General Motors Needs a Pit Stop to Brake Slide: Mark Gilbert http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_gilbert&sid=a8ENDuudqUMQ March 18 (Bloomberg) -- David Cole, president of the Center for Automotive Research in Ann Arbor, Michigan, blasphemed the auto industry in January by suggesting a U.S. automaker might go bankrupt. After General Motors Corp.'s bombshell this week, his words don't sound so profane. Here are the lowlights of what General Motors told investors two days ago. Instead of breaking even in the first quarter, it now expects a first-quarter loss of $1.50 per share. Instead of earning $4 to $5 for the year, the best that investors can expect is $2. Cash flow will be a negative $2 billion, not the positive $2 billion the company forecast as recently as Jan. 13. If you erased the company name from the balance sheet and showed it to a forensic accountant, the recommended treatment would probably be to seek protection from creditors by filing for Chapter 11 bankruptcy. It worked for the airline industry; the board of General Motors should be considering radical surgery before the patient finally turns up its toes. If you want to insure $10 million of General Motors debt against the possibility of default in the next five years, it'll cost you more than $300,000 a year. That's up from $200,000 in December, and double the cost of protection a year ago. Seeking Protection General Motors has a market value of about $16 billion. It owes its bondholders seven times as much, with debts of more than $115 billion. Pension liabilities and health-care costs are crippling the company at a time when its market share is collapsing -- the kind of car crash that U.S. bankruptcy law is designed to avert. The Pension Benefit Guaranty Corp., a U.S. government agency that insures the pensions of more than 1 million retirees, said last week it's taking on the retirement plans of 36,000 employees of United Airlines, whose parent company, UAL Corp., has been operating under bankruptcy protection for two years. U.S. Chapter 11 rules give a company protection from creditors while it prepares a reorganization plan. United, for example, is trying to persuade its unions to let it switch to pensions based on workers' contributions rather than guaranteeing set benefits. United, the world's second-largest airline, has $1.2 billion of assets to cover $4.1 billion of liabilities. Bankruptcy Threat If General Motors, Ford Motor Co. or DaimlerChrysler AG's U.S. unit ``went into Chapter 11, several others would be forced into it from a competitive standpoint,'' the Center for Automotive Research's Cole told a Detroit conference in January. ``I'm not forecasting it, but the threat exists, he said. The Detroit News reported his comments. In the past 40 years, the number of car brands available in the U.S. has doubled, while the number of models has more than tripled, according to a presentation made by John Devine, chief financial officer at General Motors, in January. Every General Motors worker bears the pension and health-benefit burdens of 2 1/2 retirees. General Motors, Ford and Chrysler spend more than $8.5 billion each year providing health care for employees and retirees. General Motors alone covered more than 1.1 million people at a cost of more than $4.8 billion in 2003. That's $1,400 for every vehicle it built in the U.S., at least double what its non-U.S. competitors spend. Those health-care costs climbed to $5.2 billion last year, and are forecast to rise to $5.6 billion this year, General Motors said on Jan. 13. Swamped by Costs Devine said in January those costs are ``unsustainable'' and a ``tremendous drain on earnings and capital.'' The company said earlier this week that ``legacy costs are swamping what is a profitable operation.'' General Motors Chief Executive Officer Rick Wagoner told the Detroit News on Jan. 10 that ``the most important thing for a business is that the base business must be operating well. You look at who went into Chapter 11. How did it work out for all their constituencies, customers and shareholders? It's a mess.'' The horrible truth is that the base business at General Motors isn't operating well. Its share of U.S. auto sales has dropped below 25 percent. Standard & Poor's this week cut the outlook on its BBB- rating on GM, already the lowest investment- grade level, to negative, saying ``the rating could be lowered at any point if we came to doubt'' that the company's financial situation was improving. Cole from the Center for Automotive Research told the Detroit News in January that ``the conditions are falling into place like a weather front. Our objective is to give people a picture of what could happen and address it before they have to scrape it off the wall.'' The U.S. auto industry, he said, is ``on the edge of going out of control. This is absolutely not sustainable.'' There's a twist to Cole's warning about the threat of bankruptcy. His father, Edward, was president of General Motors from 1967 to 1974. To contact the writer of this column: Mark Gilbert in London at magilbert@bloomberg.net. To contact the editor responsible for this column: Bill Ahearn at bahearn@bloomberg.net. Last Updated: March 17, 2005 19:09 EST
They will build more front wheel drive cars! They will build more 4 cyl cars with SS badges! They will make more SUV's with a diffrent nose for every division! They will sell the Silverado/Sierra as a rebadged Isuzu! They will make four wheel drive trucks 4" lower than the current models! They will put IRS in pickups! They will put (only) automatics in all vehicles! They will bring back the Camaro as a rebadged Suzuki! In general they will keep building overpriced garbage that that has zero styling!
I agree that GM is in trouble on several fronts. Just like most "big business run by MBAs with no connection to reality and only focused on short term returns for stock holders" they have gutted the company and depended on existing historical momentum to carry them through for a couple of years (8 whole quarters! Yippie! ) of inflated profits while they gut the infrastructure and consume all the economic momentum in a "blue chip" powerhouse. They build a rep for "getting returns" and get "picked up" by some other "board" wanting to "cash out" in the next few years so that yet another company gets gutted. It's not the US worker that's killing US industry profitability nearly so much as it's the US *MANAGEMENT* approach to business in general. And as part of that trend of "gutting the company for short term inflated revenue", they don't innovate, hire/retain top designers, build new and efficient production facilities and so forth. These are all LONG term investments that often will not affect the bottom line for AT LEAST 5 years. Something MBA types typically consider as not worth considering. And other companies besides GM have this same problem to varying degrees. Ford may have that cool new Mustang and the SD trucks, but what else do they have? A full lineup of uninteresting and overrated SUVs along polished turd egg mobiles. What does DC have? A far less attractive pickup body (and most people seem to agree) that still does not have a real CC or even a chassis cab, and a bunch of rebadged imports. Wonder why "imports" are becoming ever more popular in the US? This is just my opinion on the matter, and I'm as disgusted with GM offerings as anybody, but the previous post makes me pause. Comments in-line. Anyway, yes, I think GM is imploding after being "gutted" by MBAs and "the board" for the last however many years. They will either have to get someone in with "long term vision", which will suck for all of us in the short term as they try to get back on their feet. Or, they will do like CDP did and keep going for "short term returns" at the expense of infrastructure until they have to have a government buy out. IMO, and I'm no economist at all, the latter is more likely since it is the most "profitable" way to go for the upper management and investors.
Yes it makes since on a economy car and such as well as assembly cost but when a car company does not provide a RWD to it's customers then it loses them to a company who will. Yes I know GM makes RWD cars, but it's only a few models, clearly not enough to keep it's customers. Cobalt SS! Well lets see. You can get a midsize SUV from Ford in a Ford, Lincoln or Mercury. Now lets look at GM's midsize SUV it can be had as a Chevrolet, GMC, Buick, Isuzu and a Saab. Three is to much but five is overkill. Well They're already doing it with the Colorado and Trailblazer! As a matter of fact that is all the Isuzu sells, why not another GM product. You need to take things with a grain of salt. So You like having low frame clearence on a 4x4? Why do You need a 4WD to *TOW* with? I have never known of a Peterbuilt that needed a front drive axel to pull a trailer! Please do not preach to me on how to tow, I do it for a living and have forgoten more than You will ever know! Again, You need to take things with a grain of salt, and maybe not write so much.
LOL, that's just my style and also an attempt at CYA. Every time I try to distil things down, there is a misunderstanding. To avoid that takes a lot more time than typing for me. I happen to type very fast so I try to be as complete as possible to head off confusion and further questions. So, I'll try to keep it (relatively) short just for you. I know nothing about Cobalt, SS or otherwise. Sounds reminiscent of Ford with the Mazda made "Escort GT". I don't think anybody is making many RWD cars any more. And I agree that many customers will go elsewhere when they don't find what they want, assuming anybody even makes what they want. But for many, whether because of brand loyalty or simply the fact that NOBODY makes what they want any more will continue to buy GM, at least for a while, and that's what the MBAs are counting on. But eventually, as the "momentum" I mentioned wanes, they will go to another brand, but not before the MBAs have "succeeded" in building a name for themselves with large short term profits so they can move on to another company before the one they gutted tanks completely. On the midsize SUV, WOW! I guess your talking about the Trailblazer? I had no idea it was available in those other flavors. I was only thinking about the larger versions that (I think) only come in Chevy & GM as compared to Ford/Lincoln/Mercury. At that level it's 2 to 3 in GMs favor by your reasoning, but still "not good". I also don't know anything about the Colorado. Is it a rebadged Isuzu? Based on your post, I guess so, but I don't pay any attetion to that market. Still, really no different from Ford with it's Mazda Rangers though... Hmm, who makes the S10? Does GM still make that? I think so, but not sure. Kinda irrelevant given the forum focus though, as is the mid-size stuff. <Warning: Going OT> As a matter of fact I *DO* need a 4WD to tow. I've had to drag my trailer through ice and snow. On more than one occasion I've gone up icy onramps where 2WDs literally could not make it up and were sitting on the side watching as I drove away. I've also towed my truggy to trail heads where 2WD tow rigs got stuck and had trouble resulting in precarious backing to get out where I went right on through. I've also pulled a few of them out when stuck at camp sites and such. So yes, IMO I do *NEED* 4WD thank you very much. And I also DONT NEED or want a higher center of gravity or a more serious off-road truck. Since when does 4x4 mean it must be used for serious off-road work? Asside: Just noticed I said "I don't need IFS for that" in the previous post, but what I meant was (roughly) "I don't need SFA and prefer IFS". And I really couldn't care less whether you tow for a living or not, nor how much you have forgotten. If I feel I need 4x4 in my tow vehicle, then that's how I feel. Your experience in a totally different world (OTR trucking I guess?) is pretty much irrelevant to what I do or what I need in a truck since OTR (or even hot-shotting) goals and needs are totally different than my own. And if you think that my post was "preaching on how to tow", you need to reread and "take it with a grain of salt". But that's far enough OT here, too far in fact. If you wish to discuss further the use of 4x4 trucks for towing, I would suggest starting a post in General, Brand Wars or some other place more appropriate. I'll be more than glad to hash it out with you in the right forum, and maybe you can change my mind, who kows. But lets keep this thread on the GM screw-ups topic, lord knows there is plenty of material to keep things hopping on that alone… Oh well, so much for keeping it short. :doah: [Edit] Oh, BTW, welcome to TowRig!
