There has been some inherent problems for a long time, and I do not see anything short of bankruptcy fixing those problems. Problem #1 has been management, although I do not think the current team is all that bad at GM, and I like ford under Alan Mullaly. On GM's side, there have been some improvements in the product under Wagoner and Lutz. It's still somewhat sporadic, and there are still quality issues, but better. Still, it probably is time for some fresh ideas, and I would agree that more than upper level would need a shakeup. Not sure I would want wholesale resignations either. More, I would demand an outsider (like Mullaly) be brought in to review everyone, keep the real talent, show the poor talent the door.
However, there is a big problem with the UAW too, and it shares equally in the problem. It's not that I blame the individual workers, but the UAW has been able to negotiate contracts in such a way to make things financially difficult on GM. The latest contract was considered a breakthrough, with the health care changes and such, and had the economy remained strong it would have been interesting to see if it really helped. That's not the case, and now that demand is down a ton, GM has too much workforce without any way to immediately shed the expense of it.
C11 can be used to force some major changes and concessions on the UAW. They won't be positive for the workforce, but neither will the domestic industry ceasing to exist.
Oh, and we may be close. GM claims they will do everything they can to not go bankrupt. However, their cash reserves sit at just over $16 billion, they are averaging a burn of $2.5 bil a month last quarter, and I have seen estimates which show their revolving monthly expenses are between $11b and $15b... and if their cash on hand dips below their revolving monthly expenses, they may default on some obligations and be forced into C11.
So if big brother is going to hand out some cash, they better be sticking the check in the mail real soon. Whether they should? Hard to say. If a C11 reorganization would help really fix GM, both with it's own management and the UAW, and allow it to return to a state of being truly competitive, then maybe the bailout isn' t the right thing.
Handing them a bailout, especially without some serious strings attached, is like treating a bad hangover by hitting the bottle in the morning.
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Solstice and Sky Fan
Retired Solstice Forum Super Moderator (Apr 2005-July 2009)
'Red Ink' Rick needs to go. It's amazing he still has a job.
I agree.
Dissolve some of the brands (GMC, Hummer, Saturn, Saab I'm looking at you!). Make Pontiac a high performance only brand and keep it to Chevy / Cadillac only and this could possibly work out w/o C11, but it seems that "Hope and Change" & Nancy Pelosi will give GM the $ it is bitching for.
__________________ 2007 Red Solstice GXP 5-Speed - Gone 2007 Yellow Sky Red Line 5-Speed - All options
Hmm... so many things I've read that I'd love to respond to.. but I don't think the board will let my post reach the length it would require to do so properly.
1) C11... if GM files, Ford will as well. No way for Ford to compete against GM without following suit. Count on that if one files, the other will.. next day most likely.
2) As far as number of jobs... 1 in 12, the 1 million figure that's tossed out here in Michigan... it's a lot of jobs. The main problem is going to be suppliers, and not because the industry rapidly contracts... that won't happen. What will happen is all of the suppliers who have assets on their books (incoming receipts from GM) will loose them. With pay terms at 90, 120, and some suppliers at 180 days... well, they can't remain solvent once GM files. Most of them are not large enough to get money back form the court once GM files... meaning they will have to file as well. If GM files, Ford files.. if either of them files.. you'll see a list of Tier 1 and Tier 2 suppliers following suit. They will have no choice, as without the income coming in... they will no longer be solvent. That's the big issue here... the outward reach of the C11 filing. Delphi and Collins & Aikmen all over again.
3) I actually think the folks at GM have good strategy in trying to get out of trouble. They are working on developing the vehicles people want. They are beating out Honda and Toyota in quality. Changing the top management isn't going to fix those issues. It's not like the brass didn't want to be considered a good quality company... they just didn't have the cash to spend on it (or so they said) at the time. Now at least the heads at GM know they have to do this... it might be too late.. who knows, but at least they are supporting the right things.
4) CAFE (saw one person mention this) rules. Yeah..the CAFE rules are dumb. I'd rather use other words which I don't think the filters will allow... but it's stupid beyond belief. Any auto company that could generate a fuel economy improvement above and beyond their competition would and would have done it in a heartbeat. The American buyer doesn't want to pay for it though. The Walmart generation doesn't seem to understand that technology requires R&D, and it needs to be recouped. If one OEM did achieve a breakthrough and passed the price along the average consumer wouldn't pay for it.. instead they would go for the car with $10/month less in the payment plan and not consider the total cost of ownership. The lack of financial understanding in this country is maddening... I'm willing to bet 40% of car owners can't balance a check book.
Mandating the sales mix of vehicles does nothing to meet market demands. Pickup drivers and sub-economy drivers have VERY different needs in vehicles. To mandate a CAFE for the sales of those means you dictate the sales ratio... what if that doesn't match market demands.. hmm.. you make the OEM pay a penalty, or add cost to either one or both of the types of vehicles and hope they sell enough to stay afloat. Stupid... stupid, stupid, stupid law. Incentives work much better... offer $50 million to the OEM who can produce a car with 5% increased efficiency instead and watch the supply base work on development trying to get their hands on that money. Instead.. the consumer is left to fund it.. and what happens, car sales go down and people hang on to cars longer because prices have gone up.
Questions that need to be answered is how much can you shed, and still stay afloat? At what point do you loose out on the engineering expertise to keep going? Critical mass.. once they fall below that you'll never gain them back. If you are a white collar worker at GM, hired in today you get no pension, no match on your 401(k), and job stability... what is that? What's the incentive to hire into an OEM now or in the next few years? There isn't.. and once the company layoffs reach "too man", they will never be able to pull of all of the work to get a car out to market. I think the general public would be amazed at how many folks actually work on development, testing, refining, and production of even a single model of car. The size of the problem is larger than the financial crisis...
Oh, and speaking of Wall Street. You want to place blame... how many of you are told by your investment advisors, 401(k) managers, etc. that you should focus on long term returns. Don't sell because the market is crazy, blah, blah, blah. Tell me then.. why is the focus on Wall Street (public companies) limited to the next 90 days? Why is that private companies seemingly can perform so much better (BOSCH, BerkshireHataway, many.. many others)? Is it the leadership? No.. because they don't have to please Wall Street's need for short term gains. Long term focus is the key.. but our economy seems to not only limit that, but penalize that at the same time.
What percentage of that 1 in 12 are actually related to the OEMs or their suppliers?
Read the report in Small Dealer's post (previous) Total collapse of Detroit is 3,000,000 jobs in year one.
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Anyway, there is not much popular support for a GM bailout. Their credit rating and history is far worse than the banks and other financial institutions that have been lining up at the Fed discount window or for TARP injections, which come with surrendering an equity stake.
And there is popular support for handing banks money to put in their vaults while still not funding auto loans that would in return help Detroit? There is no grassroots support for any taxpayer money used for any bailout, AIG included. But some of it is inevitable if we want to see certain segments of our society preserved. Could we live without GM-Ford_Chryco being in existence at all? Sure, but then there is no longer any incentive or mandate that Toyota and Honda maintain factories here, so they would retrench. If Detroit disappears, so does domestic auto manufacture.
One wall street firm today dropped GM's stock price target all the way to $0.
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Read the report in Small Dealer's post (previous) Total collapse of Detroit is 3,000,000 jobs in year one.
Those are not OEM jobs, however. The study, as questionable in its assumptions (total supplier shock/collapse, 15% premiums for imported or alternative supplies and finished vehicles) as it is, notes about 240,000 OEM jobs gone with a complete Detroit collapse. Frankly, I don't buy the other numbers of the spinoff unemployment as, again, this study assumes that if suppliers go into shock they will fail and overwhelm any attempts at saving them. Even BK restructuring of suppliers and consolidation does not lead to a complete failure of production and employment at these firms.
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Originally Posted by achieftain
And there is popular support for handing banks money to put in their vaults while still not funding auto loans that would in return help Detroit? There is no grassroots support for any taxpayer money used for any bailout, AIG included. But some of it is inevitable if we want to see certain segments of our society preserved. Could we live without GM-Ford_Chryco being in existence at all? Sure, but then there is no longer any incentive or mandate that Toyota and Honda maintain factories here, so they would retrench. If Detroit disappears, so does domestic auto manufacture.
One wall street firm today dropped GM's stock price target all the way to $0.
GM's stock price target is accurate should it declare BK. The side effect of that is your equity is wiped off the books and reissued once you emerge from BK.
You are also ignoring the FOREX if you think that Toyota, Honda, Nissan, and the others would completely pull back if Detroit ceased to exist. They've all made significant investments in both hard capital and personnel here in the US and they've done it under the primary motivation of costing their products in dollars. As you well know, if Nissan sells a car in the US it receives dollars in exchange for the product. Those dollars are then converted back to Yen and transferred back to earnings statements in Japan. If all of their products are produced in Japan and costed in Yen, and dip in the value of the dollar will put severe pressure on their profits and demand added cost controls, which they are powerless over. Hence they must hedge currencies significantly in order to add stability. However, the most stable, long-term way to hedge is to open factories and supply centers in the cost zone that you're also selling in. This is no different than GM having factories in Europe, Airbus/EADS buying and looking to open more facilities in the US, or China striving hard to link the Yuan to the Dollar in some fashion in order to prevent a rising Yuan from forcing US manufacturing clients to look elsewhere.
The banks were not handed money. The banks issued preferred equity under strict terms in order to receive the cash under TARP. Other financial firms have made use of the Fed discount window in order to secure short term loans. Even more firms, financial and other, have made use of the Treasury's new facility for funding commercial paper. As you may have noticed these are not handouts; all are interest or dividend-bearing instruments.
As a tangent, the financial institutions are far more critical to the economy that Detroit ever was or will be. Fiat money systems depend on the availability of cash and credit. Without this steady flow economic activity seizes up fast and hard. Not many companies nor individuals keep stockpiles of cash on hand in normal times, much less in the last few years where things were hyper-liquid. Many use commercial paper to finance just about everything and allow them the flexibility to embark on big projects with little need to save for years before doing so. This is exactly why the Feds stepped in and why they're acting as the lender of last resort. This is their role as the manager of the money supply.
Banks are understandably gun-shy about taking on a lot of new loans. Traditionally one needed to put down a significant down payment in order to insulate the bank from a total loss should the asset backing the loan depreciate. This is now back in style. It is not their fault people spent too much and could not, would not save. It is their fault they continued to lend to these at-risk individuals and they're still paying with even more pounds of flesh. Mark-to-market has also dramatically reduced their lending ratios as their assets, due to the illiquidity of the market the past few months, have gone from a known, even if high value, to an unknown or even $0. This has seriously crimped the availability of cash. However, do note that if you can make a down payment, have a decent income, and are not over-encumbered by debt, you can still access credit. We're just back to higher lending standards which not many folks met. Ultimately the banks need to lend money to make money - this has not changed.
While I have a lot of respect for the guy, he's a little too bailout happy for my tastes. GM, even if bailed out, is still too large and poorly structured. Handing them a lot of money to hand to their workers and creditors to build cars that aren't selling is the pinnacle of stupidity. Italy has been doing this for years with Alitalia which has accomplished nothing for them other than wasting hundreds of millions of Euros, making the government unpopular, and postponing the inevitable. Sure, GM/Ford/Chrysler need capital to retool, perform R&D on new vehicles that may sell better, and survive the current crunch. However, floating tens of thousands of administrative employees and hundreds of thousands of hourly/union workers to build cars that aren't selling doesn't make sense. They must restructure, even if it does cause more uncertainty in the market, which, at this point, it probably will not since GM's stock is again tanking since the shareholders willl be wiped out in either a bailout or BK filing.
While writing this I'm perusing CNN/Money and found a section of an article that sums it all up. Emphasis mine.
Jeff Embersits, chief investment officer at Shareholder Value Management and an owner of GM stock, said there's only one thing that can save the company: "The consumer needs to come out of the toilet and somebody needs to start buying cars."
On Friday, the Detroit-based automaker reported a third-quarter operating loss of $4.2 billion and said it was running dangerously low of the capital it needs to keep running its business.
GM said Tuesday that it was scaling back its presence at the Los Angeles Auto Show, scheduled for Nov. 19 and 20. Instead of unveiling its new Buick in California, GM said it will wait until Detroit's annual auto show in January.
Embersits, who owns GM stock, said the company needs to "cut itself in half" by continuing to shut down plants and reduce the number of makes. Otherwise, GM might be better off filing for bankruptcy, he said.
While I don't disagree... people seem to forget that the UAW contract still has workers being paid when they are laid off and the plants are idle. The contract with the union is killing them at this point. They can cut jobs in 1/2, but the payroll isn't cut in 1/2 at the same time.
However.. if you let go of white collar workers the pay off is immediate. They just axed a whole bunch of them. Believe me.. there are people still there that should have been let go, but you'll be hard pressed to find an over abundance of folks anywhere in GM.
All companies are suffering, but I am surprised Toyota is only sitting on $18.5 billion in cash reserves. Without any debt, I am sure they can secure financing far more easily to weather a prolonged downturn than a company like GM who's credit rating is now in the dumpster. Still, If they post a few quarterly losses back to back, they probably will be looking to take on debt to keep operating.
Maybe getting roped into the big truck addiction was a bad move for them.
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Solstice and Sky Fan
Retired Solstice Forum Super Moderator (Apr 2005-July 2009)
While I don't disagree... people seem to forget that the UAW contract still has workers being paid when they are laid off and the plants are idle. The contract with the union is killing them at this point. They can cut jobs in 1/2, but the payroll isn't cut in 1/2 at the same time.
However.. if you let go of white collar workers the pay off is immediate. They just axed a whole bunch of them. Believe me.. there are people still there that should have been let go, but you'll be hard pressed to find an over abundance of folks anywhere in GM.
This is one of the major sore points for me. The UAW has all these protections built in for job security and GM is powerless against it. The white collar workers are therefore the ones who get the shaft, and, in a situation like this with a combined credit crunch, marketing crunch, and development crunch, they're your most valuable folks. And yes, judging from the headcount numbers I've seen in the past few years, GM is terribly top heavy. True, much of this may be due to classification of employees (e.g. calling small team leads management/administrative staff, etc.), but their admin staff is very large. No matter what, though, as long as Wagoner works there they have at least one too many employees.
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Originally Posted by Fformula88
All companies are suffering, but I am surprised Toyota is only sitting on $18.5 billion in cash reserves. Without any debt, I am sure they can secure financing far more easily to weather a prolonged downturn than a company like GM who's credit rating is now in the dumpster. Still, If they post a few quarterly losses back to back, they probably will be looking to take on debt to keep operating.
Maybe getting roped into the big truck addiction was a bad move for them.
If my own company lays off and lets me out for a while to finish up those sales numbers for Toyota et al, you'd see it's not the trucks that are hurting Toyota - it's everything. Add to it they were late to the game with special financing and discount deals and they've had a terrible couple of months. Only now are they beginning to respond with special deals to entice consumers off the fence. It will pay off, but only slowly and not in great numbers. Their main advantages are being non-union, encumbered by little/no debt, having a smaller, more efficient dealer network, and still having the consumer perception of being "better" than the competition. Like Nissan they will begin layoffs and/or furloughs soon - Nissan did this a month or two back and it went completely under the radar since GM/Ford/Chrysler were in far deeper merde.
Finally, I really have to wonder if the WTO will take a shot at the US if we bail out the big 3. That's got to break a few trade rules if it's targeted only at the domestics and worded such that the other manufacturers with a presence here who are foreign owned cannot make use of the facility(ies).
No matter what, though, as long as Wagoner works there they have at least one too many employees.
I'm sorry you feel that way... should I scratch him off the short list of people to talk in 2010 at the NASSM?
I think both Wagoner and Lutz have great minds, and like any public role... well, the news that's told is always the bad news, and 1,000 folks have better ideas. However, if those 1,000 folks had access to the same information that Rick and Bob do.. well, I bet 900+ of them would make the same / similar decisions.
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Originally Posted by Snugglebear
Finally, I really have to wonder if the WTO will take a shot at the US if we bail out the big 3. That's got to break a few trade rules if it's targeted only at the domestics and worded such that the other manufacturers with a presence here who are foreign owned cannot make use of the facility(ies).
That's easy.... you can write the requirements so that it fits the criteria that only the domestics can qualify. Something along the lines of bond rating of less than A, debt ratio of X, etc. It can be done, legally, and I'm sure it will... people would go nuts if we ended up giving the money to non Big 3 (rightfully or not, people would be upset).
I'm sorry you feel that way... should I scratch him off the short list of people to talk in 2010 at the NASSM?
I think both Wagoner and Lutz have great minds, and like any public role... well, the news that's told is always the bad news, and 1,000 folks have better ideas. However, if those 1,000 folks had access to the same information that Rick and Bob do.. well, I bet 900+ of them would make the same / similar decisions.
Not at all. Regardless of how poorly I think he's done, I'm certain he still has something interesting to say. My gut feeling about Wagoner is that his hands are tied by pre-existing forces (union, culture, board members, etc.) which prevent any sort of radical or quick shift in strategy or execution at GM, hence the slow pace of change there. It's my own frustration he's done little, which is publicly visible, to fight back. The end result is he comes off looking like a bobblehead while things continue to get worse.
As for Lutz, he's doing a pretty decent job of it.
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Originally Posted by rlhammon
That's easy.... you can write the requirements so that it fits the criteria that only the domestics can qualify. Something along the lines of bond rating of less than A, debt ratio of X, etc. It can be done, legally, and I'm sure it will... people would go nuts if we ended up giving the money to non Big 3 (rightfully or not, people would be upset).
The WTO may see through that, however. Your guess is as good as mine whether it would work.
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