GM, Ford: Big Mistakes Keep Piling Up

How Ford (F) and General Motors (GM) were ever able to raise money as they did through bond offerings over the years remains somewhat of a mystery, even in a world of too much liquidity of the world.

Mistake after mistake keeps piling up at these companies. Let's take a look at some recent examples before we get to the latest news.

• August 5, 2008 Default Risk on GM, Ford, Chrysler Hits 95%; Automakers Ask For Taxpayer Handout
• July 1, 2008: Auto Sales Dismal At GM, Toyota, Ford, Chrysler
• June 25, 2008: Can Battery Technology Save GM?
• June 24, 2008: GM's Ridiculous Bluff
• May 8, 2008: GM About To Throw Away More Money

The above articles are on GM's ineptitude at selling cars, sticking with SUVs and Hummers too long, squandering leads in battery technology, failing to dump GMAC and Rescap when GM could have, and announcing ridiculous bluffs about raising prices on 2009 models.

GM management cannot seem to get anything right. Ford is in a similar boat. Let's take a look at the most recent news, Ford first.

Ford Abandons 2009 Profitability Goal

Ford had no chance of reaching profitability in 2009. Check out the 2008 second quarter results: Ford reports $8.7 billion loss for second quarter 2008. Furthermore, Ford has no chance of profitability in 2009, 2010, 2011, or 2012.

Ford Is Light Years Behind In Battery Technology

Ford is woefully light years behind GM and Toyota (TM) in battery technology. Indeed, Ford is asking for taxpayer handouts just to stay in the game. From Ford: Plug-in hybrids must become ‘a national priority’:

Unlike Toyota and GM, which hope to deliver plug-in hybrids by the end of the decade, Ford is taking a more cautionary approach and doesn’t expect to launch such a vehicle for another five to ten years.

Ford is calling on the government to introduce tax breaks for plug-in hybrids as well as a $500 million fund for advanced battery research. Both options have been considered by the government but no green light has been given.

The announcement has coincided with Toyota’s promise to have its first plug-in hybrid vehicle on the market by 2010.

Ford Plans New Luxury Crossover Vehicle

Reuters is reporting Ford plans new luxury crossover vehicle.

Ford Motor Co (F) is expected to announce Friday that it will build a new seven-passenger luxury crossover, the Wall Street Journal said, citing two people familiar with the automaker's plans.

The three-row Lincoln MKT crossover, which is due to go into production next year, will share the same architecture as the new Ford Flex, but will feature a much sleeker design compared with the boxy Flex, the Journal said.

The Acura MDX, the Audi Q7 and the Mercedes R class would be among the competitors for the new luxury crossover, the paper said, citing people familiar with the matter.

MKT is not designed to be a large production run and the company expects annual sales in the range of the mid-20,000 vehicles, the paper said.

Earlier this year, Ford abandoned a longstanding goal of returning to profitability in 2009 and accelerated plans to restructure its North American operations to produce more cars and cut back on slower-selling trucks and SUVs as fuel prices climbed.

Can Ford Compete In The Luxury Market?

OK so there will be some demand for luxury, but why would any luxury buyers consider anything with a name plate of Ford? Perhaps they might in some other market climate. However, this is hardly a normal market climate.

I have no idea what Ford is thinking, given that demand for luxury vehicles is going to suck wind big time. And what little demand there will be for luxury, it is highly unlikely to be for vehicles sporting a Ford nameplate. Ford's strategy is all the more difficult now that affluent pretenders are completely out of the game.

The words "Ford" and "Luxury" combine about as well as oil and water. More importantly, Ford has simply not gotten the message that The Future Is Frugality.

GM's XFE (Extra Fuel Economy) Models

Let's now turn our attention to GM. Inquiring minds may wish to consider GM Reduces Carbon Footprint by .0000001mm:

Call it the 1 mile-per-gallon solution - and try not to laugh.

General Motors (GM) plans to release new versions of its full-sized pickup trucks and SUVs later this fall. Both space-age editions get an extra mile per gallon in both city and highway driving.

The new models are designated XFE (for “extra fuel economy”). That’ll scare the bejabbers out of Toyota (TM) and Honda (HMC), eh?

On the new XFE models of Chevrolet Silverado, Chevrolet Tahoe, GMC Sierra trucks and GMC Yukon SUV models, GM extended the front lower air dam, lowered the suspension and revised the chassis to cut aerodynamic drag. GM also cut vehicle weight by using more aluminum parts, including an aluminum spare. The engine is a 5.3-liter V-8 with aluminum cylinder block and heads that can run on ethanol, surely one of the great boondoggles of our time.

All this creates a net savings of 1 mpg - a great selling point to the math challenged.

Even with an additional 1 mpg from the XFE models (the new models get 15 mpg in the city and 21 on the highway), it looks like it’s still a long way back to profitability.

GM's clearly behind: What’s the level needed to catch buyers’ attention? Maybe 20 mpg in city driving and 25 on the highway, or even 25 and 30? We’ll see.

GM's Second Quarter Results

GM reported a net loss of $15.5 billion, or $27.33 per share, for the second quarter. Sales of GM trucks and SUVs dropped 23% in the first seven months of this year.

Why anybody would keep funding Ford and GM is beyond me. Then again, perhaps banks and China think that if they load up on enough of GM's and Ford's crappy bonds, that a too big to fail situation will be created, just as happened with Fannie Mae and Freddie Mac.

At this juncture, I would not be surprised by any government bailout attempts on anything. On the other hand, I can guarantee that all such efforts will produce a negative economic benefit.

Comments

[jackh:]

It's fun to pick on Ford and GM..... but what about those people who were buying the trucks 18 months ago??

If Toyota is the answer how come their sales are down too?

Sure we all would like better fuel economy, but what are we giving up to get it?? Primarily mass. Smaller lighter car... less weight to move... better fuel economy.

But I for one really need and use a vehicle with a gross weight of almost 9,000 pounds. Think anyone will come up with a power plant that will power a beast like that and get 30mpg. not likely. Not without a shift completely away from conventional engines to an all new energy source. The laws of thermodynamics can predict how much energy it takes to shift a 9,000 pound mass..... even with 100% efficiency it's not cheap.

GM has be3en peddling the Vibe and the Optra for some time now. If American's really want a small car why aren't they snapping these up?

When gas prices stabilize (note I didn't say come back down) and the American consumer can borrow again the shiny new trucks will begin to appear in driveways again.

This will take years, not months.

Then we can trash GM for not having enough big cars to meet demand!!!

2008 Aug 16 12:29 PM

[fatcat:]

Mish,you must have given out of ideas for articles...this one is not very good.No one could forsee the fast spike in oil and it takes time to retool factories to produce small cars.

Besides,if gas goes back to $2.50,its a moot point..

2008 Aug 16 01:45 PM

[RodneyAir:]

Another Monday Morning Quarterback. Just what we need! I suppose Toyota saw this $4 gas coming and that's why they built a truck and SUV plant. I think (1) mpg, a 5% increase on a vehicle getting 20 MPG, is pretty impressive. I'm sure a lot more work and effort went into getting that (1) MPG than went into this lame "let's bash GM and Ford again" article. The biggest mistake is being made by the American public who doesn't even give the great products being put out by these American companies a second look today. All they read are articles put out by biased journalists like this propeller head. Toyota = good and smart. GM and Ford = bad and morons. Case closed. Give me a break. The disparity is practically non existent today in every area. Give our American manufacturers some credit for a change. They deserve it!

2008 Aug 16 02:16 PM

[jacflash:]

What a terrible article. Nothing but juvenile ranting masquerading (badly) as analysis. Why can't SA find people who actually understand the auto industry to opine on it?

2008 Aug 16 02:27 PM

[JH/Start-Stop:]

Both Ford and GM have participated in a DOE programs called Future Truck and Challenge X. These programs developed the people in our universities and development tools to take on the current energy challenge . Bad management and no long term focus should be on both of their tombstones. Toyota deserves the Gold Metals in both of these games.

2008 Aug 16 02:42 PM

[The Rev:]

Another "trash and bash" article from a clueless liberal journalist a la Tom Friedman, only not nearly as entertaining. Perhaps, Mr. Shedlock, you should talk to some real world customers, and you'd see that increasing fuel economy without sacrificing capability really does mean something!

2008 Aug 16 03:10 PM

[whymewhyyou:]

This Guy doesn't do research. Ford's nameplate won't be on the luxury crossover, Lincoln's name will. Something so simple as that makes you wonder about anything he writes or his paper reproduces

2008 Aug 16 03:33 PM

[jackh:]

Yikes!!!! I'm afraid I may have started something.

It is nice to see however, that some folks out there understand that GM &Ford try to build to customer demand and cannot change gears as fast as the oil company.

Sad commentary on consumers though.... all to ready to bash industry (American Industry) because they weren't ready to by a Jetta two years ago.

2008 Aug 16 05:15 PM

[car_guy:]

Another useless, ignorant article from SeekingAlpha. They should change their name to 'Shorting Auto'. Most of the columnists here are simply dumping negative news into the market in the hopes of cashing in on their short bets.

JH/Start-Stop - what exactly does Toyota deserve a gold metal for? As RodneyAir points out, Toyota opened a new full size truck plant in Texas and is completing a full size SUV plant in Mississippi. That is 2 more plants than they need in the current market, which is why they are shifting the Mississippi plant to build the Prius. Ford and GM are doing the same thing by shifting some of their excess assembly capacity to build their small cars from Europe.

All car companies have been trying to move away from large trucks and SUVs by building crossover vehicles which are car based and more efficient. The problem until recently has been that the US consumer has wanted to stay with trucks.

2008 Aug 16 05:25 PM

[Miken:]

This article has so much misinformation in it I don't know where to begin. I am not qualified to comment on shorts, longs, derivitives, etc. So I don't.

This author should follow that advice when talking about automotive products. How about the other recent news: Aura is car of the year at the NAIAS (that's North American International Auto Show, didn't want to have the author at a disadvantage). Malibu is the MT Car of the year, Cadillac CTS, Enclave, etc.

Here's the rest of the story:

Engine sludge class action suit finally settled by Toyota for 3.5 million vehicles.

Tundra can't get out of it's own way in terms of sales.
Camry, Tundra, and Lexus AWD dropped by Consumer Reports Recommended List due to numerous quality, engineering issues.

Do some research next time. This is GM's problem in a nutshell, some half baked article article that perpetuates the unsubstantiated. It's just a question if reality can outrun perception.

2008 Aug 16 05:38 PM

[mde3031:]

It sure is easy to pick on the American car companies, but lets look at the overall picture. The Japanese market is closed to the Americans and our market bends over backward to accept imports. The Japanese government invests in their auto industry while our government over regulates ours. Toyota development costs are covered in a home market where their only competition is domestic. They make a huge profit in their parts making operation that is boosted by their government manipulation of currency. Instead of the Japanese companies coming over here to America and using our supplier base they were given huge tax breaks to bring in their own. The Japanese have completely destroyed our auto manufacturing base making almost impossible for us to compete. Now one of the biggest industries here at home is tearing down factories for commodities to be put back together in China. The American auto industry has made large strides to compete with the imports, but due to our basic style of government
we cannot compete with imports. Imagine you could go into someones else market and have a ten percent advantage from the get go on the fact every American car company has to pay health care for its employees. Nay sayers want to say government loans are a bail out,but the facts remain the same, the Japanese government, subsidizes their industry and we do not. Let our government even the playing field and see how we kick the Japanese butts.

2008 Aug 16 06:07 PM

[hoffman23:]

Any writer who lumps GM in with Ford and Chrysler is an idiot !!!! It's like comparing themselves to someone who has a brain. GM may be reeling, but they are in a far better position than the other two. Ford has hocked the "Blue Oval" logo to the banks. Chrysler is totally clueless. If Cerebus had talked to a " car guy" bbefore they bought Chrysler and 51% of GMAC, they would have told them to leave the money in their piggybank. GM will survive ( I'm in the know) but the other two are shaky, at best. Likely Ford will make the cut. Is that Fiat or Nissan I hear knocking at Chrysler's door?

2008 Aug 16 06:18 PM

[sportsfan1999:]

Another 'expert' adding to the dog pile. If everyone knew this past March that gas would go way beyond $4.00, we would all be rich cuz we could have played the market. So everyone knows there are problems, Mr. Shedlock. Why don't you help become part of the solution-drive a new GM product for a week-you will be pleasantly surprised at the quality and price. Then you can tell the world that they should try one too.

2008 Aug 16 06:29 PM

[johnrob:]

The real reason behind high gas prices is that the oil comp are trying to make a killing before the electrics take over and bush is back in texas.I wonder if the oil comp would of pulled this off if gore had won.I am also tired of auto writers bashing american cars.Take the Buicks,they say nice but boring,well they are built for comfort and nice ride these so called experts dont realize some people dont take curves at high speeds.They also forget who developed air bags ,cat converters,and what about ON STAR it has saved many lives but you dont hear about that

2008 Aug 16 11:54 PM

[Ishortyou:]

With Russia threatening to block dark age fossil fuel supply to Europe and profiting from oil and gas, I guess is time to get our act together and embrace new age technology i.e. electricity, hydrogen-water, hydrogen-cell, etc. at least to drive a car to work.

2008 Aug 17 05:55 AM

[john s. gordon:]

we were warned in 1973 and again in 1979 (and politicians chose to ignore both warnings) & detroit response was trash like pinto & vega. are any of those still running? i will keep my 1974 toyota (2 litres, 33 mpg).
> jack

2008 Aug 17 08:20 AM

[Skynet91:]

More Ford bashing! You should know that the "battery technology" used in the Japanese cars was developed here in the US in the early 1990s and funded by the taxpayers. Moreover, Ford is not "lightyears" behind in the technology, but unwilling to commit money to re-tooling plants for mfg electric vehicles until it becomes clear that they will be the preferred mode. This is Toyota's strategy too, but you don't see that. If they wanted to rush a luxury car out, they could do do before 2010. On another note, Ford is "lightyears" ahead of everyone else in flex-fuel vehicles.

2008 Aug 17 09:22 AM

[boybarian:]

Most of the posts here are so rah-rah - you'd think they were in response to a sports article. The vast majority of you don't get it at all. GM's management is breathtakingly incompetent. They make cars nobody wants to buy, and they haven't made a single correct management decision about anything since the 50's. They should file for C11 sooner, rather than later. If they wait too long, their only option will be C7, and that's a one-way ticket.

2008 Aug 17 09:23 AM

[Paul Killinger:]

I know, they're ridiculous.

They trot out their execs to the news media and tell us their industry is undergoing a revolution. Then they come up with 1+mpg trucks.

Here are three ideas that could help them survive:

1. If they have 40 mpg compacts in Europe that are selling well, import them here NOW. If they're successful, build them here, as well. (And damn the red tape, have their Congressional delegation get waivers.)

2. Make dual-fuel (CNG+gasoline) trucks and vans again (like they did from 2000-05), and offer dual-fuel SUV's, as well. Get one to every dealer that wants one, and sell them on an "order only" basis.

License the "Phill" for home refueling like Honda does for the Civic GX. Take advantage of the hundreds of millions of dollars in free publicity Boone Pickens is generating for NG-powered vehicles. (I know CNG vehicles weren't successful last time around, but gas wasn't $4 then, either.)

3. Question for the Board of Directors: If you were building hundreds of thousands of jeeps, APC's and tanks a year after our entry into WWII, what's wrong now ??? Your SURVIVAL is at stake, just as it was then.

4. MOST IMPORTANT: FIND A WAY TO GET THEM OFF THEIR A--ES WHILE THERE'S STILL TIME LEFT !!!

2008 Aug 17 09:36 AM

[Bumbie:]

GM, Ford and Chrysler are and will continue to pay the price for bad decisions.....manageme... has continually agreed to ridiculous labor demands....how is an "auto assembly worker" worth $60+ per hour? How can any company send workers home to watch TV and pay them 95% of their regular wages? How can employees not materially invest in cost containment of their medical care? The UAW asked and the "big Three" giveth...enough said.

As far as "marketing" goes they suffer from more of the "ostrich" syndrome..fleeting our their excessive production driven decisions (see above) to their rental car counter parties and letting the retail buyers of their products suffer the consequences in the form of much more rapid depreciation than their US based Asian competitors. I have no sympathy for "The BIg Three"....what comes around goes around!

2008 Aug 17 10:04 AM

[KenU:]

My complaint is about GM's VOLT. The VOLT car is a total joke. At first when I read about it, I got excited thinking this sounds like a better car than the Prius. Today, the market cap of GM is $6.3 billion while Toyota's market cap is $143 billion. What this means Toyota is a giant compared to GM. They have tremendous more resources to compete, and have much more experience and success with hybrid cars. There is not going to be any leap-frogging of Toyota any time soon, if ever. To take on Toyota head on is stupid, like missing out on a hybrid line, not planning for gas price increase, buying the Hummer brand, and over-selling fuel-cell cars way too early. At this point, the smart thing to do is not to waste resources on a hail mary pass, VOLT, and to realize the game is mostly lost and you’re in dire financial straits. It's time to do massive cut-backs on unprofitible vehicle lines, and try to become a niche player and play on strengths. GM strengths are not lost-cost and high-milage cars, and definitely not complex technology vehicles like electric and hybrid cars.

2008 Aug 17 10:29 AM

[notsosmart:]

last year i sent a letter to ford asking why they have so little confidence in their productthat they cant guarantee the powertrain for 100,000 miles. i got a cookiecutter non answer letter from some middle management guy who if he hasnt been let go will soon be,i guess.you are aked to buy a machine for $thousands & then you are told you better buy a warranty(another story of these going bust) so that after 3 yrs or 36,000 mi.you wont have to shell out to fix this relatively new car.what a scam.no pride,no confidence,will fight you if you get a lemon(lemon laws had to be passed) & the dealarship prices for service are outrageous.

2008 Aug 17 11:45 AM

[ksmithdc:]

All of the auto manufacturers are scrambling to re-tool in order to accomodate $4.00 per gallon gasoline. As IF it's going to stay at $4.00 per gallon. Guess what guys? It's already dropped 35 cents within the last month. And there is no sign that there's going to be a slow down.

Oil should be between $60 to $80 per gallon. My guess is that it will get there. With continued reduction in demand, coupled with an explosion in interest in alternative fuel sources, the demand for oil & gas will continue to dwindle.

When we get solar & wind up & running 100% & we have cars that run on water vapor, hydrogen & batteries, oil will have no more value.

2008 Aug 17 02:44 PM

[User 244836:]

I couldn't agree with you more. Besides we shouldn't be depending on other countries anyway. It baffles me that GM and Ford didn't see this coming. We've been dealing with the same problem for 30 yrs. Its called putting all your eggs in one basket. Oil is not the only resource we have. If Brazil can become totally independent of oil why can't we? Startups like tesla, zpm and tata motors have postioned themselves while we are still stuck on oil and nuclear technology. Go figure!!! You can't do the same the over and over again and expect a different result.

2008 Aug 18 01:33 AM

[2nd_Opinion:]

I want an electric car. All my appliances are electric, my computer is electric, my tv is electric, even my shaver is electric. GM's EV1 was electric as was Ford's Think. Those cars were crushed even though thousands of people wanted them. Now my attention is on the new Triac. Unfortunately its going to take years to ramp up to the kinds of quantities that will satisfy the market of millions like me. But I have no choice except to keep my older car on the road until these new cars come available. I want an electric car - not a hybrid - just an electric.

2008 Aug 18 09:18 AM

[Jeffyboy:]

Ford and General Motors have similar but not the same problems.

Ford and General Motors need part/option reductions which they are doing that will save ton's of money.

Just a decade ago Ford and GM where so strong they were buying everything they could. They need to get ROI on their purchases. Ford determined they could not with Jag/Land Rover in a timely manor so they dumped them. Again part consolidation is key here.

All the crap about Electric cars is stupid. Not being first to market is typically the one who has less lessons learned in the auto industry. Rushing (not being ready) to the market is something that has always hurt the US autos. I think there is and will be room to enter Fuel Cell/Electric auto market after the company has truly made a product.

Talking about product mixes I think is a valid complain, but they may know more about what is selling or needed then I do. I think Ford is doing right by bring european vehicles here. I think GM is a little slower here and it may end up hurting them but GM has a good core of products.

Everyone wants to complain about Ford and GM but they have done essentially what we wanted as consumers and that is not reduce product lines. But it is time. Toyota has 3 product lines with little overlap. Ford and GM have collectively over 2 dozen product lines world wide and and have alot of over lap. This has a high cost. It is time to reduce cost.

Bitch about Ford and GM all you want. When (And they will) they straigten out, Toyota will get whipped (Honda is a much better car company). Market cap aside Ford and GM have a large foot print sand can put out.

Watch and see. :)

2008 Aug 18 05:36 PM

[sumosama:]

still no disclosures...is anybody watching???

2008 Aug 19 03:59 PM

[Bike123:]

Just because You didn't see $4.00 gas coming doesn't mean the auto execs shouldn't have known a major price disruption was coming soon. I have a DOE/NREL document from 2001 (seems to have disappeared from the web) predicting China and India's increase in private autos, also the flattening (followed by declining) of world oil production.

Expecting the them to read and act on the DOE's assessment of oil reserves and production is a lot different than predicting the oil price on a particular date.

2008 Aug 20 12:56 AM