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Why GM Is No Longer in a Hurry to Sell Opel

You are looking way too hard to find a connection based on "fear of Russia". GM already has plants and joint ventures in Russia that it appears to have been trying to expand over the last few years, not get out of. The answer must be far more plain and boring. Also, to the user above, don't underestimate Magna. They are fully capable and accomplished at every skill needed to be a full line manufacturer, and have been for years.

The odds are better than even that this is all about how cozy the relationship will be afterwards. It appears that Opel had previously been given a lot of design and engineering responsibility and is now trying to "stand on its' own", serving GM as just another customer, where the RHJ deal would keep them serving a GM master first. If Opel ever wants to fully break away, they will never have a better chance than now.

The real question is, why isn't GM trying to push Opel away like the mill stone that it is? There is not a shred of evidence that there is anything coming out of Opel that could not be done better or cheaper elsewhere with the family (Australia, Korea, China, India, Canada, or, oh yeah - maybe even Michigan).

Absurd Inverse and Leveraged ETF Product Whining (Updated)

Very good article. As a casual retail person, these products have done more to level the playing field than anything since online trading became available. I am very satisfied making my own decisions and the likes of those you mention are doing nothing less than trying to drive me back into the slower, more expensive, more restrictive, crappy world of dealing with paid financial people.

Fair, open, and free markets are created and maintained best with rules that restrict front running, trading on non-public information, and then removing the rules that create friction between those that want to trade and the market they are trading in.

Auto MPG: The Economics of CAFE, Part One

You asked, "yet those new technologies and components will not employ any more people than the old technologies. If they don’t employ any more people – anywhere along the supply chain – why are they more expensive?"

Just a couple of ideas to throw against the wall..

New technologies forced into production quickly experience much higher warranty and product liability costs later.

Within any given year there is a relatively fixed number of "nuts and bolts" optimizations that are mature enough to be moved toward production. These are all patented by the supplier who did the legwork and the "right to use" is sold to the highest bidder vehicle manufacturer. Just because it is sold to one manufacturer does not mean that it is available to other manufacturers at the same price, if at all. The manufacturers themselves tend to work on "blue sky", "game changer" ideas that take 20 to 30 years to mature. That way the manager who sponsored the idea will be long retired and no one will be looking to dig up dirt on what research money was spent on 20 years ago.

People like to believe that the price of something has something to do with the marginal cost of manufacturing it. This is completely untrue, compare the cost of a cd with music on it that sells for $9.99 vs the same cd with software on it that sells for $349. If your job is to sell that new feature to the public for the highest price, then talking up price expectations today will make it easier to increase the contribution margin of that item over the technology that it is replacing when it becomes available for sale.

Finally, every time there is a change in technology, there is an opportunity to lower structural costs. If you are buying a chain and gear from a factory in Ohio and plan to replace that function with a servo motor, it is much easier politically to direct the supplier to produce the servos at their Shanghai facility than to retrain and retool the gear foundry. In the auto industry, new technologies never employ more people (net $$ spent) than the parts they replace unless required by politics or the Government is more than making up the difference with grant money. Remember, the cost of the product will be what the market will pay, while the 300 jobs in China will not be net better for the American economy than the 100 jobs lost in Ohio.

GM Reverse Split Creates Problems for Dow Jones

@slowdown
>"The most gracious handout??? not likely...that went to the banks"
I agree if the statement is qualified as a Gov't handout. My point was that I have no idea who is buying the GM common today (and painting the open and close of the tape), but considering that in a little over three weeks both the GM plan and the Bondholder plan would wipe away 99/100 the common stock holders value, while BK would eliminate it completely, holding this stock is a hot potato. To anyone who is still holding, this looks to me like someone was willing to give you ~$1.60 for almost nothing all week. Now that's a bailout.

I am interested in more detail about your statement "is that it opens the door for competition...in other words the transplants will have less barriers to market". I don't see any barrier to opening additional dealers today if you have the right to sell the next hot new car out of [insert your fav low cost country here]. At best it might make it easier to take over a turnkey store faster than building and hiring one yourself. The free market approach has been slowly working for a few years, but as a customer, I am suffering for it. State franchise laws have locked in this 20 dealers in a city problem and every one of them is operating under water and holding their breath while they hope the next guy fails first. If I want to stop in and have the oil changed in my '07 while I take a look around the showroom, I will generally get a service writer who must be related to the owner because he doesn't seem to like the public, and a sales staff that wasn't there when I bought my car. The dealer has no money left to give me anything other than the minimum time and attention for the price of the oil change. I watched growing up as a friend of mine who owned a VW have every oil change done, car washed, vacuumed, and returned in less than 30 minutes and with a smile. Every time. If GM is going to survive, it needs to have a dealer network that can bid those employees into the GM store. If you decided that you would like to sell cars on commission for the next year, would you rather sell Passats or Impalas? Your GM customers are typically cross shopping 3-6 functionally equivalent GM models from 10 other GM dealers that might as well be within walking distance. If your Passat customer wants to negotiate, they have to run 30 miles to the next town. See the difference?

Really, the GM and the task force are being much kinder than I would over this whole issue. This is the time for a new stronger beginning and it would be better to rip the band aid off quickly. Cadillac gets to keep it's name and business model, all future product that was for any other division is immediately re-branded as "GM". All other dealers are told their brands are closing and there will be no future product. Then the top 33% performing dealers in each market will be offered the chance to bid for the new business model "distribution and service" centers, based around a test drive, but online sales model. The customers who are happy a year later are the ones who bought what they wanted, not what the dealer had on the lot. The market will force the separation between the mainstream model and the premium model within the next few years anyway. It high time to be the first company there and define the business model of the future to GM's advantage, rather than taking 20 years to painfully twist and turn their way there after every other company has done the heavy lifting.

GM Reverse Split Creates Problems for Dow Jones

@Andrew Gross - What a stunningly odd rant. State-supported seizure? You have got to be kidding.

GM gambled and set up a corporate structure with high fixed costs requiring a high volume of sales to break even. The company did not save enough over the years to make it through rainy days and last fall burned through all the remaining value in the company when the sales volume fell. It could have collapsed completely leaving nothing before last year end. In case it's not obvious to you, common shareholders are always the first to get wiped out when a company folds.

The previous and current governments have provided a path to an orderly wind down and washing away of both the common shareholder value and the value of the debt that would have been lost in liquidation. Please point your anger in the correct direction - the free market did not provide the steady stream of revenue required by the gamble, and the Management of the company did not choose to operate with sufficient reserves to survive the drought. The most gracious handout in the history of the world has been that for the last several months someone was actually willing to pay anything at all for these shares. All that is left now is the clean up, and by June 1 as the bookkeeping is done, the value of the current common shareholders will be moved to either zero (where it would have been last fall), or 1/100th as a stunningly gracious gift to anyone not smart enough to sell now and buy back in after the reverse split if they really want to own some of this company.

As for the "too many dealers" problem, at least that has not been explained well in the media. One way or another, 20 GM dealers within a 20 mile radius has proven to be unsupportable for the sales of GM vehicles. Since this substantially improves the bargaining power of the consumer, the profits are driven out of operating a GM dealership. As many of the dealers also own other brands, the GM store becomes nothing more than a training ground for entry level talent sales people and sales management who are putting in the bare minimum to climb the ladder to the same dealer's Toyota store across the parking lot where the commissions are higher and the customers are less likely to come in with "I can get it $1k cheaper down the street". This is an unsupportable downward spiral that will either take out 2/3 of the urban dealers in a negotiated plan, or take down the entire company and every GM dealer. 100 cars/month x 5 buildings needs to get closer to 400 cars/month x 1 building, where the fixed costs are lower, the incentive is there to attract top tier talent, and the dealer has the profit to impress the customer right all through the ownership experience, from the sale to the service, and thereby winning the next sale. As it is, they are all dying on the vine.

GM's 1-for-100 Reverse Split? Uh-Oh...

$185? wow

Ryan, you forgot to mention that it's either zero in bk, or you get the dilution first - taking holders to 1/100 (~ <0.02) before the reverse split takes those lower number of shares held back to ~$1.50. Further read the warnings in the filing about the potential for the price to remain above $1 listing requirements after the split.

Ignore Detroit's Bondholders' Whines

@LKofScotland "..the Chrysler or GM name is worthless, too? 100 years of busting ass is worthless? Why bother in the first place? Ever worked a day in your life? You're debasing the entire industry to zero-"

The names and busting ass were not worth enough to cover the court costs and disposition during the third week of November 2008. Captialism works with hard reality. Real revenue pays real expenses. If one does not cover the other on the day it's needed, than it's all done. Capitalism is not a backstoping method for making things turn out the way we would like them to, some day in the future.

As for worked a day in my life, yep, including almost two decades in the auto business and I still have a family to feed. Wishing that either company was alive today because of smiles and rainbows or anything other than the saving graces and efforts of the governments around the world who stepped in to save them does not change the hard reality that sales didn't cover expenses last fall and there was no one else willing to step up with the difference.

This is now about cutting away some of the overhead costs of running the companies so that the costs of the product can come down to a sales price the market will bear, so the dealers can get more units "over the curb", and place more orders from those factories. Production will not start without demand, and production employment will not start without production. This is not a chicken and egg situation. Sales transaction costs must profitably come down to where demand is first, then the rest of the great wheel starts turning.

The paper worth of these two companies was already destroyed, get over it. The quicker these companies get back to work producing new value, the better.

Ignore Detroit's Bondholders' Whines

@Minderbender you are framing your argument around the assumption that either 2 ward patients would have made it this far in order to begin matching up value to classes of stakeholders. When car sales stopped last fall, both of these companies would have failed before any private rescue could have been negotiated. The door was open for anyone to try, there was no secret. Do you remember those "imminent failure" headlines?

Pure capitalism would have let both of these companies ch7 last fall with the net recovery of zero to everyone. Like it or not massive stamping presses, custom built robot cells, and huge facilities are of little use or value to anyone unless you are making the vehicle the lines were made for. You can't do that unless you are willing and able to buy the whole thing, lock, stock, and barrel. Last fall there wasn't anyone stepping forward who could or would take this off Cerberus's hands.

So all stakeholders have already received *everything* to which they were entitled. Capitalism has already worked.

Now, since the decision was made for the Gov't to step in and try to preserve some value, they get to call the song. If anyone gets anything out of this they are already ahead and should be thankful. Anything, be it a job, a contract, an interest payment, a bond settlement, or a trading common stock are already better off than the zero the status was worth last fall.

This is the same mistake the GM bondholders are making today. Your bond is only worth what the market will pay for it, nothing more, nothing less, and that value changes every day. The crazy people being interviewed on tv who think that their $.15 bond should be paid back at $1, but they will settle for $.55 are absolutely dreaming. It was worth functionally nothing and would have been cancelled last fall, now be thankful the task force has found you something, is attempting to prevent a much more expensive hit to the public purse in the near future, and take the plan on the table before this costs the rest of us additional tax dollars to keep this floating.

GM Debt Recovery Paints a Scary Picture for Private Investors

@JL "...my only hope of recovering any of my money was to wait it out and hope GM doesn't go bankrupt and the stock goes up."

Better read the sec filing someone linked above. 62Billion new shares are expected to dilute you out of $99 of every $100. Very little difference to common shareholders, Bk or not. Best case buy and hold will be for your Grt-Grt-Grt-Grt-Grandc... to get back to where you are today. Better ask your advisor if you are unsure what dilution means.