AutoExtremist Rant: Rick Wagoner buys GM (and himself) some time - but that's all.

[nadepalma]

Source: http://www.autoextremist.com/page2.shtml#Rant



RANTS by Peter M. DeLorenzo

Rick Wagoner buys GM (and himself) some time - but that's all.

Detroit. Lest GM Chairman and Chief Executive Officer Rick Wagoner and Co. get too carried away with the possibilities for redemption from the sale of 51 percent of GMAC for $14 billion, let me be the first to say, not so fast. Yes, the cash infusion will be a desperately needed shot in the arm for the sagging financial fortunes of the world's largest automobile company (for now), but in no way, shape or form should this be construed as anything but a stopgap measure.

Wagoner was quite bullish at the press conference while announcing the deal, saying that it makes for a stronger GMAC and "...it provides significant liquidity to support our North American turnaround plan, finance future growth initiatives, strengthen our balance sheet and fund other corporate priorities."

Under intense pressure of late, Wagoner went on to toot his horn loudly, saying, "Over the last nine months we have been aggressively implementing our North American turnaround plan. We've made some big moves, such as the health-care agreement with the United Auto Workers union; the manufacturing capacity plan; changes to our salaried health-care and pension plans; an accelerated attrition plan for hourly employees; and a complete overhaul of our marketing strategy. These bold initiatives are designed to immediately improve our competitiveness and position GM for long-term success and today's transition is a further step in that direction."

We'll see, but before the "high-fiving" starts breaking out down at "The Tubes" I just have to ask, in essence, what has changed?

The looming Delphi situation, which could turn ugly long before common sense solutions break out, is still very much up in the air. And the resolution of the Delphi situation will only set the table for the upcoming 2007 bargaining talks with the UAW, whose leadership is more concerned with getting reelected than with offering up any meaningful, long-term solutions to the mounting problems for the domestic automakers. Either one of these two upcoming events could have a devastating effect on GM's "competitiveness" and "long-term success" - with the potential to burn through GM's new cash infusion at an alarming rate. So count me as being skeptical at this point - big time. Too many things still have to fall in place not only just the right way but at just the right time, too, in order for GM to pull up out of this death spiral, no matter how Wagoner spins it.

And speaking of The Rick, the "new" Rick Wagoner is a feisty, take-charge CEO who debuted in Keith Naughton's interview in this week's Newsweek. In it, Wagoner slammed his critics as basically not knowing what they're talking about and unable to grasp the depth and breadth of GM's situation - like only he can. He even went so far as to suggest to Naughton that the critics who were calling for his head were simply full of it for implying that he had been part of the GM culture for so long that he couldn't engineer the radical overhaul that's needed, saying, "That is so simplistic. These are sophisticated problems with historical tails that can run back 80, 90 years. The chance of someone coming in and not understanding our business, making the right calls and doing them in cooperation with key constituencies like dealers and unions, is absolutely microscopic. That would be the biggest risk I've ever heard of."

I like the new, feisty Rick - it's a long overdue and much-needed image change for the lanky accountant, but that last statement went too far. The implication that no one could come in and grasp GM's problems enough to effectively engineer a turnaround is just flat-out wrong. There was never any "secret" Coca-Cola-like formula for success at work at General Motors, folks. GM as a company enjoyed dominant success because they simply did things better than any other car company operating in North America and around the world for a very long time. Yes, other companies succeeded, too, but none of them succeeded on the scale that GM did. But that era of mind-numbing success has been over for a very long time. Now, GM as a company has engineered its own prodigious slide with a clearly defined set of product and strategic missteps that combined with a fundamental transformation in the competitive landscape in North America - which in turn led GM to the dire situation it finds itself in today. A situation that is as transparent as it is well documented.

When critics suggest that someone outside of GM's moribund culture might be able to get to GM's problems quicker and cut through the clutter of GM's "constituencies" with a bold set of initiatives unimpeded by the accumulated baggage that Wagoner seems to carry around with him, they say that for a reason, not because it's "simplistic" but because it's the truth. And Wagoner's most recent statements, like the one in Newsweek, where he implies that only he has the accumulated knowledge to deal with GM's problems, are pure folly and will only give his critics further ammunition.

So, GM has a huge bunch of cash on the table, and the "new" Rick Wagoner has come out swinging - I deem that a very good thing. But the Big Picture hasn't changed one iota.

GM is barely clinging to 25 percent of the U.S. market while still configured as a company that controls somewhere north of 35 percent of the market. It still has too many models, too many divisions and too many dealers, and everyone down at "The Tubes" seems to be standing around waiting for someone else to do something about it. That's a pretty good definition of "moribund culture" in my book.

There's something inherently missing in GM's current mission, and it starts with questions for Wagoner himself. I'm still waiting for the "future" General Motors. What does that company look like? How will it function and what labor forces will it do it with? How many dealers will it need? How many divisions? How many models do they really need as opposed to the number they keep propping up for old times' sake? Where is the fundamental restructuring of the company to its very core, and why isn't Rick Wagoner unveiling the real Plan?

But beyond that, lost in all of these financial discussions of debt ratings, the GMAC sale, GM's endless cash flow issues, pensions, health care, Delphi, the UAW, etc., is the fact that absolutely nothing has changed - because the bean-counter-driven culture that has dominated GM for far too long is firmly in control (at least for the time being), in the person of Rick Wagoner. And to his acolytes, that's a very good thing, but to his detractors it means that it's still business as usual down at "The Tubes" - and that's not a good thing because that means the much-needed fundamental restructuring of GM has been put off yet again.

But the real travesty in all of this is that for the first time in easily 20 years, GM has a real product story to tell. I've seen GM's products for the next three years out, and they indeed have some sensational stuff coming. Not just competitive cars and trucks, but in many instances outstanding, segment-leading vehicles.

And while GM is in a desperate struggle to gain consideration for these new products, the relentless negative din in the media is thwarting GM's marketing efforts at every turn. GM is finding it excruciatingly difficult to get American consumers to give GM brands the time of day. This "perception gap" - whereby consumers don't believe in GM's products, in spite of the media accolades, the quality ratings and the positive street "buzz" - is actually growing, instead of shrinking. And it's killing them.

But if GM is to survive, let alone thrive in the future, its focus as a company must change from its traditional bean-counter-driven bureaucracy to a product-focused, engineering and design-driven culture that bristles with passion for the product. And that's not going to happen as long as the traditional path of leadership for the company goes through GM's financial offices in New York. If GM is going to be a viable entity five years from now, it cannot and will not be led by a finance-trained Chairman like Rick Wagoner. GM will have to stand for something other than legions of number-crunchers and financial wizards who only have a casual acquaintance with the product.

The GMAC agreement may appease some on Wall Street, and it may buy Wagoner and Co. some time, but that's all it will do. The cold, hard fact of the matter is that the way the domestic manufacturers currently do business - especially the way General Motors currently does business - has to be fundamentally altered, and I still don't get the sense that Rick Wagoner is willing to do that.

I have one final question for GM's Chairman: What good is gaining the buy-in of your constituencies if there's a real good chance that those constituencies won't exist in the future?

Thanks for listening, see you next Wednesday.

[nadepalma]

This was a pretty good OpEd by De Lorenzo.

Originally Posted by AutoExtremist

And speaking of The Rick, the "new" Rick Wagoner is a feisty, take-charge CEO who debuted in Keith Naughton's interview in this week's Newsweek. In it, Wagoner slammed his critics as basically not knowing what they're talking about and unable to grasp the depth and breadth of GM's situation - like only he can. He even went so far as to suggest to Naughton that the critics who were calling for his head were simply full of it for implying that he had been part of the GM culture for so long that he couldn't engineer the radical overhaul that's needed, saying, "That is so simplistic. These are sophisticated problems with historical tails that can run back 80, 90 years. The chance of someone coming in and not understanding our business, making the right calls and doing them in cooperation with key constituencies like dealers and unions, is absolutely microscopic. That would be the biggest risk I've ever heard of."

I like the new, feisty Rick - it's a long overdue and much-needed image change for the lanky accountant...

I agree. I think this is great that he's coming out of his shell and actively engaging his critics. It kind of reminds me of the old "characters" and larger than life personalities of the old Detroit -- where folks were almost bigger than the companies they represented. The only person out there currently (at least in North America) who is like that are Lutz -- versus yeas ago when we had Iacocca, Henry II, John Rock or others who had a similar approach. Rick isn't in that league yet, but if this keeps up, who knows! :-D

Originally Posted by AutoExtremist

But the real travesty in all of this is that for the first time in easily 20 years, GM has a real product story to tell. I've seen GM's products for the next three years out, and they indeed have some sensational stuff coming. Not just competitive cars and trucks, but in many instances outstanding, segment-leading vehicles.

It seems like everyone and their mother has the same thing to say about GM's products coming in the next few years. And they've all pretty much said that they will be outstanding products. I almost wonder if GM should "let the cat out of the bag" and show some of these products to the general public to bolster support? I know that it would be bad for them strategically with regards to their competitors, but would it not help them win support in the court of public opinion? Or at the very least, get the Wall Street type and nay-saying Auto Journalists off their backs? De Lorenzo is a pretty big critic of GM, but if he is saying the up coming products are good, then I'd surmise they're pretty good to win him over.

Originally Posted by AutoExtremist

And while GM is in a desperate struggle to gain consideration for these new products, the relentless negative din in the media is thwarting GM's marketing efforts at every turn. GM is finding it excruciatingly difficult to get American consumers to give GM brands the time of day. This "perception gap" - whereby consumers don't believe in GM's products, in spite of the media accolades, the quality ratings and the positive street "buzz" - is actually growing, instead of shrinking. And it's killing them. .

This is the absolute truth! If only they could get their message out. GM really deserves to be on a few more shopping lists than they currently are. And thanks to the press and all the negative attention, even when they do hit the nail on the head, the pundits disregard it, or simply say "GM delivered a product that is competitive or is making money despite themselves" instead of giving credit where credit is due.

Go figure.

[Saturn69]

Shouldn't we create a new category titled, "Industry Speculation, Disinformation and Rancid Gossip" to put stuff like this in? I don't consider someone's Armchair-CEO opinion to be news.

[tama z71]

Originally Posted by Saturn69

Shouldn't we create a new category titled, "Industry Speculation, Disinformation and Rancid Gossip" to put stuff like this in?

But, then we would not have a news section.

[MrMax]

Good write-up.

[mbukukanyau]

why do we give this guy air time. He obviously knows little about anything

[tgagneguam]

I think much of the armchair CEO-ing generally reflects 20 years of frustration watching a grand American corporation slip closer and closer to the abyss. Rick Wagoner is the easiest and perhaps most appropriate target for a wide variety of people's ire; he's the man in charge. Some of the criticism is definitely deserved, while some of it may not be.

[toronado10]

Originally Posted by tama z71

But, then we would not have a news section.

The number of forums would be cut in half, that's for certain.

[Havasavana]

An article in the WSJ today took some of air out of my perception of the GMAC deal. It seems like it go up in smoke pretty easily:

***
The prices of General Motors Corp.'s stock and bonds have tumbled since the struggling auto maker said Monday it had sold a majority stake of its financing unit for $14 billion. To learn why the deal was greeted so poorly, check out the fine print.

The buyers of the 51% chunk of General Motors Acceptance Corp., a group of investors led by investment fund Cerberus Capital Management LP, can walk away from the complex transaction without paying a cent if GM's credit rating deteriorates in the coming months, for example. And even if this cash infusion does recharge GM's business, and the car maker can buy back GMAC's lucrative automotive-finance business in the future, analysts say GM will face the same bind as pawn-shop customers: paying through the nose for something sold for peanuts.

If GM's unsecured long-term debt rating sinks four notches deeper into the below-investment-grade ranks to less than a triple-C rating, the group buying GMAC's majority stake can back out of the deal before its expected closing in this year's fourth quarter. The Cerberus group also can bolt if GMAC's credit rating slips below its current level of double-B, or if the company's residential-mortgage or insurance units see a credit tumble.

Such "escape clauses" aren't unusual in big acquisitions such as this one. But in GM's case, there is a real chance the deal might be derailed by factors somewhat out of the auto giant's control -- chiefly, a strike by workers at its biggest supplier Delphi Corp., which could cripple GM's manufacturing and cause it to bleed cash fast. If a walkout happens, GM's credit rating almost certainly will be downgraded. GM's auto sales also have slumped and are another factor that could cause its ratings to deteriorate.

Still, if the deal closes later this year, its terms will handcuff the company over the longer term. In past years, GMAC, one of GM's most profitable units, could be tapped for capital. But new conditions require GM to pay down intercompany loans from GMAC to $400 million and cap future loan balances at $1.5 billion.

The deal's closing conditions also require that the Pension Benefit Guaranty Corp., the federal agency that insures private pensions, agrees to release GMAC from liabilities to GM pensioners. "After all, the primary goal driving the GMAC sale is to delink the two entities such that GMAC can operate independently and out of harm's way," says Kip Penniman, a bond analyst for KDP Investment Advisors, of Montpelier, Vt.

Few analysts expect the PBGC to veto the GMAC stake sale. Instead, they expect the agency to require GM to commit a portion of the $14 billion proceeds from the sale toward the auto maker's pension fund, which the PBGC says is underfunded, a characterization that GM disputes.

There are downsides to even the rosiest -- and perhaps least likely-scenario: The deal closes this year, and GM uses the money to stage a remarkable turnaround. If GM hits certain targets, including recovering an investment-grade credit rating, it can repurchase GMAC's global auto-finance operations for market value, or 9.5 times the business's net income, whichever is greater.
***

[Buickman]

If you are interested in seeing one of the greatest propaganda efforts of all time, purchase tomorrow's Wall Street Journal. Mr. Steve Harris (The Rushing Rabbit), recently recalled director of PR at GM, has taken it into overdrive. First, he arranged for "Red Ink Rick" to be interviewed by anyone willing to "Paint the Roses Red". Now, rushing additional "Mad Chatter", the WSJ is the medium of choice. There you will find an advertised letter of support from the National Dealer Council glowing with accolades in support of Mr Wagoner, whom the New York Post called "the worst CEO since Chainsaw Al Dunlap".

Without question, they are very concerned, even extremely worried, atop the Ren Cen. When I read the piece I was astonished to see the lengths to which the spinmasters are willing to stretch. See for yourself how nervous executives grasp frantically to avoid the groundswell of calls for resignation. The letter is more than absurdity, it's truly an embarrasment.

Who Stole the Assets? Off With His Head!

Where's Donald Trump when you need him? It's high time to end the Apprenticeship of G. Richard Wagoner.

Buickman
Founder
www.GeneralWatch.com

[asim]

Nice article, I just hope Wagoner can turn it around fast enough.

[Globalist]

Good article, but again he proposes no other solution than firing Wagoner. It's like the day Wagoner is fired:
- UAW will give-up the fight
- Delphi will suddenly emerge out of bankruptcy
- GM cars will sell like donuts
- GM employees will fire themselves
- The extra plants will close themselves and even robots will take initiatives and start designing cars on their own because they are so happy Wagoner is gone.

C'mon guys this so simplistic.

[Buickman]

The day Wagoner resigns or better still is removed, will mark a new day dawning at General Motors. Executives will then know that for the first time in many decades there is a price for failure, that with responsibility comes accountability. Performance will determine one's future rather than the preference of one's predecessor.

Buickman
Founder
www.GeneralWatch.com