General Motors (GMGMQ)

GM's dependence on the UAW in North America and on unionized labor around the world (especially in Europe) makes it much harder for the company to either cut costs or turn itself around. Crippling legacy costs will also be a difficult burden for GM to continue bearing.

I understand both sides of the table (union and management) as I've sat on both sides. With many white collar lay offs and salary cuts, let's hope the UAW doesn't allow the same thing to happen as the steel mills where they price themselves out of a job. I'm not placing all the burden for the steel mills going out of business on the unions but they certainly contributed more than their share of grief leading to all but the demise of the steel industry in this country.

The number of retired UAW members plus surviving spouses PER active UAW member at the Big Three (data here from the UAW) stand at 4.61 for GM, 2.11 for Ford and 1.60 for Chrysler. Doesn't this go a long way towards explaining the financial troubles of the Big Three, especially GM, because of the crippling legacy costs? In other words, GM has become "a health care benefits management firm that sells cars for a loss as a side venture."

Faced with a June 1 deadline to shape up to enter bankruptcy protection, General Motors Corp. (GM) announced 1,600 salaried job cuts taking effect May 1. The cuts are part of GM’s plan to reduce its salaried workforce by about 10,000 and about 37,000 hourly jobs worldwide by the end of the year, Reuters reported.

General Motors Corp., battered by the slowest U.S. sales market in 15 years, faces the possibility of bankruptcy and may need to raise as much as $15 billion, a Merrill Lynch & Co. analyst said. The auditors at General Motors Corp. (GM) have raised “substantial doubt” about the carmaker’s odds of surviving without filing for bankruptcy protection. "Amid the automotive depression, GM is dependent upon the largesse and forbearance of the U.S. and foreign governments to sustain its various entities," Standard & Poor’s equity analyst Efraim Levy said in a note for clients, Reuters reported.

General Motors Corp. (GM) posted a loss of almost $31 billion in the fourth quarter, and said its auditors will likely doubt its viability. The company burned through $5 billion during the quarter, and warned that its pension plans were underfunded by $12.4 billion, Reuters reported.

The ``dramatic drop-off in sales probably will continue through 2009, forcing GM to find additional funding, analyst John Murphy, who cut the Detroit-based automaker's shares to ``underperform from ``buy, said in a report. ``Bankruptcy is not impossible if the market continues to deteriorate.

Deutsche Bank came out this morning with a pretty bold call, that is almost certainly right, slapping a sell rating on General Motors (GM) and a $0 price target. They forecast that GM might not have enough cash to operate the business into 2009. GM shares are off about 25% and trading at levels not seen since 1946.

Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing. - GM 3Q Earnings Release, 11/7/08

The situation is extremely dire. They have $16 billion in cash on hand. They burned through $7 billion last quarter - though they say that was an aberration due to one time events. They owe $43 billion and have massive pension and other retirement obligations. North American car sales dropped 45% in October from the year ago period.

If you read between the lines, it seems like either the government props them up or they go under.

The chart above shows average hourly compensation for the Big Three ($73.20) and Toyota (TM) ($48.00), compared to average hourly compensation for Management and Professional Workers ($47.57), Manufacturing/Goods Producing ($31.59) and all workers ($28.48), data available here.

Should U.S. taxpayers really be providing billions of dollars to bailout companies (GM (GM), Ford and Chrysler) that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?

Maybe the country would be better off in the long run if we let the Big Three fail, and in the process break the UAW labor monopoly, and then let Toyota, Honda (HMC) and Volkswagen (VLKAY) take over the U.S. auto industry, and restore realistic, competitive, market wages to the industry. It might be the best long-run solution.

The reality is more losses now. More charges today. Investors should stop living in " hope " for profits years away.

General Motors is planning to cut thousands of white-collar jobs and is considering whether it should sell or stop production of more of its brands, The Wall Street Journal said July 7th, citing people familiar with the matter.

Both moves are part of a broader re-evaluation of the company's strategy and of its ability to meet an internal projection of returning to profitability in 2010, the people told the paper.

The job cuts are likely to be approved when GM's board of directors meets in early August, the people said. The reductions would be in addition to earlier announced cuts.

Management may also present the board with options for raising additional cash, they told the paper

The 300 bankers gathered at New York's Waldorf-Astoria Hotel last month faced a stark choice: Accept Sam Ramsey's plea to restructure $60 billion of GMAC LLC's debt or risk pushing the lending arm of General Motors Corp., the largest U.S. automaker, to the brink of insolvency.

``There was not room for slippage, said Ramsey, 49, a former Bank of America Corp. executive who joined Detroit-based GMAC in September and became chief risk officer two months later. He pulled it off as banks led by New York-based JPMorgan Chase & Co. and Citigroup Inc. provided GMAC and its Residential Capital LLC mortgage unit with the biggest restructuring package since the credit-market rout began a year ago.

Whether that's enough to ride out the worst housing slump since the Great Depression remains in doubt. Moody's Investors Service cut GMAC's credit rating one level to six rankings below investment-grade last week as ResCap burns through cash after losing $5.3 billion in the past six quarters.

``ResCap presents a very significant risk, said Mark Wasden, the lead GMAC analyst at Moody's. ``There is no easy exit from their difficulties right now. We think the company will yet again find itself in need of additional cash.

The labor cost of the UAW per hour is approximately $73.00 per hour, while the same hourly cost for US produced Honda, Toyota, Nissan are in the range of $43.00 to $48.00 per hour. The average cost of an IBEW Electrician that has gone through 5 years of apprenticeship is $48.00 with all hourly costs, pension, insurance, health and welfare. Being a union member for 42 years in the IBEW leads me to believe the UAW has got to make some large labor concessions or sit on the side lines while some other auto maker picks up the slack. It has happened in other industries like the steel producers, look what happened to them. The original steel companies (less USS) are all gone. Now Arcelor Mittal is the worlds larges producer and they aren't American. Do you now agree the UAW needs to cut their hourly costs? That $73.00 per hour includes providing the pensions and health insurance for the retirees. The foreign workers either don't have many retirees or do not provide the benefits for their workers. Those same retirees provided GM with many billions of profit during the time those benefits were secured by the union contracts. If GM cuts those benefits - those pensions will be paid by the taxpayers also through the pension garantee fund.

Ford Motor Co. and General Motors Corp's financial arms may need to write down $1.1 billion and $1.5 billion, respectively, said a Lehman Brothers analyst, who expects U.S. auto credit to be pressured by a weakening used-car market.

The weakening used-vehicle market creates a growing problem for the financial arms of GM and Ford as residual values of lease vehicles are likely to be significantly lower than originally expected, analyst Brian Johnson said.

"This is especially true for traditional trucks, which have been disproportionately hurt by the accelerating mix shift towards more fuel-efficient cars," Johnson said.

Surging oil prices are driving the U.S. auto market to near-decade lows and forcing Americans to avoid trucks and sport utility vehicles in favor of more fuel-efficient cars.

Unless they ca lower their average hourly wages to a competitive level with the the other autmakers and restructure the Pension Fund into a more reasonable program, I don't see how they will survive, even if they come out with a car that runs on air. A.E.S.

The shrinking of GM and Chrysler are inevitable; the only questions are how long it takes and how much it will cost. President Obama will help himself, taxpayers and the economy if he forces the hard decisions as soon as possible, well before the next election and while he can still blame the last Administration. Bankruptcy increasingly looks like the least painful choice.

~Wall Street Journal

As GM continue to cut jobs at the working level.They are forgetting the simple rule, the guys on the bottom buys cars. It is the excutive that need to take the hit. GM needs to change the way they do business in General, the old way doesn't work. For example: GM still give out company cars, Because with Company cars, the person driving never has to reach in there own pocket to pay for the gasilone or insurance to run those vehiles. This caused the slow reaction of the excutive and managers making the dicisions never saw the in there minds the gas prices increaing. so they didn't understand the need to make better mileage vehicles. In turn let Honda, Toyota pass them buy.

GM is seeking federal aid to avoid collapse as a result of slowing auto sales and a weakening US economy. On Nov 7, 2008, the company reported a $4.2 billion third-quarter operating loss. Its available cash fell to $16.2 billion on Sept 30 from $21 billion at the end of June. Merger talks with Chrysler were suspended.

In testimony to Congress given in late 2008, CEO's of GM, Ford, and Chrysler each submitted and explained bailout requests from the Federal Government. GM reported that it will have to cease operations unless it gets $4 billion immediately, and $18 billion in longer term financing.^[1] Chrysler is in a similarly dire state, claiming to need $7 billion before year end. Ford appears to be in a relatively better position, claiming that it will not need to draw on government support unless business conditions deteriorate rapidly.^[2] Nevertheless, Ford is still requesting $9 billion in loan guarantees as a hedge.^[3] Even excluding strong foreign competitors, GM's financial position seems worse than Ford and Chrysler.

Similarly, during November 2008 GM's sales fell a whopping 41%, while Ford's sales fell 31%, Toyota's dropped 34%, Honda's 32%, Chrysler's declined 47%, and Nissan's 42%. ^[4]

In a note sent to investors Friday, June 20th, JPMorgan analyst Himanshu Patel blamed the loss on falling residual values for leased pickups and SUVs.

High gasoline prices have caused pickup and SUV values to tumble during the past year. Patel said they dropped 16 percent to 18 percent from May 2007 to May 2008.

Ford will have $1 billion in lease depreciation costs, and GM will have $600 million because it shares risk with its GMAC financial arm, Patel predicted.

He wrote that the price pressure on used pickups and SUVs has been aggravated by "generally more affluent customers' ability to `bail out' early." That further worsens the used vehicle market's supply and demand imbalance

Toyota, Honda and BMW have proven that Unions are no longer needed in the automotive industry. There is a valid reason that only 12% of the workforce in the U.S. is union. I was a labor relations mgr for a large tractor trailer mfg and when the sales declined the one union shop was the first to close, the other locations which were non-unon and much better performing were left open. The years of glutten spending and mediocre cars compared to the japanse and german brands have caught up to GM and Chrylser. File for bankruptcy, reorganize get rid of the unions and learn from the japanese and germans on how to make good cars and run your business efficiently. The dumb americans back in the 50's did not take seriously the teachings of Dr. Edward Demming and no they are paying the price. The japanes did and now Toyota is the top selling car in the U.S.

People have many brands of automobiles to choose from now, as compared 30 years ago. People will buy base on price, not brand. If GM or any auto brand can't complete based on out the door price with other brand, for what ever reason they will go out of business. The auto company with the lowest cost will win in the long run. I don't believe they will be able to get their labor cost and other expenses low enough to be competitive. And just like the wagon building companies of another decade, american big three are doomed to extinction.

gm unable to lower costs to the chinese

Until GM gets rid of the UAW, they will continue to have high labor cost. They will never compete with Toyota factories in the USA.

GM carries more debit on it's balance sheet than assets. It should have been placed under chapter 11 four years ago instead of allowing continuing and deepening losses.

Only innovative companies can survive with the US's cost disadvantages compared to Asia. The US auto industry as it currently managed doesn't qualify and will die.

Now comes Wagoner's ouster, the CEO of GM. I have to admit, this caught me off guard for the speed and decisiveness of the government's intervention into the automakers. It wasn't too long ago when Mr.Wagoner stepped out of the Chevy Volt for that great photo opportunity after receiving much criticism for taking the private jet to the government hearings.

Chrysler's hand is also being forced to strike a deal with Italian auto maker Fiat. This could mean several things from restructuring, bankruptcy, to GM bond holders getting screwed. This is a pretty big mess that will cast some uncertainty in the markets. Time to take a step back and watch, or should I say digest.

GM has too many brands. Duplicate, largely undifferentiated offerings (e.g. Chevy Truck & GMC) increase costs and complexity (e.g. Coordination between divisions) while diluting product development budgets and market/brand development efforts. A good example of the effects of dilution would be to compare the last 8-10 years product development of GM with Hyundai.

State franchise laws also have a big part in the equation as, absent bankruptcy, GM is effectively locked into dealer franchise agreements. This results in "strategies" like selling Saturn/Saab who bring brand distinction to GM while keeping Buick/Pontiac/GMC Truck.

Twenty years ago, GM may have been a position to engineer a differentiated brand strategy for North America, but today, the issue is survival. Their continued failure to recognize that viability demands focus on Chevrolet and Cadillac suggests that it's time to bail.

In it's present form, GM products too many different name plates. It needs to either sell off or drop at least 2 car brands. GMC and Pontiac are the 2 most often discussed. The GMC brand offers low mileage trucks and SUVs. The Chevi brand offers most of the same models --why duplicate administrative staffs, marketing groups, etc. Pontiac, for the most part, offers models that under perform competition. Don't sell in the target markets. Again a brand that has outlived it's relevance in today's market.

Lets face it. If GM wants to survive as a car maker it will have to wake and smell the roses. The automotive business has changed and will continue to change as China, India, and whomever, brings product to the market.

By allowing companies like GM that cannot fulfill their “contracted” obligations, to continue to exist, is a crime to the flow and freedom of the market and in turn, a slap in the face to the American people. Companies go out of business and new businesses begin everyday. It is part of the natural cycle of capitalism and the free market. However, capitalism, while allowing greed to manifest, is always tempered with fear. Fear of failure. Fear, that something must be done, BEFORE it’s too late. Fear of having capital to pay employees well before bankruptcy is even uttered. In short, fear that contractual obligations will not be met. By bailing out these failures, we hinder the market from its natural correction. Jobs are at stake during bankruptcies, but we must all understand that while our nation changes, jobs that existed in particular sectors may no longer be needed. Jobs will always be created in new sectors, this concept holds true in any economy. The auto industry is a good illustration. While there are productive and successful aspects of the autos, much of them exist as dead weight, exhausting valuable resources in our economy. Why not liquidate these aspects and resources being misallocated? Again, I understand this will lead to rising unemployment while the transition is made, but unemployment is rising anyway. By not giving up on these sectors, we stifle economic growth.

GM and Chrysler are having trouble because they cannot meet their obligations. This leads to less people (again, the market) willing to “deal” with GM and Chrysler. The buyer has spoken and has deemed much of what these two have to offer as not worthy of their investment. When GM and Chrysler lose a buyer, they go elsewhere, forcing the autos to reevaluate the options they’re giving to their consumer/buyer. This is the natural fear a business faces when dealing in a proper market. To reiterate, if this fear does not exist, why would the autos decide to change its ways now? Why give them more resources to squander on behalf of the American people?

GM has known since the mid 1970s [when Toyota and Datsun entered their market ] that they had fundamentally failed business model .Instead of hiring the compititions brain trust [like Pro Sports teamsoffer money to get thier compititions best athletes , they stuck with their failed CRONI-istic approach,i.e. protecting eachother [fellow employees] and slowly selling off pieces of GM for cash flow as their market share ,little by little ,SANK. But you have here now , is an old whore in a new dress

China continues to increase its industrial capacity and know how. It has trillions of dollars to invest and a cheap labor pool to deliver low cost vehicles. GM will become irrelevant in Asia.

GMs promise of an affordable hybrid electric car with the Volt is a dream. They can't sell it for under $40,000 and their target was $20,000.

The Obama administration's recent announcement supporting California's application to be able to set its own emission standards that are stricter than federal standards shows an earnest seriousness about climate change. While certainly a serious issue, if fears over climate change cause the Obama administration to make any bailout funding for GM conditional on GM meeting certain fuel efficiency or other environmental standards (thereby making the bailout a tool for environmental policy), GM could be forced into making cars which US consumers do not desire while at the same time sacrificing the production of larger high-profit-margin vehicles. In other words, federal government bailout funding could be paradoxically used for certain environmental goals that are prejudicial to GM's future profitability.

GM has consistently lost market share to the Japanese for 40 years. They have been in the midst of a turnaround since 1980. GM's problems are not because of the poor economy, it's because of mis-management. Nothing has really changed except the poor calls make 5-10 years ago have finally come home to roost.

A simple fact that the UAW has sent the automakers skidding into the a ditch that they may never be pulled out of. The sad part is that The Automakers have seen it coming for years and have not had the lugnuts to make a change. Where will the UAW be when the automakers finally fall. Sad that thier members can't or could not see it coming. Now they will be out looking for a $10.00 per hour job just to make end meet when concessions 5 years ago could have saved their jobs today.

This is the steel industry all over again. Those who don't learn from history are doomed to repeat it. The blame is shared, the unions demanded and threatened to strike if they didn't get it. Management decided it wasn't cost effective to take a strike and gave in. By the time the union realized the reality of the market, it was too late. You can spend days arguing who gets the most blame, but what good will it do? Both looked at the short-term and lost sight of the long-term.

Now the UAW stands to be in a significant ownership position with GM (and Chrysler/Fiat). In my opinion, they are too late. Too many people are offended by the history of the excesses of management and the UAW. The excesses of management get more publicity, but the UAW has their own retreat/resort called Black Lake (highlighted in the March/April Solidarity publication on the UAW website - "Scholarship Program" if you're interested). As "owners" it will be interesting to see if they continue to pay for their employees' vacations; time, lodging and meals. Most businesses don't do that, not even once in a career. The Detroit/UAW 2.5 have probably burned their bridge and may never again see the prosperity they enjoyed and squandered. The US consumer is too diverse and too globally astute to be swayed by a "buy American", let alone a "buy union" campaign. There are very good vehicles made in the US that don't carry the history of the Detroit/UAW 2.5 and are made by thousands of non-union workers living a middle class lifestyles. It gets tough for people outside the Detroit/UAW 2.5 to want to continue to support them. I wish the Detroit/UAW 2.5 the best of luck, but I don't see myself investing any more of my disposable income with them. They have already "hijacked" some of my money through the government and help force the government to spend some of my kids' money. I will be more interested, in the future, to support those companies/unions that haven't held me hostage at my expense.

UAW financial coercion destroyed GM and Chrysler. Ron Gettelfinger went to Capitol hill for one reason - get cash to keep the bloated UAW retirees from having to live like the rest of America. UAW retirees account for 1 out of every 5 dollars GM spends. Time to let the pension go belly-up. Thank God foreign auto makers refuse to let the UAW thugs dictate business. I am proud to say no one in my family of 6 has bought an American-made car in the last 8 years. Unions have been and still are the cancer sucking the life out of American taxpayers pockets.

Warren Buffett believes their chances are good. BYD sells electric cars in China and in October became the bestselling vehicle in China, surpassing Toyota Corolla and Volkswagen Jetta. With companies such as BYD emerging GM has very little chance of surviving.

Although CEO Rich Wagoner said GM has enough cash to continue operating through the end of 2008, GM will need to raise more cash to continue operations through 2009 and beyond, as it is not expected to return to profitability for some time. This could mean a reduction in the dividend, issuance of new stock which will dilute the value of current shares, or loans backed by GM's facilities in North America. All three alternatives would likely make GM's shares less attractive.

GM is ending a seven-week experiment to sell new cars on eBay. It was reported that it did not increase any sales but in fact allowed shopper to offer low-ball prices. GM declined to say how many cars were sold under the heavily advertised program, although GM said the number of sales directly connected to the effort was small.

Reference

"GM, eBay End Online Sales Effort" Article from Wall Street Journal

The demand for any product is determined by buyer choice. GM had not made a product that was sufficiently attractive to buyers and lost ground consistently against its competitors. As to the cost to make the product, GM management, its workers and its suppliers all agreed on prices and contracts in the past without looking at the future. Both the management and the work force are responsible for their current predicament.

The #1 reason GM is failing is because they have been designing and building poor quality cars, and cars that the public doesn't want.

The comment that the steel industry went under due to labor costs is a joke. Japan subsidized its companies to sell below thier cost! How can anyone compete with that? Our people could have worked for free and it still couldn't match the lower japanese steel costs. If unionized labor goes away, so do benefits in the non-union workforce because that's where they came from.

When you compare Jap. and German costs, you are forgetting some very important differences. First, their factories at home are all newly built from American help after World War II. Second, these countries have national health care and provide retirement benefits to their citizens. This dramatically reduces their overall labor costs. This allows them to ship parts from home without paying tariffs. Wake up people! Let us also not forget that in these countries the difference between the highest and lowest worker is on average 22 times. All American workers should work for $1 dollar an hour so our CEO's don't have to spend so much of their hard earned money when they go to buy things.

GM has too much debt and too many expenses for the near future. Now they are going to raise cash by offering billions of stocks effectively lowering the stock price too pennies. If this raises enough cash to free them of debt GM will not file bankruptcy, and if so will be a great investment. If it does not then they will file and possibly there will be a corporate fire sale of the century with a totally different GM as a result. They won't disappear either way you can bet on that. GM is here to stay!

The company has struggle for years to produce autos that the public has rejected, american manufacturers have produced junk for years since WW II. By constantly reducing the labor content, their quality, has suffered, and their many level of management is to costly Publish managements cost to their price passed on the customer against other manufactures. You will discover MANANAGEMENTS BIG LIE.

What a mess to think that GM was the biggest car maker in the in the U.S.A.and today they all-most rank dead last. What has happend to the american consumer that they have lost confidence in their on american made products.were is that emerican pride of yester years,the 20s,30s,40s,50s etc Think, is bankruptcy the only way out I believe that there has to be a way out of this mess . The U.A.W. and G.M.must do all they can to end this mess and we the the public the Americans must stand behind them. God bless America and the U.S.A.

We are very stupid in this country. Our health care system is a mess. GM and the union can't be blamed for the cost of health care. Our country will soon be owned by foreigners. Japan (Toyota), China (Walmart) and the Arabs ( oil ). We sold our souls for a few bucks. Unions are a necessary evil in the auto industry. Anyone who has worked in a auto plant will agree. Are they perfect? Not even close, but a lousy union is better than no union. I truly feel sorry for our next generation, they will be working at micky'dees or walmart for $5.50 per our. We produce NOTHING in this country anymore. It's a sad time.

FOR YEARS GM HAS LED THE AUTO INDUSTRY IN DESIGN,QUALITY,DEALER BODY,AND PROFITS.HOWEVER,THEY HAVE LOST MARKET SHARE ALMOST EVERY YEAR SINCE THE LATE 80'S.WHY IS THIS? I AM POSITIVE THAT THIS DECAY IS DO TO "BEAN COUNTERS"NOT CAR PEOPLE RUNNING THIS CORPORATION.DO THE MATH.I KNOW EVERY ONE SAYS THE IMPORTS ARE KILLING THEM.REAL CAR PEOPLE WOULD HAVE LEARNED EARLY ON WHY THE IMPORTS WERE SUCCESSFUL AND WOULD HAVE APPLIED THESE TOOLS TO THEIR BENEFIT.

The largest supplier of vehicles to the United States Government is General Motors. From the Humvee to pick-ups and SUVs, GM reigns supreme. With the demise of the Ford Crown Victoria, Dodge products are the only other vehicles taken seriously by law enforcement.

CIBC World Markets said in a report Thursday , June 26 that gas prices in the U.S. will hit US$7 a gallon - - two summers from now. That marks a 70 per cent increase over today's record levels.

As a result, there will be about 10 million fewer vehicles on U.S. roads by 2012 and average kilometres driven will drop 15 per cent, the report said.

"Over the next four years we are likely to witness the greatest mass exodus of vehicles off America's highways in history," chief economist Jeff Rubin wrote.

The meteoric rise in crude oil prices, which hit a record US$140 a barrel on the New York Mercantile Exchange Thursday, has been a major factor in soaring pump prices. CIBC predicts crude will hit $200 a barrel by 2010.