GM goes bust
Bankruptcy, at last
Jun 1st 2009
From Economist.com
GM declares bankruptcy, at last. The challenge is to save something useful from the wreckage
A CAR, stripped to its bare bones and rebuilt using only those bits that are strictly necessary, might turn out to be super-light and capable of taking on the speediest of competitors. Or it could just end up as two piles of junk. On Monday June 1st, putting an end to weeks of expectation, General Motors filed for Chapter 11 bankruptcy protection. The idea is that the 100-year-old carmaker will be stripped of debts, other obligations and unsaveable parts and will then emerge from the bankruptcy court ready to perform like a sleek racer. The risk, however, is that it instead emerges as an old crock with a dodgy respray.
Bankrutpcy will certainly ensure the emergence of a smaller firm. The car company is being remade to cope with operating in a North American market with sales of 10m vehicles a year, roughly the number that will find buyers in 2009. GM might expect to get a little over a fifth of that market. To get into shape, more than 12 of its American plants will close and four brands—Pontiac, Saturn, Hummer and Saab—will be sold out of bankruptcy or will disappear for good. Hummer, apparently, already has a buyer. A significant proportion of GM’s dealers will go too. The end result will be over 21,000 GM workers out of a job.
GM’s European operation, Opel, will also go, ensuring that the American company is no longer a truly global car company (although it will retain arms in Latin American and Asia). Opel’s fate is now in the hands of Germany’s government, which sealed a deal on Saturday between GM and Magna, a Canadian car-parts business. Germany, home to many of Opel’s operations, will provide loans and guarantees worth €4.5 billion ($6.4 billion) to keep Opel from entanglement with GM’s bankrutpcy filing and to support the company until Magna takes over.
The demise of GM, a company that made over half of the cars on America’s roads a few decades ago, is a reminder that companies cannot afford to take their eyes off the road. GM, along with Chrysler and Ford, kept their vast share of the American car market only until globalisation had its way. High import duties on profitable light trucks and sports utitily vehicles kept competitors at bay until Asian carmakers set up shop in America (with generous subsidies from states where they located). Detroit’s competitiveness was further weakened by pension liabilities and huge health-care costs that added hundreds of dollars to the cost of each vehicle.
As market share shrunk and profits dwindled, America’s carmakers made periodic attempts to restructure, in the face of stiff union resistance until recent years. But these efforts were insufficient, usually amounting to cutting capacity usually long after market share had evaporated. At least the wholesale rejigging of GM in bankruptcy should bring the two into line for a time. And a deal with the United Auto Workers will allow GM to forgo a $10 billion payment to a union healthcare fund in return for a 17.5% stake in the new GM. Aggrieved bondholders are likely to emerge with 10% of the new firm for loans totalling $27 billion.
The UAW and GM’s other likely new owners—the governments of America and Canada, with 72.5%—have said that they want to sell out as soon as possible after GM emerges from bankruptcy. But will America’s government ever come close to recouping the $50 billion so far sunk into GM?
The cuts will take some of the overcapacity out of the North American car market, unlike the arrangements with Opel, where Germany’s government is intent on preserving jobs and hence the car manufacturintg capability that Europe could do with shedding. But GM’s problem is that it must still compete with Asian manufacturers that make cheap and reliable cars. Chrysler, set to emerge from bankruptcy with Fiat as a partner and Ford, still loaded with debt and other liabilities, will also provide car buyers with more choices. GM now makes some decent vehicles but its reputation it still suffering from the decades when it made bad cars. If GM cannot revive its good name, and if the cycle of falling market share and piecemeal readjustment begins again then GM, in any form, looks doomed.
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參考 The New Economics by W. Edwards Deming, 1993 附錄
Detroit’s Woes Wound an Army of Suppliers
Strong Products, a machine shop in Mason, Mich., made airplane wing struts to offset losses in its auto business.
For nine years, the Strong brothers, Mark and Tim, made tools in their machine shop to maintain the giant presses that stamped steel sheets into fenders and hoods at a nearby General Motors factory in Lansing, Mich.
Alex Karnick, a worker at the Whitlam Label Company, in Centerline, Mich. The company made a variety of labels for vehicles but had to diversify into food and beverage packaging.
Strong Products, a machine shop in Mason, Mich., made airplane wing struts to offset losses in its auto business.
Aircraft parts were a sideline, but when auto work dried up last November, the brothers managed to get more orders from that side of the business to keep them afloat. They have been shaping wing spars for the A10 Thunderbolt, used to provide ground support in combat.
“The wars in Afghanistan and Iraq helped us a lot,” Mark Strong said.
Wing spars, however, are hardly a substitute for the tools that G.M. seemed to always need from the Strongs for its assembly lines. The $632,000 in sales the brothers rang up in 2008 has shrunk to less than $95,000 so far this year. The seven-employee staff in their machine shop in Mason, Mich., is down to just three, and the Strongs hope the wing spars will somehow carry them over until G.M. once again sends business their way.
The brothers are among the tens of thousands of suppliers whose fortunes are directly tied, for better or worse, to the automakers. And now, with new-car sales touching low levels not seen in decades, and with G.M. and Chrysler forced to shut plants as they struggle through bankruptcy, their prospects seem grim.
“Most of these supplier companies are family-owned,” said Daniel Luria, research director of the Michigan Manufacturing Research Center in Ann Arbor. “And in a period when the families can’t sell, the decision is to preserve the companies as future streams of revenue for the next generation.”
Auto suppliers, which employ more workers than the car companies themselves, have cut way back, almost hibernating, as they lay off employees earning $10 to $22 an hour, or cut back their hours. Some, like the Strongs, are trying to diversify, but such efforts have not noticeably offset the lost automotive business.
“We are estimating that 500 suppliers out of 4,000 could go out of business between now and the end of the year,” said Neil DeKoker, chief executive of the Original Equipment Suppliers Association. Billings just to the three Detroit automakers from the nation’s auto suppliers have fallen to $7 billion a month, on average, from $16 billion in January, he said.
The Whitlam Label Company, in Centerline, Mich., has tried to diversify. It makes a wide variety of labels and bar codes that are pasted on car parts and on finished vehicles, including the stickers on radiator covers warning people to keep their hands away from the fan.
The company has expanded into food and beverage packaging. But its revenue is still down, running at an annual rate of $14 million this year, well below the $20 million of 2008. Its work force dropped to 100 from 130 (10 of them are children and grandchildren of the late George Shaieb Sr., a Syrian immigrant who bought the company in 1973).
Whitlam is faring better than others in the downturn because it is still shipping labels to Chrysler and G.M., including price labels taped on the windows of thousands of unsold vehicles.
“We are trying to get more automotive by selling more aggressively to Toyota and Honda and the other foreign transplants,” said Richard Shaieb, Whitlam’s president and one of George Shaieb’s sons.
That market represents fewer opportunities for companies like Mr. Shaieb’s. After all, the percentage of parts made in the United States for foreign brands assembled here is less than the domestic content of vehicles made by G.M., Chrysler and Ford, according to Mr. Luria.
But that is not the concern of George Buhaj today. The company Mr. Buhaj heads as president — Avon Broach, a machining operation in Rochester Hills, Mich. — designs and makes broach tools, which are used by the three Detroit automakers and also other suppliers to cut and shape transmission gears and other complex parts.
After layoffs in March, his payroll is down to 16 from 25. “Business just fell right off because of the Chrysler bankruptcy and the potential for one at G.M.,” he said.
In April, Mr. Buhaj, who is 49 and bought out other Avon owners in 1993, cut back the work day by several hours. He said he was planning another layoff in the next couple of weeks, dropping at least two more people.
A year ago, struggling for orders, he started searching for customers in other industries. “I have identified wind energy and medical,” he said. “I’m not yet making parts for these but I’m trying.”
Pioneer Forge, near Toledo, Ohio, would also like to diversify, said Michael Regal. He manages the factory, which forges tie rods and other steering links for trucks, including pickup trucks assembled by Ford and Chrysler.
The company has not made a profit for two months, Mr. Regal said, and the work force is down to 51, from 100 a year ago. Revenues have plunged to less than $10 million, at an annual rate, from more than $15 million in 2007, just prior to the start of the recession.
Mr. Regal says he sees no other choice but to try to sell more steering mechanism forgings to foreign auto companies that assemble vehicles in the United States. He would like to diversify away from auto supply, but the economics work against Pioneer and many others in the industry.
“You have to set up your operation to handle the mass volumes that the automotive industry sends at you, and you become a captive of the parts that you make,” he said. “If you want to venture out into some other business, you have to have a lot of capital to do that, and when things take a turn for the worse, the capital is not there.”
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