Why GM Matters: Inside the Race to Transform an American Icon

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Why GM Matters

Why GM Matters

[As I indicated yesterday in the post "Why American Industry (And Its Future) Matters", we have the privilege of having author William J. Holstein today at Emptywheel and Firedoglake. Mr. Holstein has a long and rich history as a journalist and author. Most importantly for today, he has plunged into the history and ethos of General Motors and produced an incredible work detailing just how critical General Motors, the American auto industry, and American industry itself is to the United States economy and way of life.

As Michael Fitzgerald observed at bnet.com, "Holstein is using GM as a symbol for whether it makes sense for the U.S. to bother with manufacturing. That might sound odd for a country that for now probably remains the world’s largest manufacturing economy. But Holstein argues that our political and financial leaders don’t get manufacturing, and don’t think it’s important. This is the crux of the Main Street vs. Wall Street debate, and it is shaping up as the core fight of economic policy over the next few years: do we get a justifiable return if we invest in making things, or should we focus on information-driven innovation?"

I think that is right. Since we cannot layout the entire book in the intro here, Bill and I decided to focus on the emerging technology, and specifically battery/electric technology, and the new product lines, that GM is producing. With that said, what follows are prepared remarks in that regard by Bill Holstein. Take a look, and then join us in discussion. I am looking forward to the best and brightest that inhabit our little corner of the world participating in and driving this. Oh, and visit Bill anytime at his blog WilliamJHolstein.com Also, I heartily recommend purchasing his book, it is a fascinating look into a critical issue of our time, not to mention a great read. – bmaz]

*****
By: William J. Holstein:

It’s time to cut through all the nonsense about General Motors “not making cars that Amrericans want to buy.” The truth is that GM has seized design and performance leadership over its longtime nemesis, Toyota. Toyota’s cars these days resemble appliances, i.e. refrigerators on wheels. They don’t break, but they hardly inspire.

In terms of their physical appearance, GM vehicles have real attitude. The new CTS has a very bold and aggressive front end that designer John Manoogian came up with at the last moment. He and his team decided to take the V-shape that used to stop at the bumpers and let it plunge below the bumpers toward the ground. They also inserted grilles on the right front panels merely for decorative purposes. That nearly drove the engineers crazy because of the challenge of stamping a piece of sheet metal with an odd hole in the middle of it. But they did it. At first, the competition could not believe that GM had figured out how to achieve that.

Read more →

Why American Industry (And Its Future) Matters

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Image from ExploreHistory.com

Image from ExploreHistory.com

Ian has a great piece up at FDL on the financial sector’s problems, their genesis, and the Obama Administration’s conventional wisdom, status quo, manner of dealing with them:

I have become increasingly concerned that some in the Obama administration are treating this economic crisis as a "black swan" event. That is a very rare, random and unpredictable event. The key thing about black swans is that they are random and unpredictable and you can’t stop them from happening, you can only create your systems so that they can handle them if they occur.
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But, of course, the economic and financial crisis unfolding right now was not random. It was predicted by multiple people, and it was predicted because of policy steps taken by government and widely known private actions.
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All of which is to say the crisis was caused by a number of factors. It was not random. It was predictable and predicted. If we just muddle through this current meltdown—spend a lot of money bailing out the banks, throw some stimulus around—and don’t fix the fundamentally flawed incentives and structures of the system, it will likely happen again.

Ian was discussing the financial sector, but it strikes me that the same applies for America’s industrial and manufacturing sector. The United States was built on the backs of hard working people that planted and built things, sweated, toiled and prevailed. In the post-modern hustle and flow of the digital and financial whiz bang world, we seem to both forget and neglect the industry, manufacturing and workers that put us here. I want to focus, and open a discussion, on that.

I am not expert on the issues and economics that underpin this area, so I am going to rely on the collective wisdom here to engage and flesh out the discussion. I do, however, want to open that discussion on a familiar note, the American automotive industry. Roland Jones at MSNBC.com yesterday did an interesting piece as to why bankruptcy is not a viable option for General Motors:

“If these companies went into bankruptcy right now, in exactly the position they are in today, they would be liquidated because no one out there would supply them with the financing they need to get through bankruptcy,” Mark Zandi, chief economist with Moody’s Economy.com, told CNBC Wednesday.

That would mean a few million jobs lost, Zandi said, which would be “cataclysmic” for Read more →

GM Gets Its Loan; No Bankruptcy for Now

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When it was announced Sunday that President Obama had decided against appointing an "Auto Czar", instead opting for a panel of Administration financial experts including, but not limited to, Treasury Secretary Timothy Geithner, National Economic Council Director Lawrence Summers and Ron Bloom, it pretty much signaled that the Administration was going to continue to work with GM as an existing, functioning entity instead of forcing them into bankruptcy.

Monday night, that was borne out. From Reuters:

The U.S. government will release $4 billion in additional aid to General Motors Corp (GM.N) on Tuesday as planned, a White House aide said on Monday, ahead of the deadline for the automaker to submit a new survival plan.

The aide said GM’s smaller rival Chrysler LLC’s request for additional aid would be treated as a new request and dealt with separately.

GM is seeking concessions from the United Auto Workers union and creditors under the terms of its $13.4 billion federal bailout. It must submit a restructuring plan to U.S. officials on Tuesday showing how it can cut costs and pay back the loans.

Now that does not mean that the moment is over for GM, far from it. The company still has ongoing crucial negotiations with the auto workers union (UAW) that must be completed, and must formally submit its grand restructuring plan. The plan will not be fully known until officially submitted and made public, which is likely not to occur until the markets close tomorrow, but early details reveal a framework for a radically different General Motors in the future:

G.M. will file what is expected to be the largest restructuring plan of its 100-year history on Tuesday, a step it must take to justify its use of a $13.4 billion loan package from the federal government.

The plan will outline in considerable detail, over as many as 900 pages, how G.M. will further cut its work force, shutter more factories in North America and reduce its lineup of brands to just four, from eight, according to executives knowledgeable about its contents. The remaining core brands will be Chevrolet, Cadillac, GMC and Buick.
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The plan will also probably include revisions in executive compensation and targets for cutting dealers and brands like Saturn and Pontiac.

Similar discussions are underway with Chrysler, which also has a deadline tomorrow to submit its restructuring plan; details of the plan or government commitment are not yet forthcoming.

Toyota Sings The Mercury Blues

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As the Republicans in Congress, most notably the Senate, fixate on emasculating the stimulus package, stripping it and the country of hope for success in heading off the economic death spiral we are witnessing, I want to return to another recent example of the un-American activities and bent of the Republican Caucus of legislative geniuses. I refer to this same group’s actions and illogic in relation to the American Auto manufacturer bridge loan issue that roiled little more than a month ago and still percolates near the surface of our economic woes.

Remember how Richard Shelby, Bob Corker and a pack of GOP loons made their bones by preening against the American auto industry and trying to cram American autoworker and union wages down to, and below, the level of foreign transplant wages? Of course you do because you remember the big Republican "Lizard Lie" on the myth of the $73/hr wage rate. It was all predicated on the supposed superiority of the foreign automakers. The Republicans literally were willing to make the American auto industry grovel and beg, and even talk about killing them outright, based on their claims of the superiority of the foreign automakers.

So how are those vaunted foreign automakers, that are so much more brilliant and perfect than GM and the other American manufacturers, doing these days? Well let’s check in on Toyota, which along with Honda is the supposed gold standard to the lizard brained GOP. From the New York Times:

Toyota, the world’s largest automaker, said Friday that it expected to suffer a loss this year, thanks to rapidly declining sales around the world, especially in the United States. The company is expecting its first full-year operating loss since 1937 — 350 billion yen ($3.9 billion) — more than double its previous forecast.

The company’s 2008 fiscal year ends on March 31.

It widened its forecast for an operating loss on its main automotive business to 450 billion yen, or $5 billion, attributing the larger loss to both steep declines in global auto sales and strong gains by the Japanese currency, the yen, which lowers the yen-denominated value of overseas earnings.

Ouch; not so good.

So, times are bad for even the precious to the GOP Toyota, just like GM. So what kind of implications does this news portend for Toyota’s short and long term future? Ah, glad you asked:

“Toyota is going to Read more →

An Appropriate Detroit Welcome for Bob Corker

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Unfriendly. Just as he deserves:

U.S. Sen. Bob Corker, Republican of Tennessee and nemesis of Detroit automakers and UAW workers in congressional hearings, came to the Detroit auto show for an up-close look Tuesday at the industry he’s reluctant to rescue.

And he got a taste of the kind of confrontational grilling that he laid on auto company chief executives and UAW President Ron Gettelfinger in Washington.

"I realize that I’m not popular here," said the trim, 5-foot-7 Corker, a tiny figure buffeted in a sea of microphones, cameras and jostling journalists as he walked the floor of the North American International Auto Show at Cobo Center.

"But I’m proud of the effort I put forth," Corker said of his attempt to forge a Senate deal for auto industry rescue loans that foundered when Gettelfinger balked at Corker’s demands for immediate wage reductions and other contract changes. After the Senate rejected a bailout deal, President George W. Bush approved $17.4 billion in bridge loans to keep General Motors Corp. and Chrysler LLC afloat.

Corker, not unlike the Detroit CEOs after the hearings in Congress, admitted Tuesday that he felt a bit misunderstood. "I don’t know how people perceive me," he said.

(Note, this is currently the Free Press’ most popular story, so I’m not the only one taking some pleasure in Corker’s discomfort.)

That said, I actually think this was a stunt dreamt up by Mike Cox, our current AG and wannabe 2010 replacement for Jennifer Granholm. Cox wrote a fairly timid op-ed for the WaPo the other day, inviting Senators to come visit the auto show (I say timid because Cox exhibited nowhere near the understanding of the industry–or the cooperation with the UAW–that Thad McCotter did in his excellent speech in the House in November).

And then, voila! There you had Bob Corker and Mike Cox, two reprehensible Republicans, sucking it up to the press today, pretending they might have the key to saving the auto industry. In a touch of theater, they even met at the Cerberus Chrysler booth, an appropriate place for them to discuss how to bail out their buddies in the private equity firm.

Kudos to Corker to actually showing. You think maybe he can take Mike Cox with him when he leaves?

TARP, the Consumer-Driven Version?

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Larry Summers just wrote a letter to Congress explaining Obama’s rationale for asking for the remaining $350 billion in TARP funds. One of the things he says Obama will do differently is get credit to consumers and businesses more quickly.

We must also do everything in our power to ensure our efforts are more directly reaching Main Street. It is neither right nor sound economic policy to allow the small businesses that are responsible for more than two-thirds of job creation and entrepreneurs who have worked hard and played by the rules to be victims of the credit crisis that they were not responsible for creating. We will work in close cooperation with Congress, the Federal Reserve and other agencies to strengthen financial institutions and restart lending for small businesses, auto purchases, and municipalities.

Undoubtedly, Congress will complain about this second request, particularly given the way Hank Paulson completely mismanaged it. But there is already fairly good proof that getting credit to consumers and small businesses will have an immediate impact on the economy.

As I noted in my review of December auto sales, the GMAC-as-bank deal that BushCo negotiated in the last days of December had an immediate and significant impact on GM’s sales.

GM said its December sales were helped by a zero-interest financing offer that its GMAC finance unit was able to make during the last few days of the month after GMAC was granted status as a bank holding company by the Federal Reserve.

This allowed GMAC to access money from the federal government aimed at helping banks and Wall Street firms. GMAC had essentially run out of cash to make auto loans earlier in the fall.

Within days of negotiating this deal (which also undoubtedly freed up GMAC to make floor plan loans to dealers), it invigorated GM’s sales.

And I wonder whether the same move isn’t also having an impact on sales across the industry.

Early industry sales results for January indicate that industry conditions might be improving slightly, Ford Motor Co.’s group vice president for marketing and communications, Jim Farley, said during an interview at the Detroit auto show.

Farley described the increase as the first positive sales “blip” he has observed in months. However, he was hesitant to predict that the trend would even last through the end of the month. Read more →

We're All Detroit, MI Now

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detroit-station.thumbnail.jpg

A while back, I wrote a post called We’re all Flint, MI now. Mitch Albom just wrote a story that might as well be called We’re all Detroit, MI now (h/t Leen and dakine). He called it "The Courage of Detroit." It’s long–so to induce you to read it, I’m going to give you an almost-spoiler.

Because we may be a few steps behind the rest of the country, but we’re a few steps ahead of it too. And what’s happening to us may happen to you.
 
Do you think if your main industry sails away to foreign countries, if the tax base of your city dries up, you won’t have crumbling houses and men sleeping on church floors too? Do you think if we become a country that makes nothing, that builds nothing, that only services and outsources, that we will hold our place on the economic totem pole? Detroit may be suffering the worst from this semi-Depression, but we sure didn’t invent it. And we can’t stop it from spreading. We can only do what we do. Survive.
 
And yet we’re better at that than most places.

Go read the whole thing. 

(Photo by LHOON) 

Democrats Trying to Reverse Bush's Attempt to Dismantle UAW by Fiat

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I’ve been meaning to catch you all up on the impact of the auto rescue on the UAW. But I really shouldn’t bother, as the likely impact has changed from day to day over the last several.

On Thursday, GM’s Rick Wagoner announced that it could reach the mandated goals without touching retiree pensions.

GM can continue to operate without cutting benefits to retirees, Wagoner said.

Of course, retirees wouldn’t be safe so long as the goal was to bring the lizard lie number (the number that compares UAW wages plus legacy costs with Japanese wages and their negligible legacy costs) to parity. But the UAW’s Gettelfinger and Wagoner now agree that the lizard lie number is just that.

Payroll and legacy costs have been a source of some criticism for GM and the UAW. Both Wagoner and Gettelfinger agreed that the labor compensation comparisons between GM and foreign automakers are not necessarily accurate.

It would have been nice had that point been made more forcefully back during negotiations.

Next up, on Friday, we learned that Bush’s auto "rescue" prohibits unions from striking over the course of the loan.

An extraordinary new wrinkle in the federal loans to Detroit’s automakers became clear Thursday from the fine print:

A UAW strike could derail the rescue effort.

The U.S. Treasury Department could declare General Motors Corp. and Chrysler LLC in default of their $17.4 billion in loans and demand the money back, according to pacts signed with the Bush administration last month.

Although the impact — and even the legality — of such a provision is not clear, the details of the pact highlight the complications facing the union, which must agree to make sweeping changes in wages and benefits for workers by Feb. 17.

I can’t help but imagine that Bush snuck that in the loan terms not just to break the union, but also to get one final shot at SCOTUS’ Youngstown decision. 

And remember when people argued I was crazy for arguing that the overriding purpose of the plan was to break the UAW? Isn’t that just hilarious in retrospect?

Finally, today, we learn that Barney Frank is hard at work trying to negate Bush’s last attempt to dismantle a major union by Presidential fiat.

Concessions forced on the UAW could be stripped from a $17.4-billion auto industry rescue plan, Read more →

Honda, Toyota, Fail More in December than Two of Three "Failed" US Carmakers

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Car sales in December were–as expected–still way down as compared to last year. But as with November, there were some interesting numbers last month. Remember–these are year on year declines (which suggests the total market is down slightly less than it was in November):

Make      Decline

Chrysler   53%
Hyundai   48%
Toyota      37%
Honda      35%
Ford          32%
Nissan      31%
GM            31%
Daimler    25%
VW            14%
Subaru      7.7%

I’m still looking for Hyundai’s US numbers, and Chrysler (which I suspect really tanked) won’t announce until later in the day.

While GM and Ford still lost more sales across the year than Toyota and Honda (because they also tanked during the gas price crash of the summer), their performance against Toyota and Honda more recently demonstrates the degree to which recent sales are a credit driven issue, and not what Richard Shelby likes to claim is a failed business model. 

Moreover, there is better news for Ford in the numbers, as its market share is beginning to rise for the first time since 2001.

Ford took an optimistic view of December’s results, noting that its December market share rose to 14.6%, up 0.7 percentage point from a year ago — the first time since 1997 it had achieved a market share increase for three straight months.

"This is a strong ending to…a very challenging year," said marketing chief Jim Farley. Ford projected a fourth-quarter 15% market share for Ford, Lincoln and Mercury — beating the year-ago figure for the first time since 2001, it said.

I keep looking at these relative numbers because we’re basically looking at two questions in the auto market right now. First, who can survive in the next two years, as the market for cars remains at these contracted levels? Because of the debt the American companies have, the answer to that question is undoubtedly the Japanese car companies. But the other question is who can survive best over the next two years? The rules of the game have changed, and surviving best will be as much about managing inventories on a month to month basis as anything else. And Ford, at least, (which outperformed Toyota and Honda last month as well), looks like it is winning that game in the short term.

Particularly as more people realize that Ford is somehow "different" than GM and Chrysler (because it didn’t need a bailout), Ford has the opportunity to really turn its brand image around. Read more →

GM, TARP and Traveling Down the Road

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Okay, a couple of folks have been pining for a post on GM and the TARP announcement yesterday. From the New York Times:

The Treasury Department injected $5 billion into GMAC, the automobile financing company, as part of a deal announced Monday night that will let GMAC convert itself into a bank holding company to reduce its borrowing costs and thus borrow money at low rates from the Federal Reserve.
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The Treasury will buy $5 billion worth of preferred equity shares in GMAC, which used to be the financing subsidiary of General Motors and is now owned jointly by G.M. and Cerberus Capital Management, the private equity firm that owns Chrysler.

A Treasury official said on Monday night that the deal had already closed and that GMAC already had the money. In addition, the Treasury said it would lend General Motors $1 billion so that it could purchase additional equity offered by GMAC.

The deal came after intense efforts to prevent a collapse of GMAC, which is a crucial source of automobile sales financing. It has been reeling from both the paralysis in credit markets and huge losses from its mortgage lending subsidiary, Residential Capital.

Last Wednesday, the Federal Reserve tentatively approved GMAC’s petition to become a bank-holding company but demanded that it persuade most of its bondholders to convert their debt into equity and to raise more money to meet minimum capital reserve requirements.
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In shoring up GMAC, the Treasury resorted to using money from the Troubled Asset Relief Fund, the $700 billion rescue program for financial institutions that Congress approved in early October.

The Treasury had already allocated all the $350 billion that Congress authorized for the first half of the program. But even though the Treasury Department has not yet requested the second half of the money, officials said they could provide the financing to GMAC because they have not actually used all of the money allocated for recapitalizing banks.

As to GM and TARP, Marcy wrote about that here. The story was when the decision was made to make GMAC a bank holding company, and that was over a week ago. Once that was made what was announced yesterday and described in the NYT piece above was a foregone conclusion. The whole reason behind cutting GM and Cerberus’ percentage of ownership, and, more importantly, voting power in GMAC was to speed GMAC’s designation as a bank holding company. There was one purpose to that accelerated move, and that was to allow access to TARP funds and free up GMAC’s ability to offer credit to its dealers and customers. That was necessary to assist GM in its effort to maintain viability and to accomplish the initial goals of the bridge loan previously agreed to. There is nothing nefarious or particularly shocking about the government and GM doing exactly what they said they were doing in the first place. So, for those wondering why there have been no "Breaking News" posts flying off our fingertips, there you have it. This is just not shocking news.

As to the posting schedule, well, believe it or not, we like to spend a little time with our families, travel and enjoy the holidays too. Marcy will likely check in today, but she is visiting family and Read more →