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Comments
Exactly - I was thinking the same thing watching these guys on C-SPAN as well as reading their restructure plans. The plan is really a C11 plan, except they aren't calling it C11 and the government is keeping them afloat with our money. But not to worry, the grandchildren and their children can repay it.
Something ain't adding up here!
Not really when you think about it. I'm sure the $20K includes, not only the cost of the batteries, but the labor and resources involved in ordering the batteries, the 2 or 3 union guys to unload the batteries from the truck, and then the 2 or 3 additonal union guys it takes to actually change the battery, and even more if the clocks are high enough to require ladders. That would require at least 2 more union guys to hold the ladder.
:shades:
Except this is one of the few profit centers their dealers have any more and it is also a way for tehir dealers to get people into their showrooms.
Contracting out is effective if you are inefficient or lack expertise in an area. Otherwise you have to be careful of the "buy-in" that leads to much higher costs down the road after you've disolved your in house expertise and capability. Most companies aren't all that different and when you add on profit it is difficult to really save money long term on the contracted out labor. In high fixed cost areas you may still come out ahead though because you can reduce capital expenditures.
If I were to start a car company, I would not have dealers and their service centers. There would be no dealer builders, no owners to make profit, no sales people, no carrying costs for inventory. The factory would make to order, ship directly to the customer and the paperwork done electronically. I would contract with Sears or some other national repair center, and have them provide warranty work, at a discounted rate. My company would save all those costs and incur just the labor and parts for warranty repairs.
My only costs would be the factory, the non-union labor with no legacy pension costs, and the parts.
Yeeeshhh!!! Are you nuts? Pep Boys? These are 3rd-rate mechanics that flunked out of technical school!!!! I wouldn't trust them with my hooptie let alone a sophisticated modern luxury car!!! :sick:
A 10 minute (or whatever your sales person is willing to go for) test-drive, really isn't a good test-drive. In order to have vehicles for people to touch and drive around the country is fairly simple. Put the vehicles in the rental fleet. Let people drive the vehicle 24 hours. If you place an order, you're rental charge is free of course. Between that and the automobile magazines people have enough information without dealers.
I think many people would be happy not to go to a dealer. And they'd be happy to pay a set-price, not always questioning that someone else got a better deal, or the dealer the next town over was the place to go, or should they wait until the next round of rebates. I wouldn't jerk customers around like that. What GM does now with their $25K MSRP and then the dealer discount and then the rebate, to get to $20K, I would eliminate. I would just say cars like this are selling for $20K; I don't have dealer costs, I don't have union wages, and I don't have legacy costs. I'm going to price my vehicle at $16K everyday.
GM and Chrysler are still selling cars like they did decades ago.
As I said before GM's worst-case scenario, was simply a high number they picked, as it makes it easier to prove "viability" to the government. It's nothing more than their continued unsubstantiated optimism that they won't need more handouts.
http://www.usatoday.com/money/autos/2009-02-18-new-car-truck-sales-sink_N.htm
GM's plan should be for a market of 8-8.5M vehicles this year, and no more than 9M next year. They need to size themselves (at normal operations) for that NOW, not 4 months from now; certainly not wait until next year. If the market is slightly better they can work a little OT.
I like reality, the real world, the truth, honesty. What happened to thest traits in corporate America? Do the big Ivy League schools back east not teach Ethics like the schools out west (or at least the one I went to)
In GM's case, everything was built on a house of cards of arrogance and greed by the corporation. Short term profits were KING.
It's interesting the some still do not understand that the business model was broken a long time ago. Blame the consumers and the economy if one sees fit. The truth always hurts when they are not aware of the true reality.
Regards,
OW
The financial crisis explained in simple terms.............................
Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around and as a result increasing numbers of customers flood into Heidi's bar.
Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit.
He sees no reason for undue concern since he has the debts of the alcoholics as collateral.
At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.
One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar.
However they cannot pay back the debts.
Heidi cannot fulfill her loan obligations and claims bankruptcy.
DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.
The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.
The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.
The funds required for this purpose are obtained by a tax levied on the non-drinkers.
Finally an explanation I understand...
The funds required for this purpose are obtained by a tax levied on the non-drinkers.
Finally an explanation I understand...
My gawd that's a close parallel to what's being done. Except GM doesn't make any German cars.
That's a good post.
2014 Malibu 2LT, 2015 Cruze 2LT,
It is a good post, but what about Opel???
You'll like this too (small reference to Detroit included)
http://www.youtube.com/watch?v=bEZB4taSEoA
Regards,
OW
I would rather spend my hard earned money on a Honda Accord, assembled in Ohio, than one of the D3 assembled in Mexico or Brazil.
The data from the last 30 years shows that less and less people held this view. The B3 had the market locked up 40 years ago, and then thru a combination of high costs, poor quality, and bad product mix, lost their market.
I'm kinda sad that we don't have leaders like Ronald Reagan or Gen. George Patton to kick some butt right now, jail or hang the thieves, and tell everyone to stop being a baby looking for a government bailout. Maybe if our society turns socialist enough, we'll end up with a Joseph Stalin, who though he killed 30 million people, he was rather effective.
I find myself wondering if Regan would have denied them...or any other politician these days, given how married they are to campaign contributions.
Where's Ross Perot when you need him?
The cover page of Chrysler's restructuring plan, submitted along with GM's late Tuesday, tells you all you really need to know about these 100-page-plus tomes. Replete with pictures of World War II Army Jeeps, dead men in starched collars -- and the now-obligatory "hybrid" logo and plug-in car -- the first page declares that Chrysler "is the Quintessential American Auto Company."
None of that has anything to do with whether it has a viable business model or cost structure now. Consider: Chrysler's plan, which runs to 177 pages, cuts 100,000 cars out of its 2.5 million-car capacity. And this for a company that currently sells one million cars a year. It is, in other words, a political document more than a financial plan.
The Opinion Journal Widget
Meanwhile, the companies' "downside" scenarios from late last year have become this year's reality, with auto sales running at an annual pace of 9.8 million for the entire industry in January. GM insists that its plan will allow it to be profitable on an "adjusted" cash-flow basis "at industry sales rates of 12.5-13.0 million units." This assumes GM can maintain its market share when sales eventually pick back up, even though it has been bleeding share for the better part of three decades. While every auto maker has suffered from the 40% or so decline in sales, GM and Chrysler have been among the worst affected, with Chrysler's unit sales falling 55% year-over-year in January and GM's dropping by 49%.
At the same time, GM's funding needs are growing even faster than its market share is shrinking. Its latest plan foresees a total of $30 billion in government loans before it reaches its projected break-even point -- this for a company that, by its own reckoning, has a "net present value" in the range of $5 billion to $14 billion and market capitalization of only $1.25 billion. That $30 billion request doesn't include the possibility of pension-fund contributions over the next few years. It also assumes that additional aid will be forthcoming from European governments where the company has plants -- a possibility those governments view with dread.
GM posits this $30 billion against what it says would be a $100 billion tab for bankruptcy financing, a figure calculated to frighten the Obama Administration into doubling down on the $13.4 billion already lent to GM in December. Predictably, however, the latest plans defer most of the hardest decisions about labor costs and retiree benefits. The United Auto Workers are right to look askance at retiree benefit contributions made in company stock at a time when it isn't clear that the stock is worth much anyway. Likewise for bondholders, who are being asked to agree to a debt-for-equity swap to cut GM's debt load by two-thirds.
The Obama Administration, meanwhile, has junked the idea of a car czar, perhaps because there's no one willing to live that political nightmare. That alone should tell the Administration something. As long as this remains a political workout instead of a financial one, GM, Chrysler and the UAW will continue to postpone the hard choices. Only bankruptcy, painful as it may be, offers the tools and legal authority needed to force all stakeholders to change the habits that brought the companies to this ebb.
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.
Pay me now or pay me later, you need to pay me!
Regards,
OW
So we are looking at all the same issues, but with the added fact that these are FOREIGN companies coming to us to bail them out. And we will probably go along with it, based on the same reasonings. However, some people have brought up an interesting twist:
History:
Canada used to have more protectionist legislation than today. The Free Trade Agreements got rid of most of it, and there were a lot of economic effects. One thing that I feel has gone badly is the closing up of Canadian branch companies. There is no more GM Canada or Ford Canada or Chrysler Canada. These were legally free-standing companies, tied to the parents through contracts and limited to 49% foreign ownership. Some people felt these were just a "joke" because the decisions they made were all still pretty much rubber stamping of Detroit corporate policies. I will not bother with my opinion about that topic.
Some people feel that a condition for GM in particular (and the others if they are getting these loans from our governments) should be that GM Canada should be re-established as a free standing corporate entity (and likewise for the other companies).
I agree. Actually, the irony is that it could be a good thing for the companies because the Canadian branches right now should be a bit more "viable" and thus able to raise capital through sales of shares.
Saab will probably get a new owner. If any of the D3 do the same in the US, then any investor can fund a new concern. That could happen in Canada also. You never know.
Regards,
OW
GM News, New Models and Market Share is alive and well (ok, the discussion is at least).
I think the only reason President Obama hasn't slammed the door on GM and Chrysler is the potential job loss. January was bad enough. The bleeding slowed a bit this month but we still have 8 days left. A collapse of GM would mean a loss of about 200,000 jobs including the suppliers. Yes, someone would come buy a bankrupt GM but.....
If I were to re-create a "GM Canada" right now, I might do put something like this together:
Name it something like "The GM Canada - McLaughlin Motor Company". I am not certain about the spelling, but this was the original company in Canada that basically was the start of GM. Buick was there at the beginning, and was already merging and buying, but McLaughlin was one of the first. GM almost started as a multi-national company. You could throw in the Saturn division, because Canada has always been more open to European cars than the US, and right now, Saturn is the badge for Opel. Also, you could throw in Oldsmobile. The Chevy dealers in Canada were always teamed with Oldsmobile, so all the dealers could be Olds dealers or "GM Canada - McLaughlin" dealers.
All the current Canadian factories would come with it -- including current CAW workers under continued/restructured contracts.
Technology and marketing contracts would be written up, possibly with Board of Director seat rights.
The Canadian loan benefits and obligations would be limited to the new Canadian based corporations. As a Canadian taxpayer, that gives me some assurance that my Canadian tax money would not be siphoned off to pay down US debts.
If I think about this some more, I might see other aspects too, but this much would be a good starting point. This is very complicated. Again, that is why it should be done now and not later. Trying to do this sort of thing under a court order is not realistic.
It did him no good. The folks in the Auto Industry that kept their jobs a little longer still bad mouth him. I say let em go. We cannot print enough green backs to keep GM alive. The car companies that survive on their own will be stronger and more likely to make a decent profit.
Profit = Sale Price - Car Cost
Not sure that throwing more money at a car company is going to alter equation #1 enough to provide a positive number for equation #2 without the drastic restructuring that perhaps only a bankruptcy proceeding can provide.
I'd much rather spend money helping the US automakers rearrange their cost structure and remain viable in this country than pour money into political messes of the urban cities with their gross corruption and inefficiencies. Hence the meeting of mayors in DC during the last couple of days. Follow the tax money; this will make ACORN look like chump change and corruptive power.
I'm amazed at all the questioning over small amounts of money going to the automakers after what has been done to them through the decades. That's small compared to $275 B to the housing rearrangement announced this week. That's small compared to $890 ($1.3 trillion with interest) a couple weeks ago. That's small compared to the new TARP and the old TARP. And there's more spend of money to come. So GM wants 4 more Billion? :confuse:
BO established Office of Urban Affairs
2014 Malibu 2LT, 2015 Cruze 2LT,
No. GM wants far more than $4B; that's only to get them until 3/31. The problem is the precedent that sets. GM is only 1 of many companies in the economy. Many of the companies in the economy are losing money and laying people off. If you want to be fair then the government should bail out every company that loses money, or is going to have a layoff.
If GM is entitled to $4B every 2 months then why not Dell, HP P&G, IBM, Dow Chemical, Dupont, Pfizer, GE, AT&T, Walmart...? Why would it be fair to support the stock of people who invested in GM, and let others lose money?
I say a resounding NO. All the companies in the U.S. should play by the same set of rules. All companies can and have failed over time. GM is no different. If GM fails it will be replaced by a more efficient and better company.
Chrysler should no more receive a bailout from the taxpayer, than they should bailout Donald Trump if his businesses lose money. Cerberus can sell some of its businesses or investments, and put that money towards keeping Chrysler going. Or Cerberus can sell Chrysler. If Chrysler has no value, and they keep losing $, then they can talk to me. Giving it away must be better than losing $ each month. I'll take it off their hands.
"All in favor, say: I"
Ay!
Regards,
OW
Stop the bleeding first, make drastic decisions and then implement them....NOW.
Regards,
OW
It's Revolutionary War time.
Regards,
OW
I don't think we need to have a GM or Chrysler to make me feel "American". I'm 41, my view of these companies is not positive at all. I see no innovation, I don't see ingenuitiy. I see incompetence in their management. I see arrogance and entitlement in the UAW. I have little sympathy for either right now.
To you it's $4B. The realty is GM needs about $70B to get from under their current debt. The company's stock is only worth about $4B as of Friday.That $4B gets them to March 31st when they will come begging for another $25B. And they still won't be profitable.
Private companies rely on investors for their capital (think stock market). Right now no one believes GM or Chrysler business models will succeed. This is why GM cannot restructure their debt. This is why Cerebus will not invest any more money in Chrysler. Cerebus is looking to dump Chrysler on anyone who is stupid....I mean willing to take it. If Chrysler gets another loan, it will be a matter of months before Fiat takes over the day to day operations of Chrysler.
The reality is GM is not a viable company. They need to act with more urgency and realize tht cuts need to happen now and not 2-3 years from now.
These are interesting times my friend.
Can Chapter 11 restructuring be performed without completely shutting things down?
2014 Malibu 2LT, 2015 Cruze 2LT,
Isn't that the whole idea of Chapt 11? To allow a company to operate WHILE it restructures? The banko airlines kept flying and (take note GM) people still kept buying tickets and getting on the planes.
But, can they abrogate their high-priced union rates and lower them as a part of Ch.11? Can they eliminate the required healthcare to union retirees and lower the payout retirement to them?
2014 Malibu 2LT, 2015 Cruze 2LT,
Absolutely. They can change things like that NOW. It's the way companies can become profitable again. Not keeping the old system by adding more funds over a long period of time at a loss. That is just insane. But since the taxpayers have to pay taxes, who cares?
not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.
Although G.M.’s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses.
Shareholders have already lost much of the equity that would disappear in a bankruptcy case. Shares of G.M. rose 16 cents Wednesday, to $3.08, but they have fallen 90.5 percent over the last 12 months, amid sharply lower auto sales and fears about G.M.’s future.
And as companies in industries like airlines, steel and retailing have shown, bankruptcy can offer a fresh start with a more competitive cost structure to preserve a future for the workers who remain.
Regards,
OW