Will the new GM escape the curse of the old?
There have been two main theories of why things went so wrong at General
Motors. One is that the company is run by a bunch of ingrown retreads
with no sense of where the automotive business was headed. The other is
that the company's management has been so burdened by commitments (to
pensions, to retiree health care, to union work rules) made back when
the company was gigantic and dominant that it hasn't had time to focus
on where the automotive business was headed.
Now we get to find out which explanation was right. GM management will
still be heavy on the ingrown retreads. CEO Fritz Henderson is a GM
lifer. Bob Lutz, at 77, is back again—in part because, Henderson said at
a press conference this morning, "this is the best way to keep Bob from
recycling to a fresh set of OEMs." (At least, I think that's what he
said. Can anybody tell me what language he was speaking?) And new
chairman Ed Whitacre is, while not ingrown, certainly a retread. He's
the man who successfully reassembled a good chunk of the old AT&T
monopoly. Just the kind of next-generation leader we need. Later, on a
conference call with reporters, somebody asked Henderson about the lack
of new blood. "As we fill out the key slots, you're gonna see some
unusual names in these jobs," he replied. Another reporter wanted to
know if that meant unconventional internal promotions, or people from
outside. "The former," Henderson said. "I'm not closed to outside blood,
but until we know how we pay people we can't hire anybody." Fair enough.
Meanwhile, the burden of past commitments has been lifted, at least
partially. GM entered Chapter 11 with what the WSJ says were "$176
billion in liabilities to retirees, warranties and a legion of lenders
including the U.S. government." It leaves bankruptcy today with about
$48 billion in debts. That still sounds like a lot, given that the new
GM is a smaller company with a smaller revenue stream. But when I asked
Henderson about it, his response was that fixed obligations (as opposed
to accounts payable and such), consisted just of $10.5 billion in debt,
$9 billion in preferred shares, and some as-yet-undetermined pension
fund contributions that will be due in 2013 or 2014. "I think in terms
of the balance sheet it is a world apart from what it was," he said.
"The level of indebtness for the company is not excessive."
I've generally leaned toward the too-many-liabilities explanation for
GM's troubles, mainly because the company's successes
overseas—especially in China—indicated that its managers, however
ingrown they might be, were reasonably smart and capable. It's just that
in the U.S. their No. 1 priority had to be keeping sales volumes high
enough to keep the debt payments and retiree health care flowing, a
focus that didn't really lend itself to reinvention or innovation. Now
that burden, and excuse, is mostly gone. So I'm betting that GM will now
start looking like a much better-run company. The question is whether
it's too late.
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Is the "new" GM, ostensibly owned by the government and
taxpayers, paying any attention to the legions of Americans who will
boycott GM vehicles because of the bailout? I realize that a boycott
would actually make matters worse for taxpayers in the long run, but
I've spoken with a lot of people who have been forming opiniions based
on anger and emotion, rather than logic, for the past 12-15 months. I
hope someone factored in the stain this company's brand now wears when
they were calculating the cost/benefit analysis of saving GM.
July 10, 2009
at 1:09 pm
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I do not buy GM, but this is not due to some misguided
sense of government waste (bailout), rather it is coz GM make really
crap cars. If GM made a car that got 40 mpg, and did not have to undergo
the costly repairs that their cars need, I will bet you anything that
they would have to top selling car in the world.
In essence, to say that there are legions of Americans who
will not buy GM because of the bailout is an argument void of any logic.
July 10, 2009
at 6:50 pm
And frankly (I hope GM is listening), I'm a little disappointed
that GM execs have been so quick to employ the "let's get past this"
stance. The body is still warm, the remains (old GM debt) still being
buried, they next of kin (fired GM employees and investors) still in
mourning, and they're asking us to turn our backs and move on. Come on
guys - have some heart.
July 10, 2009
at 1:15 pm
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