How GM can avoid bankruptcy

MSN Money ^ | 11/17/2005 | Robert Walberg

[Angry Republican]

The company is bleeding billions, but management is beginning to see the light. There are a few bold steps -- including the scrapping of one of its brands -- GM execs should take to keep the auto giant running.

According to some analysts on Wall Street, General Motors lost credibility last week when the company said that it would be restating 2001 earnings.

That’s what it took for GM’s management to lose credibility? How about years of mismanaging its production effort? Or refusing to aggressively streamline its product offerings, recklessly pursuing incentive strategies, failing to address ballooning health-care and pension liabilities?

In order for something to be lost you must have possessed it to begin with, and GM’s management team hasn’t had any credibility for years.

So now, as speculation mounts that General Motors will be forced into bankruptcy, are we really going to believe management when it says that it has no plans to file for bankruptcy protection? Of course not. Let’s at least hope management has begun to realize that it's a possibility.

Bleeding billions
General Motors is in a world of hurt. Even after the United Auto Workers announced Friday that it had ratified the deal to curb health-care costs, General Motors still faces a big uphill battle if it wants to avoid bankruptcy. One analyst has upped his odds for GM filing for bankruptcy protection within the next two years from 30% to 40%. Others have said it's almost a certainty.

Why all the pessimism? GM has been running through cash faster than Paris Hilton at a La Perla store. The company burned almost $10 billion over the past couple of years as the combination of high health care/pension costs, restructuring charges and soft sales slashed its cash horde by about a third.

[TheOracleAtLilac]

Didn't GM's chairman and CEO of GM China, Philip Murtaugh, "resign" recently?

Seems like you know Phil...

[taildragger]

Turk,Oh Gosh I just got your screen name. To Funny.

"Officer there is a man In A Major Domo Outfit and he is Farting".

Good Luck on the engine swap.

An LS6 guy, check out this application below!

www.v8seabee.com

[JasonC]

The Pontiacs are good, and they have been innovative with them. The G6 for example, the GTOs, the roadster this year. (They also make money hand over fist on Hummers, but that is another story). The clueless article writer mentions it as a brand to scrap, which is silly. They are bleeding cash because their SUVs made the most money and their sales have dropped sharply due to high gas prices. The last thing you do when that kind of demand shift occurs, is shut down the lines in the spot (passenger cars) the demand has shifted toward. Especially your best items in that spot.

[Brilliant]

But why don't you ask the question why? The UAW has a lot of influence over who the managers are. They want guys who are easy to deal with. And that means they don't want the smartest knives in the drawer.

[TheOracleAtLilac]

Bring back the 1969 Camaro body style

FYI, you can now buy a brand new '69 convertible Camaro bare body.

Enjoy !

[WilliamofCarmichael]

RE: Seems like you know Phil.

No I don't.

I am just waiting for the hammer to drop on Western "useful idiots" when the Chi-coms take Western property just as happened with the original New Economic Plan (Lenin's) that Deng copied years ago.

Only those Chi-coms are not quite so heavy handed as the old Soviet ideologues were. Some believe that the Chi-coms will just continue stealing intellectual property and drive the useful idiots out of business domestically in China and internationally.

There's a reason Lenin called Western capitalists, useful idiots.

[sittnick]

Until a few years ago,I saw far more Oldsmobiles in my neck of the woods than Pontiacs.....and far,far,far more than Saturns.

I think they chose the wrong division to kill off.

Killing Olds was a bad idea. Killing Saturn might be worse. You're in Massachusetts, I am in northwest Illinois, but lived most my life in Connecticut. Back east small car buyers typically buy Hondas and Toyotas. Here in the rust belt, you see a lot more Chevy Cavaliers and Dodge Neons.

What's more important is the fact that different car lines fare better in different economic climates. With high gas prices, Hummer sales go down, Saturn sales go up.

During the Depression, the top selling margue in the mid-30's was the value-priced Plymouths. Once a car line is killed off, so is the opportunity to take advantage of such a change in climate. What's more, in the case of Plymouth, Daimler-Chrysler had to put the economy-priced Voyager and Neon under the Chrysler banner, forever killing the the Chrysler brand image as an "elite" upscale car. (Of course this started in the '80's with the Lebaron and 4-cyl New Yorker.)

[hinckley buzzard]

Anybody with an ounce of sense also knew that in 20 years, they probably wouldn't be able to handle them and I'm sure that senior management in the 80s knew this. However, they also knew it wouldn't be their problem...

Bingo. Management and union negotiators were and are just as capable as politicians when it comes to kicking the can down the road. Trouble is, the road has now come to a cul-de-sac.

[H. Paul Pressler IV]

Perhaps GM should design and build vehicles that are in comparable quality to Honda and Toyota.

[nicollo]

You all are forgetting the role of politics in all this:

Labor's Magna Carta: FDR Signs the Wagner Act

Don C wrote:

Companies never...repeat never..sign union contracts that they don't think they can live with. Hence..STRIKES occur. Yes.. some of these contracts in hindsight seem to be in bad judgement but at the time they were executed management felt that they could handle the provisions.

Tell that to Alfred Sloan. The Governor of Michigan and the President of the United States of America forced the first of these "contracts" upon GM in 1935 and 1937.

[hinckley buzzard]

GM used to produce some of the greatest designs. Now, they are clueless and don't seem to care.

From 1955 to 1960 you could tell the make of a car in the dark at 100 yards by the shape of the tail lights. Now, with a few recent exceptions, you can't tell one car from another in broad daylight unless you're close enough to read the fine print. Plus, they are all gray.

[hinckley buzzard]

forever killing the the Chrysler brand image as an "elite" upscale car.

LOL!! Ever hear of the "K-Car?"

[nicollo]

During the Depression, the top selling margue in the mid-30's was the value-priced Plymouths.

No. While Plymouth was the best selling Chrysler product of the 1930s it was never the best selling automobile. Nevertheless, your point remains in that the Plymouth was a new invention of the late 1920s that importantly served to bolster the overall position of Chrysler. The 1930s were marked by such branding schemes, some of which worked and others that flopped.

Above all, it was politics that killed off competition in the 1930s and not the business environment. Taxes, price controls and the NRA and its successor, the Wagner Act, bolstered the strong and killed off the weak, who might have had a chance, otherwise.

The sad irony of the GM story is that the company profited from the Government's 1930s/40s/early 50s interventions that hindered competition, but at the same time set the foundation in these labor agreements for today's mess.

[PAR35]

Yes, there are unions, but it is not in their interest for GM to go broke

Just because it isn't in their interest to do so doesn't mean they won't. After all, the Eastern Airlines mechanics really showed management who was boss, didn't they.

[LibertarianInExile]

"These union leaders are economic terrorists."

If this is true, then the GM management has been a willing collaborator.

My problem with this is that in bankruptcy the company will lay off pension and health care costs to the American taxpayer. If I tried to declare bankruptcy I could do nothing of the kind. The companies and people I shafted would just be shafted, no bailout for them. And the court would take away all my assets and impose a payment schedule instead of keeping me running at the same level.

GM will go bankrupt. But when they do, the government should insist on taking them apart and selling them off to the highest bidder in order to cover their pensions. It won't. We'll suck that up, too. It's how bidness is done in DC and in the fatcat world.

Just a matter of time.

[Brilliant]

The Congress has passed laws that pretty much put the union in charge. If you really want to get down to it, it's the fault of Congress.

[TheIndependentMinded]

I worked for GM during that time and Roger B. Smith was just horrible. A bean counter with no "gas in his veins."

During his tenure GM's market share went from 45% to 30%. He actually told share holders this was good as it made GM less vulnerable to market fluctuations.

One little old lady stock holder said, "I feel so embarrassed for him that he had to say that."

[grey_whiskers]

and soft sales slashed its cash horde

Either someone didn't spellcheck or they confused GM with those Vikings from the Capital One commercials.

[SVTCobra03]

What GM needs to do is build a new Camaro SS with a 450hp detuned LS7 Z06 engine for $35k.

[LibertarianInExile]

The union had to be kept on contract as it stood and the company had to negotiate in good faith. The company's other option was to shut down. Instead, they did the equivalent of what Congress has done, putting off hard decisions on future management, exacerbating the problem.

I'm not saying Congress doesn't suck. I'm not saying UNIONS don't suck. But anyone procrastinating the hard decisions to others' detriment doesn't deserve to get off scot free, and it seems to me the ONLY party that doesn't take a real hit here, a hit that deserves to be cutting to the bone, is the weasels in management who knew this day would come and made the pension deals, anyway.