The Carmagedonn Thread: FCA and "Consolidation"

[Leonidae]

Source

Insurers pull cover from GM and Ford suppliers

By Kiran Stacey, John Reed and Jonathan Guthrie in London

Troubled US carmakers General Motors and Ford Motor have been given a potentially devastating vote of no confidence by three big European credit insurers, which have removed cover from their suppliers.

The withdrawal of credit insurance – which covered suppliers against the risk of the car companies’ failing – has previously hastened the demise of a string of European companies, with suppliers to retailers and construction companies finding cover increasingly hard to come by.

Euler Hermes, Atradius or Coface, which control more than 80 per cent of the world’s credit insurance market, are refusing to write policies for suppliers trading with GM or Ford on credit. GM and Ford are two of the biggest groups ever to be blacklisted. The cut-off of cover will primarily affect the companies’ large operations in Europe, where the insurers do the bulk of their business. US suppliers largely operate without insurance.

Ford and GM will be two of the largest companies to have seen their coverage terminated this way.

Euler Hermes has gradually reduced cover for suppliers trading with the two companies over the past three to six months, the insurer confirmed on Thursday.

Without credit cover, suppliers can choose to trade uninsured, cease trading, or demand payment up front – none of them appealing scenarios.

Withdrawal of insurance cover tends to be a last resort, and is done because a company has stopped providing insurers with enough information to analyse their credit risk, or because their risk profile has deteriorated.

The move leaves three possible scenarios: GM and Ford can start paying upfront for goods; they can hope their suppliers will trade uninsured; or they could be unable to buy the parts they need for car production.

The insurers have risk assessors working closely with the companies and are party to details not released to the market.

Even if the carmakers can keep the supply chain working, the refusal to provide cover will further weaken investor confidence.

GM last week said it might run out of the money needed to operate its business by early next year, and Ford revealed it had burned through $7.7bn in the latest quarter, twice the rate in the first half. Detroit’s three carmakers are lobbying the US Congress for bail-out funds to help them survive the downturn.

Copyright The Financial Times Limited 2008

I'd say they're neck deep now..

 

[Joey D]

Joey, a GM bankruptcy does not vaporize the capital structure. To me, it sounds like Detroit is ripe for fresh business, given a good environment set by the local government. GM would be well-served to claim bankruptcy and throw off its UAW stranglehold.

General Motors, their suppliers, and dealer network will all have to make huge cuts in the work force if GM goes bankrupt. That is a huge blow in an already weak economy. I really don't think there is a line of suitors waiting at the door either. You say Detroit sounds ripe for fresh business, we've been trying that for as long as I can remember. The best way I can describe the city is "hell hole", although that probably doesn't quite convey how bad it really is. I've been to many cities all over the world and nothing compares to how awful Detroit is...except maybe Flint.

I do agree the UAW is partially to blame with their ridiculous demands, shoddy workmanship, and lazy attitude. I know not all of them are like this but I know more UAW works that fit that bill then don't. I also think Rick Wagnor is incompetent and needs to loose his job as well, along with a bunch of other GM-elite that have mismanaged the company. Mix in poor workers with a tolerant administration and you have a powder keg waiting to explode.

Although speaking of Wagon getting das boot:

`Dumbest People' Industry Image May Cost Wagoner Job (Update1)

Nov. 14 (Bloomberg) -- Rick Wagoner's 31-year career may fall victim to the mistakes of the industry and his own, even if General Motors Corp. survives.

The GM chief executive officer unleashed scrutiny of his record after asking for a government bailout to keep the Detroit automaker in business. Now, his departure may be a necessary condition of any federal rescue, business leaders and lawmakers say.

``Management needs to be replaced,'' said Robert Crandall, former chairman and CEO of American Airlines parent AMR Corp. ``The fact is that the management as a whole has had lots of opportunities to fix this. They haven't.''

Wagoner has run the world's largest automaker for the past eight years, presiding over $73 billion in losses beginning in 2005. He already endured a fight with dissident shareholders and several failed turnarounds and may argue he knows the company better than most who could take his job.

The 55-year-old executive joined GM in 1977, as U.S. automakers were fending off Japanese competitors who recognized the need a decade earlier to build fuel-efficient vehicles. While U.S. auto sales broke records during Wagoner's years as CEO, the three major producers -- Ford Motor Co., Chrysler LLC and GM -- battled against high labor costs from pension and retiree health care obligations.

Removing CEOs

``There's the feeling that next to financial services, automotive execs are the dumbest people in the world,'' said Thomas Stallkamp, a former Chrysler president who worked at the car company when it received emergency government loans in 1980. ``There are probably some symbolic moves that somebody's going to ask for.''

The federal government insisted on replacing the CEOs of American International Group Inc., Fannie Mae and Freddie Mac when they received aid. Lawmakers including Senator Sherrod Brown, an Ohio Democrat, said some executives may have to go before GM and the other U.S. automakers receive $25 billion in new government loans.

``It's pretty clear that management has made some pretty bad decisions over the last 20 years,'' Brown said, adding that changing management is something that Congress must ``think seriously about.''

Wagoner won't offer to resign, he told Automotive News this week. ``It's not clear to me what purpose would be served,'' he said. ``Our job is to make sure we have the best management team to run GM.''

Board Support

He wasn't available for comment. ``Nothing has changed relative to the GM board's support for the GM management team,'' the company said in an e-mailed statement.

The automaker, which may lose its title as the biggest to Toyota Motor Corp. at the end of the year, has dropped almost six percentage points of U.S. market share during Wagoner's tenure, falling to 22 percent as of Sept. 30. GM stock, at a six-decade low, has sunk 95 percent under the 6-foot-4-inch, Wilmington, Delaware-born executive.

``It's hard to imagine how a management team that has presided over this sort of decline would instill confidence that they can manage their way out of it,'' said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

Still, Wagoner has shown staying power, weathering the losses and activist investor Kirk Kerkorian's 2006 push for an alliance with Renault SA and Nissan Motor Co., Elson said. A case can be made that Wagoner shouldn't be blamed for GM's travails, he said, because it has been hamstrung by the costs of providing health care to 1 million employees and dependents, an issue that should have been handled by the government.

Bet Against Hybrids

As CEO, the former Duke University basketball player and Harvard University MBA early on bet against gasoline-electric hybrid vehicles, focusing research on hydrogen technology. GM offered its first full-scale hybrids in 2007, a decade after Toyota introduced the Prius.

He kept GM focused on trucks and sport-utility vehicles, only to press for development of the Volt plug-in electric car when gasoline prices soared. Truck and SUV sales are down 16 percent since 2004.

Wagoner used the purchase of South Korea's Daewoo Motor Co. to expand GM's overseas sales 51 percent to 5.5 million cars and trucks by 2007. He wrung concessions from labor unions last year, including cutting wages in half for new hires and offloading retiree health care to a union-run trust by 2010.

`Fundamentally Restructuring'

``We believe that we were well along to fundamentally restructuring our business before the current financial crisis, in terms of product quality, productivity, energy solutions and costs,'' Tony Cervone, a GM spokesman, said. ``That strategy will be what leads us to success in the future.''

Finding the right person willing to take the job may extend Wagoner's longevity. Firing management will cause more trouble than it solves if a new team has to relearn the issues and deal with federal overseers new to the car market, Stallkamp said.

``You can't parachute in a bunch of people that don't know anything about it,'' said Stallkamp, 62, now a partner at the buyout firm Ripplewood Holdings LLC. He said he ``has a lot of respect'' for many executives at the automakers and wasn't referring to any one person.

President-elect Barack Obama is pushing for Congress to approve as much as $50 billion for the automakers and appoint a czar or board to oversee them, people familiar with the matter said yesterday.

Iacocca's Strategy

Stallkamp recalled fighting with a government board that wanted to delay investments in light trucks and minivans during the Chrysler bailout. Chrysler CEO Lee Iacocca pressed for them and the family-friendly vans turned out to be one of the automaker's 1980s successes.

Wagoner's situation differs from Iacocca's, and the other Big Three auto leaders, because of his three-decade GM employment. Ford CEO Alan Mulally took up his post in 2006 after a career at Boeing Co. Robert Nardelli became Chrysler's CEO in 2007 after running Home Depot Inc.

Iacocca, known as a product innovator responsible for the Ford Mustang, was brought in to help fix Chrysler in 1978. He lobbied Congress for a bailout, and in January 1980 $1.5 billion in federally guaranteed loans was signed into law. Chrysler repaid them three years later.

``Lee Iacocca had a clear plan to return that company to profitability,'' said Peter Morici, a business professor at the University of Maryland. ``These guys do not.''

Time for Pay Cuts

Senator Charles Grassley, an Iowa Republican, said in a letter yesterday to the three auto leaders that they should follow Iacocca's example and cut their own pay. Iacocca took a $1 yearly salary and his executives as much as 10 percent less after the bailout, according to the letter.

The bailout for automakers faces opposition from Republicans, including House Minority Leader John Boehner and Senator Richard Shelby from Alabama who sits on the Senate Banking Committee. The Bush administration also opposes using any of the $700 billion financial-rescue package to aid automakers.

Wagoner, the CEOs of Ford and Chrysler, and the United Auto Workers president have been invited to testify at a Nov. 19 hearing before the House Financial Services Committee.

In several bailouts, the government has required top executives to leave when it takes financial control of companies. Treasury Secretary Henry Paulson replaced Fannie Mae CEO Daniel Mudd and Freddie Mac's Richard Syron when he put the two mortgage-finance companies into government conservatorship in September. AIG chief Robert Willumstad left after the Fed took control the same month.

Volunteered to Resign

In 1984, federal regulators replaced the board chairman and CEO of Continental Illinois National Bank and Trust Co. after taking an 80 percent ownership stake.

The chairman of Lockheed Aircraft Corp., now part of Lockheed Martin Corp., kept his job when the defense contractor won $250 million in federal loan guarantees in 1971, even after offering to resign.

``The management is more interested in Lockheed's survival than in any jobs, and that starts with me,'' Lockheed Chairman Daniel Haughtontold Time magazine.

Aid to the automakers must come with conditions that reduce their U.S. production costs to match or beat those of Toyota, said Crandall, who managed a unionized workforce as American Airlines CEO from 1985 to 1998.

Toyota generated pretax profit of $922 per vehicle on North American sales in 2007, while GM lost $729, according a June report by New York-based consulting firm Oliver Wyman.

``If we don't impose conditions that we honestly believe will make GM successful, then we're just kidding ourselves,'' said Crandall, who last owned an American car 10 years ago and now drives a Toyota. ``Their costs are simply out of whack and the quality isn't up to snuff.''

Source: http://www.bloomberg.com/apps/news?pid=20601109&sid=ap8pS2oslvn0&refer=home

 

[Jim Prower]

Well, I don't know how many "bosses" at GM are the "Pointy-Haired" type, but this article seems to point the finger at all of them.

 

[YSSMAN]

Those are both quite different scenarios.

Extremely different scenarios. The service sector is one thing, a major piece of industrial America is another. That, and you're likely to see a kazillion competitors sweep in in the vacuum following situations like that, with a major car company, its a little different...

Have I mentioned how much I love Jim Cramer?

He and I don't always see eye-to-eye on things, but he it the nail square on the head there.

The pre-requisite for money, of course, is that GM needs to make some BIG changes. Some of which I outlined previously...

RE: Lambdas RIP

Yes and no, Toronado. I don't think we need four (soon five, Escalade is moving down), but one or two would make sense since there is still a market for capable crossovers. The thing is, there will always be people who are going to need to buy "trucks" or SUVs, and consequently, GM should at least cater to some of those needs. I completely agree that it is unnecessary to keep all of them alive, but a few of them, that'd be fine. Really, only the Enclave and Escalade would be necessary.

RE: The Demise of Buick

I wouldn't jump too far ahead on the North American operations, there is still a lot of good work that can and will be done. The main issue is that up until recently, as a brand, Buick has operated too deep within the shadow of Cadillac. With some stellar products, particularly those that are otherwise competitive with the newly amazing Lincoln line, the brand can still be a winner.

I see your point, Buick may be a China-only entity eventually, but there still is a lot to save in North America. I think.

 

[V1P3R]

I don't get why you and GM can't see why a rebadge of the same car 5 times is pointless...? No other car company does it.

 

[YSSMAN]

Every company does it to some extent, the difference is (as I've pointed out before) that GM continues to operate on an out-dated model. I don't disagree with you that having five different versions of the Lambdas is suicide, but when we look at the differences of say the Epsilon cars, there is some reasoning behind it.

GM needs to work better to assure that there are differences in the first place, not just a change of the grille. Hopefully a little restructuring will help that.

 

[RACECAR]

I don't get why you and GM can't see why a rebadge of the same car 5 times is pointless...? No other car company does it.

Isn't Chrysler and Ford doing it as well?

 

[Philly]

RE: Lambdas RIP

Yes and no, Toronado. I don't think we need four (soon five, Escalade is moving down), but one or two would make sense since there is still a market for capable crossovers. The thing is, there will always be people who are going to need to buy "trucks" or SUVs, and consequently, GM should at least cater to some of those needs. I completely agree that it is unnecessary to keep all of them alive, but a few of them, that'd be fine. Really, only the Enclave and Escalade would be necessary.

What about the Traverse? Keeping the Enclave and Escalade around because they are good models is sensible, but are people going to be going to find three rows of seats and things at Cadillac and Buick dealers? They'll probably sell many more of the Chevy branded ones than the other two, just by where they'll be sitting and such.

RE: The Demise of Buick

I wouldn't jump too far ahead on the North American operations, there is still a lot of good work that can and will be done. The main issue is that up until recently, as a brand, Buick has operated too deep within the shadow of Cadillac. With some stellar products, particularly those that are otherwise competitive with the newly amazing Lincoln line, the brand can still be a winner.

I see your point, Buick may be a China-only entity eventually, but there still is a lot to save in North America. I think.

I'm under the impression that Buick and Cadillac step on each others toes like Chevy and Pontiac do. It seems that the latter two have a difficult time coexisting in good times. I would imagine that the former two can't during hard times. And if you're putting Buick up against Lincoln, I guess that I should say that no matter how amazing the new lineup there is, I still never see them on the streets. Although I could just be blind.

 

[Keef]

...a GM bankruptcy does not vaporize the capital structure. To me, it sounds like Detroit is ripe for fresh business, given a good environment set by the local government. GM would be well-served to claim bankruptcy and throw off its UAW stranglehold.

The best thing GM could do right now is file for chapter 11. It would take them off the stock market, which would mean their bank account would be privately held and not subject to shareholder idiocy or greed, and it would cancel outstanding contracts, the most important of which would be the UAW contract. General Motors would no longer be tied to the UAW. They would be free to make decisions as businesses should be. They would then be on the level of Honda, Nissan, Toyota, etc., and would be able to completely overhaul the company--every single aspect of it--into a model that's actually financially viable and competitive.

 

[YSSMAN]

The best thing GM could do right now is file for chapter 11.

The problem is that some analysts don't think that they can, and consequently, they'd be forced into Chapter 7, which is the exact opposite of what we'd want. Of course, GM isn't talking either. Which is why we have to wait exponentially longer.

From DeLorenzo this week...

Unbeknownst to the legions of people out there in “fractured” America, the ones who fill the Internet with bile and who project such a level of viciousness and unbridled glee at the thought of the collapse of our domestic automobile industry as if it were – amazingly enough - some warped opportunity for celebration, there are countless towns, big and small, scattered all across this nation that have grown up with GM as their main employer and the main source of income for thousands of American families.

I am absolutely convinced that the people who hate “Detroit” and want it to implode have not even the faintest of clues as to what it really means if it were allowed to happen. To those instant experts out there who are reveling at the thought of a major part of our country’s industrial fabric collapsing, I say be careful what you wish for - because if GM is allowed to fail, it will take the entire domestic auto industry down with it - meaning thousands of suppliers and dealers in towns making up a cross-section of America will go under too.

Link to the article HERE (will rotate next week, I believe)

Monday, I believe, is the first hearing for Congress on what they may (or may not) do. We'll see what comes of it.

 

[Tornado]

Isn't Chrysler and Ford doing it as well?

Its somewhat hard for Chrysler to do it when they only have 2 brands to really do it with (Jeep is usally held on its own). Even then, most of Chryslers rebadges (for better or for worse) have effort put into them. The Caliber/Compass are somewhat more individualistic than, say, the Cobalt/G5. Ford and Mercury do it, but Ford at least has expressed interest to change up the Mercury model profile. All GM does (still!) is take one car, put a new nose on it and sell it throughout the range.

 

[Keef]

I've heard of the chapter 11 rumors going around saying GM doesn't qualify. But then again everyone is still talking about it. You're right that we'll have to wait and see what happens.

I'm about to say I'd rather not have any money at all and live on the streets than support anti-American policies with the little money I do have. But I don't know if that's true, or just because I'm frustrated at the whole deal.

 

[Joey D]

If you don't like the country I'm sure you are free to move elsewhere, no one is forcing you to live here under these polices. Think realistically about this, what will happen if GM goes under? As much as giving money to corporations is a bad thing, the alternative is probably worse.

John McElroy made a fairly good case for saving the auto industry.

How The Big Three Will Come Roaring Back
Way back in 1979 when Chrysler needed government help, there was a political cartoon that perfectly captured the situation. If featured an old Plymouth Fury with giant tail fins teetering halfway over a cliff, with a tow truck parked nearby. A bystander wearing a shirt labeled U.S. Taxpayer was staring at the car on the cliff. The tow truck driver was nonchalantly picking his teeth and telling the taxpayer, "I can tow it out, or push it over the cliff, but either way it's going to cost you."

And so here we are again, only this time it's not just Chrysler. Now GM and Ford need to get towed back onto solid ground, too. And while there are plenty of people saying, "Let them die," the reality is that it'll be cheaper to bail them out.

While it's frustrating to see that Chrysler needs help again, it's important to remember what happened after the government bailout of 30 years ago. Not only did Chrysler come roaring back and pay off the loans seven years early, Uncle Sam made a $350 million profit on the whole deal. Investors who stuck with the company made a fortune, too. Chrysler stock shot from $3 a share to over $30, a 1,000% return in just a few years time.

If the Big Three get a government bailout this time, I see history repeating itself. Most people seem to miss the fact that they are on the verge of a massive turnaround. I'm not trying to be a rah-rah cheerleader here. I'm persuaded simply by the facts.

Last year's UAW contract was truly historic in that it will completely remove the health care cost burden off the Big Three. Though they have to give the union the money to assume this burden, they're paying 40% less than it would otherwise cost them. After 2010 they stop paying billions in health care every year and start dropping that money to the bottom line.

Moreover, there will no longer be any pensions for new hires. They'll get 401k's instead. Again, massive cost savings going forward.

On top of that the UAW workforce takes big pay cuts, and new hires come in at a wage rate that is roughly the same that Toyota, Honda, Nissan, et al, are paying their American workers. In other words, the Big Three can finally compete with the transplants from a labor cost standpoint. That means they can now make small cars in America without losing money on every one they make.

Another benefit of that new labor contract is that the Big Three are no longer pressured to keep building cars and trucks in the face of weak demand. Under the old labor contract it was cheaper to build cars and slap big incentives on them than it was to not build them in the first place. Now, they can build to actual demand, and they're running on much tighter inventory.

That means they'll be able to slash their incentives. Every $1,000 that General Motors cuts from incentives will drop roughly $4 billion to the bottom line. And GM has an average of $3,500 in incentives!

Plus, the Big Three are taking out a huge amount of overcapacity, roughly two million units. To fulfill demand in the future their plants will have to run at full capacity, and that's when car companies literally become cash machines.

What this means is that when the economy finally starts to recover and the car market begins to grow again, GM, Ford and Chrysler will be in an extremely competitive position, one they haven't been in for more than 40 years.

And that's why those who say giving them a bailout is just throwing good money after bad are dead wrong. The Big Three are not only on the verge of a roaring comeback, I predict that in the next decade they'll go on to hit record profits.

Source: http://www.autoblog.com/2008/11/14/autoline-on-autoblog-with-john-mcelroy/

 

[Keef]

I think we pretty much know what will happen if the auto industry goes under. It'll be another great depression and the country and people will lay dormant and in shambles for a decade.

But if we "protect" the companies--with money printed on a whim that is no better than counterfeit--we have no idea what will happen. We've got two ideas here--the fact that GM is managed poorly and will fail, and the idea that we can't let them fail. WTF sense does that make. Say it to yourself. The only solution I can gather from those two contradictory ideas is that the only way to keep them alive is feed them money they didn't earn indefinitely while their bad management continues to waste this fake money.

My parents have a GM car sitting in the garage right now. The majority of the cars on the road here in Dayton are GM or FoMoCo cars and trucks. If they're selling that many cars how are they not making any money? The whole point of selling things is to make money. But they didn't make money. Businesses who sell things and don't make money are bad businesses. It's not my fault all these suppliers tied themselves to a company which has been doomed to fail for years. The workers don't deserve at all to be let go--they've worked to get where they are. But the business didn't work. The business has failed. Fail, fail, fail, fail, but of course we have to give all the failures free money and take care of them because they're failures and didn't earn anything and don't deserve anything.

You want to pay for General Motors's welfare check?

But that new UAW contract makes a lot more sense than what they're doing now. I'm up for a gamble, I suppose. Maybe that new contract will allow the current execs to run the company competently.

 

[Joey D]

That's why if the government bails them out restrictions need to be put on them and people need to be held accountable. That's the problem with the auto industry, no one is accountable for anything. I agree we are in a damned if we do and damned if we don't situation but I would rather live in the post-damned-we-did country over the post-damned-we-didn't country.

 

[Tornado]

I'd argue that no one is held accountable for anything in the automobile industry because every time an automaker is threatened to go out of business the respective government in which the automaker is stationed hands them large piles of money until the problem goes away. Hell, they even did it for DeLorean. You can't not expect them to constantly screw up if there is no fear of failure.
Also, legal accountability doesn't apply in this case, nor do restrictions. This wasn't a case of corporate shenanigans like it was with Enron or Tyco (or even with the banks). GM did nothing wrong, per se. They were just idiots. I mean, seriously, what would you hold them accountable for? Lack of foresight? Spending their money poorly? You can't legislate those things. For that matter, how would you restrict the automobile industry? Tell them what to build or how to build it? Restrictions and accountability apply when companies are unethical or break laws that lead to people getting shafted. Not when mis-reading the market does so.

 

[SagarisGTB]

What happened to capitalism? Why the socialist attitude? Is this the same country that trashes politicians who want to "spread the wealth", now bailing out financial institutions and inevitably soon also automakers?

Let them die. Voids will be filled, people will move on, the world will continue to turn.

 

[Omnis]

That's why if the government bails them out restrictions need to be put on them and people need to be held accountable. That's the problem with the auto industry, no one is accountable for anything. I agree we are in a damned if we do and damned if we don't situation but I would rather live in the post-damned-we-did country over the post-damned-we-didn't country.

Agreed on the first part. But I wouldn't have a problem with the second part if people who want the bailout would cover the expense of it for those of us who don't. All of you are free to fundraise and donate to GM.

 

[Philly]

What happened to capitalism? Why the socialist attitude? Is this the same country that trashes politicians who want to "spread the wealth", now bailing out financial institutions and inevitably soon also automakers?

In times of recessions, it seems that people tend to gravitate toward more socialist views. And I would say that we are in slightly different country or whatever since the Democrats started taking over.

Agreed on the first part. But I wouldn't have a problem with the second part if people who want the bailout would cover the expense of it for those of us who don't. All of you are free to fundraise and donate to GM.

Welcome to democracy? This is the government that you voted into office we are talking about.

Not to open a huge political can of worms or anything...

 

[Keef]

What happened to capitalism? Why the socialist attitude? Is this the same country that trashes politicians who want to "spread the wealth", now bailing out financial institutions and inevitably soon also automakers?

Let them die. Voids will be filled, people will move on, the world will continue to turn.

A State-fed Canadian speaking as an American. The world has officially come to an end. I'm taking next week off work to live life to the fullest.

 

[Omnis]

Welcome to democracy? This is the government that you voted into office we are talking about.

Welcome to democracy indeed. I didn't vote this government in and I didn't vote for the one that will replace it. So much for a constitutional republic.

A State-fed Canadian speaking as an American. The world has officially come to an end. I'm taking next week off work to live life to the fullest.

What are you talking about? 'Murr'ca is socialist today too. And you don't have to be American to trust the free market. Look at Yuri Maltsev.

 

[Keef]

What are you talking about? 'Murr'ca is socialist today too. And you don't have to be American to trust the free market. Look at Yuri Maltsev.

Well, I had the words "American should" in there, but I decided to take it out. Apparently I have too much hope. I just think America is--or at least used to be--the world's guiding light for capitalism and prosperity. You know, even if you're Russian but believe in capitalism, you're thinking like an American. Ya dig? My roundabout point was that there are countries out there and people out there who are more American than America.

 

[Jim Prower]

10 cars that sank Detroit?

U.S.News & World Report
10 Cars That Sank Detroit
Friday November 14, 5:34 pm ET
By Rick Newman

The global financial crisis is suffocating the Detroit automakers, but the problems at General Motors, Ford, and Chrysler have been festering for years--even when the mighty "Big Three" were earning billions. Aging factories, inflexible unions, arrogant executives and shoddy quality have all damaged Detroit. Now, with panicky consumers fleeing showrooms, catastrophe looms: Without a dubious federal bailout, all three automakers face the prospect of bankruptcy.

There will be plenty of business-school case studies analyzing all the automakers' wrong turns. But, as they say in the industry, it all comes down to product. So here are 10 cars that help explain the demise of Detroit:

Ford Pinto. This ill-fated subcompact came to epitomize the arrogance of Big Auto. Ford hurried the Pinto to market in the early 1970s to battle cheap imports like the Volkswagen Beetle that were selling for less than $2,000. Initial sales were strong, but quality problems emerged. Then came the infamous safety problems with exploding fuel tanks, which Ford refused to acknowledge. Message: The customer comes last. "The problems for the domestics really started in the '70s when they were offering cars like the Pinto up against higher-tech, better-built Toyota Corollas and Honda Civics," says Jack Nerad of Kelley Blue Book.

Chevrolet Cavalier. GM sold millions of Cavaliers in the 1980s--and decided the thrifty car was so successful the company didn't need to update it for more than a decade. To milk the model, GM even added some lipstick and high heels and tried to peddle the upgrade as the Cadillac Cimarron--a legendary flop. Honda and Toyota, meanwhile, were updating their competing models every four or five years, and grabbing market share with each quality improvement. A new Cavalier came out in the mid 1990s--then languished for another decade, while GM put most of its money into big trucks and SUVs. GM has since improved its small cars. "But they have to be miles better than the imports for Americans to forget how bad their small cars used to be," says Jamie Page Deaton of U.S.News's Rankings and Reviews car-ranking site. Even if they are better, many Americans wonder why they should give Detroit a second--or third--chance.

Chevrolet Astro. While Chrysler, Toyota, and Honda were refining their minivans in the 1990s and coming up with innovations like hideaway seats and electric sliding doors, GM was offering an old, truck-based van gussied up with carpeting and cupholders. "It showed GM's repeated failure to market competitive products based on styling and packaging," says Tom Libby of J.D. Power & Associates. The Astro drove like a bread truck, and consumers noticed. It also earned the worst safety ratings in its class. Before long, GM was effectively out of the minivan segment. No biggie--those were just mainstream American families the automaker decided to ignore.

Ford Taurus. Try to explain this logic: After its 1986 debut, the Taurus became a perennial bestseller. So for the next 20 years, Ford let quality decline and neglected the family sedan, while pouring love and money into trucks and SUVs. By early this decade, the Taurus had become a dowdy, rental-lot staple. So Ford simply retired the Taurus in 2006 and replaced it with the 500 sedan--which went on to set records as one of the most short-lived models ever. A year later, Ford revived the Taurus name and applied it to a bastardized 500. But by then, the damage was done.

Ford Explorer. This breakout vehicle helped launch SUVs and drove record profits at Ford in the 1990s, as Americans flocked to big utilities that could take them off-road if they ever got adventurous. It also blinded Ford to the future. "Executives could not see beyond the green piling up at their feet," says David Magee, author of How Toyota Became No. 1. "The Explorer helped create an addiction that lasted 15 years." GM and Chrysler followed right behind, with SUVs like the Chevy Trailblazer and the Dodge Durango--lockstep moves that reveal how the Detroit automakers focused on each other rather than the broader marketplace.

Jaguar X-Type. Ford bought the British luxury brand Jaguar in 1990, when all three Detroit automakers were seeking ways to expand their global reach. Eventually, Ford decided to build an entry-level Jaguar starting at around $30,000 for people looking to move up from, say, a Mercury Marquis. The down-market move "represented everything that Jaguar is not," says Libby of J.D. Power. The X-Type was built on an ordinary sedan platform from elsewhere in Ford's lineup, and the front-wheel-drive system underwhelmed enthusiasts used to rear-drive European makes. Jag purists were horrified, and aspiring luxury buyers shunned the X-Type in favor of BMWs, Lexuses, and Acuras. After fumbling the luxury brand for nearly two decades, Ford sold Jaguar to an Indian conglomerate in 2008.

Hummer H2. It sure seemed cool back in 2003, when gas was less than $2 per gallon. And it sure seems gaudy now. This supersized SUV clearly had a heyday, but it also helped paint parent company GM as an enviro-hostile corporation that sold only gas guzzlers. Sales collapsed as gas prices rose toward $4 a gallon in mid-2008, and GM has been trying to sell the division for six months--with no takers, so far. "GM wanted to make Hummer a signature company brand," says Magee. "Instead, it showed the company was out of touch with the needs of the 21st century."

Toyota Prius. While GM was spending $1 billion to build up the Hummer franchise, Toyota was spending $1 billion to develop a high-mileage hybrid--even though gas prices were still low. After the Prius debuted in the United States in 2000, GM execs seized yet another opportunity to display their intimate knowledge of American consumers, arguing that hybrids didn't make economic sense and that only environmentalists would buy them. Today, Toyota can barely keep up with demand for the Prius, and it has plans to start building them in the United States. GM, meanwhile, is scrambling to rush hybrids and other high-mileage cars into dealerships--far too late.

Chrysler Sebring. Did Chrysler engineers set out to build the world's most boring car? Of course not. Yet Chrysler still produces this blandmobile to keep assembly lines running and maintain a presence, however weak, in the sedan market. In the new Darwinian auto industry, this model seems destined for extinction, since the only way to sell marginal cars is with steep discounts, which money-losing automakers can no longer afford. In fact, if Chrysler ends up being carved into pieces and sold to competitors, as many analysts expect, most of its passenger-car lineup could get the axe, since there's little to distinguish it. Besides--what's a sebring, anyway?

Jeep Compass. Quick, what's the difference between the Jeep Compass, the Jeep Liberty, and the Jeep Patriot? The bosses at Chrysler, which owns Jeep, could explain, but the real answer is that Chrysler has oversaturated its strongest brand lineup in a desperate attempt to boost sales. "The Compass is not needed," says James Bell of Intellichoice.com. "Just the Liberty, please." The Compass has the same mechanical underpinnings as the Dodge Caliber, which helps illustrate one of Detroit's favorite tricks: Create multiple versions of every product under a bunch of different brand names, hoping that if buyers shun one, they'll take a more favorable view of another. Message to Detroit: Consumers aren't that stupid. Give them a bit more credit, and you might have a future.

http://biz.yahoo.com/usnews/081114/14_10_cars_that_sank_detroit.html?.&.pf=insurance

and the flip side...

10 Cars That Could Salvage Detroit
November 14, 2008 03:07 PM ET | Rick Newman | Permanent Link | Print

The road to recovery in Detroit is so long and pitted that General Motors, Ford, and Chrysler might not all make it. Billions in federal aid will help. But the government doesn't build cars, and without top products in the most important segments, the Detroit Three will continue to flounder while the Japanese and Europeans surge ahead. Here are some of the cars that are key to the revival of the domestic automakers:

EV-1. GM famously spent $1 billion trying to build this electric-powered two-seater in the '90s, only to scrap the project because of range limitations and other shortfalls. Critics dubbed the EV-1 a huge flop. But hold on: One of GM's top priorities right now is the Chevy Volt electric plug-in, due in 2010. And much of the technology comes straight from the EV-1. If electric cars catch on and GM ends up a leader, it will be largely due to lessons learned from this failed experiment.

Chevy Volt. Unlike the EV-1, the Volt has a gas engine that kicks in once the battery runs down, so you can't get stranded away from a recharging outlet. Since it's a sedan, the Volt will appeal to families, too. Initial sales will probably be low, thanks to a high price tag and wariness over the technology. And it could be years before GM recoups its investment. But if the Volt succeeds, it will help re-establish GM as a technology leader and provide some badly needed environmental cred. The technology will also get cheaper over time, and it could spread to many other GM models.

Ford Fiesta. All three domestic automakers need to recapture small-car buyers who have fled to imports like the Honda Civic that offer better quality and cachet. The European-built Fiesta, due in the U.S. in 2010, will make the case with crisp styling and gas mileage in the mid-30s. Ford could also import the C-Max and Kuga into the U.S. from Europe. If they succeed, "the impact of all three of these Euro Ford vehicles will be huge," says James Bell of Intellichoice.com.

Chevy Cruze. If this subcompact debuts as planned in 2010, it will be a spirited and welcome replacement for the middling Cobalt. A small turbocharged engine could produce high mileage and a bit of excitement, a combo that's been missing from GM's lineup. That might help grab a bit of turf from hot newcomers like the Honda Fit and Nissan Versa.

Cadillac Escalade. That's right, there's still a market for huge, gawdy SUVs, and even with sales down, the Escalade remains one of GM's most profitable vehicles. GM became far too reliant on big SUVs, and it's begun the arduous process of retooling assembly lines to build fewer SUVs and more passenger cars. But the Escalade and its downmarket cousins, the Chevrolet Tahoe and GMC Yukon, still appeal to families with gear to haul, boats to tow, and little fear of gas prices.

Ford F-150. This work truck has been Ford's bedrock vehicle, and a perennial bestseller. The housing bust has torpedoed sales, since contractors are prime buyers. But once there's a recovery and building activity picks up, the F-150 will help lift Ford, too.

Jeep Wrangler. Part of Chrysler's problem is a stable of indistinct vehicles that can't get traction in the marketplace. But not the Wrangler. This iconic Jeep remains popular when other off-roaders seem excessive and unnecessary. Some analysts think that deeply troubled Chrysler, which owns Jeep, should rally around its strongest brand, and maybe even rechristen itself as "Jeep Corp."

GMC Acadia. This crossover has been a hit since debuting last year, and GM has covered all its bases by rolling out a Saturn, Buick, and Chevy version. Drivers like the carlike ride and SUV-style amenities, plus it carries 7, which makes it a minivan alternative. Once the economy rebounds and sales pick up, the Acadia could help GM reclaim a lot of turf seized by competitors like the Toyota Highlander and Honda Pilot.

Chevy Camaro. With gas prices falling, the timing could be just right for this revived muscle car, due in 2009. A new Ford Mustang is coming, too, which could offer car buffs a bit of excitement to balance all the bad news out of Detroit. "A good ol' pony car battle will bring smiles," says Bell.

Chrysler Secret. There's no model by this name, but one of the mysteries in Detroit is what Chrysler has planned for the future. The company has talked about electric cars and imports from China, but there are few official announcements. And a new hybrid version of the Dodge Durango hybrid was canceled just weeks after it debuted this summer. That's a bad sign. With the company hoarding cash and seeking a buyer, Chrysler's future is more uncertain than the price of gas in a year.

http://www.usnews.com/blogs/flowchart/2008/11/14/10-cars-that-could-salvage-detroit.html

Thoughts?

 

[Keef]

Well, he said so much of how the gas-guzzlers and trucks helped kill the companies and put them where they are now, but then he went on to mention the new trucks as being the saviors of the companies. WTH. Sure, they'll make them money, and they always did make them money, but it's not the right kind of money. If the brands start building the hell out of Acadias and F150s and Excalades and this truck and that truck they're just going to forget about the rest of the lineups. Again. And then they're going to die. Again. The only cars in that whole story I agree they should stick with are the new Cobalt (Cruze, which obviously won't work because I still don't know anything about it and I'm a car guy), the Volt (which I think will be a hit), and the Fiesta (one of which I want cause it's badass). Besides that the list is all trucks, like it was in the 1990s.

 

[Jim Prower]

Well, I'd throw the Wrangler in there, since...well...even the Land Rover's not like it any longer.

 

[buickgnx88]

Well from what I've seen on a Jeep forum I belong to, the Jeep Wrangler is still indeed popular with quite a crowd, and would be a poor decision on Chrysler's behalve to stop building it.

 

[Tornado]

What a garbage article. First of all, the Astro bit: Are they seriously expecting me to buy that the Astro was GMs only ever offering against the Caravan and Aerostar? What was this then?

Also, far from me to question the authority that is the U.S. World News and Report, but when the Prius launched in America no one did care, mostly because it was a crappy tech demo that got no better mileage than its far cheaper Echo brother. Nor did anyone really care until the car was redesigned 4 years later.

On GM's money spending with Hummer, particularly this line right here:

"Instead, it showed the company was out of touch with the needs of the 21st century."

Then what the hell are these; fresh and forward thinking?

At least GM spent all of their money on the Hummer brand (which, it must be said, was quite profitable for a time. Toyota has yet to stop losing money on the Prius) long before it was even rumoured that gas prices would go up. Where exactly is Toyota's alibi for when they blew all that money making the Tundra as anti-eco friendly as they could? It is really starting to piss me off that articles such as that chastise the Big Three for answering to consumer demands while completely ignoring when the darling automaker of "greenies" went all out to out do the Big 3 after it stopped being profitable to do so. Foresight must be awfully easy to do after the fact.


Also, though comparatively minor, I love it how the artice insinuates that the X-Type somehow sunk Jaguar, perenial money loser since 1966. What, did the cost-nothing-to-build-yet-was-not-really-that-bad-of-a-seller X-Type hurt the Jaguar image so bad that Ford might not have had to sell the brand off had it not been made? I'm sure (in fact, I'm guessing Ford would have dumped it earlier had the X-Type not been made).

 

[Sage]

From here.

 

[YSSMAN]

Yeah, its an absolute mess. I haven't been able to watch much of the proceedings on Capitol Hill today, but I catch random bits of news from the television every few hours. It sounds as though this should squeak by without too many complaints, but its hard to know for sure what'll happen.

GM Posted This Video Today:



GM is also selling their stake in Suzuki, all of it this time...


====

RE: 10 That Kill, 10 To Save

Most of whats on the list is somewhat factual. Much of what went right and what went wrong for GM, Chrysler and Ford did happen in the '90s. Coming off the strangely successful years of the 1980s, they were able to push out products that were "so-so" and still sell a kajillion of them. But, as the Japanese learned, they could push for quality and reliability and outdo them within a decade... I'd care to argue that GM, Ford and Chrysler were otherwise "asleep" for that era, and really didn't "wake up" until 2002 or 2003. The thing is, they've been making moves to produce much-better cars, and sales have increased because of it. Cars like the Fusion, Malibu, CTS, (new) Taurus, 300C, Challenger, etc have all raised the bar in their respective categories... But we're really at a point that no one could have foreseen.

Point of reference for a moment; Every automaker, not just GM, Ford and Chrysler are going through extremely rough patches when it comes to sales, keeping labor happy, and keeping in the black. Across the world, car companies are turning towards their governments for some kind of aid while the market continues to flounder. The big problem that the global manufacturers are having is that everyone, everywhere, isn't buying new cars. Its not conducive to business.

GM and company can talk all they want about new and otherwise beyond-excellent cars that are on the horizon. I completely agree that things like the Volt, Cruze/Cobalt, a Lambda-based Escalade and the Camaro can help things greatly at GM. The problem is that until we get the credit situation fixed and restore confidence in the market for people who would be buying (but aren't, because they're afraid to) to get in the dealerships and sign the paperwork... Not much is going to change. For that matter, to sit here and say "Hey, these cars can fix the situation!" really doesn't mean much when there may not be a situation at all in six months. Especially when those cars may be as much as a year away or more.

Like Joey pointed out, we're royally screwed either way you look at it. My opinion, more or less, is that a financially backed GM and company will leave enough room for a turnaround... But it will not be in the short-term. There needs to be sufficient oversight if they [The Fed] are to make a "loan," but it can't be stupid crap like "Build more efficent cars" (they already are), or "build safer cars" (are we adding a sixth star?). They should start by forcing these guys to submit solid plans for restructuring, treating it almost as a Chapter 11 without the whole Bankruptcy thing. GM, Ford and Chrysler should be forced to fast-track plans for new car introductions, to continue to pursue PHV models like the Volt and the Chrysler EV program, and finally make a firm push towards sustainable business (ie, long-term) thinking to help secure the future for these companies. Shaking off the UAW would be great too, but thats something we can only hope for...

 

[harrytuttle]

I'd argue that no one is held accountable for anything in the automobile industry because every time an automaker is threatened to go out of business the respective government in which the automaker is stationed hands them large piles of money until the problem goes away. Hell, they even did it for DeLorean. You can't not expect them to constantly screw up if there is no fear of failure.

Can't embed: http://video.aol.com/partner/hulu/f...in-the-house/iKxUCjpxtVIuE_bqMA9meskFQyhRFlHT

But you get the point. I say let them go Chapter 11 and FIGURE IT OUT FOR THEMSELVES. They did it at least twice before and it became worse every time. There's no incentive to improve the situation or learn from their mistakes. They'll suffer, we'll suffer, but we'll all be better off for it. And shame on us anyway for propping them up for so long. The H3...sheesh.

An example of how it might actually be a good thing to let things go is the British car industry. It went to absolute hell in the 70's and 80's, and while the companies pretty much all evacuated, Britain is far from being left in financial ruin right now.