Jason Mathew

7 Reasons Why the New GM Might File for Bankruptcy

First and foremost, I appreciate commentary on posted article, several reader comments offered an opposing perspective on the 7 reasons originally stated so I wanted to provide further evidence supporting my original rational.

Reader comment: UAW labor parity exists

Labor rates have improved through a two-tier pay structure, however, only newly hired employees will be paid at labor rates between $12-$15 an hour, all UAW workers did not accept a pay cut. As of today GM employs 55,000 blue collar workers and the majority of that population is still paid nearly a $30 premium relative to Toyota and Honda workers. It will take additional buyouts (with tax payer money) or 10 years of attrition to reach labor parity. Billions have been saved but labor parity is not yet equal.

Reader comment: GMAC changes have no impact on GM

GM no longer owns 100% of GMAC and ultimately will own less than 10% per restructuring plan. With the two entities essentially decoupled, offering 0% loans and financially engineering sales will be more expensive as GM will realize little or no GMAC revenue/profit going forward. Initial evidence of GMAC independence occurred when GMAC stopped issuing credit to car buyers with less than a 700 credit score and GM had little say in the decision. Ford, Honda, Toyota will continue to own and operate and realize returns from their financing arm.

Reader comment: Government regulation will have no impact

Several vehicles in 2011 will meet federal standards, however, with 30+ vehicles (post Pontiac/Saab/ Hummer divestiture) and 50% truck sales mix, billions will be required. The impact is first timing, second source of capital and third compliance method. Investments must begin immediately given vehicle development time line and although GM may generate profit, earning billions annually is not easily foreseeable. Where is the money going to come from? Part of GM’s MPG compliance is focused on hydrogen technology. This administration is skeptical on hydrogen, reduced hydrogen budget spend in favor of other alternative energy options and has no plans to develop a hydrogen infrastructure. If the government is not backing hydrogen how is GM going to recoup the billions in hydrogen vehicle investment? Cap and Trade will be an additional burden on manufactures to spend billions to reduce carbon emission as early as 2015.

Reader comment – GM will be viable at 10M SAAR

Maybe, industry volume is less important then GM volume/share that was estimated at 20% in the restructuring plan. June results put GM at 19.7% share (already under) and with no Pontiac, Saab and Hummer sales volume and expected share erosion; GM will likely level out around 15% market share going forward.

I sincerely want GM to succeed, I am simply pointing out reasons why that may not be likely. I welcome any rational opposition to seven reasons listed. Thanks!

Six Reasons Why GM Should Declare Bankruptcy

Dealers cost to a manufacturer (GM) are nominal and primarily SG&A (trade allowances SPIF's, sales force..etc).

Reducing dealers helps dealers....indirectly the manufacturer. Example, a local Chevrolet has to compete with other local Chevrolet dealers as well as other brands. If one Chevrolet dealer was removed in Market XYZ, one less same-line make competitor, brand loyal customers will go to surviving Chevrolet dealer. Expectation are that sales & service at surviving Chevrolet dealer increases, profitability improves and surviving Dealers are now stronger (improve marketing effort and potentially enhance facility)and better able to compete. If Dealers can better compete and increase sales they ordering more product from manufacturer and better meet expected facility standards required.

I'm skeptical of the above and believe this will work only in certain situations.

GM does need to reduce dealers...concerned they will chase a number (currently proposed 1750) and not "take-out" appropriate ones that actually lead to above.

In the end Dealers are the retail side of business and a nominal expense on a day to day basis. Winning product at the right price with the right cost structure is the solution, the investment to right size is extremely expensive and likely not worth manufacturer investment.

A Dealers investment is at risk and it quite unfortunate it has come to this.


On Mar 09 10:05 AM User 370252 wrote:

> I continue to be curious as to how shutting down dealerships would
> help. The dealers pay GM for absolutely everything for the right
> to represent the company and sell their vehicles. To my knowledge,
> the privately owned dealerships don't cost GM anything