Is General Motors Closer to a Default? 31 comments
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High gas prices, the credit market, and the housing crisis weigh on General Motors (GM), what was once a great American automaker. But this is not enough and cannot be a justification. There are other deep causes in this situation, which are also shared by Ford Motor (F).
Why, in fact, is Toyota Motor (TM) not in the same condition? Low quality, low quality/cost ratio, lack of attractiveness of products, service to customers, etc, characteristics which hurt a company's competitiveness, are all missing today at GM.
Can we expect a turnaround? The company tried to reassure investors. Chief Executive Rick Wagoner said GM had enough liquidity to carry it through the year. As usual, costs to insure debt against default skyrocketed and bond prices plunged after Goldman Sachs downgraded GM and said that they would need additional capital. Who would give money in this credit situation to a company that burns cash at such an impressive speed?
The main source of income is big cars, which is a completely wrong mix of products for this market and consumer conditions. How long will it take to adapt and build more efficient and quality cars at a competitive price? I would say that it is difficult, but a giant like GM has the resources, especially human resources, to drive a turnaround. Emerging markets could also help as growth in those countries will balance the negative conditions of mature markets. Let's see if management will be able to drive the ship in these stormy waters. And for the moment, let's observe prices at 53-year lows. It is a high risk, but also a huge opportunity.
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Problem is, in this day and age of $4/gal gasoline, 25mpg isn't good enough. Unless you got cars that can get 40mpg combined (not just highway), you are not going to be competitive against the Japanese under current market conditions.
The consumers have voted with their wallets-- Most of them want fuel economy, and no amount of JD Power awards or superior service will convince a consumer to buy a 25mpg car if he needs something that gets 40mpg.
You can't be "slightly worse" than them. You can't be "just as good" as them. Competition means you have to be BETTER than them.
So until GM abandons this "25mpg is good" line of thinking and start finding ways to build 40mpg cars that can beat the pants of Toyotas, it will keep circling the drains.
On June 30 Mr. Jimmy wrote:
My apologies. I just read Mr. Pezzutti's bio and learned that he "is a Commander in the Italian Navy, specializing in telecommunications&... Mama Mia!!! Impeccable qualifications for being a U.S. auto industry pundit!!!
On Jul 01 BADDAD wrote:
I only have one thing to say, I understand people buying imported products to save a buck in this day and age. The problem is all the jobs are leaving this country and in reality people are selling the futures of there own children to save a buck, shame on all of you!!!
In this day and age of $4 per gallon gas, Consumers are demanding cars that can do 40mpg combined or better. GM can only give you cars with a combined 25mpg. How is that "giving the people what they really want?"
Your attempt to blame the consumer for not buying cars that use more gas is rather laughable, I'm afraid.
I don't believe that there is evidence that US automakers are making better cars. One survey that I think is pretty objective is that provided by Consumers Union. Here US branded cars don't score well. While the traditional Big Three may be showing some improvement, they’re not up to par yet. Personally, I find it disappointing, but facts are facts.
I also don't see how you can make a statement about the knowledge of those who happen to purchase what are often referred to as foreign cars.
Finally, even if the big three auto makers were to stall or even fail, there's simply no evidence that it present any major problem to the US economy. The companies have been in decline for some time--moving much production off shore, the US keeps humming along.
On July 1 seyjazz wrote:
Let's get right to the point. The US Auto makers made a mistake and they paid for it. Now they are making better cars than their competitors and are really giving people what they want, but it seems that all you cry babies who buy foreign don't realize that, so you buy foreign. You'll pay for it . . BIG TIME . . when you loose you job if the economy keeps going down. . . But you'll blame everybody else but youself. Wake up before it's to late my friend.
If you hink people care about how much your Ford pickup truck can pull, you have been missing the whole point of this discussion. These days people are more concerned about getting as much mileage out of a gallon of super-expensive fuel than how much someone is compensating for a smaller reproductive anatomy with a bigger car. :-P
Can you say the same for China?
World War II was 50 years ago, we defeated a Japan that was run by a dictator (Tojo) and converted into an Ally.
You don't seem to like studying history. I guess GM has the same kind of ignorant people as you in its management, because they sure are repeating history (i.e. 70's oil crisis).
On July 2, Mr Jimmy wrote:
BioInvestor, if you believe the US economy is "humming along", you and I have a huge perception gap.
On July 2 BADDAD wrote
Dear Bioinvester, so your saying that buying poisioned dog food, lead painted kids toys and the such is good for our economy? Also if you would like to hook up your Toyota or Honda pick-up to the back of my Ford pick-up facing the other way, I would be glad to see who pulls who for a little wager!
You stated earlier that all jobs are leaving the US; they're not. You made a statement that is patently false.
There are problems in some cases with imports from China; there's no evidence that there are problems with all imports. There are always issues, be they in domestic or foreign products. Right now, many overseas banks are dealing with problems in US financial assets; problems that appear to have been created by fraud. Decades ago, we in the US and those in western Europe for that matter had issues with products from Japan.
I'd urge you, if you must post, present a clear, cogent, rational argument for your position. Stop posting nonsense please!
On July 2, BADDAD wrote:
Dear Bioinvester, so your saying that buying poisioned dog food, lead painted kids toys and the such is good for our economy? Also if you would like to hook up your Toyota or Honda pick-up to the back of my Ford pick-up facing the other way, I would be glad to see who pulls who for a little wager!