Tuesday, April 13, 2010

Leno on GM's prospects

Jay Leno has a piece at Popular reassuring us that the American automobile industry is "poised for a comeback."
I’ve driven the new Chevy Volt. It’s different from the Prius in that it’s a fully electric car with an electric generator powered by a 1.4-liter gas engine....

It’s fun to see engineers running car companies again, rather than accountants. GM has real engineers in place now...
GM doesn't need engineers, it needs cardiologists, and nurses, and pharmacists. According to this GM retiree healthcare presentation, GM spent 4.6 billion on healthcare in 2007 and every second of every day GM pays for a medical procedure.

Just yesterday, the news was that GM was doubling the size of the lab where they develop the batteries for the Volt that Leno is so high on. Total amount spent to double the lab - $8 million. That's million with an "M".

The fact of the matter is that the business model that GM used to build cars, and an American middle class, for many years during the twentieth century has run its course and is now extinct. Cheerleading from a well-intentioned, but seemingly ill-informed native son won't change that. Neither will a government bailout that perpetuates the current way of doing business at the cost of necessary reforms.


J. Strupp said...

GM doesn't operate under the business model of the past few decades anymore. This is clear.

GM has slashed over $10 billion in costs, unloaded over 25,000 workers, restructured much of it's legacy costs, eliminated many of it's redundant dealerships and shed most of it's unprofitable brands. They continue to increase their marketshare in China (where the Buick brand is thriving for some reason) and sales at home bottomed out in the middle of last year and have been rising since then at a pace faster than the industry average.

Furthermore, it's becoming more and more possible that Uncle Sam will break even on it's GM bailout and we could possibly turn a small profit.

Jeremy R. Shown said...


Well said as alwasy, but I'm not convinced.

Whether we make money on the bailout is irrelevant to the long term health of GM.

Maybe you are right and that substantial chages have been made, I'll believe it when I see it. I don't think I'm too far out on a limb with my skepticism.

Here's an AP report from 4/6:
WASHINGTON — Automakers General Motors and Chrysler will need to put billions of dollars into their pension plans over the next five years to meet their funding requirements, the Government Accountablity Office said Tuesday.

The GAO concluded that GM will have to add $12.3 billion by 2014, while Chrysler is expected to need $2.62 billion more during that time for its pension plan to keep it properly funded.

GM and Chrysler both went through government-orchestrated Chapter 11 bankruptcy protection last year. They emerged as newly restructured companies that were able to shed huge debts but remained responsible for the pension plans of thousands of workers and retirees.

J. Strupp said...

This is very true. I agree that legacy costs will continue to be a problem for GM (and Uncle Sam for that matter) but this is quite different than saying that GM's business model is the same old same old. Considering what GM has done over the past couple of years, I would say that GM is very much a different company.

For the first time in decades, GM's success moving forward is more about making cars that people want to buy rather than whether or not GM can build them competitively.

P.S. GM is sitting on a pile of cash right now. Don't be surprised if the taxpayer gets made whole as early as this year. You think that'll make the headlines outside of Bloomberg?

I'd bet not. Same goes with the evil TARP, which is going to end up turning the taxpayer a profit. it'll be crickets chfirping when that goes down as well. We'll see.