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GM Files for Bankruptcy. [Jun. 1st, 2009|12:00 pm]
[Current Location |Detroit, MI, USA]
[Special Music |Don McLean - American Pie]

From the NY Times ... Fall of an American Giant ...

June 1, 2009

After Many Stumbles, Fall of an American Giant


It is a company that helped lift hundreds of thousands of American workers into the middle class. It transformed Detroit into the Silicon Valley of its day, a symbol of America’s talent for innovation. It built celebrated cars, like Cadillacs, that became synonymous with luxury.

And now it is filing for bankruptcy, something that would have been unfathomable even a few years ago, much less decades ago, when it was a dominant force in the American economy.

Rarely has a company fallen so far and so fast as General Motors. And while its bankruptcy appeared increasingly likely in recent weeks, the arrival of the moment is still a staggering blow, particularly for anyone with ties to the company.

“I never ever could have believed that one day this thing would go that way,” said Jim Wangers, a retired G.M. executive who was part of the team that developed the Pontiac GTO, and the author of “Glory Days,” about Pontiac’s heyday in the muscle-car era of the 1960s. “We were so successful,” he added.

Founded in 1908, G.M. ruled the car industry for more than half a century, with a broad range of vehicles, reflecting the company’s promise to offer “a car for every purse and purpose.”

The expression “What’s good for General Motors is good for the country” entered the lexicon, even though it was a slight misquotation of Charles E. Wilson, G.M.’s president in the early 1950s.

But then G.M. began a long and slow process of undermining itself. Its strengths, like the rigid structure that provided discipline early on, became weaknesses, and it lost its feel for reading the American car market it helped create, as Japanese automakers lured away even its most loyal buyers.

Only eight months ago, Rick Wagoner, then its chief executive, stood before hundreds of G.M. employees to celebrate the company’s 100th anniversary. “We’re a company that’s ready to lead for 100 years to come,” Mr. Wagoner said.

Instead of leading, G.M. will instead be following other failed companies on a well-worn path into bankruptcy court.

The moment will reverberate beyond G.M.’s epicenter in Detroit, to factory towns in other parts of Michigan and in states like Indiana, Tennessee and Louisiana. It will even be felt on Fifth Avenue in New York, where it built its financial headquarters, and Epcot at Walt Disney World in Florida, where G.M. sponsors the Test Track Pavilion, a showcase of its latest cars.

G.M. factories churned out family cars, pickup trucks and memorable muscle cars with taut, sculptured body panels that were rolling displays of American DNA.

A G.M. plant was a ticket to prosperity for the communities lucky enough to land one. G.M. literally put Spring Hill, Tenn., on the map when it picked the town outside Nashville for its Saturn plant in 1985, prompting the hamlet to swell with new homes, motels and restaurants.

Now city officials around the country, including those in Spring Hill, nervously await phone calls on Monday to tell them if their plants will be among the 14 G.M. is expected to announce it will close in the latest round of cuts.

But even after its deep cuts, G.M. can still claim to be the country’s largest automaker.

For G.M., that simple fact — its sheer size — was long used as a trump card to end debates. If the critics were so right about all that was wrong with G.M., why did so many people buy its cars?

The company did have vast numbers of loyal buyers, but G.M. lost them through a series of strategic and cultural missteps starting in the 1960s.

It bungled efforts in the 1980s to cut costs by sharing the underpinnings of its cars across different brands, blurring their distinctiveness.

G.M. gave in to union demands in 1990 and created a program that paid workers even when plants were not running, forcing it to build cars and trucks it could not sell without big incentives.

Its finance staff argued with product developers and marketers who pushed for aggressive spending on new cars and trucks. But forced to feed so many brands, G.M. often resorted to a practice called “launch and leave” — spending billions upfront to bring vehicles to market, but then failing to keep supporting them with sustained advertising.

With its market share shrinking, G.M. could not give its multiple brands and car models the individual attention that helped Honda attract customers to the Accord and Toyota to its Camry.

It also lost interest in vehicles that needed time to find their audience, as happened when the company introduced the EV1 electric vehicle and then dropped it in 1999 after only three years.

Now G.M.’s brand lineup is being halved, with the company jettisoning divisions like Pontiac.

“Nobody gave any respect to this thing called image because it wasn’t in the business plan,” Mr. Wangers said. “It was all about, ‘When is this going to earn a profit?’ ”

Over the years, G.M. executives became practiced at the art of explaining their problems, attributing blame to everyone but themselves.

That list included the United Automobile Workers, for demanding health care coverage and pensions (even though G.M. agreed to provide them); government regulators, for imposing rules that G.M. said hampered its competitiveness; the Japanese government, for unfairly helping its own carmakers break into the United States market; and the news media, for failing to appreciate G.M. vehicles and the strides the company was making to improve them.

Asked in 1995 why he had not moved faster to reorganize the company, the late G.M. chief executive Roger Smith replied, “Wouldn’t it have been wonderful if we could have flipped a switch?”

Even last week, G.M.’s newly retired vice chairman, Robert A. Lutz, said the automaker had experienced a “world of hurt, much of it not of our own doing.”

Sloganeering was not backed up by execution. Executives wore lapel pins, for example, in 2002, with the number “29” — referring to the market share the company vowed to regain (most companies focus on profits). Through April of this year, its share was 19 percent, a steep drop from its peak of 54 percent in 1954.

Consumers started blaming G.M. for sub-par vehicles. They may have given them second and third chances, but many eventually started switching to other brands, which will make it that much harder for G.M. to win them back.

Mr. Wagoner was able to hold on to his job for longer than people expected, as G.M.’s stock fell steadily from about $70 when he took charge at the start of the decade. It closed at 75 cents a share on Friday.

Mr. Wagoner was pushed out by the Obama administration, which is now making the call to push the company into bankruptcy court.

A judge will then start the process of building a new, though much diminished, G.M. into a company that might have a shot at a second century. But the automaker that so dominated center stage in the American car market for so long will have to earn that place back.

Nick Bunkley contributed reporting from Detroit.

From USA Today ... GM Bankruptcy and Warranty FAQs ...

What happens to my warranty if GM files for bankruptcy?

By Chris Woodyard, USA TODAY

General Motors' potential bankruptcy filing is sure to prompt questions for the millions of consumers who own GM vehicles or for folks who are thinking about buying a new GM car or truck. Here are some questions and answers about how the filing could affect you:

Q: Will my car's warranty still be honored?

A: Yes, and extended warranties as well, says Steve Harris, General Motors' vice president of global communications. In addition to the company's backing, they have the federal government standing behind them. The government's Warranty Commitment Plan was announced in March to reassure buyers of General Motors and Chrysler vehicles that warranty claims would be honored during the companies' restructuring.

Q: What about my GMAC car loan?

A: Keep paying it. Nothing changes.

Q: Does a GM bankruptcy mean it now will be harder to obtain a loan on a car through GMAC?

A: The government invested $7.5 billion in financing arm GMAC about two weeks ago, in part to help it keep making loans on GM vehicles as well as on Chrysler vehicles.

As a result, says Harris, GMAC loans should be as available as ever. GMAC spokeswoman Gina Proia declined to comment until after the GM filing.

Q: Will I get a better deal buying a GM car after GM's bankruptcy filing?

A: You should wait a little. The deals will sweeten as the year wears on, advises Philip Reed, senior consumer advice editor at Edmunds.com. That's because GM is seeking to cut 1,550 dealers, and the process will become easier with a bankruptcy filing.

Dealers GM wants to cut now have franchise agreements that run through October 2010, giving them plenty of time to unwind inventory (compared with the 789 Chrysler dealers facing the ax by June 9).

But federal bankruptcy judges have wide latitude to override state dealer franchise protections if the company wants to shed the dealers sooner.

"It would be good to wait several weeks before you buy," Reed says.

Even at dealers scheduled to close, as shown by Chrysler's example, don't expect fire-sale deals on the most popular models, such as the GMC Acadia crossover.

The better deals to come will be on 2009 leftovers, not-so-hot stock and discontinued models.

Q: Will I still be able to find dealer service for my current or new GM vehicle?

A: Yes, but you may have to drive a little farther to get it as the dealer network is consolidated. Harris was quick to point out, however, that even with the reduction in dealers, GM still will be in more towns and have more than twice the total dealers than Toyota has.

Q: If GM discontinues my car or truck model, will I still be able get parts for it?

A: This is not a much greater worry than for most vehicles from most makers — and it would be years down the road in any case.

The federal government requires that stocks of parts be maintained on models at least during their warranty period. Some states also have specific laws requiring product parts inventories for a set number of years.

GM models that will be discontinued also share a lot of parts with models scheduled to roll on, particularly the powertrain and electronics components that would be most critical.

The federal government has been bailing out major parts suppliers to GM and Chrysler, which will help ensure availability.

And since GM was the world's biggest automaker until last year, the sheer size of its production means aftermarket parts suppliers would have much incentive to fill in any gaps for many years to come.

Q: Will my car's resale value plunge because of bankruptcy or closing of the brand?

A: It'll fall some, but it is questionable by how much.

ALG, or Auto Lease Guide, recently subtracted another 6 percentage points from the predicted residual values of 3-year-old Chrysler vehicles because of its bankruptcy filing.

But ALG's major competitor, Kelley Blue Book, doesn't see a major impact.

"Despite the common perception that the resale will fall off a cliff if GM files for bankruptcy, the reality is that it won't have a catastrophic effect on resale values," says KBB analyst Jack Nerad. "Our experience with the cancellation of the Oldsmobile and Plymouth brands demonstrated that the resale value might take a small hit but nothing very dramatic."


It doesn't look like GM will disappear, and in the long run, it appears as if the US Government will be looking to sell its controlling stake, for some return on the investment, with any hope thrown into the wind. That would offset some of the overall cost, but it wouldn't cover the whole bill.

American citizens will pay in many more ways. It's highly unlikely that thousands of laid-off auto workers will be re-trained into working customer service phones in cubicles, being nurses, and the like. They can't deport the jobless, either. The US citizen will be paying for Wall Street and Detroit ... forever.

We're not finished with this economic meltdown ... it's just getting started.

Your bill, ladies and gentlemen.