GM: a pattern of "incompetence and neglect"

GM fires 15 people following ignition switch investigation

Excerpt:

General Motors said a pattern of "incompetence and neglect" led to a decade-long defect in an ignition switch that has killed at least 13 people, and probably more. On Thursday morning, CEO Mary Barra said she had reviewed an internal report on the safety crisis compiled by an outside investigator, former US Attorney Anton Valukas, and that the company had taken aggressive action to fix problems and ensure such a pattern never occurs again. General Motors said it has fired 15 employees related to those series of failures unearthed by Valukas during his investigation and disciplined five more. At least half the employees dismissed were executives, Barra said.

Comment: Was this automaker worth saving? U.S. government says it lost $11.2 billion on GM bailout

The Myth of "Saving the ENTIRE Auto Industry"

 George Will: Liberalism, as we know it

 Excerpt:

Obama’s supposed rescue of “the auto industry” — note the definite article, “the” — is a pedal on the political organ he pumps energetically in Ohio, Wisconsin, Michigan and elsewhere.

Concerning which: He intervened to succor one of two of the U.S. auto industries. One, located in the South and elsewhere, does not have a long history of subservience to the United Auto Workers and for that reason has not needed Obama’s ministrations. He showered public money on two of three parts of the mostly Northern auto industry, the one long entangled with the UAW. He socialized the losses of GM and Chrysler. Ford was not a mendicant because it was not mismanaged.

Comment: Just to set the record straight

GM's problems in the "D-Segment"

General Motors Is Headed For Bankruptcy -- Again

 Excerpt:

To help understand why GM keeps losing market share, let’s look at the saga of the Chevy Malibu. The Malibu is GM’s entry in the automobile market’s “D-Segment”.

The D-Segment comprises mid-size, popularly priced, family sedans, like the Toyota Camry and the Honda Accord. The D-Segment accounted for 14.7% of the total U.S. vehicle market in 2011, and 21.3% during the first 7 months of 2012.

Because the D-Segment is the highest volume single vehicle class in the U.S., and the U.S. is GM’s home market, it is difficult to imagine how GM could survive long term unless it can profitably develop, manufacture, and market a vehicle that can hold its own in the D-Segment. This is true not only because of the revenue potential of the D-Segment, but also because of what an also-ran Malibu would say about GM’s ability to execute at this time in its history.

GM is in the process of introducing a totally redesigned 2013 Chevy Malibu. It will compete in the D-Segment with, among others, the following: the Ford Fusion (totally redesigned for 2013); the Honda Accord (totally redesigned for 2013); the Hyundai Sonata (totally redesigned for 2011); the Nissan Altima (totally redesigned for 2013); the Toyota Camry (refreshed for 2013); and the Volkswagen Passat (totally redesigned for 2012).

... In a recent speech, Dan Akerson admitted that GM’s powertrain technology had fallen behind that of competitors in some cases. This is illustrated by the Malibu Eco’s EPA gas mileage ratings. At 25 MPG City/37 MPG Highway, the Malibu Eco is not as fuel-efficient as the conventionally-powered 2013 Nissan Altima (27 MPG City/38 MPG Highway).

... In developing the 2013 Malibu, GM decided to shorten the wheelbase by 4.5 inches from that of the previous-generation Malibu, from 112.3 inches to 107.5 inches. This gave the 2013 Malibu the shortest wheelbase in the entire D-Segment.

The Car and Driver comparison-test-winning Passat has a wheelbase of 110.4 inches, which gives it a “unique selling proposition”, the roomiest back seat in the D-Segment. The Passat has combined front and rear legroom totaling 81.5 inches, 3.5 inches more than the Malibu. This may not sound like a lot, but, like baseball, automobile design is “a game of inches”.

... “The game isn’t over until it’s over”, but if President Obama wins reelection, he should probably start giving some serious thought to how he is going to justify bailing out GM, and its unionized UAW workforce, yet again. And, during the current campaign, Obama might want to be a little more modest about what he actually achieved by bailing out GM the first time.

Comment: Image source. Article is a very good read about auto design and also about the government bailout of GM. I'm not in a market for a car (and don't think I will be for 5+ years) but my own take in the D-Segment is that the Ford Fusion and Nissan Altima are very nice. We were at the Plymouth Ford dealer this past Spring. I looked at the Taurus (which I would compare in size to my Buick) and the Fusion. Three years ago I rented an Altima and it road well and was comfortable.

Why I won't be buying the new GM's IPO

GM IPO Leaves Small Investors Behind

Excerpt:

The little guy appears to be losing out on the General Motors initial public offering.

Trading shops like E*Trade(ETFC_), TD Ameritrade (TD_) and Charles Schwab (SCHW_) aren't getting access to the GM public offering, expected to occur next week. Despite 35 underwriters and at least 365 million shares, there isn't enough to distribute to online brokers that cater to small, retail investors.

"We're not participating in the GM IPO because the underwriters we normally work with were very low on the priority list and we wouldn't have been able to get an adequate allotment of shares," Schwab spokeswoman Sarah Bulgatz said in response to questions from TheStreet. "Some IPOs we get, others we don't. It just depends often on how much is available and who the underwriters are and what kind of retail distribution they have."

According to Scottrade, customers can begin trading as soon as stocks are available on the market. As for now, traders can place limit and stop limit orders in advance of the IPO and up to the day of the offering. After the IPO hits the market, all normal online order entries will be automatically enabled.

Similarly, a TD spokeswoman said the company would not be participating either because "we have been informed that we will not receive an allocation of shares." E*Trade was reportedly left out as well.

One reader indicated that Fidelity, which has an online brokerage, was apparently allowing customers to invest in the IPO -- but with an important caveat: A minimum of $500,000 in assets must be invested with the firm. The commenter said it represented "more proof that the small investor is being left out." A spokesman said the GM IPO is listed on its site because the company has a "strategic relationship" with Deutsche Bank (DB_), which is one of the underwriters on the IPO.

Comments:

1. I'm just a little shy of half a million!
   
2. The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) recommends against IPO's altogether!
   
   
   

It will be interesting to see how GM tracks against Ford

Harry Reid doesn't get it!

Harry Reid: Auto Bailout Probably Saved Ford

Comment: Ford did not take any bailout money from the government. (I have stock in Ford. I bought it was the auto market was really down and it looked like a bad investment. F. Meanwhile my dear mother had stock in GM and basically lost it all. More on GM's timeline from the Wall Street Journal)

On GM: "appalled by the absence of sound analysis provided to justify these expenditures"

The man who led the auto bailout tells about his shock at the state of the carmaker's finances and management

Excerpt:

Everyone knew Detroit's reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.

For example, under the previous administration's loan agreements, Treasury was to approve every GM transaction of more than $100 million that was outside of the normal course. From my first day at Treasury, PowerPoint decks would arrive from GM (we quickly concluded that no decision seemed to be made at GM without one) requesting approvals. We were appalled by the absence of sound analysis provided to justify these expenditures.

The cultural deficiencies were equally stunning. At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).

Comment: My initial take is .... not surprised at all. But second is this "Physician heal thyself". What about the colossal waste and mismanagement in Washington. And where do we see "sound analysis provided to justify expenditures"?

Why are people buying this stock?

Despite having no real value, investors continue to trade GM stock

Excerpt:

As of 10 am this morning, General Motors stock was trading at about 80 cents. If you think that is a bit of a bargain, you may be a bit of crazy. With The General apparently almost finished with bankruptcy, there is near certainty that the company's common stock will mean exactly nothing in a manner of days or weeks.

GM is warning investors that the stock grab is a bad idea, releasing a statement reiterating its "strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios."

Comment: nostalgia? naivete?

"I don't know anything about cars"

New GM Chairman Whitacre admits: "I don't know anything about cars."

Excerpt:

Newly tapped General Motors Chairman Edward E. Whitacre, Jr. may have built AT&T into a telecommunications powerhouse, but it's fair to question whether he can help do the same for GM. You see, he isn't particularly savvy on the whole auto business thing. In his own words: "I don't know anything about cars." While he admits that cars are a new consideration for him, Whitacre doesn't see it as a much of a problem: "A business is a business, and I think I can learn about cars. I'm not that old, and I think the business principles are the same."

Comment: With apologies to my daughter, this - "I don't know anything about cars" - sounds like a direct quote. Like a response to my question, "When did you last have your oil changed?". Mr Whitacre, we all understand because neither does President Obama (your de facto boss ("Car Maker in Chief"!). Neither does he know much about Economics!

"the government that runs Amtrak ... vows to make GM efficient"

George Will: Have we got a deal for you

Excerpts:

Washington mandates that Detroit must build cars for which there is much less demand than Washington demands that there be. Then Washington tries to manufacture demand with a $7,500 tax credit for purchasers of the electric Chevrolet Volt, supposedly GM's salvation. So, GM is to be saved by a product people will not buy without a cash incentive larger than the income tax paid by 83.4 percent of America's families.


It is reasonable to assume that GM will become profitable — if you make unreasonable assumptions about annual vehicle sales and GM's share of the market. Besides, the government that runs Amtrak (which has lost $23 billion, in today's dollars, just since 1990) vows to make GM efficient.


But one reason Amtrak runs on red ink is that legislators treat it as their toy train set, preventing it from cutting egregiously unprofitable routes. Will Congress passively accept auto plant-closing decisions? Rattner says that Washington's demure vow is: "No plant decisions, no dealer decisions, no color-of-the-car decisions." He is one-third right. Last week, under the headline "Senators Blast Automakers Over Dealer Closings," The Post reported, "Because the federal government is slated to own most of General Motors and 8 percent of Chrysler, some of the senators said they have a responsibility, as major shareholders do, to review company decisions."

...

Washington's "rescue" of GM began because GM is "too big to fail," and bankruptcy is (well, was) "unthinkable." Big? GM's market capitalization, $375.8 million on Wednesday, is about the size of California Pizza Kitchen's ($340 million) — is it too big to fail? — and one-eleventh that of Harley-Davidson ($4.3 billion). Fail? If GM has not already failed, New Coke was a success.

Comment: A better idea .... now that we have poured billions into GM: Senator Lamar Alexander Wants Taxpayers, Not Lawmakers, to Have Control of GM

GM: Reinvention or retardation?

HT: GMretardation.com

Coming "Good GM" - after 3rd largest bankruptcy in U.S. history

Bloomberg says GM to file for Chapter 11 bankruptcy on Monday

Excerpt:

Bloomberg is reporting that General Motors will join Chrysler in filing for Chapter 11 bankruptcy on Monday. The move is widely expected, but the news agency is adding a bit of flesh to the story, suggesting that what promises to be the third-largest bankruptcy in U.S. history (after Lehman Bros. and Worldcom) will indeed result in the sale of most of the automaker's assets to a new company (likely the oft-discussed "Good GM"). GM's worldwide assets have been reported to be $91 billion against a total liability of $176.4 billion as of December 31.

Comment: Federal government to own some 70% of it!

GM's slide into oblivion

Comment: Will drop out of the Dow. (We've had GM cars for more than 20 years: Pontiac J-2000, Geo Metro, Chevy S-10, Saturn, another Saturn, yet another (sold to Rachel), Impala, Chevy S-10, Impala, Buick. Sad to see the decline.

GM Bondholders reject stock swap

Debt Exchange Falls Short; G.M. Moves to Sell Units

Excerpt:

Bondholders at General Motors on Wednesday rejected an offer to exchange $27 billion in debt for a small amount of stock, as G.M. prepared for a bankruptcy filing that could come as soon as this weekend.

...

In a statement about the bondholders, G.M. did not give vote totals for the tender offer, which began on April 27 and expired at 12:01 a.m. Wednesday. G.M. had required 90 percent of bondholders to agree to exchange their debt, said said Wednesday morningthat the notes tendered were “substantially less than the amount required.”

Without approval, G.M. had said it would seek bankruptcy protection. But it made no announcement of its plans. The company said it had withdrawn its offer, and that its board would meet to decide further steps.

Comment: Some have the view that it is only the well-to-do impacted by this. My dear 89 year old Mother has either $ 4000 or $ 6000 in GM bonds. Her broker advised her several years ago to buy these because of the interest rate. The recent GM offer was to exchange bonds for stock at a stock price of $ 4 something per share. Well the stock is trading (right now) at $1.31. We obviously advised her against it. A stock swap would have been a 70% loss.

Obama Motor Company

The mauling of GM's bondholders reveals Treasury's political hand.

Excerpts:

The feds have decided they should own a neat 50% of GM, yet that is not the natural outcome of the $16.2 billion that the Treasury has so far lent to the company. Nor is the 40% ownership of GM that the plan awards to the United Auto Workers a natural result of the company's obligations to the union.

...

The biggest losers here are GM's bondholders. According the Treasury-GM debt-for-equity swap announced Monday, GM has $27.2 billion in unsecured bonds owned by the public. These are owned by mutual funds, pension funds, hedge funds and retail investors who bought them directly through their brokers. Under Monday's offer, they would exchange their $27.2 billion in bonds for 10% of the stock of the restructured GM. This could amount to less than five cents on the dollar.

The Treasury, which is owed $16.2 billion, would receive 50% of the stock and $8.1 billion in debt -- as much as 87 cents on the dollar. The union's retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That's worth about 76 cents on the dollar, according to some estimates.

In a genuine Chapter 11 bankruptcy, these three groups of creditors would all be similarly situated -- because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim -- the bondholders -- get the smallest piece of the restructured company by a huge margin.

...

Certainly the bondholders deserve to take a haircut like everybody else. But squeezing them in such a blatant fashion has other consequences. Who would be crazy enough to lend GM money in the future? The Treasury also says it wants banks that do poorly in its "stress tests" to try to raise private capital before putting in more public money. The mauling of GM creditors tells investors not to invest in TARP banks because everything this Treasury touches turns to politics.

Monday's offer is so devoid of economic logic or fairness that it confirms the fears of those who said the original bailout would lead to a nationalized GM run for political ends. This fiasco will in part go down on George W. Bush's copybook, since he first decided GM was too big to fail.

But rather than use his early popularity to force hard decisions through the bankruptcy code, President Obama has decided in essence to have the feds run GM and Chrysler. This inevitably means running them for the benefit of the UAW that is so closely tied to the Democratic Party. Next up will be tax changes and regulations intended to coax, or coerce, Americans to buy Gettelfinger Motors cars. This tale of taxpayer woe is only beginning.

Comment: Who will lend to GM again? Who will buy stock in them again? Who will buy a GM car again? (Not me!)

Pontiac - the end! (Maybe not!)

GM to Eliminate Pontiac in New Plan

Excerpt:

General Motors Corp., facing the threat of a bankruptcy filing if it can’t meet a June 1 U.S. deadline, will preserve the GMC truck line and drop its 83-year- old Pontiac brand as part of a government-led recalibration of its business plan, people familiar with the decision said.

The Detroit automaker, which received an additional $2 billion in federal assistance on April 22, will keep the GMC, Chevrolet, Cadillac and Buick brands, after a review that included profitability with the Obama administration’s automotive task force, said the people, who asked not to be named because the decisions have not been announced.

GM may reveal next week the end of the make that produced the Grand Prix, Bonneville and Firebirds, they said.

“I hate to see these brands go, they are a part of the American experience,” said John Wolkonowicz, a forecaster and auto historian at IHS Global Insight Inc. in Lexington, Massachusetts. “If you were growing up in the 1960s, Pontiac was the hottest thing going.”

Pontiac spawned the “muscle car” era in 1964 when it stuffed a 389-cubic-inch V8 engine into a Tempest and called it the GTO. Killing the brand highlights the changes GM is being forced to make to survive in its second century of carmaking.

GM had already decided late last year to cut Pontiac to a niche brand, possibly with just one model, to sell alongside Buick and GMC in combined showrooms. To trim from its roster of eight U.S. brands, GM has said it will sell or shut Hummer, Saab and Saturn.

Comment: In the year of my H.S. graduation - 1967 - the Pontiac GTO was the hottest car around! More below:

Maybe NOT!

Excerpt:

As General Motors Corp. races to come up with another turnaround plan, there has been growing speculation that the Detroit automaker will drop its Pontiac brand.

The company tried to pat down those reports today with a statement saying it hadn’t yet announced any changes to its long-term viability plan.

GM has been in similar messes at least twice before, as have most carmakers

Excerpt:

In GM's case, the bankers took over the company in 1910 and put it on an austerity program, although after the 1910 Financial Panic ended, rising sales proved that GM was viable in any condition.

Billy Durant, GM's ousted CEO, went off to start two more car companies, Little and Chevrolet. The Chevrolet was a flop, but the Little automobiles weren't, so Durant switched the nameplates and Chevrolet as we know it was born. Durant then used his stock in Chevrolet to retake control of General Motors — and then was fired for good during the recession of 1920-21.

That move brought Alfred Sloan to his position with the company, and for the second time in 10 years GM downsized the number of its divisions and altered its financial accounting, and the General Motors of legend was born. In the second major downsizing of GM, the only company Sloan kept that was losing money was Frigidaire. Sloan believed, as Durant did, that refrigerators for the average person had a definite future in America. It should also be noted that GM's second reincarnation was a product not just of Sloan's brilliant management, but of timing: The 1920s were the first major boom decade for the average American.

Obama Goodwrench

Comment: See my previous post for his quote!

Government Motors

U.S. Forces Out GM CEO Wagoner

Excerpt:

The Obama administration used the threat of withholding more bailout money to force out General Motors Corp. Chief Executive Rick Wagoner and administer harsh medicine to Chrysler LLC, marking one of the most dramatic government interventions in private industry since the economic crisis began last year.

The administration's auto team announced the departure of Mr. Wagoner on Sunday. In a summary of its findings, the task force added that it doesn't believe Chrysler is viable as a stand-alone company and suggested that the best chance for success for both GM and Chrysler "may well require utilizing the bankruptcy code in a quick and surgical way."

The move also indicates that the Treasury Department intends to wade more deeply than most observers expected into the affairs of the country's largest and oldest car company.

After more than a month of analysis, the administration's auto task force determined that neither company had put forward viable plans to restructure and survive. The verdict was gloomier for Chrysler. The government said it would provide Chrysler with capital for 30 days to cut a workable arrangement with Fiat SpA, the Italian auto maker that has a tentative alliance with Chrysler.

Comment: If you take the government money they can make you "dance to their tune". I have a Fiat story: Back when I was in seminary school ('78-80) we needed a new car. Our old Plymouth was a gas hog and had well over 100,000 miles on it. We looked at a Fiat 128. Years ago people used to joke that FIAT stood for "Fix It Again Tony".

Update: President Obama's remarks on U.S. car industry

Excerpt:

It is my hope that the steps I am announcing today will go a long way towards answering many of the questions people may have about the future of GM and Chrysler. But just in case there are still nagging doubts, let me say it as plainly as I can -- if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warrantee will be safe.

In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warrantee.

Comment: You probably will need to stand in line at the post office or petition the IRS to get warranty work done! Maybe they can start "means testing" the owners to see if their income is low enough to have work done on their car!

GM's plan

Detroit Free Press artcle: GM: Shrink brands, pay, jobs, dealers

PDF of GM Plan: Restructuring Plan for Long-Term Viability (37 pages)

Excerpts:

Hummer has recently been put under strategic review, which includes the possible sale of the brand. GM will also immediately undertake and expedite a strategic review of the Saab brand globally. Finally, Saturn, which has performed below expectations, has a unique franchise agreement and operating structure. As part of the Plan, the company will accelerate discussions with Saturn retailers and explore alternatives for the Saturn brand.

...

GM will launch the ground-breaking Chevrolet Volt in 2010. As indicated in Table 8, GM is investing over $750 million in the Volt and its propulsion system, prototypes of which are currently on test at GM‘s Milford Proving Grounds. An extended-range electric vehicle, the Volt will deliver up to 40 miles on a single electric charge, well within the daily commute of approximately 80% of Americans. Volt represents a fundamental reinvention of the American automobile industry, creating new growth and environmentally-friendly/sustainable industries, and represents a giant step toward energy independence. No other car company has made such a commitment to the American people. It involves the development of advanced batteries, power electronics, systems integration and manufacturing methods. The company‘s product plan includes additional vehicles utilizing Volt‘s extended-range electric vehicle system and potentially, the assembly of battery packs in the United States.

...

As indicated, the number of GM retailers is expected to decline to 4,700 by 2012. This will occur primarily in metropolitan and suburban areas where GM has too many dealers to serve the market. In the Plan, it is projected these dealers will be reduced by 35%, increasing annual throughput for the remaining outlets to a more competitive level with other high-volume manufacturers. GM‘s distribution strength in rural areas, which is a significant competitive advantage, will be largely preserved.

Comment: I understand they are in danger of running out of cash this month! Without aid, it could run out of cash this month: "General Motors Corp. said Tuesday it could run short of the cash it needs to operate by the end of this month if Congress doesn't approve $4 billion in emergency federal loans ... 'The first $4 billion is crucial,' GM President and Chief Operating Officer Fritz Henderson said. 'Absent support, we can't continue to operate.'"

The "new General Motors"

Pursuing U.S. Aid, G.M. Accepts Need for Drastic Cuts

Excerpt:

G.M. said its plan would create a “new General Motors,” that will be significantly smaller and more competitive.

The company said it would sell off its Hummer and Saab brands, shrink its Pontiac brand into a niche vehicle division, and explore opportunities to sell, close or consolidate the Saturn brand that — when it was started in the 1980s — was supposed to be G.M.’s answer to the smaller, fuel-efficient cars sold by Japanese competitors.

Comment: Out with Saturn, Saab, Hummer, and Pontiac.

GM: Pre-packaged Bankruptcy option

Pre-packaged Bankruptcy Is GM's Only Option

Excerpt:

... a traditional Chapter 11 filing could quickly slide into Chapter 7 bankruptcy if GM (or Chrysler or Ford (F) a few months down the road) can't find anyone to lend them the money to keep operations running. That's why Barron's advocates a "pre-packaged bankruptcy" - in which a company enters bankruptcy protection with almost all of its financing in place - in this case backed by the government for a year or so. "In that time, and under the protection of the court, GM could begin to restructure its business with a much higher probability of long-term survival," Mark Bane, co-head of bankruptcy operations at the law firm of Ropes & Gray, says.

Comment: I've also heard this called a GSB (Government Sponsored Bankruptcy).