GM: In the Ballpark, But Not in the Game

On Tuesday, General Motors (GM) presented its case for a taxpayer funded bailout (see GM Asks for $18 Billion). While GM’s plan of action comes close to addressing the concerns that plague GM, I am not certain that it goes far enough.

Last week I detailed what I thought it would take to right GM (see Pre-packaged Bankruptcy Unlikely). I wrote:

I have been adamant that whatever aid the taxpayer provides comes with properly structured terms, with properly structured incentives, and at a hefty price to current shareholders, creditors, and management.

In particular, in the case of GM, conditions for the receipt of aid could include:

1. The ousting of current top management
2. A moratorium on mergers and acquisitions
3. A renegotiation of employment terms with the UAW, …with all options on the table
4. The rationalization of brands - for GM my suggestion would be to keep only Chevrolet, Cadillac, Opel, and potentially, Buick (given its standing in the China market)
5. A shutdown of all plants tied to brands that GM will no longer manufacture, and a consolidation of the remaining brands into a few, select plants
6. Incentives (in the form of tax credits) to produce smaller, more fuel-efficient automobiles

Although these terms seem fairly onerous, such terms (or variants thereof) provide the only reasonable chance left to derive some value from GM.

Although GM’s plan does not go as far as that which I proffered, I have to admit that it represents a step in the right direction. As reported by the New York Times article:

G.M., the world’s largest automaker for decades, said Tuesday that it was in such dire straits that it would deeply cut jobs, factories, brands and executive pay as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit.

To get the loans, G.M. is taking an ax to its money-losing North American operations from top to bottom.

G.M. said it planned to focus on four core brands — Chevrolet, Cadillac, Buick and GMC — and either sell, eliminate or consolidate the Saturn, Saab, Hummer and Pontiac brands. ...

My proposal, and GM’s offers, differs in a few key areas.

GM has proposed to keep the GMC brand, presumably to preserve its line of light trucks. That I can understand. However, it is my opinion that Saturn and Pontiac should not be rolled into other brands or become niche products. They should be eliminated!

GM has also agreed to reduce the number of factories from 46 to 37. That is not nearly enough, as the target number should be closer to 30 than 40. In addition to plant closures, GM suggested that it would reduce its headcount by 20,000-30,000, but only sometime within the next four years. The company needs to be more aggressive on that end. In my opinion, the company should shed 20,000-30,000 in staff by 2010 (the latest), and aim for a total reduction of 40,000 by 2011.

With respect to the UAW contracts, the details that I saw addressed the “job banks” program. The union needs to get realistic. If it thinks it can get through this episode with the “job banks” program as its only concession, it is deluding itself. All options need to be on the table including health benefits and hourly wage rates for current (and not just future) GM-UAW employees.

And while I appreciate the “symbolic” gesture of Mr. Wagoner to accept $1 in remuneration for his services, I see no reason why he, Bob Lutz, and the rest of the executive team should remain in place. Should we trust them to engineer a successful restructuring of GM when they had been unable to do just that on several previous attempts? It’s high time that management moved on.

Finally, there is the issue of taxpayer protection. I saw nothing detailing how the taxpayers would be protected should they provide funding. I would like to see GM be more forthcoming about the precise terms (deal structure) it is willing to accept in exchange for this $18 Billion capital infusion.

However, to be fair, for all the derision leveled at GM over the past several months, this offer was not half bad. We’re now just waiting for the other half, which will come only at the insistence of the taxpayer.

Disclosure: No positions.

Comments

[TB3:]

I am constantly amazed at the number of automotive "experts" that SA comes up with. I wonder where Mr Salomon gained his vast expertise of the business. Based on his article here, it looks like it came from the NY Times. He understands why GM would want to keep GMC; "presumably to preserve its line of light trucks". Duh Trucks are all that GMC makes. But why indeed as GMC trucks are a virtual carbon copy of Chevy's truck lineup. And why 30 plants, not 25 or 20? where's the 30 come from? His vast experience in automotive manufacturing? All I can say is, if you want to have a good laugh, keep reading these "experts". They do make you shake your head, and smile.

2008 Dec 03 09:39 AM

[epeon:]

Where was the UAW sacrifice? the jobs bank program? thats it? No cut in pay, benefits, retirement programs (e.g. 30 and out)?

2008 Dec 03 10:17 AM

[joez28:]

TB3 is right on the money. So many experts, so little experience. The cost to drop brands like Pontiac and Saturn are in the billions. This is not an estimate it is fact, just look at the cost to drop Oldsmobile. Consolidation will work, without the exit expense, less models so lower development costs. Having combinations like GMC/Buick/Pontiac or a Cadillac/Saturn/Saab dealership would work if they get the legal approval to close hundreds of unprofitable stores. Moving fast, what a joke, the UAW logo should be shown stuck in the mud. The problem is that don't see the guys on the bottom of the logo are drowning. (look at the logo to see my meaning). GM has legions of managers, and no leaders. Until they find real leadership failure will remain in front on them


On Dec 03 09:39 AM TB3 wrote:

> I am constantly amazed at the number of automotive "experts" that
> SA comes up with. I wonder where Mr Salomon gained his vast expertise
> of the business. Based on his article here, it looks like it came
> from the NY Times. He understands why GM would want to keep GMC;
> "presumably to preserve its line of light trucks". Duh Trucks are
> all that GMC makes. But why indeed as GMC trucks are a virtual carbon
> copy of Chevy's truck lineup. And why 30 plants, not 25 or 20? where's
> the 30 come from? His vast experience in automotive manufacturing?
> All I can say is, if you want to have a good laugh, keep reading
> these "experts". They do make you shake your head, and smile.

2008 Dec 03 11:11 AM

[futuregmret...:]

I think the writer of this article should take a pay cut because what he makes using the NY Times opinion is crazy. I think I would like to see Him work in the factory before he can write an article calling for pay cuts if he thinks that we have 75 dollars in benifits he should do the math and figure that it is impossible . GM would not need the jobs bank if they employed there people so it would not be costing money so why get rid of it put people to work

2008 Dec 03 11:16 AM

[Miken:]

I wonder what in the world makes these overly inflated, egotistical talking heads believe that any thinking person would be the least bit interested in what they believe. Talk is cheap and all this writer has invested in this event is talk. If he were a stakeholder, or even if he had an ounce of real management experience where HIS posterior were in the line of fire he might have a little credibility. But no...he reads books and writes articles.

The real problem in this country is that we have too few "doers" and too many "observers". This guy is clearly an observer.

2008 Dec 03 07:10 PM

[scott in ct:]

New hires get 14$ an hour,pensions are already gone in last contract as well as benefits.Get your head in the game or shut up!


On Dec 03 10:17 AM epeon wrote:

> Where was the UAW sacrifice? the jobs bank program? thats it?
> No cut in pay, benefits, retirement programs (e.g. 30 and out)?

2008 Dec 04 08:03 AM