U.S. automakers face the music
Despite the departure of chairman & CEO Rick Wagoner and billions in financial aid from the federal government, General Motors still faces a long, tough climb back to solvency – one that won’t be solved without a far more serious corporate restructuring, according to experts.
"One guy going is not going to change GM – a lot more cleaning out at the company must go on," analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), told FleetOwner.
"The product they make is good now; the real problem is that they’ve never taken dramatic action to clean up their balance sheet," he explained. "That’s a process that should’ve taken place over several years. But GM delayed and delayed doing it, and now with the downturn exacerbating their financial footing, they’re being forced to compress what needs to be done in six months to a year."
Despite the departure of chairman & CEO Rick Wagoner and billions in financial aid from the federal government, General Motors still faces a long, tough climb back to solvency – one that won’t be solved without a far more serious corporate restructuring, according to experts.
"One guy going is not going to change GM – a lot more cleaning out at the company must go on," analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), told FleetOwner.
"The product they make is good now; the real problem is that they’ve never taken dramatic action to clean up their balance sheet," he explained. "That’s a process that should’ve taken place over several years. But GM delayed and delayed doing it, and now with the downturn exacerbating their financial footing, they’re being forced to compress what needs to be done in six months to a year."
A White House auto industry task force charged with evaluating the ongoing restructuring efforts of both GM and rival Chrysler LLC – which both shared over $17 billion in emergency cash loaned to them by the federal government last year – gave them failing grades, prompting the Obama administration’s request that GM’s Wagoner step aside.
"These companies – and this industry – must ultimately stand on their own, not as wards of the state," President Obama said during a televised speech at the White House on March 30. Asking for Wagoner’s resignation is "recognition that it will take a new vision and new direction to create the GM of the future," the President explained.
"In the course of a meeting [with Obama administration officials], they requested that I ‘step aside’ as chairman and CEO of GM, and so I have," Wagoner said in a written statement.
However, neither GM nor Chrysler is out of the woods yet. Both were due to file official restructuring plans by March 31, but have been given extensions – Chrysler gets 30 days to work out a deal with Fiat, which agreed in January "in principle" to buy a major stake in the struggling automaker, while GM gets a further 60 days to come up with a new restructuring plan.
The government’s automotive task force noted, however, that Fiat's ownership must initially be less than the U.S. government’s 35% stake in the company, and it's not to rise above 49% until the new loan money is fully repaid. Chrysler will be provided up to $6 billion if they reach an agreement acceptable to the government, administration officials said, while the amount to be loaned to GM is as-yet undetermined.
President Obama stressed in his speech, however, that he does not intend for the federal government to operate either automaker nor to let them fail.
"Let me be clear: The U.S. government has no interest in running GM," the President stressed.
"We cannot, and must not, and we will not let our auto industry simply vanish. [But] we cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars."
Obama also warned that the restructuring plans being contemplated for both GM and Chrysler – but especially GM – won’t be pretty. "There are jobs that won't be saved, there are plants that may not reopen," the President said, noting that both companies might have to consider "using our bankruptcy code" to help them restructure more efficiently – less than welcome news to the approximately 140,000 workers currently employed in the U.S. by both OEMs.
CMVC’s Brady told FleetOwner that GM especially cannot be allowed to fail because it largely represents a critical linchpin in the supplier base supporting all the automotive as well as the heavy truck OEMs in the U.S.
"It’s what happens to the supplier base if GM goes out that everyone is worried about," Brady explained. "That supplier base supports everyone – even Honda and Toyota. That’s why Toyota wants GM to survive, because if they don’t and that takes down the supplier base, they can’t build cars in the U.S. It affects truck OEMs because they share many of the same suppliers. Dana, for example, makes car and heavy truck axles – and they can’t survive by making just commercial truck axles alone."
