May 13th, 2009 • by Bill C
Back in the early days of game shows, from 1955 to 1958, one of the top-rated half-hours on television was “The $64,000 Question.” Much like the modern “Who Wants To Be A Millionaire,” contestants won increasingly larger amounts of money by correctly answering questions.
Today, we have the $64,000,000,000 Question and all the money is riding on the correct answer to a single question: Will it be worth $64 billion, or more, to save General Motors?
First, how did the numbers add up to $64 billion? GM has already received $15.4 billion in government loans and now wants $11.6 billion more, for a total of $27 billion. GM also wants its creditors to write off $27 billion by accepting new company stock in lieu of cash. Added to the loans, that’s $54 billion. Furthermore, GM wants the United Auto Worker union’s Voluntary Employee Beneficiary Association (VEBA) healthcare trust to take $10 billion of the company’s $20 billion obligation as a stake in the company. Bingo! Between cash infusions and avoidance of cash payments for obligations, we have $64 billion and we’re probably not finished.
Let me say at the beginning that I am generally in favor of keeping the General around. It still sells the most light vehicles in the United States by a wide margin and is still an important component of our national manufacturing base.
But, as I study GM’s endlessly revised restructuring plans and read the comments posted on various forums, I have to wonder what it is that we’re saving.
Everyone needs to understand that the American institution that was General Motors is no more. That slipped away years ago as GM management ignored the competition and then decided it was easier to downsize than make the fundamental changes needed to be competitive. Investments were not made in new core technology, such as engines and transmissions. Instead, technology investments were made in bells and whistles that were cheaper to implement. OnStar is swell, but it doesn’t improve performance, fuel efficiency or reliability.
Unions played their part, as well, by clinging to tradition and not adapting to the changes in manufacturing that could have reduced the cost of GM’s vehicles. The adversarial relationship is a prime example of two wrongs making another wrong.
There were other factors, as well. A big problem was, and is, America’s inability or refusal to come to grips with the runaway cost of healthcare. As the largest private healthcare provider in the United States, GM’s obligations mounted and providing the promised benefits, especially to its exploding ranks of retirees, became a major financial issue.
In the end, however, GM’s woes were caused by a single problem: It no longer could sell enough cars and trucks to pay the bills. The company that once claimed half of all light vehicle sales in the United States and sold over a million Chevrolet Impalas in a single model year is clinging to a 19.2 percent market share after the first four months of 2009.
The fall has been dramatic: In 2000, General Motors sold 5,017,150 cars and light trucks in the U.S. By the end of 2008, the total was 2,954,819, more than two million fewer vehicles, representing a 41 percent plunge. And it continues: by the end of April 2008, GM had sold 1,066,642 light vehicles; when April sales were reported at the beginning of this month, that number was down to 585,910 units, a 45 percent nosedive.
Even more dramatic has been General Motors’ decimation of its employee ranks. Actually, decimation is too kind; the word refers to the killing of every tenth soldier as punishment for a loss in battle. In the world of GM, seven of ten have paid the price for losses in the market.
In 1979, General Motors’ U.S. employment peaked at 618,365 and it was the largest private employer in the United States. Worldwide, the number was about 853,000 men and women. The latest numbers from GM claim 244,000 employees worldwide, including 80,849 workers at 41 facilities in the United States, including casting, engine,
transmission, final assembly and other plants. That’s a 71.4 percent reduction in headcount and thousands more cuts are coming. Don’t forget, the current numbers include employees working at plants where they make Hummers, Pontiacs, Opels, Saabs, Saturns and Vauxhalls, all brands GM is shedding or wants to shed.
GM wants to close 16 plants in the U.S., cutting another 21,000 jobs and increase its outsourcing from Japan, Korea, China and South Korea by 98 percent. GM is also said to be planning as many as another 10,000 white-collar job cuts for the end of this month. In Europe, even if GM hangs on to Opel and Vauxhall, at least three plants will be closed and another 11,000 workers will be let go. GM also wants to dump Saab’s 4,100 employees. We’re now down to 197,900 or so employees, less than a quarter of the number that worked at GM thirty years ago. By the way, these are all numbers taken from GM’s own media group or substantiated reports in the press.
Remember one of the primary goals of the government loans is to preserve American jobs. Just for simplicity’s sake, assume that Europe, Asia, Canada, Mexico and elsewhere account for 47,900 of those jobs (they were also part of that 244,000) that leaves us with a nice, round 150,000 U.S. jobs. Based on the $27 billion GM has received and requested, we’ll be paying about $415,854 per job and even UAW workers don’t cost that much.
More to the point, though, is that enough employees to make GM a viable company? GM cut out any fat in its organization long ago; it’s been chopping at sinew and bone for years. Among the assembly line workers, secretaries and accountants GM has dumped, there were also thousands of engineers. Will this new GM have the human assets to develop the technologies that will be required to meet new emissions standards? Does it retain the talent needed to design vehicles that consumers will want to buy in preference to an import or a Ford? Has cost-cutting become seppuku?
Of course, GM hastens to point out the Volt, which is a major development, but it’s a $40,000 niche automobile. Despite the fact LaNeve, Lutz, and other execs whip it out at the first sign of criticism like it was a crucifix to ward off vampires, it’s not a game-changer. Do it at under $20,000: then we can talk.
It seems to me the currently envisioned paradigm of the post-transformation/bankruptcy GM is not development of new vehicles to be made here but massive outsourcing.
The Cruze will debut next year, but it’s another example of GM badge engineering rather than any kind of breakthrough as it’s another Daewoo (the Lacetti Premiere) Chevy can park alongside its underperforming subcompact, the Aveo. The plus side is the fact some will be built in GM’s Lordstown, Ohio, plant.
GM is also planning to begin bringing the cars it makes in China to the United States in 2011. These will be similar to the Korean-built Daewoo Matiz-based Chevy Spark.
In reality, GM’s answer to new vehicles seems to be doubling its imports rather than doing anything that will grow its manufacturing at home. The General will source cars from Japan, Korea, China and Mexico to sell in the United States. It sounds like GM wants $64 billion to become an importer. Sorry, but if that’s GM’s big plan, I have to agree with Alan Reuther, the UAW’s legislative director, who said, “GM should not be taking taxpayers’ money simply to finance the outsourcing of jobs to other countries.”
Once again, just which part of “preserving American jobs” is so hard for GM executives to understand? Note to Fritz Henderson: We’re not giving you umpty billion dollars to go shopping at some automotive equivalent of Pier One.
GM honchos complain they can’t make small cars profitably in the U.S. That’s what Ford’s executives told Alan Mulally when he arrived, too. But his answer was they had better learn to make money on them, because that’s where the future is going. As a result, Ford will start by building some of its smaller European cars in the United States while it continues to work on alternate technologies. It may also be why Ford is talking so confidently about taking market share from GM.
I have said for a long time that GM has been laying off the wrong people. Tens of thousands of good white- and blue-collar employees have lost their jobs and billions of dollars have been flushed while GM executives whined about what they couldn’t do. This has been going on for years and from what I am seeing, GM thinks they deserve more billions of dollars to do it a while longer. I am not so sure.
As of now, the odds are that GM will solve its problems with a trip through bankruptcy. I hate to see that because I don’t think the trip will be as smooth as Chrysler’s; GM is far more complex and its bankruptcy could cause some serious dislocation in the industry. This is especially likely because GM will file while Chrysler is still in bankruptcy and its plants are still idled. Contrary to what the President’s auto task force seems to think, none of these companies operate in a vacuum. Payments to suppliers from GM and Chrysler will be delayed and purchases will be deferred, probably driving at least some suppliers into bankruptcy themselves and endangering shipments of components to Ford and the transplant automakers.
One thing I do think we can pretty well count on is that the money we have given GM is money we won’t see again. Unless there is a huge transformation in its leadership, I don’t see GM being viable as an automaker in the long run. Too much debt and too much deadwood will remain, even after a Chapter 11 cleansing. It will run from crisis to crisis until it encounters one too big to overcome. Even more than money, GM desperately needs the vision and leadership to make the company competitive and it doesn’t have it.
If it was my $64 billion, I would want better than that.
