SEARCH BLOG: AUTOMOBILES
General Motors (and Chrysler) is between a rock and a hard place. It had to sell its soul to the devil for a few more months of life and now it is time for the payback.
What is happening to the automotive industry is making headlines around the U.S., but the reality is that other segments of the economy are in not doing all that well. The banking sector has many weak corporations and the "price gouging" oil companies are having their woes. Housing remains moribund. Still, multi-billion dollar losses and loans draw attention.Thursday, April 23, 2009
Not so fast on idea of speedy bankruptcy for GM, Chrysler
Whoever thinks a bankruptcy of General Motors Corp. or Chrysler LLC would be "speedy" -- starting with members of President Obama's auto task force and GM CEO Fritz Henderson -- might want to spend some time talking with Larry Denton.
He's the former CEO of Dura Automotive Systems Inc. who successfully shepherded the $2.3 billion supplier through Chapter 11, starting in 2006. He learned the hard way how things go wrong, how federal law and its safeguards drive the process, how executives unfamiliar with bankruptcy can find themselves at the mercy of highly paid specialists. Lots of them.
"If you could do this cheap trick, everyone would do it," he told me in an interview this week. "You only have two results in bankruptcy: You emerge or you liquidate. This is black and white."
Add a company the size of GM, a monolith with 100 years of accumulated structures, brands and commitments, and the notion that the feds can speed GM (or Chrysler) through bankruptcy court looks more fantasy than reality -- with or without concessionary deals from bondholders and the United Auto Workers. [more]
GM has a great product line, but a muddled one. Unlike Ford which has become a lean organization with a very focused product offering [except for the step-child Mercury brand], GM hung on to its 50-year old structure ... actually and expansion of that structure ... despite the significant loss of market share. GM corporate share of the U.S. market was only 18.5% through March. Ford was 14.1%. Yet Ford is a much smaller organization... internally and by dealer count.
General Motors insists that it wants, at a minimum, to keep Cadillac, Chevrolet, Buick, and GMC. The claim is that they are all "profitable." Well, don't believe the accounting. When you are losing money hand over fist, you can't rely on how the costs are allocated internally. Sure, you can talk about marginal or incremental costs for a brand, but no one will talk about how brands can steal sales from other brands within the company. If GMC steals sales from Chevrolet instead of Toyota, how does that add to the "bottom line?"
General Motors needs to do some hard thinking about its brand and product strategy as part of any reorganization or bankruptcy... particularly where Chevrolet, Cadillac, and GMC internally compete with similar product. If GM still had 50% of the market, this would be a moot issue. At 18+% this is a real issue.
Brands cost money. How much can GM afford and still survive?