Friday, January 08, 2010

Counterpoint - Why GM isn't as bad as you think they are.

Well, for the past six or eight weeks, perhaps longer, there has been ample negativity around SaabsUnited aimed at General Motors, or, as they are now officially named, Motors Liquidation. I use that new name for a reason. They have a real problem on their hands -- they don't make a profit. In fact, they've made loses for several quarters in a row. How far back this streak of loses goes it's hard to discern. Corporate entities make sport of accounting at times of reporting and disclosure.

GM is certainly culpable for a lot of things. They've been at best negligent in their handling of Saab from the beginning. The General isn't exactly known for subtleties of design nor marketing, preferring to blast by the other car makers in Corvettes with huge supercharged V-8s, Hummers that weigh 6000 lbs. and Cadillacs dripping in chrome. I still shudder when I remember all of the times I've heard Bob Seger screech "Like a Rock" during Chevrolet truck commercials. It's in the 10,000 range, minimum. I'll never own a Chevrolet truck for that very reason. They are, in a word, fallible.

GM is certainly maladroit at times, too. This week's announcement of a consulting contract to "wind-down" Saab on the day after the prospective owners were to formally submit bids for Saab is a prime example. Commanding Saab to cover the plug-in hybrid capabilities to be built into a Saab concept vehicle was a little over-the-top, too. You'd think that a company would have a coordinated development plan that would have had the Chevy Volt team and the Saab team aligned to work together, wouldn't you? My personal favorite was last month's conference call Q&A on the subject of Saab's wind-down. So many laughable moments, so many cracks in the spackle that it fell over under it's own weight. All topped off by trio of tweeting Twitterers live-blogging the call who misspelled "Sweedish" twice and insulted the intelligence of most who were paying attention.

Believe me, I too, marvel at the train wrecks that GM trots out for us seemingly daily. They are in many ways acting just like the wounded beast that they are.

That's when it usually hits me: These people are doing what they can in this extreme circumstance. That is, Motors Liquidation (nee General Motors) is wounded. They, to some degree, should be expected to act this way. People under pressure make mistakes. Organizations under stress don't always coordinate like they should. And, believe me, they are under serious stress. GM is a wounded beast.

"So what?" I hear you ask. "Am I supposed to feel OK about GM's miscues simply because they're currently mistake prone?" No, I don't expect you (or me) to feel better about the current situation. It's not good. Saab is in dire straits. However, I don't feel that GM is being malicious, nor do I think that they are inherently evil.

Here's my point: I'm weary of wild, flailing accusations about Motors Liquidation/General Motors by Saabisti and car lovers everywhere. Generally, these are the ones to which I refer:

"GM is just a bunch of greedy, money-grubbing stiffs!"

Yes, they certainly are. They must make a profit just as any other company does. For the average person at Motors Liquidation, they are praying that their nest eggs, which are tied up in worthless GM stock, will sustain their families through their retirement years. Their lives hang in the balance just like any worker at the Saab plant in Trollhättan. Yes, they need the money. That's how all car companies roll.

If you want to talk money-grubbing, we can certainly change the subject to talk about the margins on a Porsche or how Daimler abandoned the Chrysler Corporation with a quickie divorce after taking the V-8 know-how from Chrysler and the four-wheel-drive know-how from Jeep. That's classic greed if you ask me.

A sub-plot on this theme is that GM is "playing the market" to get better bids, create urgency to sell, etc. Yes, I, as an American taxpayer, hope that they are. That's what owners of assets do to sell them. Simply put: when Carlos Ghosn does it, he's a master negotiator, but when GM does it, they're the evil con men. It's all in perspective.

This is business, folks. It isn't pretty.

"GM is a bunch of short-sighted idiots!"

Yes, they certainly can be sometimes. However, if you look at their track record, they do some pretty darned smart things. The Chevrolet Corvette beat all comers in the most recent Car & Driver "Lightning Lap" competition. Competition that included Lotus, Audi and Porsche. The GM light trucks dominate several market segments. Their Korean and Chinese subsidiaries are selling huge volume. Oh, and while we're on the subject, Motors Liquidation sells almost as many cars as the largest car maker in the world even though it's wounded. They are not idiots at GM. They simply aren't. They aren't always smart, either, but they are no fools.

"GM just doesn't want to sell Saab."

I take Mr. Whitacre at his word when he says, "Show up with the money and you can have it." Liquidation Motors has to answer to a bankruptcy judge/tribunal/congress/whomever for all transactions! If you are bankrupt, you don't get to keep things or throw them away without a very, very good reason. You are obligated to make the most of the assets that you have.

It makes much less sense to shutter Saab than sell for the right price. Ahh… the mythical "right price". What is the "right price"? I don't know, but it's more than they've been offered to date.

Selling Saab means that Liquidation Motors/GM is yoked with someone else for a long time -- the life span of the upcoming 9-5 at the shortest period and probably beyond. This is much more than a simple sale -- it's more akin to a short-term joint venture with a buy-out clause. There is a risk and a cost associated with this arrangement from GM's perspective.

Finally, there is a certain benefit from closing Saab -- no more loses (at least on paper), other GM divisions can use the designs, some of the best people can be used to bolster Opel/Vauxhall, etc. That possibility is there, so any sale must bring more to Liquidation Motors/GM than those assets would bring if applied elsewhere. Simple math.

"GM's being cruel to Trollhättan and the Swedish people."

Well, since GM's Detroit-area operations axed some tens of thousands of employees, and GM closed 14 factories here in the United States before turning to Saab, I'd say that the folks in Sweden were given a few extra months (perhaps a year) longer than about 30,000 American workers. GM's been much more heartless here in the United States than in Sweden.

The rhetoric around SaabsUnited seems to be: "A job cut that happens to others is unpleasant, but a job cut that happens to me/Sweden/Saab is an outrage." Quite frankly it's unfair to GM/Motor Liquidation and it devalues he thousands of Americans that have lost their jobs, too.

"GM is completely directionless right now, they are adrift!!

Au contraire. Actually, GM's directions have, if anything, become more focused. Prior to the crisis, they had the bandwidth and capital that they were moving more or less in every direction at the same time. Bankruptcy has forced them to eliminate many of the less productive efforts. So, I think that most of the "directionless" claims should rightly be termed GM's simply not "going my way". There's a difference.

I could go on, but I think that you get my drift. GM deserves a heap of blame, but they are not worthy of the vilification they get.

37 Comments:

Blogger David Zemon said...

Eggs,
As a fond reader of SU, it's interesting to read this, realizing you write some of those articles as well. Some of the thoughts you mention here, I've thought of as well... but not for long enough. Thank you for posting this. It was a good alarm to wake me up, back to the real world.

David

9:33 PM  
Blogger Gunnar Heinrich said...

Thanks for the perspective eggs. Good points.

3:57 PM  
Blogger Sport Mode said...

Nice to see a new post, Eggs. I agree that they've been boneheaded, but there's also been a bit too much kabob-style skewering. Hopefully they'll get back in line and start making money as Ford has been able to do.

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