Bankruptcy Is The Only Option

Just in case you haven’t heard, there is a proposed $25 billion bailout planned for Ford and General Motors.  Chrysler is not eligible for the bailout because they are a privately held company – technically.  This bailout is literally to aid the automakers in retooling their plants to build more fuel-efficient vehicles and speeding up development of said vehicles.  Not one red cent can, once again technically, be spent on anything else – i.e. liquidity.  General Motors has announced they will reach their critical point by December 31st, 2008.  On that date it is anticipated that they will only have $10 billing cash available for ongoing operations.  At that point in time, the company will be bankrupt.  Ford, which reported a small (in comparison) loss in the 3rd quarter, is staying their course of becoming more of a global machine.  What this means is that the small, fuel-efficient cars they build for other markets like Europe, will be the same ones they build here.  This is the opposite of what Japanese companies do, but it makes sense.  So what are GM and Ford to do?  Well I believe that Ford is actually heading in the right direction, they have more cash than GM and they’re burning through it at a slower rate.  The money would be nice for Ford to have, but not needed.  But GM…

General Motors needs to go bankrupt.  Not Chapter 7, which is liquidity, but Chapter 11, reorganization.  A lot has been said about customers not willing to purchase a car from a bankrupt company, but you know what’s worse?  A company that everyone is afraid is going to go bankrupt.  Point in case:  Studebaker-Packard, 1956.  The rumors that the company would go bankrupt soon and strand its owners and dealers strangled sales.  Bankers cut off funding to the company, thus stopping development, which made customers panic more.  By June of 1956 Packard was dead, and Studebaker lived for another 10 years.  GM has nearly 10,000 dealers, brands that are dead or dying, and a “captive” lending unit called GMAC, which has refused to fund any more car loans or any leases. Top heavy, under funded, strangled sales – history does repeat.

A lot of people are going to say, “well General Motors deserved it,” for any multitude of reasons.  Be it the horrible quality of the late 70’s, 1980s and 1990’s, the gas guzzling SUV orgy that ALL of the automakers took part in, or my favorite one “GM is evil, they killed the electric car just so they could make more SUVs.”  Well here’s my response to all of that:

1.) Yes, GM quality was crap for 3 decades.  No argument there.  But have you been in a brand new GM vehicle today?  Not only are they rated very highly by many journals, but to misquote a GM marketing message; it’s not my mother’s Oldsmobile.

2.) SUVs.  You will not find a more ardent opposer to SUVs than I.  If you want to hear my views on them, let me know and I’ll blog about it.  But the truth is this; yes, GM, Ford and Chrysler were making huge SUVs and huge profits in the 1990’s and early 2000’s.  They ignored cars, unlike their competitors.  But you cannot name ONE mainstream-automaker who doesn’t make an SUV today…. even the much vaunted Toyota and Honda jumped on that bandwagon. (Toyota just shuttered their Texas plant built specifically for their new large SUV and pickup truck)  I hate SUVs. I find them wasteful, inexcusable vehicles, but the truth is that these were profit centers for the entire automotive industry.  GM’s fault lays in the fact that they took WAY too long to redevelop and move forward their car designs and engineering.

3.) GM Killed The Electric Car.  Ok, ya know what, I’m all about recycling, conservation, and protecting/utilizing our natural resource wisely and I am a “greenie,” but SHUT UP YOU STUPID UNINFORMED HIPPIES!  It just fries my cheese that these people assume that GM is a big bad Goliath.  The electric car in question, the EV1, was killed because it was launched at a time when a.) Battery development was very poor, b.) SUV’s were hot, gas was cheap, who needed an electric car and c.)  Had they not crushed those cars, the first time someone got injured by one, in one or near one, there’d be a HUGE lawsuit…this is the same reason that concept cars are crushed and why non-authorized accessories void your warranty.  It’s funny how people fail to hear that the EV1 development gave GM a huge push forward with their Volt development.  A vehicle that will go 40 miles on electricity alone and then use a gasoline engine to power the electric motors and charge the batteries.  (This is the story from GM, though conflicting reports keep coming out. the latest news is that the engine will power the car when the electricity runs out, and not recharge the batteries)

I’m not a GM cheerleader.  I’m an automobile cheerleader.  I love cars and frankly I think GM finally got its love of cars back recently, too.  But they are so weighed down with all of their brands, a terrible customer perception and a Board of Directors, which should have been ushered out over 10 years ago.  So, Chapter 11…

Chapter 11 would allow GM to cancel dealer franchise agreements and kill brands.  The ideal situation would be the deletion of all brands except for Chevrolet and Cadillac, thus giving GM a mass market brand and a luxury brand, modeling themselves after Honda, Toyota, Nissan, etc.  They would be able to close plants, break UAW contracts and right size the company to be able to build the amount of cars that its current market share will support and not have to spread all of its research, development and marketing dollars across 100 different vehicles.  Yes, GM sells over 100 different vehicles.  It is also hoped that by going into Chapter 11 the courts will force the Board of Directors out and clear out the old executives and hopefully bring in individuals that are more interested in creating a successful business than in corporate raiding.

But what about the customers?

The publications I read feel that the perception of bankrupt companies has changed enough to keep people buying cars from a bankrupt automaker.  I’m not so sure of that, but there’s only one way to find out.  One example is Oldsmobile.  Even in their last year of production, with plenty of notice that the brand was dying, Oldsmobile sold over 100,000 vehicles – more vehicles than Saab (another GM brand) has sold in any year since GM has owned them.  This just shows that people will buy a car from a company or brand, which is going to be discontinued, so long as there is support for them.  And support there was; any Oldsmobile can be serviced through a Chevrolet dealer with no problems.  Therefore were Buick, Pontiac, GMC, Saturn, Saab, and Hummer to die, GM would still be able to offer support for their owners via Cadillac and Chevrolet.  All of their cars share the same major components.  Yes, the residual values for these cars would plummet, some would probably even be worthless, but what’s better?  No GM or a better GM?

Just let GM die?

Let me just say, I really hate people who say this.  We need a strong manufacturing base in this nation.  We will be in deep trouble if we let one of the last vestiges of a manufacturing industry leave.  Sure, sure, most of the foreign automakers have a factory or two here in the states.  But all of the money earned from sales doesn’t go to our GDP and should the government need to take control over the manufacturing industry for one reason or another, such as they did during WWII, they will have a hard time taking factories from Toyota and Honda.  We cannot have a country that doesn’t make anything but consumes everything.  We also cannot allow our automotive industry become an “American Leyland.”  Go to that Wikipedia and search British Leyland if you have no idea what I’m talking about.

No bailout!

I am 100% against any bailout for the automakers.  Shocked?  If we throw good money after bad, like we did with the banks, we’re just enforcing the idea that a company can be too big to fail; history owes an existence to no one.  A bailout package will prevent GM from being forced to declare bankruptcy, which won’t be good for anyone.  Bankruptcy is the only option to get out of bad contracts, a UAW who feels they’re entitled to waayy too much and a brand-addled corporation.  I’ll finish this blog with a story:

A GM manager was at a factory, which was building a redesigned Cadillac Eldorado.  He was explaining what the changes were, what their goals were, and asked for any questions.  A UAW member raised his hand and asked “Are you going to make it much more expensive?  Because I really like the one I have now and I want to get a second one.”  The manager answered a politically correct response, but thought to himself “damn you, you shouldn’t be able to afford one!”  This is a true story; it may ruffle a few feathers, but the man piecing together your luxury automobile isn’t its targeted customer and never should be.

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1 Comment

  1. That was very interesting reading. Loved your views on the killingof the electric car


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