GM Q2 ou c'est la Bérézina.
Assets
$137B
Debt
$67B suppliers & payroll
$44B loans & bonds
$59B retiree claims
$21B misc
====
($57B)
The management & Co. are asking for extra $25B.
They have had a perfect storm. First, the housing bubble burst. This reduced the number of people who could afford to buy cars. Second, the oil prices spiked, it caused almost immediate impact on the type of cars which the few people on the market were willing to buy. While GM was able see the direction of fuel efficiency demand, the spike was too fast for an orderly change in models. Waiting lists for hybrids spiked, while lease residual values for SUVs and trucks dropped. This dropped the value of the captive financing arms. Finally, the GM is also dealing with the dramatic reduction in size as competitors are in squeeze, as well as the longer life of cars reducing overall demand. Due to the way pensions and medical costs work in the US, the GM is saddled with pension and retiree medical costs for a retired work force from the company that was much bigger in the past.
All these reasons are well known but lets talk about something that media prefer to keep quiet. In my very humble opinion the real financial crisis for GM was caused by the UAW. The UAW increase the production cost of GM by thousands per vehicle compared to foreign competitors. A real management should have confronted the unions long time ago but in this case the unions just walk off work with impunity.
Do you know why airlines from time to time had to file Chapter 11? ... (I bet you do). Exactly.
Why not to let GM go the same way? Pouring more money in is pointless, unless you need to be re-elected in the upper Mid-West... and that's might be a problem. So, GM bailout? .. but what happened to American capitalism? This is protectionism, would the EU and Japan retaliate after all? This is a disgrace, and lets be honest, if this is the new attitude of the US, economic war will ensue. Without a solution to legacy costs and UAW issues, GM should be allowed to fail. The whole rationale for trade is that if someone else can make a better product and at a lower cost - you should let them do it. The model for letting GM go bankrupt is the bankruptcy of Bethlehem Steel and Inland Steel - both buried by their legacy health, retirement costs and union contracts. They went bankrupt, were bought by Mittal and continued operations under new labor contracts negotiated before Mittal took over. Mittal has idled purchase of the mills for several months, so the unions could feel what it was like. No contract, no takeover, shutdown, no jobs. They also did not rehire based on seniority - kept the old union guys out. Mittal pays about half the former hourly rate, much higher productivity i.e. far fewer workers, work rules greatly simplified, much lower benefits with generous profit share bonuses.
$137B
Debt
$67B suppliers & payroll
$44B loans & bonds
$59B retiree claims
$21B misc
====
($57B)
The management & Co. are asking for extra $25B.
They have had a perfect storm. First, the housing bubble burst. This reduced the number of people who could afford to buy cars. Second, the oil prices spiked, it caused almost immediate impact on the type of cars which the few people on the market were willing to buy. While GM was able see the direction of fuel efficiency demand, the spike was too fast for an orderly change in models. Waiting lists for hybrids spiked, while lease residual values for SUVs and trucks dropped. This dropped the value of the captive financing arms. Finally, the GM is also dealing with the dramatic reduction in size as competitors are in squeeze, as well as the longer life of cars reducing overall demand. Due to the way pensions and medical costs work in the US, the GM is saddled with pension and retiree medical costs for a retired work force from the company that was much bigger in the past.
All these reasons are well known but lets talk about something that media prefer to keep quiet. In my very humble opinion the real financial crisis for GM was caused by the UAW. The UAW increase the production cost of GM by thousands per vehicle compared to foreign competitors. A real management should have confronted the unions long time ago but in this case the unions just walk off work with impunity.
Do you know why airlines from time to time had to file Chapter 11? ... (I bet you do). Exactly.
Why not to let GM go the same way? Pouring more money in is pointless, unless you need to be re-elected in the upper Mid-West... and that's might be a problem. So, GM bailout? .. but what happened to American capitalism? This is protectionism, would the EU and Japan retaliate after all? This is a disgrace, and lets be honest, if this is the new attitude of the US, economic war will ensue. Without a solution to legacy costs and UAW issues, GM should be allowed to fail. The whole rationale for trade is that if someone else can make a better product and at a lower cost - you should let them do it. The model for letting GM go bankrupt is the bankruptcy of Bethlehem Steel and Inland Steel - both buried by their legacy health, retirement costs and union contracts. They went bankrupt, were bought by Mittal and continued operations under new labor contracts negotiated before Mittal took over. Mittal has idled purchase of the mills for several months, so the unions could feel what it was like. No contract, no takeover, shutdown, no jobs. They also did not rehire based on seniority - kept the old union guys out. Mittal pays about half the former hourly rate, much higher productivity i.e. far fewer workers, work rules greatly simplified, much lower benefits with generous profit share bonuses.