guionM
02-14-2009, 04:28 PM
In another thread, the subject was speculation on what to expect when GM and Chrysler submitted their plans to congress. In this thread, I want to look at what would happen if they fail.
Quick look at what both actually have to do.
Contrary to popular belief, GM and Chrysler do NOT have to prove they will become instantly profitable, or even profitable in the immediate future. All they have to show is that they are "Viable" That simply means in short that they are able to produce enough income independently pay their bills, and that they are capable of erasing their current debt sometime in our lifetime (if you're middle aged, anyway).
To achieve this, both have to win concessions from not just the UAW over pay issues, but also suppliers, bonholders, and they have to come up with plans to rightsize.
Of the 2, it's Chrysler (ironically) that has the easier job proving viability. Chrysler's debtload is miniscule next to both Ford and GM, thanks to the terms Cerberus got with Daimler. Chrysler is most able to turn around to profitability quickly of all 3 US automakers (unlike GM or even Ford, their problem is strictly product). Also, unlike General Motors, Chrysler's bondholders are secured (via Cerberus), as a publicly held company, GM has alot of "junk bonds" and unsecured creditors, meaning alot of people (like some here) bought into GM or loaned them money simply on faith without having any GM asset or assurence that they would get back any portion of their investment/loans. These people/entities are hardcore in demanding as much back as possible (GM is offering 30 cents for each loaned/bought dollar wile bondholders/investors are demanding 50 cents).
Add into that the fact that as long as the Feds approve, Chrysler can associate with Fiat & Nissan to gain ready made architectures and can have new vehicles base on them on the streets between 18 and 24 months. Meanwhile, GM has no one to depend on but itself. Any other company that's able to help or invest is waiting for GM to collaspe where they can get parts of the company itself at next to nothing.
That presents very different possibilities for each if they don't prove viability (whic, BTW, I fully expect both to successfully do).
For Chrysler, I don't expect them to simply and instantly disappear. Chrysler is still in better condition than AMC was before it merged (or more accurately, sold itself) with Renault. It actually has the ability to create new products, has a decent global presence, 2 stable owners (Cerberus' 80% and Dainler's 20%), and has proven ability to work with other manufacturers in alliences. Chrysler has a 4 cylinder engine developed with Mitsubishi & Hyundai, a Nissan platform as the basis of their midsize cars, they make minivans for Volkswagen, and they still have Mercedes parts in the LX cars.
If the Fiat deal goes down, and the Feds approve and Chrysler simply holds the fort down for 2 years, they should easily emerge from the downturn. If they don't, then Cerberus could "offer" a bigger portion of Chrysler to Fiat and and write it off as the lesser of 2 possible losses (while keeping Jeep). I would then expect Fiat to use it as a springboard to return to the US market. Cerberus could also give a significant portion to Renault and they could use it to return to the US market. Either way, Chrysler isn't simply going to dry up and blow away.
Unlike Chrysler, GM's problems isn't as much product related as it is management and operations. GM still sells a godawful amount of vehicles globally. The fact that despite this they still don't make money (and it's losses are almost all concentrated at the home operations here in the US) falls directly on the management and operations side here in the US. And, unfortunately, that seems to have been almost impossible to change over the years.
GM's other huge problem is it's finances. GM has been either forced into or felt compelled to enter financial deals that were detrimental to the company's wellbeing. The mindset of the company is very questionable. A few examples:
* Shutting down Oldsmobile, then expecting to increase the company's market share.
* Stripping models from Pontiac without replacements, and wondering why the division's sales are a shadow of what they once were. If that wasn't bad enough, now taking their number 2 car division and turning it to a niche brand sold in a car division (Buick) whose total sales were less than a single model of this soon to be nich brand (Pontiac's G6).
* Spinning off Delphi, having independent management, yet bankrolling the whole thing, setting themselves up to be essentially blackmailed by CEO and management giving themselves high bonuses and pay while tearing the company to shreds and moving operations overseas... or being forced to bankroll Delphi in the 1st place.
* GM's new vehicle approval process and not being able to take advantage of the quickest development times in the industry has been beaten to death, so I'll avoid repeating them again.
I still completely expect GM to pull out an 11th hour miracle, but in case they don't I see GM becoming largely an offshore company.
Holden, Opel, Vauxhall, & Daewoo are all as a unit doing well independent of the current global recession, and are all integrated with each other far more than they are with US operations. Ironically, Camaro shares more with this federation than it does with GM-North America. Equally ironic, Holden could easily buy the Camaro from a defunct GM-NA and produce it on it's own assembly line along with the rest of it's Zetas and potentially sell it here.
China is a successful GM arm, and is partnered with a Chinese company that could be fully well able to buy the other half of their partnership from GM, or go into a partnership with what is left with GM global. The thing about all these other GM operations is that they are in countries that are more than willing to put money into keeping them going.... and it would actually pay off.
I would fully well expect to see both Cadillac and Corvette sold off to private investors or growing companies the way jaguar and Land Rover were sold off. Unlike the rest of GM-NA's line, both are fairly autonomous, both have independent chassis they don't share with the rest of GM, and both are relatively small enough that it could infact be bought (the rest of GM is simply far too big or interconnected to be bought or be attractive to anyone).
Any overseas entity wanting to break into the US truck market, would be able to do so extremely cheaply in a bankrupt GM. One could have a ready made operation on the cheap, without having to develop their own.
It's been said here that GM is simply too big to completely disappear, and that's largely correct. However, like the Roman Empire, it's not too big to split, and the weaker part falls into caos and becomes Dark Age Europe, and cut to ribbons while the stronger part survives and morphs into the prosporous Ottoman Empire.
If GM doesn't pull it together, GM will almost certainly shatter into pieces to be picked up by governments, investors, & creditors with the strongest parts going to China, Germany, Korea, and Australia. It's not a far fetch to imagine Corvette or Cadillac, or both being bought by a private company from India, China, or even the Middle East. Parts of GM powertrain could be bought by any of the above, and all formerly GM automobiles could wind up imported.
All this is the worse case scenerio, and based on what trends seem to be... and the liberty of a crystal ball.
Quick look at what both actually have to do.
Contrary to popular belief, GM and Chrysler do NOT have to prove they will become instantly profitable, or even profitable in the immediate future. All they have to show is that they are "Viable" That simply means in short that they are able to produce enough income independently pay their bills, and that they are capable of erasing their current debt sometime in our lifetime (if you're middle aged, anyway).
To achieve this, both have to win concessions from not just the UAW over pay issues, but also suppliers, bonholders, and they have to come up with plans to rightsize.
Of the 2, it's Chrysler (ironically) that has the easier job proving viability. Chrysler's debtload is miniscule next to both Ford and GM, thanks to the terms Cerberus got with Daimler. Chrysler is most able to turn around to profitability quickly of all 3 US automakers (unlike GM or even Ford, their problem is strictly product). Also, unlike General Motors, Chrysler's bondholders are secured (via Cerberus), as a publicly held company, GM has alot of "junk bonds" and unsecured creditors, meaning alot of people (like some here) bought into GM or loaned them money simply on faith without having any GM asset or assurence that they would get back any portion of their investment/loans. These people/entities are hardcore in demanding as much back as possible (GM is offering 30 cents for each loaned/bought dollar wile bondholders/investors are demanding 50 cents).
Add into that the fact that as long as the Feds approve, Chrysler can associate with Fiat & Nissan to gain ready made architectures and can have new vehicles base on them on the streets between 18 and 24 months. Meanwhile, GM has no one to depend on but itself. Any other company that's able to help or invest is waiting for GM to collaspe where they can get parts of the company itself at next to nothing.
That presents very different possibilities for each if they don't prove viability (whic, BTW, I fully expect both to successfully do).
For Chrysler, I don't expect them to simply and instantly disappear. Chrysler is still in better condition than AMC was before it merged (or more accurately, sold itself) with Renault. It actually has the ability to create new products, has a decent global presence, 2 stable owners (Cerberus' 80% and Dainler's 20%), and has proven ability to work with other manufacturers in alliences. Chrysler has a 4 cylinder engine developed with Mitsubishi & Hyundai, a Nissan platform as the basis of their midsize cars, they make minivans for Volkswagen, and they still have Mercedes parts in the LX cars.
If the Fiat deal goes down, and the Feds approve and Chrysler simply holds the fort down for 2 years, they should easily emerge from the downturn. If they don't, then Cerberus could "offer" a bigger portion of Chrysler to Fiat and and write it off as the lesser of 2 possible losses (while keeping Jeep). I would then expect Fiat to use it as a springboard to return to the US market. Cerberus could also give a significant portion to Renault and they could use it to return to the US market. Either way, Chrysler isn't simply going to dry up and blow away.
Unlike Chrysler, GM's problems isn't as much product related as it is management and operations. GM still sells a godawful amount of vehicles globally. The fact that despite this they still don't make money (and it's losses are almost all concentrated at the home operations here in the US) falls directly on the management and operations side here in the US. And, unfortunately, that seems to have been almost impossible to change over the years.
GM's other huge problem is it's finances. GM has been either forced into or felt compelled to enter financial deals that were detrimental to the company's wellbeing. The mindset of the company is very questionable. A few examples:
* Shutting down Oldsmobile, then expecting to increase the company's market share.
* Stripping models from Pontiac without replacements, and wondering why the division's sales are a shadow of what they once were. If that wasn't bad enough, now taking their number 2 car division and turning it to a niche brand sold in a car division (Buick) whose total sales were less than a single model of this soon to be nich brand (Pontiac's G6).
* Spinning off Delphi, having independent management, yet bankrolling the whole thing, setting themselves up to be essentially blackmailed by CEO and management giving themselves high bonuses and pay while tearing the company to shreds and moving operations overseas... or being forced to bankroll Delphi in the 1st place.
* GM's new vehicle approval process and not being able to take advantage of the quickest development times in the industry has been beaten to death, so I'll avoid repeating them again.
I still completely expect GM to pull out an 11th hour miracle, but in case they don't I see GM becoming largely an offshore company.
Holden, Opel, Vauxhall, & Daewoo are all as a unit doing well independent of the current global recession, and are all integrated with each other far more than they are with US operations. Ironically, Camaro shares more with this federation than it does with GM-North America. Equally ironic, Holden could easily buy the Camaro from a defunct GM-NA and produce it on it's own assembly line along with the rest of it's Zetas and potentially sell it here.
China is a successful GM arm, and is partnered with a Chinese company that could be fully well able to buy the other half of their partnership from GM, or go into a partnership with what is left with GM global. The thing about all these other GM operations is that they are in countries that are more than willing to put money into keeping them going.... and it would actually pay off.
I would fully well expect to see both Cadillac and Corvette sold off to private investors or growing companies the way jaguar and Land Rover were sold off. Unlike the rest of GM-NA's line, both are fairly autonomous, both have independent chassis they don't share with the rest of GM, and both are relatively small enough that it could infact be bought (the rest of GM is simply far too big or interconnected to be bought or be attractive to anyone).
Any overseas entity wanting to break into the US truck market, would be able to do so extremely cheaply in a bankrupt GM. One could have a ready made operation on the cheap, without having to develop their own.
It's been said here that GM is simply too big to completely disappear, and that's largely correct. However, like the Roman Empire, it's not too big to split, and the weaker part falls into caos and becomes Dark Age Europe, and cut to ribbons while the stronger part survives and morphs into the prosporous Ottoman Empire.
If GM doesn't pull it together, GM will almost certainly shatter into pieces to be picked up by governments, investors, & creditors with the strongest parts going to China, Germany, Korea, and Australia. It's not a far fetch to imagine Corvette or Cadillac, or both being bought by a private company from India, China, or even the Middle East. Parts of GM powertrain could be bought by any of the above, and all formerly GM automobiles could wind up imported.
All this is the worse case scenerio, and based on what trends seem to be... and the liberty of a crystal ball.