All Maine Matters

April 2006



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Cancel The Funeral Dirge for GM
by Bob Sanders

An interesting question came over the airwaves one Sunday a month or so ago on a well known financial advice radio show. The caller was swooning over the possibility that her General Motors bond portfolio might take the deep six if GM were to throw in the corporate towel and declare bankruptcy. The financial Mighty Karzak went into a tirade about GM’s financial troubles being the result a product line of gas-guzzling SUV’s that no one wants now that gas prices have skyrocketed. He criticized GM’s inability to gauge market trends and meet the market with products that the market wants, generally smaller vehicles, and specifically hybrids. He cautioned that the bonds would be redeemable for the next year or so, but further out than a year, and your gonna have to polish up your crystal ball to hazard a guess whether or not GM will be solvent.
Let’s get one thing straight right quick, there is little chance that GM is going to go tits up. (At least for the foreseeable future). And if they do, it isn’t going to be because they are trying to hawk a fleet of automobiles that “nobody wants”. Read on, automophiles.

Primary Reason: GM can pay its bills, and companies go bankrupt when they can’t pay their bills. GM has tons of cash; it has almost 20 billion bucks of liquidity, and analysts predict they could, if pressed, latch onto another 10 to 13 billion in borrowed money. And think about this: GM is being valued at a paltry 15 billion. Normally this kind of upside-down market situation puts blood in the water, and the Wall Street Sharks start to circle. Not in this case.

There is the little problem called “legacy costs.” These are the obligations that GM agreed years ago to shoulder: the medical insurance costs of retirees all the way to the grave. This, coupled with GM’s insurance costs for active employees of 5.6 billion per year (and counting), have made GM look a lot less appetizing to the sharks on Wall Street. In fact, some analysts have stated matter-of-factly, “GM is no longer an automotive manufacturer. It is now a benefits manager company”.

There have been some former GM execs who have speculated that if GM were to file bankruptcy, it would specifically to shed itself of the contractual obligations it has to provide former and present workers with benefits that are, simply, no longer affordable. These costs are the tidal wave that has the potential to wash GM down the crapper. GM, and its workers, will have to realize in the very near future that in this teeth-bared competition called automobile manufacturing, the prime directive is to be a “Car Company”.

Second Primary Reason; GM makes, dollar for dollar, probably some of the best vehicles out there. This is despite all the Domestic Bashers, who still have their heads in a time warp, say 15 or 20 years ago, when Detroit was building a lot of cars that easily made it onto the “Worst Cars of All Time” list. Ask a technician; most will say that the domestics have come a long way in quality and innovation. And this is direct from the people who have poked, prodded, pored over wiring diagrams, dissected and agonized over “diagnostic safari’s”. Who better to get a real world perspective on who’s doing what right, and who’s spends more on marketing and hype than engineering?

One last thought on General Motors: innovation. Guess who used GM transmissions in almost all their vehicles for over two decades? Rolls Royce. That’s right, Rolls Royce, the absolute, hands-down benchmark builder of quality with a capital Q. I read this years ago in an article and the writer assumed, as I do, that the Brits at Rolls had to swallow real hard to slip that GM automatic into their land yachts. But they did it because after its introduction, it was glaringly obvious that this one, tough, well thought-out, built-to-last, smooth operator. In short, no matter how much time they spent at the drafting table, they couldn’t build a better transmission, so they just bought GM’s unit over the counter.

So the next time you’re changing your oil in your Rolls Silver Shadow, rub the road grime off the ID plate on the right side of the transmission case above pan rail, you’ll see it: GM Turbo Hydramatic. Made in the USA.

Bob Sanders is a Master Auto Technician who works in Brewer.

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