Tom Krisher has a good overview of the travails at General Motors, where the stock is trading at a 50-year low, battered by speculation that the company might end up declaring bankruptcy.
Bankruptcy actually seems like a very good idea to me, since it might well be the only way for the company to implement the kind of radical reorganization which is necessary for any possibility of future profitability.
For instance: GM has eight - count 'em - brands, including marques like Pontiac and Buick which were instrumental in giving American cars a bad name, and which today get absolutely nobody excited. Heidi Moore wonders whether they might be for sale, and I'm sure that GM would love to sell them if it could, but the problem is that their value is almost certainly both large and negative. As her colleague Jeff McCracken explains:
The cost of buying out a dealer, given state franchise laws, is prohibitive. In many ways, the legacy costs of too many under-fed or under-invested dealers are as financially painful to Detroits auto makers as the legacy costs of its UAW contracts.
Chrysler several years ago paid handsomely to kill off the Plymouth brand. In a widely publicized move, GM pulled the plug on the vaunted Oldsmobile brand in 2000. GM spent $1 billion alone in 2001 to buy out Olds dealers and wind down some plants. Litigation with hundreds of Olds auto dealers drug dragged on for years and the final tally is estimated at close to $2 billion.
Ford has weighed killing its Mercury brand for years as well, but as a recently retired Ford executive once said: "That could cost close to $2 billion, or you could keep losing a couple hundred million a year. Given how your bonus is paid for this years performance, its easier to kick the can to the next person."
In other words, the dealers hold all the cards, right now, and are preventing GM from slimming down. But if the company were to declare bankruptcy, a lot of the leverage currently held by the dealers would evaporate; they would simply join the long queue of creditors.
Or there's another option. It might well be the case that the value of Chevrolet alone is significantly greater than the value of GM as a whole. So instead of GM selling off non-core assets like Saturn, why not spin off Chevrolet as a stand-alone company to its present shareholders? That way if rump GM ends up declaring bankruptcy they still have their shares in Chevy. That would surely be a better outcome than taking the meager proceeds from off-brand sales and throwing them into the black hole that is GM today.
This article has 26 comments:
More properly, that should be called a 75% value decrease, not 300%.
Fortunately for us, the Democrats are "experts" about everything. They know best about how to run the banks, investment houses, mortgage companies, oil companies, and all the other various components of our nation's economy. I, for one, can't wait to ride in one of the cars they turn out!
The unions are not the problem in this country, it is the greedy CEO's and their underlings who rape, pillage and plunder the corporations, employees and stockholders to line their pockets......
Or have you not been paying attention to the newspaper headlines ?
es
How would GM filing for bankruptcy affect other competitors, specifically Ford? Would this hurt them, considering that GM would then have an "advantage"?
When in Chapter 11, are union contracts always renegotiated?
If GM files chapter 11 and you are a shareholder, are you always given the opportunity to convert old shares into the reorganized company shares, given they are not cancelled?
The idea of GM spinning off Chevy is very interesting. Would they be able to spin off both Chevy and Cadillac (as stated in a previous comment) and leave the other brands to die?
On July 8, paulk8756 wrote:
Don't worry, there will be a government bailout of the auto companies courtesy of the Obama administration. The unions are already lining it up through their friends in Congress. The bondholders, stockholders and we taxpayers will be the only ones who take it on the chin.
Fortunately for us, the Democrats are "experts" about everything. They know best about how to run the banks, investment houses, mortgage companies, oil companies, and all the other various components of our nation's economy. I, for one, can't wait to ride in one of the cars they turn out!
It would be an unmitigated case of denial to claim that unions have not in some cases been responsible for problems in many industries in the US. It's also difficult to argue, on purely economic terms, that the remuneration of CEOs is, in and of itself, problematic. There are PR issues with high salaries--high salaries do lend themselves to dramatic, though reality-distorting headlines; however, when the numbers are run, they're not what create problems.
In my opinion, time and time again, the three things that are responsible for the demise of any company are management, management, management. GM, IMHO, is a classic example of the problem. The management at GM has done an excellent job of concealing competence. There are examples were unions have been less than stellar, but in the grand scheme of things, I don't see how unions can take the blame for the demise of GM. I find it unforgiveable that retirees, with the benefit packages that they earned, are often singled out as some kind of pariah! For GM at least, the problem is and has been for some time management.
The bigger problem may be governance: how to get rid of management that isn't performing. Addressing this issue could, potentially, open up the proverbial can of worms.
On July 8, nyorker wrote:
The unions are not the problem in this country, it is the greedy CEO's and their underlings who rape, pillage and plunder the corporations, employees and stockholders to line their pockets......
Or have you not been paying attention to the newspaper headlines ?
GM could be unburdened from paying debtors; that could put the company in a better competitive situation.
Shareholders are last in line, as it were, during bankruptcy. It is entirely possible that shareholders will walk away with nothing. The value of the shares could go to zero. Bankruptcy isn't a good situation for shareholders.
On July 8, mags wrote:
Excuse me, I am not a bankruptcy expert.
How would GM filing for bankruptcy affect other competitors, specifically Ford? Would this hurt them, considering that GM would then have an "advantage"?
When in Chapter 11, are union contracts always renegotiated?
If GM files chapter 11 and you are a shareholder, are you always given the opportunity to convert old shares into the reorganized company shares, given they are not cancelled?
The idea of GM spinning off Chevy is very interesting. Would they be able to spin off both Chevy and Cadillac (as stated in a previous comment) and leave the other brands to die?
I wholeheartedly disagree with the author. Pontiac historically offered a somewhat snazzier line up and a bit more performance than what we could get with Chevy. And Buick gets you 90% of the Cadillac cushiness with 1/2 the price (which is why the brand appeals to older people - who are smart enough to know how to find a great value when they see it). Get rid of Hummer. But getting rid of Buick & Pontiac would be foolish.
rver
Another problem with that is different makes come out of the same plant and those different brands share everything but those cosmetic differences. Buick Lucerne, Cadillac Deville - same car(basically). Saturn Aura, Chevy Malibu- same platform, engines. All the trucks are the same basically with few exceptions (Vue, SRX).
And one of GM brands that people constantly say should be shut is Buick. But do these people know that Buick has some of the largest market share in the Chinese car market. Or do they know that last year GM sold more Buicks in the Chinese market than in their home market.
And since GM is a global company. Does that mean that GM North America should split from its other global divisions (Australia's Holden, Europe's Opel & Vauxhell, North Korea's Daewoo). Especially when you consider that those other divisions are in the black and actually make money for GM NA.
And to simply file bankruptcy to just deal with dealers is a little short sided also. They file for chapter 11 they might as well say goodbye to market share. And then you would be right back were you started from. The main problem with GM is and has been the losing market share. They are a corporation that is structured to sell a lot of vehicles. They don't sell a lot then boom again back where we started.