Meet The New Chairman, Same As The Old Chairman

June 9, 2009

General Motors just announced that Edward Whitacre, Jr. will be the company’s new Chairman upon the launch of a revised GM company this summer. Kent Kresa has been serving as interim Chairman.
Six board members will be “retiring”. Whitacre will join current interim Chairman Kent Kresa, Philip A. Laskawy, Kathryn V. Marinello, Erroll B. Davis, Jr., E. Neville Isdell and President and Chief Executive Officer Frederick A. Henderson as the core of the board.

At first glance, it might seem like GM is following Ford’s lead by going outside the inbred automotive manufacturing community for its grand poobah. The 67-year-old Whitacre served as CEO of AT&T and Southwestern Bell from 1990 to 2007, which at first glance brings up comparisons to Ford’s selection of former Boeing executive Alan Mullally to be CEO of its company. The primary difference here is that Mullally had significant organizational and line operations experience when he was hired to be the hands-on leader. Whitacre’s experience is mostly in turning entrenched, old-school technology companies into larger companies by purchasing new technology companies. Plus, Whitacre’s position as Chairman is more of an advisory role.

Whitacre also serves on the boards of ExxonMobil and Burlington Northern Santa Fe, which leads one to ask: is it possible to find a guy who has been involved in more old technology / old white-men’s culture companies which have seen their market share shrink due to ignoring shifts?

In other words, it seems GM went out of the auto sector to find a Chairman who is most like a brother from another mother.

This being said, we wish Whitacre luck in his role and hope he surprises the world by working with Fritz Henderson to successfully reinvent GM.

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Don’t Blame The UAW — Update

May 29, 2009

It appears that when GM engages the UAW in an effort to work together to promote their common interests (such as: “survival”) good things happen. GM and UAW announced today a new agreement:

DETROIT, Mich. – General Motors today confirmed that its UAW-represented employees have ratified the modifications to the GM-UAW 2007 National Labor Agreement. The amended agreement covers approximately 54,000 hourly employees located in 46 U.S. facilities.

“The leadership demonstrated by UAW president Ron Gettelfinger and UAW vice president Cal Rapson, and the hard work from the members of the GM and UAW negotiating teams, resulted in an innovative agreement that will enable GM to be fully competitive and has eliminated the gap with our competitors,” said Diana Tremblay, vice president of GM’s Labor Relations. “We very much appreciate the support of our employees and retirees. Their shared sacrifices will enable GM to become a stronger, more viable company that will continue to deliver world-class cars and trucks.”

Key highlights under the modified agreement include attainment of cost and cash savings comprehended in the GM Viability Plan that will enable the company to eliminate the wage and benefit gap with its competitors. It also includes changes to the agreements regarding the Voluntary Employee Beneficiary Association (VEBA) trust for retiree healthcare. The agreement also highlights GM’s plan to utilize an idled assembly and stamping facility for future production of a compact/small car in the United States to meet future fuel efficiency regulations.

In other words, in exchange for a healthy cut in overall compensation (wages, health insurance coverage/retirement benefits) GM agreed to use UAW workers to build the cars instrumental to its survival, including the Volt.

This is a good move by both sides.


Saturn will leave GM’s orbit and then probably fizzle-out

April 15, 2009

In these uncertain times, there are still those things that can be predicted with 100-percent certainty. One of those is that Saturn will be spinning out of GM’s orbit in the near future.

GM has admitted they want to either “wind down” or sell Saturn. Rumors have been swirling about a deal to sell Saturn to an ownership group led by Black Oak Partners, LLC. We don’t know much at all about Black Oak Partners, but our opinion is that it might as well be the Oak Ridge Boys, because Saturn has little chance of survival on its own.

There was a time and place when a stand-alone Saturn made sense. That time was about 1993 or 1994 when Saturn’s products were unique, and the buzz about the company was that it made great import-fighters.

GM management’s ego, greed, shortsightedness, and general strategic-ADD quickly made Saturn irrelevant. The new company with new products morphed into a young company with a stale product line. Almost fifteen years passed before the division actually received some decent products again. Unfortunately, the products Saturn received were all badge-engineered with other GM products.

So it begs the obvious question: why would anyone – Black Oak Ridge Boys Partners Blues Brothers Band or any of the other rumored “multiple suitors” want to buy a company that only produces products that are nearly identical to other products on the market? Even if Saturn’s offerings are in many ways better than its current platform- mates, that’s still a huge problem. Furthermore, with ultra-high CAFE standards staring manufacturers in the face, an independent Saturn would need some serious deep pockets for R+D.

It’s sad…the Sky roadster could have been a legend. It was prettier than the Solstice and a better size than competition like the Miata. Like all GM vehicles, it needed another generation to work out the cost-induced quality (meaning not-engineered-out) glitches. Similarly, the Aura could have evolved into a great Accord/Camry killer, instead of just an “alternative”.

And imagine had GM been more Johnny-on-the-spot and brought the Volt technology out quicker and put Saturn as the cutting-edge hybrid leader. Instead, if anyone buys Saturn, they’ll need to license the Volt technology from GM, rather than possibly buying the Saturn Volt technology and licensing it back to GM. (Yes, we know GM would have never let it happen, but as they say – “if the price was right!”)

Instead we’ll probably see Black Oak Partners or a bunch of dealers buy Saturn. And just like all the times it happened in the past (remember when Avanti was bought from Studebaker?) the company will quickly fall from relevance, but slowly fizzle out of existence.


No More Wings With GM’s Prayers

December 2, 2008

General Motors finally has found things to sell that are harder to get rid of than its cars: its corporate jets. In a thinly-veiled attempt at wooing Congress and smoothing the public relations disaster from the last Congressional appearance, GM just announced that it is ending its aviation program:

GM Ceasing Corporate Aviation Operations

DETROIT — GM today announced that it is ceasing operations at General Motors Air Transportation Services (GMATS) at Detroit Metro Airport.
Due to significant cutbacks over the past months, GM travel volume no longer justifies a dedicated corporate aircraft operation.

GM is currently exploring options for transferring its aircraft to another operator. The company is pursuing sale of four of the aircraft so it can terminate the leases.

GM will shutter the facility at Metro Airport effective January 1, 2009. GM will work with the airport to seek a tenant for the balance of the lease, which expires in 2009.

I wonder if any of us can get factory-to-dealer incentives on these planes…Zero down, zero percent financing maybe? In any event, while GM will lose its shirt selling the planes, it probably won’t lose more money than it has selling its own vehicles through dealers.


Bail Out the Big Three? History Suggests “Don’t Do It”!

November 11, 2008

It would be catchy to lead with something like “I’ll give you fifty-billion reasons why the US government shouldn’t bail out the Big Three automakers.” Instead, I’ll just write: don’t do it.

I need to make something crystal clear here. My views are not ideologically-based. If you’d like some Republican versus Democrat, free market capitalism over big government socialism, Apple against Microsoft rants, you’re not going to find it here.

What you will find is a simple statement: history and common sense intersect at a point with a big marker titled “STOP”.

The Meat Of the Deal

Congress has already given General Motors, Ford and Chrysler around $25 billion so they can retool for production of more fuel-efficient cars. Last week the three CEOs returned to The Hill to ask for as much as $50 billion more to keep their companies floating while they hemorrhage cash in the down economy.

It is true that consumers are not buying new cars right now. That’s a huge problem for all automakers, not just the Big Three. When they start buying cars again, fuel-efficient vehicles like hybrids and compacts will be in demand. Actually, if we’re being truthful here, these vehicles are in demand right now. Just go try to find a Prius on a dealer lot.

So the Big Three CEOs have the audacity to go to Congress and say “give us money so we can ride out the bad economy and have what the consumers will want when they are ready to buy.” Audacity? Why did I choose that word?

Simple, because unless you’ve been living in cave for the last decade, you’ll know that even when GM, Ford and Chrysler were selling SUVs and trucks faster than a Ramones drum beat, they were largely losing money. Keep in mind that SUVs and trucks had a hell of a lot higher profit margin than compact and hybrid cars could ever hope to attain.

Imagine if the CEOs told Congress: “we need money, because we couldn’t make profits when we were selling high-profit vehicles. Since we pocketed that money in salaries, union deals, benefits, and executive bonuses, and got drunk on cheap gas (although in our hearts we knew it wouldn’t stay that way, but we hoped we’d be retired by the time it hit $4 per gallon), we never spent enough on R+D, so we didn’t have vehicle products ready to go for this current marketplace.” Unfortunately, that’s the truth.

Here is a scary reality
If Congress gave $50B directly to American consumers with the condition that we went out and bought new cars, here’s what would happen: $50B would buy 1,666,666 cars, based on the current average price of around $30,000 each. Given the current market share, GM at 22.4 percent would sell 373,333 vehicles, Ford (14.8%) would move 246,666 units, and Chrysler (11%) would sell 183,333 units. In other words, with fifty billion dollars going directly into the hands of consumers to buy a new car, the best any of the Big Three could do would be to sell a group of additional vehicles equating to less than one year’s worth of Honda Accord sales in America. (392,231 Accords were sold in the US in 2007.) Think that’s enough to keep them (or dealers) from failing? Nope!!!

Inevitably, there are those out there who will say the Big Three are “too big to fail”. Television news channels are already reporting huge job loss potentials if the companies go out of business—from a few hundred thousand to somewhere around 1.5 million. For every one job at GM, Ford and Chrysler, there are seven positions at vendors providing parts and services for domestic auto production. In other words: if they fail, we’re in a depression with millions of unemployed workers.

The logical conclusion, claim these folks, is to keep the government money flowing– no matter how long it takes, otherwise the companies will implode, everyone in the industry will be out a job, and a depression is unavoidable. To these people I have just two words:

BRITISH LEYLAND

Allow me to follow up those two words with a description of why this is critical history for every Member of Congress to know. England used to be tied with America as the automotive powerhouses in the world. We had Ford and Chevy, while they had Austin and Morris. Just like the contraction of companies in America that formed Ford-Lincoln-Mercury and General Motors, Austin joined Morris in BMC. Standard joined with Triumph, which was joined with Jaguar. Finally, by 1968 most British-owned brands were rolled into British Leyland.

Thanks to equal parts ineptitude, greed and lack of ethics, BL drove the British car industry into the ground. BL executives blamed the economy (including an oil crisis) and labor. Everyone else pointed the finger at products that were inferior to foreign competition, as well as short-sighted contracts and profiteering.

Despite selling forty percent of the vehicles in Great Britain, by 1975 British Leyland was broke. The British Government sank millions into the group and became the majority shareholder. The corporation was reorganized, and millions more went to cure production and labor problems.

The company was again reorganized into saleable units. Jaguar-Daimler was sold-off in 1984 (two years later it went to Ford). The Leyland truck and bus unit was merged with Dutch DAF in 1987, which later sold bus operations to Volvo. Just a year later the Rover Group (including most of the remaining car business) was sold to British Aerospace, which turned around and immediately sold this remaining part of Great Britain’s auto industry to German BMW.

Which puts us back to GM, Ford and Chrysler

If Congress simply let nature take its course, there is a strong chance that all would fail. But we need to DEFINE “FAIL”. In this case, do we honestly think that if any of the Big Three “fail” everything the company owns would simply be auctioned off to the high bidder in front of the local courthouse? Of course not.

All three companies own valuable plant assets. All still have cash. All own products and technology that are profit centers. There is certainly a big financial value to Chevy’s Volt product, as well as Chrysler’s ultra-modern flexible plant locations, Ford’s Mustang brand, Corvette production, F150 fleet sales, the “Hemi” trademark…

Considering that Porsche just tried unsuccessfully to buy VW, it puts them back in the market for an entity that will enable them to meet 35-mpg CAFE standards. By the way, Porsche has also been one of the most profitable automakers of the last decade. (Turns out that selling overpriced sports-SUVs is a cash cow.) So even after the botched buyout, they have money to burn.

Hyundai is also a strong competitor without a good hybrid play, as is Mitsubishi. Both have money. Mitsubishi’s dedication to cars might be questionable, but Hyundai’s certainly is not. Honda could use a more diverse product range, especially upmarket. Even Toyota could make a case to buy one of the Big Three — Chrysler for flexible production facilities or GM for Volt plug-in technology (since it could take a big bite out of Hybrid Synergy Drive sales).

Then there’s BMW – the same company that at one time or another has purchased Rover, MG, Rolls-Royce, Bentley, Austin/Morris/Mini, and still retains the rights for Triumph. They have cash and good credit…not to mention a pretty good history of acquiring, absorbing, improving operations, and remarketing companies. (We’ll give them a pass on Rover, which was a debacle, only because nothing short of a neutron bomb could have solved that company’s issues.) Finally, BMW has banked way too much on hydrogen over plug-in hybrids, so they could benefit from buying the technology, rather than developing it in house.

Don’t count on Mercedes to get involved. The company is still sore from its marriage to Chrysler. It turns out Mercedes was ill prepared to deal with the complexities of a merger with such a dysfunctional corporation at a time when it was challenged with its own operational and technical issues. Consequently, Mercedes lost more money than a drunk billionaire trying to impress the hotties at the high roller baccarat tables.

Hyundai, BMW, Porsche…Any of these companies could benefit by buying GM, Ford, or even Chrysler.

All have experience designing, building, marketing, selling, and servicing in America already, and do so with high profit margins.

No doubt each and any foreign buyer would bust the unions and negotiate dumping retirement benefits on the US government. Then the companies would kill poor performing legacy products, as well as the people who continued to push losing strategies. Good niche brands and solid future technologies would be exploited, while albatrosses like Hummer would likely be closed down or sold to a greater fool.

In the end, America would have to let go the concept of the American Big Three. One could get caught up in buzzwords like “failure”, but the goal is to save money and jobs.

No matter how we look at it, American jobs will be lost. The difference is that if the US Congress pushes the Big Three to sell, more people will actually be able to keep jobs. Granted some will do so at reduced wages and most at decreased long-term benefits. Wouldn’t it be better, however, for these people to work for a competitive company again – one that isn’t in jeopardy of needing to make more layoffs or beg for more government money next year?

Congress might still decide to throw good money after bad at GM, Ford and Chrysler, just like the British did for BL, but the best course of action is to allow these dinosaurs implode under their own weight sooner rather than later, and work to convince German, Japanese and Korean automakers to bring them back to life as more efficient, better targeted and longer-reaching versions of their old selves using the American workers and suppliers who are willing to adapt to a new world with a view far beyond the self-interests of Michigan and D.C..

Editor’s Note: We here at the Four Wheel Drift realize that this whole bailout issue is far more complicated than can be summarized in one article. We expect that if Alan Mulally or Rick Wagoner read the above article, they’d accuse us of missing important details. (We’d expect that Bob Lutz would say we’ve got our heads up our asses if we thought it was that simple.) The fact is that it isn’t simple. It took nearly a century for GM, Ford and Chrysler to create the mess they’re in, and there are no easy answers. We simply are taking a stand unpopular with car folks, especially those emotionally tied to the long history of American auto producers, and suggesting that the only way to stay competitive is to admit that there is no way to stay competitive by just taking government money and tightening belts.


Why I’m A No Show At the International Auto Show

November 10, 2008

Every year I seem to get hundreds of people asking me if I’ll be attending the Seattle International Auto Show. When I tell them that I have no plans to attend, I tend to see some pretty perplexed faces.

I’ve been to the Seattle International Auto Show in the past and generally consider it a waste of time and fuel. At least it is for me.

We need to get something straight. I’ve been to more shows for more industries than I care to remember. For way too many years, I was the guy standing up in the booth with the uncomfortable headset microphone on giving the same product pitch every twenty minutes to a large audience, while answering the same monotonous questions day-in and day-out. In general, I place trade shows right up there with taking the SATs, getting my teeth cleaned, and listening to city council meetings for levels of sheer enjoyment.

The nature of auto shows has changed dramatically since the days of the great GM Motorama. In those days, show-goers were dazzled by concepts that few had seen. Cars were created behind locked doors with teams headed by guys like Bill Mitchell. There were no spy shots in magazines, no Internet-spread rumors. A car you might see at the Motorama might be green-lighted into production and arrive at showrooms within six months. Production cars changed every year, so everything you saw at the show was fresh. The whole atmosphere was like going to the opening ceremonies at the Olympics.

Now when you go to an auto show, it’s basically like going from dealership to dealership talking to sales people. If you like window shopping for cars, the auto show is the place for you. If you’re like me and find the typical car salesman to be far less knowledgeable about his products than the seventeen-year-old kid with a Road and Track subscription at the Taco Bell drive-through window, then you’ll find the show to be less than helpful.

Indeed, the occasional interlude with a true knowledgeable product manager will yield no new information to that printed in the pages of auto publications for months. As for the standard show workers, expect them to try to convince you that the sky is green, the trees are blue, water isn’t wet, and that their cars are far better than any road test claims they are. Why do they do this? Because that’s the only information sales managers and product teams give them before turning them loose on the public.

The big draws for auto shows are new models and concept cars. Unless you’re in Detroit, Chicago, LA, New York, there will be no unveilings of any kind of new model or concept. For Seattle, the cars have already been shown for nearly a year on stages in other cities, or at the very least, in the pages of all the magazines and online. As the years have gone on, though, product launches have become less impressive. With such strict standards for crash testing, quality control and emissions, chances are that the car has been photographed and videoed dozens of times before it’s actually launched (on an average of three full years after the green-lighting of the concept). As for concept cars, depleted cash reserves means far fewer styling and image exercises.

There is definite truth to the fact that one has to see some cars to appreciate the lines. The Bangle-designed BMW 7 Series was definitely like that, being much more aggressive in person than on paper. Considering that you can see many of these cars in the dealerships, it’s not worth the money to see them with many thousands of other people.

As for getting in and sitting in cars, only expect to do this with currently sold mid range models. If you think you’ll be able to slide behind the wheel of a Ferrari California or Rolls Royce Phantom, think again. I’m sure they’ll let you sit in a Corolla, though. And what’s the use of just sitting in a car in terms of helping people make a buying decision? While sitting in a car can immediately rule out the uncomfortable and too-small ones, driving is what separates the herd.

Classics and special interest cars are also at the Seattle show, but I’ve seen most of these cars already…oftentimes two or three times before.

Readers will often ask “but don’t you just cover it, because it’s news?”

If nothing new is announced, no interesting cars are unveiled and nobody on the floor has anything important (or sometimes even factually accurate) to say, then my friends, there is no news.


GM Plans To Sell ACDelco, Buy Chrysler, Sell Viper

October 22, 2008

Today General Motors confirmed it is shopping around its ACDelco aftermarket parts division. According to GM, the move is just one of many it hopes to do to bolster liquidity.

The interesting twist is that if GM indeed buys Chrysler, they will get the Mopar parts division. Mopar’s high positive name recognition makes the century-old ACDelco operation more expendable.

GM also is desperately looking for anyone to take Hummer, which is less buoyant right now than a cinderblock wrapped in a dirty steel diaper. They’d like to dump Saab, too.

And while GM has not confirmed it, the going rumor is that if the buyout of Chrysler is green-lighted, the Viper brand and production will be sold outright…most likely to Ford. While it is not unheard of for a single model approaching the axe to be sold to a private investor in the interest of carrying it on, such as the Lotus/Caterham Seven and Studebaker Avanti, it is rather unheard of for a single halo model of a large automotive going concern (if you can call Chrysler/Dodge a going concern right now) to be sold to a competitor.

In actuality, the move would make sense. GM has a long history of preventing its many divisions from “competing” against the Corvette. The closest competitors from within GM have come in the forms of the (faster and equally luxurious) ’77 and ’78 T/A 6.6 Trans Ams and the more recent Cadillac XLR and XLR-V. (The Caddies, though, were targeted at the Mercedes SL.) GM has little to gain by keeping the Viper.

On the other hand, with its GT halo gone, Ford could use a new high-end sports car. The market has always resisted putting Mustang in the same group as Corvette and Porsche, so having the Viper would help. Most importantly, since the Viper loses more money than a convention attendee in a Vegas card room, the product fits perfectly in Ford’s backwards business model.