Things are really really bad at GM

[bigblau]

The key for success in any industry is good management. While most automakers like GM, Ford, Chrysler, BMW, Mercedes, etc. are seeking their governments to bail them out of trouble when the economy takes a downturn, Audi just keep on ticking. Why is that? IMO it’s because Audi management is run by competent business managers that understand their core business by offering their customers alternatives and perceived value.

Newer models have helped Audi sidestep the effects of the financial crisis, which has eroded sales at rivals Bayerische Motoren Werke AG and Daimler AG's Mercedes-Benz. Audi said today that October sales rose 7.2 percent to 82,400 cars and sport- utility vehicles, led by growth in China and Italy and demand for new versions of the A4 and A6 sedans. BMW's sales, by contrast, fell 8.3 percent to 113,005 last month, while Mercedes-Benz's deliveries plunged 18 percent to 93,800 vehicles.

Bloomberg.com: Europe

[mena661]

IMO it’s because Audi management is run by competent business managers that understand their core business by offering their customers alternatives and perceived value.

I would hardly call a .3% sales increase, "competent business". Nissan had a 13.6% increase back in August when nearly everyone else was in the ****ter. Was that competent business practice too? As a matter of fact, Audi was down 15.9% in that same month. Hmmmm.

[dave clancy]

GM needs a bail out to survive right now. The high gas prices have hurt the economy plus all the unfair trade policies. Do you know how hard it is to sell a american car in Japan? They protect their turf by keeping their market to themselves. If the big three go under it will cost five million american jobs. Things will get better with a strong auto industry. Remember the big three saved our country during world war two, converting the factorys in to building tanks and other stuff. Whats good for GM is good for the country.

[Moose GXP]

Let's all remember that Audi isn't a company, but a 'brand' owned by VW.

[WWI Flying Ace]

Originally Posted by dave clancy Remember the big three saved our country during world war two, converting the factorys in to building tanks and other stuff. Whats good for GM is good for the country.

AMEN!!!!!!!!!!!!!!!!!!!

[Kappster]

Maybe GM should market their cars in Mexico. Sell all they can there. Ford and Chrysler too. Thats where they have been sending all the real paying jobs for I don't know how many years.
I think we all knew that this was going to happen sooner or later.
Manufacturing is where the profit made. Not in any kind of services.
Average mean income for Americans has been going down for at least as long as NAFTA has been here.
So give almost free credit for homes and then prices go up and people use (home equity) (Credit) for money to consume products. Well now thats finished. NO MONEY! NO CREDIT, NO QUALITY JOBS! NO BUYING!!. DUHH!s
Sure the government can prop up GM for a time but how much time till the people will be making real money to buy cars to keep GM open. When could that be? is the government going to force corporations to bring back Manufacturing?
Is the Government going to stop taxing Americans?? Are they going to start taxing imports??
If they don't there will still be no money for years to come, no sales and no GM. And in a few years, no retail stores except maybe food.
Some want to blame unions. Well blame them all you want. But if the government is taxing you 25% and the companies 40% then guess why everything cost about 65% more than its worth. And why people have to have high wages just to survive.
The Corporations should have taken the high road and lobbied the government for a real free market (no taxes) instead of slave labor (NAFTA) then USA citizens would be able to buy products with out crazy credit.
To buy products you have to have money. because of Federal taxes at every turn Americans have not been able to buy what they made for a long time.
Made in China=30cents per hour. yea I can Just afford to buy that today. What about tomorrow?
Whos minding the Store?

[Lenny]

The cost cuts being made now are the most drastic I have seen in 16 years. I wish I could be more specific, but I can't.

[rlhammon]

Originally Posted by Lenny The cost cuts being made now are the most drastic I have seen in 16 years. I wish I could be more specific, but I can't.

Yeah... there are some serious things taking place right now... no doubt about that.

1) Truck development stopped
2) New car development delayed / halted due to capital concerns
3) White collar and blue collar layoffs / buyouts
4) Closing of plants
5) Idling of production... this is going to be huge the rest of the year IMO.

Unfortunately I don't think the majority of the American public understands what has been done (contracts this year which shifted $5B over from GM to the UAW), what is being done (above), and what's been considered.

No matter how you slice the pie... NO company, in any industry, had forecasted this sort of downturn. If the economy had not fallen apart, I *think* (and yes, there is no way to ever know) GM had a good plan and was on their way to better days on their own even with the high gas prices. It's the credit issue that's killing them... most folks finance their vehicles, and without the ability to get financing... it doesn't matter what GM does.

Believe me.. they DO NOT want to file Chapter 11. The psychological effect that will have on the car consumers is going to be more detrimental than the perceived quality issue is today. It will also be one that they can not market themselves out of... as they will be in the news constantly under bankruptcy or when emerging from it down the road.

[Fformula88]

Originally Posted by rlhammon Yeah... there are some serious things taking place right now... no doubt about that. 1) Truck development stopped 2) New car development delayed / halted due to capital concerns 3) White collar and blue collar layoffs / buyouts 4) Closing of plants 5) Idling of production... this is going to be huge the rest of the year IMO. Unfortunately I don't think the majority of the American public understands what has been done (contracts this year which shifted $5B over from GM to the UAW), what is being done (above), and what's been considered. No matter how you slice the pie... NO company, in any industry, had forecasted this sort of downturn. If the economy had not fallen apart, I *think* (and yes, there is no way to ever know) GM had a good plan and was on their way to better days on their own even with the high gas prices. It's the credit issue that's killing them... most folks finance their vehicles, and without the ability to get financing... it doesn't matter what GM does. Believe me.. they DO NOT want to file Chapter 11. The psychological effect that will have on the car consumers is going to be more detrimental than the perceived quality issue is today. It will also be one that they can not market themselves out of... as they will be in the news constantly under bankruptcy or when emerging from it down the road.

I agree that GM was getting a better business model in place. With the recent restructuring of the UAW contract, funding and then turning over the health care to the UAW to remove it as a corporate expense in the long run, and higher quality, more efficient products on the near horizon such as the Chevy Cruze and the 1.4L SIDI turbo engine, I think they were really getting on a better road. All that builds on some other recent successes, the Malibu and CTS among them.

A little longer ago, but not much, they also decided to shed a lot of excess operations to focus on their core operations. They sold their stakes in Subaru and Suzuki for instance. Part of this was to raise capital, but it also removed some distractions.

Unfortunately, the reason they were doing this was that they were not real healthy to begin with, and this fiscal crisis has really exposed their weak financial position. Had the industry remained where it had been, their structural changes may have had a profound affect on the bottom line, and their upcoming vehicles appear good enough to appease people who might think of leaving.



All of this begs a question in any bailout scenario too. A lot of people seem to think a bailout should require a removal of top management among other things. However, nobody seems to want to really determine if that is wise. For GM, you have a management team that has been in place for a while. So maybe they are associated with the problems. Yet, they have been changing a lot of things at GM too, and the product portfolio is better than it was before they came aboard. Have they done a bad job? Or have they done a good job? It’s easy to blame them, but it is also possible they have done the best job possible, all things considered. Especially considering GM’s fast and profitable growth in other markets, Asia (Especially China where GM has the highest market share), Latin America…

If you toss these guys, who do you get to replace them? Will they be any better?

What about Ford and Chrysler? Could you keep their management while tossing GM’s? If not, would you really toss Mullaly from Ford, who just came over from Boeing and appears to be doing well. Or would you can Jim Press from Chrysler who just came over from being the head of Toyota North American Operations and a member of their board of directors?

Any bailout should have conditions that continue to try and cut costs and allow the big 3 to be competitive, but as a government, any bailout should also be careful on what is dictated to avoid throwing the baby out with the bathwater, or mandate development of specific types of products that may not sell or be profitable.

[Snugglebear]

Originally Posted by Kappster ...

To be completely honest, every worker has plenty of opportunities in life to better themselves and find something else to do if they feel the desire. There are some types of manufacturing jobs that will always require human expertise and true craftsmanship. There are others that are better and more cheaply done by robots. If you're in a job that does the latter and you're worried, better yourself and find a more secure job. This is not an impossible task.

As for unions in general, tell me what the two fleet rule under CAFE is all about? Oh, that's right, it's the thing that's preventing the domestics from importing fuel efficient cars from overseas and getting CAFE credit for them. Oh, that's right, it was the UAW's baby in the 70s to protect American jobs. Oh, that's right, it's been crippling the domestics for the last decade as they've expanded into Europe and Asia. Oh, that's right, it keeps the foreign companies with a domestic presence from building cars with more domestic content here less the balance of their fleet mileage gets thrown off. Good job UAW!

Originally Posted by Lenny The cost cuts being made now are the most drastic I have seen in 16 years. I wish I could be more specific, but I can't.

Nobody is denying that they're not. We're arguing that it's too little, too late, and their hands are still bound from making other cuts which would have better payoffs. As Hammon makes a point about, the plant closings are great, but unfortunately doing so drains cash. It also doesn't stem the losses from idling union workers who still have to be paid regardless of whether they're working.

Originally Posted by rlhammon No matter how you slice the pie... NO company, in any industry, had forecasted this sort of downturn. If the economy had not fallen apart, I *think* (and yes, there is no way to ever know) GM had a good plan and was on their way to better days on their own even with the high gas prices. It's the credit issue that's killing them... most folks finance their vehicles, and without the ability to get financing... it doesn't matter what GM does. Believe me.. they DO NOT want to file Chapter 11. The psychological effect that will have on the car consumers is going to be more detrimental than the perceived quality issue is today. It will also be one that they can not market themselves out of... as they will be in the news constantly under bankruptcy or when emerging from it down the road.

Part of it is the credit problem, most of it is psychological. There's really very little in the way of most consumers buying a car right now aside from fear, plain and simple. They're afraid of the being stuck with a fair chunk of debt and losing their job, watching their investments disappear, not having enough for their kids tuition, etc. The increased credit requirements are adding to this fear since most people think they won't be able to get a loan. This isn't quite true, as with a significant down payment you can sure get one. Granted, the interest rate is still pretty high unless you can snag a special deal. This fear is a self-perpetuating cycle, so as more people seize up and stop buying, still more see drop in activity, increased fear, resulting layoffs, etc., and seize up as well. As I've been saying for months, the real problem is breaking through this ice and restoring some measure of confidence.

As for GM & BK, just the discussion of it is certainly turning off some consumers. However, GM's numbers are still in line with industry aggregates, so I don't think it is a big of a factor as it would seem to be or Donny Deutsch makes it out to be. All the friends I have who are into finance and economics agree GM is a conundrum. They need to survive but they need massive restructuring which they cannot get without BK courts. They also need cash to continue to survive. A government handout will not do the trick, it will just allow them to limp on further, same as the UAW contract from last year.

Originally Posted by Fformula88 All of this begs a question in any bailout scenario too. A lot of people seem to think a bailout should require a removal of top management among other things. However, nobody seems to want to really determine if that is wise. For GM, you have a management team that has been in place for a while. So maybe they are associated with the problems. Yet, they have been changing a lot of things at GM too, and the product portfolio is better than it was before they came aboard. Have they done a bad job? Or have they done a good job? It’s easy to blame them, but it is also possible they have done the best job possible, all things considered. Especially considering GM’s fast and profitable growth in other markets, Asia (Especially China where GM has the highest market share), Latin America…

Those teams can remain around as advisers but most will need to go. Mullaly has done a good job at Boeing and a good job at Ford. Since they're not going to go pop soon, he should stay on. Chrysler's problem is Nardelli, who showed his true talents at Home Despot. As I've said about Wagoner, he's a decent guy but won't antagonize the union. He must do that for GM to survive. The cuts obtained from the UAW last year aren't bad, but they may come too late and they need to stop paying furloughed union employees today.

On the side, and this is honestly something I don't know, are GM's overseas units run by region or is it all strict command and control from Detroit?

[Yamatr3]

GM sold their share in Suzuki today. It wasn't much, 3%, but they are doing whatever they can judging from this move. They may even sell the rest of their share in Isuzu too.

[Fformula88]

Originally Posted by Snugglebear On the side, and this is honestly something I don't know, are GM's overseas units run by region or is it all strict command and control from Detroit?

To my knowledge (and I could be wrong) is that the oversees operations are ultimately answerable to Detroit. I cannot comment on how strict the command structure is. However, the overseas units are doing well enough that it is seen as a possibility, in the event of a bankruptcy, that GM could spin off the North American operations. I am not sure in that scenario whether the command structure would go with the new GM Global, leaving GM NA to a new command structure and the trustee in bankruptcy, but it would make some sense for some of the executive staff to go with the Global unit to save their salary and bonus potential. The main thing is that it would shield the Global unit's assets from the bankruptcy proceedings. It is essentially what Delphi did.

Oh, and I agree things are a little too late now in regards to what Wagoner has done. He has been with GM a long time now in the CEO role, and every couple years he roles out a new restructuring doing a little more, but never really stopping the red ink.

[Moose GXP]

The only GM region that made a profit last quarter was GMLAAM...all other Global regions reported a loss. The thought that GM's global operations are strong is a fallacy. The global financial crisis has caught up with all regions. Sure, these other regions are stronger than North America. That is true.

[SolsticeMan]

What's with the "US Domestics build vehicles people don't want to buy" bullcrap?

1 out of every 2 vehicles bought in the US? From GM, Ford, or Chrysler.

1 out of every 4 vehicles bought in the US? From GM.

I wouldn't call that "vehicles that people don't want to buy." GM, Ford and Chrysler all built vehicles that people bought. Plain and simple. In fact, it was such a good idea that Honda eventually came up with a "sortof" truck, and Toyota invested many yen to build a 300,000 vehicle/year capacity....

...wait for it...

...TRUCK PLANT. To build an inferior truck than the US domestics already make. Worse mileage, lower power....



We ALL know that people simply stopped buying trucks, right? No more gas guzzling trucks, right? We're all just buying small cars now...


...really.


But, really?

Well, let's just have a look at the data.


Top selling cars in the worst month in last decade or so (October 2008) - the month that no trucks are selling anymore:

Camry 30,270
Impala 22,107
Corolla/Matrix 20,530
Accord 18,502
Altima 17,753



That's a buttload of cars. So trucks must be pretty much dirt by now, right?


You would think that if you listened to the soundbyte-oriented, ADHD pundits who seem to hate on the US Domestics for purely emotional reasons.

And you'd be thinking wrong.



The top 10 vehicle sales for October 2008:

F-Series Pickup Light-Duty 40,052
Silverado Pickup Light-Duty 31,689
Camry 30,270
Impala 22,107
Corolla/Matrix 20,530
Accord 18,502
Altima 17,753
Ram Pickup Light-Duty 17,138
RAV4* 12,227
GMC Sierra Pickup Light-Duty 11,256


Combine the GMC Sierra and the Silverado (because they are essentially the same damn truck, one sold through the Chevy "channel" and one sold through the BPG "channel" [that's the Buick-Pontiac-GMC channel for the acronym-challenged] ), and you see that trucks are STILL - even in today's completely collapsing economy - the highest selling vehicles made for the US market.


The automotive market is what it is. Customers are fickle. They'll abandon you if your products suck. The truth is that GM, Ford, and Chrysler make the best trucks in the world. And even in a completely credit-frozen economy, people still buy them.

Fluke? Doubt it. The rank order for September 2007 sales is pretty similar, and the rank order for last year October is still pretty much the same - trucks rule the market. Even in today's economy.


So, yes, the market is probably turning away from trucks - cars are gaining on the 'market share', but trucks are still, and will continue to be, 'RELEVANT VEHICLES'. Why would ANY company - why SHOULD any company - walk away from that business? You HAVE to build the product that people demand. There is a demand, therefore trucks are here for a long time a-comin'.


Regardless of what the armchair CEOs all say.


The US domestics - prolly especially F and GM more than Chrysler - are... or at least were... on the verge of getting turned around. Unfortunately, they were mid-turn, broadside to the wave when it hit.


Many of us knew the collapse of the housing market was a-comin'. Many of us knew that the average consumer relied way too much on credit - and a reckonin' was a-comin'. Some of us were dimly aware of the unregulated markets in credit default swaps, hedge funds, and the misuse of Collateralized Debt Obligations - and the careless and unintended 'setting of the dominoes' in the rarified air markets (you know, the ones where you have to have liquid assets >$5million just to talk to the trading desks... the supposedly 'free' markets that the average joe that is worth $10million can trade in... THOSE free markets). Many of us knew that the dependence on a waning and unstable supplied commodity - supplied by countries we barely talk to - such as oil might create a problem.



Who knew that it would all be SO interlinked that as one problem emerged, it snowballed into the next? Why in the world would speculation in the oil market make any difference to mortgage credit? Why did the financials need a bailout because of trading in a market that mere mortals can't participate or weren't even AWARE of? What, besides SITTING ON IT, are the financial companies doing with the money Paulson MADE them take?


Nobody ever saw how interconnected all of this was. We all had parts of it, we just never saw it so intertwined.


There are three major debts that nearly every household has. They are, in rank order, 1) a Mortgage, 2) a car loan or obligation, and 3) credit card debt.

So, freeze up credit so hard that not even normal people have access to obtaining refinancing for their mortgage - is it any wonder that the mortgage crisis emerged? Likewise, make credit unavailable for any consumer to buy the next largest durable good - is there any surprise that the automotive market is next to collapse?


Wait until the oppressive loan shark.... I mean credit card market begins to fail... you think personal bankruptcies are high now.... just wait.



All of this, and I am amazed that people still see the automotive industry as "independent" from themselves. Californians as a general rule think that they have NO ties to the automotive industry. They say they don't buy domestics - but California buys a buttload of trucks.

A bankruptcy of GM/F/Chrysler doesn't affect just people you hear that are in the automotive industry. It affects all of us, like it or not. Letting them go Chapter 11 is a completely dangerous action with unknown and unknowable consequences. Note - I said CONSEQUENCES - not outcomes.

GM/F/Chrysler going Chapter 11 - precipitates a possibility that any or all of them might not be able to emerge and would continue on to Chapter 7. This is not a zero-probability. The thinking that 'it's not a big deal' is not the case.

We are all interlinked. We are all interdependent. Don't believe that? Just look at how world markets act - they nearly act in concert. How can that be? They're all completely independent markets, right?

Wrong.

I hate to use it, but it is like six-degrees-of-Kevin-Bacon, but it's more like six-degrees-of-the-US-Domestic-Auto-Industry. Everyone on this forum knows SOMEONE, and probably many someones, who will be DIRECTLY affected by a GM/F/Chrysler Chapter 11. For every one of those, there are 3-10 more that are indirectly affected - and I don't mean positively - by a Chapter 11 of the USDomAmMfrs.


So - I see the thinking that 'it doesn't affect me' is simply more of the same thinking that blinded us to the current global economic crisis.



To those that think a bailout is just throwing money down a rathole - look at it this way: there are two outcomes from this bailout.

1) the USDomAmMfrs get a bailout - continue to operate until the structural business changes take affect in 2010 - eventually pay back or reconcile the terms of the bailout. The Government might actually make some money. The economic downturn (recession) gets resolved, and the major housing and automotive markets stabilize. The USDomAmMfrs go on to create the next generation of vehicles that will truly be 21st century worthy. The Volt and E-flex is a darn good start. Cellulosic-based ethanol is another. Not a bad outcome.

or...

2) the USDomAmMfrs get a bailout - continue to operate into 2010... but can't get their poop in a group, even when the economy recovers and people start spending again. THEN, in a stronger economy, they declare Chapter 11 and do it at a time that the economy might absorb the significant and dire consequences. The Govt is out the pittance they have grudgingly provided - less than 5% of what they pledged to put into the financing industrial bailout. This would be a bad consequence.


BUT if there is no bailout - there is only the looming unknown of an industry-wide Chapter 11.

Will it be bad? No doubt.

Will it add to the already nasty economic conditions? Absolutely.

How bad could it get? Who does know? We do know that it would be bad. Worse than outcome #2 above.

How far reaching could it go? Who does know? One thing is for certain - it would reach far further than any of us can guess at this time. We underestimated the interdependence of many other economic markets - what, besides unbridled hubris, makes us think that we can predict how far intertwined the automotive market is with the US economy - or even the world economy, for that matter.

It's all a nonlinear-dynamic system. It is only generally predictable, and only over areas where the response surface is known, and in a truly dynamic response surface is only predictable for short term future results.

THEN how much would it cost us all to recover from the really really really bad economic conditions that would result from a significant shrinking of the automotive industry. It would CERTAINLY be more than $25B or even $50B.

For want of a dollar, the economy was lost...


As for me - better the devil you know.

Give the autos a bailout til the economy gets back and stabilized. Once we're in a better position - then cut 'em loose and let 'em go Chapter 11 LATER if they can't make it in a stable economy.


But don't make 'em do it now - in an economic crisis that isn't really of their own making...

[rlhammon]

Originally Posted by SolsticeMan What's with the "US Domestics build vehicles people don't want to buy" bullcrap? The top 10 vehicle sales for October 2008: F-Series Pickup Light-Duty 40,052 Silverado Pickup Light-Duty 31,689 Camry 30,270 Impala 22,107 Corolla/Matrix 20,530 Accord 18,502 Altima 17,753 Ram Pickup Light-Duty 17,138 RAV4* 12,227 GMC Sierra Pickup Light-Duty 11,256

Not that the entire post wasn't worth quoting.. but I just *had* to point this out again... even if it is directly under SM's original post.

I talked about this a little while ago, in fact Snugglebear was going to try to find the time to pull up the data on a comparison basis (class to class basis) to see what cars American's were buying. Well... this did it just as well, and furthers my point that the domestics are relevant.

Nice post... as always.