General Motors in crisis as its car sales plummet

By : Tracey Boles Chief Reporter October 30, 2005

GENERAL Motors will this week reveal that sales collapsed in October, taking its US market share to a 25-year low and fuelling fresh fears that the world’s largest carmaker is heading towards bankruptcy. Its US sales dropped 26% compared with the same month last year, according to early estimates, putting its monthly US market share at 20.5% – the lowest since at least 1980.

The figures were compiled by Deutsche Bank analyst Rod Lache. Goldman Sachs also believes October will be the worst month for US car and truck sales in years. GM – whose brands include Cadillac, Pontiac and Hummer – is confronting its biggest financial crisis for 13 years. A bankruptcy filing by the Detroit carmaker would spell the end of an era for US industry and change global car manufacturing for ever.

Last week, it emerged that Toyota is poised to unseat GM as the world’s biggest carmaker measured by units produced. The Japanese giant, which already dwarfs the US carmaker in profitability and value, intends to ramp up production next year.

The GM sales slump – blamed on high fuel prices, unease about the US economy and the end of special summer offers for its staff -– is the latest in a stream of bad news to hit GM, all sparking market fears that the carmaker could go bankrupt. General Motors has denied it is drawing up any plans to declare Chapter 11 bankruptcy. Last week, America’s Securities and Exchange Commission (SEC) intensified an inquiry into how GM accounts for its pensions and employee benefits.

So far this year, GM has posted record losses of $3.8bn (Ł2.1bn, E3.2bn) and its crucial credit ratings have been reduced to junk by the main rating agencies. The company is burdened by $90bn in pension obligations and a $77bn healthcare plan. Two weeks ago, it was forced to renegotiate the terms of its healthcare plan with the United Autoworkers Union. It managed to agree a deal that will cut $3bn a year from costs.

On Friday, General Motors recalled 106,000 sports utility vehicles (SUVs) to fix a door latch. Sales of the SUVs have been falling faster than those of other vehicles as fuel prices remain high.

The spectre of bankruptcy at GM loomed again last week as the markets digested the news that the SEC had issued subpoenas related to GM’s financial reporting for pension and other post-employment benefits, and to transactions and obligations between the company and auto-parts supplier Delphi, which itself entered Chapter 11 earlier this month.

Until now, the SEC inquiry, which is also looking at other companies including rival carmaker Ford, has been informal. GM is Delphi’s former parent and its biggest customer. The carmaker may be responsible for $12bn in benefits at Delphi because of guarantees it offered when it spun off its former parts arm in 1999.

Analysts have warned that Delphi’s Chapter 11 filing under the weight of high wage, healthcare and pension costs, may foreshadow a similar drastic move by the world’s largest auto maker, whose labour woes could be compounded by the crisis at its supplier.

Bank of America analyst Ron Tadross said earlier this month: “It is our view that bankruptcy protection for GM is increasingly looking like a reasonable way to properly address the company’s retirement liabilities and job security benefits.” Steve Miller, chairman and chief executive of Delphi, said last week that unless Delphi’s bankruptcy process goes smoothly, it could “fatally wound” GM.

GM’s North American operations have been in crisis for some time, with commentators accusing it of spotting consumer trends too late. It has lagged Toyota in developing fashionable petrol-electric hybrids and launched the retro Chevrolet HHR after sales for retro vehicles peaked at other carmakers.

Last week the Detroit car company revealed plans to launch several crossover models – vehicles that have the interior space of SUVs but are built on the car rather than truck chassis. But the new models in the Buick, GMC and Saturn brands will have to compete with the crossover models that Toyota, Ford and DaimlerChrysler already have on the market.

In another desperate bid to get the ailing carmaker back on track, chief executive Richard Wagoner is seeking a buyer for all or part of the General Motors Acceptance Corporation, its finance arm. But there are fears the SEC investigation will hinder the sale. GM is hurting the most among the US carmakers but Ford and the Chrysler arm of DaimlerChrysler all experienced dismal sales performance last month.


http://www.thebusinessonline.com/St...2E-D07EB5AA1CEE

 

Anyone didn't see this coming when they announced the employee pricing joke? Killing the golden goose for the eggs is plain short-sighted and will hurt their future pricing plans much worse than they think.

 

Oh yeah definitely saw this coming. Sucks for them. They do have some new products coming out. Hopefully it will be enough to jump start the company. Or they can always start selling brands again. They have a lot to improve upon.

But in the mean time, lets go Toyota.

 

What I love is how they try to pass the blame to outside sources. Don't you think it's about time GM stop trying to blame their problems on outside sources and just admit "hey, we mismanaged the company"

 

Indeed. and I have to give Carlos Ghosen credit, b/c that is what Nissan was doing before he got there. Blaming everything but themselves. He told them "WE are the problem" and my goodness, did they turn it around.

It is so very sad to see this American conglomorate just barely survive.

 

seriously, this is not new to me anymore, it's been "a matter of time" in my head for a long time

 

Damn that blows. I know as Japanese car owners we often "have it in" for domestics, but I hate to see stuff like this. Hopefully GM gets their act together asap.

 

I don't follow you. GM has to move zillions of cars to keep the zillion employees paid because they can't get rid of them. So sometimes they have no choice but to sell the cars at a loss. It's a rotten situation but the union has them by the short ones and the union and retirees will force GM into bankruptcy so it can finally get rid of those shackles and those lazy overpaid workers AND retirees can go find a job at Wal*Mart but they're not going to like going from $40 an hour to $10!

 

Again, Nissan didn't have the union headaches GM does. Nevertheless, Ghosn deserves HUGE credit for what he's done there.

 

Not surprising at all.

 

Well...yes, Ghosn deserves financial credit, but don't forget HOW Nissan was saved. Something had to give, and that something was in the materials used. For example.....look at the junk we got for Nissan interiors for Ghosn to GET that credit.
Now...I'm not bad-mouthing Ghosn....far from it. He DID do a remarkable job financially getting Nissan's house in order. I just want to point out, though, that there was no free lunch, and the price to be paid was in the quality of many newer Nissan products.

Fortunately, Nissan did NOT compromise the quality of their engines. They consistantly build some of the best V6 powerplants on the market.

 

it's sad to read, but who really is surprised? GM and the Union really screwed the pooch on this as I dont know if they can turn it around...with all that pension/healthcare/job guarantees there's so much cost built into the cars that if they sold it at the price that it would be w/ all that incorporated into the making of the cars...no one would buy it. Hell no one is buying them now because they cant seem to design a nice car that the consumers want.

 

GM going into BK will be a bad thing for you and me.

Toyota has alredy come out and said back lash from poor performance from the big 3 may be a bad thing for them (Toyota).

People who care about consumer confidence (you & me) will be hurt from this if it happens.

 

Scary times for America and even more so for my home state of Michigan…

And Mike, you are teh suck at teh internet.

http://www.thebusinessonline.com/Sto...E-D07EB5AA1CEE

 

do you have more on this? i'd like to read up on it and see how it would have a bad affect on them