GM's last stand.
GM is desperate. They have seen their market share drop substantially. They make crappy cars for years and years and now they are in trouble. Their bonds are now considered junk. What does that mean? It means their credit score dropped so low that if they were a person they would have a hard time getting approved for a loan. It means they don't make money, and probably will continue to not make money.
But they are huge. They support alot of jobs. The worst thing the US can do (and probably will do) is subsidize them. That will cost tax payers ALOT of money, and will cause cars to cost more than they should. The government should let them fix themselves, or fold.
The other guy blinked.
While GM and the US car companies were paying people ridiculous amount of money to tighten bolts to cars, Japan innovated. Japan evolved. They made a better product.
GM is desperate. They are having massive promotions regarding giving employee discounts to everyone. How do I intrepret this? They are trying to increase sales to increase their credit ratings. (debt becomes more expensive as your ratings drop...especially when you have billions of dollars in debt). I intrepret it as they have been pricing their cars too expensively all along. I intrepret it as Americans are so stupid that they will take advantage of this sale.
If I had balls, I would short their stock. I do not have balls. I fear the government will jump in and save them (ala the airline industry).
posted by Greg at 1:39 PM
2 Comments:
From what I’ve heard GM has had to add on to the sticker price of every auto an increase of 1500 dollars due to the enormous health care cost of their 100,000+ employees. They are obviously at a huge disadvantage with that. The Japanese automakers don't have to add much to the price except for tariff/taxes, etc... and on top of that we know how efficient they are and they can probably undercut us in our own country if they wanted to (maybe? I haven't checked out prices/ COGM/S) lately). Also GM is only going to get better in my opinion because they are reducing their workforce by 25% to slash costs. They have had to wait until now to get rid of unnecessary dead auto worker weight because they have a powerful union that makes it impossible to fire anyone and they have a structured pay scale not based on performance. The union will allow these cuts to save the other 75,000 union jobs. My father is a mechanic and I’ve seen some of the cars he's worked on. GM is way better in quality than any other American brand when is comes to drivetrain (Eng, Trans, under the hood), now GM interior, style, and design are another story. They have a decent product (considering it comes out of an American auto mfg) and they are cutting costs. However, they are holding a crappy poker hand: One card is an absurdly high medical coverage liability; the other is a UAW union card. Well at least from this we’ll see how the American Auto Industry will do in these difficult times. I’d put my money on them making it through one way or the other, we’ve still got a bunch of good ole’ boy republicans in office that wouldn’t want to see foreign company’s steal even more of the economy unless they “pass ‘em some $green$ with their Hennessey”. So I’m guessing GM will have to go all in without the nuts and get lucky.
-Joe
I completely agree.
Here's my concern:
1) the Union.
2) Japanese culture values the end product, Americans value individuality. Thats why the best manufactured products are foreign, and the best sales people are American.
3) Their ratings dropped to junk status. The ratings companies factors in the firms ability to turn around. They must not think GM can turn things around...which is amazing given GM's reputation in America. Furthermore because their ratings dropped their expenses are going to SKYROCKET. Their interest on the billions of debt will increase. GM servives off of debt (leverage). Now the cost of survival is going to increase.
4) Health Care costs. You hit it on the head. This is a problem for everyone in the US except health related companies.
5) I am very concerned that the US will bail them out. This only hurts the US. I'm not going to get into the math of it all, but when the government protects/supports companies through subsidies/tarrifs/etc. in greatly hurts that country's citizens. (drives up prices, lowers potential quality, increases inflation).
6) good comments! Thanks!
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