GM: The End of The Beginning

March 31, 2009
The summary dismissal of General Motors chairman and CEO Rick Wagoner is a clear public notice that the U.S. auto industry will never be the same. Those of us who cover it have watched its unraveling over the last few years in varying moods of awe, incredulity, and grief.

What’s now obvious is that change will come very fast. The short, terse assessments of GM and Chrysler’s viability plans show that Obama’s automotive panel has learned quickly.

The assessments are instructive. They’re written in plain English, and backed by data. They point out that neither company has satisfied the terms of its loan agreements. And they incisively, brutally peg the soft spots of each plan.

The GM assessment says the company has made “material progress” in efforts to build better cars, cut costs, and rationalize global operations and US dealers. But it criticizes underlying assumptions on market share, price contribution, number of brands and size of dealer networks, product mix, and the Voluntary Employees’ Benefit Association that assumes retiree liabilities.

Bottom line: GM’s progress is “far too slow”; it needs to do more, faster. It gets 60 days.

The Chrysler assessment differs in tone and conclusion. It eviscerates the company’s plan, calling it “unacceptable” and highlighting its many hopelessly optimistic assumptions.

Bottom line: Chrysler is not viable as a stand-alone carmaker. It will get 30 days of cash to conclude an alliance with Fiat, its only hope of avoiding complete collapse.

It’s obvious that Obama’s team understands the complexities of the industry. I found no one from the industry who truly contested the substance of their assessments, or the data in them.

The reason for the bluntness is abundantly clear; the team must decide whether to spend tens of billions of tax dollars on companies whose products and workers are widely, if perhaps unfairly, derided by many Americans. The strength of the medicine shows that the team wants to make sure the US government will not face this situation again during our lifetimes.

The result may be a truly competitive GM that can go head to head with Toyota and Hyundai for the first time in decades. Why should we care? Because the team clearly sees that it's in the national interests of the US to have a functioning, globally competitive auto industry, that’s why.

Consider the following summary of Wagoner’s reign from the Detroit News: "For all the support he still enjoys amid GM's salaried ranks, Wagoner's tenure was marked by unfulfilled promises, massive corporate losses, destroyed credit ratings, the insignificant value of GM shares, tens of thousands of jobs lost and the gutting of GM's sprawling operations." Tough legacy, eh?

Wagoner's head shows the team will play hardball with all stakeholders, including the presently recalcitrant bondholders. The none-too-subtle message is that nothing is sacred. And with direct funding for Tier One suppliers, and government guarantees to consumers for warranty repairs and parts availability, swift, pre-packaged bankruptcies are obviously in the cards if everyone doesn’t play ball, fast.

Saab, Saturn, and HUMMER are already all but dead. With a pre-packaged Chapter 11, GM could swiftly dispatch its entire Buick-Pontiac-GMC channel as well, cutting its brands to Chevrolet (competes with Toyota) and Cadillac (competes with Lexus). It would be far from pretty, but it’s probably pretty close to what you’d get if you re-drew GM from scratch.

I’m encouraged that “a majority” of GM’s board of directors will be turned over in the near or medium term. In the end, it’s hard not to blame the board for being asleep at the wheel—perhaps “insufficiently aggressive” is more polite—for, oh, three decades or so.

Like many auto writers, my bookshelf has many volumes covering what went wrong in the U.S. industry. They are background to a single, stark statistic: In 1980, GM’s US market share was 45 percent. In early 2009, it is below 20 percent.

The books run at 10-year intervals: Paradise Lost: The Decline of the Auto-Industrial Age, by Emma Rothschild (1973); The Decline and Fall of the American Auto Industry, by Brock Yates (1983); Collision: GM, Toyota, Volkswagen, and the Race to Own the 21st Century, by Maryann Keller (1993); and finally, plaintively, Why GM Matters, by William Holstein (2008).

There is only one book remaining to be written. From two 5-page outlines, its authors understand their territory better than most expected. For the sake of the industry and those who work in it, we’d better hope that the promise of their first work pans out.--John Voelcker

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