What’s Wrong With GM?
If you own a GM product or you have seen the 2009 new models, you might scratch your head and ask what anyone could see wrong with GM cars and trucks. Some may be quick to say, “oh, they do not have any fuel efficient cars or trucks, no hybrids, and all they make are large cars with lousy quality”. Surprisingly that is not true.
GM’s quality and product line up is very competitive and represents a good value for the consumer. The problems with GM lie elsewhere. The chronic problem is that GM makes too little money for each car or truck it sells to cover its overhead and put money away for a rainy day.
The selling price of GM products is largely set by competition who also make wonderful cars and trucks too. The answer lies on the cost side where GM’s legacy costs, their current wage rates and work rules, and their breadth of models has driven up their unit cost. New UAW contracts will help but they will not be enough. GM must shrink their product pallet considerably in order to get inventories in line and to be able to concentrate better on fewer models. While difficult, this will help a lot, but still not enough.
When we consider, however, legacy costs we find the sins of the past. Retiree health and pension costs, once thought acceptable, are sinking the GM corporation today. These costs are considerably higher than like industries and far more than what Toyota or Honda must pay. Dealing with the reduction of these costs is a sensitive and King Solomon like problem. When these costs are cut, someone else is gets the hardship. Hopefully there is a lower level, more similar to like industries that GM can afford and will not over burden their former workers.
The more silent but dangerous legacy cost comes from the corporate bond holders who in the past financed “blue chip” GM’s rich life style. When GM needed cash (for anything), banks and investors would come forward with plenty of cash but of course for a price. GM was considered a safe corporate bond and trusted to pay bond holders under all conditions. Often that came from selling more bonds in order to keep current on the current outstanding ones. (Sound like a ponzi scheme?) The total bond obligation today is eating GM’s cash supply and leaving too little left to run the rest of the business. The Obama Administration’s talk about restructuring, if necessary, and wanting to see GM stakeholders with more skin in the game, targets these bond holders. The message, “take 50 cents on the dollar or face looking at less”.
On top of all these systemic problems, GM, like all other car companies, is selling into a low demand market. It will need government cash to weather this storm and survive until car sales go up again. The key, however to long term success is to reduce these underlying costs and then compete upon quality, attractive models, and great customer service.
This entry was posted on March 31, 2009 at 1:41 pm and is filed under Barack Obama, Democratic Party, Politics, Republican Party. You can subscribe via RSS 2.0 feed to this post's comments.
Tags: gm, GM bond holders, government take over, legacy costs, uaw
You can comment below, or link to this permanent URL from your own site.
April 1, 2009 at 12:40 am
GM has been kicking ass for a few years now. They were finally beginning to make it, when the Liberal Left housing market caused the economy to crash. Instead of taking responsibility for the crash, Obama is diverting attention to GM. They have become his whipping boy.
April 1, 2009 at 1:32 pm
Grumpajoe, I am not sure how you measure “kicking ass” but if car sales are a measure, you have not been reading the figures carefully. Under Bob Lutz, GM has made a tremendous improvement in the appeal and quality of their cars. But they have not made a yearly profit in five years! With due respect, I think you’re smoking something or not filtering the white lightning you’re drinking if you seriously think that Obama is using GM to divert attention from anything…
April 1, 2009 at 1:48 pm
By “kicking ass” I meant they are finally designing cars that people will buy. If GM got the same cooperation from our government as Toyota and Honda get from theirs, we wouldn’t be having this dialog. Instead of a fifty year cooperative strategic plan with the Dept of Un-Commerce they got a ninety day ultimatum to shape up. Granted the GM management had twenty years to do it on their own.
Yes, Obama is using GM as a diveersion from his opwn stupid policies to spend us into oblivion.
I’ll have my Grey Goose on the rocks please.
April 1, 2009 at 3:09 pm
We almost agree… there is no doubt that Japan incorporated will not let their car companies fail, nor will most other countries like germany, france, Korea, or China… And I agree with GM is now designing great cars… but you better find a better excuse than Obama since he had nothing to do with GM getting so in hock to bond holders or agreeing to ridiculous uaw contracts and work rules, or allowing their brand name to be screwed over by too large and unmanaged dealer network… I hope Fritz can get the ship flying right… (and I hope he does not hit any gray geese…
April 1, 2009 at 5:03 pm
There is no doubt that the GM mamagement is inbred and stodgy for ideas. They always lacked the balls to do anything positive. Instead, every time they caved in they took it out of the product, thereby making it cheaper, but not less expensive.
If they hadn’t been so adamant about killing John De Lorean’s venture, they could have called him back to run the place. That’s another story calling for more Grey Goose.
April 1, 2009 at 9:15 pm
AGREED… I looked at your web site and found it most sincere and interesting… good luck with your cooking and gardening,,,
April 23, 2009 at 11:20 am
[...] Posts Volt-Lite: Bright Automotive Building an E-REV | GM-VOLT : Chevy Volt Electric Car Site…What’s Wrong With GM? « Regaining the Center…Music of 2008: Top ten « doctorvee…The Best Songs of 2008…So Far | see what you [...]