One step closer to bankruptcy

I’ve written a couple of articles so far on the fall of GM and Ford, though I’ve mostly focused on GM. GM announced today that it will offer some 113,000 hourly employees a six-figure severance package to walk away and waive their rights to health care benefits.

If I were in the shoes of some of these workers, I would have to make a difficult decision. You have to weigh the fact that you’ll possibly get $140,000 to walk away from GM and the health care benefits you’ve worked for years to get against the fact that GM may close by the time you retire and you would have turned down the package. and still not getting health care benefits.

I know, you think I’m crazy because I say that GM can go bankrupt, right? Most people think I’m crazy when I say that. I bet a lot of people never thought Enron would go under and on paper they were a solid company. GM is a bankrupt company on paper. The article above states that GM last week announced a loss of $10.6 billion. They have been losing billions and billions for years. They are over $300 billion in debt and continue to struggle with labor issues, declining market share, and more. I’d like to know how anyone thinks they can stay in business.

As I’ve said in previous articles, GM is known for their cars, but they’re really just as involved in mortgages and other financial tools through GMAC. GMAC has done well in recent years due to the recent housing boom, but they will pay the price in a couple of years, adding to their already worsening financial situation. A former co-worker of mine was a lawyer and did extra closings to make extra money. He made them for GMAC. He said many of the loans he closed on were generally for people in dire financial straits. Many of them were ARMs or interest-only mortgages.

What will happen is that once rates go higher, these people will end up unable to make their mortgage payments because the payments will have increased too much due to adjustable rates. GM will also end up losing a lot of money on this side of its business.

Oldsmobile went out of business a couple of years ago and there has been speculation that another of GM’s brands will close as well. I have read some articles by “experts” who feel that Pontiac will be the next to go down in sales. Chevy is obviously the company’s staple, Cadillac does pretty well from what I’ve read, Saturn is one of the more successful brands as well. Hummer is a niche market and they continue to develop it to market to more types of customers. Saab is a “foreign” car and most people probably don’t even realize they’re owned by GM, so they’ll most likely make the cut. This leaves Pontiac. Sales of its highly marketed GTO were weak, and for good reason. I don’t think you can take back a legendary name like GTO and turn it into nothing more than a glorified Cavalier/Grand Am.
I have always held fast to my belief that mismanagement has gotten GM to the position it is in and the GTO is the perfect example. They didn’t build a car that lived up to the name, and yet they were trying to sell the cars for $35,000 or more.

GM really should be studied in MBA programs in management classes. It must be an example of what can happen when a leading company in the industry falls apart for decades due to some bad decisions. It has to send, or at least should send a message that regardless of the size of a company, it still needs to stay on top of its game or you could risk going out of business as well.

Maybe GM will fix things and it will end without closing. Maybe things are not as bad as they seem. If you’re reading this and you’re a manager, be sure to take a close look at what he’s doing and make sure it’s the right thing to do. If you’re just an interested reader, keep watching the headlines in the coming months and look for more bad news from GM, I think it’s coming.