What's Good For GM........

So it finally time for us to test that old saw, "what is good for GM is good for America". As this scribbler predicted, Ford emerges as the most viable car company while Chrysler and GM are poised to become history (at least in their current guise) as the bailout failed in the Senate yesterday.

Entering bankruptcy will be painful, but not necessarily bad for America in the long run, for a number of reasons. Firstly it will signal that badly run companies must succumb to market forces at some point, no matter their size - the checkbook, if not closed, is at least in need of a refill of fresh checks. Secondly, it will focus the minds of the surviving entities and we will have better vehicles as a result. Thirdly, the suicidal race to the bottom in terms of discounts will hopefully be reduced to a gentle glide toward efficiency: he who is efficient will sell at the most attractive prices. Fourthly, it will extirpate the fat and impossible demands of labor that are crippling our car makers. Finally, it Will reaffirm that we are indeed a capitalist society, not a corporate welfare society.

But where from here? Well, like guys who have their fantasy football teams, here is my fantasy US car maker breakup scenario:

(1) Chrysler sells Jeep to Tata Motors, who urgently need an "in" to the mass US 4X4 market, and something to erase the memories of dismal British quality (if only to replace it with dismal Jeep quality, but better the devil you know). Tata also gets Hummer for free. GM should be happy to get rid of the cash drain.

(2) GM sells Saab to Ford who, with Volvo, would have a credible European premium brand base in the US. Talks of selling Volvo are insane, given the myriad Ford products that are based on Volvo products. Ford needs a reasonable premium European alternative in the US.

(3) Lincoln and Mercury are history. Ford concentrates its premium brands on Volvo/Saab combo, incorporating the best of Mercury (the Mariner. Period) and Lincoln (everything except the Town Car).

(4) Pontiac is gone.

(5) Buick is gone.

(6) Saturn is euthanized after a long agonizing death.

(7) Chrysler gets a much needed boost by absorbing Cadillac and merging its "premium" Chrysler line. This would give Cadillac a wider market (a Cadillac minivan for heavens sake! Soccer moms rejoice! Owning a Cadillac that gets more than 10 miles to the gallon and can seat 8 - it could be cool to drive a minivan again). And Chrysler would gain some street cred.

(8) Chevrolet,GMC and Dodge merge to form a company that sells lower end pickups and sedans for people who like to buy their cars where they buy all things utilitarian (hey, Sears! Why not sell Craftsman products at these dealerships?).

Hey, that would be an ideal world - at least for me. I think however, that if Washington keeps weighing in, we will end up with no synergy and a big bill. Time will tell, but for now, let capitalism ring!

Chrysler and GM: The Folly Continues

The papers are still rife with stories about a possible merger between Chrysler and GM. As I have said in the past, this merger makes almost no sense from a model line up point of view, and this was confirmed by a source who recently reported that the new company would consider selling some lines off, like the Dodge Ram pick up line. Naturally. They have completely overlapping and competing line ups in this fast shrinking market.

This kind of shallow thinking is what got Detroit - and especially GM - in trouble in the first place. Firstly, Dodge has just launched a brand new (and vastly improved) lineup of Dodge Ram pick ups. The Chevy/GMC pick ups were redesigned about two years ago. But sure, sell the newly designed models.Who will buy the Dodge Ram product lineup? Not the Japanese. Toyota is still nursing a gunshot wound to the foot that it took by launching the new full size Tundra pick up amid rising gas prices and a declining economy. Nissan launched the Titan in the same segment some time ago. The Koreans have their hands full. Kia launched a full sized SUV last month (need I say more?) and Hyundai, try as it might, has trouble being seen as an upscale car maker.

The Europeans are unlikely ever to want to get into the full size pick up segment in meaningful quantities. So, I ask again: who will buy the Ram line? Indians? Maybe. Mahindra and Tata are itching for an "in" into the North American market, but Tata has already bought Land Rover and Jaguar, and will have its dance card full trying to fix these brands in the US for the near future at least.

So while selling a vehicle line sounds wonderful on paper and makes a great sound bite, it is little more than that.

GM is really in a desperation samba, looking for cash at any price and Chrysler's stash looks tempting. But the cost of integrating the two companies would eats most - if not all - of that cash in the medium term. Cerberus of course, is still the big winner if this comes off, having washed its hands of Chrysler and gained GMAC to boot.

GM needs clearer thinking and some calm. Current management seems lost and desperate, and has lost sight of the real problems, which include years of product and quality neglect and attention only to profitable lines, while failing to turn unprofitable products into winners.

Only a herculean effort by a competent management team can save GM at this point, along with a healthy bailout. As of today, it has neither.

Car Supermarkets Far Off and Far Out?

No and yes, respectively. GM's continuing fascination with a merger with Chrysler which this blogger has strongly criticized has now spread speculation that the companies could consolidate dealerships. This is of course tacit recognition that the car market has become, in many segments, comoditized. It is only a question of time before someone wakes up to the fact that selling cars in exclusive dealerships is a luxury fewer and fewer manufacturers can afford and more and more shareholders should question. Besides which, the old argument that specialized dealerships "know the product and are loyal to the brand" is bull excrement. Any person with a modicum of research in their head can walk onto the floor of any showroom in the nation and instantly confound the sales person with a few rudimentary questions about the vehicle on the floor. I once visited a Ford dealership in Cincinnati here the salesman had difficulty in identifying a Ford Escape versus a Ford Explorer. Dealerships are going to have an increasingly hard time justifying their existence.

Let's look at the car purchase rationally. If I am in the market for say, a minivan, does it make sense for me to spend days wondering around different dealerships, haggling with different sales people and financing companies, or does it make more sense to go to "Joe's Mini Van Market". There under one roof I can see a series of minivans, from several companies and compare them. I can see features I like or don't like and quickly choose the one I like best.As the idea catches on, soon "Joe's Market" will have a minivan department, a pickup department, a sedan department, etc. All under one roof. Paradise!

For the manufacturers it means tremendous efficiencies as parts are shipped to Joe's Market based on computer models that show how many vehicles he has sold, and what they are likely to need in the first, second and third year of warranty. Prices would be have to be competitive and the whole archaic process of dealer incentives, hold backs, etc. would go away in favor of a fixed commission for Joe, with perhaps bonuses for vehicles sold. Saturn's idea of "no haggle pricing" would be a welcome innovation, with sales at different periods of the year. It would be Joe's headache to deal with salesmen and the public could easily opt for the best vehicles at the most competitive prices, with a margin for personal tastes, thus making manufacturers more efficient by being able to rapidly hone in on what the public wants versus what they are selling.

If this sounds like it makes sense, it does. It is essentially what happens every time you go to a supermarket or Best Buy or Sears. In fact, the question arises, why has someone not thought of this already? Well, for one, the middle man, the dealership, has a legal leg to stand on, against the manufacturer, if they opt to abandon their dealership network in this fashion.

But how exciting would it be to see Chrysler and GM started selling their vehicles through open markets like the one described above? How exciting would it be to walk onto a showroom floor with competing vehicles side by side?

If you hold shares in an American car company, it may time to start asking questions about how much the dealer network actually costs you as a shareholder, and to ask "why are we insisting on using a sqaure wheel when every other consumer product has already invented a round one?".