

GM Stock Sinks 30% After Analyst Sets $0 Price Target - Alex3917
http://biz.yahoo.com/rb/081110/business_us_generalmotors_research_barclays.html

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mixmax
They fell behind 20 years ago and have been trying to catch up ever since.
With no success. The only thing a government bailout now ensures is that there
will be another bailout in a few years time.

Let them die.

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hugh
Correct me if I'm wrong, but isn't it perfectly possible for General Motors go
go bankrupt but continue to operate?

I'd sure miss GM (particularly Cadillac, Opel, Holden and even parts of
Chevrolet) if it ceased to exist, but if the company can go bankrupt,
discharge some of its liabilities, and have its valuable assets bought up by
other car companies (Chevy goes to Tata, Cadillac goes to VW, Buick probably
winds up Chinese and Pontiac vanishes altogether) then that'd be okay too.

A government bailout at this point would be a favour only for the unions, not
for the shareholders. (Which is why it will probably happen.)

~~~
mdasen
Yes. In fact, most companies start by filing for Chapter 11 protection where
they are sheltered from their creditors while they try to get their act
together. In the meantime, GM would operate pretty normally from the
perspective of anyone on the outside.

If GM goes completely bankrupt, what will happen is that pieces of it will be
sold off in order to take care of its debts/obligations. So, even if GM ceases
to exist, it's very likely that the vehicles will find new life. The problem
is that no one wants to buy GM whole because that comes with obligations like
$75/hour labor costs and a pension system that was ill-conceived. Pieces of GM
without those obligations (which can be voided by bankruptcy courts) are very
valuable.

GM is still the second largest auto manufacturer in the world. Despite the
fact that many are yelling at GM management saying that they need to build
cars that people want to buy, that simply isn't true. People do want to buy GM
cars and they buy more GM cars than they do Hondas, Fords, Nissans, VWs, etc.
Only Toyota does better. Maybe they don't make vehicles that yuppies like.
That's different. I personally think GM cars are crap, but I'm not everyone
and, as sales numbers for 2007 show, GM cars are equally popular to Toyota
cars
([http://money.cnn.com/2008/01/23/news/companies/gm_global_sal...](http://money.cnn.com/2008/01/23/news/companies/gm_global_sales/index.htm)).

The problem is that GM is loosing money on the vehicles they produce (around
$2,000 per vehicle). A large part of that is labor costs. Unionized plants
under foreign manufacturers don't have the costs that GM's plants do, so it's
not a pro vs. anti-union thing. For a lot of reasons, the UAW was able to get
really great terms for its contracts since it started organizing at a time
when GM could simply pass on higher labor costs to consumers. Now, that isn't
the case and it's hurting both the union and the company. Unions are great
things most of the time (in my opinion). However, in this case the market
changed dramatically and the UAW didn't adjust rather expecting GM to make all
the adjustments. Competition from Japan and others meant that the age of
amazingly high auto-profits was over as consumers got choice. Likewise, that
also meant the end of wages as high as the UAW had gotten them.

At this point, a government bailout wouldn't help anyone - it would merely
delay things. GM doesn't need cash for 12 months while they develop a new
product. As an HN way of thinking about this, Digg has recently shown that it
needs cash to keep the lights on - that its revenues cannot cover its costs.
It isn't a matter of finishing a new product. It's just that advertising
doesn't cover their costs. Likewise, sales don't cover GM's costs. They need
to cut costs and become more efficient and one of the largest costs they have
(compared to their competitors) is labor. In fact, based on GM's labor premium
and the number of hours it requires them to build a vehicle and their annual
vehicle sales, a reduction of the labor cost to Toyota's level of around
$48/hour would likely make them safe with a savings of around $8bn per year
(not profitable, but safe).

GM still has other problems - they need to cut the number of hours it takes to
produce a vehicle, they need to cut the costs their suppliers charge them by
multi-sourcing more, and they need to better utilize their plants (all three
of which would likely be opposed by the UAW since less labor required is bad
for them, multi-sourcing means their suppliers can't offer as high wages, and
better utilization of plants means you aren't paying workers to do nothing
meaning you need less labor - GM has many idle workers).

So, in conclusion, people like GM cars. GM has labor costs that are too high.
GM isn't efficient enough in production. If GM becomes more efficient, it
means requiring less labor. It's crappy for workers, but economies change. I
totally understand why the UAW doesn't want to change. I totally understand
why Microsoft, Sun, Oracle, and many tech companies continue down many of
their paths. However, if they're paths that end because the landscape changed,
it just isn't reasonable to believe you can continue taking them. When the
economy changes, you can change with it or you can fade away slowly.

~~~
comatose_kid
It won't be business as usual from one set of outside constituents:
prospective customers. Who the heck is going to buy cars from a company that's
in bankruptcy?

~~~
hugh
Indeed, what they really need to do is find some way of guaranteeing that
their warranty obligations will be fulfilled, by fobbing that off on someone
else as part of the reorganization. If they can do that, I don't see why
they'd have a problem selling cars.

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anthonyrubin
"Johnson cut his price target on the stock to $1 from $4."

Equity value is also known as "Diluted Earnings Per Share" and is not the same
as the share price.

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sown
How terrible. :(

It's hard to imagine a foreign competitor having this same problem: running
into a rough patch for a couple of years and then all of a sudden looks at
bankruptcy.

I just want my volt.

~~~
uuilly
It's really not terrible. America invented the TV and Zenith, the last
American TV company, was sold to LG over a decade ago. Not many cried when IBM
sold it's laptop division to Lenovo either. Americans just aren't great at
manufacturing. PG wrote about this a long time ago here:

<http://paulgraham.com/usa.html>

It's not sad to pass the torch. The car is 100 years old. It's time to do
something new. We should be focused on innovation not on some notion that it's
our god given right to have American cars.

As of this writing there is an interview with Elon Musk of Telsa Motors at the
bottom of the news.yc page. That should be the future of American cars. I
heard that the Tesla engineers had a week long sit down w/ the Volt engineers.
The word was that the Volt guys were an embarrassment and that they couldn't
answer simple questions about their batteries. Chevy can't build a simple gas
powered car that can go over 60k miles w/o having all the buttons fall off the
dashboard. There is no way they're going to build a decent Prius competitor.
They had a good run, let them die.

~~~
sown
I'd feel better about an analysis from an expert on manufacturing and so
forth, which I get the impression neither you, pg or me are.

I dunno about throwing "innovation" around on cars; I think people use that
word without caution or really thinking about what it means.

When I grew up the nearest stop light was 20 miles away; cars were the only
way to get around. Even now, living in Mountain View it's a hassle living
without a car. Everywhere I've lived up until now was a huge hassle without a
car, partly because it was so remote. A very large segment of the US lives
like this and frankly, I don't like the idea of sharing a bus seat with
strangers, waiting on trains, etc. I like the idea of automated cars as public
transit and so forth but we shouldn't throw stuff out because it is old. The
chair is lord only knows how old and just like I need to sit, I need to get
out of the house to do whatever. ;)

~~~
uuilly
I don't think anyone's arguing against cars. I just think that American cars
are less desirable than Japanese, Swedish or German cars. Cars are no doubt
useful things.

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redorb
yeah as soon as you let all your employees join unions and negotiate, they get
to lock you in a negotiated price or shut you down. The better alternative is
to probably give an environment where the employees feel they don't need a
union.

~~~
ssharp
Of course this is the answer but a lot of management doesn't understand this.
If you take a look at Japanese manufacturers, you can see that they actually
value their employees.

However, in the case of the UAW, management laid down for them for decades in
fear of production cuts. When the income was rolling in, the worst thing for
them was a production shutdown. They weren't forward thinking enough to
realize that eventually these relatively unskilled workers would be making
$40/hour on an assembly line and getting ridiculous health care benefits in
their pensions. It's a double-edged sword but a lot of baby boomers ended up
making a lot more money then they ever should have.

Now, when any group of employees wants to organize, most management
immediately thinks of what the UAW has done and thinks its the worst thing in
the world. They think that it's 100% employee greed and don't look at
themselves for answers. In reality, most unions organize today because
management is really bad in creating a good work environment. A little DAILY
effort goes a long way in making your employees feel valued and as long as the
compensation is somewhat close to average, you're not likely going to face a
union coming in.

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steveplace
Finally, an analyst gets it right.

