GM's Difficult Road Ahead

[nadepalma]

Source: http://www.cbsnews.com/stories/2006/...n1458483.shtml

GM's Difficult Road Ahead
April 2, 2006



"It's change or die. Everything is driven by a profitable business. If you can't be profitable, you can't be in business."
- Auto industry analyst David Cole

(CBS) If the old saying "What’s good for America is good for General Motors, and vice versa" is still true, then we are all in a lot of trouble. General Motors is limping along in the breakdown lane, in need of a lot more than a minor tune-up.

With GM's stock trading near an all time low and its bonds rated as junk, the company reported losses of more than $10 billion last year. Unless it stops hemorrhaging money, it will have to be towed into bankruptcy court — a move with consequences that could cascade through the American economy, threatening up to 1 million jobs and changing the dreams of American workers.

Correspondent Steve Kroft reports:

General Motors is not just another company. For almost a century, it was emblematic of American industrial dominance, with a car for every customer and a brand for every strata of society.

Back when Pontiacs were as sexy as Sinatra and Cadillac the synonym for luxury, GM made half the cars in the United States. A job on one of its assembly lines was ticket into the middle class. But that was before the first oil shock, and the Japanese imports. Today, General Motors is losing $24 million a day — and all bets are off.

"This is not a phantom crisis or a fake crisis. This is a real crisis," says David Cole, is chairman of the Center for Automotive Research, a non-profit consulting firm in Ann Arbor Mich.

Cole is widely considered one of the industry’s top analysts. He believes that Detroit is now facing what the steel industry and the big airlines have already been through: high labor costs that make it almost impossible to compete.

"Every one of the Big Three faces a problem right now of about $2,000 to $2,500 per vehicle produced cost disadvantage. If that plays out over time, they're all dead," says Cole. "It's change or die. Everything is driven by a profitable business. If you can't be profitable, you can't be in business. That is, I think, recognition that everybody is aware of."

It has certainly not escaped the attention of General Motors chairman Rick Wagoner, who 60 Minutes met at the Detroit Auto show. Wagner may have the toughest job in America: running a corporation many analysts believe has become, too big, too bloated and too slow to compete with more nimble foreign competitors.

Asked how General Motors got to the point where it is now, Wagoner told Kroft. "We have a long history, almost 100 years. We have a lot of employees. We have a lot of retirees, a lot of dependents. … Promises were made about benefits to those people that weren't very expensive when they were made. And it's really given us some financial challenges."

One of them is that most of the people on GM's payroll are no longer making cars. Every month, GM sends out nearly half a million pension checks to former workers, many of whom retired in their 50s after 30 years of service and live in communities where GM plants closed long ago.

Then there is the ever-rising cost of health care. GM has one of the most generous plans in America and provides it to 1.1 million people — retirees, workers and their dependents — at a cost of $6 billion a year. That's more than any other company in America.

Gary Chaison, a professor of industrial relations at Clark University, has done the math. "It comes to about $1,400 a car now," he explains. "That's what the health care premiums of the workers who make that car is. OK?"

Chaison says the health care costs are higher than the glass and steel used to make the vehicle. "Much more than any other part. What you're doing when you're buying a car is you're spending a lot of money for the health care benefits of workers who are making that car," he says.

It's a cost most of GM's foreign competitors don't have because their workers are usually covered by some form of government health insurance in their own countries. Wagoner says it's one of the promises GM made to workers made in good times that it can barely afford in bad.

Asked if he thinks those promises could be kept, Wagoner says, "We feel a responsibility to the people that those promises were made to. We also have a responsibility to insure that our business is successful in the future."

That future looks so bleak that the United Auto Workers, the union that represents GM's hourly workers, agreed last year to give back some hard-won concessions, which included a $1 an hour cost-of-living raise for active workers. The concessions also required retirees to pay up to several hundred dollars a year towards medical insurance that had always been free. UAW president Ron Gettelfinger says it was painful but necessary.

Gettelfinger admits getting the retirees to pay money toward something they'd been getting for free was a tough sell. "Sure it was hard to sell. First of all it was hard for us to convince ourselves that we needed to do something. It was not the easy decision to make but it was a right decision to make in the long term. Because our concern is the long-term viability of our membership both active and retired when it comes to their benefits or to their wage levels," he tells Kroft.

The consensus is that the union may have to give up a lot more, either before or during next year's contract negotiations, if General Motors is to avoid bankruptcy — an outcome that could allow the company to scrap its labor agreements, slash wages and pass off its pension obligations to the federal government.

"If you or I were given a choice between gold and silver, we'll take the gold every time. Gold is no longer an option. The choice that they're facing, literally, is between lead and silver. If they don't do the right things, they're gonna get lead," says Cole. "Silver is still terrific. I think that's where we're headed. The industry can afford silver, but they can no longer afford gold."

General Motors is still the largest automobile manufacturer in the world, and most experts will tell you it has never made better cars and trucks. But its market share has fallen to 24 percent, and it has too many plants and too many people for the number of cars it's selling. GM wants to shut down all or part of a dozen facilities and get rid of 30,000 workers by the end of 2008, but it's hamstrung by its contract with the UAW, which says it would still have to pay these workers under something called the "jobs bank."

"The job bank, that is people are paid to essentially full salary and aren't working — can't work. You can't afford literally hundreds of millions of dollars in wages to people that aren't working," says Cole. "So the way to deal with that is to buy 'em out of their job. And that's gonna be a big part of what's happening in just the next few months."

The process has already begun. The week before last, General Motors served up one of the biggest buyout packages in corporate history, offering 113,000 hourly employees anywhere $35,000 to $140,000 to walk away from their jobs or take early retirement. The buyout could cost GM up to $2 billion, so last week it sold off a chunk of one of its most profitable business, GMAC’s commercial mortgage division, to help pay for it. But the ultimate cost could be much greater for communities all over the Midwest.

Several generations of American workers put food on the table and kids through college working at GM factories like the one in Janesville, Wis., where a union job with General Motors was as close as you could get to guaranteed lifetime security.

It is hard work with lots of overtime —but in a good year they can make $100,000, with up to five weeks vacation. It’s a great job; problem is, it can be done in Mexico now for $3 an hour, and people here are nervous. Almost everyone in Janesville either works for GM or has a relative or family member that does.

"Everybody knows General Motors is the horse that pulls our cart," says Steve Flood.

It’s the favorite subject at the Eagle Inn, just down the street from the union hall, where Kroft shared a cup of coffee with retirees Flood and Claude Eakins and current UAW workers Ron Splan and Matt Symons, who make SUVs at the Janesville plant.

What would happen to Janesville if GM went into bankruptcy?

"We've all got our opinions. But it certainly wouldn't be a pretty picture," says Splan. "There's probably 20 industries in Janesville here that supply directly to the Janesville General Motors plants. So it would be devastating. I mean, there's no doubt what it'd do to Janesville: I mean, it'd be terrible."

Asked if he was willing to make more concessions, Flood said, "Sure, you bet. We're gonna make sure GM survives. What we do, I'm not sure. But I'm sure we'll be looking at it that, ya know, before we make any changes. But it's gotta be a shared, ya know."

"They know that we're all in the same boat," Splan added. "I mean, if it's got a hole in it, we're all, we're all sinkin'."

There are some who have actually suggested bankruptcy might be good for General Motors in the long run — that it would allow the company to reposition itself competitively in the global market. Wagoner isn’t one of them.

"Our view is that's a very bad idea," he says. "First of all, we don't think it's going to happen. We don't think it's a good strategy. And we think a lot of people would lose if we did that, ranging from shareholders to employees to dealers to suppliers. And it's my view that all this talk about bankruptcy is way over selling the risk side of the business."

But a lot of things could go wrong. A potential strike at Delphi Corp., GM’s major parts supplier, could shut down General Motors assembly lines and create a liquidity crisis. Corporate raider Kirk Kerkorian, whose intentions are unknown, is now GM's largest individual stockholder — and making his presence felt. But most of all, GM needs to begin selling more cars.

It needs to revive Buick and Pontiac the same way it resurrected Cadillac, with bold new designs and their own distinct identities.

Those cars, which will save GM, or not, are still in blue shrouds at the company’s super-secret design center in Warren, Mich., under the watchful eye of 74-year-old vice chairman Bob Lutz, a legendary Detroit design guru, who once ran Chrysler.

"Unfortunately this is a car that I'd like to be able to show you, but for competitive reasons we can't show it all. I'll just show you some of the, some of the advanced work that we're doing on grills — that this is obviously a Cadillac, no concealing that," Lutz said, giving Kroft a peek.

"Would you have to kill me if I just took this thing and ripped it right out?" Kroft asked.

"I would not be pleased with you," Lutz replied.

Lutz acknowledges that GM became complacent, produced too many anonymous cars with uninspired designs and delegated the design process too low in the corporate structure.

"During the period of GM's greatness in the 50s and 60s, design ruled. And the finance people ran behind to try to reestablish order and pick up the pieces," says Lutz. "We just lost the focus on design."

There is no detail too small to merit Lutz’s attention, from sheet metal fits to upgrading interiors, and getting rid of what he calls that "nasty rat fur" upholstery.

"I mean, the answer is product, product, product, product, product," says Lutz. "And I'm happy to say that my experiences, that automobile companies always do their best products when they're in dire straits, because all the second guessers get out of the way."

Lutz says the company has turned the corner on reliability, and J.D. Power quality surveys bear him out. Another encouraging sign came at the Detroit Auto Show when Lutz unveiled the new sleek new Camaro concept car, which debuted to unanimous acclaim and was selected as best car in show. It is exactly what GM needs right now — but in its showrooms, not at an auto show.

"We're enthused about it and everybody wants to know, 'So, are you gonna build it?'" says Wagoner.

The answer to that question, Wagoner says, is a firm maybe. "We'd like to do it. … We haven't made the call. We've introduced it as a concept. Sometimes we do that to see how people react to it."

"The best car in the show," Kroft remarked.

"Yeah, well I just got that information," Wagoner says. "I think that does suggest that if we didn't try to build this, we might be brain dead. Stay tuned."

[Gm786]

Yeah what is this? Another Doom Article? I'm gettig absolutely sick and tired of seeing articles that only say negatives about GM and dream about GM dying wich is not going to happen!!

[nadepalma]

Originally Posted by CBS

"Unfortunately this is a car that I'd like to be able to show you, but for competitive reasons we can't show it all. I'll just show you some of the, some of the advanced work that we're doing on grills — that this is obviously a Cadillac, no concealing that," Lutz said, giving Kroft a peek.

"Would you have to kill me if I just took this thing and ripped it right out?" Kroft asked.

"I would not be pleased with you," Lutz replied.

Lutz acknowledges that GM became complacent, produced too many anonymous cars with uninspired designs and delegated the design process too low in the corporate structure.

"During the period of GM's greatness in the 50s and 60s, design ruled. And the finance people ran behind to try to reestablish order and pick up the pieces," says Lutz. "We just lost the focus on design."

There is no detail too small to merit Lutz’s attention, from sheet metal fits to upgrading interiors, and getting rid of what he calls that "nasty rat fur" upholstery.

"I mean, the answer is product, product, product, product, product," says Lutz. "And I'm happy to say that my experiences, that automobile companies always do their best products when they're in dire straits, because all the second guessers get out of the way."

Lutz says the company has turned the corner on reliability, and J.D. Power quality surveys bear him out. Another encouraging sign came at the Detroit Auto Show when Lutz unveiled the new sleek new Camaro concept car, which debuted to unanimous acclaim and was selected as best car in show. It is exactly what GM needs right now — but in its showrooms, not at an auto show.

"We're enthused about it and everybody wants to know, 'So, are you gonna build it?'" says Wagoner.

The answer to that question, Wagoner says, is a firm maybe. "We'd like to do it. … We haven't made the call. We've introduced it as a concept. Sometimes we do that to see how people react to it."

"The best car in the show," Kroft remarked.

"Yeah, well I just got that information," Wagoner says. "I think that does suggest that if we didn't try to build this, we might be brain dead. Stay tuned."

This was the quote that Lutz gave in the clip that we saw in the other thread HERE. Must be the complete report that CBS was driving at. Good to see from the clip that GM really IS moving in the right direction.

[TuffG929]

Originally Posted by Gm786

Yeah what is this? Another Doom Article? I'm gettig absolutely sick and tired of seeing articles that only say negatives about GM and dream about GM dying wich is not going to happen!!

This was what aired on 60 minutes. It was actually pretty fair and truthful.

[steverino]

I'll say one thing, the product looked real good under those lights, all bright and shiny. Hopefully, some viewers thought so too and changed their perceptions of GM vehicles.

[Gm786]

Originally Posted by TuffG929

This was what aired on 60 minutes. It was actually pretty fair and truthful.

Yeah I know but I'm talking about what the media says about GM. They only say negative things about GM and want GM to die wich is not going to happen.

[DuSpinnst]

Originally Posted by Gm786

Yeah I know but I'm talking about what the media says about GM. They only say negative things about GM and want GM to die wich is not going to happen.

Um this was FAR from a doom article. In fact 60 minutes made a point to say this...

Originally Posted by 60 minutes

General Motors is still the largest automobile manufacturer in the world, and most experts will tell you it has never made better cars and trucks.

Sounds like a POSITIVE TO ME!

[Gm786]

Yeah I guess so but it's about time we hear some positive things about GM from the media. But there is definitely mostly negative things the media says about GM such as making it sound as if they want GM to die wich is not going to happen.

[LAMRONH]

A positive view from 60 Minutes is a good thing to have.
Driveon, GM...

[mikmak]

Sometimes the truth hurts. GM is in trouble. Thats not to say its terminal. There will be some tough times coming, but as Maximus Lutz said "...automobile companies always do their best products when they're in dire straits, because all the second guessers get out of the way."
By second guessers I can pretty much narrow it down dumb @$$ marketers yapping on about things that matter to people who buy toasters. These are automobiles goddarnit and Car people know Cars.
Once they let engineers and designers make the cars that are needed, GM will emerge from the depths, with the "product, product, product, product, product, " and respect they deserve.

[mikmak]

Positive media will follow, because everyone loves an underdog (at least when there is no doom stories to tell).

[Buickman]

I was extremely disappointed by viewing what was simply more company propaganda against union payscale and benefits. There was no discussion about the disastrous marketing that has led us to decades of decline in spite of good products. Neither was there any explanation of the lack of leadership, responsibility, or accountability. It's a pity, CBS is capable of so much better investigative reporting. They must have been too worried about losing corporate advertising. Shame on Frank Devine and Steve Croft for failing to tell the real story of corruption and ineptitude at General Motors.

Buickman
Founder
www.GeneralWatch.com

[redimpss5]

You know...if I posted what I think about this post....I would be banned!! Nuff, said!!!

[kenman923]

I loved the headlights. Right from the Sixteen concept.

[wolverine]

Originally Posted by mikmak

Positive media will follow, because everyone loves an underdog (at least when there is no doom stories to tell).

My thoughts exactly. GM and the UAW need to play the underdog angle and if they do it right they can win back the hearts of Americans. This is something the UAW and its "Leadership" need to understand and be willing to work with GM on.