Thursday, April 02, 2009

The Reorganized General Motors


The presumption is that General Motors will eventually... soon... go into bankruptcy proceedings, but not necessarily liquidation.

What will GM look like? First, here is what GM's automotive brands look like via the GM website.

This does not show the European Opel brand.

There are also a variety of automotive related brands such as GMAC that fall under the corporate umbrella.

While GM has a vast worldwide organization, the US is, by far, its largest... and it's automotive operations are the bulk of that.

GM has somewhere around 6,000+ dealers. It is organized around four primary brand groups:
  • Chevrolet
  • Buick - Pontiac - GMC
  • Cadillac
  • Saturn
Under bankruptcy, this is a highly probably brand structure:

While Buick, Pontiac, GMC, and Hummer would be disbanded, SAAB might be an opportunity for sale. Arguably, General Motors would try to save the Buick brand. It has a stellar reputation for quality and reliability even if generally boring.
“Buick has ranked among the top 10 nameplates each year since the study was last redesigned in 2003, while Jaguar has moved rapidly up the rankings,” said David Sargent, vice president of automotive research at J.D. Power and Associates.
Regardless, the accounting numbers may make that difficult. GM achieves a lot of per-unit component savings by having its various brands share underpinnings. Eliminating Buick, Pontiac, and Saturn will increase the per-unit component cost for Chevrolet and Cadillac. Regardless, the government may push for a "minimalist" organization:
  • Chevrolet
  • Cadillac
The best GM could hope for would appear to be:
  • Chevrolet
  • Buick - Cadillac
This would mirror the Ford Motor Company organization:
  • Ford
  • Lincoln - Mercury
The bankruptcy proceeding would push the cost of reorganization to dealers and suppliers. Buick - Pontiac - GMC dealers would lose their franchises and may not receive compensation.
If Buick can be salvaged, the strongest of the Buick - Pontiac - GMC dealers could be converted to Buick - Cadillac... as long as they did not infringe on existing Cadillac dealerships. Otherwise, Buick would be absorbed into existing Cadillac dealerships. Conceivably, several thousand communities will be affected.
Suppliers will see significant volume drops in component sales to GM. They may, however, have difficulty extracting higher per-unit prices.

Internally, GM will slash administrative positions... up to 50% of its present salaried organization... within a short time. Design and engineering will be affected, but because of so much component commonality among its existing brands, reducing the number of brands will have less opportunity for staffing reductions... primarily in sheet metal and interior design and selected engineering.

GM will be saddled with an significant amount of hard assets... manufacturing and assembly plants... that are idle and draining cash. Some may be candidates for sale, but in the present economy and industry production overcapacity, these may end up white elephants. GM will still incur state tax liabilities from these assets.

The union will be gutted. Bankruptcy will allow GM to break its contracts and permanent firings will replace buyouts.

Retirees? Hard to say. Pensions are partially funded, but the government may have to take over funding and administration.

What will be the case is certain:
  • Significant diminishing of GM corporate
  • Massive investment losses by dealers and suppliers
  • Essential destruction of the United Auto Workers
  • Retirees dependent on the government for replacement of pensions
What also will be certain is that all of those affected will not forget who didn't prevent this.


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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
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Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)