Two part blog entry on GM

[RichardJensen]

http://blueovalblogs.com/blogs/?p=94 GM: Part 1

 

http://blueovalblogs.com/blogs/?p=95 GM: Part 2

[NickF1011]

Good reading. I have a question for you though: If you would demand removal of Rick Wagoner for a GM bailout, would you also demand removal of Alan Mulally for a Ford bailout? I'm sure you wouldn't, but is congress, in their infinite wisdom, smart enough to tell the difference between the two situations?

[RichardJensen]

Good reading. I have a question for you though: If you would demand removal of Rick Wagoner for a GM bailout, would you also demand removal of Alan Mulally for a Ford bailout? I'm sure you wouldn't, but is congress, in their infinite wisdom, smart enough to tell the difference between the two situations?

Thanks,

 

One word: Tenure

 

Wagoner has been CEO since 2000.

 

===

 

I would anticipate that there would be no statutory requirement for management change, but the program administrators would be wise to require it in GM's case.

[BORG]

I've been BEGGING for this from you Richard, Thank You!

 

GM's argument is that it's not their fault that GM failed, but the financial crisis. It's the fault of Wall Street silly, not Rick! Therefore he should stay!

 

I'm really opposed to bailing out Detroit without significant prejudice toward GM for their astounding level of mismanagement and lack of commitment to any meaningful restructuring. Ford is the only company from Detroit that would be in profit if it wasn't for the financial crisis, they are the only company worthy of a bailout IMO.

Edited November 12, 2008 by BORG

[kyle]

I've been BEGGING for this from you Richard, Thank You!

 

GM's argument is that it's not their fault that GM failed, but the financial crisis. It's the fault of Wall Street silly, not Rick! Therefore he should stay!

 

I'm really opposed to bailing out Detroit without significant prejudice toward GM for their astounding level of mismanagement and lack of commitment to any meaningful restructuring. Ford is the only company from Detroit that would be in profit if it wasn't for the financial crisis, they are the only company worthy of a bailout IMO.

 

So what you are saying is it is ok for GM and Chrysler to declare bankruptcy? Then GM and Chrysler start over-with government help (trust me they are not going to file chapter 7) and have a huge cost advantage over Ford-then Ford follows with a bankruptcy of their own because they cannot compete.

 

It is going to happen and has to happen for all 3. They are tied in together, almost like conjoined tripplets. How many suppliers do you think would fail if Chryler goes under? These same suppliers are working with Ford developing product, etc.

 

The domestics top management can be argued all day long-and if you want to go on tenure Bill Ford Jr. has been around just as long as Wagoneer-so not sure that would hold water. The question is do you want a government employee running GM, Chrysler or Ford?

[RichardJensen]

So what you are saying is it is ok for GM and Chrysler to declare bankruptcy? Then GM and Chrysler start over-with government help (trust me they are not going to file chapter 7) and have a huge cost advantage over Ford-then Ford follows with a bankruptcy of their own because they cannot compete.

 

It is going to happen and has to happen for all 3. They are tied in together, almost like conjoined tripplets. How many suppliers do you think would fail if Chryler goes under? These same suppliers are working with Ford developing product, etc.

 

The domestics top management can be argued all day long-and if you want to go on tenure Bill Ford Jr. has been around just as long as Wagoneer-so not sure that would hold water. The question is do you want a government employee running GM, Chrysler or Ford?

What would be the cost advantage? Hourly labor? That's on a par with the transplants (translation: it can't go much lower). Health care? That's the UAW's problem in 2010 (just around the corner). Parts and materials? Those can't go much lower either.

 

Pension expenses? Maybe.

 

---

 

Also, Bill Ford has been around LONGER than Rick Wagoner.

 

 

As chairman of the board.

 

As CEO his tenure has been significantly shorter.

[Pioneer]

Health care? That's the UAW's problem in 2010 (just around the corner

 

 

Only the retiree health care.

[kyle]

What would be the cost advantage? Hourly labor? That's on a par with the transplants (translation: it can't go much lower). Health care? That's the UAW's problem in 2010 (just around the corner). Parts and materials? Those can't go much lower either.

 

Pension expenses? Maybe.

 

---

 

Also, Bill Ford has been around LONGER than Rick Wagoner.

 

 

As chairman of the board.

 

As CEO his tenure has been significantly shorter.

 

It will not be in parts and labor it will be in debt load. Some where Ford and everyone else who is borrowing the money will need to pay it back. Ford has access to the capital-because they leveraged everything early this year but it will require cash to pay it back. That is the one advantage of bankruptcy-fresh start and loss of the huge debts they are all carrying.

[RichardJensen]

It will not be in parts and labor it will be in debt load. Some where Ford and everyone else who is borrowing the money will need to pay it back. Ford has access to the capital-because they leveraged everything early this year but it will require cash to pay it back. That is the one advantage of bankruptcy-fresh start and loss of the huge debts they are all carrying.

Yeah, but I don't think GM or Chrysler needs to file Ch. 11 to get better loans from the gov't.

 

Which means Ford doesn't either.

 

I think all the auto makers will be able to refinance their debt load under more favorable terms backed by the gov't.

 

---

 

And the debts the companies are carrying aren't that stratospheric either. GM's problem isn't debt load, it's cash on hand.

[toyboxrv]

Who would be capable of running GM if Wagoner was thrown out? Not many people out there who could and most would not take the job. Anyone the government would put in would likely not help anyway.

 

Why is it that dumping the Big 3 financial problems on those that loaned them money is a great solution? Is there no down side to that or since it's not your money some don't care?

[RichardJensen]

Who would be capable of running GM if Wagoner was thrown out? Not many people out there who could and most would not take the job.

Lou Gerstner for one--if he wanted to be involved.

[Edstock]

IMHO, Gerstner would probably be a good choice.

[jafo]

There is no good away to avoid pain. We can feel it now or we can feel it later.

 

If GM has too much excess capacity, it has to sold off. I want the big 3 to survive, but we should not subsidize excess capacity. Subsidizing their excess capacity only drags out the pain.

 

And if you going to throw management out, you might as well throw out the union contract and start over on that too.

Edited November 13, 2008 by jafo

[RichardJensen]

excess capacity is a function of market size and market share.

 

GM needs to build more market appropriate products and adapt to a realistic market share.

[jafo]

excess capacity is a function of market size and market share.

 

GM needs to build more market appropriate products and adapt to a realistic market share.

 

 

IF they have excess capacity, they need to get rid of it. They can rebuild capacity after they have downsized. We should not be subsidizing their production until they figure out what they need to be making.

[RichardJensen]

IF they have excess capacity, they need to get rid of it. They can rebuild capacity after they have downsized. We should not be subsidizing their production until they figure out what they need to be making.

Well, the two sides to that are:

 

1) GM's capacity wasn't awful before this year's market collapse

 

2) GM's product portfolio is in need of more rationalization than their factory footprint.

 

In terms of capacity, GM is in roughly the same boat as Ford--reasonable but not outstanding utilization for a 16-17M/year market.

 

However, GM did not have a major program in place to retool the plants for new customer demand. GM--and this starts with Wagoner--has not bought into the 'build what the market wants' philosophy. They still see this as a product driven marketplace, and it just flat isn't anymore.

 

This is a consumer driven marketplace, and you just do not hear that talk from GM managers. Instead you hear them talking about 'positioning' their product against other product:

 

Saturn is our import fighter

Buick is our Lexus fighter

Cadillac is our BMW fighter

 

etc.

 

Instead of saying:

 

Saturn is for people that subscribe to "Real Simple" Magazine, who like a no-hassle purchasing experience, and who will pay a little extra for better service.

 

Buick is for people that are a little more cosmopolitan than our Chevy and Pontiac customers--although their budget is about the same. Sure, our Buicks look a lot like Chevrolets, but we've found out what our customers want to look different.

 

etc.

 

See, it does not seem to me that GM's brand managers have ever looked at their brands in terms of attainable customers, as opposed to comparisons with competing products.

 

Also, I'm not going to say GM has too many brands: Buick/Pontiac/GMC is as viable as Lincoln/Mercury

 

Provided GM structures the division accordingly.

 

That means minimal differentiation in sheetmetal--maximal differentiation in 'style'--finishes, brightwork, etc.

 

AND NO DUPLICATE PRODUCTS: e.g. Enclave OR Acadia, not both; G8 OR Lucerne, not both (yes--different platforms, but same basic size and segment).

 

----

 

I mean that's just my seat of the pants take on GM's real problems, as opposed to the chimera of capacity.

[jpd80]

excess capacity is a function of market size and market share.

 

GM needs to build more market appropriate products and adapt to a realistic market share.

If GM is to survive with government loans, that means its debt increases and so too its repayments.

Hmmm, more repayments while downsizing capacity and building products people want to buy.

 

That sounds like the way forward to me......

Edited November 13, 2008 by jpd80

[LSFan00]

Your post is premised on a misunderstanding of the bankruptcy system and process. There won't be massive migrations and wholesale shut downs if they file to reorganize. It's a situation analogous to the large airlines that have filed for bankruptcy usually 2 or 3 times before being forced to liquidate. They'll get multiple opportunities to forgive debt, renegotiate wholly labor contracts, and most businesses will NOT be sold off in the process.

 

Federal trustees run a huge number of businesses. The trustee will have enormous power to liquidate losing assets but that is not something that is wielded losely. It's a gamble because the company loses power/control in many respects, and of course creditors and stockholders lose, but it absolutely will not be an event where the US government trustee shutters 50 percent of the GM facilities.

 

Adding 50 billion in debt to it's current structure though, does not solve one damn thing.

[kyle]

Yeah, but I don't think GM or Chrysler needs to file Ch. 11 to get better loans from the gov't.

 

Which means Ford doesn't either.

 

I think all the auto makers will be able to refinance their debt load under more favorable terms backed by the gov't.

 

---

 

I agree with that. You just can't help one without the other, nor can the government appoint a person to run the company.

[jpd80]

Your post is premised on a misunderstanding of the bankruptcy system and process. There won't be massive migrations and wholesale shut downs if they file to reorganize.

 

Adding 50 billion in debt to it's current structure though, does not solve one damn thing.

Remember the credit crunch everyone is talking about?

There is now no credit available in the financial market for reorganising under Chapter 11.

 

GM's only hope now is the government supplying loans to keep sufficient cash at hand and yes,

giving GM more credit meerly stalls the inevitable downsizing for Detroit and the parts supply industry.

[LSFan00]

The credit market has very little to do with the negotiations between a lender and borrower who is reorganizing. The trustee can wipe out debt and that's not easy for a lender to deal with; working capital for a GM in bankruptcy would be readily attainable. Folks lending at that point would be first in line to get paid back. There is plenty of capital out there, it's just not being lent due to the inflation/market factors (growing a business is tough right now; so's lending your money to someone who wants to do that).

 

GM getting capital in bankruptcy is a vastly different situation than their borrowing situation of today. Hell, the government's already trying to basically give them money, pre-bankruptcy, without any inkling of management strings/long term plans etc.! Only in America...

[theoldwizard]

Remember the credit crunch everyone is talking about?

There is now no credit available in the financial market for reorganising under Chapter 11.

Case in point, Delphi !

 

I was shocked that GM came out and said that Delphi may not make it out of Chapter 11. It is true, but that had to be a "shot to the heart" of Delphi management and employees who still had a shred of hope that they might make it.

 

Visteon is in even worse shape. Ford has de-sourced on almost everything.

 

I expect Delphi and Visteon will both cease operations in 2009. Some plants might survive, at least short term.

[LSFan00]

"Should U.S. taxpayers really be providing billions of dollars to bailout companies (GM, Ford and Chrysler) that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?"

 

Link.

[NickF1011]

"Should U.S. taxpayers really be providing billions of dollars to bailout companies (GM, Ford and Chrysler) that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?"

 

Link.

 

I'm not an uber-union supporter, but I won't even begin to tear apart the misleading statistics used in that passage.

[jpd80]

The credit market has very little to do with the negotiations between a lender and borrower who is reorganizing. The trustee can wipe out debt and that's not easy for a lender to deal with; working capital for a GM in bankruptcy would be readily attainable. Folks lending at that point would be first in line to get paid back. There is plenty of capital out there, it's just not being lent due to the inflation/market factors (growing a business is tough right now; so's lending your money to someone who wants to do that).

 

GM getting capital in bankruptcy is a vastly different situation than their borrowing situation of today. Hell, the government's already trying to basically give them money, pre-bankruptcy, without any inkling of management strings/long term plans etc.! Only in America...

No, No you dont get it.

The lending market is frozen, no one is lending either side of Chapter 11 except for the government.

There is no refinancing option, GM needs cash through loans to keep its operation going.

Thye are either in business or Chapter 7.