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GM is going bankrupt…or not

Yesterday I saw an article in Forbes entitled General Motors Is Headed For Bankruptcy – Again in which author Louis Woodhill makes the case that even after the bailout of GM it is headed for bankruptcy.  He points to the redesign of the 2013 Chevy Malibu as one reason.  He points out that in 2008 Chevy redesigned the Malibu and improved it.  When it was tested by Car and Driver against other D-Class vehicles, it came in a respectable 3rd behind the Honda Accord and the Nissan Altima.  It trailed the lead car by just 6% on the tests.

The new 2013 Chevy Malibu Eco (aggressively promoted during the Olympics) actually scores worse than the 2008 Malibu and is dead last in the competition (won by the 2012 Passat).

In their March 2012 issue, Car and Driver published another D-Segment comparison test, pitting the 2013 Chevy Malibu Eco against five competing vehicles.  This time, the Malibu came in dead last.

Not only was the 2013 Malibu (183 points) crushed by the winning 2012 Volkswagen Passat (211 points), it was soundly beaten by the 2012 Honda Accord (198 points), a 5-model-year-old design due for replacement this fall. Worst of all, the 2013 Malibu scored (and placed) lower than the 2008 Malibu would have in the same test.

He goes on to point out that not only does the new “eco” model with its partial hybrid technology actually get worse mileage than the conventionally powered alternatives, it accomplishes this by forcing you to give up trunk space and because of a shortened wheelbase 107.5” as opposed to the 2008 models 112.3” which means that the occupants have less legroom and feel more cramped.

So, with a car that is dead last in its class in head to head comparisons (actually being beaten by the Accord which is at the end of its 5 year model run.  How can Chevy expect to compete and sell Malibus until the redesign it in 2018?  Well they are going to have to sell it cheaper than its competitors, this for a company that is already saddled with high operating costs.  Woodhill closes by looking at the leadership of GM as opposed to Volkswagon.  GM’s CEO Dan Akerson has helmed MCI (defunct), General Instrument (defunct), Nextel (defunct), and XO Communication bankrupt in 2002.

Woodhill closes with this story about Volkswagon CEO Martin Winterkorn at a recent auto show in Europe.

At the 2011 Frankfurt Auto Show, Winterkorn was caught on amateur video sitting in, and studying Hyundai’s newly introduced i30, a competitor to VW’s best-selling family car, the Golf.  Here is an excerpt from a story about this incident published along with the video by The Truth About Cars, an auto industry blog:

“(Martin Winterkorn) pulled on the adjuster of the steering column, and heard – nothing. At Volkswagen, there is an audible (“klonk!) feedback whenever the steering column is adjusted.

Immediately, Klaus Bischoff, head of Volkswagen Brand Design was summoned. He pulled on the adjuster: No sound. “Da scheppert nix,” exclaimed Winterkorn in his heavy Bavarian accent. “There is no rattle!”

Winterkorn was livid: “How did he pull that off?” He, the blasted Korean. “BMW doesn’t know how. We don’t know how.” He, the blasted Korean, must have found out how to battle the dreaded Scheppern.

Tension is high. This could affect careers. Someone quickly explains that there had been a solution, “but it was too expensive.” That gets Winterkorn even more enraged. “Then, why does he know how?” For less money. He, the Korean. There is no answer. Hyundai has beaten Volkswagen at the Scheppern front.

Winterkorn measures the A-pillar, runs his hands over the plastic. He walks away, his entourage trots after him. Deeply in thought and very worried.”

Uh-oh.  While Dan Akerson is busy rearranging the deck chairs on GM’s Titanic, Martin Winterkorn is leading VW to world domination via technical excellence.

 

Does this mean that GM will go bankrupt?  No.  Its certainly possible that Akerson may actually turn things around…but he is headed into some strong headwinds.  They very from the labor contracts that add thousands to every car that GM sells to a culture that appears to not be focused on technical and stylistic innovation. 

To balance this doom and gloom I will offer this counter argument also from Forbes, Leadership, Not Another Bailout, Will Fix GM (And No, It Is Not Going Bankrupt) by Joanne Muller.  The important section is:

GM is a global company with a strong balance sheet, and not in any danger of going bankrupt again. It has $33 billion in cash and $5 billion in debt on its balance sheet; posted $2.5 billion in net income so far this year, and generated $1.7 billion in automotive free cash flow in the second quarter.

I think that Ms Muller has a point in that GM is still relatively cash rich even with bad losses this year and declining market share.  She also points out that GM is ahead of competitors in China which is a burgeoning market.  I doubt that GM is about to go under in the next 12-24 months…but I do think that Mr Woodhill’s article points out that they are not headed the right direction, a point that Ms Muller agrees with.

Comments

( 3 comments — Leave a comment )
epeon
Aug. 19th, 2012 05:11 pm (UTC)
I used to work in the auto plants when I was younger. The reason why the GM bankruptcy did not resolve the issues is that it did not address "work rules." The UAW has these "work rules" that dictate how plants are to be run. These rules pad the workforce and increase costs greatly. None of this was removed via the GM bankruptcy.

The other issue is that the GM bankruptcy screwed bondholders and stock holders. Sure, the stock holders took the risk and they should pay a price. The bond holders took a risk as well. But, the bondholders are supposed to be "first in line" in bankruptcy. The president, not surprizingly, put the UAW first. Thus, the bondholders got the shaft. Non UAW retirees lost their pension but the UAW members at delco did not. Not only is all of this illegal, but do you think these people will buy GM products now? Furthermore, do you think their relatives will? I think the GM bankruptcy "poisoned" the well.

All of this tells me GM will go to bankruptcy again.
dbroussa
Aug. 20th, 2012 08:07 pm (UTC)
I agree with that totally...the biggest issue with the bailout is that fundamentally the bankruptcy did not resolve the structural issues that GM is facing (the Union contracts). This is why so many consider the bailouts pure political payback to the unions.

jetromitchells
Nov. 29th, 2012 10:56 am (UTC)
I learn a lot from this post! Thanks for giving up this information and I will definitely share it for my friends.

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