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Saturday, October 08, 2005

Delphi--Bad Omens

As you probably have heard already, Delphi, the largest American automotive parts supplier, has filed for chapter 11 bankruptcy protection. Delphi's cross-town rival Visteon, in a similar position, avoided bankruptcy when Ford took back plants and personnel.

I hope that Delphi will not live up to its name, and that this is not a portent more things to come.

I am not sure that GM can avoid the same fate. Saddled with massive legacy costs, and apparently not able to product-develop its way out of a steady market share slide, GM's future looks pretty grim to me.

GM's plan was to release new products that would halt its market share losses and firm up pricing. Unfortunately, this has not yet occurred. The Pontiac G6 is a decent seller, but not a hit, only selling about 100,000 cars annually so far. The Solstice is a hit, but is not a high-volume product. Buick seems to be sleeping. Buick annual sales are down, and I am troubled that I have not been seeing many new Buicks around metro Detroit. Buick used to be a huge brand.

Next, GM releasing a fleet of new fullsized SUVs and trucks. Many pundits criticize GM for investing in this segment, but they forget that trucks are a huge part of GMs business. To walk away from trucks would be a financial disaster for GM. However, the truck segment appears to be shrinking, and GM can at best defend its share, perhaps with some profitability gains. Large trucks will not save GM, but a failure in that segment would doom GM for sure.

Can GM tread water until enough completely new product shows up by 2008? I hope so, but I am not sure I would bet on it. If consumers continue to desert GM, and the UAW does not agree to severe benefit cutbacks, GM could easily go the way of Delphi.

A GM bankruptcy would completely change the playing field. A lean, unencumbered GM would be a world-class competitor, and would put massive pressure on Ford and DaimlerChrysler. Or it would be an attractive takeover target for someone (Ford? Honda? Hyundai? Starbucks?)

A GM bankruptcy would also be devastating to the UAW and to the US economy, hitting the taxpayers with huge pension obligations (like the collapse of Big Steel) and wiping out billions of dollars in investments. It would be the economic equivalent of a nuclear bomb.

May it not come to be.

3 comments:

Anonymous said...

GM would be a takeover target for a chinese or korean car maker. Someone who needs distribution & serivce channels but not necessarily engineering & manufacturing long term.

Anonymous said...

Chinese & Korean companies don't have the cash right now. Toyota could buy GM at a fire sale price & it would hardly dent their wallet, but there would be little reason for them to do so.

Don

Anonymous said...

Surprised you don't see many new Buicks? Hmm. . . let's see new models are ugly/boring and just as expensive as thier other GM counterparts. Buick has always been the division GM needs to get rid of.