GM has 120 days to live, Ford 7 months.

[trule]

I'm surprised that in 5 pages of discussion, no one's mentioned health care (unless I missed it =P).

The big 3 have huge legacy programs providing health care to all of their workers, as well as retirees. These are not costs that the Japanese, Korean, and German manufacturers have to deal with. The common phrase is that the big 3 spend more on health care than they do on steel for each car.

In Germany health costs are around 14% of salary, half paid by the company and half by the employee. Social security is 20% with a similar split. Its not an option, its the Law.

Industry and automotive seems to function fine.


The US auto makers, via a variety of mechanisms (regulation, credit, labour relations etc) made a market for a very profitable class of vehicle. It worked to their advantage for quite some time. Now that market is saturated and they find that they have neglected other markets to the benefit of Euro, Japanese and Korean brands.

Now they want their bail out too. This is the same bunch who did not want airbags and other safety features...you get a pretty good idea of how hopeless they are, its not a new problem but rather a long sad trend. Its everyones fault but their own....

Don't worry about Opel and Ford Europe, they are for the most part profitable and making cars that are in demand in their markets. Corporate structures being what they are would suggest that bankruptcy will be mostly a US affair.

 

[fwhh]

The german magazine Der Spiegel has an article (in german) reporting that Deutsche Bank expect a stock price of zero $ for GM. This caused the stock to drop another 25%. Deutsche Bank expects that GM can not afford to continue work after December 2008 and will have to file for bankruptcy in mid 2009 without the help of the government.

 

[jemeinc]

an interesting take on this by some experts in Austrian Economics can be found here..
http://mises.org/story/3202

 

[LethalWolfe]

The SUV craze could definitely be called a fad, but the F100/F150 has been (until recently of course) the best selling truck in the US since the 1960s and the best selling vehicle since the 1980's. You can hardly call 40 years of dominance a "fad".

Ford being a leader in truck sales wasn't a fad. The light truck/SUV boom was a fad.


Lethal

 

[geese]

Soon, Land Rover will once again be as British as Tikka Masala.

Jaguar/Land Rover- in that light they are probably as British as they have been in a long time. Better to have an Indian owned, British run J-LR, then... I dunno... a Chinese MG.

How would GM survive though? A partial buyout from a foreign buyer, a la J-LR? Maybe Tata's rival, Mahindra could put in an offer.

 

[ErikCLDR]

Jaguar/Land Rover- in that light they are probably as British as they have been in a long time. Better to have an Indian owned, British run J-LR, then... I dunno... a Chinese MG.

How would GM survive though? A partial buyout from a foreign buyer, a la J-LR? Maybe Tata's rival, Mahindra could put in an offer.

Yea I am actually glad to see Jag/LR under Tata. Ford would have screwed them. At least TATA has money and desire.

 

[geese]

Yea I am actually glad to see Jag/LR under Tata. Ford would have screwed them. At least TATA has money and desire.

I thought Land Rover did rather well out of Ford (and a lesser extent BMW). They got a modern line-up of cars that actually competes with the Japanese and Germans. They are one of the only 4x4s that look good as well.

I dont think Ford really understood Jaguar. The cars were better put together then the pre-Ford era, but what was with the X-type? And what were they doing with the styling? Have you seen the new XJ6's? A good example of how to make high technology vehicle design look fusty and boring.

 

[mkaake]

Wow there's a lot of uninformed (but loud) opinions floating around here. The problem is far more complex than can be summed up in 2 paragraphs. There's a whole slew of reasons that GM and Ford are in the situation they're in right now, and while it may be fun and easy to laugh and say that

a) they build crap products,
b) they deserve the situation they're in, and
c) they should have seen the writing on the wall / they should have not relied so heavily on truck sales / etc.

It really ignores a large bit of reality.

And while it's obvious some people remember the GM/Ford products that came out of the 80's, and continue to point at only the worst examples of products that came out of each firm (while simultaneously ignoring quality trends and the overall product mix from each), there's a reason that up until the very end of 2007, GM was the largest automotive manufacturer in the world (and still #1 in sales in the U.S.). It's not because they make mediocre product (and yes, I know, they have a few examples of poor cars, but nearly every automotive company does) - it's because they make good products that people want to buy. The 'crap' product argument really disappeared a long time ago, to anyone who takes an honest look at the market.

As for 'they deserve the situation they're in', most automotive manufacturers are in the same boat right now. There's a reason Kia is doing a 'buy one get one' sale at many of their dealerships. There's a reason Toyota's sales are down 25% over last year. Financially, however, Toyota in particular has the cash on hand to make it through the current climate without much risk to their operations. GM / Ford / (and to some extend, Chrysler) are suffering double as they were

a) working on refining their product lineup to match new consumer demand
and
b) Have financing arms (GMAC, anyone?) that were heavily tied to the mortgage market.

Yikes. So while they were already spending additional cash to revamp the lineup, while working with low cash reserves, their finance arms took a dump with the rest of the finance community in the U.S. It's really a bad combination working against them.

Also, I want to hit this 'they should have not relied so heavily on trucks' thing - that one really bothers me. The same people who say they shouldn't have leveraged their best selling (and most demanded) products are the same ones saying 'let the market work'. Er? That's what they were doing when they were making what the market... demanded. Yes, they needed a stronger lineup of cars, but if you were to actually look at both companies actions over the last 10 years, you would see that both have been working towards a better car mix for some time - it's not something that you can just flip like a switch, no matter how much any of us may like it.

In fact, Toyota was doing its best to break in to that same market, attracted to the high profit margins and visibility of trucks. So much so that for the first time in history, the American arm of Toyota was heavily involved in the final design of a product (for those outside of the automotive industry, that was a *very* big step). They spent some 800 million on a new final truck assembly plant in Texas; and wouldn't you know it - as of August, they had to suspend production at that facility.


The biggest problem, IMHO, right now, facing *all* automotive manufacturers is that is really is *not* easy to anticipate market demand, and it's even harder to adjust manufacturing facilities on a whim. If today, GM (or Toyota, for that matter) designed a new engine that would revolutionize the internal combustion engine, it would be at minimum 2 years (and that's really a short timeframe - really) before the design would be validated and ready for production. And that's just the engine. For an example, look at the electric vehicle programs that each manufacturer is undertaking. The Volt (which is probably the most hyped at the moment) was fast tracked, and is still on a nearly 4 year cycle from inception to production.

So while it's easy and convenient to say that 'they should have seen it coming', it's not that they didn't - it takes time. All of the manufacturers got it wrong, but some have more cash than others to pull them through.


Which brings us to now.

I don't like the idea of bail-outs, I'm not big on government backed loans - that said, the loss of the US auto manufacturers would be a huge hit to our economy. When the government made similar loans to Chrysler several years back, the loans were repaid, Chrysler emerged stronger, and life went on. I would hope that is what we're looking at right now - that given 2-3 years time, with the proper capitol to work with, GM / Ford would emerge as stronger companies, self-dependent again. Is it guaranteed? No, certainly not. But knowing what's in the pipeline from a product perspective, and knowing the history of the automotive industry (they faced an eerily similar near-extinction experience during the great depression), things will swing back. It's a very cyclic industry.

For those interested, there's really a lot of information out there about how and why GM / Ford are in the position they're in now, and it's far more detailed that one liner 'they make crap product' arguments.

 

[Sun Baked]

Ford being a leader in truck sales wasn't a fad. The light truck/SUV boom was a fad.


Lethal

Yep, station wagons --> minivans --> SUVs is a generational fad.

Though I don't think the SUVs have the trauma of a family vehicle the wagons and minivans had. Just a gas guzzling monster.

Don't know if cross overs or hybrids will take over.

 

[Lord Blackadder]

I love how you blame the company for the choices that American people make.

I love how you absolve the auto companies from blame for running themselves into the ground.

The F-150 was the number one selling vehicle in America, not because Ford chose it to be, but because so many Americans were convinced that that's what they needed.

Agreed, to a certain extent.

The American companies happened to be in the best position to capitalize on this materialistic fad, while the Japanese companies tried as hard as they could to jump on the band wagon (Tundra, Titan, Ridgeline, Sequoia, Armada, Pilot...). Fortunately for Toyota, Nissan and Honda, the SUV/PickUp bubble burst before they made any significant inroads, and before they had dedicated their manufacturing inertia to these vehicles as the Americans already had.

Not entirely true. Toyota and Nissan (and to a lesser extent Honda) have spent a TREMENDOUS amount of money developing their pickups and setting up production. They stand to lose big-time by the economic downturn.

On top of that, we have a largely uninformed buying public, with perception of the big 3's offerings lagging far behind their actual products. Its too bad so many people who buy cars blindly shut out Ford and GM without bothering to read any "automotive journalism" or quality surveys. Have a look at Consumer Reports or JD Powers surveys these days and you'll regularly see Ford nipping at the heals of Toyota and Honda, and way ahead of other brands typically perceived as being high quality.

I've done better than that - I've actually driven many of the cars you're referring to. And while it is true that the Big 3 have improved somewhat since the 90's in terms of competitiveness with the Japanese and Europeans, anybody who says they are truly on the same playing field is smoking crack. This is especially true when it comes to smaller passenger cars. Ford Europe makes some outstanding small vehicles, but our domestic capacity for small cars is weak.

As for the future planned hybrids and electrics - they are promising, but at present they are just concepts, so it;s too early to judge one way or the other. Hopefully they really are serious about these vehicles and the government should, if they do bail out the Big 3, make the development of these types of vehicles mandatory and high priority.

 

[Rodimus Prime]

In Germany health costs are around 14% of salary, half paid by the company and half by the employee. Social security is 20% with a similar split. Its not an option, its the Law.

Industry and automotive seems to function fine.


The US auto makers, via a variety of mechanisms (regulation, credit, labour relations etc) made a market for a very profitable class of vehicle. It worked to their advantage for quite some time. Now that market is saturated and they find that they have neglected other markets to the benefit of Euro, Japanese and Korean brands.

Now they want their bail out too. This is the same bunch who did not want airbags and other safety features...you get a pretty good idea of how hopeless they are, its not a new problem but rather a long sad trend. Its everyones fault but their own....

Don't worry about Opel and Ford Europe, they are for the most part profitable and making cars that are in demand in their markets. Corporate structures being what they are would suggest that bankruptcy will be mostly a US affair.

you have the taxes and heath care part of everyone cost. It the retirement benfits that are killing the big 3. They are quickly approaching a 1 to 1 ratio of works to retired workers and lets face it that is not profitable. That above is the same reason why SS is failing. There are to many taking out and not enough putting it in.

Most companies do not have to pay the health care cost of their retired workers.

 

[NT1440]

How would these guys be doing if the US actually had a NHS in place?

From what I understand a HUGE part of the problem is just paying for insurance for workers.



HINT HINT

 

[LethalWolfe]

So while it's easy and convenient to say that 'they should have seen it coming', it's not that they didn't - it takes time. All of the manufacturers got it wrong, but some have more cash than others to pull them through.

Honda and Toyota didn't seem to get it wrong. They released their first hybrid vehicles around a decade ago. And what's GM's current contribution to greener vehicles currently? 5 of their 8 hybrid vehicles are trucks or SUVs. How's that for squeezing one or two more eggs out of the golden goose. I don't blame them for cashing in on the truck/SUV fad but someone there had to be smart enough to ask the question, "Hey guys, what happens when trucks and SUVs aren't super popular anymore?"

I don't like the idea of bail-outs, I'm not big on government backed loans - that said, the loss of the US auto manufacturers would be a huge hit to our economy. When the government made similar loans to Chrysler several years back, the loans were repaid, Chrysler emerged stronger, and life went on.

Chrysler got, what, 1.5 billion in 1979? 30 years later we are up to 50 billion (apparently 25 billion isn't enough after all).

The Chrysler Bail-out Bust, a different take on the Chrysler loans and a look at the current bail-out situation, Putting the Brakes on the Automaker Bailout


Lethal

 

[mkaake]

Honda and Toyota didn't seem to get it wrong. They released their first hybrid vehicles around a decade ago. And what's GM's current contribution to greener vehicles currently? 5 of their 8 hybrid vehicles are trucks or SUVs. How's that for squeezing one or two more eggs out of the golden goose. I don't blame them for cashing in on the truck/SUV fad but someone there had to be smart enough to ask the question, "Hey guys, what happens when trucks and SUVs aren't super popular anymore?"

Hey, while we're on the subject, who produced the EV1 back in the early 90's? Why was the program canceled?

Probably the same reason the Accord Hybrid was recently canceled - even in the current market. People talk about what they want, but they don't buy those same vehicles, when it comes time.

Re: GM and their current lineup of hybrid vehicles, when they began seriously looking at doing hybrid vehicles, they made the choice to focus their initial efforts on the vehicles that accounted for the greatest use of oil - trucks (and buses, if you want to get particular). While not nearly as popular, or trend setting as having a small car get better gas mileage, it was said that GM's hybrid bus program, despite only being active in just over 1000 buses, has saved more gasoline than all of the Priuses made to date.

Unfortunately, they were wrong about timing. Based on the trends of gas prices and the general market, they planned on having several more years (2, at least) before conditions became what they are today. So today, we see the benefits of their earlier work - best in class mileage in trucks, and a greater focus on hybrid functionality in trucks.

What you also see though, is what's in line for the next few years - things that have been in the pipeline, but again, didn't happen early enough. They currently have 18 vehicles that get 30mpg or better on the highway. The Cruze (scheduled for 2010) is expected to get low to mid 40's on the highway, and around 30 in the city.

They saw it, but didn't see it coming fast enough.

Heck, the current Tahoe hybrid gets better gas mileage in the city than a 4 cylinder Camry - that's a huge step from where we were 10 years ago. And it only happened because the industry knew there would be a shift to greater gas mileage. But again, no one knew it would come this fast. The companies that are thriving (or rather, not publicly dying) are the ones that have fat cash reserves to make it through. Just look at the numbers for October - Honda and Toyota both down 25%. Nissan down 33%. You don't hear a lot from these companies though, because they have cash to spare.

Chrysler got, what, 1.5 billion in 1979? 30 years later we are up to 50 billion (apparently 25 billion isn't enough after all).

Lethal

Point taken, but you can't compare the auto industry's daily operating budget to what it was in the 70's (that, and the 25 billion isn't for one manufacturer, and its for a very specific purpose). Part of GM's problem right now is that they need 11-14 billion dollars per month to cover the cyclic nature of billing vs. car sales (even if they were not operating in the red right now) - that's a might bit different than the 70's, and it requires (unfortunately) a different level of commitment to fix.

I still don't like the idea of the loans, just to let you know - but I do think the industry (and our economy) needs it right now.

 

[jeffy.dee-lux]

I've done better than that - I've actually driven many of the cars you're referring to. And while it is true that the Big 3 have improved somewhat since the 90's in terms of competitiveness with the Japanese and Europeans, anybody who says they are truly on the same playing field is smoking crack. This is especially true when it comes to smaller passenger cars. Ford Europe makes some outstanding small vehicles, but our domestic capacity for small cars is weak.

You're probably a bit more qualified to talk about this than me then, cause I really don't spend much time actually driving cars, I just waste time reading about them. I did drive a couple Ford's in the UK though and it's about bloody time they start bringing some of those over here. I sat in the new Fiesta at the London Motor Show and I gotta say they can't bring that over here faster. I've been following rumours of this b-segment Ford for about 3 years now, and while I'm happy to see they're going with a higher end product (as opposed to a Chevy Aveo fighter), it's really too bad it's not going on sale already.

As for the future planned hybrids and electrics - they are promising, but at present they are just concepts, so it;s too early to judge one way or the other. Hopefully they really are serious about these vehicles and the government should, if they do bail out the Big 3, make the development of these types of vehicles mandatory and high priority.

lol... the Hybrid Fusion is apparently gonna be a pace car at an upcoming Nascar race! It'll have to go a bit above it's 47mph electric only cut off though, that's too bad.

 

[LethalWolfe]

Hey, while we're on the subject, who produced the EV1 back in the early 90's? Why was the program canceled?

GM and it depends on who you ask. The more jaded would say that the EV1 was killed because people in the oil and American auto industry couldn't, or didn't want to, acknowledge a future that didn't revolve around the internal combustion engine. All it takes is the auto industry to say, "The internal combustion engine had a great run, but it's an antique and we are moving onto bigger and better technologies" and we enter a new era of personal transportation. Sure, some people will b*tch for a while because it's change and most people are resistant to change but the b*tching will subside and everything will return to the status quo soon enough. Consumer electronic manufacturers phase technologies in and out all the time (not to mention getting people to re-buy movies, music, etc., multiple times) and I don't see why the auto makers can't as well. They just don't want to. They are complacent and have enough lobbying power in DC to remain complacent. But now the chickens are coming home to roost.

While not nearly as popular, or trend setting as having a small car get better gas mileage, it was said that GM's hybrid bus program, despite only being active in just over 1000 buses, has saved more gasoline than all of the Priuses made to date.

Commercial vehicles can definitely have a bigger impact on 'going green' than consumer vehicles and have the added bonus of being a nearly invisible
transition to the general public. It was there was a greater push for public transpo in the US but that's another thread entirely.

They saw it, but didn't see it coming fast enough.

IMO, they saw it coming long ago but just 'played stupid' because that was in the short term best interests of their companies. Kinda like cigarette companies 'not knowing' that cigarettes are very addictive and severely detrimental to people's health. Plausible deniability. Keep your head in the sand and do your best to push the hot potato onto the next guy.

Of course hindsight is 20/20, Wiki:

In late 2003, GM officially canceled the EV1 program.[12][13] GM stated that it could not sell enough of the cars to make the EV1 profitable. However according to GM Chairman and CEO Rick Wagoner, the worst decision of his tenure at GM was "axing the EV1 electric-car program and not putting the right resources into hybrids. It didn’t affect profitability, but it did affect image."[14] According to the March 13, 2007, issue of Newsweek, "GM R&D chief Larry Burns . . . now wishes GM hadn't killed the plug-in hybrid EV1 prototype his engineers had on the road a decade ago: 'If we could turn back the hands of time,' says Burns, 'we could have had the Chevy Volt 10 years earlier.'"[15]"]In late 2003, GM officially canceled the EV1 program.[12][13] GM stated that it could not sell enough of the cars to make the EV1 profitable. However according to GM Chairman and CEO Rick Wagoner, the worst decision of his tenure at GM was "axing the EV1 electric-car program and not putting the right resources into hybrids. It didn’t affect profitability, but it did affect image."[14] According to the March 13, 2007, issue of Newsweek, "GM R&D chief Larry Burns . . . now wishes GM hadn't killed the plug-in hybrid EV1 prototype his engineers had on the road a decade ago: 'If we could turn back the hands of time,' says Burns, 'we could have had the Chevy Volt 10 years earlier.'"[15]

The companies that are thriving (or rather, not publicly dying) are the ones that have fat cash reserves to make it through. Just look at the numbers for October - Honda and Toyota both down 25%. Nissan down 33%. You don't hear a lot from these companies though, because they have cash to spare.

Would it be a safe assumption that the companies that have 'fat cash reserves' have been better run than the ones that don't?

I still don't like the idea of the loans, just to let you know - but I do think the industry (and our economy) needs it right now.

The post 9/11 bail out of the airline industry (10 billion) was a bit more justifiable because the entire industry was blind-sided by an event well beyond their control. And like in the Chrysler bail-out tax payers got a cut of the action when those companies started generating a profit. That's not so in the 700 billion bank bail-out and 25-50 billion dollar auto industry bail-out. They get low-interest loans and get to keep all the profits generated by those loans. Talk about a sweet deal...

I just find it incredibly difficult to justify 50 billion to two or three companies that were mismanaged and run into the ground.


Lethal

 

[Evangelion]

I can understand helping out banks, since they are at the very core of our financial system. But why should the government bail out companies who run in to problems because they sell undesireable products? In case of Chrysler, repeatedly.

Bailing out the Big Three basically sends the message "it doesn't matter if your products and management is crap, we will cover you in any case. Just keep on running your companies to the ground, because in case of trouble, you can rely on unlimited credit from the taxpayers".

Fact is that the Big three basically put their eggs in one basket (trucks and SUV's).

 

[nplima]

Honda and Toyota didn't seem to get it wrong. They released their first hybrid vehicles around a decade ago. And what's GM's current contribution to greener vehicles currently? 5 of their 8 hybrid vehicles are trucks or SUVs. How's that for squeezing one or two more eggs out of the golden goose. I don't blame them for cashing in on the truck/SUV fad but someone there had to be smart enough to ask the question, "Hey guys, what happens when trucks and SUVs aren't super popular anymore?"

Hi,

There's one thing that confuses me a bit about this so-called dependency on SUVs/trucks/US-only models... GM owns others brands that compete in Europe with all the "generic" makes. They own Opel (Vauxhall in the UK) who have a product line as broad as Renault, Citroen, VW... and Ford and Fiat (also part of GM!)...

Re-tooling their factories would not be possible from one day to the other, but I can't really get the argument that Ford and GM aren't competitive because they are unable to build the whole range of car models - they do build them in Europe (probably in factories in Asia, actually).

 

[Evangelion]

Hi,

There's one thing that confuses me a bit about this so-called dependency on SUVs/trucks/US-only models... GM owns others brands that compete in Europe with all the "generic" makes. They own Opel (Vauxhall in the UK) who have a product line as broad as Renault, Citroen, VW... and Ford and Fiat (also part of GM!)...

Fiat is NOT part of GM, never has been. The two companies have cooperated with each other, but that's about it.

Sure, GM and Ford have "European"-models that aren't that different from their European competitors (Renault, VW etc.). But the thing is that while they have those models and they are pretty good products, the entire global company is being dragged to the brink (or even forther than just "brink") of bankruptcy because the American division of the company insisted on manufacturing metric assload of SUV's and trucks that no-one wants to buy.

Re-tooling their factories would not be possible from one day to the other, but I can't really get the argument that Ford and GM aren't competitive because they are unable to build the whole range of car models - they do build them in Europe (probably in factories in Asia, actually).

They are not competitive because their reliance on trucks and SUV's is dragging the entire company down. If you looked solely at their passenger-car business, they might be doing OK'ish. But you can't do that, you need to look at the whole.

If we go around pick and choosing what products we should talk about, we could say that "if we exclude all the loss-making products from the discussion, Motorola (for example) is doing really well!". But surely you know that we can't do that?

 

[Rodimus Prime]

How would these guys be doing if the US actually had a NHS in place?

From what I understand a HUGE part of the problem is just paying for insurance for workers.



HINT HINT

I do not think it would change the problem. Another huge part of the cost problem is the Union. Unions are very inefficient and cost a huge amount of money. You have to pay a guy to stand around and do nothing but make sure the union contact is enforced. They are not supervisors you have to pay those guys 2.

The union does not let you promote the best people for the job but the ones that been there the longest, It does not let you fire a incompetent worker but instead you have to pay the worthless worker.

And the union demanded health care is killing them. If they did not have to pay for that the union would demand that money be given straight to the worker.

 

[Kwill]

As is the case with the housing market, the price of cars has spiraled out of control without addressing the needs of the consumer. Wages have not kept up with the inflation of these premium commodities. Until the average price of a 2-bd home drops to $150K and entry-level new car prices range from $5K to $10K (without being a piece of junk) this economy will continue to decline.

Have you driven a Ford [into the ground] lately?

 

[NT1440]

What do you propose to do with the roughly 3 million that would be jobless as a result of the deaths of these companies?

 

[drossad]

As is the case with the housing market, the price of cars has spiraled out of control without addressing the needs of the consumer. Wages have not kept up with the inflation of these premium commodities. Until the average price of a 2-bd home drops to $150K and entry-level new car prices range from $5K to $10K (without being a piece of junk) this economy will continue to decline.

+1 on this too. Cars and houses are ridiculous compared to average wages.

 

[drossad]

What do you propose to do with the roughly 3 million that would be jobless as a result of the deaths of these companies?

These companies could survive if their executives took huge pay cuts and stopped all these enormous bonuses. Who needs that much money anyway?

 

[NT1440]

These companies could survive if their executives took huge pay cuts and stopped all these enormous bonuses. Who needs that much money anyway?

While I agree 100% that they are grossly over paid, its not going to make up for the billions of dollars needed for healthcare and such (the main reason they need the money right now).

Just like cutting earmarks isnt going to fix the damn economy.

These are just parts of the problem