On GM's Bankruptcy and the Need for Focus

It's no secret to anyone who has read this blog on a regular basis that I've been pushing for GM to declare bankruptcy for months now. The reason being that I felt that the bailout and restructuring efforts were just prolonging the inevitable, and because I believed that it was the fastest way to separate the good parts of GM from the bad. While some may see this as a dark chapter in GM's history, I personally feel that it's really just the first step towards the company's rebirth.

However now that the bankruptcy is moving forward the question offered is: will GM be used to service the interests of the various stakeholders in the company, or will they instead work together and focus on what needs to be done to make the company profitable again?

Just think about it: GM's problem as a company was never its ability to sell cars, as for nearly all of its history prior to the bankruptcy it always sold more cars than anyone else in the U.S. if not the world. Instead their problem was that their overall operating and capital structures prevented them from being able to sell cars efficiently, due to having service a myriad number of liabilities, labor costs, excess dealer capacity, costs related to unneeded manufacturing capacity, etc. The problem was never cars that people didn't want, fuel efficiency, reliability, styling, etc, instead it was always efficiency. This is not to say that fixing those problems wouldn't help, but to say that the company would've been profitable in spite of them if it had been structured properly.

Money can hide a multitude of sins and the problems that destroyed GM were problems that always existed, but were simply being hidden/subsidized by the company's hey day when it had a multiple of its current market share, SUV sales were higher, the economy was stronger, etc.

In other words the Obama Administration and the UAW have to make profitability their only objective, not green cars, saving jobs or any other socio-political goals. Because only when the company is profitable will it have the muscle to focus it's efforts on green cars, higher fuel efficiency and job creation. Otherwise GM will turn into a de facto GSE that is used to service a myriad number of social-political interests, and the end result will not be pretty.

After all just look at what happened with the mortgage GSEs.

When tackling the problem of fixing GM the Obama Administration and the UAW need to ask themselves the following: companies like Honda, VW, Subaru and others have run profitable automaker operations in the U.S. despite selling a fraction of the number of cars as GM, so how do we structure GM in such a way that it doesn't need to have 40% market share to be profitable, and could instead be profitable with say 7-10%?

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[john s. gordon:]

for many years GM management refused to rationalize their many competing product line structures & it finally caught up with them.
fat dumb & happy no more.
> jack

Jun 04 09:24 AM

[babyray:]

How many other corporations have been employing Americans with decent pay and benefits for 100 years?

Jun 04 01:28 PM

[303820:]

""When tackling the problem of fixing GM the Obama Administration and the UAW need to ask themselves the following: companies like Honda, VW, Subaru and others have run profitable automaker operations in the U.S. despite selling a fraction of the number of cars as GM, so how do we structure GM in such a way that it doesn't need to have 40% market share to be profitable, and could instead be profitable with say 7-10%?""

The foreign transplants don't have retirees, don't pay much of health care, they pay 30%of their workers $12hr and NO benefits and import 70% of what they sale in this country from Korea Mexico or Japan...they are cut-throat companies that were invited here to bust the unions...to undercut the American union workers...

WHEN ARE THESE MORONS WRITERS GOING TO STOP COMPARING AMERICAN STANDARD OF LIVING WITH THE SLAVE WAGES COUNTRIES AND THEIR LOW LIVING STANDARD!!!!!!!!!

Jun 04 02:10 PM

[slowdown:]

It's a sad day when the means of being competitive is through slashing US employee compensation to those of low cost emerging markets...and that is exactly what is happening here. It has nothing to do with the number vehicles lines ( as Ford and Chrysler shows) but everything to do with the cost of producing goods in emerging markets (hence the name emerging markets). IF the manufacturing sector of our economy takes a hit...the service sector has to take one too. It's already starting. I just read yesterday where Teacher contracts are now being re-negotiated because the States don't have enough revenue to support their salaries any more. Why people can't see the bigger picture here is beyond me. This is not a good thing by any stretch of the imagination.


On Jun 04 09:24 AM john s. gordon wrote:

> for many years GM management refused to rationalize their many competing
> product line structures & it finally caught up with them.
> fat dumb & happy no more.

Jun 04 04:47 PM

[slowdown:]

When the paycut hits their desks...and it's coming.


On Jun 04 02:10 PM 303820 wrote:

> ""When tackling the problem of fixing GM the Obama Administration
> and the UAW need to ask themselves the following: companies like
> Honda, VW, Subaru and others have run profitable automaker operations
> in the U.S. despite selling a fraction of the number of cars as GM,
> so how do we structure GM in such a way that it doesn't need to have
> 40% market share to be profitable, and could instead be profitable
> with say 7-10%?""
>
> The foreign transplants don't have retirees, don't pay much of health
> care, they pay 30%of their workers $12hr and NO benefits and import
> 70% of what they sale in this country from Korea Mexico or Japan...they
> are cut-throat companies that were invited here to bust the unions...to
> undercut the American union workers...
>
> WHEN ARE THESE MORONS WRITERS GOING TO STOP COMPARING AMERICAN STANDARD
> OF LIVING WITH THE SLAVE WAGES COUNTRIES AND THEIR LOW LIVING STANDARD!!!!!!!!!

Jun 04 04:49 PM

[SmokinJeff:]

> In other words the Obama Administration and the UAW > have to make profitability their only objective, not green > cars, saving jobs or any other socio-political goals.

Good luck with that! When have liberals EVER been interested in profitability over socio-political goals?

Jun 05 11:48 AM

[stan2001:]

For many, GM means union workers and the problem is these workers. The workers don't make stupid decisions (thay make products), management does. The people who destroy a big co. like GM are people who produce nothing. For the rich managers, ceos,etc. destroying the workers means nothing until these same workers can't buy the products. Buy American products or be unemployed.

Jun 06 10:45 AM

[Ellito:]

stan2001,
You are so wrong.
The main reason GM failed is because of the workers.
Their stupid decision was to choke the goose to death by bullying the boss to submission throughout these years.

babyray : After 100 years, the goose finally died of mistreatment and
crazy minds. IBM didn't happen like that.

Jun 07 02:40 PM

[benP:]

Why on Earth anyone asking the real questions? GM knew years ago that it was not making money. They continued to operate in the red and produce at a loss while sales dropped. They did everything to prevent put off bankruptcy, knowing full well, that was the only way to stop debit from climing to the level we see now. Rather than, using the protection of the courts, they waited till, government stepped in and changed the rules.

Who in their right mind could even think, they will do any different in the future? They have sold out investors and stock holders that stood by them. Dealers that sold and supported their products are left hanging. Tax payers have been ripped off by government intervention.

No on should even consider investing or buying anything they have to offer. Why should we even think they will stand behind a product they produce, when they don't even protect the interest of investors. After all, being in bed with the government gives they a way to get out of backing up products.

I personally would avoid doing business of buying anything from people or companies that will not honor their own contracts and customers. After all, they have the government that will allow them to wessel out of prior commitments.

Jun 11 08:15 AM