http://money.cnn.com/2008/11/21/magazines/fortune/taylor_generalmotors.fortune/index.htm

DB9

I’m well versed in accounting – thanks anyway;-) We are talking about a major Corporation that has been Cash Flow negative for the better part of 4 years. GM is effectively a Health Care provider and Pension Fund that just happens to build autos on the side – Sad but True. How much damage due you think Bankruptcy will cause? The current scenario, if left on its own, will scare off the majority of potential customers. Thus, declare now and get it over with… and rebuild! If they give them money they will be back for more within a year. The warranty issues will have to be settled separately or transferred to a third party – see banking sector;-)

Shareholder equity has already been destroyed. Dealership network is too large. GM’s Exorbitant Legacy costs makes it worthless to a potential buyer; unless the Government assumes these obligations which brings us back to square one!

DB9

No bankruptcy will ever work for a car manufacturers. The warranties are simply too important to consumers.

Accounting Info – Don’t read if you don’t care about facts

Warranties are an expense that is set up like an Accounts Payable account, ie. a liability. When the manufacturer sells a car to a dealer, he immediately adds an entry to the Warranties liability account. This is an expected average cost per vehicle. Typically these expectations are correct, and if there is money left after warranties expire then they are removed as a liability. Each year, money is also removed from these accounts via a calculation similar to amortization and these amounts are expensed against profit.

The number one fear that customers will have is whether or not a car’s warranty will be honored. When AMC was going belly up, that was a major factor that caused their sales to plummet at the end and Chrysler was able to buy them rather cheaply (with a Government loan, BTW).

The bankruptcy court could allow a manufacturer to expunge the warranty liabilities. This would be very bad for consumers, but would help balance the bankrupted company’s balance sheet. Bankruptcy is not a pleasant thing for anyone involved. Trust me, I know about having customers file bankruptcy on me while owing lots of money.

A prepack won’t work. I’m talking full out Bankruptcy court. Yes, as I stated it will hurt; but, that’s the direction they are headed anyway. Might as well take the measures now. It can’t be saved – period – to far gone for that!

GM needs to radically restructure! The company is now facing a full blown liquidity crisis! Industry analysts have been warning about this for years! Well; it has arrived!

GM’s pension plans will be dumped on the federal Pension Benefit Guaranty Corp. Think of it as similar to the $1.5 TRILLION in banking sector obligations that the treasury has had to guarantee since January 2008 – and growing I might add. The old way is no longer tenable. Anyone who thinks otherwise; well, I’ll be nice, are not seeing the forest but for the trees.

The current economic mess (financial and Autos etc.) has been 20yrs in the making. Obama and crew can’t put the genie back in the bottle:-(

DB9

(1) New Saturn & GMC franchise:

Saturn: Aura (Opel Insignia – new Epsilon II platform), Astra (Opel Astra – new Delta II platform), Sky (currently Kappa platform switched to the new Alpha platform), Vue (new Theta platform), Outlook (Lambda platform), Mid/Large RWD sedan (Zeta platform or new Sigma II platform).

GMC: Acadia (Lambda platform), mid/small SUV(new Theta platform), GMT360 (envoy) cancelled, GMT900 platform – full-size trucks and SUVs

(2) New Chevrolet & Cadillac franchise:

Cadillac: CTS (Sigma II platform), STS & DTS replaced by one car on the Zeta or stretched Sigma II platform, XLR (second Y-platform), SRX (new Theta premium platform), Escalade (new Lambda premium platform).

Chevrolet: Traverse (Lambda platform), Equinox (new Theta platform), GMT360 (trailblazer) cancelled, GMT900 platform – full-size trucks and SUVs, HHR (new Delta II platform), Cruze (new Delta II platform), Malibu (new Epsilon II platform), Impala (Zeta or new Sigma II platform); if kept Fwd the cancelled 2010 Buick Lacrosse Epsilon II platform; if Zeta, new El Camino is added, Corvette (second Y-platform), Volt (new Delta II/E-flex platform), Aveo (currently Kalos platform (T250) switched to new Gamma 2 global subcompact platform).

All With the latest High Feature power trains.

DB9

Mitchell, Harly Earl and Duntov would be proud

DB9

P.S. “Any rigidity by an automobile manufacturer, no matter how large or how well established, is severely penalized in the market,” Alfred P. Sloan Jr.wrote in his 1965 memoir, My Years With General Motors.

Sorry Harly Earl r.i.p.

(1) Saturn, GMC (2) Chevrolet, Cadillac

Buick, Pontiac, Hummer and Saab (maybe a reprieve for Saab?) will cease to exist. ALL UNION CONTRACTS ABROGATED. Result; GM’s $2000 per vehicle cost disadvantage removed and will now pay same scale as domestically produced imports saving another $2Billion per year. Company now sized for operations at approximately 20% North American market share. Saturn will market the best of GM worldwide, e.g., Holden and Opel products.

Furthermore, Lutz stays and Wagoner gone. Camaro gone – after the first year — sales will slide – watch and see! The Volt; who cares, to expensive, and not much of a market for a plug in hybrid from any manufacturer – niche vehicle – that’s all they ever will be.

Drastic times call for drastic action! Time to do what should’ve been done long ago. It may turn out that bankruptcy is the way to save GM – yes it will hurt! If not you are looking at a Stage IV Cancer patient r.i.p.

DB9

p.s. posted twice

Regarding the dealer story, I live by, and have bought from, Major Chevy in LIC, NY
Bought a 95 Ford Probe (I was young and dumb once) as my first car.
And my nightmare, I mean love affair, with Ford began

The point is If the President of the franchise says I don’t know if GM will pay me what they owe, that is beyond significant, whether they end up paying him or not. It is a key indicator of everything that is wrong with GM. He said it to the press, and he meant it.

I always give the writer license to paint a picture with his words. That’s his job.
If you want to spin that as some bias, that’s up to you.
I think the content is much more valuable that your perception of the imagery used.
He was looking to show a window inside the mind of not one, but many New York dealers.
He did a great job of doing that.
That window is shut, and some nails are going in as we speak.
DrFill

That’s definitely a worthwhile read, and it does express the frustration that Chrysler/Jeep/Dodge, Pontiac and Chevrolet dealerships are facing. It’s a completely different story with Buick, Cadillac, Ford, Lincoln and Mercury. If you do some research on why Buick and Cadillac have such better quality than the lesser GM brands you’ll discover that it’s through incentives to the UAW to supply the best workers for the most profitable brands. Buicks have been right at the top of the heap for quality for years.

I am not arguing at all that GM needs to reorganize. Dropping Pontiac, Buick and GMC would be my first step. Moving those highly motivated UAW workers to Chevy plants would make a big difference. The problem for GM is that the UAW is such a powerful force that deleting three brands (and the corresponding production cuts) is nearly impossible. GM wants to kill Pontiac, otherwise why wouldn’t it create a new Firebird instead of spending money on the G8 ST?

The media article you quoted does show some interesting psychological issues concerning the media that I’ve railed against for quite a while. The reporter was setting a dismal background before even talking about product and business by pointing out the gravel parking lot. What is the significance of a gravel parking lot for the most successful used car dealership in the world? The significance to the story is nil, but the significance for prejudicing the reader before the subject matter is presented is real. Now, throw in the quote about the dealer saying he doubts he’ll get paid for the rebate on the SUV he sold. If GM says that the guy is scheduled to get paid in 2 weeks, what’s the significance? The guy can just as easily call GM to find out when he’ll get his money as the reporter did. What’s the point of bringing up this quote except to prejudice the reader? The whole point of this article had nothing to do with news; after all, what news was actually presented? The whole point of this article was to further erode consumer confidence, bringing us yet a little closer to disillusionment with our way of life to demand more change at all costs. Now, this would have been an appropriate topic and presentation for an editorial or online blog. The reporter could have personalized the report a bit more and could have been even more effective in getting their point across. Instead, the reporter chose to present this as a journalist report of fact instead of an opinion-laden editorial that it actually is.

There’s a difference between a government sponsored restructuring and a pre-packaged bankruptcy. You can do a massive restructuring without bankruptcy. Causing a bankruptcy to get out of a union contract does not solve the root problem which is that unions are anti-competitive and should not be forced on companies when there is a proof that doing so imposes a competitive disadvantage the threatens national security.

Change for the sake of change is not a good thing. Just because you don’t like something doesn’t mean it has to change. I’m sure the millions of people with their jobs in the balance would argue against change for the sake of change.

@LLLLL321

The constitution requires that government protect the people and the country. I didn’t touch on the national defense implications of the big 3 collapsing in my blog entry because I was trying to prevent information overload. The fact is that our military manufacturing capacity would be gutted without the big 3. It was the auto industry that saved the free world in WW2, and it’s just as important going forward.

@DrFill

Obama’s plan is not at all a solution. Any type of bankruptcy will be very bad, and don’t let the media’s Obama-ites fool you otherwise.

@murderedout

Replace that with commodities traders all over the world and you’re a lot closer. The funny thing is that the people who ran up the gas prices (not the oil companies, learn how commodities markets work) that killed our economy are now wallowing 70% losses on oil! This reinforces why we cannot let the big 3 fail, the ramifications are far reaching. Some markets are affected more quickly than others, but in the end they are all interconnected.

While many of your points are sound, you must admit that the status quo cannot be kept either. Something will have to give in this economy, like it or not. And while a ‘prepackaged bankruptcy’ may not be exactly right, the true solution involves some kind of compromise. Keep the vibrant parts of each alive and dump the underperforming assets on an accelerated time-line. Yes, job will be lost. That’s reality.

http://it.toolbox.com/blogs/paytonbyrd/the-economy-and-your-it-job-28417

“The strategy would enable GM to eliminate the union obligations that make it uncompetitive, say proponents.”

On the other end, the execs screw the little guys and undo their UAW contracts (if it is allowed). LLN, the bankruptcy court judge still has to rule on getting rid of the UAW contracts. It’s not like the suppliers and GM can agree on that alone in a prepack deal, so these “proponents” are hoping at best that GM can eliminate the union obligations. It’s not a sure thing and to report as such is misleading.

So they eliminate these obligations. How eloquent can Mr. Obama be that he can explain to the entitlement crowd the need for more concessions? How convinced will the consumer be that it is wise to buy a car built by a bunch of spolied children that just got their comeuppance?