Tuesday 9th December 2008

Ghosn-ing to America?

Renault-Nissan boss may try to save GM

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Carlos the friendly Ghosn

Speculation is mounting about the future of General Motors CEO Rick Wagoner ­– and the name of his possible replacement – following mounting pressure from the US political establishment.

Renault-Nissan boss Carlos Ghosn appears to be the pundits favourite to save GM if Wagoner is pushed out or stands down. Other names in the frame include GM president Frederick Henderson, although as a company insider he may be too tainted by the current failing business strategy.

The idea of Ghosn heading GM is intriguing, as his incisive, intuitive and visionary leadership style is something that many feel has been lacking for decades at the US giant.

More to the point, Ghosn also appreciates the value of ‘halo’ brands, as demonstrated by his single-minded pursuit of perfection when it came to developing the latest Nissan GT-R. Would Ghosn champion future developments of the GM Corvette in similar style?

[zagato]

"...demonstrated by his single-minded pursuit of perfection when it came to developing the latest Nissan GT-R."

Fell a bit short then didn't he

[predding]

The way things are going, he may be able to buy the whole company soon for about $10...

[nickfrog]

Not sure GM needs Renaultesque level of product unreliability...

[californiacuda]

Gm's ceo is being forced to work for 1 dollar a year, doesn't seem like Gosen would want the pay cut.

[nav p]

zagato said:

"...demonstrated by his single-minded pursuit of perfection when it came to developing the latest Nissan GT-R."

Fell a bit short then didn't he

Oh really...The Giant Killing car the GTR,it seems all Journos must be wrong!

The GTR is the car to beat,as an allrounder it is close to perfect.

[pagani1]

Carlos Ghosn would be as good for GM as he has been for Nissan in general and if Renault stylists were less idiosyncratic ie Laguna,Avantime then his guidance has been superb. The GT-R is a good shot at an affordable supercar-shame about the rear bodywork design from the wheelarches backwards-too heavy.
Can we have a new Alpine please Mr Ghosn?
Meanwhile please save the ZR1 but make it rhd please and sell it at $1.50=£1 without a premium apart from $1000 shipping and you would sell some .

[Mark-C]

nav p said:

zagato said:

"...demonstrated by his single-minded pursuit of perfection when it came to developing the latest Nissan GT-R."

Fell a bit short then didn't he

Oh really...The Giant Killing car the GTR,it seems all Journos must be wrong!

The GTR is the car to beat,as an allrounder it is close to perfect.

Hey .... I've got an idea .... why not let just this one thread not turn into a "is the GTR worst or best car ever" debate.

GM obviously need someone at the helm who understands running a vast multi-national car business and Ghosn certainly has better credentials than most. I imagine the US Government will want to see something like this as part of the agreement to pony up the massive money being asked for by the big three.

Edited by Mark-C on Tuesday 9th December 18:48

[Poverty]

no one can save gm. sinking ship. surprised they lasted this long.

[Mikeyboy]

If hes going there its to take it over not to run a sinking ship.

[Poverty]

Mikeyboy said:

If hes going there its to take it over not to run a sinking ship.

Only possibilty for GM to survive in the long run, is to declare bankruptcy and then re-organise.

[Mikeyboy]

Poverty said:

Mikeyboy said:

If hes going there its to take it over not to run a sinking ship.

Only possibilty for GM to survive in the long run, is to declare bankruptcy and then re-organise.

absolutely agree, somehow divesting itself of those pension and healthcare commitments would just about make them trade flat. If they then had a Ghosn do what he did to Nissan then they would be very powerful again

[lukeasbury]

Ghosn would be an interesting figurehead but the real problem is the UAW - there are so many protectionist restrictions that the only way things would work is to castrate the auto industry unions so real change could take place.

[thirsty]

lukeasbury said:

Ghosn would be an interesting figurehead but the real problem is the UAW - there are so many protectionist restrictions that the only way things would work is to castrate the auto industry unions so real change could take place.

Could it be said that the unions caused the downfall of the auto industry in the UK? Partially, yes. But just like here, it goes a lot deeper than that. GM makes some great cars, and if you look at the latest reliability numbers, they do pretty good. Problem is, some of the cars are junk. Too many dealers, too many lousy models no one wants, and very poor management. Look at the Cadillac CTS (new one) I have driven it. Well made, handles like a dream and I would buy one now if in the USA. Then look at the Cadillac DTS. Need I say more?

[big_rob_sydney]

I nderstand GM and Ford make very little money from their manufacturing, but make a fair bit more from their finance companies.

Didnt GM sell off its finance company recently? If so, they have a very short timeframe to invest that money to get themselves profitable on a manufacturing basis, otherwise they're history.

And yes, I agree its the unions who have caused this. You hear some pretty amazing things about the salaries that some people get for doing very basic non skilled work, and you have to wonder how they can compete against companies that pay basic wages for basic jobs.

[skwdenyer]

big_rob_sydney said:

I nderstand GM and Ford make very little money from their manufacturing, but make a fair bit more from their finance companies.

Many businesses are not what they seem. I remember interviewing a senior chap from P&O Stena Line a few years ago. He laughed when I suggested his was a ferry company: "no," he said, "we're a gin company; the ferries are just a very expensive, no-profit way of getting customers in front of very profitable bottles of gin on board."

Similarly, on a pure economic analysis, Ford (US) has been a bank for quite a few years; the cars were principally a very expensive-to-run-but-non-profit-making way of getting customers to sign profit-making credit agreements.

big_rob_sydney said:

Didnt GM sell off its finance company recently?

GM's finance division discovered huge "hidden" losses at GMAC, its finance arm, in 2006 - the last discovery of accounting errors led to an additional $2bn loss for GM as a whole, bringing the 2005 loss to over $10bn! That said, GMAC still posted a nearly-$3bn profit for 2005.

GMAC funds its debts (you guessed it) on the wholesale markets, by selling bonds. Even in 2006, the cost of credit default swaps (essentially derivative contracts providing insurance against GMAC defaulting on its bonds) was rocketing, a trend seen this year and last in the wider economy.

Seeing an opportunity to be a "bank", GMAC expanded into offering other financial services to (mainly) GM vehicle customers, mainly credit cards, personal and home loans...

In a bit of a hole over GMAC, amd in a bigger hole in general, GM negotiated with a group led by Cerberus Capital Partners (they who took over Chrysler) to sell a majority (51%) stake in GMAC for $7bn down and further payments over 3 years taking it up to $14bn or so. So they've already had most of the cash.

GMAC is huge: $250bn of assets, 15 million customers. Of course, assets include car loans, which may or may not be worth book value right now in the face of rising US unemployment, and, err, rather a larger home loan book, which had to be written-down quite a lot and which posted a loss of $2.3bn in Q3 last year alone...

big_rob_sydney said:

If so, they have a very short timeframe to invest that money to get themselves profitable on a manufacturing basis, otherwise they're history.

As above, they've already had most of the money. It isn't obvious that they've been able to use it to all that great an advantage, and some of it has been swallowed up paying for, err, GMAC's own losses as well as GM's.

big_rob_sydney said:

And yes, I agree its the unions who have caused this. You hear some pretty amazing things about the salaries that some people get for doing very basic non skilled work, and you have to wonder how they can compete against companies that pay basic wages for basic jobs.

There have always been such stories; the same was true at MG Rover (recall the man whose only job it was to check that snow chains would fit...), and any one of us here who runs a business (myself included) will know the enormous drain that underproductive or overpaid staff can cause.

The pensions / welfare payments issue was one of those "seemed like a good idea at the time" moves. GM and the UAW agreed decades ago to lower wage rises in exchange for enhanced benefits which are, effectively, tax-free for workers. At the time, there was no requirement for these "post-employment benefits" to be shown on GM's balance sheet as an obligation, and there was no effect on financial statements - in fact, lower wage rises meant increased paper profits, increased share prices, increased executive bonuses, and so on - something for nothing (at least for the moment...).

Unfortunately GM didn't reckon with the massive increase in life expectancy, the huge increases in the cost of health care (ironically, in a free market for health care, an increase in the amount of money in the health care system leads to an increase in prices due to the auction effect). And, to an extent, they forgot that they wouldn't just keep growing forever.

Now, as we all know, these costs are eating GM alive, and are stopping it from even approaching break-even at present - they've lost about $20bn so far this year...

Right now, GM needs cash, and lots of it. If it could possibly persuade the US Government to bankroll it, it would love to take over Chrysler - not for the cars, but to all-but shut it down and get hold of the $11bn or so of cash Chrysler has in its (loan-sourced) coffers. Yes, that money would have to be paid back in the end, but GM is like a drug addict at the moment - a fix of cash now, worry about the consequences later.

It isn't at all clear that a Ghosn (or anyone else, for that matter) could change things around quickly enough. Realistically, what GM needs for survival now is somebody with the ear of Congress, and that really does rule out a Frenchman

[LongQ]

skwdenyer said:

Realistically, what GM needs for survival now is somebody with the ear of Congress, and that really does rule out a Frenchman

He's not French.

http://en.wikipedia.org/wiki/Carlos_Ghosn

Edited by LongQ on Wednesday 10th December 12:02

[skwdenyer]

LongQ said:

skwdenyer said:

Realistically, what GM needs for survival now is somebody with the ear of Congress, and that really does rule out a Frenchman

He's not French.

http://en.wikipedia.org/wiki/Carlos_Ghosn

Sorry, the smiley clearly didn't convey the intent. I realise he's not French, but nonetheless he is synonymous with the French motor industry and, as such, I can see some real difficulty in him being accepted on Capitol Hill.

Edited to fix quoting.

Edited by skwdenyer on Wednesday 10th December 20:42

[mainaman]

From an article:

"GM's market cap as of this writing(last week) is slightly under 3 billion dollars. Having GM go under would very likely bring down both Chrysler and Ford, because shared suppliers would go under at the same time. Job losses would be in the 2 million to 3 million range. GM going under could quite possibly turn a very bad recession into an actual depression.

Which is to say, in real economic terms, GM is just as much "too big to fail" as Citigroup is. The question here is not "how much is it going to cost", the question is "are we willing to let it fail?" If the government really is, after throwing trillions at the financial industry, and the travesty of Citigroup( for 20 billion dollars or maybe a bit more, the government could have simply bought out Citigroup), then the government is so captured by the financial interests who donate to it that it is no longer capable of looking after the interests of all Americans, but only key donors.

If, on the other hand, the decision is made to help GM survive and restructure, then the government is essentially on the hook for all of GM's debts, in the same way it announced to the world that it will effectively back up all of Citi's debts (after 250 billion, are they going to blink at the rest?)

If that's the case, the simplest thing to do is just nationalize GM. Buy out the shareholders for the 3 billion their shares are worth, or hey, be generous and pay them double—6 billion. In the current context, that's not even real money. Get the best auto people in the world and have them go in and restructure GM. Spend the necessary money and make the necessary cuts. Restructure the company to serve America's interests—get the Volt working, increase mpg ratings, restructure the dealer network. Do it all. Fix the company and make it viable again. Then, once it's working again in a few years, start selling it back to the private sector. Do it right and the government will make a significant profit."

Edited by mainaman on Wednesday 10th December 06:16

[LongQ]

skwdenyer said:

LongQ said:

[quote=skwdenyer Realistically, what GM needs for survival now is somebody with the ear of Congress, and that really does rule out a Frenchman

He's not French.

http://en.wikipedia.org/wiki/Carlos_Ghosn

Sorry, the smiley clearly didn't convey the intent. I realise he's not French, but nonetheless he is synonymous with the French motor industry and, as such, I can see some real difficulty in him being accepted on Capitol Hill.

Smiley was a little ambiguous.

Would the US not see him as a Japanese approved Nissan/Infinity person who just at the moment is helping to save part of the French auto industry with which they have no contact?

[skwdenyer]

LongQ said:

skwdenyer said:

LongQ said:

skwdenyer said:

Realistically, what GM needs for survival now is somebody with the ear of Congress, and that really does rule out a Frenchman

He's not French.

http://en.wikipedia.org/wiki/Carlos_Ghosn

Sorry, the smiley clearly didn't convey the intent. I realise he's not French, but nonetheless he is synonymous with the French motor industry and, as such, I can see some real difficulty in him being accepted on Capitol Hill.

Smiley was a little ambiguous.

Fair point.

LongQ said:

Would the US not see him as a Japanese approved Nissan/Infinity person who just at the moment is helping to save part of the French auto industry with which they have no contact?

It rather depends upon whether, in general, they're supportive of the idea or not US politicians are not renowned for their world view, after all...

Also it might be recalled that, the last time Renault had a daliance in the US, they bought AMC, which didn't work out too well for anyone...