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General Motors can’t avoid talk of bankruptcy

Friday, May 8, 2009

Daniel Howes

Commentary: General Motors can’t avoid talk of bankruptcy

Now General Motors Corp., the company that for so long officially refused to utter the "B" word, can’t stop saying it.

Bankruptcy is affecting sales, Chief Financial Officer Ray Young acknowledged Thursday, even as he detailed the grim realities behind the automaker’s $6 billion net loss in the first quarter. Bankruptcy will be "quick." Bankruptcy dominates the headlines. Bankruptcy is "probable," but not preferable. Bankruptcy would be a "vicious circle" for revenue that would be difficult to break.

"We’re getting killed," a GM executive told me privately, referring to a continuing loop of bankruptcy talk and its effect on revenue (off 50 percent, or $12 billion, for the quarter).

This is why some of the same folks said "bankruptcy is not an option" even though they knew it would be if conditions worsened enough, if too many would-be customers stayed away, if competing factions of bondholders and stockholders, dealers and unions, held their ground in a series of last-ditch stands — exactly what’s happening.

The sad part, as Young rightly put it: GM is cranking out its best metal in 100 years. It doesn’t much matter in this automotive bazaar — the Italians are talking to the Americans and the Germans while the Americans want a bigger piece of the Italians. The French want a piece of an American company (GM’s Saturn, perhaps), but they aren’t dumb enough to angle for the whole thing.

The customers? Disinterested, confused or burdened with false assumptions of GM’s status. Who could blame them considering the intersection of business and politics in the high-stakes effort to help solve this automotive morass?

"If you talk to someone on the street, they don’t know if GM is bankrupt or not," a senior insider familiar with GM’s bankruptcy planning tells me. The constant chatter, most of it unavoidable in a 24-7 global news environment, is affecting the automaker "a huge amount."

GM’s North American sales and marketing chief, Mark LaNeve, "talks about it constantly. He was very upset when" CEO Fritz Henderson "came in and said bankruptcy was a possibility. He said, ‘you’re killing me.’"

He probably is, along with anyone else talking bankruptcy. But at least the new CEO isn’t afraid to tell the truth, if only because the facts of GM’s predicament are so overwhelming and Henderson is direct, decisive, disciplined and enough of a realist to take direction from the U.S. Treasury, lender-in-chief.

GM is closely monitoring the week-old Chrysler bankruptcy with internal task forces focusing, among other things, on pricing, dealer incentives, plants and manufacturing and communications strategy. How do the equity and debt markets react to developments — the Feb. 17 viability plan, federal filings, last week’s revised restructuring plan — and how does all the coverage affect sales?

The company that considered itself "global motors" is de-globalizing because it has to. It is preparing to dump half of the domestic divisions it long insisted it needed. It is gutting its workforce, imperiling the retirements of hundreds of thousands. And it cannot operate without support from the taxpayers.

Acknowledging the probability (inevitability?) of bankruptcy may not help sales, but it does reflect a kind of clear-eyed reality inside the GM of Team Henderson. Decisions come quickly now, I’m told, reflecting pressure from the Treasury to cut deeper and faster and the new boss’s bias to make decisions with 80 percent of the information.

"He wants to know the facts. He wants them in a complete fashion," the executive says, describing Henderson’s style of pushing decision-making deeper into the management ranks. "He wants it quickly. And he is extremely decisive."

Because he has to be? Yes, when a June 1 bankruptcy-or-else deadline looms. Because that’s Fritz? That, too — and the growing certainty, evident after just one week of Chrysler LLC’s turn in bankruptcy, that perhaps the only way to counteract the "B" word’s effect on sales is to try to push through it all.

The big problem is doing it.

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