General Motors in Serious Trouble

"What's Good for GM is Good for America" - Charlie Wilson, former CEO of GM. I wonder if that famous quote works in reverse? Most people are aware that both GM and Ford have had their corporate debt instruments rated as junk recently but it seems that GM especially is in a heap of trouble and may be closer to the brink than what we have been lead to believe. Three recent news stories about GM...




For those who don't know about derivatives see this post for an explanation of why this is such a big deal. Warren Buffet has described the derivatives market as a financial "time bomb". When he decided to methodically and prudently unwind Berkshire Hathaway's position in the derivatives market it cost him $400 million in losses. Imaginge what would happen during a panic.



The original plan was to cut 30,000 jobs and close 12 plants. They now need to accelerate that by offering 113,000 employees "early retirement". If that's not a sign of trouble on the heals of a $10.6 billion loss at GMAC, I don't know what is.

Meanwhile:



Huh? Either they just don't "get it" (peak oil etc.) or someone is trying desperately to bankrupt that company and the US along with it. If GM goes down there are good chances they take the derivatives market and the world financial markets with them.

Michael Ruppert had something to about this situation today:

This is big. Really big. Not since FTW issued its first economic alert with a detailed description of how derivatives work, has the situation been as dire as Ambrose Evans Pritchard describes here. It looks like the Plunge Protection Team is gearing up for action again. It’s a fool’s paradise for those who cheer at recent highs in the DJIA.

It’s all a smoke and mirrors con game and Delphi may push GMAC over which may threaten to toast every major bank in the country as the derivatives at stake equal 175% of the cash reserves of America’s ten biggest banks.

Our first economic alert was published on September 9, 2001. Of course, two days later came the attacks of 9/11 and a massive inflow of money from the Treasury. We can only wonder what’s coming in March and April of 2006. For any of our readers still in the equity markets, it’s time to cash out… and quickly. – MCR - PPT link added by me

All of these stories are from outside the US. Is this situation being ignored by the mainstream US media?

"What's bad for GM is bad for America"?
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What do you think, Gools? Do you think that, if GM goes under, we will bail them out as we did with Chrysler?

I am a bit of a purist, as anyone who has read my U.S. Consitution writing, but as this is so, I am not sure about such bail-outs. As a purist, I say no bail-out, but since this will help some workers, I am not sure if I am correct.

... and you know who gets to pick up the tab for those pension programs when GM goes under right?

Yep, the US Taxpayer does.

#1 reason I bought a Pontiac last week instead of a Nissan.

Being in MI, this hits extra close to home. Our state is already about a nose-hair away from mini-depression. Our big automaker's collapse would end all hope of a rebound.

I'm moving to friggin mexico. Im gonna be a dirt farmer. A drunk dirt farmer.

Judging by the lack of activity and vehicle movement at the local Ford dealer, I'd say GM has some company.

And I'll continue to buy Hondas or Toyotas. They're just better vehicles.

But they are soooo small. I was so close to buying a nice v-6 accord coupe, but I felt like a giant in a clown car. As nice as it was, I still like my Grand Prix better. And we are catching up on engineering and mpg. My 200 horse v6 gets 31 mpg. Thats pretty darned good for a 4000 lb car.

DaFunk13:

I understand the size issue, but it isn't a problem for my husband (Landis) or me. One thing I don't like about American cars is that they all seem to look alike.

The retro GTO died a quiet death because, although it was hot under the hood, it looked too much like a Grand Am. IMHO, that was a pretty dumb move on Pontiac's part.

Retro muscle cars are a package deal. I'm one of those people who want the power and the original look. That's one reason I never bought one of the new Camaros/Trans Ams.

I have to admit the retro Mustangs are nice though!

I don't know TC. How much are you willing to pay with your taxes so a company who has no clue about where the auto industry is going can be saved?

That last story about them ramping up SUV production when the market is taking a nose dive says it all IMO. Companies that can't adapt should go under. The future is in hybrids and right now the Japanese (again) are way ahead of the game. Crysler almost went under when the first wave of Japanese imports hit the market and they recovered only by producing ultra cheap crap like the k-cars (I owned a "Reliant" - it wasn't).

The problem is that GM is a huge part of what is left of the manufacturing base in the US. GM and all of it's related industries account for tens of thousands of jobs (car parts, service, insurance, gas stations, steel manufacturing etc.)

There are already three companies that have declared bankruptcy or defaulted on their debts related to GM, if GM does go under they may be labeled as "too big to fail" and the requisite government bailout will follow. Something you and your government can ill afford with record deficits and debts. A good point was already made about the pension fund. The Feds (read - your tax dollars) will be left to pay the bill.

I've been following and studying the financial situation of our economies for about two years now, and I'm convinced it's just a matter of time before the whole ponzi scheme implodes on itself. The failure of GM just may be the straw that finally breaks the financial camel's back.
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Originally posted by Thomas Crowne
What do you think, Gools? Do you think that, if GM goes under, we will bail them out as we did with Chrysler?

I am a bit of a purist, as anyone who has read my U.S. Consitution writing, but as this is so, I am not sure about such bail-outs. As a purist, I say no bail-out, but since this will help some workers, I am not sure if I am correct.

No TC you are correct. I say if GM goes under, let it go. It's the free market, some Japanese automakers are also facing tough times, Isuzu being the biggest. If GM cannot compete then let die. If GM does fold whose to blame? The workers? No, The Management? No, I put the blame squarely on the shoulders of the car designers. They were laxed in understanding the drivers wants and desires, the Japanese and Germans were all to willing to fill the void and predict market shifts and by the time the American manufacturers realized it, they had already lost significant market share and are playing catch-up. It appears too little, too late.

Having said that, you know the government will not let GM go belly up.
However, if I can slip this in, prediction: Toyota buys GM

Governments shouldnt bail out failed corprations.
Correct me if Im wrong but I doubt the US government would bail a out a small - medium business.
Why should GM get special treatment ?

[edit on 24-3-2006 by xpert11]

General Motors has been "in trouble" for a long time. I clearly remember when, in the mid '80s, H. Ross Perot , a member of the General Motors Board of Directors, was bought out by GM to the tune of $700 million for his scathing criticism of the company and their management policies.

In looking over some history of General Motors, I found a Corporate Governance Case Study on General Motors that clearly illustrates an historical track record of remarkable inefficiency, poor management and a myopic view of market trends and new car development...Corporate Governance Case Study on General Motors

Meh, I've been hearing this story for a while now. I still think Ford is gonna be the one to go under or much more likely, get bought out.

Boring vehicle design, lack of the ability to keep up with new customer demands, and horrible business decisions. This has been a long time coming. GM is great at making cars nobody wants, and they seem to be unable comprehend why they are failing. Like you stated before, they made a bunch of suvs while the market is obviously going in a different direction. Come on, who thought up that brilliant plan? Its weird.

Fall of an icon I guess.

Originally posted by DaFunk13
#1 reason I bought a Pontiac last week instead of a Nissan.

You should have bought a Nissan

[edit on 24-3-2006 by PlausibleDeniability]

Originally posted by PlausibleDeniability
You should have bought a Nissan

Indeed. My Nissan truck was built in Tenn. by non-union American workers who don't look at the company that writes their paycheck as the enemy. If you ask me, part of the reason GM will fall (perhaps followed by Ford) is the advasarial paradigm that labor unions have forced American manufacturing industries to assume.

Originally posted by Thomas Crowne
but since this will help some workers, I am not sure if I am correct.

Hey, those workers could allways move to japan and get jobs in the car industry there. *shrugs* People move from mexico into the US for jobs, and from india to the US for jobs, so, maybe Americans will have to start crossing borders.

xpert
Why should GM get special treatment ?

The autoindustry in the US is strange, the prices of automobiles, for example, is regulated by the Federal government. The industry is seen as especially important, and changes in it, or a collapse, would affect the economy and government as a whole.


As far as GM "going under", that'd be strange, considering that, if I understand correctly, they still hold the largest share of the US atuomarket.

Haha their countries arent stupid enough to take us in and give us free reign like we are here. If you go to their countries and demand instant jobs and healthcare and theyd laugh you right on out, that is unless they shot you first. People are milking us dry here and it makes me sick to see it.

I will only say that if GM goes so a big chunk of an American era will die with it.

The last true American company reminding in the US will be lost for ever.

A very bad think is happening to American we are losing everything that is American and is replaced with foreign names.

Sad, I did put a down payment to their new 2007 Saturn.

Originally posted by marg6043

The last true American company reminding in the US will be lost for ever.

What about ford?

IMO the reason GM is in trouble is their crappy design. There is only one GM I would even consider buying and that is the Impala, but the quality just doesnt seem to be there.

My wife works at Honda here in Ohio at the bike plant, she has been there 20 years this august and overall they have treated her right. The UAW has been trying for YEARS to get in but the associates simply dont want them in there, they know it will ruin a good thing.

The overall quality of Honda, Nissan, and Toyota is much better than GM and Ford. Notice that Dodge/Chrysler is doing just fine now?
They have some nice designs out there that appeal to the consumer. GM and Ford need to wake up and wake up fast before its too late.

I would sell off the existing stock of vehicles at good but not destructive discounts, to recover some money, making sure to make a good profit so as to be able to recover.

I would ask the consumer what they wanted and push for that. Hire people in the design department with "vision" who can bring their ideas to reality. Get rid of the "dead weight" in the company who are just leeches, sucking away valuable money, who refuse to change regardless of attempts to improve their productivity with training and motivation. Produce or get out! Advertise their products like mad, and sell them at competitive prices. Make sure you have a well trained and knowlegeable staff at all levels, and make sure you are sufficiently staffed to get the job done. Don't cut corners by understaffing just to make the "profit" appear better, you want more money, then sell more cars. Don't overpay the people who don't deserve it, if anyone gets a raise, it is those who put their sweat and dedication into their jobs, and make things happen, who deserve the raise.

Basically you want to create a product that people really want, you advertise it over and over, and then you provide the products at an affordable price, while keeping an eye on quality. Look at why Toyota is such a respected name, it was the quality and durability! Shoppers remember that.

Troy