Is GM finished?

I see Toyota posted another record $6.9 Billion loss for the January-March quarter, and a projected 14% loss of the year. (They lost almost twice as much as the made in the same quarter the year before)

Oh, and GM isn't finished.
 
3bodyproblem said:
I see Toyota posted another record $6.9 Billion loss for the January-March quarter, and a projected 14% loss of the year. (They lost almost twice as much as the made in the same quarter the year before)

Oh, and GM isn't finished.
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The real test is at the end of this month.
 
From what I've seen watching this lately:
GM, if it does enter bankruptcy, will enter Chapter 11. They will use this to sluff off the bondholders, shut down Pontiac, shut down or sell Saturn Hummer and Saab and probably drop a lot of their pension obligations. The result will be Chevrolet, Cadillac, Buick and (bafflingly to me) GMC as an extant but smaller company.
W/o bankruptcy, the result isn't much different.
 
I just felt the need to point out Toyota isn't doing so hot either. There were a lot of people who knew very little about the NA automotive sector making judgements they weren't qualified to make. I just found it strange in this forum of all places to see people making statements they couldn't support with real data. The fact is everyone is suffering and not because they couldn't make a good product, or weren't ahead of the game. Toyota is now offering the Prius below cost just to keep in the game. They can do so not because they have the best product, but because they know the Japanese government won't allow a vital part of the economy go under even if they start to lose more money.
 
In My Spare Time said:
From what I've seen watching this lately:
GM, if it does enter bankruptcy, will enter Chapter 11. They will use this to sluff off the bondholders, shut down Pontiac, shut down or sell Saturn Hummer and Saab and probably drop a lot of their pension obligations. The result will be Chevrolet, Cadillac, Buick and (bafflingly to me) GMC as an extant but smaller company.
W/o bankruptcy, the result isn't much different.
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Slight correction: They will use this to sluff off the bondholders shareholders.

Of course, if another rogue bankruptcy judge decides to abandon the law, as was done with Chrysler, they could just give the whole company to the UAW, which would be the ultimate kiss of death for GM.

;)
 
http://news.yahoo.com/s/ap/20090511/ap_on_bi_ge/us_gm_inevitable_bankruptcy

At this point it doesn't seem like much could stop a GM bankruptcy.

It is conceivable that a more realistic, tough approach by the Bush administration together with the money that they and the Obama administration have thrown away on this problem might have been enough.

But clearly just mindlessly throwing money at GM was not a success. In the end, I think the people who said that GM should just be allowed to enter bankruptcy have been vindicated. GM might be on the road to recovery by now if it had been forced into bankruptcy earlier.

But congratulations to the GM executives and union leaders that managed to suck 15 billion or so out of the government before they admitted the inevitable. The company and union executives managed to keep their gravy train rolling for a little while longer.
 
Just thinking said:
Many, many dealerships are now set to close.
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I think that's set to be closed.

I don't understand the relationship between dealerships & GM. I always assumed that the dealerships were independently owned franchises. But it seems that GM is doing the closing. I don't see how an independently owned franchise can be costing GM that much money. Obviously I am missing something. Can someone explain?
 
YoPopa said:
I think that's set to be closed.

I don't understand the relationship between dealerships & GM. I always assumed that the dealerships were independently owned franchises. But it seems that GM is doing the closing. I don't see how an independently owned franchise can be costing GM that much money. Obviously I am missing something. Can someone explain?
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The dealerships are independently owned businesses that are in a franchise relationship with GM.

The franchise relationship costs GM money; for example, they've got to inspect periodically to make sure that the quality is acceptable, maintain all the paperwork and so forth.

The dealership can continue to sell cars -- but not as a franchised GM dealer. Most of the underperforming Chrysler dealerships that are set to close have been selling fewer than 100 [new] cars per year anyway, which means that they're making most of their money either as a service facility or as a used car dealership. (I don't know the corresponding numbers for GM, but I bet it's similar.)

As an analogy, there was a (very, very bad) donut shop down the street from my place a few years ago operating as a Dunkin' Donunts. Corporate pulled the franchise after the board of health raided the place for the third time in six weeks; it was making the whole brand look bad. The donut shop is still in business, but now it's called something like "Donuts donuts donuts" and as far as I can tell, it's an independent.
 
drkitten said:
The franchise relationship costs GM money; for example, they've got to inspect periodically to make sure that the quality is acceptable, maintain all the paperwork and so forth.
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Thanks for the reply DrK. I've dealt with dealers who should have been closed during the good years. If GM has any of those still around then I blame GM.

It still seems intuitive that the cost of maintaining a "good" franchise from GM's point should be small. I'm not so naive as to trust my intuition all the time so I will trust your opinion instead.
 
YoPopa said:
Thanks for the reply DrK. I've dealt with dealers who should have been closed during the good years. If GM has any of those still around then I blame GM.

It still seems intuitive that the cost of maintaining a "good" franchise from GM's point should be small. I'm not so naive as to trust my intuition all the time so I will trust your opinion instead.
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I don't know the specifics, but I heard a mention on NPR today that having more dealers increases the complexity and costs of the auto manufacturers' distribution networks. I would think this would apply both to distribution of the vehicles themselves as well as replacement parts for the service departments.
 
ZirconBlue said:
I don't know the specifics, but I heard a mention on NPR today that having more dealers increases the complexity and costs of the auto manufacturers' distribution networks. I would think this would apply both to distribution of the vehicles themselves as well as replacement parts for the service departments.
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Another factor is that GM has legacy dealer arrangements from past consolidations. There have been small towns with separate dealerships for every line: Chevrolet, Buick, Cadillac, Oldsmobile (now gone), Pontiac, plus GMC, Saturn, and other related llines like Saab, Opel, Daewoo, et al.

And half the cars in the major lines are essentially identical except for deliberate styling changes. :rolleyes:
 
balrog666 said:
Another factor is that GM has legacy dealer arrangements from past consolidations.
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This wouldn't be a problem, of course, if dealerships didn't cost GM money.

There are two theories on franchises. One is to charge franchisees buckets of money upfront, so that the franchise makes money for the holding company merely by sitting there. (This is rather common in the fast-food industry, I'm given to understand.) The franchisees in this model keep most of the profit from moving the product.

Another is to charge franchisees relatively little for the franchise per-se but to keep a larger share of the sales profits. (I believe this is the older model, and one that is generally considered to be more long-term profitable.) I think this is the model that auto companies have historically used. It's big advantage is that it generally aligns both corporate and the individual dealership inerests; both are interested in selling as many cars as possible, which in turn means that they help each other out more. It also provides more long-term stability.

In the specific case of an auto dealership, the first model would not work as well. No one really minds if a Subway or a KFC opens in October, fails to make the nut, and closes by February except for the owner/operator who lost the franchise fee. Another sucker franchisee will be along to try his luck. But people want more long-term stability out of their auto dealership; they want to feel that they can get cars repaired and warranties honored, and in many cases they set up lifetime relationships. (My father in law has bought something like thirty cars from one GM dealer in his home town, between himself, his wife, and the children.)

So the first model is better in general for auto dealers. But it also means that when times get tough, corporate may need to let less-performing franchises go, because they can't pull their weight. With the first model, all franchises are profitable for corporate, but the individual dealers are often just taken to the cleaners.
 
balrog666 said:
But we still have all of this afternoon for Obama to ride in on his white horse to save the day with another unconstitutional decree!

:rolleyes:
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I realize the bondholder representatives are saying bad things about Obama but as I understand what is going on here there is nothing unconstitutional about it.

The bondholders are being offered about what they would have gotten in a regular bankruptcy. They can take it or they can take their chances in court.

What they object to is that they aren't being given a sweetheart deal like the union pension funds are being offered. The union pension funds are probably behind the secured creditors when it comes to getting paid off in bankruptcy court. If this were a normal bankruptcy the pension fund holders would be left to try and recover something from the national pension fund insurance program. But this isn't a normal bankruptcy. The UAW is a big Democratic Party benefactor and it would be expected that the Democrats are going to give them some taxpayer money in this situation. That's just routine politics. I think it would be hard to prove that this is unconstitutional. Eight years of Bush would certainly suggest that cronyism isn't unconstitutional.

Of course, all the various GM stake holders would be much happier with the Bush administrations strategy of just throwing money at the problem. No need for any concessions, the GM stake holders just make the switch from burning through stock holder equity to burning through US taxpayer funds. No need to change anything.

And on a slightly different topic GM has sweetened the offer for bondholders:
Bondholders representing about $US27 billion in GM's bond debt would be offered 10% of a reorganised company. Those were the same terms they were offered earlier this week in a debt exchange that failed.
But in a sweetener, bondholders would also receive warrants to acquire another 15% of the equity in the new GM, provided they support a quick Treasury-backed sale process similar to one now being used for rival Chrysler.
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http://tvnz.co.nz/business-news/gm-sweetens-bondholder-deal-2761936
 
davefoc said:
I realize the bondholder representatives are saying bad things about Obama but as I understand what is going on here there is nothing unconstitutional about it.

The bondholders are being offered about what they would have gotten in a regular bankruptcy. They can take it or they can take their chances in court.

What they object to is that they aren't being given a sweetheart deal like the union pension funds are being offered. The union pension funds are probably behind the secured creditors when it comes to getting paid off in bankruptcy court. If this were a normal bankruptcy the pension fund holders would be left to try and recover something from the national pension fund insurance program. But this isn't a normal bankruptcy. The UAW is a big Democratic Party benefactor and it would be expected that the Democrats are going to give them some taxpayer money in this situation. That's just routine politics. I think it would be hard to prove that this is unconstitutional. Eight years of Bush would certainly suggest that cronyism isn't unconstitutional.

Of course, all the various GM stake holders would be much happier with the Bush administrations strategy of just throwing money at the problem. No need for any concessions, the GM stake holders just make the switch from burning through stock holder equity to burning through US taxpayer funds. No need to change anything.

And on a slightly different topic GM has sweetened the offer for bondholders:

http://tvnz.co.nz/business-news/gm-sweetens-bondholder-deal-2761936
Click to expand...


The UAW Pension Fund is an unsecured creditor and it has no place at the table to begin with. And the "sweetening" of the offer, i.e., a slightly increased bribe, is insufficient for the real creditors to forgo their fiduciary responsibility without highly visible and significant political pressure, especially since they will be subject to the lawsuits of their investors.

. QED
 
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