Failure is Possible

Failure is Possible http://tinyurl.com/6b8r5v
“Rich people don’t care [about high gas prices].” Bob Lutz’ statement– made during the launch of GM’s new SUV’s in August 2005– encapsulates
the automaker’s history of arrogance, ignorance and self-delusion. Then again, what else could GM’s Car Czar have said? Whether or not GM should have seen the gas crunch coming, the die was cast. Now, as gas prices crest $4 a gallon, as Delphi and GMAC teeter on the abyss, as GM’s stock price hits a historic low, GM’s slide into Chapter 11 is beginning to assume the mantle of inevitability. And why not? There is no Plan B.
Clearly, GM’s Plan A– make better SUVs and pickups– was a non-starter. Not to belabor the obvious, but soaring gas prices gored GM’s cash cow. Year-to-date, the General’s high-profit SUV and truck sales tumbled 22 percent. In April, GM’s truck sales fell by 27 percent. Sales of the once all-conquering Chevy TrailBlazer fell 73 percent. Despite the Chevy Silverado’s perch on America’s top ten list, despite their new CUVs, the company that made billions on high-profit light trucks is making billions no more.
A new charge of the light truck brigade is not a possibility. Even if U.S. gas prices suddenly descended to $3 a gallon, American consumers will continue to approach gas guzzlers with a ten-foot pole. It would take a good year of relatively low– or at least stable– gas prices to lure buyers back to… no. Actually not. Once backwards, twice shy. And if that doesn’t send the pickup and SUVs genres back to their original, pre-90’s market share, federal regulations and fashion will.
What GM needs right now– and for the foreseeable future– is six brands' worth of class-leading, fuel-efficient automobiles that will, at the very least, stop SUV refugees from jumping ship. That it ain’t got. Not now, and not a year from now.
Meanwhile, American new car sales in general, and The General’s share in specific, continue to crater. Cadillac, Chevrolet, Buick, GMC, Hummer, Pontiac, Saab and Saturn are ALL losing market share in an American new car market that shows no signs of recovery. Inventories are piling-up; every single GM light truck has more than 100 days supply. Despite the obvious light truck glut, GM’s outdated business model is forcing the company to restart truck and SUV production. As it does so, GM’s prospect for its unspecified “turnaround” move from bleak to non-existent.
Contrary to popular belief, foreign profits can’t staunch the arterial spray of red ink; the carmaker’s losses in the North American market are too deep and too broad. GM has assured the markets that it has adequate liquidity to weather the storm. On March 31, GM reported a $24b cash pile. That's $6b less than six months ago. No one knows how much that cash pile lives stateside. And given that GM’s accounts are [officially] unreliable, there’s no exact way of knowing what additional calls will be made on that cash. There will be many…
Delphi’s restructuring plan is, once again, in tatters. Given GM’s ongoing reliance on Delphi for parts, the chances are high that this sinkhole will claim even more of GM’s money. By the same token, an unknown number of GM suppliers have hit/are about to hit/will hit the wall. As the American Axle strike and Plastech bankruptcy prove, GM’s only as strong as its weakest supplier. When Chrysler goes down… It’s only a matter of time before other parts makers suck-up GM’s cash.
At the same time, GM’s part-owned ResCap mortgage unit needs $600m to stay afloat; co-owner Cerberus won’t be ponying-up the funds. If ResCap files, it could well take all of GMAC down with it. If GMAC files, GM won’t be far behind… The General will open its wallet to stave-off that eventuality.
In the midst of all this, the central question bedeviling RenCen has now become: what can we do to hold out until the U.S. market recovers? The obvious answer: nothing. There is nothing GM can do in the short to medium term to bank enough profits to save itself from Chapter 11. U.S. franchise laws and GM’s depleted financial reserves make it impossible for GM to do what needs doing: jettison excess dealers and dead brands (everything save Chevrolet and Cadillac) to trim itself down to a sustainable, indeed, profitable level.
Surely GM CEO Rick Wagoner knows this. Logic suggests that if Wagoner knew for certain that GM was condemned to file for Chapter 11, he would unfurl his golden parachute and float off to some exotic tax haven, leaving someone else to suffer the final ignominy. And surely presidential candidate Hillary Clinton knows that only a stroke of fate (so to speak) could propel her to the White House.
The truth is that GM’s refusal to admit the possibility of defeat doomed it from the start.
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Civis Romanus Sum

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Things are not as dire as this article suggests. I think it is wrong about Americans and SUVs. While the very large SUV market might be rapidly shrinking, the market for smaller SUVs and "crossover" vehicles appears strong. The high value of the Euro means that any profits from Europe are magnified when translated into dollars. GM still has a lot of "fat" that can be trimmed. When things get bad enough, the axe will fall. Finally, do you think the next US administration will let GM go belly up?
Articles like this are usually a good indicator of stocks you should buy. If I had any extra money to invest, I'd take a hard look at buying GM stock.
Ed

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You could be right about the stock, but that is very speculative....a long shot to be sure. And if GM should have to stage a strategic bankruptcy, your stock certificates don't even make good toilet paper.
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C. E. White wrote:

Granted that will probably always be a niche market for large trucks and SUVs but it will only be a small fraction of what it was. Crossovers and smaller SUVs will sell modestly well for a brief interval but even they will decline significantly as gas prices continue to increase at the "two steps forward and one back" rate of increase.
IMO people have come to believe that fuel will only increase over the long haul and it would be a poor move to buy a "hog", especially one that will leave a person owing much more than the vehicle is worth. GM's model has been built on the gas guzzlers, which includes the deceptive Hybrid Tahoe (bad joke that). GM touts their 30MPG *highway* mileage but that too is deceptive since the vast majority of our driving is city driving (85% or so?) with much lower MPG there. City driving is hybrid turf and that is where Toyota and Honda excel and GM will again be playing catch up. Can you really picture someone paying $35K or $40K to buy a Volt with GM's first year of production quality record when they can buy a hybrid Toyota or Honda with proven technology and track record for *half* the cost of a Volt? The Volt will become as dead as the EV-1 that GM killed off.
GM just doesn't get it. That the people that drove GM into the ditch will be the ones to save it does not compute.
--
Civis Romanus Sum

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Ummmm.... so what? What is profound in that? It has always been that way. GM did not always cater to the truck and SUV market. Prior to the long running truck and SUV craze, GM catered to different interests in America and across the world. They capitalized on the craze while it ran. Now they're re-focusing just like everyone else. No real big deal here.

People "have come to believe" no such thing. It has always been this way. You seem to think you see something different now than what has always been. Maybe you haven't seen many up-ticks and down-ticks in the world in your lifetime. Those of us that are old farts have seen this very type of thing cycle through life many times.

You blow any shred of crediblity I try to afford you when you make stupid statements like this. For one, in class, they don't produce gas guzzlers. In class they produce pretty efficient vehicles. Beyond that they do - despite you ignoring the fact, produce more fuel efficient vehicles than any other manufacturer. You look at a utility class vehicle that is designed to do more than just get fuel economy, and you brandish lables like gas guzzler. That's a tactic of a person with an empty gun. You are forced to rely on sensational statements to support a platform that cannot otherwise stand on its own.

You've been asked for a cite on this before and did not provide one. Perhaps for you 85% city driving is appropriate, but you have to demonstrate to me that for most of America, that is true. It sure as hell is not true for me. Maybe - if you really want to present an intectually honest case, you should consider and find the statistics to support, what the average American driving economy is. What is the real average fuel economy realized by American drivers?
I'll even give you a starting point. My most recent GM car was an 03 Grand Am GT. My average fuel economy with that car was 28mpg. That was based on what I estimate to have been around 60-70% rural driving, and the remainder short haul interstate driving, with a decent (180 mile) interstate jaunt thrown in once a month or so.
To be fair, I'll even throw in some facts about my 94 Silverado. It has a 350 in it. The truck gets 15mpg no matter how you drive it. Fully loaded, empty, highway, local - no matter. The only time the truck wavers off that figure is when I'm in 4WD plowing snow. Mileage then is unspeakable. Point being - this is a utility vehicle. For its age, that's not bad mileage for a vehicle that has to do what this truck is expected to do. No manufacturer is providing anything better. How is that a gas guzzler?

Perhaps. The future of the Volt remains to be seen. I am not optimistic for what it will bring to the table, beyond perhaps some cutting edge R&D that may benefit a next generation vehicle.

That is just a foolish statement. You mix several different arguments into this diatribe, none of which you support with anything more than rhetoric. You then feel compelled to summarize with the statement that GM just does not get it. Jim - you are the one that does not get it. You're just a gong clanging in the yard. Yeah - they have some major business issues to get fixed and that will probably be the bigger deciding factor in their health and well-being, but that's totally different than the rubbish you've editorialized here.
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-Mike-
snipped-for-privacy@alltel.net
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Amen, well said!!

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I totally agree Shep! Mike summed everything up quite well, and yet, "Jim Higgins" has not replied...kinda makes one wonder...

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Actually, I have it on good authority that Higgins was looking in the mirror when he came up with his subject line.
dave
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What gripe my ass is the management of companys like GM.
They justify their bloated salarys/bonus by saying that they guide the company to profitablity.
Hell.... two years ago, even someone as dense as Bush would've seen an energy crunch on the horizon.
Instead of getting some alternative in the pipeline, GM continued along with their truck, SUV, and Hummer lines.
Today they woke up and said....."oops" Closing down several plants, laying off tens of thousands. CHEVY VOLT ??... what a joke !
GREAT management ! I guess they'll just take their platinum parachutes and bail out.
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<rj>
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In article

You are right and GM stock is the last stock I would buy. Speculative gold shares moose pasture would be a better stock gamble, but I don't gamble with my savings.
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In article

GM are getting what they deserve for those of us not wanting an excessively large vehicle. Unfortunately the vehicles I see GM, Ford and Chrysler coming out with are not what I'm looking for. I've looked at the new Malibu, but no thanks. It has a large trunk, but it's opening is too small. Ford has a new Focus, but they dropped the SW I would be interested in, obviously because they would prefer to sell the gas guzzling Edge. Chrysler has an interesting new 4 cyl line up of 3 vehicles, but their styling is ugly and the interiors are just CHEAP!
Currently on my short list are the Toyota Camry and the Nissan Rogue. Not surprising Toyota's sales just increase. They have a good variety.
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