GM Bankruptcy Part II: The Reaction

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Tag: GM, General Motors, Bankrutpcy, USA Today, NY Times, Brooks, Romney, Dan Neil, Ralph Nader, Reasons, Sonnenfeld

June 6, 2009

There is no question that the GM Chapter 11 filing was historic.  Since the filing on June 1st, I have compiled a number of articles commenting on the event.  Much like politics, everyone seems to have their thoughts on why GM failed.  What I have generally found and will present was a perversion of GM’s problems over the years and in general a complete lack of insight into what lead to the bankruptcy and what the New GM will mean under government ownership.  Moreover many authors presented their arguments as if GM was an isolated case and ignored the troubles at Ford and Chrysler and the whole industry.

The reality of GM’s problems and in many ways shared with Ford and Chrysler are complex and deeply rooted.  Poor product/product mix over the years, along with dealer and union contstraints lead to a weak balance sheet.  GM and Ford had solid plans to fix their problems but they were derailed by a chain of damaging events when sales collapsed to lows, not imaginable this time last year.  I will be addressing a sampling of the bankruptcy coverage by the mainstream media, political pundits, academics and will close with long-time consumer advocate Ralph Nader.  This is the second article in a what may turn into a series on the GM bankruptcy (See GM Bankruptcy Part I: A Bright Future Awaits).

The first article that caught my attention was in USA Today by Sharon Silke Carty, Seven reasons GM is headed to bankruptcy.  I will address each of the seven points separately and attempt to explain why the author’s points are off base or were not possible given constraints.

From the start the author dismisses David Cole, a very well respected industry analyst and insider.  Industry sales were at a 16 million units per year sales pace a year ago and has dropped to about 9.5 million since the start of year.  Last month, Toyota reported a $7.7 billion loss for the first three months of the year.  This industry just does not have the ability to downshift that fast.

Some would argue GM got here mostly because the sales-killing recession came just as it was about to turn around. "This has nothing to do with the management of the company over the years," says David Cole, chairman of the Center for Automotive Research. "When you take sales down to Depression-era levels in a high-fixed-cost industry like this, it's a killer."

With respect to the author’s seven points:

1. Not filing for bankruptcy sooner

Momentum toward a bankruptcy filing accelerated since the auto market collapsed last fall. But as far back as the North American International Auto Show in Detroit in 2005, then-CEO Rick Wagoner faced questions about whether GM would be better off filing for bankruptcy reorganization to cope with its labor costs, debt load and excess dealers.

Wagoner was then, and remained until his last days at GM, adamantly opposed to bankruptcy. He said it would drive away buyers and irreparably harm workers and shareholders. He believed GM could turn around: He was CFO in 1992 when GM teetered on the brink of bankruptcy, only to make a strong rebound.

Comment: Wagoner as Chairman and CEO had an obligation to protect it shareholders.  Traditionally shareholder equity is the first to get wiped out during a Chapter 11 proceedings.  If GM had filed in 1992 or in 2005 the shareholder at the time would have lost everything.  That will still be the case when New GM emerges from bankruptcy in a few months.

If GM would have filed earlier, it is unknown how long the company would have spent under the courts protection and how much market share would have been lost.  The only significant difference would likely be is if GM would have file specifically around 2005 the ownership structure would have been a private equity group or large banks as they would have provided the debt financing.  Today, Government backing under the part 363 bankruptcy process will help assure the process is quick and GM will emerge without a substantial loss of sales.

It should be noted, as GM progressed with its restructuring, its stock price did rebound for its shareholders.  As recently as the fall of 2007, GM’s share price was about $43 after signing the historic UAW contract, designed to restructure its health care obligations. The Chaiman's first job is to protect the company's owners. Wagoner over the years attempted to do just that, until the economy gave out and a government sponsored bankruptcy was its only option.  

2. Driving incentives into the ground

Following the 2001 terrorist attacks, GM was praised for responding quickly and decisively: It offered consumers 0% financing on loans up to five years. When the newness of that deal wore off, the automaker piled on a $3,000 rebate.

And the deals kept coming. GM stuck with cash-back deals and low-rate financing for years, increasing rebates to $6,000 to $8,000 in some cases. But to afford the rebates, GM kept sticker prices high. It took GM until 2006 to realize it was damaging itself with the non-stop deals: Shoppers often wouldn't consider a GM vehicle because its sticker price was so much higher than the competition.

Comment:  I will start off by stating, incentives are built into the price of a vehicle and are a normal course of doing business.  Furthermore, incentives are factored into the vehicle development program and ultimately built into the MSRP of a vehicle.  To the author's point, the incentives at GM were a symptom of a bigger problem at the company.  GM's car programs earlier this decade were not well received in the market and to keep the plants running and paying union employees, the company poured on the incentives.  For that reason the incentives were not the problem, the products were.

The $6,000 to $8,000 incentives the author glosses over were on the already high margin pickup trucks and SUVs at the end of their product cycle.  To reduce inventory after fuel prices spiked post hurricane Katrina offered large incentive to move the trucks and SUVs.  The company understood they needed to pull the incentives and rushed to market the next generation SUVs and pickup so cash flow could improve with fresh product and reduced incentive spending.

The products released under the full direction of then GM product chief Bob Lutz such as the Chevroet Traverse, Chevrolet Malibu and Cadillac CTS have not needed substantial incetives to sell the product.  In fact the transaction price of the product had improved.  For example, the second generation CTS sedan improved its retail sales by 33% and increased the transaction price by $8,000 compared to the previous model. The Malibu sedan also increased its retail sales by 113%, improved the transaction price by $4,000 and increased the residual value by 11 points over the previous model (See Upcoming GM Product May Save the Company).  

3. Killing the EV1 electric program

Wagoner said his biggest mistake was killing the EV1, the company's pint-size electric car that was in test fleets in the late 1990s. It was a public relations debacle when the test cars had to be reclaimed and GM then scrapped them. But the real loss was scrapping the program behind them. GM abandoned a big lead in electric car technology and let Toyota take the green mantle for its hybrid Prius.

Now, GM is scrambling to regain the lead, promising its plug-in electric Volt will be on sale at the end of next year.

Comment: The myth of GM and the EV1 program continues.  Toyota is the only company that sold a substantial number of hybrid vehicles and no major manufacturer sells a true electric vehicle in the US.  It has also been reported that GM lost $1 billion on its EV1 program.

There is no doubt GM had to play catch up on hybrid vehicles but lets face facts, the sales numbers and low to no margins on hybrid vehicles would not have produced the revenue to save GM.

One small, money-losing program does not make for a successful company.  I will only assert that if GM did have a successful hybrid program in its portfolio it certainly would have helped its image but it would not have prevented this bankruptcy.

4. Selling control of GMAC

For years, the ongoing joke was that GM was a bank that happened to make cars. Quarter after quarter, year after year, GM's financing arm, GMAC, pulled in way more revenue than its automotive operations.

In 2006, facing a cash crunch, GM sold off 51% of GMAC to private-equity fund Cerberus for $7.4 billion in cash and another $6.6 billion in staggered payments.

Although GMAC ran into problems with its mortgage unit in the housing crisis, keeping control could have helped GM weather the slide in auto sales last fall, O'Keefe says.

During the credit crisis, dealers saw their GMAC financing for inventory revoked, and about 25% of potential buyers couldn't get GMAC car loans.

In the past, GMAC could have extended loans with a "wink and a nod" to help keep dealers stocked with cars and keep financing loans, O'Keefe says.

But once GM gave up control of GMAC, it lost that flexibility.

Comment: One of GM’s luckiest breaks was that it was able to sell 51% of GMAC to Cerberus for $14 billion when it did.  I will say GMAC was ground zero of the mortgage crisis and if it still were a captured unit of GM would have likely taken the company down earlier rather than later.  There is no defense for GMAC's involvement in the subprime housing bubble and I fault the lack of oversight on the part of GM.

Starting in late summer and climaxing in the fall of 2008, GMAC’s line of credit dried up.  There was little available credit to extend to dealers and consumers to purchase new GM vehicles.  This not only adversely affected GMAC but also the whole industry.  GMAC’s problems in lending were not related to its ownership structure but the dire state of the banking sector.  GMAC simply had no cash to lend.  The authors point is moot.

A slight clarification, GMAC made more profit than the automotive operations, but it did not generate more revenue.

5. Ignoring Jerry York

In the fall of 2005, billionaire investor Kirk Kerkorian bought up 10% of GM's shares, making him the company's largest shareholder. He then pressured GM to take his aide, Jerome York, as a board member, and tried to force GM to partner with Nissan and Renault.

Although the Nissan/Renault marriage failed, York showed some foresight.

In an early 2006 speech, he spelled out what he thought GM needed to do to right itself: Be more realistic about market share and revenue expectations, cut excess products and brands, sell or close business units that weren't making money and take what he called a "clean sheet of paper approach to the business," looking at everything in the company with fresh eyes.

Comment: At the time the deal was proposed, Nissan-Renault (RN) would have walked away with GM because GM’s market capitalization was so low compared to RN.   More importantly, the proposed deal looked like an out for Kirk Kerkorian who would have exchanged his position in the company with RN and was certainly not acting in the best interest of GM’s shareholders.

GM requested RN provide cash payment in exchange for an alliance to offset the premium they would have received.  The company believed RN would receive more value from the alliance because of GM’s larger size and global reach. In a statement issued by GM, the company stated:

The GM Board concluded that the alliance framework required by Renault-Nissan would substantially disadvantage GM shareholders. This structure included the potential joint projects, which we agreed could yield significant aggregate synergies, but which were highly skewed to Renault-Nissan. The structure also included the requirement to sell a substantial equity stake in GM at no premium, along with preferential rights, which could have had the practical effect of foreclosing GM from entering equity alliances with other OEMs. Renault-Nissan made it clear they were unwilling to pay any premium in any of these areas.

GM’s crisis over the past year could not have been adverted by an alliance with RN.  RN could not have fixed GM’s systemic problems in the US with its dealers or the unions and it certainly did not have the cash to provide to GM.

At that time Jerry York also recommended GM sell SAAB and HUMMER and ditch traditional brands.  His astute insight is debatable.  One thing is certain, GM would still have to content with their dealer body if they attempted to phase-out core GM brands such as Pontiac or Buick.  However, nothing York proposed would have saved GM from the sharp down turn in sales or improved its balance sheet quickly.

6. Mishandling Fiat

When GM bought 20% of Italian automaker Fiat for $2.4 billion in GM shares, the deal seemed like a genius move. With Opel/Vauxhall, it would've given GM dominance in the European market and made GM an even stronger global player.

But then Fiat CEO Gianni Agnelli died, and problems with the automaker mushroomed.

As part of the deal for GM's stake, Fiat had the right to force GM to buy the remaining shares and take control. In 2005, GM decided, instead, to pay Fiat $2 billion to get out of the deal.

Fiat used that money to turn itself around, and it will be Chrysler's newest owner.

Is it ironic or sad?

Comment: The simple answer is that GM could not afford to take over Fiat if the company exercised its option to force GM to purchase the rest of the company.  I have stated in prior articles on the subject that I was a supporter of the GM-Fiat alliance.  However, GM had more pressing issues at their US operations.  

At the time or even now, Fiat was not in a position to offer GM much.  The company did not have the cash to provide to GM to have prevented this bankruptcy.  GM’s had one big problem in its North American operations that an alliance with Fiat could do little about, a weak balance sheet (See Fiat Should Form an Alliance with GM, Not Chrysler).

7. Overreacting to the truck boom

When GM realized how fast 1990s buyers were switching to trucks as personal transportation, it overreacted, pouring time and money into SUVs and pickups at the expense of car development. The result: As long ago as 2000, Wall Street was warning that GM could be overcommitted to trucks and wind up out of phase if the pendulum of buyer preference swung back to cars. Once consumer tastes began changing, the market was awash in new truck models, and profits were sapped by discounts needed to keep sales boiling.

The symbol of GM's swing too far toward trucks is the high-end Hummer. GM launched the big SUV in 2003, the compact H3 in 2005. As buyers edged away from trucks, then fled as fuel prices hit records in 2008, GM wound up with pricey models that not only didn't sell, but also gave it an environmental black eye. Some of the heftiest Hummer H2s barely managed 10 miles per gallon.

Comment: There is no doubt fullsize trucks and SUVs were high profit vehicles for GM.  Since GM started their latest restructuring in 2005, GM was a slave to two things 1) a liquidity problem and 2) revenue from trucks.  If not for the profits from its truck lineup, GM would have been insolvent years ago.  Trucks and SUVs were the one product lineup that could generate enough profit to keep the company going until it could fix the car side of the business.

Just prior to 2005, GM released a fleet of brand new vehicles that were not well accepted by the market.  However, the next wave of products to be released were its next generation fullsize pickups and SUVs starting in 2006 cy.  It is not that GM did not invest in passenger cars, it was the fact they did not sell as well as expected and could not generate planned revenue and profits.  GM’s reliance on trucks was a symptom of their problems and not the cause.  

Once product chief Bob Lutz elevated the product back to the top priority of the company, it was bound by the life cycle of that product and had to wait until it was ready to be replaced.  Lutz was also contrained by the product that was also too far along to change when he arrived in 2001.  It was impossible for GM to revamp all of their product immediately once it was recognized how ill received some of the early-to-mid 2000s models were doing in the market.

GM had but one choice and that was to let the truck and SUV lineup fund the next generation of cars and crossover.  Management knew what they were up against as they expedited the product development of the vehicles to move forward the release date to begin full scale production.

The author of this article missed GM's key problem, it needed time to get its product right, which was cut short by the financial crises.  

New York Times columnist David Brooks decided to share his thoughts on the implications of the GM bankruptcy and what he anticipates from government ownership of the new company.  Brooks (at least his public persona) believes he has root-caused GM’s failure and government ownership will adversely affect managements performance.  Furthermore, he goes on to elude that government ownership will not provide the incentive to reinvent the company.   In his June 1st NY Times Op-Ed The Quagmire Ahead, Brooks wrote:

The problems have not gone unrecognized and heroic measures have been undertaken, but technocratic reforms from within have not changed the culture. Technocratic reforms from Washington won’t either. For the elemental facts about the Obama restructuring plan are these: Bureaucratically, the plan is smart. Financially, it is tough-minded. But when it comes to the corporate culture that is at the core of G.M.’s woes, the Obama approach is strangely oblivious. The Obama plan won’t revolutionize G.M.’s corporate culture. It could make things worse.

•    First, the Obama plan will reduce the influence of commercial outsiders.

    Second, the Obama plan entrenches the ancien régime.

   Third, the Obama approach reduces the fear that impels change.

    Fourth, the Obama plan dilutes the company’s focus.

    Fifth, G.M.’s executives and unions now have an incentive to see Washington as a prime revenue center.

    Sixth, the new plan will create an ever-thickening set of relationships between G.M.’s new owners — in government, management and unions.

First Brooks ignores the economic conditions that pushed GM to this point as it attempted to implement its earlier restructuring.  Because of the mess the banking industry created, GM’s only option was to petition the government initially for bridge loans and subsequently for a total bailout.

There is no question GM's management has made many bad decision over the years, however, his assumption is, GM is the same company and lead by the same people with the same mentality.  Fritz Henderson is a well-respected turnaround specialist with a proven track record at GM.  Since assuming the position as CEO he has executed agreements with bondholders and labor that should lead to a lower structural cost and a cleaner balance sheet once the company is cleared to emerge from bankruptcy.  These agreements also made the 363 "quick rinse" bankruptcy process possible.  Would it be reasonable to assume Henderson and his team's level of performance will suddenly reverse under government stewardship?   It also should be mentioned, the UAW through their trust will have a vested interest in the success of the company.  If the company is not successful, the health care trust will not be funded when the union liquidates their ownership position.

Brooks’ third and forth point border on absurd.  However, I will address the latter by saying, the administrations new fuel economy initiative announced a few weeks ago was designed to improve the fleet average without encouraging the downsizing of the fleet.  The fuel economy requirements are specific to the size of the vehicle. 

Brooks states:

There is no evidence G.M. is good at building the sort of small cars the administration demands. There is no evidence that there is a large American market for these cars.

It is clear that Brooks is not familiar with the regulatory initiative or even the strides GM has made in fuel economy and improvements to its fleet. GM has never paid a fine for not meeting the requirements since they were introduced.  Why would that practice have changed even if the company was never bailout by the government?  Furthemore, GM has been a successful small car producer in their global markets and will be bringing those same designs to the US.   His other points are just as ill founded.  

GM has been a regulated entity for a long time and has had to balance the two masters of the market and federal requirements.  The government is also a large owner in many banks and yet the government is having a difficult time compelling banks to lend. Brooks' fear of government meddling in the day-to-day operations of the company in unfounded and the issue appears to be raised more by ideology than probability.

To support his fifth point, Brooks writes:

Already, the union has successfully lobbied to move production centers back from overseas. Already, the company has successfully sought to restrict the import of cars that might compete with G.M. brands.

I am unsure if there is truth in either statement.  The UAW balked at leaked product plans outlining GM intended to import 50,000 vehicles to the US from China.  GM appeared to cave to demands and agreed (Press release) to add 150,000 small car production at a plant slated for closure in the US.  The UAW agreement outlined in a newsletter does not indicate GM will not import any vehicles from China (UAW Newletter).  I am unaware of any public document where GM announced the company will not proceed to import 50,000 vehicles from China.  Furthermore, to his last point I know of no restriction on imports to the US that might compete with GM brands.  The only one I can think of is the Chicken Tax which imposes a 25% tariff on imported pickup trucks, which dates back to the 1960s.

Jeffrey A. Sonnenfeld, a Senior Associate Dean of the Yale School of Management wrote his in depth analysis of the failings of GM in a recent Business Week article: How Rick Wagoner Lost GM.   Sonnenfeld makes some subtle errors and mistatement in his article.  Moreover, the explanation he lays out for GM's failing just does not hold water.  I will address key points in his article and will add context to his views because without it, his analysis is misleading.

He lost $82 billion in just the past four years, and cash management was so poor that five years ago, GM's debt was properly downgraded to junk-bond status.

• He made astoundingly bad product decisions, such as supporting the poor-selling Pontiac Aztek and cancelling GM's early move into hybrids. And Chevrolet could have been marketing the Volt a decade earlier than it did, thanks to the prescience of Robert Stemple, a Wagoner predecessor who as CEO from 1990 through 1992 greenlighted the development of the EV1, the first electric car.

• In 2002 he ignored urgent trends to focus on car development while reaping 90% of profits from pick-ups and SUVs.

• He maintained too many divisions and too many lookalike products.

• He was under-responsive as the economic crisis revealed itself, cutting production only 25%, while Ford cut more than 45% in the first two quarters of this year.

• He squandered great names like Saab, Opel, Saturn, and Hummer by not properly investing in them and hoping instead to harvest past initiatives and covertly transplant core GM car platforms.

• He led a misguided joint venture with Fiat that cost GM $2 billion to extricate itself from. He allowed GMAC, when he controlled it, to bathe in the subprime lending market with its disasterous RESCAP subsidiary. Contrast that with the strategy of Ford, which got out of that high-risk lending in 2002.

• He sold GM's valuable GMAC internal financing arm to Cerberus, which also controlled GM competitor Chrysler. In December and January, Cerberus basically stopped writing retail finance contracts to support GM buyers.

• He pursued plans to purchase Chrysler, drawing on an anachronistic mindset that saw virtue in bulk operational size and scale efficiencies rather than profits, quality, and reputation.

• Wagoner continually went before the American public and Congress unprepared and angry, demanding taxpayer support without ever being able to articulate why he wanted $25 billion, how the company would use the money, and what GM's vision was for a future viable enterprise.

GM’s debt downgrade to junk was based upon a number of issues related to its performance in the market but downgrade was largely based upon the company’s suffocating healthcare burden.  It also must be remember that Ford was also downgraded at the time.  Futhermore, Sonnenfeld ignores the 2005 Delphi bankruptcy which cost the company billions and added further pressure on its credit rating (March 2006 Fitch Rating). Sonnenfeld also fails to acknowledge GM sold GMAC not only to raise cash to restructure the auto operations but to also improve its credit rating.

Sonnenfeld also calls Wagner unresponsive for not cutting production in line with Ford.  However, based upon the latest Automotive News production data, from the start of the year through the end of May, both Ford and GM cut production by 50% compared to the same period last year.

On one hand Sonnenfeld states GM ignored trends in 2002 to focus on car development instead of trucks and yet GM was about to release a fleet of new passenger cars to the market such as the Pontiac Grand Prix, Cadillac CTS and Chevrolet Malibu (I will not the Grand Prix and Malibu were not successful but the investment refutes his point).  He than calls the SUV HUMMER brand a squandered opportunity by not investing in it (which GM did do). 

GM also invested heavily in Saturn and Opel.  I will concede that Saturn just received a complete lineup a few years ago when the investment should have been made a decade ago.  As for Opel, I have documented their problems to death as well as my position on the GM-Fiat alliance.  Furthermore, it was reported last year that now GM CEO Fritz Henderson was the one responsible for pursuing a GM alliance with both Ford and Chrysler.  This anachronistic mindset estimated a GM-Chrysler alliance or merger could save an estimated $26 to $38 billion dollars according to Chrysler executive Tom Lasorda's affidavit filed with the court as part of that bankruptcy. Finally, he points to the Aztek failure but ignores the popular 2003 CTS, which resurrected the brand from the grave.

I agree with his comments on the GMAC Residential Capital subprime fiasco that almost took down GMAC.  GMAC was caught up in the housing bubble and is certainly guilty like all the major banks and mortgage companies that were involved with subprime mortgages.  However, his points on Ford getting out of subprime lending is taken out of context.  I do not recall Ford Credit having a home mortgage operation such as GMAC’s Residential Capital.  I conducted some due care research to verify my recollection and did not find any references to any sort of mortgage entity.   Ford Credit was not as big an operation as GMAC as far as offering products to the public and businesses.  GMAC was almost a full service banking and insurance business prior to converting to a full service bank holding company late last year.  References disputing Sonnenfeld understanding of the facts are provided below.

What Sonnenfeld may have been referring to was Ford Credit scaling back their subprime auto lending.  The finance company’s subprime unit Fairlane Credit suffered heavy losses resulting from poor lending practice late last decade.  In 2002 Fairlane Credit closed the business but remained in subprime lending for auto buyers through another subprime unit and established stricter loan requirements.  

He brings up old arguments about GM having too many divisions and that is debatable.  GM had a strategy to deal with its brands and sell multiple brands through a consolidated dealer network such as the Buick-Pontiac-GMC division.  GM just could not drop brands without having to compensate dealers.  It is estimated it cost GM $1 billion to close down Oldsmobile.  My point is, phasing out brands costs a lot of money.

Some of Sonnenfeld other points I discussed earlier.  Overall, I found his analysis lacking and very misleading.  Not to belittle the amount of cash GM spent in the last four years restructuring the operations, but a substantial amount of the $82 billion the company lost in recent years were write downs on assets (See GM Reports May have Billion Tax Bill).  That is just another illustration of the oversimplified presentation Sonnenfeld made.  Many of the big restructuring objectives at the company I have addressed in past articles (See Book Review: Why GM Matters by William J. Holstein).

Finally, I will defer to a recent Bloomberg article that documented Rick Wagoner’s firing by the Obama Administration (Firing Wagoner Became Necessary for CEO in Denial).  In the end, GM received the bailout money from the Bush administration no matter what anyone thought about his performance at the Congressional Hearings.  For the most part, the latest restructuring plan is very similar to the one presented to Congress back in December and February.  The only significant difference is the cuts are deeper to reflect even worse market conditions.  There have been no major policy changes made in the restructuring.  This also refutes some of Brooks' issues with government ownership of GM.

Former Presidential candidate Mitt Romney also had to offer is thoughts on government ownership of GM.  It must be remembered Romney is from Michigan and his father once ran the automaker American Motors.  The Detroit New reported in, Romney balks at government ownership of GM the Sunday before the expected bankruptcy filing:

The Obama administration and the United Auto Workers should immediately distribute their stock in a restructured GM to American taxpayers, former Republican presidential candidate Mitt Romney said Sunday.

"We don't want a president and the head of the UAW running General Motors," Romney, a Michigan native and son of former Gov. George Romney, said in an appearance on "Fox News Sunday."

Romney suggested that the roughly 70 percent of GM that the government could own after it emerges from bankruptcy should be immediately distributed to taxpayers, and the 17.5 percent that will go to a UAW trust fund for retiree healthcare should be handed out to UAW members.

I will argue that if Romney were President today he would have done exactly the same thing the Obama and Bush administration started.  I will reiterate that no one besides the Federal government would provide the debt financing to GM that would allow it to enter Chapter 11 bankruptcy.  Moreover, government ownership was the only way to allow GM to emerge from bankruptcy with a relatively clean balance sheet.  There was little point for GM to swap the current bondholders debt for government debt and still maintain the same ownership structure.  It would have been impossible.  Much like Brooks, it is political pandering and I suspect a talking point for his next presidential run.  That is if New GM fails.

Auto writer Dan Neil of the LA Times offered a fitting take on GM’s bankruptcy and its greater meaning in When cars were America's idols.  Neil has been a harsh critic of GM over the years, who was made famous by a couple spates with GM’s Bob Lutz over his reviews of the company’s product.  On Monday, Neil wrote a very fitting obituary on GM.  In his column Neil succinctly captures my thoughts on GM over the past 8 years under former CEO Rick Wagner:

It's not that GM hasn't tried to reform. It has. The alarming fact is that GM has done so much right and still failed.


In the midst of turning the ship around, GM hit not one but three icebergs: the sudden collapse of the U.S. auto market, the sharp spike in gas prices and the crisis in credit. U.S. auto sales contracted from around 16 million vehicles a year in January 2008 to fewer than 10 million in March. GM's sales plummeted by roughly half, which meant it burned through its cash reserves much more quickly than anyone could have imagined and sent its total debt soaring to more than $60 billion.

Bankruptcy was not inevitable, until it was.


The post-imperial GM will be smaller, leaner, smarter and hungrier. I hope. Bankruptcy's purifying fire will burn away debt and, as important, a legacy of comfortable arrogance. And it will be truer than ever: What's good for GM is good for America.

While I am at it, here are a few passing thoughts by long time GM foe and another former President candidate, Ralph Nader.  Nader issued a formal statement on the GM bankruptcy where he stated:

The GM/task force bankruptcy plans appear geared to saving the General Motors entity -- but at a harsh and often avoidable cost to workers, communities, suppliers, consumers, dealers, and the nation's manufacturing capacity. It will also prove to be a complex political nightmare for President Obama.

I chose to include Dan Neil and Ralph Nader's thoughts, because in their own unique way, each acknowledges the complexity that is GM, which I believe was specifically missed by others cited in this article.  Nader of course ranted but he is right in that bankruptcy will allow for the draconian measures necessary to fix "GM for the last time." That was the expression, I was once told Wagoners used to express his goal for restructuring the company. 

GM was also in the process of fixing the product in its portfolio, which would have fixed the balance sheet.  

Reading all the articles cited in full is encouragedI only referenced certain sections that were relevant to my discussion but I countered arguments the authors made but did not cite.  What I hope the reader takes from this article is: GM's problems cannot be boiled down to a few bulleted points and the experts and/or opinion makers got a lot of it wrong.



Ford Credit closes its subprime subsidiary, Wards Auto, April 1, 2002

Moody's Downgrades GM, Ford Bonds to Junk,Dow Jones, August 24, 2005

Ford found benefits in subprime loans, The Gazette, January 9, 2009


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