GM Target Price Downgraded to $0.00/Worthless

[takao]

Nobody "deserves" a bailout. The banks that got one didn't deserve it -- they got themselves in trouble, even more so than the automakers. So what are we supposed to do, watch one major economic institution after another fail? Then when we're all living in cardboard boxes, we can say "they got what they deserved?" No thanks. The truth is, we'll get what they deserved.

well at what sum would draw the line with the big three ? ... how exactly will this bailout give the ma competition advantage big enough to get profitable again ? against international competition which might get supportive actions from their governments as well all while starting from a better financial position in the first place ?
development of a new car plattform takes years (2-3 minimum) and even if you have a plattform already it still takes 1-2 years to come up with new models
not counting time it takes to replace factory lines and development of smaller engines

how much money will it cost you which might be much more wisely invested into infrastracture projects ?

 

[Unspeaked]

and how long would this current talked about 17 billion bailout/credit last ? if you are lucky end of march ... .. how is this supposed to help if they (chrysler + Gm) need 11 billion in december to make it until january

LINK

Big Three Bailout: $15B Just a Start Whether GM's Wagoner Stays or Goes

Congress appears very likely to throw a lifeline to the struggling automakers, but one that is highly conditional and only likely to buy them a few months.

According to multiple reports, Congress is set to provide the "Big Three" a $15 billion loan with the money coming from the previously approved $25 billion loan to help them meet fuel-efficiency standards vs. from TARP.

The loan is designed to help GM and Chrysler avoid imminent bankruptcy, and buy both the industry and Congress time to come up with a (hopefully) more comprehensive solution.

"They're going to have to restructure, and all their stakeholders are going to have to restructure," President-elect Barack Obama said on NBC's Meet the Press. "Labor, management, shareholders, creditors -- everybody's going to recognize that they have -- they do not have a sustainable business model right now."

Among issues being discussed:

• Limitations on executive pay and restrictions on how any government loans could be used. Additionally, pressure is mounting on GM to remove Rick Wagoner as CEO. (Ford's Alan Mulally and Chrysler's Bob Nardelli haven't been on the job nearly as long.)

• Warrant for taxpayers that are senior to existing stakeholders to ensure any Federal loans are repaid first.

• The creation of a Federal oversight board led by a "car czar" and including the Secretaries of Treasury, Energy, Labor, Commerce, and Transportation plus the Environmental Protection Agency.

It's hard to say which is more frightening — the idea of the auto industry being run from Washington, D.C., or that experts like Economy.com's Mark Zandi say the Big Three will utilmately need $75 billion to $125 billion in order to avoid bankruptcy.

 

[IJ Reilly]

well at what sum would draw the line with the big three ? ... how exactly will this bailout give the ma competition advantage big enough to get profitable again ? against international competition which might get supportive actions from their governments as well all while starting from a better financial position in the first place ?
development of a new car plattform takes years (2-3 minimum) and even if you have a plattform already it still takes 1-2 years to come up with new models
not counting time it takes to replace factory lines and development of smaller engines

how much money will it cost you which might be much more wisely invested into infrastracture projects ?

I don't really have answers to any of your questions, but I do know that it's only partly about product. The automakers would not be in such dire straits at this particular moment if not for the credit crisis and the recession. Of the three, Ford is in better shape because they started making the tough restructuring choices earlier. Chrysler, we really don't know as much about since they are privately held. The mating with Daimler was a disaster for both companies, but especially for Chrysler. Ironically, they might not be able to survive alone now. GM has been in trouble for years, if for no other reason than they are stuck with huge costs for retired employees, which only get worse as the company downsizes.

These are supposed to be loans, btw, not grants. But I do worry about how the taxpayer's interests will be protected if these companies do end up in bankruptcy.

As for the lost opportunity costs, I don't think anyone is concerning themselves about that now. It seems all of the major economic powers are prepared to print however much money it takes to revive the economy.

 

[mkrishnan]

I don't really have answers to any of your questions, but I do know that it's only partly about product.

I still think you're under-weighting this. Without the issues of the current economic crisis, and even perhaps if your magic wand could rid them of their longstanding financial obligations vis-a-vis labor, retirees, and vertical manufacturing, you would still be stuck with the following situation, particularly at GM and Chrysler:

- They would still be making cars and trucks that are not much wanted by consumers.

- They would be able to price them much more aggressively (maybe even as aggressively as the Koreans), but they would be talking people into buying cars they fundamentally don't want based on their discount pricing.

- As the result of that discount pricing that they would probably be pursuing to avoid loss of market share, their vehicle operations themselves would still not be that profitable.

- And they would still be losing marketshare, because they don't do good vehicles as well as the Europeans, they don't do quality as well as the Japanese, and they don't do down-market as well as the Koreans (and God help them if Tata starts selling cars in the US).

In contrast, if they made good products, they would be taking the same pounding that Toyota and Honda are taking, they would be engaging in cost cutting and layoffs just like they are, and they would be on the razors edge, but they would at least be in probably survivable territory right now instead of definitely not survivable territory.

That's why I really think that they need a consumer focused revolution and not a cost-cutting one.

 

[econoline06]

I really love all things Chevy, and Pontiac....Theyre muscle cars are among the greatest of all time. We are finally seeing them return to the MUSCLE era and now they might go under?? I will seriously cry if this becomes the downfall of american muscle, because we know damn well ford cant make a decent muscle car and hasnt since the 80s. and dodges version of re creating the charger was a definate fail on the looks factor. I must say the challenger is an amazing piece of machinery

Return to the muscle era??? When fuel is going nowhere but UP? Wow, nice insight there dude. Yeah fuel may have dipped down temporarily here (around $1.60/gal) but it is going up, no doubt. It is simple supply and demand. Target price for next year is around $6/gal. Go enjoy your "muscle" car then.

An amazing piece of machinery IMO is a car that gets at least 40 mpg.

 

[econoline06]

I still think you're under-weighting this. Without the issues of the current economic crisis, and even perhaps if your magic wand could rid them of their longstanding financial obligations vis-a-vis labor, retirees, and vertical manufacturing, you would still be stuck with the following situation, particularly at GM and Chrysler:

- They would still be making cars and trucks that are not much wanted by consumers.

- They would be able to price them much more aggressively (maybe even as aggressively as the Koreans), but they would be talking people into buying cars they fundamentally don't want based on their discount pricing.

- As the result of that discount pricing that they would probably be pursuing to avoid loss of market share, their vehicle operations themselves would still not be that profitable.

- And they would still be losing marketshare, because they don't do good vehicles as well as the Europeans, they don't do quality as well as the Japanese, and they don't do down-market as well as the Koreans (and God help them if Tata starts selling cars in the US).

In contrast, if they made good products, they would be taking the same pounding that Toyota and Honda are taking, they would be engaging in cost cutting and layoffs just like they are, and they would be on the razors edge, but they would at least be in probably survivable territory right now instead of definitely not survivable territory.

That's why I really think that they need a consumer focused revolution and not a cost-cutting one.

I agree but the 'big 3' will never do those things. They have their heads too far up their tail-pipes. I like to be an informed consumer, so before I bought my Yaris I looked at Honda, Toyota, Ford and GM. The Ford and GM cars (Cobalt and Focus) were both in the area of about $17,000.....seventeen freaking thousand dollars!! For a subcompact that will last half as long as a Toyota or Honda and that get worse fuel economy...

Another thing I hate about the big 3 are their "employee only" advertisements. Way to alienate the rest of the consumers. That is what interoffice memos are for, douche bags!

 

[quagmire]

I agree but the 'big 3' will never do those things. They have their heads too far up their tail-pipes. I like to be an informed consumer, so before I bought my Yaris I looked at Honda, Toyota, Ford and GM. The Ford and GM cars (Cobalt and Focus) were both in the area of about $17,000.....seventeen freaking thousand dollars!! For a subcompact that will last half as long as a Toyota or Honda and that get worse fuel economy...

Another thing I hate about the big 3 are their "employee only" advertisements. Way to alienate the rest of the consumers. That is what interoffice memos are for, douche bags!

So much for being informed..... The Cobalt and Focus don't compete with the Yaris. They compete with the Corolla, Civic, Sentra, etc. The Aveo is the Yaris competitor for GM( Ford doesn't have one). Though I still wouldn't fault you for choosing the Yaris or Fit over the Aveo. The interior may be decent, but exterior design is too ricey for me and fuel economy does suck.

How do you know they will last half as long?

 

[whooleytoo]

I'm not American - but what I would find so galling about these bailouts is this:

When these companies - through a combination of lack of foresight & poor luck - fall on hard times, the average Joe on the street has to bail them out, at great cost.

Yet just a few months ago, the price of oil was soaring, sending the price of everything upwards; travel, food etc. Everyone was hurting, yet did private industry help out? Ease off? No, the oil industry cashed in on the collective crisis with Exxon Mobil in particular generating record revenue two quarters in a row.

It seems this spirit of help & co-operation works only one way.

I'm far from a right-wing capitalist, but I think this new era of subsidising subsiding industries is a worrying one. Companies aren't rewarded for being smart, or profitable. Just "big", too big to be allowed fail.

I think they're just opening a bottomless pit which no amount of bailouts can fill.

 

[IJ Reilly]

I still think you're under-weighting this. Without the issues of the current economic crisis, and even perhaps if your magic wand could rid them of their longstanding financial obligations vis-a-vis labor, retirees, and vertical manufacturing, you would still be stuck with the following situation, particularly at GM and Chrysler:

I don't think I'm under-weighting these things at all. Product is what we know best, as consumers. As you can see from this thread, about 90% of the discussion is about product. Everyone who's ever had a problem with a car from a specific manufacturer or even with one of their dealers is more than ready to extrapolate this experience into a characterization of the entire company, if not the entire domestic auto industry. I'm introducing some of the controlling factors in the current crisis that aren't product-related.

As far as product is concerned, we should not forget that all of these companies were raking in the bucks just a few years ago -- and it wasn't because they were selling products consumers hated. And as the article I posted above indicates, GM may look like an unmitigated disaster to us in the US, but the company is actually profitable and growing abroad.

Also, this morning I heard that Volkswagen and Saab are asking for assistance from their governments. The US manufacturers may be the canaries in the coal mine, but that doesn't mean the problems in this industry are not widespread.

 

[takao]

As far as product is concerned, we should not forget that all of these companies were raking in the bucks just a few years ago -- and it wasn't because they were selling products consumers hated. And as the article I posted above indicates, GM may look like an unmitigated disaster to us in the US, but the company is actually profitable and growing abroad.

Also, this morning I heard that Volkswagen and Saab are asking for assistance from their governments. The US manufacturers may be the canaries in the coal mine, but that doesn't mean the problems in this industry are not widespread.

GM is growing abroad ? where exactly ? their korean daughter daewoo perhaps ?

also Saab asking for money ? Saab _is_ GM just like Opel ... that GM is asking for money in multiple countries is kinda giving you insight how bad the situation is for them ...

for VW i just read that it's their daughters Volkswagen Bank and Volkswagen Financial Services which wants to take a part of the german banking guarantees .. it's not like they ask for an additional deal made for them with loaning them money like GM

 

[rdowns]

GM is growing abroad ? where exactly ? their korean daughter daewoo perhaps ?

Link

Nearly three-fifths of the employees at General Motors Corp. work for a company that makes cars that are admired, popular and profitable.

They just don't work in the United States.

GM has a bigger presence outside the U.S. than in it, employs more people in other countries than here, and actually makes money selling cars everywhere from Sao Paulo to Shanghai. Its U.S. revenue has sunk 24% in the last three full years, but in the rest of the world, GM can boast a 28% increase.

 

[IJ Reilly]

GM is growing abroad ? where exactly ? their korean daughter daewoo perhaps ?

also Saab asking for money ? Saab _is_ GM just like Opel ... that GM is asking for money in multiple countries is kinda giving you insight how bad the situation is for them ...

for VW i just read that it's their daughters Volkswagen Bank and Volkswagen Financial Services which wants to take a part of the german banking guarantees .. it's not like they ask for an additional deal made for them with loaning them money like GM

http://money.cnn.com/news/newsfeeds/articles/djf500/200812031156DOWJONESDJONLINE000710_FORTUNE5.htm

Volkswagen is having problems in general it seems.

http://www.ft.com/cms/s/0/c6b92cf6-c5fd-11dd-a741-000077b07658.html

 

[takao]

http://money.cnn.com/news/newsfeeds/articles/djf500/200812031156DOWJONESDJONLINE000710_FORTUNE5.htm

Volkswagen is having problems in general it seems.

http://www.ft.com/cms/s/0/c6b92cf6-c5fd-11dd-a741-000077b07658.html

exactly what i said: their banking has problems and they try to squeeze money out of the government ... it's not like they have real financial problems when they are currently investing 1 billion in opening new factories in the US and their daddy Porsche just made a 13 billion euro profit thanks to their ripping of hedge fonds

and if a german car maker is in problems it's BMW

as for saab: pathetic .. how many workers are in sweden exactly ?

edit: answering for myself:
http://www.gm.com/europe/corporate/about/employees/
looking at that chart it sure is easy to see how much administration/marketing personal is wasted just for maintaining Vauxhall and Saab as separate brands.. at least for vauxhall you don't need any engineering as it seems

edit2: at least we know now for which brand the fat lady will sing first:
http://www.gm.com/europe/corporate/market-performance/brands/

0.4 marketshare europe wide or for every Saab sold nearly 20 as many Opel/Vauxhall and still 5 times as many Daewoo/Chevrolet sold

edit3: other interesting statistics
http://www.gm.com/europe/corporate/sales/model/
Gm euro sales per model

 

[IJ Reilly]

The credit side of selling cars has become a problem for the auto companies just as it has for the banks. I'm not trying to justify anything. I'm only pointing out that the problems in the auto industry are not limited to US companies, and neither are the government efforts to help them limited to the US government.

 

[mkrishnan]

Product is what we know best, as consumers.

I was on the other side of the fence, too... I'm not saying that quality and efficiency are not important -- I spent more than half the time I was in the automotive industry working either on manufacturing efficiency, quality, or organizational efficiency, and somewhat less than half working on product design. Granted I wasn't there for decades, but I also don't believe this problem requires decades of research to understand.

I think you make my own case for me. These same companies -- particularly Ford -- were making lots of money selling cars and trucks customers wanted a decade ago. It hasn't even been that long in the scheme of things since Ford lost their dominant position in the midsize sedan segment (which at the time was also the dominant segment of sedans in general).

In each of these cases their decline was heralded by strategic decisions to ignore product development in favor of organizational efficiency. Ford started losing money when numerous vehicle programs were canceled or delayed in response to the Explorer/Firestone crisis, a time when they should have been aggressively pushing to stay relevant in the market.

They do need to react to this economic problem, because it's woven into every single fabric of everything we do as a species, at this point, unless perhaps one has the luxury of living in a log cabin somewhere in Hokkaido or on some tiny island in the Pacific.

But they will never be strong unless they relentlessly pursue making good products.

 

[IJ Reilly]

Not just a decade ago, but two or three years ago. So long as fuel prices stayed relatively low and the public was buying loads of SUVs and trucks, the big three were doing fine. What they lacked was the products that would appeal to the public when fuel became expensive. In this the overseas competitors had an advantage, because they've been selling vehicles into markets with high fuel prices for decades. This is very similar to the events of 1970s, when the Japanese automakers were poised to jump into the breach when fuel-efficient cars were demanded in the US, and not necessarily because they were so much smarter, but because these were the kinds of cars they were already making for their own markets. What's really different between now and the 1970s is the immense cost overhangs the US auto industry has inherited, which gives them far less flexibility to deal with the crisis this time around.

Could they have done a much better job anticipating higher fuel prices and the demand for more efficient cars? Certainly, but then so could the American car-buying public have done, buy not continuing to demand land yachts even as fuel prices steadily increased during the decade. I can see why the automakers saw so little reason to develop products that so few Americans seemed to be demanding.

 

[takao]

Not just a decade ago, but two or three years ago. So long as fuel prices stayed relatively low and the public was buying loads of SUVs and trucks, the big three were doing fine.

were they ? they still had hundred of billions in debt 10 years ago don't forget that

and it's not like nobody warned them ... they have been warned over and over again and simply didn't bother to diversify enough in model typs but instead continued to offer countless brands all too similiar and refused to switch to a more global approach and still continued to develop cars too focused on seperate markets
Ford refused to sell the new Mustang in europe officially ... despite they easily would have made thousands of sales if they could keep the price similiar to the US price (and perhaps offered more engine options)

 

[IJ Reilly]

Most companies have debt, lots of it. The fact remains that the US automakers were selling very profitable SUVs and trucks hand-over-fist until just a couple of years ago. I was always amazed by the durability of this fashion trend, in the face of the cost of fuel which was steadily increasing over most of the decade. Personally, I decided to trade a full size car for a subcompact in 2002, knowing where fuel costs were heading, but by no means was I part of a significant shift in American car buying at that time.

Anyway to be clear I am not defending the practices of the automakers. Many of their problems are of their own making. I am only attempting to point out that some of them are not, and also that other supposedly smarter automakers could well find themselves in similarly dire straits if this recession and credit crisis continue and deepen. The weaker will fall first, but the stronger are not immune.

 

[mkrishnan]

Most companies have debt, lots of it. The fact remains that the US automakers were selling very profitable SUVs and trucks hand-over-fist until just a couple of years ago.

True, but in 2000, Ford also had the primary small car on the Car and Driver Top Ten list (the Focus, which in 2000, was excellent in terms of core design, and was reasonably competitive on fuel economy -- mine was 28/36 I think). Even after botching quality in the first year, it remained on the list solidly for several years.

And then what happened? One of their brilliant ideas to cut costs after the Firestone crisis was to not refresh it after 2-3 years like everyone else did, and not replace it with the second generation version they designed and launched in Europe in a respectable (long side) amount of time after the first generation, but to try to keep the old version for almost a decade.

And this is most specifically not in the category of fuel-hungry trucks.

 

[IJ Reilly]

Again, I am not defending the automakers by any means. They've made plenty of mistakes.

 

[alphaod]

I hope they don't get a bail out. Then they will have for Chapter 11 protection, and all labor agreements with be dissolved. Finally all workers will de-unionized, nobody gets silly benefits and outrageous pay and GM is profitable again. This is why Wal-Mart works. It's better for the economy.

 

[IJ Reilly]

I hope they don't get a bail out. Then they will have for Chapter 11 protection, and all labor agreements with be dissolved. Finally all workers will de-unionized, nobody gets silly benefits and outrageous pay and GM is profitable again. This is why Wal-Mart works. It's better for the economy.

Ridiculous. These companies (especially GM) have been shrinking for 30 years now, to the point where they've got more retired employees than working employees, more than three times as many. The unions have made concession after concession both on current labor costs and the funding of pensions and benefits. It's the automakers who've been unable to meet their obligations, not labor.

 

[rdowns]

I hope they don't get a bail out. Then they will have for Chapter 11 protection, and all labor agreements with be dissolved. Finally all workers will de-unionized, nobody gets silly benefits and outrageous pay and GM is profitable again. This is why Wal-Mart works. It's better for the economy.

Your fantasy makes for nice Internet posting.

There will be no chapter 11. They either get the loans or they get liquidated. No one will buy a car from a company in bankruptcy. Anyone willing to buy an American car will head over to Ford, or more likely, buy Japanese.

The shitestorm of that would drag us into a recession the likes of which we haven't seen since the 30s. Do you have any idea of the amount of GM bonds and loans that are held by our troubled financial institutions and pension funds?

What about the hundreds of thousands thrown out of work? When GM goes, they take a whole lot of automotive suppliers and auto dealers with them. Many of these suppliers are key to Ford. Not to mention all the small businesses located near GM plants and offices.

I just don't think we have a choice here but to try and make this work. The alternative to not giving them these loans and holding a gun to their head to fix the problems is worse than giving the loans, IMO.

With the loans granted, everyone (GM, labor, creditors, bond holders, suppliers) will need to get it together and make some very painful but necessary compromises. I don't think that can happen without the federal govt. holding a gun to their heads.

 

[IJ Reilly]

I can see where there could be Chapter 11 filings, I just don't know of any automaker that has ever emerged from bankruptcy and continued to operate.

 

[Unspeaked]

There will be no chapter 11. They either get the loans or they get liquidated. No one will buy a car from a company in bankruptcy. Anyone willing to buy an American car will head over to Ford, or more likely, buy Japanese.

I can see where there could be Chapter 11 filings, I just don't know of any automaker that has ever emerged from bankruptcy and continued to operate.

Rather than Chapter 11, don't you think it's more likely that if the bail outs don't happen GM will likely sell off its assets to a competitor (I'm guessing a foreign one) who probably has a better chance of making those assets useful than GM itself has?

The new entity would be free of obligations that are currently weighing the Big 3 down, but presumably would still need much of the parts, labor, etc currently in use to function - hence, a minimal economic impact (outside of lost pensions, health care and the like).

I just can't help but think this would be a much better solution than either a bailout or a Chapter 11 restructuring.