General Motors and Ford Will Not Survive

On February 15 of this year, I had a guest blogger on this forum, Mr. Dickie Pennyworth, who discussed the state of General Motors and Ford.

Did he have some kind of magic crystal ball?

Because his disgust with the automakers (and their, how shall I say it delicately, lack of coherant management) foreshadowed what we, the taxpayers, are now apparently going to have to deal with with the auto companies.

President-Elect Obama and his staffers have already said that the auto companies are considered a vital component of the U.S. economy. That means only one thing.

BAILOUT

The big three are asking for an additional $25 billion just to stay afloat. And GM has all but blackmailed the government by “warning” that its cash could run out by the end of the year.

But as Dickie pointed out 10 months ago- it will take more than money to make these companies viable.

They need new management. Anyone seeing that change anytime soon?

Instead- the U.S. government will throw money at them. And once they absorb those billions, they’ll ask for more. And more. And more.

Because the ship is sinking and no amount of money can save them (sadly.)

Here’s Dickie’s views from last February. The sentiments ring true today- only the companies are losing even more money now. GM lost over $2 billion in the last quarter. Same with Ford.

Combined- both Ford and GM have lost over $100 billion since 2004.

This is what I have to say to GM; “Screw You.”
By: Dickie Pennyworth
February 15, 2008

I am raising my hand because I want to ask a question.

I would like to know exactly what the [bleeped out] is going on with the executive management at some of America’s most iconic companies. A growing number of these companies are being decimated by international competition, and it does not appear as if management has a read on the challenges confronting their prosperity.

Let’s take a look at the CFO of GM, Mr. Fredrick “Fritz” Henderson.

After enjoying years of growth and market dominance, GM has stumbled upon hard times. The company has been confronted with a lethal cocktail of calamities. Increased environmental regulations, sky-rocketing energy prices, draining materials costs and a weakened consumer environment. These are but a handful of the problems that led to the company’s disastrous fourth-quarter results.

In what is suspected to be the single largest one-year loss in the history of the auto industry, GM reported a total fiscal 2007 loss of over $38 billion, $750 million of that coming from this most recent quarter.

In comments to the press, Chief Financial Officer Fredrick “Fritz” Henderson, said U.S. auto sales were, “operating well below trend and below what we thought in 2005 when we conceived the turn-around plan.”

Hey Fritz, I appreciate the notion of a turn-around, but when you refer to trends and forecasts, where in the [bleeped out] are you getting your information?

When I take a quick glance at the trend in big domestic autos, here is what I come up with. It started in the late 80’s, when Japanese auto-makers took a big bite out of the domestic’s sales.

This market penetration by foreign competition was achieved through advanced technology, delivering a superior product that was more efficient and more reliable. Enter the mid-to-late 90’s, a renaissance of sorts for the domestics, built upon the SUV, but this trend was short lived, with the tech bubble bursting and these larger, gas guzzlers falling out of favor.

With energy prices a serious consumer consideration since our political engagements in the Middle East, this became the primary focus of the auto industry moving into the 2000’s. International auto makers poured massive amounts of energy and resources into developing even higher fuel efficiencies, producing cars that would appeal to a global audience that was sensitive to energy prices.

And how did the domestics respond to the new climate?

Well, in 2005, Ford came up with the brilliant idea of doing a “re-issue” on its old classic muscle car, the Mustang. Here is a car that hasn’t been popular for 20 years, but Ford management thinks it’s a good idea to attach itself to the brand to try and find a way to make a quick and easy buck.

This concept fails on so many levels that it is laughable. Let me see. How’s the gas mileage? Not good. How much does it cost to build? It’s expensive. And our target customer? Middle-Middle, sensitive to costs.

So when I see a trend that is in play here in this industry, Fritz, that is the trend that comes to mind. The 15-year trend of continued domestic market share depreciation and lowered volumes. A trend that is literally slapping you and your company across the face because it is begging to get noticed.

And what about the trend in both crude and gasoline prices, certainly an essential component of any auto-makers forecasting model?

A company the size and stature of GM needs to be built on a foundation of information. Acquiring key data about the most important and critical components of its core business.

And how significant do you think something like the cost of gasoline is to a company like GM? I cannot think of something that should or could be more important to GM than the trends in the energy markets. For GM to let this one slip by is absolutely unforgivable.

A highly detailed and comprehensive forecast in energy and consumer consumption patterns would enable the company to align its core values and directives with the priorities of the customers it favors. And yes, this absolutely does require a mega-cap like GM to showcase some agility.

But Fritz, this is F**KING GM! And you are making $10 million f**kin’ bucks this year, so give me a friggin’ break! I’m sorry, make a tough call, be unpopular, but for the love of God, the company just lost $38 billion in one year on YOUR watch!

Here is what you do tomorrow, Fritz.

Immediately shut down half of the company, because that at least gives GM the chance to sustain itself. (As opposed to eating itself from the inside out.)

Beyond that, you invest all of your resources into developing inexpensive autos that carry ridiculous mileage capabilities. Anything less than a totally radical and unprecedented paradigm change will fall short of enabling this company to move back into the green.

The f**king games are over. It is not pretty out there. Our great American companies are getting slaughtered by foreign invaders. And if they don’t get serious about stepping up their game and truly competing, these great companies will be chopped into tiny little pieces and carted off the battlefield by the new Global Power Players.

End—