The Case for Federal Support for GM and the U.S. Automotive Industry

[fp115]

Here is GM's case forFederal Support for GM and the U.S. Automotive Industry. It highlights very important facts, issues, and analysis on the markets.

This post here is to show the numbers and to allow everyone a better understand as to why it would be important for GM, Ford and Chrysler to receive the loans.

Full documented presentation:
http://media.gm.com/servlet/GatewayS...39/support.pdf

[mgescuro]

This is interesting, and the PDF raises a couple of questions:

Slide 5.
If GM notes that sales are dropping, why isn't GM capable of tweaking factory capacity in order to adjust for the drop in sales? Does GM have that capability? If GM's factories were flexible and their platforms were more interchangeable, GM would be able to shift product of more popular cars to utilize idled factories. What we see from GM is a continued rise in inventory, or a complete shut down of the plant with layoffs. This is a glaring operational issue. The advantage of this would be to reduce the effects of the cyclical market.
I would like to see this same graph with amount of inventory over the same period.

Slide 8
Interesting slide. Doesn't take into account the possibility of a white knight.

Slide 10
Since when has GM "planned conservatively?"
Sorry, but when I saw GM's projections, to me it looked "aggressively high."

Slide 12
2010 Cruze? Why the staggered launch, I wonder.
Once again, they focus on their 3 good cars. What about the rest of the GM lineup?? Dammit!!
The 3rd bullet point: If GM was teh leader in biofuels, great. Why isn't the BioPower lineup in the US? Saab is known for efficiency, innovation, and fuel efficiency. Yet, the most advanced Biofuel engine isn't even in the US!!!

Now, what none of these slides goes over is the fundamental business and product strategy at GM. GM sells all these biofuel cars, but they're cars that no one wants to buy. Where are the diesels? Where is the CTS biofuel? Why are only 3 cars mentioned when pointing to improvements? Is GM embarrassed by Solstice/Sky? Corvette? The Lambdas? 6 hybrids? Mostly trucks. Why no Cobalt Hybrid? Why no Astra hybrid? Why no HHR hybrid?

For every good point GM has, there are 5 bad points.
And that is why GM is in just deep trouble Their strategy is inconsistent. And no one believes them when they do something. There is no consumer trust. And GM's reputation is trash. No money is spent on image and PR. There's no way GM can survive without it.

GOod luck GM. You'll need it.
I remain torn whether GM is deserving of the bailout. I'm 50-50. I don't want to fund bad business strategies. I dont want to fund companies that just don't know how to conduct business. I don't believe they understand the market anymore and are operating on decades old impressions of the market. But I also realize the severe impact of the economy without the Big 3. Plus it really is an issue of national security, if the US doesn't have a manufacturing base of scale.

What to do???

[stormwatcher]

GM says "Chapter 11 would be catastrophic" with one reason being that buyers will not buy a car from an automaker in Ch. 11. But I bet quite a few buyers are already steering clear of GM products because of its financial situation.

If the federal government gives GM money to get throught the recession, what then?

GM would still come out of a recession with a junk bond rating, excessive debt (because now they owe the feds billions too) and still be saddled with more brands then GM can competently manage.

Since there is so much turmoil in the economy at present, I still support giving the domestics some money to go at least another year. That way Obama and the new administration have some proper time to look at things and the economy doesn't take the psychological hit of GM or Chrysler doing a Chapter 11 right now.

But, in the long run, Chapter 11 is likely the ONLY option. And there the feds could probably better help the domestics by providing financing to them in bankruptcy while the auto companies can properly restructure.

[fp115]

Originally Posted by mgescuro

This is interesting, and the PDF raises a couple of questions:

Slide 5.
If GM notes that sales are dropping, why isn't GM capable of tweaking factory capacity in order to adjust for the drop in sales? Does GM have that capability? If GM's factories were flexible and their platforms were more interchangeable, GM would be able to shift product of more popular cars to utilize idled factories. What we see from GM is a continued rise in inventory, or a complete shut down of the plant with layoffs. This is a glaring operational issue. The advantage of this would be to reduce the effects of the cyclical market.
I would like to see this same graph with amount of inventory over the same period.

Slide 8
Interesting slide. Doesn't take into account the possibility of a white knight.

Slide 10
Since when has GM "planned conservatively?"
Sorry, but when I saw GM's projections, to me it looked "aggressively high."

Slide 12
2010 Cruze? Why the staggered launch, I wonder.
Once again, they focus on their 3 good cars. What about the rest of the GM lineup?? Dammit!!
The 3rd bullet point: If GM was teh leader in biofuels, great. Why isn't the BioPower lineup in the US? Saab is known for efficiency, innovation, and fuel efficiency. Yet, the most advanced Biofuel engine isn't even in the US!!!

Now, what none of these slides goes over is the fundamental business and product strategy at GM. GM sells all these biofuel cars, but they're cars that no one wants to buy. Where are the diesels? Where is the CTS biofuel? Why are only 3 cars mentioned when pointing to improvements? Is GM embarrassed by Solstice/Sky? Corvette? The Lambdas? 6 hybrids? Mostly trucks. Why no Cobalt Hybrid? Why no Astra hybrid? Why no HHR hybrid?

For every good point GM has, there are 5 bad points.
And that is why GM is in just deep trouble Their strategy is inconsistent. And no one believes them when they do something. There is no consumer trust. And GM's reputation is trash. No money is spent on image and PR. There's no way GM can survive without it.

GOod luck GM. You'll need it.
I remain torn whether GM is deserving of the bailout. I'm 50-50. I don't want to fund bad business strategies. I dont want to fund companies that just don't know how to conduct business. I don't believe they understand the market anymore and are operating on decades old impressions of the market. But I also realize the severe impact of the economy without the Big 3. Plus it really is an issue of national security, if the US doesn't have a manufacturing base of scale.

What to do???

To respond to some of the comments you put up

Slide 5:
This shows not only GM sales, but for the entire US market. This includes Toyota, Honda, Ford,... sales as well as GM's. This is an attempt to show that the market is very weak, which at its lowest point is down 40% from last year. To do what you are suggesting would cost millions and in some cases billions of dollars to reconfigure plants. To shut down or cut shifts is a much more efficient way to play with production numbers.

Slide 10:
In this case that bullet is directly related to the amount of projected sales, not so much focusing on the financial implications of the company.

Slide 12:
The point of the staggered launch is the continued work on the Cruze's power train. The power train, arguably the most technology riddled internal combustion engine shows GM's initiatives to improving its fuel economy. The goal of mentioning both the Volt and Cruze is show a forward thinking in relation to the future of CAFE and better environmental foot prints.

The rest of GM's upcoming portfolio whether good or bad does not merit to be mentioned as to most people they are "just another car". This isn't to show the focus on these vehicles but when you are approaching potential investors, you must show determination to providing something fantastic and giving them something to look forward to. In this case fuel economy is what is important, if GM was too far behind in attaining CAFE there would be no reason to provide funding. The reason to mention 2-3 vehicles is to highlight some strong aspects of the company, not to downplay the other vehicles. As it points out 14 of the next 15 vehicles will be cars, some of which I am even shocked to see as a GM.


Sounds as if you may have some more feedback to give, in that case I would love to hear it. The market is difficult to understand, not only for GM but all automakers at this point.

[fp115]

Originally Posted by stormwatcher

GM says "Chapter 11 would be catastrophic" with one reason being that buyers will not buy a car from an automaker in Ch. 11. But I bet quite a few buyers are already steering clear of GM products because of its financial situation.

If the federal government gives GM money to get throught the recession, what then?

GM would still come out of a recession with a junk bond rating, excessive debt (because now they owe the feds billions too) and still be saddled with more brands then GM can competently manage.

Since there is so much turmoil in the economy at present, I still support giving the domestics some money to go at least another year. That way Obama and the new administration have some proper time to look at things and the economy doesn't take the psychological hit of GM or Chrysler doing a Chapter 11 right now.

But, in the long run, Chapter 11 is likely the ONLY option. And there the feds could probably better help the domestics by providing financing to them in bankruptcy while the auto companies can properly restructure.

Thats not the point, GM is still making sales. There is more than just the US market to which GM will be affected in. In the past months, the total vehicles old have gone down by at least 40%. In most of its other markets, GM is still playing strong.

As to what happens next, have a look at slide 10 as to the actions taken by GM. Several of these cuts were made for savings to begin in 2009, while others such as the UAW contract will begin in Jan 2010. These actions put all together can save GM between $15 and $30b per year when they all begin to take effect.

The argument of Chapter 11 is much more serious on the outside of the company if GM was to go out of business. As it stands GM is asking for enough money to make it till 2010, when the most of the money should return to GM's books.

[big3worker]

I am a 31 year gm hourly employee and I have seen alot of the problems over the years that has brought gm to where we are today, from mismanagement to the union taking advantage of management.

From the management side
1) buying out roger smith bad management
2) paying ross pero to shut up and go away bad management
3) buying fiat and selling at a huge loss bad management ect. ect.

now from the union side
1) when I hired in 1978 things were good but what happened is gm overstaffed I can remember from 1978 to early 1990's at the start of the work day they would get the line covered and running and about an hour into the shift they were coming around asking who wanted to go home, because they had extra help 2-3 people per dept. day in day out, at that time the union and management must not have realized that they were creating huge legacy costs with all that extra manpower for that i blame both party's.
2) this one really erks me how many of you people had a neighbor or a relative who worked at a parts plant doing piece work ? so many parts a day and your done, for years at these facility's you had people who would get there work done and they would go home and mow there lawn or play golf and there boss would punch them out who was at fault union or management ? I say both, people get away with what they are allowed to get away with. and my last scenerio is this
3) we would have a tool break down we would call out skilled trades and they would tell us they could not fix it it was weekend work, and you would call out the supervisor and he or she would tell you the same thing WHY ? because they wanted to make there time and a half and double time ALSO!! how much money was spent during those times 70's 80' 90's ? the answer a ton this is why the auto industry is in trouble because im sure what i saw at GM was happening at Ford and Chrysler as well.

now as for a solution, the bailout, if the senate wants to open the contract with the UAW here is where they should start ( DO NOT CUT OUR WAGES ) My monthly bills are based on 40 hrs at my current wage but I am willing to give up some holidays and vacation time, lets start here we get almost 10 weeks of per year paid and if you do not use your vacation you get paid an additional 5 weeks in january there are alot of people who do not use there vacation and double dip that is a ton of money. x number of employees times 1 - 5 weeks paid out in january is very expensive. Change the contract to force people to use vacation USE IT OR LOSE IT!!!! this would save the auto company's a ton, also lets take away the extra holidays such as election day, week at christmas,veterans day , week in july, this would be better than cutting wages in half if you cut our wages in half we will need to have to ask for help with our mortgages and other expenses that are based on 40hrs @ our current wage.

does this make sense?????

[ronald mcretard]

Originally Posted by big3worker

I am a 31 year gm hourly employee and i have seen alot of the problems over the years that has brought gm to where we are today from mismanagement to the union taking advantage of management. From the management side 1) buying out roger smith bad management 2) paying ross pero to shut up and go away bad management 3) buying fiat and selling at a huge loss bad management ect. ect. now from the union side 1) when i hired in 1978 things were good but what happened is gm overmanned i can remember from 1978 to early 1990's at the start of the work day they would get the line covered and running and about an hour into the shift they were coming around asking who wanted to go home because they had extra help 2-3 people per dept. day in day out at that time the union and management must not have realized that they were creating huge legacy costs with all that extra manpower for that i blame both party's 2) this one really erks me how many of you people had a neighbor or a relative who worked at a parts plant doing piece work so many parts a day and your done for years at these facility's you had people who would get there work done and they would go home and mow there lawn or play golf and there boss would punch them out who was at fault union or management ? i say both people get away with what they are allowed to get away with. and my last scenerio is this 3) we would have a tool break down we would call out skilled trades and they would tell us they could not fix it it was weekend work and you would call out the supervisor and he or she would tell you the same thing because they wanted to make there time and a half and double time management included how much money was spent during those times 70's 80' 90's a ton this is why the auto industry is in trouble because im sure what i saw at GM was happening at Ford and Chrysler as well.
now as for a solution, the bailout if the senate wants to open the contract with the UAW here is where they should start ( DO NOT CUT OUR WAGES ) my monthly bills are based on 40 hrs at my current wage but i am willing to give up some holidays and vacation time lets start there we get almost 10 weeks of per year paid and if you do not use your vacation you get paid an additional 5 weeks in january there are alot of people who do not use there vacation and double dip that is a ton of money x number of employees times 1 - 5 weeks of pay paid out in january is very expensive change the contract to force people to use vacation USE IT OR LOSE IT!!!! this would save the auto company's a ton also take away the extra holidays election day, week at christmas,veterans day , week in july, this would be better than cutting wages in half if you cut our wages in half we will need to have help with our mortgages and other expenses that are based on 40hrs times $30.00 does this make sense?????

you are making some great points, but your post is near impossible to read. please try writing complete sentences that don't run on forever, and break up your thoughts into paragraphs.

and i totally agree with you on vacation - the union guys should have vacation more in line with what salaried people get - for instance I get about 13 holidays, and 15 vacation days. for the july shutdown, i am forced to use vacation days, so i end up with only 11 vacation days that i can use freely (runor is next year it might be two full weeks instead of one - i hope not).

of course, i haven't been here very long. some of the older guys get a lot more vacation.

[big3worker]

sorry my message is very emotional, I did not mean to rant and I am not a very good writer as you can see. I am watching the testimony and it is very upsetting watching the ceo's tip toe around the issues and not giving straight answers, especially the ceo's from Ford and Chrysler who do not seem to have a clue about the auto industry how do these people get these jobs!!!!!!!!

[SierraGS]

Originally Posted by big3worker

I am a 31 year gm hourly employee and I have seen alot of the problems over the years that has brought gm to where we are today, from mismanagement to the union taking advantage of management.

From the management side
1) buying out roger smith bad management
2) paying ross pero to shut up and go away bad management
3) buying fiat and selling at a huge loss bad management ect. ect.

now from the union side
1) when I hired in 1978 things were good but what happened is gm overstaffed I can remember from 1978 to early 1990's at the start of the work day they would get the line covered and running and about an hour into the shift they were coming around asking who wanted to go home, because they had extra help 2-3 people per dept. day in day out, at that time the union and management must not have realized that they were creating huge legacy costs with all that extra manpower for that i blame both party's.
2) this one really erks me how many of you people had a neighbor or a relative who worked at a parts plant doing piece work ? so many parts a day and your done, for years at these facility's you had people who would get there work done and they would go home and mow there lawn or play golf and there boss would punch them out who was at fault union or management ? I say both, people get away with what they are allowed to get away with. and my last scenerio is this
3) we would have a tool break down we would call out skilled trades and they would tell us they could not fix it it was weekend work, and you would call out the supervisor and he or she would tell you the same thing WHY ? because they wanted to make there time and a half and double time ALSO!! how much money was spent during those times 70's 80' 90's ? the answer a ton this is why the auto industry is in trouble because im sure what i saw at GM was happening at Ford and Chrysler as well.

now as for a solution, the bailout, if the senate wants to open the contract with the UAW here is where they should start ( DO NOT CUT OUR WAGES ) My monthly bills are based on 40 hrs at my current wage but I am willing to give up some holidays and vacation time, lets start here we get almost 10 weeks of per year paid and if you do not use your vacation you get paid an additional 5 weeks in january there are alot of people who do not use there vacation and double dip that is a ton of money. x number of employees times 1 - 5 weeks paid out in january is very expensive. Change the contract to force people to use vacation USE IT OR LOSE IT!!!! this would save the auto company's a ton, also lets take away the extra holidays such as election day, week at christmas,veterans day , week in july, this would be better than cutting wages in half if you cut our wages in half we will need to have to ask for help with our mortgages and other expenses that are based on 40hrs @ our current wage.

does this make sense?????

Thanks for some rational input and some good ideas, my proposal to the UAW and "Big 3" management is a 10% wage cut for hourly/salary and 50% cut for top management which I think is needed (or something close to it) and this would save over $1 billion a year assuming an avg wage of $25 @ hr (225,000 x 2.50 x 2080 = 1.17 Billion for just hourly/salary). Not sure what the exact number would be for a 50% cut in top management but it would be in the multi-millions and should bring total savings close to $2 Billion annually.

I did not think of giving up vacation time and it would only be a 10% reduction for those with 208 hours (5.2 weeks) vacation and it sounds like a sizable percentage may fit this making it something to consider (bear in mind that even though you are "working through your vacation" it does not come out of the same "bucket" as wages for the accountants)

Do not get me wrong I am not out to slash wages when I am sure there are many workers would find it difficult to make ends meet but of course these are difficult times and it is better to keep a job/benefits rather than lose them.

Hopefully something will be presented, there is one thing for certain - "givebacks" are going to have to be offered for any deal.

Glad you brought up mortage payments as many "economic experts" seem to have no memory and have lost the ability to read since they do not understand if 1 - 3 million workers lose their jobs there will be well over 500K MORE foreclosures which will re-ignite the cause of our current finacial meltdown.

Hope you and your co-workers make it through this.

[03xtreme]

Weird, why wouldn't congress want to bail themselves out, after all they are the ones taking the credit for fixing agriculture right... with um no adverse affects.

Just a guess, but maybe this is like a side affect of overdose on morphine. You have really fixed the pain for x but you've also killed something else.

Blame gm corporate and whoever, but the only people who need a bailout is our government officials who refuse to blame themselves for allowing non union work to compete with 3/4 of a centuries worth of unionized work.

Was it inflated... yes, but only because their was no non union competition right? Thats what the gripe is.... so, who let the competition in?

Don't be fooled. GM & UAW don't need as much fixing as the people who control how we "trade"

[SierraGS]

1. On Slide #4 it states "20 GM vehicles with EPA highway fuel economy of 30 MPG or better (most of any manufacturer, domestic or import)"

Great point and true, but GM MUST put a "face" on this - SHOW a slide of the Malibu with 33 MPG alongside a 31 MPG Camry and 30 MPG Accord then show another slide that the G6 and Aura match this.

It should also be pointed out that that same Malibu is the leader in JD Power's initial quality survey (a point mentioned on the same slide).

DO NOT assume the Senator's "know" this, put in an specific example with a picture.

2. Why didn't Wagoner hit the "softball" the Delaware Senator gave him and mention the 100 Sequel fuel cell vehicles in test (some of them in the DC area) better yet offer them one to "take home" or a least drive.

3. On Slide #7 a dollar figure should be put on the 2 million Americans with healthcare and 775K pensions - how much does it cost?????

4. Slide #10 should mention the Cruze will have a 40 MPG rating and be close to the 25% improvement requested in the $25 Billion "energy bill" and that GM should be allowed access to at least some of that money today to ensure a timely launch.

When is someone going to correct the $75 an hour wage?

The average viewer of the hearings will "assume" that means $75 an hour on the weekly paycheck or $3000 a week ($156K annually) which is not correct, and it must be broken down in average hourly wages then a total wage cost including vacation and benefits. Splitting the costs out illustrates to the average viewer the true cost of these benefits and savings that will be realized with the new UAW contract in 2010.


Overall I was not impressed with any of the Auto Industry representatives or the presentation and can see how the Senators are having trouble justifying this Loan money.