What would a new management team do to change the fortunes of GM if Rick Wagoner and his team were ousted? Can a new management team improve the company significantly, right away? Perhaps a high profile replacement would give a quick jolt to the company’s stock price, but would GM quickly start selling more cars and building better cars?
Since Wagoner became GM’s CEO in 2000, the company has gained big concessions from the UAW, which had handcuffed the company while Toyota, Honda, and the other imports enjoyed freedom from union regulations. GM came out with the award-winning Malibu. Buick became the most coveted car brand in China. The company became leaner, closing plants and laying off workers.
Yet still, today the company is in major debt, pleading for money from the government while even Ford has avoided the utter desperation of its American foe under the leadership of Allan Mulally, former CEO of Boeing.
It’s difficult to know how much of GM’s turmoil is to be blamed on poor decisions by Wagoner. It’s difficult to know what positive influences he has had on the company. Maybe with a different person at the helm the company would already be bankrupt. It’s impossible to know how much impact one person can have in a short time.
The $36 billion question is: what could a new CEO do to improve GM in the short-term and long-term that Wagoner wouldn’t do? Or, would a new CEO make matters worse at the company?
Could former GE CEO, Jack Welsh, be the man for the job?
Thanksgiving and the Friday after is when companies like to release elite news that they don’t want people to pay attention to. For instance, despite begging the U.S. government for a $25 billion bailout, Ford’s CEO Alan Mulally doesn’t want to lower his salary (he made $21 million last year). This stance was a definite public relations gaff after he was asked by congress if he would work for a dollar like the CEO from AIG, Edward Liddy.
Dingell is 82, he succeeded his father in 1955 in the House — so the Dingells have been in Congress, virtually forever.
He lost his job to Henry Waxman of Los Angeles who is Mr. Environmental in Washington and a headline-hunting pain in the ass to the Detroit automakers.
The odds of the Big 3 getting a Washington rescue package were fading anyway, but the Waxman ascendancy was a dagger for the rust belt. Waxman’s defeat of Dingell is emblematic of the lack of clout mustered by Rick Wagoner’s last ditch attempt to circle the wagons.
Now the terms of the Detroit bailout will be dictated by an Obama Administration, with Henry Waxman having a significant impact. This bodes well for Elon Musk and Tesla Motors (see Today’s Machining World’s feature, July 2007), but it is curtains for the status quo. In the real world a bankruptcy filing is going to be ugly and disruptive for the supply chain and workforce. This is a very dark day for Detroit. There will be better days to come, but the Waxman for Dingell trade may mark the end of Detroit as we have always known it.
Question: Are you glad John Dingell is no longer in charge?
I talked to Paul Eisenstein, TMW’s resident auto guru in Detroit. He is pessimistic about a bailout for the domestic car builders. He sees the legislation caught in a food fight between the lame duck Republicans and the Democrats who find themselves defending a bailout for big business.
I asked Paul if he thought a Chapter 11 bankruptcy approach would work for General Motors. He felt the stigma of a filing would kill the sales of GM’s vehicles for years. He also says that Rick Wagoner, GM’s president, does not accept the fact that he is part of the problem. Wagoner is determined to gut it out as head of the company, which also mitigates against a Chapter 11 filing.
Eisenstein says that the big irony is that GM has made major progress in the last few years with the negotiation of a reasonable rollback settlement with the UAW. They have been ambushed by high oil prices and the current economic gloom, two things out of their control.
Eisenstein concedes GM has a crappy product line aside from the Malibu and the Escalade, but he thinks the option of allowing GM to fail is too awful to accept.
Question:Is declaring bankruptcy the worst possible course of action for General Motors?
General Motors, Ford and Chrysler have asked for $25 billion in government loans to survive the economic crisis — that’s in addition to the $25 billion Congress approved in September to foster fuel-efficient technology (NPR.org).
He says that capitalist economics should resolve their situation, not more charity from the government. He argues that the big three have a union problem that’s not sustainable and incompetent management, so instead of another handout from the government you say, “We’ve got $25 billion at an open bid to the entire world. I want the 10 best car designs on the planet earth, I’ll give you two and half billion dollars each for each of your car designs. [If] you’ve got to do them in Detroit you can hire the workers from General Motors.” Then you would do a complete restructuring plan to finally set up a profitable business model.
GM and Ford say they are both spending more than $2 billion in cash each month, and GM says it could run out of money soon – so soon that CEO Rick Wagoner says the company may not have enough time to wait for a bailout from the Obama administration after the new president is sworn-in in January 2009.
As everyone knows, GM and Ford are suffering big time – burning billions every month, desperately begging the government for bailout money – but you might be surprised that Toyota, the “intelligent” auto company that has been showing up the Big Three for almost two decades is also in its own house of pain. Its stock dropped 20 percent last week when it announced that it will make almost no money during the second half of its current fiscal year and expects full year profit to drop by 68 percent.
Much of this pain of course is the result of a suffering economy, but partly it’s the result of some of Toyota’s poor decisions such as putting out its full size Tundra pickup in 2007 just as gas prices were skyrocketing and American buyers started panicking.
Another reason Toyota is having trouble is its Japanese tradition of not laying off employees, even as factories sit idle. They may have the benefit of being non-union, but Nissan, Daimler, GM, Renault, Ford, Volvo and Chrysler have been able to cut costs by laying off workers. Notice that that list does not include Honda which I assume has a similar Japanese employment code of ethics.
One the flipside Toyota still has $18.5 billion in cash, almost no debt and is a leader in clean technology. It stated earlier this year that it was going to shift its Mississippi plant from producing Highlander SUVs to Prius hybrids. It plans to start producing hybrids faster and put out four new models next year.
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By Lloyd Graff
I think we got an important signal Tuesday when Bank of America decided not to raise credit lines for McDonalds franchisees to buy new equipment such as coffee machines. They’re keeping credit lines as they are – that doesn’t mean they’re cutting them, it just means they’re not raising them as a general policy. This is important because it shows that the Wall Street mess is starting to filter down to the lending habits of major banks.
I think this is going to affect industrial equipment purchases because it affects the money available to borrow. It’s going to mean that distributors and machine tool builders are going to have to become more resourceful in enabling their customers to buy new and used equipment. A Haas or an Okuma is going to have to be more involved in the financing issues of their customers, using their clout with lenders to find money for them. They will probably be paying more for the money than in the past, but I think this is part of what the FED is all about in providing ample liquidity in the system. The sources for the money may not be the traditional ones that people have used in the past. There will be leasing money, off-shore money and bank money available, but the banks will probably be lenders who fall to the sidelines, because the more resourceful and nimble lenders will probably be the ones to step in.
Question: Have you had a problem in buying equipment recently?
August 21, Chicago’s NPR station ran a short blurb about how manufacturing’s seemingly continuous slowdown has caused many shops to let go of workers in recent months. Hearing stories like this over and over supports the notion that one of the difficulties in urging a young generation workforce to enter the manufacturing industry is not only caused by manufacturing’s image as dirty, monotonous and underpaid, but also by the general news being presented to the public everyday. Who would want to commit one’s life to jobs that are portrayed as traditionally difficult and also declining? Most people make little effort to learn the greater truth behind the stories they hear. And all that’s heard about manufacturing these days is how it’s flailing.
Question: Do you think there is a chance your children will be interested in a carear as a machinist?
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Just days after Toyota said their U.S. sales dropped 18.7 percent, Toyota is cutting 800 jobs at a unit making Lexus vehicles. It’s the first time Toyota has let go of contract workers before their contracts are up. This is yet another indicator of a sliding U.S. auto market, as Toyota has historically grown during previous recessions.
In the following video John Casesa, Managing Partner of Casesa Shapiro Group, elaborates more on the future of the U.S. auto industry. He discusses automakers shifting production from SUVs and trucks to that of smaller fuel efficient cars, the changes in American car buying behavior, the importance of international emerging markets, and the prospect of a GM bankruptcy.
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As GM’s car sales steadily decline in the U.S., its Buick brand has become one of the most coveted China. Buick recently debuted its new Invicta show car, the expected replacement for the LaCrosse model, whose purpose is to appeal to both U.S. and Chinese consumers, bridging the gap between the two markets. It features luxurious interior features valued by Chinese drivers, such as gadgets, computers and backseat roominess, but also addresses the preferences of American drivers for bold, exterior styling. It was designed in seven months, just in time for the Beijing Auto Show. Buick cars sharing many of the features on the show car are supposed to be in production next year.