Someone commented earlier that this site is getting to be a bit of a GM Deathwatch site. Not so. I’m just trying to keep abreast of everything that’s going on.
Why? Because it matters. It not only has the potential to be the biggest moment in modern automotive history, it also has the potential to shape the future of that little brand that we love – Saab.
So, for what it’s worth, here’s a quick examination of the various elements at play here, and the TS take on them. This is the prism through which I’m watching all these events.
Let’s start at the bottom line, eh?
What matters to me
The only thing that matters to me out of all this is that Saab comes out of it with some sort of decent future. I couldn’t really give a hoot what happens to the rest of the company. Saturn? Who cares? GMC? A waste of brain cells.
Out of every difficult time comes opportunity. GM won’t come through this unscathed. Saab mightn’t either. But if they do make it through, I’m confident that they have a philosophy on motor vehicles that’s 100% in line with the near-to-medium term future of the automobile. Give them their head and I’m sure they’d come up with the long term future, too.
So, on to other things…..
Who’s fault is this crisis?
There’s a lot of blame being thrown around in news reports and on the internet. Most of it seems to be falling on GM and sure, they haven’t been building, selling or even planning for the future as much as they should have.
But let’s not kid ourselves here. The assertion that GM don’t build cars that people want is just flat-out wrong. They’ll probably be overtaken by Toyota on a global basis this year, but even if that’s the case, they’re still selling the second highest number of cars on the planet. Ipso facto, they’re selling cars that people want.
Should they be selling more fuel efficient vehicles? Yes they should. Should they have toned down their reliance on SUVs and pickups in the last few years? Yes they should have.
But no business that deals with GM’s kind of product, with GM’s legacy costs, could withstand the double-whammy that’s hit the automotive business in the last 3 months. First, there’s the lost sales: a 45% drop in sales last month. Second, there’s the inability for both customers and GM themselves to access the funds they need.
Some of the customers that can’t access leases or loans probably shouldn’t have them in the first place. Others would like to buy and may even be in a position to buy, but can’t access the finance. Then there’s GM themselves, for whom money is now as rare as rocking horse poo.
Have GM been trying?
GM – and others too – have run into the perfect storm. GM just have leakier boat.
GM weren’t in the position they should have been in order to weather this credit crunch and the crash in consumer confidence. But I do believe they were on their way there.
They’d renegotiated the union deals to a large degree, an arrangement that would take greatest effect in 2010.
They’ve lifted their over all quality ratings.
They’re releasing more fuel efficient vehicles and have more coming down the pike.
They’ve cut their workforce heaps in the last few years.
Based on the level of automobile sales that were expected in the US at the start of this year, GM would have been fine and would have continues their restructuring efforts, albeit most likely at a slower pace than what they’re doing now. Around the start of this year, the market believed in GM’s plans enough to have their stock price around $30.
But at the start of this year, no-one forecast that we’d be where we are now.
Bankruptcy
In a perfect world, a procedure through the US Chapter 11 bankruptcy code would be ideal. Economists live in a perfect world, one full of assumptions about situational conditions. Ever hear about the economist trapped on a desert island with only tinned food to eat? He assumed a can opener.
Chapter 11 would keep the wolves from the door, or line them up in an orderly manner, but only for so long. GM would still need access to operational finance and that wouldn’t be likely to come from an influx of customers.
Despite the things we like to tell ourselves, we don’t always act with the calm surety that we like to think we would. Back in August, while I was in Canada, I listened to a professional, educated man tell me that Barack Obama was secretly a muslim extremist. I’ve also heard another very intellectual guy whom I love and respect a great deal tell me that 9/11 was basically an insurance job with the tacit permission of the US government.
Scary stories are easier to act on, and that’s exactly what will happen if GM go into Chapter 11. GM should be able progress through a bankruptcy procedure in an orderly manner and preserve the warranty rights of customers, but do you think customers will believe that? Or will they believe the story they read on the internet about how every obligation that’s owed to them will dry up overnight because of a bankruptcy?
The GM hierarchy
I found it disappointing to read today that when one of the Senators asking questions of the Detroit CEOs posed the query as to whether the chiefs present would work for just $1 a year until the business was turned around, that only Chrysler’s Bob Nardelli said he would.
I think Rick Wagoner’s done a good job at GM in recent years. The restructuring stuff I mentioned above is the main reason for that opinion. But if Wagoner really believes in the future of the company, he should be willing to hang around and live on the money he’s already earned whilst he brings his board’s plan to fruition.
I don’t hold to the idea that GM’s current management are the only people who can steer the company through its current crisis. If Wagoner has to take one for the team, then so be it. Alan Mullaly’s performance at Ford in the last 18 months tells me that there’s more than one way to skin this particular cat.
Mullaly’s a former airline executive and he’s come in fresh and shown a member of the Ford family how it should be done. Ford are now regarded as the most likely of the Detroit three to get through all this relatively intact. I’m sure there’s another executive out there with the skills and passion to take on this challenge and win.
Can it all work?
I’d like to believe that if GM can secure the lifeline they’re seeking (around $10B) that they could trim enough costs to see themselves through the storm, but I’m really unsure.
As of the end of last month, they had around 2 or 3 billion in cash above their operational needs. Make that $12B with the lifeline and they get around 6 months of breathing space at their current burn rate. Maybe 8 or 9 months if they breathe in a little.
The big question is whether the rest of the market can recover in that time. There’s no use proloinging GM’s demise if the conditions they operate in don’t improve.
GM believe that they need to hold out until some time late in 2010. That’s when the mother of all Hail Marys is due to come online – the Volt. Will they hold on and even if they do, will the Volt be good enough to tip them over the line into a sustainable state?
Time will tell.
The preferred option
So what of Saab in all this?
I don’t know how the technicalities work in this situation. If GM go into Ch11, is it just the North American division that’s effected or does it hit every GM division around the world?
If GM Europe could manage a spinoff from the mothership and Saab could remain as a part of GM Europe, then that’d be fine with me. It means all the current plans and structures would largely remain intact.
Saab’s heritage has already suffered enough uprooting and transplantation. The thought of them being bought up by a company from some developing nation or other isn’t palatable for me at all. The less disruption, the better. If Saab must be sold, please let it be to someone who wants to make Saab cars, not cars with Saab badges.
I want to see Saab stay in Sweden, with Saab cars designed by someone with a European philosophy rolling out of the plant in Trollhattan. Call me an idealist, but a situation that’s hugely different from that would really place Saab in danger of being just another automotive brand. Right now, they’re still much more than that, and that’s how I’d like it to stay.
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Swade i don’t know where you get the time and energy to write a piece as comprehensive and thoughtful as this… but all credit to you.
kudos bud
Spot on and FYI:
This very day, Ford just sold its stake in Mazda for a lot of money- the buyer – Mazda itself and some wise investors.
That means the deckchairs have begun to move.
What will GM sell I wonder?
“They’ll probably be overtaken by Toyota on a global basis this year, but even if that’s the case, they’re still selling the second highest number of cars on the planet. Ipso facto, they’re selling cars that people want.”
Well, if you look at the whole portfolio I am pretty sure that GM is selling quite poorly per model.
But as you say, it’s not only about sales. It’s also about running a healthy business, which quite obviously GM is failing to do. Should governments support poorly run businesses? How about all the smaller companies across the nation that are in trouble now, should they not receive loans from the government?
Well written Swade. Only time will tell if Saab has a place with the new GM and a new GM has to happen. Prolonging the old GM spells only doom, at least for GM North America. It’s nice to think that GM Europe might gain a level of independence after this, but it’s a very technical financial issue that none of us here are capable of solving. Most of all I think Saab needs to gain a level of independence. Toeing the company line just seems to strangle and suffocate Saab and inevitably it will kill it. Whether it’s GM or another company that eventually takes over the reins at Saab, they have to learn to let Saab be Saab. Once they try to make Saab conform it just doesn’t work. GM has struggled with this and never learnt or accepted it and that as far as Saab is concerned, this has been it’s downfall.
There’s an old Australian expression about giving someone or something “a fair go”. After almost nineteen years, I think GM have had a fair go with Saab and for the large part they have failed.
You could almost go as far as saying that they have screwed the proverbial pooch, but under the present circumstances I will refrain from that. All that I hope is that when the dust clears from all this, that there is still a little Swedish car company that makes the the kind of car I have chosen to drive for the past twenty years. And that it’s not forced to put it’s name on someone else’s pruduct that doesn’t embody the qualities that we have all come to expect from driving Saab cars.
just heard it on the radio: solarworld offers 1 billon € for opel to make it the first “green” carcompany… ??
nick x: You mean this story?
Great read, always a hoot. I mentioned it before and I will again. Let Saab build Saabs. Looking at sales numbers for the US posted on this site (1,975 for October), Saab seems to sell to a defined market of enthusiasts… or the little old lady next door. This flicked a switch upstairs about an article I read recently about automotive design not moving forward in the past 50 years – look at the GM future cars from the 50′s and wonder why we haven’t implemented anything wildly different fifty years later.
Hey GM, I am betting there are MORE than 1,975 people in the US who would want the first cars that broke the mold, an automobile that made people turn and say “wow” when it pulled up next to them at a light. You have the design philosophy as well as the history for this age we are in. MAKE USE OF IT. Think different, be different. Hey, it works for Apple.
If the cars were fun, fuel efficient, and stood out – I mean ahead of it’s time in style and engineering (which they were up until GM) then you can guarantee that more than 1,975 would buy them. Build the show cars, don’t water them down, don’t half ass them and they will come… I’ll be first in line for another REAL Saab… preferably with a hatch.
CNBC was just discussing how “GM is a health care institution that makes car’s on the sideline’s.” A unfortunately perfect analogy.
And for all the fanfare surrounding the Volt – how many people are going to be able to afford that vehicle anyway? A $40,000 car with a nice tax credit looks great on paper, but GM is going to lose money on every one they build. GM loses money already on lots of its vehicles, so that is just more of the same.
Chevrolet used to say “their is a little bit of Corvette in every Chevrolet they build”, but in light of the current situation I am painfully reminded of something that was written in Car and Driver back in 1990 when the original ZR-1 model came out. Someone painfully reminded GM that “if they could – or would improve on a basic family sedan the way the THAT Corvette was improved – the crowds flocking to GM dealers would cause nationwide traffic jams” (or something to that effect). That was written almost 20 years ago, and it rings in my ears to this day.
Rick Warner keeps talking about the new Chevy Malibu, but too many of us fans of GM remember the last two Malibu’s prior to the current model. Darlings of the rental car fleet and screwed together with plenty of low bid parts. Ugh. GM has steadily lost North American market share because of lackluster products and a bloated dealer network that always waited for the next fire sale to move cars.
Don’t get me wrong, I want to see GM helped – but they need to get out of the health car business (and should have gotten out of it years ago) and keep focusing on great new products – and those products should be cars. And those cars need to be great and have the resale value of a Honda.
We are all waiting GM. Get some of those stunning European platforms over here now. Replace the walking dead 9-5 with it’s new gorgeous new Opel cousin. Follow Volkswagen’s lead and offer clean diesel engines in your products. Make the Saturn Astra affordable and get rid of that low tech powertrain that is stuffed in it. Offer the North American market something great….
Swade – a near perfect summary. I am just wondering what will happen to Saab once the dust has settled. Heard over the airwaves here in Southern Africa that whatever happens to GM across the Atlantic will have no bearing to GM Southern Africa. At any rate, they do not move any Saab metal this end of the pond in sizeable numbers anyway, so the status quo actually will remain.
What really worries me is the bollogs GM Southern Africa keeps on touting around here that Saab is a premium car and should be marketed in premium channels. I was recently traveling from Johannesburg to Cape Town on business and happened to be seated alongside a lady in the ad industry for fashion products and seeing me reading the evo magazine, she could not help but engage me in conversation. And boy, was I wrong – not only did she know technical details of the kind of cars evo raves about, but she knew a Saab from the word go and mused that had they just sold the stuff around every corner like VAG and the rest does, she would have got a saffrone jellow convertible. My question was: GM, are you listening – how come you have not reached this woman, which premium channels are you targeting that you only end up moving less then 5 Saabs in a month from the showroom floor?
Perhaps the question should be posited: are you listening GM, because had you done that, even despite the current downtourn which is not your own doing, you would have moved a bit of metal despite lack of access to capital and finance from both the manufacturer and customer. Where are the new products?
in answer to Lance’s question: ‘What will GM sell I wonder?’
2:48 p.m. 11/18/2008 By MarketWatch Provided by
SAN FRANCISCO (MarketWatch) — These are desperate times in Detroit, and Ford and General Motors (GM) are taking desperate action, jettisoning Japanese holdings in a headlong race against bankruptcy.
Ford announced Tuesday it sold 20% of its stake in Mazda Motor Corp., worth about $540 million. The news came hard on the heels of GM selling what was left of its long-time stake in Suzuki Motor Co. for about $232 million, completing an exit it began two years ago.
GM is burning through its cash reserves at a rate of nearly $2 billion a month, which means the money from the sale of its Suzuki shares would be gone in three days. While every penny clearly counts, observers can be forgiven for viewing the deal as largely symbolic.
Ford’s decision to slash its stake in Mazda carries a bit more weight. Ford first hooked up with Mazda in 1979, when it bought a 27% stake in the struggling Hiroshima-based carmaker. Ford eventually expanded its ownership to 33%, becoming Mazda’s biggest shareholder. It has been a worthwhile partnership, by most accounts, that helped Ford gain a valuable foothold in Asia.
Ford doesn’t want to lose that foothold, though with its Mazda stake now down to 13% it’s suddenly more tenuous.
But what really hurts long-suffering shareholders is to see Detroit shedding overseas assets at bargain basement prices. Just this week, Japan announced its economy is now officially in recession, caught in the same financial slowdown spanning the globe.
As a measure of the times, an anonymous consortium of Japanese companies had to be gingerly assembled so that Ford had someone to sell its Mazda shares to, even with Mazda itself agreeing to buy some of the shares.
It’s ironic that Mazda and Suzuki, financially salvaged by Ford and GM nearly three decades ago, are in a position today to return the favor, even if only symbolically.
Meanwhile, Ford and GM’s CEOs are spending the next couple of days in Washington trying to convince lawmakers that they are worth every penny of the $25 billion they need to survive but couldn’t possibly raise through further asset sales.
–Jim Jelter
Well atleast Ford is doing Something.. The 2010 Ford Fusion Hybrid and E85 capable V6 is being presented at SEMA. GM has had the oportunity in banging the E85 drum with the 9-3 and 9-5 for quite some time now.. But they insist in only Ethanol convert SUV´s and Trucks.
If GM had said yes to a XWD 9-3 BioPower there would have been one. And there might have been a few more Saabs sold.. Going out with the same adds as in europe regarding the encrease in power using E85 in Saab BP´s might just have done the trick to sell more to powerloving americans?
I agree with everything you said.
Except that GMC is NOT a waste of brain cells. GMC makes great trucks. The only problem with GMC is that they shouldn’t be widely available to regular consumers. There’s too much overlap with Chevy. They should only be really available to businesses and contractors.
The fact that everyone is blaming GM itself and Rick Wagoner really bothers me.
The real hurdle that GM needs to overcome in North America is the majority of the buying public who’ve sworn never to buy a GM product again.
Let’s face it, GM didn’t lose its dominant position because their cars are less economical or more expensive. They lost their dominant position because people figured out that Toyotas have brakes that last over 10,000 miles and are cheap to fix, that Hondas are still in decent shape after four years, and that Hyundais are boring but provide good value for money.
The car business is very competitive and customers have a long memory, often spanning several generations. Given two cars with similar features and price, people will buy from the company that hasn’t screwed them in the past.
You can’t fix that much bagage with an ad campain, or a new product such as the Volt. The only way to get out of this mess is by getting rid of all the bad product and the culture that created them, and by selling good cars for many years.
Saab can definitely help GM to achieve the second part of this plan. Say what you want about Saab’s reliability, GM can still learn from them how to make brakes that work well and last a long time, bodies that don’t fall apart, front wheel drive cars that handle, and engines that still feel like new after 100,000 miles.
Agreed. GM has already sold GMAC as well.