General Motors: The money pit

Mr.Canada · October 1, 2012

I'd like to see no subsidies for any business. I think the market should decide who succeeds and who fails. It would force GM and others to make better products people want or die.

MiddleClassCentrist · October 6, 2012

I'd like to see no subsidies for any business. I think the market should decide who succeeds and who fails. It would force GM and others to make better products people want or die.

I agree for large business.

If a large corporation fails... it should be split up and smaller, more innovative competitors can pick up to fill the void.

Though, I think it is important to invest in small star-ups to keep productivity/innovation in a country high. I believe in investing in small business is one of the most important things any government can do. Too bad our conservatives only believe in investing in mega corps.

kimmy · October 6, 2012

I cherry picked market share? It's a pretty good indicator of the health of a company.

No it isn't. Apple is an example of why-- they've willingly sacrificed market share in exchange for charging a higher price for a premium product (a strategy typical of makers of premium products, by the way. Lower market share, but higher margins.)

I read an interesting example last week: Sealy mattresses.

Sealy was once the biggest maker of mattresses in America. They were bought by a "private equity firm" that proceeded to arrange the finances so that the purchase cost became a liability on Sealy's ledger. To erase this liability, the equity firm then proceeded to lean on Sealy to increase profits: the "no-flip mattress" was the result. Cut production costs by only putting a sleeping-surface on one side of the mattress. The consumer gets a product that only lasts half as long, because you can't turn it over and use the other side when the top is worn out.

Meanwhile an upstart mattress company, TempurPedic, was also doing some innovation. While Sealy was researching the cheap-ass no-flip mattress, TempurPedic was researching ways to use NASA foam materials to make high-end mattresses.

To make a long story short, TempurPedic just bought Sealy. Sealy had the larger market share (just passed by Serta for #1, apparently) but they were a money-losing, debt-ridden company, that just got bought by a company with a much smaller market share.

Apple is a superior product and is more proprietary. It's market share is growing. RIM is in trouble and Apple is suing Samsung. It looks like Apple wants to be a monopoly. Since the PC is going the way of the Dodo, Microsoft will be in trouble as well.

In the early days, iOS trailed Symbian and Blackberry and Windows Mobile. As those 3 faded into the sunset, Android rocketed into the lead. iOS has never led market share. It's not even the fastest growing-- Android is.

Again, you're really just clinging to this one metric because it's the only thing you can find to support the case you're trying to build.

One can't possibly believe that an automobile manufacturer can be better run with the government on board? Oh! I'm sorry I guess someone can.

You make it sound as if government bureaucrats are sitting in the corner office (well... those towers are round, they don't really have corner offices, but I digress) telling the businessmen how to run the company. That isn't the case.

And the above example with Sealy illustrates another point: private shareholders may not necessarily know know what is good for a business either. If a "private equity firm" buys a company and says "we don't give a crap whether the product is good, you have to reduce costs", then the result is "no-flip mattresses" instead of NASA foam mattresses.

How about Blackberry? They come out with a terrible quarterly report, and the share price goes down, and the company response is: "we have to cut costs to make the shareholders happy." So they go out and lay off half the programmers and engineers that are making their new product. And then next quarter there's another terrible report, and analysts say that the reason the sales are falling is that the product is falling behind its competitors, and the new Blackberry products have been delayed. Why were the new products delayed? Well, because they fired half the development team earlier in the year.

-k

Pliny · October 7, 2012

No it isn't. Apple is an example of why-- they've willingly sacrificed market share in exchange for charging a higher price for a premium product (a strategy typical of makers of premium products, by the way. Lower market share, but higher margins.)

Market share, and whether it is growing or shrinking, is an indicator of a company's health. Market share is not static. Growth generally means greater profits. Profits alone are not the greatest indicator of the health of a company. They can be improved by cutting operating costs, trimming fat but if they are not increasing sales and widening market share they are not growing at all.

Apple through it's proprietary policies limited itself in gaining market share and then went after Microsoft for unfair marketing practices because it wanted a bigger share of the market. They tried to improve it through litigation. Microsoft offered greater flexibility and options for the customer and grew way faster because of its inclusion of peripheral programs. It offered more for less. Apple may have strategically decided to make a premium product at a higher cost but they still needed to grow their market share to indicate success.

It is not simply the market share a company has that is the indicator. It is whether it is gaining or losing market share that is the indicator. I hope you understand that.

I read an interesting example last week: Sealy mattresses.

Sealy was once the biggest maker of mattresses in America. They were bought by a "private equity firm" that proceeded to arrange the finances so that the purchase cost became a liability on Sealy's ledger. To erase this liability, the equity firm then proceeded to lean on Sealy to increase profits: the "no-flip mattress" was the result. Cut production costs by only putting a sleeping-surface on one side of the mattress. The consumer gets a product that only lasts half as long, because you can't turn it over and use the other side when the top is worn out.

Meanwhile an upstart mattress company, TempurPedic, was also doing some innovation. While Sealy was researching the cheap-ass no-flip mattress, TempurPedic was researching ways to use NASA foam materials to make high-end mattresses.

To make a long story short, TempurPedic just bought Sealy. Sealy had the larger market share (just passed by Serta for #1, apparently) but they were a money-losing, debt-ridden company, that just got bought by a company with a much smaller market share.

Not an unusual story. I believe that when the customer is dropped out of the equation in the production of any product you can expect things to go awry. GM arrogantly forgot their customer while Toyota, Honda and Nissan increased quality that the customer liked and started preferring, thus increasing their market share. GM because of their labour costs and liabilities in benefits and entitlements had a very difficult time trying to increase quality and to control costs, thus losing market share.

In the early days, iOS trailed Symbian and Blackberry and Windows Mobile. As those 3 faded into the sunset, Android rocketed into the lead. iOS has never led market share. It's not even the fastest growing-- Android is.

Again, you're really just clinging to this one metric because it's the only thing you can find to support the case you're trying to build.

iOS is increasing market share and it seems to be pretty solid growth. It doesn't matter if it is the fastest or the biggest as long as it has sustained growth. Nothing is too big to fail unless government decides not to bail it out.

What's the case I'm trying to build? The growth and/or the loss of market share shows on the balance sheets. It doesn't matter how it chooses to compete whether it is with a better quality, more expensive product or a lesser quality cheaper product but they want growth, which generally means growth in market share, and will look to that as being an indicator of the success or failure of its decisions.

You make it sound as if government bureaucrats are sitting in the corner office (well... those towers are round, they don't really have corner offices, but I digress) telling the businessmen how to run the company. That isn't the case.

The largest shareholders have the biggest stake and a greater say in direction of company policy. They are usually not astute business men. The board of directors may get in trouble by making poor decisions and the shareholders may express concern but when profit is the prime concern above creating market demand poor decisions can be made.

And the above example with Sealy illustrates another point: private shareholders may not necessarily know know what is good for a business either. If a "private equity firm" buys a company and says "we don't give a crap whether the product is good, you have to reduce costs", then the result is "no-flip mattresses" instead of NASA foam mattresses.

And government shareholders know less of what is good for a business. Selling a no flip mattress sounds like a hard sell. What benefit does the customer get? A just as expensive lower quality product?

Space age NASA foam mattresses might sell a little easier science being so popular and all - science sells.

How about Blackberry? They come out with a terrible quarterly report, and the share price goes down, and the company response is: "we have to cut costs to make the shareholders happy." So they go out and lay off half the programmers and engineers that are making their new product. And then next quarter there's another terrible report, and analysts say that the reason the sales are falling is that the product is falling behind its competitors, and the new Blackberry products have been delayed. Why were the new products delayed? Well, because they fired half the development team earlier in the year.

-k

You can't have it both ways saying that making shareholders happy is a determining factor in the decisions of the Board of Directors and then say government as a major shareholder in GM doesn't influence the direction or decisions of the Board.

So it isn't Osama bin Laden is dead and GM is alive. It is Al-quaeda is alive and GM is on life support.

Shady · April 14, 2014

I thought I'd revive my GM the money pit thread, since its been reported that GM knew of their ignition and air bag problems, and did nothing to fix them. So when they inevitably lose significant market share as a result, as well as suffer possible and significant economic fallout in terms of lawsuits, are we to continue to offer them a bailout if it ends up being necessary? Do you have to keep bailing a badly run company out indefinitely?

eyeball · April 14, 2014

How about they throw GM's board of directors into prison for murder instead? A little truth in prosecuting for a change.

Edited April 14, 2014 by eyeball

bush_cheney2004 · April 14, 2014

How about they throw GM's board of directors into prison for murder instead? A little truth in prosecuting for a change.

No problem....they would only be sentenced to token prison time in Canada. That's social justice "truth" in sentencing.

jbg · April 14, 2014

Great news taxpayers!

GM's Volt: The ugly math of low sales, high costs

Apparently this is what "saving" GM and Chrysler looks like. Pouring billions of dollars down money pits, run by executives and unions that have absolutely no clue as to how to turn things around and turn a profit. Which is interesting, because, as far as I know, other car companies, such as Ford and Toyota produce hyprids that are a lot less expensive, and that didn't need a massive billion dollar bailout, in which tax payers will never see their money back again. So 4 years later, why are we still putting up with this crap?

I think that the numbers have to be cooked to make hybrids a good deal either for the manufacturers or the owners. I just don't see how multiple conversions of forms of energy saves energy, without massive subsidies.

Wilber · April 14, 2014

You should do some research into how these systems work and what makes them more efficient. BTW, the Volt is not a hybrid. I think it represents a good part of the future in personal transportation but because it is the first of its type I'm not surprised there are some technical and pricing issues. I applaud GM for making the effort and think history will look well on it.

Wilber · April 14, 2014

I thought I'd revive my GM the money pit thread, since its been reported that GM knew of their ignition and air bag problems, and did nothing to fix them. So when they inevitably lose significant market share as a result, as well as suffer possible and significant economic fallout in terms of lawsuits, are we to continue to offer them a bailout if it ends up being necessary? Do you have to keep bailing a badly run company out indefinitely?

Sales maybe, lawsuits no. Turns out they aren't liable for anything occuring before their restructuring.

GostHacked · April 14, 2014

I thought I'd revive my GM the money pit thread, since its been reported that GM knew of their ignition and air bag problems, and did nothing to fix them. So when they inevitably lose significant market share as a result, as well as suffer possible and significant economic fallout in terms of lawsuits, are we to continue to offer them a bailout if it ends up being necessary? Do you have to keep bailing a badly run company out indefinitely?

It's how the banking system 'works'.

GostHacked · April 14, 2014

You should do some research into how these systems work and what makes them more efficient. BTW, the Volt is not a hybrid. I think it represents a good part of the future in personal transportation but because it is the first of its type I'm not surprised there are some technical and pricing issues. I applaud GM for making the effort and think history will look well on it.

Only after a couple deaths and a major lawsuit did GM do anything about this. They knew about the flaws and failed to address them.

Wilber · April 14, 2014

Only after a couple deaths and a major lawsuit did GM do anything about this. They knew about the flaws and failed to address them.

I'm not trying to make excuses for GM's actions regarding deficiencies in their products. I am saying the Volt's technology is very worthwhile and GM deserves credit for pursuing it.

eyeball · April 14, 2014

I'm not trying to make excuses for GM's actions regarding deficiencies in their products. I am saying the Volt's technology is very worthwhile and GM deserves credit for pursuing it.

Perhaps a judge could take that into consideration at the sentencing hearing that follows the murder trial.

Wilber · April 14, 2014

Perhaps a judge could take that into consideration at the sentencing hearing that follows the murder trial.

Why would he? They're not related.

eyeball · April 14, 2014

Well no, you do have to charge them first...never mind.

Wilber · April 14, 2014

What I am saying is any new technology will have problems, some of them cannot be foreseen. You need to separate how a corporation deals with the consequences from the engineering and technology itself. In a place like BC where our electricity is produced from hydro, a majority of personal vehicles using technology like the Volt's would result in a dramatic reduction in CO2 and other emissions. That is a worthwhile thing to pursue.

kimmy · April 15, 2014

Perhaps a judge could take that into consideration at the sentencing hearing that follows the murder trial.

eyeball, I share your interest in seeing corporate executives held personally accountable for decisions they're responsible for.

However, I think the waters got muddied here. This has nothing to do with the Volt, and nobody is suggesting that the people who allowed unsafe products to continue to be sold should be given a pass because the Volt is "green technology".

To be specific: the faulty airbags were sold in the following vehicles:

-Chevrolet Cobalt, 2005-2007

-Chevrolet HHR, 2006-2007

-Pontiac G5, 2007

-Pontiac Solstice, 2006-2007

-Saturn Ion, 2003-2007

-Saturn Sky, 2007

None of this involves the Volt. All of this occurred prior to the bailout. And an attempt to link the faulty airbags to either the Volt or the bailout is an act of sheer fraud and dishonesty by pinheads with axes to grind.

-k

kimmy · April 15, 2014

I think that the numbers have to be cooked to make hybrids a good deal either for the manufacturers or the owners. I just don't see how multiple conversions of forms of energy saves energy, without massive subsidies.

Internal combustion engines are 30-40% efficient, and electric motors are 90%+ efficient. Combustion engines waste more energy overcoming friction, compressing air-fuel mixture, and as unused heat, than they convert into power at the output shaft. Electric engines by contrast have only I^2*R losses and a minimal amount of friction. So even with losses resulting during conversion and storage of electric energy, electric motors still have a huge edge in efficiency.

Combustion engines start at a huge technological disadvantage, and the only thing that tilts things in their favor is that current technology for storing electricity sucks. Gasoline is currently easier to store and carry than electrical power. Gasoline currently has a lot more energy-per-pound than current electrical storage technology. Gasoline is currently more economical than battery packs.

Those things are currently true, but they will not be true forever. Battery technology is advancing rapidly. And there are other electrical storage technologies on the horizon-- graphene supercapacitors, for example.

Electricity *will* replace gasoline in automobiles. It is not a question of if, but when. And when that day comes, General Motors will be in trouble if they don't have electrical technology of their own.

That's why the dummies who are cheerleading against the Volt are missing the bigger picture. There are people who look at to-date sales of the Volt and say "GM ought to pull the plug on the Volt because the sales are low". That could be compared to telling the Fisher Carriage Works company in 1905 "why are you guys worried about building chassis for horseless carriages? Horseless carriages are a tiny share of the market! Wagons is where the money is."

-k

Shady · April 15, 2014

eyeball, I share your interest in seeing corporate executives held personally accountable for decisions they're responsible for.

However, I think the waters got muddied here. This has nothing to do with the Volt, and nobody is suggesting that the people who allowed unsafe products to continue to be sold should be given a pass because the Volt is "green technology".

To be specific: the faulty airbags were sold in the following vehicles:

-Chevrolet Cobalt, 2005-2007

-Chevrolet HHR, 2006-2007

-Pontiac G5, 2007

-Pontiac Solstice, 2006-2007

-Saturn Ion, 2003-2007

-Saturn Sky, 2007

None of this involves the Volt. All of this occurred prior to the bailout. And an attempt to link the faulty airbags to either the Volt or the bailout is an act of sheer fraud and dishonesty by pinheads with axes to grind.

-k

Nobody's linking the faulty airbags to the bailout. But perhaps it provides some insight as to why said bailout was necessary. Its just another example in a long line of examples of bad business practices. But for some reason, we have to keep them afloat, instead of letting the market place properly deal with said bad business practices. Maybe there's a reason they should have gone through structured bankruptcy. Because it doesn't seem like they've learned their lessons.

Btw, GM's knowledge of the faulty airbags and ignitiions did occur AFTER the bailout.

Edited April 15, 2014 by Shady

kimmy · April 15, 2014

Nobody's linking the faulty airbags to the bailout. But perhaps it provides some insight as to why said bailout was necessary. Its just another example in a long line of examples of bad business practices. But for some reason, we have to keep them afloat, instead of letting the market place properly deal with said bad business practices. Maybe there's a reason they should have gone through structured bankruptcy. Because it doesn't seem like they've learned their lessons.

Btw, GM's knowledge of the faulty airbags and ignitiions did occur AFTER the bailout.

That's false-- they knew they had a problem as early as 2005.

Ford survived their exploding Pintos, and exploding Explorers, and the transmissions that shifted from park to reverse unexpectedly and ran over people. Toyota survived their uncontrolled acceleration defect. And I expect that despite current bad press, GM will survive this. They're a profitable company, despite what some people seem to think.

The 2008 bailout was-- and I think you already know this-- not simply a result of declining sales, but also of the crisis in the financial industry which was a 3-headed monster because first off it left GM and Chrysler unable to obtain financing for operating expenses, secondly left consumers unable to obtain financing for vehicle purchases, and thirdly destroyed the economy and consumer confidence to the point that few people were buying cars, period.

-k

Shady · April 15, 2014

The Toyota acceleration defect was trumped up scandal. GM knew of its faulty ignition and airbags even after the bailout, and did nothing. Stop making excuses for bad business behaviour.

kimmy · April 15, 2014

The Toyota acceleration defect was real, and killed at least 5 people.

I'm not making excuses bad business behavior. As I told eyeball above, I'd be thrilled to see executives who made these decisions prosecuted.

I'm just pointing out that your interest in this particular recall is obviously due to a politics-related agenda.

-k

eyeball · April 15, 2014

I almost slammed into a power pole when my Toyota suddenly accelerated. It happened 10 minutes after I had the defect fixed.

It was the floor mat in my case.

GostHacked · April 15, 2014

I'm not trying to make excuses for GM's actions regarding deficiencies in their products. I am saying the Volt's technology is very worthwhile and GM deserves credit for pursuing it.

The EV1 did this over a decade ago. The Volt is nothing new. Some of the tech might be, but the concept of an electric vehicle was already tried, tested and very well accepted by those who drove the vehicle.

They may get credit for that, but a simple part that would have cost a couple dollars to fix at the start for each vehicle would save them the hassle now. They new about the flaws and let them go. Paying out lawsuits are cheaper. And that is quite sad.