GM Inside News Forum banner

GM: Better off bankrupt

10K views 164 replies 70 participants last post by  Gm786 
#1 · (Edited)
http://money.cnn.com/2008/10/14/news/companies/gmwoes_taylor.fortune/index.htm?source=yahoo_quote

NEW YORK (Fortune) -- GM certainly is keeping a close eye on its cash these days.

One supplier reports he is now getting paid 60 days after he presents an invoice - not the 30 days he was used to. Worse, the clock doesn't start ticking until after the bills get approved in Detroit - and then sent to Arizona for processing.

Next thing you know, GM will be inflating its float by cutting supplier checks on banks in Fiji that will take weeks to clear.

It is a measure of GM's desperation that it is reported to be considering a linkup with Chrysler to get access to Chrysler's cash so it can remain in business. The idea has provoked nearly universal skepticism among analysts and GM watchers.

With good reason; they have history on their side. The list of unsuccessful auto mergers stretches from the present day - Daimler (DAI) and Chrysler, BMW and Rover - all the way back to Studebaker-Packard and Nash-Hudson.

Buying Chrysler would only get GM (GM, Fortune 500) more of what it doesn't need: more brands, more models, more factories, more employees, more dealers. You have to wonder what makes GM think it could run Chrysler's operations more successfully than it has run its own. Like a second marriage, a GM/Chrysler merger would be a triumph of hope over experience.

So what's an ailing automotive giant to do?

GM has the wrong products to sell into a shrinking market and can offer little or nothing in the way of financing to its customers.

To remain liquid through next year, it needs to raise $10 billion to $15 billion through a combination of internal measures, borrowing and asset sales. That's next to impossible these days. With some of its bonds selling for less than 50 cents on the dollar, the cost of new debt would be prohibitive. Not even vulture investors are clamoring to buy shuttered parts or assembly plants. And Hummer, which GM is trying to shed, does not appear to be the next iconic American brand. Harley-Davidson it isn't.

Bailout or bust
So how about a government bailout? What's good for GM is good for the country, and vice versa. The federal government has promised more than $1 trillion to keep banks, insurance companies and other financial institutions afloat. Couldn't it find another $100 billion or so to invest in the Detroit Three on top of the $25 billion in loans already approved?

A government loan wouldn't be about protecting well-compensated union jobs or keeping afloat inefficient suppliers in Michigan and Ohio. It could be directed toward advancing Detroit's and the country's strategic interests by speeding development of alternative fuel technologies that reduce our dependence on foreign oil as well as help limit the generation of greenhouse gases.

GM may have a decent shot at that in a Democratic administration. If not, there is bankruptcy. That's a horrible possibility, to be sure, and one that GM claims is not an option because it would destroy consumer confidence in its vehicles. Who is going to accept a three-year warrantee on a new car from a bankrupt company?

But hear me out. Bankruptcy would give GM a chance to negotiate further cost reductions with its union workers, work out its obligations with those suppliers that are still solvent, and help speed the rationalization of its dealer body.

Would GM then be stigmatized as the only bankrupt auto company? No way. Ford (F, Fortune 500) and Chrysler would immediately find that they have been made uncompetitive by GM's actions and quickly follow it into Chapter 11.
 
See less See more
#3 ·
It wouldn't raise any cash for ongoing operations, but it WOULD relieve GM of some of their financial obligations (read: outgoing cash) at least temporarily.

I think that bankruptcy would be the best thing for GM, but would be disastrous for their suppliers.

As for sales tanking, you may have a point... however, when Delta Airlines filed, it wasn't as if no one was willing to use them (I personally refuse to use them, but that has nothing to do with their financial situation and everything to do with their customer service).
 
#5 ·
That type of delay in paying suppliers is not unheard of in some companies. I know one firm that is extremely profitable and because of its clout pays out 60 - 90 days later. Everyone hates it but there's not much that can be done. I've been caught in that trap with this firm and it's impossible to get them to budge. They do pay, but if you're tight on cash God help you.

And the fact the article is saying a $125B loan/bailout/whatever to Detroit is a good thing is amazing, esp. as it's CNN. But I think folks are starting to realize that Detroit is changing but they're hamstrung and, in the interests of the United States, saving Detroit is crucial.
 
#94 ·
I love all the support behind bankruptcy on this site. It's a true winner's strategy.

GM negotiated poorly with its primary Union for decades until very recently. In a few years, these cost savings will bear fruit, though it will be coming about a decade and a half too late. Simple point: GM negotiated its contracts with the its Union and should live by them, both when they work for them (starting in 2010) and when they haven't (for the past few years).

GM absolutely poorly misjudged the market. When it does, it should be allowed to suffer. When it gauges the market better (Corvette, CTS), then it should prosper. All without government interference.

...But I think folks are starting to realize that Detroit is changing but they're hamstrung and, in the interests of the United States, saving Detroit is crucial.
They're in their current predicament primarily because of their own poor management. The solution is not to usurp poor management with perhaps the epitome of poor management, the U.S. government. GM should succeed or fail directly because of its business model; it's in the best interest of America. Saving GM or any industry at any cost is not the best for US industry.

...But hear me out. Bankruptcy would give GM a chance to negotiate further cost reductions with its union workers, work out its obligations with those suppliers that are still solvent, and help speed the rationalization of its dealer body.
No, that's not what's going to cause the change. Proper contracts will occur when GM negotiates better with its Unions. More recent contracts with its shrinking US workforce are prove of that. It will realize significant savings, just like GM did when it moved tens of thousands of jobs to non-Union positions in Mexico and overseas manufacturing complexes for years.

GM's dealer network will be resolved vastly through this recession... all without government intervention. The nature of economic cycles is that the weak die off. We are already seeing that, and we technically aren't even into the "deep, prolonged" recession the Fed is predicting. Free markets will prune the losers, and many loser dealerships fly domestic-brands on their front lots. Again, the 2008-2009 recession will do all the work that allegedly only bankruptcy is only capable of.

they should go bankrupt and then shed the uaw move production to china and north korea and India. I would say to also offload the pensions on to the government as well. then merge with tata or vw! and rename chevy to GMC!
You clearly don't pay taxes. I'm not interested in guaranteeing someone else's pension, thank you very much.

Bankruptcy is pretty much a foregone conclusion at this point. It's not a matter of if...just when.

I really believe bankruptcy may be one of the best things that has happened to GM in decades. For once they'll be able to make swift and revolutionary changes to their Union contracts, redundant products and brands.

GM needs a chance to literally reinvent themselves. Cost cutting can only take them so far.

With the current financial turmoil, this may also be the best time to come clean and just do it...
Many inspired leaders of "Good to Great" and "Built to Last" companies were able to reinvent themselves without the crutch of government intervention, be that undeserved, low-interest loans or bankruptcy protection. You could park GM in bankruptcy for years. If it doesn't possess the leadership, it will never turn itself around.

There should be law in this country that prohibits the press from speculating about bankruptcy, even in editorials. It's part of what got us into this mess of banks collapsing, with short-sellers spreading the rumors of bank insolvency.

The press has been doing this to GM for the last few years, and it could very well have made the difference in sales that now has GM bleeding $1 billion a month, instead of at least staying relatively revenue neutral. I honestly hate these guys, and greatly question their motives.
No, it really isn't the media (or the government or any other convenient recipient of displaced responsibility). It's all about the individuals-in this case, individual automakers-who were primarily responsible for their decline. When GM makes a fantastic car, the press will sing its praises. Go ahead, weigh the positive and negative articles about the Volt, the Malibu, the CTS, the CTS-V, the ZR1. Go ahead and compare the positive and negative articlees and then talk to me about the grand media conspiracy that exists to destroy GM. The press rightfully reported on the years of crap GM built. Now that they have some winners, GM's getting some positive press.

Because they don't have unions and the bulk of their work costs them 35 cents per employee versus $31 per employee here in the US.
Pssst, don't tell the Mexicans and Koreans who build all sorts of components and who assemble entire vehicles for GM. And don't tell the comparably paid US workers of the transplants the same thing. GM negotiated lavish contracts with some of its workers in the U.S., and it should be held responsible for them. The burden doesn't rest with government/taxpayers; it rests with the folks engaged in the contract: GM and the UAW.

So by what you are saying Steve Jobs, Steve Ballimer,... are all the worst CEOs ever? Google has lost 55% in the past year, Microsoft has lost 40% in 6 months, Toyota has lost 55% in less than a year,... its the entire market that has been going down. Foolish for you to even begin to say the stock price is solely due to the CEO. If it were due to the CEO, why hasn't Apple, who everyone says has the best CEO, been unable to go up and has gone down by 60% as well?
Here's a tiny window on the world of why certain company CEO's-despite challenged share prices-somehow aren't getting canned:

2007 Sales/Profits:
Apple: $24,006,000,000 (24.3%)/$3,496,000,000
Google: $16,594,000,000 (56.5%)/$4,203,700,000
Microsoft: $60,420,000,000 (18.2%)/$17,681,000,000
Toyota: $262,394,000,000 (29.3%)/$17,146,000,000

For comparison:
General Motors: $181,122,000,000 (-12.6%)/$-38,732,000,000

See the [very discernible] difference. Christ, even J.P. Morgan Chase was able to post $527 million profit last quarter. And in the event you weren't aware, we're in the middle of a "global financial meltdown!"

Granted, Buickman is pointing to market cap, which I agree with you in some sense is not the only measure of a strong CEO. But, come on, fp115, yours is an apples to oranges comparison.
 
#9 ·
Well duh, there's fear to sell. Can't be telling the whole story when you need to influence the market, now can we?

Again, journalism is dead. Now there is only what corporations deem news. The Press cannot function unless it is a part of the populace and not a corporate controlled entity. Companies own America now, and quite a few of those are foreign companies. All hail the bottom line.
 
#48 ·
Many years ago, there was some separation of operations between the brands.

In North America, the brands are basically marketing brands sharing a common administrative, engineering (mostly), marketing, and field workforce. Hard to treat any of them as separate companies, at least in North America.
 
#18 ·
nobody buys a car from a bankrupt company. period.
Agreed.

bankruptcy would allow other manufacturers to swoop in and buy off the brands they want.

Toyota would swoop in and take chevrolet, Hyundai would scoop up Cadillac, etc.
Um-m-m-m, no. You can't just separate Chevrolet, Pontiac, Buick, Cadillac, GMC, and Saturn from each other. They share design, engineering, and components.

Let's leave aside the fact that most auto manufacturers--foreign and domestic--are struggling in this current economic environment. Let's pretend that Toyota buys Chevrolet. It will have a choice of designing, engineering, and manufacturing its own original models or sharing existing platforms with its new Chevrolet brand. Neither of these choices is particularly desirable. The former is expensive. The latter would result in product that does not sale particularly well. If you howl at the prospect of buying a rebadged Daewoo from GM, then why would you feel better about buying a rebadged Corolla from Toyota?

Other new owners of single GM brands would face the daunting tasks of developing replacements platforms for the new brands, but they won't have the economies of scale enjoyed by Chevrolet.
 
#11 ·
How about this: Instead of a financial bailout, make U.S safety and emission standards equal to Europe (which is to say, slightly lower). The Big Two could bring over their best and brightest, plus CAFE would go up.

I am a genius
 
#26 ·
Bankruptcy is pretty much a foregone conclusion at this point. It's not a matter of if...just when.

I really believe bankruptcy may be one of the best things that has happened to GM in decades. For once they'll be able to make swift and revolutionary changes to their Union contracts, redundant products and brands.

GM needs a chance to literally reinvent themselves. Cost cutting can only take them so far.

With the current financial turmoil, this may also be the best time to come clean and just do it...
 
#31 ·
Bingo, they have to be completely demolished and rebuilt from the ground up as much smaller entities with one or two brands maxium and the accompanying workforce, production and dealer networks.

The days when the US new car market was all Big Three are generations gone, so why are these companies still structured like they aren't?

This is primarily why they are all up a creek without a paddle.
 
#33 ·
There should be law in this country that prohibits the press from speculating about bankruptcy, even in editorials. It's part of what got us into this mess of banks collapsing, with short-sellers spreading the rumors of bank insolvency.

The press has been doing this to GM for the last few years, and it could very well have made the difference in sales that now has GM bleeding $1 billion a month, instead of at least staying relatively revenue neutral. I honestly hate these guys, and greatly question their motives.
 
#34 ·
I've been saying this for years.

If Chrysler wasn't bailed out 20 years ago, they'd be a stronger company today.

They could have declared bankruptcy and gotten out of those union contracts and been forced to restructure the salaried positions.

That means massive cost savings.
 
#121 ·
The problem with this post is that it makes entirely too much sense. Void those horrific union contracts, and let the Feds assume the pension liabilities. They must have some chump change left over after the nationalization of the banks. Bankruptcy would be an excellent way to thin out the overabundance of non performing GM dealers.
 
#36 ·
Don't know about you but I am tiring of the "wrong products" story. The other day it was worse."GM has products no one wants".
That presumes Toyota does??? If so why are they in the pooper on sales also, offering 0%? One liners like that are not only not factual but further exacerbate the problem, making sure everyone stays away from GM dealers. Perception is EVERYTHING.
 
#41 · (Edited)
Bankruptcy would be disastrous, it would mean the end of GM. The Government of this country cannot afford to let GM go into bankruptcy it would throw this country into a much deeper recession or depression, whichever you want to call it. The psychological state of this country's economy is fragile now, if either GM or Ford went under it would be devastating. These two companies more than any other, represent what America was, is, and what it can be. To allow them to fail would be nothing short of a failure of our country and its people, it would signal the end of the America we all know. Honestly can any of you imagine this country without General Motors, or the names Chevrolet and Cadillac? I can't, and I believe they should be saved with the same fervor we have put forth for the banking industry. Losing our television and other industries is one thing but, GM "IS" AMERICA.
 
#43 ·
Wake up, we are at the end of GM. It's right around the corner and GM's hubris brought it to this.

GM also hasn't been "AMERICA" for along time.

GM isn't vital the country's financial health like all of these massive banks were. When GM goes under it will be national news but the vast majority of the country isn't going to be as affected by it as it currently is by the banking crisis.

The country was just fine without all the automakers that went under in the 1950s. The sun rose again after Plymouth and Oldsmobile. Life will go on without GM when it comes to that.

Like it or not foreign automakers have already supplanted American brands here in America and continue to do so. Toyota and Honda will continue to grow in place of Chevrolet and Ford as they wane. The fault for that lies with GM and Ford themselves.
 
#45 ·
I'm really sick and tired of hearing all this talk or I should say speculation of "HOW GREAT OR BETTER OFF GM WOULD BE IF THEY WENT BANKRUPT". Last time I checked GM's top guys such as Rick Wagoner and Bob Lutz have stated many times that going bankrupt is not an option for GM and it's not even on the table. How many times does that need to be made clear to you idiots or even the media? :confused: Last time I checked, going filing for Chapter 11 isn't not in anyway good for any Automaker and especially a automaker that has the capacity, market capital, and burdens that GM has. Now I don't know how much accessible CASH GM has set aside in liquidity but I think we all know that GM does need a decent infusion of cash not only to further boost their liquidity but to also guarantee that their future investments in R&D is safe. :yup:
 
#50 ·
in another sign of how Wagoner's leadership has failed, GM now to advertise that dealers can get customer financing through hundreds of banks. now they market against GMAC. the idiocy just keeps on comin'.
 
#61 ·
Based on WHAT? I've flown on Bankrupt airlines....I didn't die. The service and quality was still there.

Bankruptcy would allow GM to get out of the Unions, get rid of BILLIONS in legacy costs and be able to dump money back into product to make it even better than it is now.
 
#62 ·
Only on this board will the conclusion be made that if GM goes bancrupt, it's a good way to "get the union".

Union has nothing to do with any of this.

Don't any of you people see what is happening?

This financial crisis is being caused by disparities in currency value.

Yes housing was inflated by irresponsible lending. They wrote everybody a note no matter what and in many cases wrote because of factors dictated to "solve social issues". That bubble burst because it was full of nothing.

And mark my word, one day the rest of you will figure it out, what Japan and China have done to us with the blatant currency manipulation will hit you where you work.

No this isn't about product. Toyota and Nissan both commited to building gas pig trucks. They aren't any smarter that anybody else.

It's all about how ALL American corporations and individuals are paying more for access to capital than other nations that we are suppossedly competing against. They sucked us dry and you clowns worry about somebody on the line making a good buck doing a job virtually none of you could handle for more than a day.

Wake up people, who's telling you that there is a "global economy", who's telling you that protectionism is evil? Sure as heck isn't anybody that has a stake in doing an honest day's work.
 
#69 ·
Alex Taylor is the most biased automotive reporter there is. He name alone says at the top of the article immediately told me to close the window; thus, no comments here.
 
#72 ·
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top