GM Death Watch 78 - Bad News Bears
Saturday, June 3, 2006
Last week, Merrill Lynch analyst John Murphy counted GM and Delphi employees rushing for the exits, struck-up a chorus of happy days are here again and watched GM's stock play follow the lieder. A week later, Merrill's B-team report that sales of vehicles manufactured by [the artists formerly known as] The Big Three will "soften" in May. Higher gas prices are "likely to sway consumers toward smaller, more economical cars and CUVs and away from large SUVs." And profit-munching incentives are set to re-rear their ugly heads. Issuing a buy recommendation in this environment is like urging displaced peasants to return to Chernobyl. Of course, if you happen to be selling Ukrainian real estate&
Ethics aside (clearly), it's the same old pattern. GM reveals a market share meltdown, a multi-billion dollar FIAT payoff, a disastrous financial quarter, another disastrous financial quarter, more market share meltdown, another disastrous financial quarter, etc. Micro-managed seconds later, spin is spun. GM CEO Rabid Rick Wagoner steps-up to the podium and announces a new plan or product designed to restore The General to a rosy glow: plant closures, new products, value pricing, etc. When the company doesn't drop dead on the spot, observers buy into management's mishegos and return to the reassuring fantasy that where there's a will, there's a GM.
Like earthquakes leading up to an eruption, the separation between GM's cause (bad news) and effect (spin city) is narrowing. Last October, GM announced its erstwhile "historic health care giveback" with the UAW on the same day it reported losing yet more multiple billions. These days, Wagoner's mob's got nothing in their good news quiver save bravado and a bought broker. We're getting assurances of a turnaround based on nothing more than downsizing, ahead of news of sinking sales, lost sales and narrowing profits. And the eventual, inevitable implosion over at Delphi.
Yesterday, Delphi announced its North American operations lost $192m. It's the parts maker's single largest monthly loss since filing for bankruptcy in October (excluding a write-off situation in December). The cause: Delphi's GM sales fell from $1b (March) to $761m (April). The General's desertion will return to haunt them. Delphi's loss reinforces their petition with federal judge Robert Drain to immediately void the company's union contracts, before Delphi reaches the point of no return. That point just got a lot closer. To review: void, strike, death. Only GM can save Delphi, and they can't afford it.
Meanwhile, GM's Plan B-- outsourcing parts manufacture to non-unionized, low-wage Chinese factories-- took the TTAC predicted hit. According to the China Daily newspaper, the democratically elected (just kidding) National Development and Reform Commission now stipulates that foreign automakers can no longer build a new factory until their "old" one reaches 80% of capacity. Oh, and all foreigner automakers now have to build Chinese brand cars as well, thank you very much. No word on parts production, but I reckon if a flange is needed by both a Chinese brand and, say, Pontiac, China wins.
Into this miasma of morphing morbidity comes Troy Clarke. Clarke has been promoted from President of GM's Asia Pacific region to President of GM's North American Operations. He assumes the title Wagoner bestowed upon himself last April, when excrement and GM's rotational ventilation equipment started colliding. "While much work remains to be done," Wagoner's press release admitted with thunderous understatement. "We have reached several significant milestones in our turnaround plan over the past year& This is the right time to turn the region's day-to-day operations over to Troy." I suppose the best bit about not having a clearly articulated turnaround plan is that you can claim you're right on-schedule without fear of contradiction. But I digress.
Apparently, The Detroit Free Press isn't on Merrill's mailing list. They report that Clarke takes over "at a time when Wagoner's cost cuts are starting to pay off, new full-size SUVs are selling well, and subsiding fears of a debilitating strike at parts maker Delphi Corp. have boosted GM's stock price." Yes, well, Clarke's the man who negotiated GM's '03 UAW contract (as Group Vice President of Manufacturing and Labor Relations). No surprise, then, that UAW boss Big Ron Gettelfinger welcomed the appointment. The '03 contract gave the unions everything they wanted: more pay, more benefits and the continuation of the infamous GM jobs bank. The friend of my enemies is Troy Clarke.
And there you have it: SNAFU at GM. Oh, I forgot. GM is taking heat from liberals/environmentalists for offering gas cards to stimulate California sales of their gas-guzzling SUV's. Columnist Tom Friedman called GM "a crack dealer looking to keep his addicts on a tight leash." GM Car Czar Bob Lutz responded by calling Friedman a borderline psychotic, but the New York Times writer simply offered a piercing glimpse into the obvious. Anyway, one way or another, GM is gonna get busted.