How Long Can G.M. Tread Water?

[mjd1001]

http://www.nytimes.com/2005/03/11/business/11auto.html?

How Long Can G.M. Tread Water?
By DANNY HAKIM

Published: March 11, 2005


ETROIT, March 10 - Since the Depression, General Motors has reigned as the world's largest automaker and a pillar of American economic might. But now the company is broadly struggling and facing the humbling possibility that it will be displaced by Toyota at the top of the auto industry within a few years.

General Motors, which controlled nearly half the American market as recently as the late 1970's, held about one-quarter in February. Last week, the company said that it would produce 300,000 fewer cars and trucks in North America in the first half of this year, a 10 percent drop from a year ago.

Its European operations have lost money for five consecutive years and rising interest rates are expected to cool its lending division. With its shrinking profits dwarfed by those of Nissan and Toyota, G.M.'s debt is threatened with a downgrade to a junk bond rating, a move that could force it to pay more to borrow money.

The company's financial health is no trivial matter. With 7,600 dealers across the country, its eight brands, from Chevrolet to Cadillac, have long been American icons. The company has operations in 32 states; in Michigan and Ohio, both G.M. and Delphi, its struggling former parts subsidiary, are top 10 employers. G.M. is also the nation's largest private health care payer, giving coverage to 1.1 million Americans. Hundreds of thousands of retirees depend on the company's pension checks.

G.M. might be in better shape than it was when it lost $23 billion in 1992 and was on the brink of bankruptcy, but many analysts say it will be treading water for years to come and extending economic distress across the industrial heartland around the Great Lakes.

Company executives, while acknowledging that G.M. faces serious problems, say they are confident they can weather any storm. "We've been ahead for 73 years in a row," Rick Wagoner, G.M.'s chief executive, said in response to a question at a January news conference about Toyota's looming presence. "I think the betting is we'll be ahead for the next 73 years."

"Is it a birthright?" he added. "Absolutely not. Could we blow it next year? I doubt it. Could we blow it in 10 years? For sure. We could do anything in 10 years."

Mr. Wagoner declined to be interviewed for this article. With the company's stock down about 50 percent on his watch, his legacy is on the line, as is the company's.

Five years ago, at 47, Mr. Wagoner became G.M.'s youngest chief executive. He was a protégé of John F. Smith Jr., who became chief executive after a boardroom coup in 1992. Mr. Smith pulled the company from record losses to a record profit by 1999.

Mr. Wagoner did not promise to reinvent G.M.

"The state of business at General Motors Corporation is strong," he told shareholders in 2000, adding later that the company's success "gives us a great chance to build off what we're doing."

Today, however, many analysts say G.M. is still unable to solve some of the problems it had in 1992, namely the seemingly unstoppable surge of efficient foreign competitors like Toyota.

The strategy of Mr. Wagoner, now also G.M.'s chairman, has been to continue his predecessor's work of pushing global expansion even as he is now moving to shrink G.M.'s disparate global operations into a single manufacturing, design and engineering organization.

Few industry analysts call him a visionary leader, but many see him as a skilled executive who has held the company together despite being dealt a difficult hand. Others say G.M. needs a more radical approach to ensure its survival.

"It's not like this tide can't turn," Mr. Wagoner said in January. "It's not going to turn by cheerleading or me convincing you here; it's going to be great products. It's going to be helped if exchange rates get in line with what they should be so companies that don't need to get subsidies aren't getting them."

At 6-foot-4, Mr. Wagoner briefly played college basketball while attending Duke University and remains an avid Blue Devil fan. He has approached his job more like a coach than an authoritarian chief, assembling a management team of prominent industry executives.

Mr. Wagoner is a career G.M. employee who came up through the company's huge finance operations and is not considered one of Detroit's "car guy" executives. Filling that role is Robert A. Lutz, the 73-year-old former Chrysler president Mr. Wagoner hired in 2001 to shake up G.M.'s product development. Mr. Lutz, a former Marine who commutes to work in a copter, commands most of the company's spotlight.

Far from undermining his authority, Mr. Wagoner's willingness to delegate has earned him praise.

"What's remarkable about Rick's leadership is the strength of the team that he has been able to attract," said Mike Jackson, chief executive of AutoNation, the largest G.M. dealer.

Gerald Meyers, a University of Michigan professor and the former head of American Motors, now part of DaimlerChrysler, called Mr. Wagoner "superb," adding that his drive to globalize could not be accomplished quickly.

[Perian]

I imagine you were being kind, but you left out this terrible quote:

"NEARLY HALF OF GM'S NORTH AMERICAN PRODUCTION CAPACITY IS EITHER IDLED OR BEING USED TO PRODUCE CARS AND TRUCKS SOLD ON THE CHEAP TO RENTAL CAR COMPANIES, BUSINESS FLEETS OR EMPLOYEES AND THEIR FRIENDS AND FAMILY."

Repeat: "Nearly half."

It's not a good day for GM and newspapers. Above is from The New York Times. Pick up a copy of today's Wall Street Journal and you will read a terrible review of the Cobalt.

[Globalist]

Originally Posted by mjd1001

http://www.nytimes.com/2005/03/11/business/11auto.html?

Far from undermining his authority, Mr. Wagoner's willingness to delegate has earned him praise.

"What's remarkable about Rick's leadership is the strength of the team that he has been able to attract," said Mike Jackson, chief executive of AutoNation, the largest G.M. dealer.

Gerald Meyers, a University of Michigan professor and the former head of American Motors, now part of DaimlerChrysler, called Mr. Wagoner "superb," adding that his drive to globalize could not be accomplished quickly.

I agree with these testimonials. Mr. Wagoner put together one of the best teams in the automotive business.

I think GM's problem is not at the top, and it's not at the bottom (front line employees), but the problem is more at the middle. This is were execution get stuck in neutral, and egos are at their high.

[gmsickofan]

GM, needs to risk a Strike and take huge hits by closing down all outmoded and outdated factories.

It's the only way people will take them seriously as a quality company that can earn their dollars without rebates.

[goblue]

Are they using creative math - like assuming all plants should run at 3 shifts and without the mandatory 2 week shutdown? This quote warrants a little investigation.

I agree gmsickofan, if this is accurate GM may need to consider risking a strike. They've got enough excess vehicles on most every model to be able to make it about 3 months and not run out of vehicles. This can't go on. GM needs to be able to act without the albatross around its neck. The sweetest deal in all of labor needs to come to an end.

Here's a few ideas
- Layoffs with no more than 3 months salary at 70%. Just like the rest of the US has to deal with.
- No healthcare benefits in retirement for hourly workers once they become medicare eligible.
- No more getting paid for not doing work. They can take vacation or no pay.

If they don't like it they can go work for 3 x less at walmart. Screwem.
If people wonder why I singled out the hourly workers - because I am quite tired of a forklift operator making near as much or more than the people who design the vehicles and have BSEs from great schools.

This quote makes me sick to my stomach.

[86fleet]

Originally Posted by goblue

Are they using creative math - like assuming all plants should run at 3 shifts and without the mandatory 2 week shutdown? This quote warrants a little investigation.

I agree gmsickofan, if this is accurate GM may need to consider risking a strike. They've got enough excess vehicles on most every model to be able to make it about 3 months and not run out of vehicles. This can't go on. GM needs to be able to act without the albatross around its neck. The sweetest deal in all of labor needs to come to an end.

Here's a few ideas
- Layoffs with no more than 3 months salary at 70%. Just like the rest of the US has to deal with.
- No healthcare benefits in retirement for hourly workers once they become medicare eligible.
- No more getting paid for not doing work. They can take vacation or no pay.

If they don't like it they can go work for 3 x less at walmart. Screwem.
If people wonder why I singled out the hourly workers - because I am quite tired of a forklift operator making near as much or more than the people who design the vehicles and have BSEs from great schools.

This quote makes me sick to my stomach.

I agree with you. And I think that even the employees might agree with you. It's a simple choice between a job with little benefits, or lots a benefits now, but no job or benefits 10 years from now.

[tgagneguam]

Originally Posted by 86fleet

I agree with you. And I think that even the employees might agree with you. It's a simple choice between a job with little benefits, or lots a benefits now, but no job or benefits 10 years from now.

To further your point, 86fleet, the sentiment of this thread has been debated on this site for some time in other threads, but since the issue of competitiveness is as germane now as it has been in the past (and certainly will be in the future), the simple matter of fact is that GM cannot continue to conduct business as it has been. And that will mean sacrifice on many people's parts, or the Company simply will not survive. That's pretty clear.

As much as I may disagree with some of our senior politicians' views on social and fiscal concerns, I definitely support the ideals behind an ownership society. And part of that is a libertarian view of providing for oneself - and thus eschewing a dependency on the State, or in this case, the Corporation. Personally, I'm not relying on anything other than the monies I devote to my retirement for my retirement. I can also say the same about disability insurance. Or health insurance. Or a variety of safety nets that I deem more important than the immediate gratification of personal consumption. I drive a less luxurious vehicle as a result. I dine out less as a result. And I live in a more modest home than my salary affords me. And I guess I'm OK with that, too. I don't expect a reward or even a pat on the back (cuz I know I'm not getting one or deserve one). After all, pleasure can be derived from many immaterial things. But I think it's reasonable to expect those who don't prepare for the future to live with the consequences of their actions.

I also wonder about those who feel entitled to that which they aren't entitled. Hmmm, honestly, I have less than no interest in paying higher taxes to support those with a lack of vision and a focus on the present. I am also definitely not inclined to buy GM simply because it has the union label. Despite the urgings of many unions, I never look for the union label on my products. Harsh, for sure, but really it's how I feel.

[Perian]

Originally Posted by 86fleet

I agree with you. And I think that even the employees might agree with you. It's a simple choice between a job with little benefits, or lots a benefits now, but no job or benefits 10 years from now.

Don't UAW workers have children?

Where are these children going to work?

Are they all going to work for Toyota, Nissan, Honda and beginning in two weeks, Hyundai?

When (not if) GM bonds are downgraded to "Junk" status, the bottom is going to fall out. This will be major front page news about the fall of one of America's greatest companies.

If you read that GM's bonds are junk, will you be shopping for a GM car?

If you say it won't matter, may I direct you to sales figures for Oldsmobile the month after their death announcement.

The worst is yet to come. It's time to wake up.

[Globalist]

Originally Posted by tgagneguam

To further your point, 86fleet, the sentiment of this thread has been debated on this site for some time in other threads, but since the issue of competitiveness is as germane now as it has been in the past (and certainly will be in the future), the simple matter of fact is that GM cannot continue to conduct business as it has been. And that will mean sacrifice on many people's parts, or the Company simply will not survive. That's pretty clear.

Very true.

[LAMRONH]

Thanks to LBJ and many criminals in Congress over the past 40 years, many in American society have become conditioned to believing they are entitled to A through Z without paying for any of it. (Of course, the productive work-ethic-possessing members of society DO pay for it.) The UAW could be the poster child for this mental illness. I have an old buddy who spent 30 years at Ford, most of the time doing nothing and working in a skilled trades shop. Now he collects at 50% on the 30-and-out retirement plan, plus medical which he often shammed on.
I think it might be a good idea for GM to confront the UAW now, before they are virtually bankrupt, and do some serious renegotiating. Otherwise they may be forced to form offshoot corporations that would build cars in China and import them here. Needless to say, the UAW will not be in China because there is already a dictatorship there and the commie government will win any power struggle with union thugs.
Hate to say it, but when Wal Mart buys GM and dumps the union is when GM will start working its way back to being an on-the-move corporation. Whatever else they do, Wal Mart knows how to run a corporation, and that does not necessarily include treating the help well or paying them three times what they could otherwise get in the open market.
Cancerous organizations like the UAW are driving production over to the Commie Chinese. And then "American" organizations like Wal Mart import all their cheap junk. The USA is heading for real problems because of negatives in the balance of trade, porous borders, and the large "entitled" class and in 30 years we may not be a world power or even one country. Corruption within allows conquest from the outside.
So should we get a pool going, at what market share % will WallyWorld buy GM?
I say 16%, which will occur by 2015 if GM continues on its current course.