It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

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It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

March 30, 2009, 09:04:45 AM

NEW YORK (CNNMoney.com) -- The Obama administration gave General Motors and Chrysler LLC failing grades Monday for their turnaround efforts and promised a sweeping overhaul of the troubled companies. The government plans to give the automakers more money, but it is also holding out the threat of a "structured bankruptcy."

The federal government will provide operating funds for both automakers for several weeks, during which time the companies will have to undergo significant restructuring, administration officials said late Sunday night.
At GM, part of that restructuring began early Monday when CEO Rick Wagoner announced his resignation, which he said came at the request of the Obama administration.
President Obama is expected to make a formal announcement later in the day about his plans for the companies, which have already been given $17.4 billion.
GM (GM, Fortune 500) will get 60 days and Chrysler 30 days in which to make a final push toward proving they can run viable businesses. If Chrysler succeeds, it will receive a $6 billion loan. In GM's case, the officials would not specify how much money the carmaker might receive.
In the case of both companies, the officials said, stakeholders - and particularly debt holders in both companies - had not done enough to relieve the automakers of ongoing financial burdens.
"We have made very clear that we expect a very, very substantial reduction in liability for both companies," one official said.
The administration also said a structured bankruptcy is possible.
"While Chrysler and GM are different companies with different paths forward, both have unsustainable liabilities and both need a fresh start," according to an administration document. "Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way."
In order to help assuage consumer fears about buying cars from these companies as they restructure, the government is also setting aside funds to back up warranties on vehicles GM and Chrysler sell.
GM: Changes at the top
The administration officials were far more positive in their tone regarding the prospects for GM than for its smaller rival.
"We are very confident GM can survive and thrive as a company," one official said, noting the company's global reach, the strength of its research and development and the power of its various brands.
Nevertheless, significant changes are on the table.
One was the resignation of chief executive Wagoner, a 32-year veteran of the company who has served in the top post since 2000.
"On Friday I was in Washington for a meeting with administration officials. In the course of that meeting, they requested that I 'step aside' as CEO of GM, and so I have," Wagoner said in a statement posted to the GM Web site.
Wagoner will be replaced by GM's chief operating officer, Fritz Henderson. Kent Kresa will serve as interim chairman.
"Having worked closely with Fritz for many years, I know that he is the ideal person to lead the company through the completion of our restructuring efforts. His knowledge of the global industry and the company are exceptional, and he has the intellect, energy, and support among GM'ers worldwide to succeed," Wagoner said.
"We view our approach to GM as starting with a clean sheet of paper," the Treasury official said.
The officials said they had committed to working with GM to create a leaner, more competitive company. Administration officials will be in Detroit working very closely with the GM executives on a plan to restructure the company and its debt obligations, the officials said.
The administration officials would not say how much more money they might ultimately lend to GM or how much working capital the automaker would need to make it through the next 60 days.
Chrysler: Fiat or bust
For its part, Chrysler was too reliant on the domestic auto market, according to the officials. In addition, a significant "hollowing out" of the company by its past owners had left it unable to compete effectively as a stand-alone company, the officials said.
Any restructuring for Chrysler would have to involve a partnership, most likely a deal with Fiat which has had an "agreement in prinl" with Chrysler since January.
Chrysler is getting 30 days to work out a deal with Fiat, which is the only way the officials believe the carmaker will survive. If that can happen, the administration is prepared to lend Chrysler $6 billion dollars more.
While government officials said it was their "goal, hope and ambition" for a Chrysler-Fiat deal to work, the agreement terms would need to be modified from what the companies had previously announced.
Fiat had originally planned to take a 35% stake in Chrysler, but that stake would have to be lower. Fiat would also not be allowed to own a majority stake in Chrysler until after all government loans have been repaid.
There is sufficient money in existing funds to finance these plans, the officials said, who added that there would be no immediate need to ask Congress to appropriate more.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #1 – March 30, 2009, 09:18:20 AM

Personally, I think it's ironic that the CEO is made a scapegoat while much of the blame for GM's problems lies with the shareholders. Yes, unions made it too expensive to build cars, but shareholders made it impossible for GM to innovate. Shareholders were and are concerned with one thing and one thing only: Return on investment. They don't look down the road, they look at today. Any new technology that will benefit the company tomorrow is put on the shelf because it costs money today. The few innovations that did take place were to cut costs, not to one-up (or even match) the competition. Everybody knew better product was needed, but nobody wanted to pay for its development. Unfortunately there is no way to legislate investors into looking to the future, so there must be a scapegoat.

BTW, I feel much the same way about the general public (myself included). We all know that we need to reduce our reliance on foreign oil, not just because it's foreign but because it will some day run out. In other words, we need to look to the future. But using less and coming up with alternatives has its costs: Smaller, more fuel efficient vehicles, higher fuel prices, and alternative fuels to name three. Nobody wants to deal with any of that right now, we want to put it off on our children. Gimme my Hummer now, let Junior pay down the road. And so it is with the investors: Gimme my ROI now, let future investors figure out how to keep the thing going.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #2 – March 30, 2009, 09:39:49 AM

I agree, how easy it must be to blame the man at the top. All the Big 3 surely have to much overhead and managers and positions of that sort that they really do not need. Instead they'll lay off engineers and machine operators to make up the difference, anyone see the flaw in logic here? You need the engineers and machine operators more than you do management (When you have too much as is).

As for Chrysler and Fiat getting into bed together here, I think this could be good. The only thing that concerns me is telling them that a 35% stake in Chrysler was too much, THEY NEED THIS! Chrysler is on shakey ground and GM is worse off and they don't have the help that Chrysler is getting from Fiat. Chrysler is short by what they said they needed in December by around $3 Billion and Fiat can help them! Don't try to fix something that isn't broken, the Chrysler Fiat deal was good the way it was as long as they don't mess up.

Lets sit back and watch GM fail, we all know it will anyway.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #3 – March 30, 2009, 10:05:06 AM

As long as management makes the personnel decisions, the machine operators will be the first to get cut. I've been seeing this firsthand at work over the last 4 months....eliminate 3rd shift, so their supervisor bumps into 2nd shift....elimiate 2nd shift, 3rd and 2nd shift supervisors bump into 1st shift. Meanwhile nobody from "upstairs" has been let go yet.

As for GM and every other publicly traded company out there, yes the shareholders are the problem. As you guys stated, they want a return on their investment as fast as possible, so they can keep it rolling. When our owners sold to a LLC and investment group, their demand on our product increased ten-fold. So we complied, and with the s market as high as it was, we did really well. The investment group bailed as soon as their investment goals were reached (sooner than they even had expected), and left the LLC high and dry. So they then sold to an even bigger company with long term investments as their goal...now the s market tanked. Funny how that works.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #4 – March 30, 2009, 10:11:19 AM

But thats a huge problem, machine operators and engineers aren't the problem. You eliminate half and expect twice the amount of work? I have been there and I know they are trying to save money but why eliminate 40-100 guys when you could eliminate 15 guys who make more money and really don't have an important job that someone else couldn't handle?

LLC companies always seem to tear companies apart. Who knows how long it will be before Cerberus LLC does it to Chrysler.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #5 – March 30, 2009, 10:15:24 AM

After 3rd shift elimination: No OT, 4 day work weeks, no more 401K match, no more quarterly incentive program, etc... Meanwhile they don't take any cuts, still work 5 days a week salaried, etc...(and that includes the 3rd shift supervisor)

As for the automakers, they best be crossing their fingers.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #6 – March 30, 2009, 10:57:58 AM

They don't eliminate the supervisors because the supervisors do the eliminating. Even asking a question like that is silly.

Maricopa county has 24 chiefs. You need 3 to run the whole county. They are currently cutting OT and we're on a hiring freeze. Average officer yearly income: 36,500 Average chief income: 130,000

Ask me if we'll lose any chiefs. lol.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #7 – March 30, 2009, 11:04:13 AM

The "blame the guy in charge" mentality is nothing new. Just look at college level and professional sports. FWIW Lutz is more so to blame than Wagoner IMHO....

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #8 – March 30, 2009, 11:20:37 AM

Quote from: V8Demon;264802

FWIW Lutz is more so to blame than Wagoner IMHO....

Thats a true statement.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #9 – March 30, 2009, 11:36:17 AM

I'm sorry but unions and corporate greed will be the death of these companies and the industry in this country . The UAW has out lived it;s usefulness,there are now so many laws and agencies that will protect workers rights nowadays , lets face it the unions have done more damage to the industry in the last decade then any benefit to the workers could possibly gain . The union holds the company hostage with strikes and works slowdowns if their every demand isn't met, the corporation looks to recoup the money that they had to pay out by outsourcing any jobs they can to countries where wages are a fraction of what the union demands . The company bean counters are rewarded with huge bonuses for selling out the workers of this country.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #10 – March 30, 2009, 01:23:33 PM

I agree, T-Chicken, but you sadly can't fire shareholders. Someone's got to fry, so it may as well be the guy who inherited the mess and tried to fix it, rather than those who caused it and encouraged it for the sake of their pocket.

Did you notice who they got to replace him? The current COO, who was previously the CFO!!!! The guy who had his hands in the books the entire time, but didn't sound any warnings.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #11 – March 30, 2009, 01:26:39 PM

Quote from: yankeepete;264808

I'm sorry but unions and corporate greed will be the death of these companies and the industry in this country . The UAW has out lived it;s usefulness,there are now so many laws and agencies that will protect workers rights nowadays , lets face it the unions have done more damage to the industry in the last decade then any benefit to the workers could possibly gain . The union holds the company hostage with strikes and works slowdowns if their every demand isn't met, the corporation looks to recoup the money that they had to pay out by outsourcing any jobs they can to countries where wages are a fraction of what the union demands . The company bean counters are rewarded with huge bonuses for selling out the workers of this country.

I agree 150% that unions shoulder a lot of the blame as well, probably about 80% of it, but in the end it's the shareholders who decide whether to bring out that new, exciting technology or keep building the same stuff they're building now. Virtually every new product in a publicly traded company has to go before the board for approval, and if it costs more than the status quo, it's axed. In other words, the unions might be responsible for making a Cavalier cost twice what it's worth (and are 100% to blame for Cavliers being built in Mexico), but it's the shareholders who hold the blame for the Cavalier being built to begin with. Unions didn't decide to install pushrod 2.2 4-cylinders, 3.1/3.4/3.5/3.9 V6's, etc, and 3 and four speed transmissions in every car made while the competition was leapfrogging them. That was a shareholder thing.

The previous generation Malibu was a perfect example of this: Start with a clean slate to build an all-new car, but saddle it with dated powertrains and cheap plastics because sophisticated powertrains and quality plastics cost money. In a world with no competition this might work because people will buy your product no matter what - they have little choice. In the real world, though, where people can cross the street and buy a much nicer car for the same (or, in the case of the Koreans, less) money, things like this matter. The previous Malibu was a failure because it just plain sucked next to the competition.

GM is actually finally starting to move away from "please the shareholders at all costs", but it just may be too late. Virtually every GM product (certainly the ones released in the last two years) is on par with or better than the competition. Unfortunately decades of building sub-par cars has created a lot of bad feelings. As good as their new cars are it would be nearly impossible to get many people to buy one. Those who have a "Import or nothing" attitude are not unpatriotic, they're just once bitten, twice shy. $25k or more is a lot of money to trust a car company with, and two years worth of better products is not near enough to convince people that GM (and Ford, and Chrysler) are worth trusting.

If GM can pull through this I think they will emerge a much stronger company. Part of this is because they are building better products, but part of it is because the biggest competitor, Toyota, is slipping down the same slope GM did 30 years ago: It's becoming too big, too diluted, and too much about pleasing shareholders instead of building good cars. Toyota's quality has cratered in the past decade (though their reputation hasn't yet caught up). Toyota is becoming the next GM just as GM is becoming (or sould at least be trying to become) the next Honda.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #12 – March 30, 2009, 01:41:47 PM

Has anyone else noticed Ford's quality has inproved gradually the last 10 years?

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #13 – March 30, 2009, 01:53:59 PM

Has any one seen the recent consumer reports most of fords line is recommended
Explorer/Sport Trac,Expedition,Escape,Edge,F150,Focus,Flex, Fusion, Mustang,Ranger,Taurus, Taurus X were all given recommendations by Consumer Reports.

It's do or die for GM, Chrysler: GM given 60 days, Chrysler 30

Reply #14 – March 30, 2009, 01:57:43 PM

Its amazing how far Ford has come since Ford Jr. stepped out of the pilot seat. I can't say I like the new CEO but he seems to know what he is doing.