[nadepalma]

SOURCE: Detroit News

Daniel Howes: Commentary
One of Big 3 may not survive
Tuesday, October 14, 2008

The truth about Detroit's painful automotive transformation, marked by new products, concessionary labor deals, asset sales, plant closings and job cuts, is that none of it will be enough soon enough.

Instead, a global credit crisis, plunging consumer confidence and abysmal corporate finances are forcing once-proud companies and their senior executives to flail for even more disruptive answers. They won't be any easier to find than back in the 1950s, when Detroit's independent automakers -- Packard and Studebaker, Nash and Hudson -- hastily married up in an effort to fend off the market power of General Motors Corp. and Ford Motor Co.

They failed. Today's thinking atop the automakers: Do almost anything to avoid bankruptcy, dismembering operations, invalidating decades of promises to employees and retirees, gutting a 70-year relationship with the United Auto Workers and staining the legacies of men named Ford Jr. and Mulally, Wagoner and Nardelli.

The details of a would-be "merger" between GM and Chrysler LLC or whoever else, or the fact that GM also talked to Ford, are far less important than confirmation that Chrysler's owners want out and that GM is desperately looking for a Plan B because it is running out of cash and time, which these days are one and the same thing.

How else to read GM's feeble attempt to knock down reports of tie-up talks with Chrysler and Ford? Or the implication that increasingly dire circumstances could force it to seek a "bailout" from the feds? Or Barack Obama's call for speeding low-cost loans to Detroit's automakers? Or the fact that GM is asking two Detroit pension funds to buy its Renaissance Center headquarters and then lease it back -- all so the General can pocket somewhere between $250 million and $500 million?

All options are options. You know things are serious, that GM's cash burn is accelerating and its options are limited, when a presidential nominee ups the bailout ante Monday and GM's CFO last week personally makes an investment pitch to pension reps for Detroit's cops, firefighters and city employees.

Another reality: Chrysler's owner, Cerberus Capital Management LP, wants to make a deal -- with anyone -- that will free it from the black hole that is a Detroit-based automaker. Lest there be any doubt, the private equity shop would gladly sacrifice Chrysler, its employees and retirees to GM's corporate ax if it can extricate itself from an industry it never fully understood.

Using the word "merger" to describe a combination of GM and Chrysler is verbal dishonesty of the worst kind. Whole swaths of Chrysler engineering, manufacturing and product development would be collapsed into GM; redundant support staffs would be trimmed; more plants would be closed and more jobs cut; Chrysler communities would be devastated.

And GM would eliminate a competitor in a "neutron bomb" kind of deal that eliminates jobs and the people in them but leaves valued hard assets and, presumably, Chrysler's corporate cash hoard intact. Which is the point.

Chrysler wouldn't be merging with GM so much as be submitted for its own execution. In exchange, Cerberus would assume total control of GM's GMAC finance arm, a business the financial engineers at Cerberus better understand and assume will return someday to normalcy and profitability.

The Big Lie in all this is how disingenuous Cerberus has been since the get-go: Cerberus's commitment to Chrysler, reiterated repeatedly by its hired hands and founder Stephen Feinberg, apparently lasts only as long as they say it does -- that is, long enough for Cerberus to cut its losses and for CEO Bob Nardelli and his top boys in Auburn Hills to reap their change-in-control payouts.

MORE HERE

 

[civilzues]

Doom and gloom round 76.

 

[Bokl]

well with idiot rick and lutz i am not suprised that gm will need another bail out to survive. Why not give more billions maybe they will make more trucks and suvs and then tell you that nobody wants micro cars. just like nobody wanted ecnomy and midsize cars. Well let gov. bail them out for the second time. First 25 billion and who know how much more after election. Who is going to bail me out or you. if we get in trouble nobody will bail us out they will just send us to collection. Well maybe they need to send all of these failed business to collection too.

 

[nadepalma]

Doom and gloom round 76.

Nah, not doom and gloom - just a dose of reality for Detroit. The credit crunch isn't helping, but many of the items listed as the reason why NOT to merge have been around for some time. The Big Three should have been diligently working on fixing them and now they have been caught with their pants down.

Regardless, I think that these companies are strong enough to get through this in one form or another - but who will be first to act and make those really though decisions?

Will FoMoCo wait for things to improve and finally sell off Volvo? Will they sell off their stake in Mazda? Will they push for further integration of the Ford Empire and NOT keep replicating the wheel all over the world? Will they reach out to GM, Chrysler or another competitor to co-develop fuel saving technologies or new platforms where it makes sense?

Will GM finally admit that the only the domestic brands that truly make the most sense moving forward are Chevrolet, Buick, and Cadillac. When will GM get off its duff and start closing brands (GMC, Saturn, Pontiac, Hummer?) to solve some of their overlap issues? Will they end the multi-divisional bull-crap -- and the advertising/marketing/logisitic dollars that go with it all -- that has caused them so much heartache? Will they finally seek to reach out to other players to co-develop those same technologies? Will they start forcing mergers among the dealer networks - or at the very least offer some incentives for dealers to shut their doors for good?

And, of course, much of what is above holds true for Chrysler as well. They too need to reduce the size of the dealership network, end overlapping models, and look to share technologies and platforms with other companies.

And when will the Big Three collective see that their biggest competition in the market is NOT EACH OTHER but the import brands and outside economic forces? They can't help that Japan or China have unfair economic advantages, but they can help each other - and the supply chains that feed them - from further erroding their marketshare here at home. I for one would rather see Ford use a GM transmission, Chrysler use a GM platform, and GM use a Ford electric motor (or whatever example you'd like to use) than see them collectively suffer and go under. If they jointly work on electric cars or HCCI or a new mid-size platform - and aggressively design and market them separately - than carry on alone with no viable solutions in site.

No matter what they do, there WILL be pain. But I'd rather have pain up front than a slow, agonizing death.

ACT NOW so you don't have to implode tomorrow!

But hey, that's just me

 

[skylark68]

I think it's a little too soon to write off Chrysler. Cerberus has only had control of its operations for a short time to bring it out of the condition it was in with Daimler. I think even Chrysler's line up is much better than it was back in '79 when it was on the verge of collapse. It had nothing that the public wanted then. I admit it's not much better now, but it is still selling Chargers at a decent rate, the Challenger is white hot, and the new Ram should pick up some truck sales. Chrysler just needs to work on the mid size family sedans and a new, proper, economy car which could happen soon with Nissan's help.

 

[ByTheLake]

Just ONE of the Big 3 may not survive? I'd say that survival of the entire US auto industry is at risk.

If people were frightened by the most recent stock skid, they should truly re-think their intentions of purchasing a car from a foreign manufacturer. If the industry dies in this country, the economy couldn't absorb the direct and indirect job losses.

Time to put the country first, people. GM and Ford are making some great products, give them a drive. If you buy foreign, you'll have no room to complain about the US economy taking another dive.

 

[nadepalma]

Here's another thought to entice dealers to consolidate and/or drop their franchises and reduce the dealership networks for all three corporations:

GM, FoMoCo, and Chrsyler should each set aside some money in their annual budgets - perhaps $500 million each year - and give dealers a minimum of $200,000 and a maximum of $600,000 to close their doors FOR GOOD. Or to use those dollars to make them purchase a competitor in the same region.

They could model it after the "buyout" plan that they offered the UAW - open it up to all dealers and give them a cut-off date to see who is interested. Between that and the current crisis, I'm sure many places will gladly turn in the keys to get something back on their return. Or it would entice them to use those dollars to purchase a competitor down the street and take their repeat customers.

The point is that the dealerships that survive will be that much stronger for it. AND it would give GM, FoMoCo and Chrysler a hand in starting to end a mess they helped create by allowing their dealership network to grow and thrive haphazardly.

Just an additional 2 cents from me! Just a bit fired up today.

 

[mgescuro]

I believe the entire US auto industry as we know it is at risk.
Unfortunately, I haven't had time to really delve into the situation and analyze it strategically -- as as strategically as I want.

What we're looking at is a fundamental shift in the way the auto industry exists and operates.
And frankly, I think none of the Big 3 will come out of this unscathed. The weakest will most likely fold; that's Chrysler.

Only a fundamental reworking in the business strategy of GM and Ford will allow them to survive beyond 2010. This isn't happening to the extent I believe it should happen. Whether that is plain stubbornness, bad leadership, clinging to old habits, or external forces not allowing them to change, I can't say. But in this tough market, something will give.

 

[dagr382]

Just ONE of the Big 3 may not survive? I'd say that survival of the entire US auto industry is at risk.

If people were frightened by the most recent stock skid, they should truly re-think their intentions of purchasing a car from a foreign manufacturer. If the industry dies in this country, the economy couldn't absorb the direct and indirect job losses.

Time to put the country first, people. GM and Ford are making some great products, give them a drive. If you buy foreign, you'll have no room to complain about the US economy taking another dive.

Pure common sense!

 

[FierySolstice]

Nah, not doom and gloom - just a dose of reality for Detroit. The credit crunch isn't helping, but many of the items listed as the reason why NOT to merge have been around for some time. The Big Three should have been diligently working on fixing them and now they have been caught with their pants down.

Regardless, I think that these companies are strong enough to get through this in one form or another - but who will be first to act and make those really though decisions?

Will FoMoCo wait for things to improve and finally sell off Volvo? Will they sell off their stake in Mazda? Will they push for further integration of the Ford Empire and NOT keep replicating the wheel all over the world? Will they reach out to GM, Chrysler or another competitor to co-develop fuel saving technologies or new platforms where it makes sense?

Will GM finally admit that the only the domestic brands that truly make the most sense moving forward are Chevrolet, Buick, and Cadillac. When will GM get off its duff and start closing brands (GMC, Saturn, Pontiac, Hummer?) to solve some of their overlap issues? Will they end the multi-divisional bull-crap -- and the advertising/marketing/logisitic dollars that go with it all -- that has caused them so much heartache? Will they finally seek to reach out to other players to co-develop those same technologies? Will they start forcing mergers among the dealer networks - or at the very least offer some incentives for dealers to shut their doors for good?

And, of course, much of what is above holds true for Chrysler as well. They too need to reduce the size of the dealership network, end overlapping models, and look to share technologies and platforms with other companies.

And when will the Big Three collective see that their biggest competition in the market is NOT EACH OTHER but the import brands and outside economic forces? They can't help that Japan or China have unfair economic advantages, but they can help each other - and the supply chains that feed them - from further erroding their marketshare here at home. I for one would rather see Ford use a GM transmission, Chrysler use a GM platform, and GM use a Ford electric motor (or whatever example you'd like to use) than see them collectively suffer and go under. If they jointly work on electric cars or HCCI or a new mid-size platform - and aggressively design and market them separately - than carry on alone with no viable solutions in site.

No matter what they do, there WILL be pain. But I'd rather have pain up front than a slow, agonizing death.

ACT NOW so you don't have to implode tomorrow!

But hey, that's just me

I agree with a lot of what you said, but they should keep Pontiac and Buick. They can pretty much sell on the same lot. Pontiac brings in a lot of sales for GM. Pontiac could be the smaller performance cars and Buick could be the larger elegant cars. As much as I would hate it, the G8 would have to go. Buick shouldn't really do small cars. Small cars should be sporty and thus the Pontiac image would work well here.

 

[BigThreeForever]

Nah, not doom and gloom - just a dose of reality for Detroit. The credit crunch isn't helping, but many of the items listed as the reason why NOT to merge have been around for some time. The Big Three should have been diligently working on fixing them and now they have been caught with their pants down.

Regardless, I think that these companies are strong enough to get through this in one form or another - but who will be first to act and make those really though decisions?

Will FoMoCo wait for things to improve and finally sell off Volvo? Will they sell off their stake in Mazda? Will they push for further integration of the Ford Empire and NOT keep replicating the wheel all over the world? Will they reach out to GM, Chrysler or another competitor to co-develop fuel saving technologies or new platforms where it makes sense?

Will GM finally admit that the only the domestic brands that truly make the most sense moving forward are Chevrolet, Buick, and Cadillac. When will GM get off its duff and start closing brands (GMC, Saturn, Pontiac, Hummer?) to solve some of their overlap issues? Will they end the multi-divisional bull-crap -- and the advertising/marketing/logisitic dollars that go with it all -- that has caused them so much heartache? Will they finally seek to reach out to other players to co-develop those same technologies? Will they start forcing mergers among the dealer networks - or at the very least offer some incentives for dealers to shut their doors for good?

And, of course, much of what is above holds true for Chrysler as well. They too need to reduce the size of the dealership network, end overlapping models, and look to share technologies and platforms with other companies.

And when will the Big Three collective see that their biggest competition in the market is NOT EACH OTHER but the import brands and outside economic forces? They can't help that Japan or China have unfair economic advantages, but they can help each other - and the supply chains that feed them - from further erroding their marketshare here at home. I for one would rather see Ford use a GM transmission, Chrysler use a GM platform, and GM use a Ford electric motor (or whatever example you'd like to use) than see them collectively suffer and go under. If they jointly work on electric cars or HCCI or a new mid-size platform - and aggressively design and market them separately - than carry on alone with no viable solutions in site.

No matter what they do, there WILL be pain. But I'd rather have pain up front than a slow, agonizing death.

ACT NOW so you don't have to implode tomorrow!

But hey, that's just me

Can't argue with a word of that. I really cant.

 

[jcgable]

I'm glad to hear that the GM board of directors aren't too keen on the idea. We can no confirm that they aren't functionally retarded. The only way any part of this deal makes sense is if Cerberus infuses GM with A LOT of cash.

GM needs a makeover, not a weight increase.

 

[gmlr]

Cerubus needs a sucker to buy Chrysler and the lip stick on this pig. Chrysler wil not survive until 2010 and the black hole is growing every month. Chrysler oct sales are down big and they have 50% off tags on most cars and trucks. Also GM does not need any money, if they did the fed will just buy into GM just like the 9 major banks today. They spent 250B and they said they would spend more if need be.

 

[LesabreLtd]

Your comment about the GM-Chrysler merger is so true. Proof? Look what happened at the so-called merger of GE and RCA in 1985. Even though execs at GE told the press all the superlatives of the merger, battling against the Japanese and foreign consumer electronics. In a short 2 years, GE sold off GE and RCA Consumer Electronics to Thomson of France. They recently sold the TV business to China's largest TV maker, while AudioVox bought the remaining audio/visual business. Everything that was RCA was sold off or dismantled... except the NBC TV Network. But you reap what you sow... so, the Big 3 killed of the Independents... now they are in the same shoes. Besides.... management has a lot of blame here... too many years of mediocre, uninspired styling... and years of writing off quality and letting the foreign competition win over consumers. The last straw was the Big 3 forgetting they were in the automobile business... not trucks and SUV's.

Stay tuned to see when the fat lady is going to sing!~

 

[drew770]

Ford seems to be more proactive at trying to survive. GM with it's weak board and slow Rick Wagoner seems to be just treading along.

In order for GM to survive they will have to change not only their closed mindset but also look at it's brands and models from a different point of view.

Everything should be on the table in order to save this company. The government shouldn't give GM a dime if massive changes are not on the table.
GM can't continue to do the same lazy stuff and ask the government for a handout.

 

[Stéphane Dumas]

could we add also the possibility to add a takeover by another group (RN, Tata, Fiat) on the list?

Also, with the current value of the US dollar and the recent rise of the yen, I wonder if in the more long-term, "Japan Inc" might face, as LesabreLtd mentionned, the fat lady?

 

[nadepalma]

I agree with a lot of what you said, but they should keep Pontiac and Buick. They can pretty much sell on the same lot. Pontiac brings in a lot of sales for GM. Pontiac could be the smaller performance cars and Buick could be the larger elegant cars. As much as I would hate it, the G8 would have to go. Buick shouldn't really do small cars. Small cars should be sporty and thus the Pontiac image would work well here.

I wasn't advocating to close Buick in the thread you cited, just making the point that the "three untouchable" domestic brands would be Chevrolet and Caddy (for obvious reason) and Buick (since it is growing in China and has new potential here at home).

I still think that one or two other brand could be salvaged, but that's it. The idea of juggling eight balls in the air MUST END. Instead it should be Caddy and Chevy as the foundational brands and perhaps one or two "inbetween" brands to link the high and low end.

I've said it before in other threads, but if I could waive a magic wand, my ideal lineup/brand channel strategy would be: Chevrolet, Pontiac-Buick, Saab-Caddy. Each would present a "full lineup" at each dealership and target separate pieces of the market.

And while my preference would be to save Pontiac - and kill GMC, Hummer and Saturn - if Pontiac got in the way, THEN CUT THEM TOO.

At the end of the day, its more important for GM to survive over many of these specific brands. As much as I love Pontiac (and I'm a Poncho Guy), if it meant saving the corporation as a whole, then cut it and move on.

But that's just me...

 

[nadepalma]

Can't argue with a word of that. I really cant.

Thanks BigThreeForever for the thumbs up.

Honestly, if I were to look at who has done the "best" job of all the Big Three on this and has come the closest, I'd have to say it's Alan Mulally.

Mulally understands the idea of "less is more" and "the more simplistic, the better"

He's not only showing it when it comes to divesting assets like Aston Martin, Jag, Land Rover, or the idea of culling the overlap between the brands. These are all important, but that's not the whole story.

Alan has shown leadership by going back to basics - you have a small handful of brands that you can improve upon and grow organically. You take all the other distractions and you set them aside and focus on the most important tasks at hand.

And he has experience at this since he's replicating the Toyota model at Ford, which he followed as CEO of Boeing.

But what is truly ironic is that the Toyota model itself is just derivative of the original Ford Business Plan from generations ago. And it works!

Look at what Toyota has accomplished: It sells more cars under ONE brand than GM or Ford do with multiple brands. It has a luxury brand in Lexus that it treats almost as a separate company - you almost never see Lexus/Toyota dealerships that share the same floor room space. It is a clear brand image and it has allowed them to gradually ramp up sales without bleeding one brand into the other. No one would say this strategy has been flawed by looking at the sales numbers. (As an aside, this is also the reason why I haven't been a fan of consolidating Ford dealerships with "higher-end" Lincoln-Mercury outlets).

And they do this with far fewer dealerships, good quality control, and great customer service.

That's all you need, and Alan "gets it". Its' not about having 10 brands and 20 platforms or 30 plants.

Its about narrowing things down to get your hands around them. Its about having enough money in the til to adequately and effectively market those products to a car-buying public that understands what you're driving at.

And to a (much, much) lesser extent, Chrysler has been doing the same thing.

It killed Plymouth - a redundant brand - a few years back. It has killed some overlapping and slow selling models. It has pushed to consolidate dealerships under one roof because it accepts the fact that Chrysler branded cars are NOT luxury cars but "slightly upscale cars", it knows Dodge is a mainstream/bread n' butter brand, and acknowledges that all future Jeeps should stick to being SUVs/off-roaders with no "me-too" crossover masquerading as off-roaders. That means there is no real need to physically separate the brands (like Toyota/Lexus or Ford/Lincoln-Mercury) and selling all three under one roof makes sense.

There is no complicated gimmicks. No whinnnig about losing product. Just a straight forward attack on the market.

It will take time to see if they can pull if off because of their finances, but the idea has been proven elsewhere and has merit. I applaud them.

The only one who is still too far out in left field is GM, much to their detriment.

Even as a GM fan, I hope that Mulally succeeds. I will applaud him up and down the line. And then I'll openly ask him to replace Rick Wagoner at the top of GM.

But that's just me

 

[Rocket 88]

Time to put the country first, people. GM and Ford are making some great products, give them a drive. If you buy foreign, you'll have no room to complain about the US economy taking another dive.

Yesterday you said it was a business job to make money and it was meaningless that they were laying off workers 2 days before Christmas because they owed it to their shareholders.

Today you want Consumers to buy GM and Ford products in the interest of nationalism and what is best for our country. Laying off workers isn't what is best for the country. Unemployment, welfare, food stamps all cost the country money and if people aren't making money they aren't paying taxes.

I guess to you it doesn't matter because jobless folks won't be buying a new car any time soon.

 

[Rocket 88]

Only a fundamental reworking in the business strategy of GM and Ford will allow them to survive beyond 2010. This isn't happening to the extent I believe it should happen. Whether that is plain stubbornness, bad leadership, clinging to old habits, or external forces not allowing them to change, I can't say. But in this tough market, something will give.

Last year (heck, every year for decades) GM sold more vehicles then any other car manufacturer. They also were the most unprofitable. Granted this is an oversimplification, but if your selling more product then anyone else and can't make money... how the hell are you ever going to make money? How do you "fundamentally rework" that?