Going down a Hybrid Tube

[tw]

Few if anyone saw it coming, in part, because their spread sheets are so complex and almost unreadable. But in 1991(?), General Motors was only hours away from total bankruptcy. Could it eventually happen? There are some very ominous clouds. For example, much of GMs profits once came from the financing of their cars. But to maintain sales of unspectacular products, GM has all but given away cars with 0% financing. IOW they made sales in years past by destroying future profits from that financing. It has to catchup with them.

Previously, GM uses about $1billion profits from Opel to mask their losses in North America. When Opel needed capital to redesign an aging product line, instead, GM said no. Now there are no massive profits from Opel. So where to suck money from to cover up losses on their product line?

GM recently announced many new models (as if many new design will solve a no spectaculor design problem) to revive their N American product line. But reviews have been mostly mediocre. IOW where are these monstrous profits to come from? 500 Hp Corvette? Not likely. Hybrids? GM still has none. In fact GM is again hyping Hydrogen as if it has any hope of being a new product. Simple engineering numbers say, "Give me a break".

from The Economist of 15 Jan 2005
David Cole, the respected head of the Center of Automotive Research, suggest that one of the "big three" American carmakers could go bust. Even after a year of strong vehicle sales, relentless price-cutting has sapped Detroit's profitability. Health care costs are mounting. Over capacity is growing. That Mr Cole, usually a Detroit booster (and son of a former GM president to boot), could evoke such a sombre scenario was chilling.

[xoxoxoBruce]

TW, did you type out that quote from the magazine rather than cut and paste from a site?
GM's been run my MBAs instead of "car guys" for a long time.....and it shows in their product line. That's why nobody wants them.

[tw]

From the NY Times on 11 Mar 2005 How Long Can G.M. Tread Water?

General Motors, which controlled nearly half the American market as recently as the late 1970's, held about one-quarter in February. Last week, the company said that it would produce 300,000 fewer cars and trucks in North America in the first half of this year, a 10 percent drop from a year ago.

Its European operations have lost money for five consecutive years and rising interest rates are expected to cool its lending division. With its shrinking profits dwarfed by those of Nissan and Toyota, G.M.'s debt is threatened with a downgrade to a junk bond rating, a move that could force it to pay more to borrow money.

Always pay attention to comments from Mary Ann Keller, formally of the Wall Street Journal.

"they're careening from one mess to another," adding, "the only thing that could make things better is a major restructuring."

History of American business means bankruptcy or the immenent threat thereof is the only way to save such companies. Previous examples include both Chrysler and New York City. Article also provides this chart with further information concerning this chart:

[SteveDallas]

My parents have practically never owned anything but a GM product. Never understood it since I've been old enough to drive--with the possible exception of a Geo Prizm, I haven't driven anything of GM's that I'd consider buying.

[Griff]

I've had the same experience as SD. My folks only drove Chevys and haven't had an interesting car since the Corvair (although some might call the Citation experiment interesting). I haven't owned a one. I suppose if they put a hybrid engine in an S-10 4x4 I might think about it.

[xoxoxoBruce]

Corvettes are still a good buy if your one of the few in that market. The Chevy SSR gives me a major boner but that's still expensive and unproven quality.
Cadillac has made some major improvments this year but there again expensive and unproven reliability.
That's it for GM.....no wait..there's an Aussie car they based the GTO on that is pretty cool....but you can't get 'em here.

There was a time when Chevy was safe to buy. Won't be the best, won't be the worst, but it won't totally screw you. With the price of cars and how dependent we are on them, you just can't "give it a shot and see how it works out" anymore. Too much at stake.

[BrianR]

Gee, and me with the intention of buying an Avalanche next year too. Guess I need to do more consumer research first.

[xoxoxoBruce]

The Avalanche has one good option, you can order it without all the plastic trash hanging on the outside that makes it look like an oversized Nike sneaker. Or is it multi-purpose cross-training foot enclosure/protectorant?

[tw]

Its not just GM that is much worse than the spread sheets suggest. Delphi is the major parts supplier for GM products. GM is so dependant on Delphi - a GM spinoff - that the health of Delphi will impact GM.

From The Economist of 12 Mar 2005:
The pessimists were given reason to worry that things will get far worse when the world's biggest car-parts firm, Delphi, confessed last week that it had cooked its books. ... Visteon, formerly Ford's in-house supplier, lives on only thanks to a series of costly bail-outs by its former parent .... If Visteon survives, it will be because its size makes the disruptions its demise would cause too large for Ford to allow. ... Other suppliers to declare bankruptcy recently include Intermet, Venture Industries, and Oxford Automotive. As Detroit waits for the next domino to fall, it is becoming clear that this is a game that none of its local favorites can win.

GM had been cutting costs by demaning price concessions from their suppliers. They had been using future profits from their finance groups to maintain sales today (ie 0% financing). GM was using every sales incentive just to maintain market share - which they lost anyway. 25% of GM products are sold in sales incentives to employees and employees of their parts suppliers. Even the so profitable GM Europe that kept GM looking profitable so many years ago is losing money after GM refused to provide capital to redesign their European product line. Look under the sheets. Because GM has refused to innovate (as demonstrated by America's need for more oil), things are even worse than they appear on the bed cover.

On 16 Mar 2000, The Economist noted this deal:

GM was taking 20% of Fiat Auto, in exchange for 5% of its own equity, making the Italians GM’s biggest shareholder. In another world or another age, this might have been a full takeover (indeed, thanks to GM’s option to buy the rest of the firm between 2003 and 2008, it may yet become one). But Italian honour and the Agnellis’ pride had to be satisfied—hence the second-best solution of an alliance rather than a takeover. The two firms will form joint ventures for buying car parts, for making engines, gearboxes and transmissions and for car-purchase financing, in both Europe and Latin America. In a few years they will have a single chassis and power train, to underpin all their small cars. But they will not pool their assembly capacity and they will compete in every market except North America, where GM will help to sell Alfa Romeos. No European factory will close. In a region with 25% too much capacity, that eliminates a big chance for cutting costs.

GM just paid Fiat about $2billion to get out of this deal. Even the famous 1984 reorganization was a flop: from The Economist of 8 Oct 1998

So far GM’s reorganisations have tended to fall into two categories—catastrophic and ineffectual. The most catastrophic was the huge restructuring in 1984, which set off an ill-fated $80 billion spending-spree on technology, and also split its American division into two groups—BOC (officially “Buick-Oldsmobile-Cadillac”, unofficially “Big Overpriced Cars”) and CPC (“Chevrolet-Pontiac-Canada” or “Cheap Plastic Cars”). Most of the restructurings since then have been incremental.

What did that restructuring accomplish? Innovation that once came from independent divisions was now under the direct control of MBA dominated corporate bosses. In that same article, they also note:

GM’s shares have underperformed the stockmarket by around 70% in the past decade, continuing a dismal tradition. Even more staggeringly, all GM’s stockmarket value is accounted for by its financing operation (GMAC), its parts company (Delphi) and its 74% stake in Hughes Electronics. Other car firms also make money on financing and parts, but rarely do investors implicitly value the vehicle-making side as worthless, or even a liability. What GM’s shareholders are saying, in effect, is that they would pay you to take the world’s biggest industrial operation off their hands.

This is damning. But it is also a mark of GM’s potential. If GM could only make cars as well as its competitors, it would be worth twice what it is today.

So how anti-innovative has GM been? Between 1993 and 2000, the government provided GM with over $100million on the Partnership for a New Generation of Vehicles (PNGV). So where are the hybrid products from all that research and concept cars? GM could not bother to develop products from that research. The Japanese have the hybrids and are licensing the technology to American automakers.