General Motors: Beginning the Endgame? 33 comments
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All year, General Motors (GM) CEO Rick Wagoner has been insisting his company will never declare bankruptcy. "We're well positioned," he said in August. Company spokespeople reiterated that in October, despite the big stock market plunge. Even the company website states that "bankruptcy protection is not an option GM is considering."
Well, guess what. While announcing a $2.5 billion third-quarter loss, GM also said that its "estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business." That means the company is spending way more than it's earning and, unless something changes, will run out of cash sometime early next year. The company itself hasn't raised the possibility of a Chapter 11 filing. But at this dire juncture, Wagoner and his lieutenants ought to be fired if they're not doing contingency planning for bankruptcy —since that's where companies end up when they run out of money and can't pay their bills.
There's one alternative, of course. No, it's not a desperate merger with Chrysler, which GM has now disavowed, since Chrysler is in even worse shape than GM. Salvation lies in — you guessed it — a government bailout. With the feds in full giveaway mode, GM is poised to be a major beneficiary, since it's still one of America's biggest companies, with about 140,000 employees (though shrinking quickly).
The mistake that brought GM to its knees is well known by now: It relied for too long on big trucks and SUVs that customers fled when gas prices spiked. As a result, sales have plunged 20 percent so far this year, with a dramatic 45 percent drop in October. "This type of decline is unheard of," says Tom Libby, a J. D. Power and Associates analyst.
GM is also a hit-and-run victim of the credit crunch and other factors beyond its control. GMAC, which provides financing for the majority of GM's buyers, recently tightened credit standards so much that thousands of customers couldn't get a loan, one reason GM's October sales were much worse than anybody else's, including Ford's and Chrysler's. Even GM itself can't get loans anymore, which is why its cash-flow problem is effectively a bankruptcy alert.
Wagoner & Co. have already tried a number of maneuvers to get the company back on track. GM has closed more than a dozen aging factories over the past 5 years and announced dozens of other cost-cutting measures. In fact, GM is like one of those highways that's always under construction: The company has announced reforms and taken charges for restructuring in virtually every quarter for the past four years.
Still, the damage never seems to get fixed. "What is taking so long?" wonders David Silver, an analyst at the research firm Wall Street Strategies. Last October, for instance, GM said that some of its truck and SUV production would be converted to smaller vehicles and that cars sold in Europe and Asia would be brought to the United States. "But I still see the same models in showrooms," Silver says. "Nothing Wagoner has done can be considered a strategic readjustment."
He and others have long argued that GM must take much more drastic steps — which may now be on the way. Some possibilities:
Consolidate brands. GM has eight divisions (quick, can anybody name them all?) with significant overlap. Chevrolet, Buick, Pontiac, and Saturn, for instance, share many vehicles that are nearly identical, except for the badging. Consolidation would cost some money up front to buy out dealers and close out certain brands, but it would make GM leaner and more competitive.
Pump out high-quality, smaller vehicles faster. One nice way to do this would be to shut down an old plant, retool it completely, retrain the workers, and then reopen as a Toyota-quality, made-in-the-USA operation. But that might be too expensive for a company bleeding cash.
Continue work on the electric-powered Chevy Volt. And make sure it meets the very high expectations GM has set, like being able to run 40 miles on a single charge, at an overnight recharging cost of less than $1 per day — with no quality problems!
Some help is already on the way. GM stands to get a boost of at least $5 billion from the $25 billion aid package Congress approved for the automakers in September. And all three Detroit automakers have been lobbying Washington for more help. One selling point is the devastation that a bankruptcy filing would cause. With plenty of quality cars in a crowded market, a Chapter 11 filing would be "so punishing it would virtually cripple the company," says Libby. "GM will sell other things or beg for money before they do that." The company might even admit how desperate it is.
Disclosure: No positions.
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Consumers are not going to buy any GM or Ford brand while their names are in the bankcrupcy list.
Who is going to honor their warranties if they go bankcrupt?
Likewise, when nobody buys GM or Ford cars. How can they possibly survive?
Crush the cancerous union that has insidiously eroded GM's competitive position over the years. GM's labor cost structure is far too high to compete effectively in a global market. The company is broken. Giving it another loan is like giving blood to an emergency room patient whose leg has been ripped off.... it just flows right out. GM needs a tourniquet instead.
Buffett is now on the economic advisory team of Barack Obama. Can he help?
warrenbuffettstocks.bl.../
GM is an auto company specializing in healthcare
US manufacturers cannot compete while supporting union legacy costs. The future US auto industry will have to be non union.
Where is the German perfection of a BMW or Audi, or the classy style of a small, womanish FIAT Panda, or Stilo...
GM had a great electric car in the 80's. Look at the documentary "Who killed the electric car". It was perfect until someone had the brilliant idea to take it away from the consumers. And now the irony is... that the electric car is killing GM. The Toyota Prius and other hybrids are biting into the market share and the SUV's are just getting killed.
Maybe the Volt is the answer. Maybe. I am no mechanic or engineer, but GM looks like a company who needs to rethink WHY SHOULD THEY PRODUCE CARS in the first place.
Right now, Ford is at $2 and GM is at $4
A screaming bargain, arent they?
quit analyzing and analyzing...
Just call your broker, simple as that!
GM and Ford is missing something... called shareholders!
they will come back...
Buy GM and Ford stock before they come back
This is the oldest trick in the book!
Until there are big changes (radical downsizing, brand consolidation, serious small car production, union giveups, ...), they shouldn't be given taxpayer money.
Why haven't we heard more about replacing management? Why aren't the stockholders more active?
Unions are not the trouble now - they have little say and they know it so get off the Blame Labor kick. The pensions and health care that MANAGMENT agreed to in the past are killing them. How about a national health plan to help ALL industries compete (OMG - SOCIALIST!) So do we let em di? Throw Grampa out on the street by taking away his pension? Where was the concern about companies deliberately under-funding the plans for YEARS!
People wanted BIG cars, FAST cars, EGO cars and the big 3 had the gall to make what folks bought! Shame on them! Gas goes to $5 and now the unloved and discontinued 48mpg non-hybrid GEO METRO seems a good idea.
Give them a break, buy or try one and see. They wont be allowed to fold and hell, I still can get parts for my AMC who went under in 88!
The fed ex commercial with the guy wanting to ship something and the admin trying to tell him how to do it, until he says, quite condenscendingly, "I have an MBA" to which she replies, "Oh, well then let me show you how to do it", says it all.
The guy who wants US auto cos to import the 'womanish' (is that a word?) Fiats probably has an MBA.
On Nov 08 03:07 PM Fred in Michigan wrote:
> Allowing the auto companies to fail would be a mistake, yet the prospect
> of giving them our money to continue their disastrously bad ways
> is also unacceptable.
>
> Until there are big changes (radical downsizing, brand consolidation,
> serious small car production, union giveups, ...), they shouldn't
> be given taxpayer money.
>
> Why haven't we heard more about replacing management? Why aren't
> the stockholders more active?
GM still sells 6 of the top 20 selling cars in the USA. Obviously, they know why they're in the business. They only need to reduce labor and legacy costs to the level of their competition.
Shareholders smell dog crap in the US automakers, but it's very old, dried out, bleached white dog crap. Look at a 50 year time-line of profitability and market share, and you tell me if these these companies deserve life support from the government. This will be the SECOND TIME that Chrysler has had it chestnuts pulled from the fire by the Feds (Remember the 70's and Lee Iacocca?)....if the Feds decide to do anything....(Probably so, since there are Bush/Obama cronies in Cerebus that owns that piece of crap company).
Go ahead...root for a bailout. Throw even more money into rat hole. And then watch as these companies come right back to Uncle Sam begging for more dough....when it's so worthless from inflation and interest rates are so high that nobody can afford a car....even a piece of crap from GM or Ford or Chrysler.
Aaahhh....America..... where Capitalism rules......until Capitalists screw it up so badly they beg for Socialism to save it.
On Nov 08 03:00 PM Gumby wrote:
> yak yak yak yak blah blah blah !!!!!
> Right now, Ford is at $2 and GM is at $4
> A screaming bargain, arent they?
> quit analyzing and analyzing...
> Just call your broker, simple as that!
> GM and Ford is missing something... called shareholders!
www.companypay.com/exe...
The only right thing to do now is "DO NOTHING."
Let somebody buy these automakers out. No taxpayers money will be wasted.
So if the government is going to offer a bailout, what would it do? Universal Healthcare? Take over the pensions? Help Toyota build plants? I dunno. A bailout doesn't help anyone if you don't have a viable business plan.