How would you save GM?

[88Comrade2000]

Here's what I would do:

Get a better deal with the union- threaten to file bankruptcy if you have to- actually they may have no choice anyway.

Cadillac:

Actually, the one brand that's doing OKAY.

Buick:

Kill the brand, there's no need for it.

Saturn:

Kill the ugly Vue and the minivan. Develop a sexy new small car- much better than the crappy looking Ion. They have a new upcoming mid-size car that looks great for 2006. I'd also bring about that 2 Seater convertable- Sky-- in the pipeline. The brand is still valueable but I would have just a limited specific line. Also, hurry up and get the hybrids developed. Saturn car would be one line to sell hybrds asap. Actually do with Saturn What Toyota is doing with Scion. Saturn started out quirker but lost something.

Pontiac:

I would also make this limited line with sporty looking cars. Only 2-3 cars. Bring back the Trans Am. Keep only one: the Grand Am or Grand Prix for sporty sedan but not both.

Chevy:

Kill the small car: cobolt- let Saturn only have the small car.

I would have the next level- Current Chevy Malibu and a new larger sedan. Bring back the camaro.

Reduce the truck/suv line and don't have much duplication with GMC. Have chevy sell some lines and GMC sell other but not duplicates.

Basically, have less lines and only specific models for the brands to specialize in. Build better quality cars and design better looking cars. Embrace new technologies. GM really has missed the boat on hybrids.

Gas prices aren't going down. With more demand from China and India; eventually we will be looking at $5/ gallon gas.

[TK]

Originally posted by Hitman56

Hire Foose to design a line of vehicles.

One could only hope. :drool:

[Ignatius J.]

You can't say it's all the unions when GM is still paying dividends to stock holders. Who pays dividends anymore? especially when you're hemmoraging cash?

[chomerics]

Originally posted by zoony

IHEART... thanks for the post. I was getting ready to reply, but looks like you did the work for me.

The only thing I'll do is mention two things.

1. The $54.00 / hour AVERAGE wage was taken directly from the USA Today. That is not BS... it might not agree with Chomeric's stance, but it is not BS.

I said the number was a BS number, I don't care where you got it from, it is absurdly false the way you presented it. You presented your number as if the assembly line employees are making $54 an hour, it is a complete bag of pooh, and the USA Today knows this. NO and I repeat NO company would pay their assembly line workers that much money. . . the execs yes, workers, no. It would NEVER happen.

2. Chomerics... quick, call Toyota, Mercedes, BMW, Honda, and Nissan. Tell them that their model for doing business in the U.S. is wrong. They need to cease operations in the Southeast / midwest, layoff their workforce, and hire union workers at 10x the compensation! That will help them to compete! You've cracked the code! We need Unions!

First, Honda and Toyota use completely different business models then the US counterparts.

Second, the problem isn't with the unions, but with mismanagement.

Third, they are too top heavy.

Those were my points about GM. . .

As for unions, they are unfortunately needed in this day and age. I understand the arguments against unions, but you do realize that EVERYTHING you have in terms of benifits is union related? Your paid vacations, health care, dental etc. was all paid for by sweat, blood and tears of your grandfathers and the unions that came before you. Are there problems with unions? Yes there are, but it is the one and only defense a little person has against a corporation.

OK, now lets hear the Marx references . . . :laugh:

[The Dude]

Originally posted by Westbrook36

They are doing this and ruined the proud names of many classic vehicles. Come on, the Thunderbird is a joke. GM itself should shoot itself for the "GTO". Sure, it's powerful but it looks like a damned Lumina. :puke:

I can't believe this thing has the proud GTO name bestowed on it.

Exactly. That thing is pitiful. It's like someone souped up a Cavalier to get 400 hp. Yuck.

[iheartskins]

Originally posted by Ignatius J.

You can't say it's all the unions when GM is still paying dividends to stock holders. Who pays dividends anymore? especially when you're hemmoraging cash?

Ignatius, withholding a dividend would cause GM's earnings to fall way short of Wall Street estimates which could in turn prove seriously damaging to the underlying value of GM as reflected in its daily trading price. If this were to happen, then GM could collapse or be subject to a hostile tender offer which would all be bad for GM. I see what you are saying, but withholding dividends from shareholders who have come to depend (and demand) them could cause a serious problem. Further, GM might also be subject to a series of derivative lawsuits from all the huge institutional holders of their shares. In a nutshell, that's why they are still paying out dividends.

[Destino]

Union this union that. I'm not buying it. GM's problem isn't their employees making too much money, because as you can easily verify their cars cost less their their japanese counterparts. Yet they still lose buyers? Why.

Because their designs are ugly, their cars aren't built for reliability, and people simply don't trust the company name like they do Honda and Toyota.

Blame the worker all you want, but they aren't the ones designing inferior looking and performing vehicles.

[The Sisko]

Decreasing/discontinuing the dividend would be a really bad move. Beyond the reasons already given, Wall Street takes a very dim view of decreased dividends...or even not increasing it when the company has a long history of doing so. If you want to see the stock price plummet just consider making this move.

As for the rest of it, I'm not the biggest fan of unions in the world. However I don't think the UAW is the only one to blame here. After all, they weren't the ones underfunding GM's pension liability for years so as to make the earnings look nice.

Additionally, people always whine about how unions are crippling corporate America but rarely do they ever make the same claims about executive compensation. It just seems a bit hypocritical for a CEO making millions (with a golden parachute to boot) to say to the UAW "Alright, you guys are making too much. Let's save some $$ by cutting your income." Hello pot, meet kettle.

Sorry, but I think there's a lot of blame to go around here between the UAW and GM upper management. The cost cutting should reflect that....but it won't.

[Ignatius J.]

Alright, this is really confusing to me.

Is Gm contractually obligated to give dividends? When they sold the stock, what conditions did they give? I mean did they essentially sell annuities, so that it would basically be defaulting?

Because if not, it should not decrease the price of the stock significantly. the purpose of cutting the dividends would be to invest that money back into the company, which should (in a perfect market) exactly offset the disruption in the dividend stream.

Obviously, the move signals trouble, and that would make stockholders squirm, but... I mean, who exactly is holding that GM stock and feeling really good about thier investment?

I guess what I'm saying is that GM is an old school giant of a company who has much bigger problems than the unions. Top to bottom they cannot compete, and are a big drag on the american economy.

Is it really clear that a hostile takeover would be a bad thing for GM?

[MaddogCT]

"On January 20th, the company announced its 2003 profits. Excluding the recently sold Hughes Electronics business and some other items, profits fell by 18.6% on the previous year. Profits from car sales in North America tumbled by nearly two-thirds, to barely $1 billion, dragged down by a charge of $2.6 billion for GM's huge pension scheme. A fall in car profits overall, from $2.5 billion to $1.1 billion, was not offset by a $923m rise in profits from the group's financial businesses."

GM Board Members and Executives quotes from the board room:

"Man, those twenty and thirty year pensions sure do sneak up on you, huh? "

"We made ONLY 1.1 billion dollars this year? The free coffee has got to go.

"Do we have to give them a lunch break?"...

"Really?"....

"You sure?".....

" The law?? For lunches?!?!? What the heck is up with that?!?!"

"Effen Unions......."

"I read somewhere line workers make 50,000 dollars. Man I spend that each month on tuition for my kids."

"At least we get to keep the Hughes sale off this years books and put it onto next years. We'll cut jobs, and have that much more to add onto the profit from that sale. Its a win, win all around! We make cuts, have a garuenteed profit and look like geniuses!"

"Hybrid cars! HA! What a joke! Remember that guy with the plastic engine? No? Good."

[chomerics]

Originally posted by Yusuf06

Decreasing/discontinuing the dividend would be a really bad move. Beyond the reasons already given, Wall Street takes a very dim view of decreased dividends...or even not increasing it when the company has a long history of doing so. If you want to see the stock price plummet just consider making this move.

As for the rest of it, I'm not the biggest fan of unions in the world. However I don't think the UAW is the only one to blame here. After all, they weren't the ones underfunding GM's pension liability for years so as to make the earnings look nice.

Additionally, people always whine about how unions are crippling corporate America but rarely do they ever make the same claims about executive compensation. It just seems a bit hypocritical for a CEO making millions (with a golden parachute to boot) to say to the UAW "Alright, you guys are making too much. Let's save some $$ by cutting your income." Hello pot, meet kettle.

Sorry, but I think there's a lot of blame to go around here between the UAW and GM upper management. The cost cutting should reflect that....but it won't.

Great post yousef. . . . The cuts SHOULD come in the form of a compromise, unfortunately that word has all but been eliminated from modern business.

Being on both sides of bussiness, you can see the problems inherent when something like this comes to pass. Companies look to trim 400 workers instead of one senior VP. Unfortunately that is the way of the world.

It is one thing I like about Romney though, when he ran his company, he cut the middle and upper management, gave the workers raises and turned the company around. Yes, he is a republican too.

[MaddogCT]

Cutting the pension plan will solve the problem of a 1.1 billon dollar profit?!?

:logo:

[smsmith40]

I have no personal insight into GM but up until recently I worked for a very large, family owned automotive manufactures based in Michigan (I leave you to work out the rest).

I have spent 10 years in Product Development in Europe so I think I have a little bit of insight into some of the general issues facing the automotive industry.

As some of the posters have said previously the formula to make money in this business is pretty simple in theory, make cars that people want at a price they can afford and is higher than the cost of designing and building them.

However, this is fiendishly difficult to achieve. In actual fact the US is currently a relatively benign environment to make money from automotive production. The market is biased towards high margin vehicles like trucks and SUVs and sales for low and zero margin 'compact' cars are comparitively low . There is also a legacy of Buy American hanging around, especially in demographics that tend to buy high margin vehicles. Unfortunately for the Big 3, this environment is dissapearing fast as their customer base ages, and gas prices start an inexorable climb, demand for high margin vehicles seem set for a long term decline, at a time when competition is increasing in this sector. This seems to point to serious pressure on margins for the only part of the automotive businesss in the US that makes any money.

In the lower end of the market the Big 3 have been selling compact cars at Civic prices using Suburban labour and practises. Corporate fuel economy legislation in the 80s and 90s meant thta it made sense to sell the smaller and more efficient cars at zero or negative margins as that allowed you to sell more high margin, less effficient vehicles. This has meant that the customer of compacts has for 20 years not been exposed to the real economics of smaller vehicles (as built by the US manufacturers)The only way the Big 3 can even break even on these cars is to compromise on quality and feature. This has led to a declining share of this market and a poor reputation for quality. Two things that are extremely difficult to change.

In summary, the US market appear to be trending towards a European model of many competitors, smaller vehicles and lower margins . Great cars and excellent quality are only the entry ticket to this market, a ruthless concentration on cost reduction will be the only method of profit improvement. European manufacturers (including the European arms of the Big 3) have been exposed to Asian competition for much longer than the US and have over the last 15 years improved their product, adding both feature and significant quality improvements.

They have also cut billions of dollars out of both overhead and product cost. They have moved both supply and manufacture eastward to lower cost areas (initially to Easter Europe but increasingly to Asia and the Far East). They have leveraged technology and suppliers to massively downsized their product development process both in terms of headcount and development costs (my equivalent in the US had twice the manpower for half the workload).

So, in summary what is my outlook for GM? Well without massive protectionism it will cease to exist in its current form. If it is to survive in any meaningful context it must reduce costs, overheads and headcount, significantly increase productivity and make vehicles people want to buy. As I'm not a US consumer I don't know what that is (95% of US designed cars look unimaginably ugly to me). It must also improve quality out of sight.

Without fundamental, structural change GM will die. Its portfolio of brands may survive but nobody is going to buy out GM in its current form, with its current overheads, any interested parties will let it fail and pick up the worthwhile bits and pieces afterwards.

If you don't believe this could happen, check out any good articles on the fate of the UK volume automotive industry when after a protracted struggle our last remaining large sacle, British owned manufactuer, MG Rover collapsed.

[Mr. S]

I dont know too much about the car market either. However, there are people who do buy the SUVs and the big Buicks and whatnot, but with the gas prices not going to drastically fall anytime soon, the trend has been towards smaller cars.

I know Chevy makes the Aveo and the Cobalt(replaces Cavalier). With what they charge for the Aveo for all the options a Scion X-a has is about the same, but the Scion arguably has a better engine in it (toyota), and is a lot more trendy for the high school/college market it is aimed for. Chevy Cobalt looks alright, but compare it to a Civic, Corolla, or Sentra, well, those cars have a lot better reputation, resale value, and more comforts it seems.

GM I think is doing fine with the big cars/SUV market, as well as trucks. However, more smaller cars are sold and GM does not have too many standouts there. I thought the Pontiac line was doing alright, especially its Vibe, but wait, that ones built the same as a Toyota Matrix...

[iheartskins]

Originally posted by Ignatius J.

Alright, this is really confusing to me.

Is Gm contractually obligated to give dividends? When they sold the stock, what conditions did they give? I mean did they essentially sell annuities, so that it would basically be defaulting?

Because if not, it should not decrease the price of the stock significantly. the purpose of cutting the dividends would be to invest that money back into the company, which should (in a perfect market) exactly offset the disruption in the dividend stream.

Obviously, the move signals trouble, and that would make stockholders squirm, but... I mean, who exactly is holding that GM stock and feeling really good about thier investment?

I guess what I'm saying is that GM is an old school giant of a company who has much bigger problems than the unions. Top to bottom they cannot compete, and are a big drag on the american economy.

Is it really clear that a hostile takeover would be a bad thing for GM?

Here are some notes based on my old Corporate Finance outline:

The issue is that dividends signal management's expectations about future performance of the firm. Investors buy firm's dividends and not their earnings. To evaluate the value of a given firm's shares, Pn represents the estimate of the present value of the stock which integrates an expectation of some return based not only in trading but in the continual receipt of dividends. The Dividend Capitalization Model (DCM) [which is still regarded as a viable principle in the equities world] assumes that the present value of a share of stock is equal to the value of all future dividend payments capitalized at a rate integrating the market's view of risk associated with the firm's expected income stream. Pn = d/k where d is the expected constant dividend and k is the market capitalization rate.

The question of whether to pay dividends is a matter of discretion on the part of the Board of Directors and management of the firm. It is protected with great latitude by the Business Judgment rule--meaning as long as the decision was reasonably informed, it will be judicially protected.

Under New York law corporations cannot guarantee the payment of dividends because they owe a duty to the company's shareholders to act in the best interest of the firm.

However, if the class of stock in question is preferred stock, then that raises a whole different set of questions. Unlike common stock, preferred is more contract based and the parties can agree to various terms that are different between corporations. There are some standard federal rules that deal with everything, but other than that, and state laws, the parties can contract to some degree about the payment of dividends.

I gotta run pretty soon, but let me know if that answers your questions.

[Phantasm]

Originally posted by The Dude

Exactly. That thing is pitiful. It's like someone souped up a Cavalier to get 400 hp. Yuck.

Ever driven one? I don't really care what they ended up calling it, I'd have still bought it.

I wanted a v8, 6spd, rwd GM vehicle. Check, check and check. They could've called it a friggin' Fiero and I'd still be lovin' it.

[portisizzle]

Originally posted by smsmith40

I have no personal insight into GM but up until recently I worked for a very large, family owned automotive manufactures based in Michigan (I leave you to work out the rest).

I have spent 10 years in Product Development in Europe so I think I have a little bit of insight into some of the general issues facing the automotive industry.

As some of the posters have said previously the formula to make money in this business is pretty simple in theory, make cars that people want at a price they can afford and is higher than the cost of designing and building them.

However, this is fiendishly difficult to achieve. In actual fact the US is currently a relatively benign environment to make money from automotive production. The market is biased towards high margin vehicles like trucks and SUVs and sales for low and zero margin 'compact' cars are comparitively low . There is also a legacy of Buy American hanging around, especially in demographics that tend to buy high margin vehicles. Unfortunately for the Big 3, this environment is dissapearing fast as their customer base ages, and gas prices start an inexorable climb, demand for high margin vehicles seem set for a long term decline, at a time when competition is increasing in this sector. This seems to point to serious pressure on margins for the only part of the automotive businesss in the US that makes any money.

In the lower end of the market the Big 3 have been selling compact cars at Civic prices using Suburban labour and practises. Corporate fuel economy legislation in the 80s and 90s meant thta it made sense to sell the smaller and more efficient cars at zero or negative margins as that allowed you to sell more high margin, less effficient vehicles. This has meant that the customer of compacts has for 20 years not been exposed to the real economics of smaller vehicles (as built by the US manufacturers)The only way the Big 3 can even break even on these cars is to compromise on quality and feature. This has led to a declining share of this market and a poor reputation for quality. Two things that are extremely difficult to change.

In summary, the US market appear to be trending towards a European model of many competitors, smaller vehicles and lower margins . Great cars and excellent quality are only the entry ticket to this market, a ruthless concentration on cost reduction will be the only method of profit improvement. European manufacturers (including the European arms of the Big 3) have been exposed to Asian competition for much longer than the US and have over the last 15 years improved their product, adding both feature and significant quality improvements.

They have also cut billions of dollars out of both overhead and product cost. They have moved both supply and manufacture eastward to lower cost areas (initially to Easter Europe but increasingly to Asia and the Far East). They have leveraged technology and suppliers to massively downsized their product development process both in terms of headcount and development costs (my equivalent in the US had twice the manpower for half the workload).

So, in summary what is my outlook for GM? Well without massive protectionism it will cease to exist in its current form. If it is to survive in any meaningful context it must reduce costs, overheads and headcount, significantly increase productivity and make vehicles people want to buy. As I'm not a US consumer I don't know what that is (95% of US designed cars look unimaginably ugly to me). It must also improve quality out of sight.

Without fundamental, structural change GM will die. Its portfolio of brands may survive but nobody is going to buy out GM in its current form, with its current overheads, any interested parties will let it fail and pick up the worthwhile bits and pieces afterwards.

If you don't believe this could happen, check out any good articles on the fate of the UK volume automotive industry when after a protracted struggle our last remaining large sacle, British owned manufactuer, MG Rover collapsed.

I consider that post a well written, thoughtful post based on facts that are not accessible to me.

Now that I am done kissing up to you. I have a question...

Why is it I have to haggle for the price of my vehicle like I am in St. Petersburg Russia bargaining for a chess set? I think this is a real problem as the age of the internet continues to inform consumers.

[MaddogCT]

Where are the people who slam TO for trying to renegotiate his contract? Shouldn't they be slamming GM for doing the same thing? "A contract is a contract!" has been used ad nauseum in discussing TO. It should also apply here.

While GM is claiming financial ruin, the CEO still recieved a 2.5 million dollar bonus. The share holders recieve 1.1 billion dollars in yearly dividens.

The UAW said they would work within the contract to reduce the health care costs. What does GM do? Announce job cuts and plant closings. UAW response? "If we don't fix some of the basic problems that exist when it comes to the product, then it seems no matter what we did, it would never be enough. Ever."

Health care costs are not the reason people are not buying GM cars.

People are not buying GM cars because the design and reliablity of GM cars stink.

:logo:

[The Sisko]

Originally posted by iheartskins

Here are some notes based on my old Corporate Finance outline:

The issue is that dividends signal management's expectations about future performance of the firm. Investors buy firm's dividends and not their earnings. To evaluate the value of a given firm's shares, Pn represents the estimate of the present value of the stock which integrates an expectation of some return based not only in trading but in the continual receipt of dividends. The Dividend Capitalization Model (DCM) [which is still regarded as a viable principle in the equities world] assumes that the present value of a share of stock is equal to the value of all future dividend payments capitalized at a rate integrating the market's view of risk associated with the firm's expected income stream. Pn = d/k where d is the expected constant dividend and k is the market capitalization rate.

The question of whether to pay dividends is a matter of discretion on the part of the Board of Directors and management of the firm. It is protected with great latitude by the Business Judgment rule--meaning as long as the decision was reasonably informed, it will be judicially protected.

Under New York law corporations cannot guarantee the payment of dividends because they owe a duty to the company's shareholders to act in the best interest of the firm....

...I gotta run pretty soon, but let me know if that answers your questions.

I think that probably answered the question. However could you repeat it in English please??

In the meantime, I'll take an amateur stab at it. When an investor buys a dividend paying stock he/she is doing so with an eye toward the overall expected return, part of which is made up of the dividend payments. Therefore, if the yield goes down due to a dividend decrease (or elimination) then all future expected returns are lower (as a good portion of the stock market's historical returns are due to dividends) and hence the stock price goes down.

Of course none of that addresses the much simpler issue of investor confidence and the message that a dividend decrease sends to the market.

[Ignatius J.]

Obviously the world is a lot more complicated than simple models, but the reason for refusing to cut dividends must be more complicated than the case outlined above.

As I mentioned, stocks aren't pieces of paper, they are ownership in a company. If the money is reinvested in the company, then if done correctly, the value of the company goes up. In fact, it goes up by EXACTLY the amount that the effect you describe above discounts the stock price. (this is where you wave hands and say perfect market)

In the real world, you have the fact that GM is a bad investment.

I think what it comes down to though is that GM is too big of a comapny. It's too old and it cannot compete in the market anymore on a large scale. To me the dividends are a sign of that. They're an entrenched old school part of doing business that by thier very existence adds to the rigidity of the business model.

I guess it comes down to this. No one at GM has any good ideas anymore. If one did come along, but in order to fund it, GM had to cancel dividends, it would absolutely be worth it to the stockholders IF the idea is a good one that can put GM back on top. Because no such idea exists, there is no reason to lower the dividends. The money is better off in someone else's hands. Maybe they should simply increase dividends until the company finnally dies at the end of it's slow painful death.

[smsmith40]

Hey Portisizzle, thanks for the props. I'll cherish this moment the next time I am yelling at you through the monitor as I read one of your posts on social issues. (j/k)

I am not as up on dealership issues. I haven't worked on that side of the business for many years and as a management employee I just filled in a form twice a year and my car was magically delivered.

I think people are reluctant to commit to such a large purchase online without 'kicking the tyres' in person and dealers certainly don't want that. They need to establish a relationship with the customer to try and ensure he comes back for his service needs, thats the part of the business that dealer actually makes money on. Customers in the US service their cars much more often than here in Europe and scheduled service intervals are much shorter in the US.

The haggling I think is a price mechanism that allows the dealer to adjust prices and demand to fit his local market. If there is a lot of competition locally and not much demand you will get a better deal than if its 100 miles to the next Chevy dealer.

Personally, when I left my old company I finally had to actually buy a car I did all my negotiation on the phone and by email. I didn't go near the dealership until I had a price agreed. My advice is to stay off his turf for as long as possible.

[The Sisko]

I see your point Ignatius. It makes sense in theory but in reality things don't always work that way. What often tends to happen is that the reality of a quarterly dividend payment forces a certain discipline onto management. They know when they decide to pay a dividend that they're committing themselves each and every quarter to coming up with that hard cash....and at the end of the day, cashflow is king. Without making that committment, the company can say "we've re-invested the money that would have been paid out in dividends back into the company" without having to show any tangible results over time. That is, the "re-invested" dividends end up disappearing into the corporate ether that tends to permeate huge multinational companies like GM. Think of it in terms of what your being able to pay your mortgage or car payment month after month after month says about your credit worthiness.

What you're forgetting young grasshopper is that today's paltry 2% yield can grow to a 10%, 12%, 15% or even greater yield as the dividend grows over time. The yield may stay low based on the current stock price, but based on what YOU paid for it years ago, the yield can be a lot nicer. This is in part why investors pay attention to the dividend. One, because of the effect it can have on their total return....and two because it can be a harbinger of trouble. That is, if the company can't come up with the cash it has "promised" investors, management is either not entirely competent or there's a fundamental problem with the company's business. Either way, it MAY BE bad news.

Never forget grasshopper that dividends are a healthy part of overall returns. If nothing more, the dotcom bust should have taught you that.

Now, can you take the ball from my hand?

[Ignatius J.]

there is no ball.