G.M. and the Bankrupt Nightmare

Like any big company that holds a lousy CEO and some blind car dealers – in the US – the future looks dark and dangerous. Not long ago intellectuals where laughing at the proposal of giving rebates and paying for gas to the big SUV buyers, not long ago car dealers across the country sent their support to Wagoner, not long ago the Prius became the car to buy, while the Ford F-150 series and the Hummer where symbols of inefficient fuel burn monsters. The conundrum of the big three just began, people where taking about the Japanese cars being better.

Ford made the same mistakes as G.M. did when the prices of oil where climbing fast, Chrysler is out of the talk because it will soon disappear. The problem with Ford is that is not as great as G.M. nor as powerful, also it seems that it begrudge the cash on hand that G.M. has; which could be devastating taking into account that the credit market is tight, and no major institution is lending without collateral.

G.M. was the brand, the model to follow, and the American pride on how to do business, even now that its international operations are performing great in developing countries, the North American ones are burning money on a breaking point basis.

Japan parlays its ability to be flexible when producing new cars using that leverage to create more sales which translates into more money, while G.M. is selling the Hummer, Ford the Jaguar and Chrysler, well it was bought by Cerberus Capital Management.

G.M. is worth $5.6 billion, has about $20 billion on cash and it is burning $1 billion a month, so you have a company that has more cash on hand than stock value, that is losing money faster than any turn around could fix, that is stuck with big SUV unsold, and that is competing with the “low cost hungry of growth” Asians. My vitriolic criticism comes from the fact that this has gone far enough, none of the intellectual elite were taken aback by this crisis, but when they spoke against Wagoner they were trashed by a lousy and mediocre P.R.

With the gallon of gas over $4 and the price of oil over $140 a barrel you can say bye bye to the good all days where contamination through burning fossil fuels was cheap enough to drive wherever you want to with little money.

Really?

When I live in the U.S 8 years ago this was already a problem, the price of gas was going up and people were complaining about the cost of heating their houses and filling their tanks. It was not as bad as it is now, but I heard them complain.
So why Detroit kept producing those monsters?

The profit on SUVs is much higher for automakers and car dealers than small fuel efficient cars. What they didn´t get is that the profit for small fuel efficient cars is better than losing money over unsold SUVs.

But what can I say, I never liked Wagoner and now that the company has been torn apart I see the brand that I admired for so long, lost into indecision and hesitation of a lame duck leader that could not take the right path when the Japanese did.

G.M. sales in June felt by 18% according to the Economist, and while they rush to make fuel efficient vehicles, on the same article a car dealer explains that people still prefers fuel efficient Japanese cars over the American ones.

This means a lot of trouble, since we think that a Toyota is fuel efficient while a Chevy is not, people will have on their top of mind a Prius instead of a Cobalt.

Some rumors about the split up of the North American operation of G.M. – which loses money every month – and the international operation are getting bigger. But this won´t fix the main problem, how to make people buy their cars.

A company that lacks a genius on its ranks, with no serious change of direction for the future, is doom to be bought – like Chrysler – or sent to bankruptcy.

While most of us can´t stop thinking about the soon to come 3G iphone – and have seen Steve Job´s presentation a thousand times –many others are thinking about the new Corolla and how Google will help Yahoo on its fight against a Microsoft´s takeover.

G.M. is out of the picture when it comes to entrepreneur spirit, innovation, development and growth. That could reflect not only a change in a company structure, but how they ersatz towards the Japanese auto models to see if America can catch up.

For connoisseurs of G.M. failures the tricky point is this, fight to get a new direction on the company, or fight to see it fall into Tata´s hands in few more years. Either way the new leader will be Toyota, who saw an interesting opportunity selling fuel efficient cars, when the big three saw nothing but a waste of time and money.

We cannot be tickled by the current events, not when we always looked at G.M. as the number one, the undisputable leader that sold more than anyone else. This may not be right to say, but I feel that the same is happening to the US. For some reason people cling to the wrong leaders until things fall apart, instead of embracing change when things can improve.

We are not looking for cars to be beau ideal we want fuel efficient ones, we want comfort and a good engine, that uses less gas than our old pickup truck, Wagoner may know how to jargon to their believers, what he can´t do is convince the rest of us that he should stay one more day.
You may not agree that G.M will file for bankruptcy in the near future, but you may like to think about which car you are looking to buy next.

You may ask for a picture of my new to be bought Yaris, but only after you send me one of your new Prius. That is the way that Thomas Friedman drives.