GM: General Motors, Government Motors, or Going, Going, Gone Motors?
By Larry Doyle on June 5, 2009 at 8:00 AM in Auto Industry, Bailouts, Economy, General Motors & Chrysler, Sense on Cents (Larry Doyle blog)
What will the future hold for GM? I believe there are three potential scenarios, with likely overlap in the short run but less overlap over the long haul. Let’s see if the real GM is behind:
Door #1: A Revitalized and Profitable General Motors
Behind this door, for GM to be a viable entity they need to address the deeply embedded culture and values within the organization. In order to effect change, the people of GM need to understand dramatically different expectations, define and live a new value structure, and execute.
Why do losing teams in professional sports change general managers and coaches? Culture. GM has a culture that allowed a failed financial framework to gain a foothold and ultimately crush the organization.
Without new management at the senior level and throughout the organization, how does the new culture – predicated on total discipline – get established?
Some may argue that Chrysler came out of bankruptcy with no cost to the taxpayer. That is a fair point. Time will tell, though, if the same can happen with GM.
In my opinion, Chrysler benefitted from the growth of the shadow banking system in the mid 1980s which increased leverage throughout the economy. Currently our economy and culture are headed in an opposite direction, that is, consumers and corporations are delevering and will likely continue to delever going forward. As such, I do not envision vehicle sales rebounding as strongly as GM needs to prosper.
Sense on Cents handicaps a vibrant General Motors as a longshot.
Door #2: A Bureaucratic “Government Motors”
Behind this door, I see an entity burdened by red tape, sluggish proceedings, and social agendas. Why?
Any organization is ultimately a reflection of the people and its ability to attract dynamic, entrepreneurial, intelligent leaders at all levels. With all due respect to those currently working at GM, I have a hard time believing this organiztion will be able to attract sufficient numbers of these leaders going forward. Why?
Leaders of that ilk do not tend to enjoy and thrive within an environment burdened by systems, processes, and hurdles inhibiting its success. With government ownership, those hurdles just got much higher.
What are the hurdles?
– How will success be measured? Will it be bottom line profitability? Market share? New vehicles? Social goals, such as environmentally efficient vehicles?
– Is it better to survive than thrive? Organizations in the private sector take prudent risks to drive growth. Will GM be risk averse in an attempt to maintain stability rather than pushing ahead in the spirit of venture capitalists?
Sense on Cents handicaps a bureaucratic Government Motors as a better than even money bet over the next 5 years.
Door #3: A “Going, Going, Gone Motors”
Behind this door, I see an entity that will ultimately utilize the $60 billion (and potentially more) government injection of equity capital as nothing more than an interim bridge loan.
Is the new GM on the other side of the bridge? No. Behind this door, GM will have been flushed down the river and out to sea unable to compete in the Brave New World.
The equity injection of government funds will actually be utilized as more of a stopgap to prevent the immediate dissolution of the company.
Robert Reich addresses this likelihood at Wall Street Pit.
Reich flies in the face of his Democratic Party leaders in asserting that the true motive of the government takeover of GM is ultimately:
The only practical purpose I can imagine for the bail-out is to slow the decline of GM to create enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise.
Reich views the GM situation from a macro standpoint and in the context of a shift in our economy and the world to new technologies. GM is not well positioned currently to adapt and thrive in that environment. Over and above that, GM will be downsizing and not in a position to invest the necessary human and financial capital to lead the company and the industry.
Although Reich’s assessment is not exactly a rosy picture, I give him credit for voicing his opinion and looking beyond the immediate landscape. While Reich sits in the comforts of academia, where are the political leaders who are willing to take these risks in making these statements. As Reich asserts:
US politicians dare not talk openly about industrial adjustment because the public does not want to hear about it. A strong constituency wants to preserve jobs and communities as they are, regardless of the public cost. Another equally powerful group wants to let markets work their will, regardless of the short-term social costs. Polls show most Americans are against bailing out GM, but if their own jobs were at stake I am sure they would have a different view.
So the Obama administration is, in effect, paying $60 billion to buy off both constituencies. It is telling the first group that jobs and communities dependent on GM will be better preserved because of the bail-out, and the second that taxpayers and creditors will be rewarded by it. But it is not telling anyone the complete truth: GM will disappear, eventually. The bail-out is designed to give the economy time to reduce the social costs of the blow.
So once again the American public is forced to deal with a correction based
upon the lapse of time. What do we know about time?
“Can you teach me about tomorrow
and all the pain and sorrow running free?
Cause tomorrow’s just another day
and I don’t believe in time
Time, why you punish me?”– Hootie & the Blowfish
LD
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When will Obama set a limitation on the earnings per movie per actor? Also maybe he should set a maximum on the gross earnings per movies and the rest belongs to the government. Obama should set a cap on the amount of earnings an actor can earn in a fiscal year.
Yes, I can’t wait.
Uh… what the hell are you talking about? Has Obama suggested any of this or are you just making this up?
hy⋅per⋅bo⋅le /haɪˈpɜrbəli/ Show Spelled Pronunciation [hahy-pur-buh-lee] Show IPA
–noun Rhetoric.
1. obvious and intentional exaggeration.
2. an extravagant statement or figure of speech not intended to be taken literally, as “to wait an eternity.”
Hyperbole? Are you sure? Some people who comment here believe some pretty off the wall things.
The number of people here who “believe some pretty off the wall things” is dwarfed by the number of trolls of every possible variety.
So troll on if thats what floats your boat.
Right on! I got the hyperbole, though. Oh, yeah… I’m not a troll.
GM and Chrysler are dead, they just haven’t been interred. Imagine getting your 2012 GM vehicle serviced; it will be like going to the DMV. Contract law was broken, the debt holders screwed and capitalism discarded.
I’m sure we will compare very favorably with the old USSR. I have averaged buying one car a year for over 50 years, all American vehicles but no more. I may continue to buy Fords, but I think Obama will figure out how to make them kowtow to the government or put them out of business. I just got rid of my GM for a Ford product.
Microsoft is threatening to move jobs overseas to avoid Obama’s new taxes. Well, so much for creating American jobs.
Agreed, I will not be buying a GM. I have long paid higher rates to buy American products, and I am by no means wealthy: but that means American owned with an American workforce. I will buy Ford or a Toyota or a Honda– 2 other companies that provide jobs here in America– before I buy a GM.
However, Microsoft had better learn to suck it up. I am fed up with these companies moving overseas, particularly in a recession and cutting US jobs so they don’t have to pay a higher tax rate. I will be paying for the corporate greed behind this economic catastrophe for the rest of my life, and I’m none too pleased about it. I can buy something else re Microsoft’s products too.
By very aggressively and publicly taking over both of these dying dinosaurs, this administration has essentially guaranteed that they will both fold. Rather than taking a low profile, advisory, softball approach, this new president had to make himself the center of attention showing how tough he was and that he could shove executives, stock and bond holders, even designers (mandated fuel and mileage changes) around at his whims.
Claiming that these moves were for the good of the workers, communities, owners etc. is hogwash. The long term consequences were not considered because this administration could care less what they are. This was done to scare business and show them what they are willing to do to keep control. The public’s attitude has already turned against both GM and Chrysler. As my B-I-L said, “Who wants to buy a g*#d@^n truck from the g*#d@^n post office.”
Newsflash–Microsoft has already moved facilities into Canada because of too restrictive and cumbersome U.S. immigration laws. Canada (and many European countries) has taken up where the U.S. left off, and has revised their immigration laws to be more business friendly and open to skilled workers and professionals. Where those folks from around the world used to come to the U.S. and enhance our economy, they have now gone elsewhere.
thx, I’ll start being microsoft free now then
Well Jim Cramer from Mad Money said on Morning Joe the day before yesterday, he considers the GM plan a $60 million dollar jobs progam just there to keep some people working so not to swell the unemployment ranks even more. He doesn’t expect GM to recover and become profitable and private again. The money and jobs at GM will dry out once national unemployment starts consistently dropping and the economy improves.
Of course Mikka didn’t appreciate his “pessimistic opinion” since she wants to believe the GM takeover was only for positive and benevolent reasons. And Donny Deutsch who has to be one of the biggest Obamabots around, was denying it full force. Guess he got the marketing campaign for the new improved GM so of course he wants to talk the company up. As either Mikka or Joe asked him “so are you getting paid with bail out money then” which kinda flustered him.
Since we are sending everything else overseas, why not the B2 Bomber?
On April 1st, President Obama spoke to Chinese Premier Hu Jintao during the G20 Summit. During this meeting, Mr. Hu expressed interest in writing off some of the US debt in exchange for military technology. The President has since referred the matter to Defense Secretary Robert Gates.
The Defense Department is reportedly furious with the President’s proposal to sell blueprints of the B-2 Spirit stealth bomber to the People’s Republic. Gates has flatly rejected the President’s plan, but has since been asked to step down if he will not facilitate the process.
According to the deal, the United States would sell the plans for the B-2, along with radar-absorbing paints and metals in exchange for $50 billion in debt relief. The B-2 cost the US government $23 billion to develop the bomber in the 1980s.
http://jumpinginpools.blogspot.com/2009/06/obama-to-sell-b-2-bomber-blueprints-to.html
Please tell me this a jest!
I`m not sure, but there are many links to it. Maybe Larry could find out for sure.
OMFG! It’s a joke! It’s satire! (And it doesn’t even make logical sense!)
Here is a good joke for you:
June 3 (Bloomberg) — Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAKluP7yIwJY
And another:
The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 34% of the nation’s voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-four percent (34%) Strongly Disapprove giving Obama a Presidential Approval Index rating of 0. That’s the highest level of strong disapproval and the lowest overall rating yet recorded
http://www.rasmussenreports.com/public_content/politics/obama_administration/daily_presidential_tracking_poll
i hope this is satire not funny
OMG.
Rep Barney Frank (D-Mass.) won a stay of execution on Thursday for a General Motors plant in his district that the automaker had announced it would close.
No other lawmaker has managed to halt the GM ax. As chairman of the House Financial Services Committee Frank oversees the government’s bailout program, known as TARP. Frank’s staff said the lawmaker spokes with GM CEO Fritz Henderson on Wednesday and convinced him to keep the Norton, Mass. plant open for at least 14 months.
http://proteinwisdom.com/?p=15009
I am going with Door #2 is what the Obama administration wants but Door #3 will happen anyway, its inevitable.
Mr. Doyle,
Can you expand on why GM didn’t file for bankruptcy last fall while still under the W admin?
I mean, everyone is putting this on the oBlunder, and of course he’s not handling it well, but couldn’t GM have had a non-bailout option?
And everybody, let’s keep in mind GM had been in decline for year! Lost what, $80 BILLION over the past seven years…They are no innocent victim of a nefarious socialist plot. They got too big for their britches and actively made US products that people don’t want anymore. It’s sorta foolish to think that GM was isolated from any “socialized” influences and that they were in a pure capitalism environment. If they were a pure capitialistic entity, they’d been out of business a long time ago, but because of the “social benefit” of jobs and such, we keep them going…with tax dollars from all of us.
This whole mess GM is in is the accumulative effect of poor decision making that goes back to post WWII times.
I don’t like what oZero is doing, but the former GM pres. sure could have taken a different route last fall before the obots got hold of the purse strings.
Nope, I’ve driven GM cars for years but one little incident with a starter made me a FORD man.
My last GM car I bought new or will ever buy was in 1989. I paid $400 extra for a limited edition metal flake burgundy paint with clear coat over it back then. In a years time, the paint was flaking off. A couple of years later, I learned the paint was recalled but that the window of time to get the car repainted had passed. So, they saved any cost of fixing my paint, but I will never buy another of their cars ever again.
Suddenly, I am remembering much more. I bought the 4×4 in the dead of winter. Springtime, I turned it to air conditioning and found it wouldn’t cool. Three month old car. Took it to the dealer and it shipped without the ac unit being charged with freon. The dealer charged me for filling it saying freon wasn’t a warranty item. But is shipped without any? Then the tires at 12K miles were cupping badly. Again, not covered, so I bought new tires and learned the factory installed shocks at only 12K miles were worn out causing the tire tread to cup. Not covered. The guys who fixed it said that was common and the shocks were bad when shipped. There was a laundry list of things “wrong” with that new car as it shipped. So, yes, GM has issues with quality, at least they did in 1989. Maybe paying $80 an hour for labor has improved things? I don’t care to find out.
Ford will not replace GM in this house. They would have to literally give us a Ford before another one would darken our driveway again.
Ford pulled the same thing on us that GM did on Docelder, except it was for the engine and transmission. No disrespect intended but I consider the engine and tranny to be more important than paint and a starter.
Their dealerships are no better, literally admitting their fraudulent ways to several friends and neighbors over the years. Actually suggesting that they sell their old lemon to Ford as a solution to them not honoring the warranties and then buy a new lemon as a solution. Since Ford drags their feet on their poor engineering and spreads it across their fleet of cars the same probelm lies in the new vehicle too. Of course, passing on their old lemon to some unsuspecting customer.
We actually had to buy our first clown car because we owed so much on that Ford. Several years later we received notice of a class action lawsuit to get Ford to deal with the poor engineering.
You guys can keep Ford, we’ve had enough of their games. Even as a teen I remember the difference between changing a water pump on a Ford Mustang vs a Chevy SS Chevelle. Ugh!
Sorry…Poor written….but we have Chrysler product not GM.
So this isn’t a rave over GM’s quality…just Ford’s lack of quality as a solution to GM.
I am picking Door #3.
While it will start out as Door #2, Government Motors, it will rapidly distinigrate into nothing.
General Motors had been a company in decline for years before the credit crunch and its brands should have been sold off or spun off. The strategy of the company did not work and was killing all of their brands despite its advanced technology and engineering. Consumers buy cars based on price, design, and image. Consumers could not differentiate between any of the the cookie-cutter GM cars lines other than price and a few cosmetic differences.
The best thing that can happen now is for GM to sell off Cadillac, Chevy and Buick before the send those brands into extinction.
If not, a government run entity like this will be committeed into insolvency.
Roger Penske is buying Saturn.
It’s been a waiting game with GM , I have a family member who works for a Saturn dealer , the Unions didn’t care about the dealers the government didn’t care about the dealers and this Car Czar, he won’t give reasons behind the process of what dealers stay and what dealers go, I’m glad Saturn was sold to Penske, at least some jobs my have been save.
Back last year when GM went to the government for a bailout, rather than give them the money the government should have said: “no.” That would have forced GM to break up by either selling off their brands or even spinning off some. There would have been less jobs lost and no taxpayer money spent. But that’s why government should never be involved in business – they don’t know any better.
Has anyone read what Chavez said about this?
For full article:
http://tinyurl.com/o5mw8h
hey comrade..i don’t think he was joking..
Back last year when GM went to the government for a bailout, rather than give them the money the government should have said: “no.” That would have forced GM to break up by either selling off their brands or even spinning off some. There would have been less jobs lost and no taxpayer money spent. But that’s why government should never be involved in business – they don’t know any better.
Oops…forgot to say great post! Looking forward to your next one.