General Motors is not going bankrupt

GM has its problems. 

The company really has too many carlines these days, given its reduced volume and the added “noise” in the market coming from the Asian and European makers. Originally, makes generally sold one or maybe two different cars — as in “really different.” The cars proliferated as time went on, and individual models added to the number of names customers had to remember. From “the Plymouth or the Chevrolet,” both of which competed in basically the same space, customers were faced with several Plymouths and numerous Chevrolets, coupled with the down-reaching Dodge and Pontiac and such. Finally, a Dodge because a Plymouth with a pointy grille (or, later, a slat grille), and a Chrysler became a Plymouth with a nicer grille and more options. Yes, the suspension tuning was different on each model – sometimes – but not so much that autowriters noticed, and the makers themselves didn’t make that particularly clear when people were in the showrooms. The result is, going back to GM, an insane number of models with different brand names and similar underlying cars. Few people can remember all the GM products, even those close to the industry. 

Somewhere along the line they all lost focus – and not just at GM. Pontiacs stopped being high performance Chevys, Cadillac was redefined to be the new BMW, Buick was redesigned to be the new Cadillac, Olds became the import fighter (as Eagle was – remember Eagle?), and Saturn… wandered around until it became the parking lot for Opels (the Holdens went to Pontiac). Saturn was the import fighter, too (remember Oldsmobile?). 

So for GM, closing down Pontiac and/or Buick and/or Saturn is probably necessary to sharpen the marketers’ focus on the core brands, the ones with the most chance of survival and the most loyal fans. The first step has been taken but the company has proven squeamish about focusing itself. The Aveo5, for example, will soon spawn a Pontiac version. I don’t know how many Traverse twins there are.

At some point, GM needs to face up to the product sprawl and either give each division a small number of highly focused, clearly delineated vehicles, or drop brands. I think Pontiac could survive as the makers of the G8 and one other, similar vehicle. I think Buick might survive with a cushy, Avalon-type traditional American car. I don’t think they can keep going as they are. Certainly Americans have become accustomed to the Japanese style of “one everything brand and one luxury brand.” That would mean Chevrolet and Cadillac at GM… with traditional American luxury disappearing or going to one top-end Chevrolet. They might be able to get away with keeping Buick for that purpose, too. 

But money is the key. GM is losing $1 billion a month, we’re told. Killing brands costs money, and that might be one reason they haven’t done it yet. 

That doesn’t mean they’re bankrupt, or that bankruptcy is inevitable. They could cut their costs before running out. The analysts say GM has just under two years at this burn rate. None have considered that GM might be able to cut costs and downsize. 

GM has lots of costs that could be cut. The private jets could be grounded. The executive bonuses could be dropped until after the crisis. The top execs – “C level” as they’re called now – could volunteer (ha!) to get salaries no higher than, say, Toyota’s president, or for that matter the United States’ president. They could prune TV advertising and move into Internet and newspaper ads. 

GM also has assets to sell. Ford might be able to raise the cash to finally buy out their chief rival in Australia. Toyota or Mitsubishi might want control there, as well. The Hummer name should bring something in sooner or later. While Buick needs to stay with GM for Chinese sales, someone could conceivably buy the Pontiac name – perhaps a Chinese or Indian or Russian company that wants a recognizable name for their American entry. 

Mostly, GM can cut back on production, drop unprofitable models, drop duplicate models, slash executive pay, and cut back on their use of big-name consultants. Cutting production raises the incremental cost of each model made and makes it harder to recapture engineering dollars, but it also lowers the need for advertising and incentives, which is why Chrysler’s been slashing its own production. Cutting production reduces some non-fixed costs, and not pressuring dealers to buy and stock so many cars would help them to stay solvent, too. 

I wonder if playing on our patriotism would help at all. GM has been downright evil in the past, but many Americans still remember “See the USA in your Chevrolet” and “Hot dogs, apple pie, and Chevrolet.” (Ironic since Louis Chevrolet was French.) They are still one of the biggest American employers, and as evil as GM has been, I doubt they can top the founding Henry Ford… but the point is, perhaps they can convince a few Americans to ignore Consumer Reports’ ratings (will I go to the dealer .4 or .6 times?) and go with a domestic. 

By the way, I’m ignoring merging with Chrysler as a way to save GM. First, they’d go from the frying pan into the fire, by giving Cerberus effective control. Second, mergers do usually fail. Third, it would not give them access to Chrysler’s cash in a meaningful way, unless you think Cerberus is run by idiots, and their record suggests that they are not. Fourth, well, look at where you are. Likewise, I’m not considering buyouts. That’s the loser’s way out. 

GM is not a basket case yet. They are not in Chapter 11 or Chapter 7, nor are they all that close. They are functioning normally. What’s really needed is someone to get their chief executives out of talks with Chrysler, which are distracting at the least, and onto the factory and showroom floors to figure out what they’re going to do to stop losing $1 billion per month.

The problem is not unfamiliar to me. In the soup kitchen / homeless shelter / recovery charity I work with, we were faced with a large budget deficit very recently – and no capacity to borrow funds because our bylaws forbid borrowing more than what is in our small and stock-market-decimated endowment. We had an emergency board meeting and cut back the hours of some people, cut back some of the programs whose evidence of effectiveness was less than overwhelming, discussed further measures if things continue to get worse, and got cracking on finding new sources of income. None of us are paid but I have no doubt we’d have sacrificed as needed (we’re not in the same league as GM execs); the point is we quickly turned around a situation whose projections were, to say the least, dire. Had we chosen to react with the sloth of GM’s executives, perhaps we’d be gone by January, but I believe we will continue. (Especially if you donate! The money is well spent.)

What’s good for GM is, sometimes, good for the country. Now they just have to convince everyone else of that.