segment shrinks a little bit.'

May? If? A bit? These are not exactly bold words for a guy who flies military jets for fun. As we learned in a Fortune magazine profile of Rabid Rick Wagoner, Maximum Bob's optimistic sales predictions are the source of a great deal of humor within the GM Empire. When Maxi Bob is downbeat, it's time for the cemetery workers to get out the shovels. More to the point, Bob's use of the word "realistic" and "to assume" in the same sentence reveals that he's seen the enemy, recognized his own face and retreated to the executive washroom for a little pep talk with the mirror.

You'd think that Marketing Mark LeNeve would have a firmer grasp of reality, and you'd be right– in a roundabout sort of way. The Detroit News has LaNeve looking at GM's new full-size SUV's and conceding "This launch is critical to us." Note: LeNeve is not known for his arched eyebrow. Anyway, to quote the Sinatras, then he goes and blows it all by saying that I love you. After conceding that the jumbo-sized SUV market "may" contract, LeNeve asserts "This is a very large, very important and very profitable market.' If only he'd used the word "was"…

It gets worse. When confronted with their new SUV's gas-hoggedness, the GM poo-bahs pointed to their invisible friends: crossovers and alternative fuels. The Detroit News said Lutz was quick to point out that yesterday's big-SUV roll-out was only part of GM's "full-frontal product assault on the marketplace". The Car Czar revealed that GM will unleash eight new crossovers in the next four years. (Eight? How about one good one?) For his part, LeNeve reminded journos that GM's 5.3-liter V8 can run on ethanol, and announced plans to promote ethanol use in those states "with a lot of ethanol fueling stations". Both of them.

OK, look; I'm not a big fan of shooting fish in a barrel. But again, the automotive press just isn't holding GM's feet to the fire re: their monumentally stupid decision to spend billions rushing their '07 SUV's to market. To their credit, the Detroit News has sprinkled their stories with pithy quotes from industry Naysayers (Burnham Securities' analyst David Healy: 'To me, GM is kind of whistling past the graveyard.') But the press seems generally comfortable repeating the same old GM BS we've been hearing for decades: success is just a new model (or thirty) away.

Well it isn't. Everyone involved– executives, union members, shareholders, journalists and consumers– should admit and acknowledge that big ass SUV's are a dead genre guzzling. Unless GM can come up with a credible plan B in a hurry, they are completely screwed. Meanwhile, I'd like to know why we're only seeing pictures and descriptions of the new Tahoe. The preview included the new GMC Yukon, GMC Yukon Denali and Cadillac Escalade. I find it astounding that the automotive press would acquiesce to yet another product-related embargo at this critical moment of corporate crisis. It's a totally unacceptable abrogation of their editorial responsibility.

And where was Rick Wagoner?

By on September 15, 2005

Al Ries The GM Death Watch series has repeatedly asserted that The General has too many brands selling too many models, with insufficient focus on any level, with excessive overlap on every level. The very first DW entry, "GM Must Die", recommended that the world's largest automaker should be broken-up; its constituent parts deep-sixed and/or spun off into independent corporate entities. I figured the stance placed me well to the right of my fellow GM-bashers. And then I read Al Ries' Ad Age column, "The Sad and Unnecessary Decline of Saturn" and instantly realized I wasn't being radical enough.

Ries wrote that there are only two ways for a company to increase sales: expand the brand (with new products) or expand market share (capture more of the existing market with the existing product). The Atlanta-based marketing consultant asserts that market share is best. Once a brand captures more than 50% of its market, it's virtually unassailable. Ries cites McDonald's, Heinz ketchup, Microsoft, Tabasco, Rolex, Kleenex, Starbucks, WD-40 and Jello as examples of consumer brands whose market sector dominance insulates them from competitive pressure and obviates the need for brand expansion. [NB: variations within a brand's remit, such as Kleenex with Aloe, are not considered brand extensions.]

Ries' premise flies in the face of the commonly-held theory that an automaker's survival in today's "niche-driven marketplace" depends on a constant and steady stream of new models and variants. If true, Ries' argument makes a complete mockery of this week's auto show hysteria in Frankfurt. Indeed, all those struggling manufacturers promising a raft of new models to rescue their sinking fortunes (Mitsubishi, VW, GM etc.) are actually announcing their intention to drill new holes in their hull. As proof of his postulation, Ries takes a spin 'round Saturn.

At its peak in 1994, GM's "People First" division sold 286,003 vehicles. The figure represented the industry's best vehicle-per-dealer average: 960 cars. That year, Saturn S-series' sales accounted for 16% of the small compact category, second only to the Ford Escort. And then GM took its eye off the ball. Not only did they fail to update the Saturn S-Series– while the Honda Civic went through three evolutions– they also introduced an entirely new replacement, and then an SUV. The upshot? In '04, Saturn's three models totted-up 212,017 sales. That's 26% less volume than a decade previous, with sales per dealer down over 50% (483 units).

As Ries points out, conventional wisdom runs 180 degree counter to his analysis. The industry believes Saturn's troubles stem from a lack of a broad product range, not because of it. Ries cites the long list of insiders who sounded the clarion call to create a larger Saturn portfolio: Automotive News Editor Charles Child, Saturn boss Cynthia Trudell, her replacement Annette Clayton, and, of course, GM Car Czar Maximum Bob Lutz. All of them believed Saturn was languishing because it didn't have enough vehicles to capitalize on the brand's original success.

And now Saturn is finally getting the expanded model range it wants; including a sexy little roadster called the Saturn Sky. Which is basically the same car as the Pontiac Solstice. Which dilutes the strength of BOTH brands. In fact, the more you think about it, the easier it is to see the merit in Ries' supposition. We've always said it makes no sense for GM brands to compete with each other (ipso facto); re-badging the same vehicle for different marques is the worst kind of marketing insanity. But it also makes no sense for a brand to compete with itself.

An automotive brand selling a sedan, SUV and sports car asks consumers to connect widely disparate dots. The best ad campaign in the world must overcome the fundamental "Jack of all trades, master of none" inertia. And even if an automaker somehow fashions an over-arching message (e.g. The Ultimate Driving Machine), multi-branded companies are still stuck in the marketing mire. After all, if Saturn, Chevrolet, Cadillac and Buick all offer a similar range of vehicle types, the consumer will think– quite rightly– that the brands are more similar than they are different. Why bother with any of them?

Assuming Ries' has got it right, how far should carmakers take his idea that expanding market share is better than widening the brand's product line? If you apply the basic principle without fear or favor, Porsche should only be building sports cars (the Panamera sedan probably qualifies, but the Cayenne SUV certainly doesn't). Saturn should only be selling economy cars– if not just one car– and… that's it.

In a recent email, Ries said that he'd heard that there were only eight types of vehicles: pickup, SUV, sedan, sports car, etc. He suggested that GM's eight brands should all make one type of vehicle apiece. Now THAT'S what I call radical.

By on September 12, 2005

 Last June, Rabid Rick Wagoner unveiled his five-point plan to rescue The General. He promised to downsize GM's production capacity– then let normal attrition take its course. He promised thrilling new products– then accelerated production of gas-guzzling SUV's. He promised he'd cut union benefits– then didn't. He promised to end incentives– then launched the Employee Discount for All program. And lastly, Rabid Rick promised to build cars using cheaper parts made in China. This he's doing. Unfortunately, it's the one promise he shouldn't have made.

A quick reminder: China is a dictatorship. There is no freedom of speech, movement or association. There is no independent judiciary. "Workers' rights" exist entirely at the ruling party's pleasure. It is, in truth, a police state. On the positive side (at least from GM's point-of-view), the country has a large supply of men, women and children who are willing to toil on an assembly line for $1.50 an hour without legal protections, health care or a pension.

Let's put aside the moral issue of investing in a communist country– something consumers, the mainstream media and GM's stockholders seem happy to do. On the face of it, Rabid Rick's decision to improve the company's bottom line with low-cost Chinese labor is a no-brainer. If Chinese parts are up-to-snuff, who cares where they're made? Given a bit of time, GM could replace entire UAW-made vehicles with Chinese-made vehicles and poof! The US health care and pension crisis is gone. As long as American consumers don't kick up a fuss, as long as GM doesn't have to hit-up the US government (triggering embarrassing questions from union-supported politicians), they're golden.

Perhaps. Perhaps not. Imagine that President Hu Jintao and his mates suddenly decide that all China-based automakers should be owned and operated by The People's Republic, to create vehicles exclusively for the domestic market. Who's going to stop them? I'm sure GM's high-priced international analysts have officially discounted the possibility, but I wonder if they could name one communist/socialist country that HASN'T nationalized a key industry– including England (British Leyland) and France (Renault). In countries where the armed forces have a say in, um, everything, business conditions can change very, very quickly.

And what of supply lines? The challenges involved with producing key parts for the US automotive industry in an agrarian society that's 6637 miles and 12 times zones away from Detroit seems fairly major to me. Wayward ships, miscommunication, disease, political unrest, general disorganization– I reckon there's plenty of scope for a complete break in the supply chain. Did I mention military action or natural disaster? If the Taiwan situation heats-up, if the region suffers a killer tsunami or typhoon, I don't think Chinese cars or car parts will get first priority.

There are also daunting cultural issues. The world's best manufacturing facilities depend on feedback from the factory floor to eliminate waste, improve quality and create innovation. What are the chances that a class-bound, politically-repressed Chinese worker is going to be a "team player", as explained to him by a Western plant manager? The Chinese automotive worker's pay may be microscopic in comparison to a UAW member, but it's a fortune by local standards. Surely this imbalance places an enormous pressure on Chinese workers to keep their mouths shut in all situations.

Basically, GM is investing billions of dollars in an amoral, unstable, creatively infertile economic environment. What's more, they want their suppliers to do the same. On September 20th, GM purchasing poo-bah Bo Andersson will meet with the company's 250 top suppliers and "recommend" that they cut costs by opening more factories in low-wage countries– especially The People's Republic of China. Bo's suggestion will be backed by an 'aggressive restructuring" of GM's supply base. In other words, get on with it or goodbye.

Sometime before October 17th, parts supplier Delphi will file for Chapter 11, saddling The General with approximately $9b in legacy costs, and proving that managerial incompetence, union intransigence and corporate insolvency are a logical progression. But the correct response to this conundrum is NOT outsourcing to China. Non-UAW American companies have the technology, expertise, flexibility and will to produce parts right here in the USA that can meet or beat the price set by foreign-based operations– without a language barrier or the risks of dealing with a fantastically long supply chain and a totalitarian regime. And that's without any kind of discussion of quality, creativity. national self-interest or, God forbid, morality.

GM's desperation is leading it to reckless adventurism far from home. One way or another, the automaker will pay the price. As an ancient Chinese proverb says, distant water won't help to put out a fire close at hand. Or, more appropriately, once you climb on a tiger's back, it's hard to get off.

By on September 3, 2005

 You get a terrific view from the top of a roller coaster– but there's only one way to go. GM execs would have known the feeling at the beginning of August– if they were paying attention. They weren't. Despite all the experts' warnings, The General's top brass were too busy high-fiving each other over the 'success' of their Employee Discount for Everyone (EDFE) program, talking-up their plans to gently wean customers from discounts and incentives. Well hands in the air boys, the August sales figures are in…

Ward's AutoInfoBank reports that GM's sales are down 16.5%. [All figures cited are in comparison to August '04] Lest you think the results were a simple case of a sinking tide stranding all boats, Autodata reveals that the US automotive market as a whole rose 3.8%. While Daimler Chrysler and Ford eked-out small gains (1.2 and 1.4%), check out their Japanese competition: Toyota (+9.5%), Nissan (+10.6%) and Honda (+18.6%).

What happened? Truck and full-size SUV sales tanked. Although the media has been busy upbraiding consumers for daring to buy the General's discounted gas-hogs (ignoring their eco-moral responsibilities), the press gang failed to realize that the EDFE blowout was the last charge of the light truck brigade. Look at August's top 15 sellers and clock the change. Only two pickups and two SUV's made the list. More to the point, GM's entries on Ward's automotive hit parade were off a whopping 35.4% (Chevrolet Silverado) and 17.5% (Chevrolet Trailblazer).

August's big winners were relatively small cars like the Ford Focus, Honda Civic, Toyota Camry and Nissan Altima– still. Only more so. Sales increases for these vehicles were well into double digits. Although GM has three Chevrolet automobiles in play, two of these models lost sales and one remained static. The Pontiac Grand Prix was the only bright spot in the General picture, up a staggering 78.4%. One problem: the new G6 (developed at a cost of hundreds of millions of dollars) was supposed to be the bright star in the Pontiac firmament…

Obviously, post-Katrina gas prices will accelerate the trend away from low mileage leviathans towards more fuel-efficient vehicles– at the exact moment when GM expects its refreshed trucks and SUV's to carry the can. Of course, any company with 70 models will have a number of products appropriate to a conservation-minded climate. On average, GM's fleet is a fairly frugal bunch. But neither statement obviates the fact that GM has ignored clear and consistent signals that truck-based vehicles were a dead genre guzzling. The General's divisions are still lousy with pickups and SUV's, with no automotive cavalry waiting in the wings. Oops.

Not that you'll hear that expression from inside GM. They're too busy backpedaling from earlier assertions that rising gas prices would not damage their SUV-based plans to finally pull the company out of its tailspin. For months, GM has been insisting that its middle-class customers are insulated from high fuel prices. (No suprise there: The General delayed some mid-sized car programs to speed the launch of their full-sized SUV and pickup programs.) Now that the gas prices are disappearing into the stratosphere, GM's spinfolk are admitting that the cost of gasoline may have a "psychological impact". Spinelessly enough, they're implying that GM's current and impending woes will stem from of potential customers' misguided timidity, rather than The General's abject failure to adapt to market trends.

In any case, the debate over gas hogitude probably suits the suits. It draws attention away from the elephant in the room: sales brought forward by the EDFE. Every industry analyst worth his pocket protector has been saying that GM's summer sales bonanza was the result of customers buying sooner rather than later. Well, it's later. In fact, it's a lot later than GM thinks. The General's rivals are rapidly and inexorably siphoning-off GM's market share. Yet Rabid Rick Wagoner's mob have yet to downsize their operation or 're-negotiate' GM's onerous labor costs to match its dealers' diminishing ability to sell GM vehicles at a price that can generate a profit for the corporation.

GM's reaction to the latest crisis was predictable enough: they extended the EDFE program through September. More significantly, the program now includes many '06 models– a tacit admission that GM has abandoned its ambitious plan to leave their Wal-Mart image behind. At a press conference yesterday, The General's chief industry analyst entered England's understatement hall of fame. After calmly predicting that oil would eventually stabilize at an SUV-friendly $50 a barrel, Paul Bellew admitted that "September will be a challenge."

While GM clings to euphemisms for comfort, corporate carnivore Kirk Kerkorian made an equally predictable play: he bought more of GM's cheapened stock, raising his stake from 7.2 to 9.5 percent. Mr. K's spokesman said the octogenarian billionaire has "confidence in the company, the American auto industry and the US economy as a whole." And, no doubt, the wisdom of firing the boneheads who brought the world's largest automaker to its knees, selling off GM's assets and completely restructuring the business. Hang on folks; it's going to be a wild ride.

By on August 30, 2005

The buck stops here.  Ish.As I write, a group of Wall Street analysts are bunkering in GM's corporate HQ for an update on The General's recovery plans. The morning session will feature a PowerPoint pummeling entitled 'The Solstice Will Come out Tomorrow'. The post-prandial spin session will address the big issue: how GM plans to stem the torrent of red ink spewing from every corporate vein, artery and orifice. As TTAC was denied admission to the confab, we thought we'd Blackberry a few questions to our secret admirers…

1. When is GM going to cut UAW benefits?

Early this summer, Rabid Rick Wagoner stood in front of GM shareholders and solemnly swore to cut the automaker's 'legacy costs' (the communist era health care and retirement benefits enjoyed by current and former United Auto Workers' employees). The UAW responded by hiring an accounting firm to justify their intransigence, nickel-and-dimed dozens of hapless GM negotiators to the brink of insanity by 'exploring cost cutting moves within the existing contract', issued a press release expressing concern about the effects of high gas prices on GM truck sales and bought a Ford Escape Hybrid for their President.

For its part, GM has done… nothing. In fact, the company recently confirmed the status quo with a new contract at its Vibe-making California plant. All Rabid Rick's dark hints about unilateral action (emboldened by independent assertions that GM would win the inevitable court battle) have turned out to be nothing more than feeble posturing. Clearly, Wagoner does not want to trigger a company-crippling UAW strike. Clearly, he must.

2. When is GM going to cut its executives' salary?

While it's not a crime to draw a multi-million dollar salary when your company's swirling around the toilet bowl, the annual compensation paid to GM's top brass (Wagoner, Devine, Briggs, Cowger, Burns, Lutz, LaNeve, et al) gives the UAW the moral high ground. When push comes to shove, when the barricades are manned, the execs' high life will not play well in Peoria. GM's top brass should shred the class warfare card NOW, before the UAW can play it.

3. When is GM going to downsize?

With eight divisions deploying over 70 models, The General is still relying on the sheer weight of numbers to overcome its enemies' tightly-focused, niche-driven insurgencies (e.g. Toyota's Prius and Scion). While the sales chart proves that GM is winning battles, the company's continually decreasing market share and non-existent profits show that it's losing the war.

It's well past time for GM to cut the deadwood. Buick, Saturn, Pontiac, Saab– one or all must go, no matter what the cost in dealer lawsuits and/or UAW retaliation. Failing that, each GM division should be wrenched from the corporate tit; freed from administrative tyranny, corruption and waste. Each division's troops must learn to operate quickly, efficiently and, most importantly of all, independently. Platform sharing yes. Inter-divisional pencil pushing, no.

4. When is GM going to commit to no-haggle pricing?

The "Employee Discount for Everyone" program proved beyond a shadow of a debt that customers prefer pricing clarity to marketing spizzarkle. And yet The General is committed to returning to a bewildering combination of incentives, equipment packages and finance deals, now called "value pricing". While the promise pleases GM's profit-squeezed dealers, it will piss away the one thing that money can't buy: customers' good will.

5. When will GM make a car with a decent interior?

There's no question that many GM products now offer class-competitive build quality. There's even evidence that the company is beginning to understand what makes a visually compelling vehicle. But The General's complete inability to create a car, truck or SUV with an aesthetically attractive interior made from high-quality materials– from the Aveo all the way to the Cadillac STS– is symptomatic of its structural problems.

GM's ergonomic engineers are no worse than Audi's. They're just hamstrung by a monolithic bureaucracy that rewards penny pinching over design excellence. A car's interior is inextricably linked to perceived quality; get that right, and people will believe the company's 'best built' mantra. Car Czar Maximum Bob Lutz knows the drill, and was supposed to sort this shit out. He hasn't.

6. When will GM clean up its act?

GM is stuck in a vicious circle. Its leaders refuse to publicly acknowledge or confront its problems, which creates delusional behavior, which alienates customers and employees, which increase its problems. In other words, GM is lost in a forest of fundamental dishonesty.

For example, the Pontiac Solstice's launch is delayed. No one will tell the media why the delay occurred or commit to a new delivery date. Maximum Bob recently announced that Solstice production has finally started and handed over the keys to a couple of hundred buyers. Only customer deliveries haven't started, really. Dealers don't even have demonstrators. When will that happen? When will GM tell the whole truth about this, and their other challenges? About the same time Mr. Wagoner's mob finally finds its nerve– or unfurl their golden parachutes.

By on August 4, 2005

There will be no white flag upon my door.   It may not have escaped GM watchers' notice that The General has just announced that it's selling 60% of the General Motors Acceptance Corporation's (GMAC) commercial mortgage division. This after agreeing to sell $55b worth of GMAC car loans to Bank of America. The bottom line is clear: The General is hawking the family silver. The only solidly profitable part of the entire corporation is being sold off piecemeal to increase GM's liquidity. It's the long-predicted beginning of the end.

Before we explore GM's rationale for the sale, it's critical to note the commercial division's new owners: Kohlberg Kravis Roberts & Co (KKR). This hugely profitable investment firm practically invented the leveraged buyout. KKR's MO: raise money through junk bonds (ironically enough), buy a large company, sell off underperforming assets, restructure the core business, cut costs and, eventually, re-sell the new, leaner company at a huge profit. KKR has sliced and diced Texaco, Gillette, Playtex, Beatrice, Safeway, Borden, Samsonite and Toys 'R' Us.

More importantly, in 1988, KKR engineered the largest leveraged buyout of all time. They bought RJR Nabisco for $25b. Are you thinking what I'm thinking? KKR's purchase of GMAC Commercial could be the curtain-raiser for buying GM. Obviously, T-TAC is not the only organization which understands that GM's eight divisions would be more profitable if they were independent entities. By the same token, aggressive brand consolidation would also offer greater earnings potential than GM's current corporate cluster fuck. KKR is exceeding good at implementing both strategies.

Of course, the largest obstacle to aggressive restructuring of The General's fiefdom is, without question, the United Auto Workers. No matter who owns GM, the UAW isn't going to play ball until its contract expires in 2007. Even then, they'll fight any pay or health care reduction, restructuring of working practices or elimination of job protections. There's only one way to shuck the union straight jacket: Chapter 11.

Under Chapter 11, GM could seek "protection" against all its union obligations. The company's management could restructure the corporation to the court's content. Given that GM is haemorrhaging $4b per year, the unlikely popularity of GM's latest truck-heavy model line-up, the imminent demise of the sales-sucking Employee Discount for All Program, and the looming prospect of GM assuming $9b of Delphi's pension and retiree health care obligations, the bleeding may worsen. It's a race between management's attempts to stave off bankruptcy and a rushing tide of red ink.

By selling GMAC, GM is literally buying time. No doubt the current management has a new, improved rescue plan that requires an additional five years or so for full implementation. No doubt Rabid Rick Wagoner really does mean to confront the union over health care benefits… eventually. But the torpedo boats are circling. Lest we forget, Kirk 'Tree Shaker' Kerkorian owns a big slice of the action. While we've heard nothing from Mr. K's Tracinda Corporation, it's entirely clear who's management style jibes with his, and you won't find them at GM's Renaissance Center. At least not yet.

There's only one way GM's current management can hang onto their jobs/save the company/avoid a leveraged buyout: trigger a UAW strike and tough it out until they can hammer out a new deal. All Rick would have to do is cut the UAW's health care benefits unilaterally. Of course, surviving a company-wide strike would require a HUGE war chest– which GM is currently acquiring by divesting itself of GMAC.

Could GMAC's forthcoming dissection be part of Rabid Rick's secret end game? That theory pre-supposes that Mr. G Rick Wagoner Jr. is willing to subvert– indeed annihilate– the corporate culture which hired him straight out of Harvard Business School, and put tens of millions of dollars in his pocket. So, no; Rabid Rick and his minions aren't cunning or brave enough to use the nuclear option. They really do think they can produce a turnaround within the current structure– which is a more and more ridiculous idea with each passing day.

The real question here is the same one posited by Wall Street's Mr. Gekko. Is greed good? Is America better served by the elimination of the jobs-for-life, one-big-family ethos that is, was and can no longer be General Motors? Is it better for America's largest automaker to serve shareholders' and consumers' interests than the workers'? Hell yes. Post Chapter 11, GM will arise Phoenix-like from the ashes as a leaner, meaner, keener company. And if it doesn't, it will make room for those companies that are. Such is the way of evolution, which will not– CAN not– be denied.

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