One Step Closer To Bankruptcy

I have written a couple articles so far about the downfall of GM and Ford, although I have mostly focused on GM. GM announced today that they are going to offer some 113,000 hourly employees a severance package in the six figure range to leave and waive their rights to their healthcare benefits. Here is the link to the article making the announcement: http://www.foxnews.com/story/0,2933,188732,00.html.

If I were in the position of some of these workers I would have a difficult decision to make. You have to weigh the fact that you would possibly get $140,000 to walk away from GM and the healthcare benefits you have worked years to secure against the fact that GM may go out of business by the time you retire and you would have turned down the package and still not get the healthcare benefits.

I know, you think I am crazy because I say GM may go out of business, right? Most people do think I am crazy when I say that. I bet a lot of people never thought Enron would crumble either and on paper they were a strong company. GM is a failing company on paper. The article above states that GM announced last week a loss of $10.6 billion. They have been losing billions and billions for years. They are well over $300 billion in debt and they continue to struggle with labor issues, declining market share, and more. I would like to know how anyone thinks they can stay in business.

As I have said in previous articles, GM is known for their cars but they are actually just as involved in mortgages and other financial tools through GMAC. GMAC has done well for the past few years because of the recent housing boom but they will pay the price within a couple years, adding to their already worsening financial situation. A former co-worker of mine was an attorney and he did closings on the side to make extra money. He did them for GMAC. He said many of the loans he did closings for were usually for people in bad shape financially. A lot of them were ARM mortgages or interest only mortgages.

What is going to happen is once the rates climb higher these people will end up not being able to make their mortgage payments because the payments will have increased too much do to the adjustable rates. GM is going to end up losing a lot of money on this side of their business as well.

Oldsmobile went out of business a couple years ago and there has been some speculation that another one of the GM brands will be going out of business as well. I have read some "experts" articles that feel Pontiac will be the next to go do to slipping sales. Chevy is obviously the staple of the company, Cadillac does pretty well from what I have read, Saturn is one of the more successful brands as well. Hummer is a niche market and they continue to develop that to market to more types of customers. Saab is a "foreign" car and most people probably do not even realize they are owned by GM so they will most likely make the cut. This leaves Pontiac. The sales on their highly marketed GTO were weak and with good reason. I don't think you can bring back a legendary name like the GTO and make it nothing more than a glorified Cavalier/Grand Am.

I have always stuck by my belief that bad management has brought GM to the position it is in and the GTO is the perfect example. They didn't build a car that lived up to the name and yet they were trying to pre-sell the cars for $35,000 or more.

GM should really be studied in MBA programs in management classes. It should be made the example of what can happen when you have an industry leading company for decades fall apart because of some bad decisions. It has got to send, or at least should send a message that regardless of how big a company gets you still need to stay on top of your game or you could risk going out of business as well.

Maybe GM will fix things and end up not going out of business. Maybe things aren't as bad as they appear to be. If you are reading this and you are a manager be sure to take a close look at what you are doing and make sure it is the right thing to do. If you are just an interested reader keep watching the headlines over the coming months and look for more bad news from GM, I think it is coming.