New GM venture raises uncomfortable questions

Is anyone else uncomfortable about Friday's announcement by post-bankruptcy General Motors, still the largest U.S. automaker, that it would create new venture capital firm to invest in new technologies? The new GM, now 61 percent owned by the U.S. government, said it would put $100 million into a new company to help startup companies working on renewable fuels, advanced materials and other automobile-related ventures. The announcement, reported by the New York Times, came amid an almost unbelievable run of good fortune for the company, which was able to shed a list of troubled subsidiaries in its short trip to bankruptcy court. GM reported its first quarterly profit in three years while its chief rival, the usually unimpeachable Toyota Motor Co. -- is still preoccupied with the discovery of manufacturing defects that caused the recall of millions of cars worldwide and resulted in millions of dollars in fines, so far. “We are constantly looking for ways to deliver the best technology for our customers,” Stephen Girsky, a G.M. executive, said in a written statement. “Our goal is to nurture these innovative technologies to help bring them to market, and to ensure our customers have access to the best technology available.” Spokeswoman Sherrie Childers-Arb told the Times that the new subsidiary, General Motors Ventures, had already identified companies to invest in. But will it be the new, nimble, embarrassed and chastised GM that will be buying into startups with promising ideas, or the old GM that wants to buy new companies to block their products from gaining market share? That's what happened, we still can recall, to the early electric car and, even earlier, to transit systems across the country.

General Motors claims profit -- but only if discounts its expenses

Maybe it was naive to have assumed that General Motors, the top U.S. automaker, would have been required to stop playing games and be upfront about its finances as a condition of being saved from the junkyard by billions of dollars from U.S. taxpayers. Well, at least the naivete was short-lived. Today's release of its first detailed financial statement since emerging from bankruptcy protection shows that GM has not forgotten the sleight-of-hand that enabled it to pretend to be solvent for years despite epic mismanagement that caused what was then the world's largest automaker into bankruptcy. Focusing on what it called "positive cash flow of $1 billion since its bankruptcy," GM -- now known as General Motors Co., instead of General Motors Corp. -- said it wasn't counting the more than $4 billion it has to spend to settle with the United Auto Workers union to pay with retiree health benefits, according to the New York Times. If this is an example of what the company called its "fresh start" accounting principles since bankruptcy, it looks like there was nothing learned from its near-collapse as well as nothing to be learned from its official reports. Maybe what GM is doing is standard practice for bailed-out businesses, but it's no more reassuring -- especially since the company is now more than 60 percent owned by the U.S. government. “We don’t need to make that much improvement to get to profitability,” GM Chief Financial Officer Christopher Liddell told analysts and reports in a conference call, the Times said. “It’s getting close to break-even if you get rid of those one-off items that happened in the fourth quarter.” Well, any company would post a profit if it left losses off its balance sheet, right? But would that paint an accurate picture of its financial health? Still, many analysts said GM was considerably healthier than a year ago. “It would be a really impressive achievement if they were able to make a profit,” Rebecca Lindland of IHS Global Insight told the Times. “They’ve been able to do an awful lot, and all of those things should lead to a profitable picture.” GM said it would finish repaying $8.3 billion in loans from the U.S. and Canadian governments by June. The other U.S. automaker that took billions in bailout cash from the government, Chrysler Corp., is expected to release its first financial statement since its bankruptcy later this month, the Times said. Narayanan Jayaraman, a finance professor from Georgia Tech's College of Management, told the Times that he thought GM's prospects were better than Chrysler's. “Between G.M. and Chrysler, if I had to place a bet, I would place it heavily on G.M.,” Jayaraman said. “They seem to be doing the right things. They have some headwinds, so help from the economy would be good, but even in the absence of that they can do well.” He said the government could begin selling the millions of dollars in GM shares no earlier than 2011, after GM has "two or three quarters of profitability." GM's bankruptcy wiped out $83 billion in liabilities, the Times said.

General Motors changes focus to profit, not survival

News from Detroit that General Motors could make money this year after losing as much as $88 billion since 2004 probably comes as a big surprise -- and a good one for U.S. taxpayers, who own 60 percent of the country's largest automaker as a result of government efforts to save the company. GM's new chief financial officer, Christopher Liddell, who left a similar job at Microsoft in December, said the company had a "reasonable chance" of earning money in 2010, according to the New York Times. "Preconditions for success are extremely good," Liddell said at a news conference at GM headquarters. Liddell also said GM was considering a stock offering this year that could substantially increase the value of the government stake, the Times said. "It's an important part of rejuvenation for the company," he said, "but it's important that we do this at the right time." Liddell said GM would wait until the national economy and the automobile market had improved before attempting to sell shares, the Times said. General Motors, once the world's largest carmaker before losing that title to Toyota, emerged from bankruptcy protection last summer. Liddell said the company was in better financial shape than critics contended, and said it had made substantial progress since its bankruptcy filing in 2009.

Saab closure could be the result of poor GM management

From New York comes word that embattled General Motors has decided to shut down Swedish automaker Saab, the iconic 3,400-employee company it bought 20 years ago. GM has been trying for months to sell off the brand as part of its bankruptcy filing but was unable to reach deals with at least two suitors, according to Cable News Network (CNN). A long anticipated arrangement with Swedish exotic carmaker Koenigsegg fell through earlier this year and a last-minute deal with Dutch automaker Spyker couldn't be concluded in time to save the brand. "Despite the best efforts of all involved, it has become very clear that the due diligence required to complete this complex transaction could not be executed in a reasonable time," said Nick Reilly, president of GM Europe, CNN reported. "In order to maintain operations, Saab needed a quick resolution. We regret that we were not able to complete this transaction with Spyker Cars." The Koenigsegg deal's collapse followed a similar pattern, with last-minute complications also scuttling that arrangement. "In the end, Koenigsegg discovered some issues they didn't think could be overcome in a timely fashion," said John Smith, GM's vice president of corporate planning and alliances. "Like everybody, we would have preferred a different outcome." Well, that's what they say and, maybe in today's worldwide credit starved business environment, that's exactly what happened. But in light of the September failure of a deal to sell GM's Saturn subsidiary, and GM's decision to shut down its Pontiac brand, there may be another dynamic at work. If the Pontiac, Saturn and Saab brands were in good shape, any carmaker -- except, perhaps, for the other bankrupt U.S. company, Chrysler -- should have been happy to own them. At the price GM should have been willing to part with them -- the largest U.S. automaker is a highly motivated seller, remember -- there shouldn't have been any reason for all three deals to fall through in such a similar manner. GM's deal to sell its Hummer brand to Sichuan Tengzhong, a Chinese heavy equipment maker, is still awaiting government approvals, CNN said.

Toyota takes clunker money and runs

News that Toyota will bail from a 25-year partnership with General Motors to produce vehicles at the only automobile manufacturing plant still operating in California should come as no surprise to anyone -- GM already announced in a bankruptcy court filing in June that it was abandoning its share of the joint venture. California officials tried to save the NUMMI plant in Fremont by offering tax breaks and other incentives, according to the Reuters international news service, but Toyota decided to close the plant as part of its global cost-saving strategy. The plant, and the combination of GM and Toyota, was an innovation when it reopened in 1984 to produce a redesigned Chevrolet Nova using Japanese manufacturing techniques. It had previously been a GM manufacturing facility. It now employs more than 4,000 autoworkers and supports as many as 35,000 supplier jobs, and will continue to build Toyota Corolla cars and Tacoma trucks until March 31. GM, which is reorganizing under court protection, ceased production of the Pontiac Vibe at the plant last month, and is discontinuing the Pontiac brand. California Governor Arnold Schwarzenegger said Toyota's announcement was a "sad day" and said plans were underway to convert the plant to other uses, Reuters said. The plant was the only Toyota facility in the United States with a contract with the United Auto Workers union. A union official said the decision to close the plant was devastating. "This is no time to close a highly successful manufacturing facility," said Jimmy Settles, a United Auto Workers vice president. "California is one of the most important markets for Toyota." Perhaps ironically, Toyota was the largest recipient of stimulus dollars from the U.S. government's so-called "Cash for Clunkers" program that pumped $3 billion into the auto industry in an effort to boost sales. California Sen. Dianne Feinstein said Toyota officials told her office that GM's pullout from NUMMI left the plant with excess capacity and no outlook for increased demand in the current economic environment, according to Reuters. Toyota also complained that the plant was old and that production costs were too high in California, Reuters said.

Dealership closure decisions prompt Congressional investigation

The extraordinarily complex undertaking that is the restructuring of the U.S. automobile industry was in full view today when a subcommittee of the House Judiciary Committee opened hearings on dealership shutdowns negotiated by General Motors, Chrysler and the Obama administration. At issue is both the thinking behind the decisions to close more than 3,000 dealerships and a pending bill that could reverse all or many of those decisions, according to Cable News Network (CNN). The head of the administration's Task Force for the Auto Industry, Ron Bloom, a former investment banker, testified today that the closures were critical to the restructuring effort, CNN said. But some members of the subcommittee have objected to some of the individual shutdowns and raised the specter of unfairness or worse. "They had a criteria, but I don't know what their criteria was, what the data was," said Rep. Steve Cohen (D-Tennessee), according to CNN. "Some were profitable, and there's even concern that there might even be others open in areas where they closed them." Given the unfortunate tendency of Washington politicians to speak in semitruths, it is difficult to tell whether the Congressional concerns are legitimate or just part of seemingly relentless Republican Party efforts to discredit the administration. Indeed, Rep. Lamar Smith (R-Texas), said his concerns included some of the closures but went beyond them to the future of the U.S. economic system. "Every day, I guess I get a little more concerned about what the administration is doing in regard to the GM and Chrysler bankruptcies," he said. "It seems to me that literally the administration is declaring war on capitalism." Rep. Dan Maffei (D-New York), who authored the bill, said he was concerned about the owners of the dealerships that were ordered to close. "It's really an issue of fairness and whether these dealers, given that they've got these big taxpayer-paid-for bailouts for GM and Chrysler, whether the dealers who employ 50 people each on average and are big parts of local communities, shouldn't have some sort of say over how these dealer networks are going to be reorganized," Mattei said, according to CNN. "We felt it was not fair for these dealers, given that the bankruptcy was negotiated in part by the federal government and with federal money, that the dealers would have to not be able to have their rights." Not all dealerships forced to close were left with nothing, CNN said. GM offered its franchises up to $1 million in closing payments and gave them over a year to sell their inventories. GM also reversed dozens of closing decisions after dealers appealed to the company. But Chrysler didn't offer any payments, forced dealerships to shut down within three weeks and had no appeal process.

The last American car

Chrysler's bankruptcy filing may have bought the beleaguered carmaker a little more time in the short term, but signals the end of the U.S. automobile industry as any of us have ever known it. When the third-largest domestic car company emerges from court protection in August, the entire industry will not look anything like it does now. If the U.S. government gets its way, and there doesn't seem to be much reason to think it won't, Chrysler will be majority-owned by the United Auto Workers healthcare trust fund and merged with Fiat, which will be tasked with introducing the innovative, gas-efficient new models that stumped its previous owners for 40 years. If it is successful running Chrysler, Fiat -- an Italian company -- will end up the majority owner, according to the Reuters international news service. General Motors, once the symbol of American capitalism, is laying off tens of thousands of workers, shutting down subsidiaries and will wind up majority-owned by the U.S. government. Bondholders and previous shareholders will end up with very little. Only Ford, the second-largest U.S. automaker, has not mortgaged its present and future to borrow billions from the feds. U.S. President Barak Obama endorsed the Chrysler bankruptcy filing, saying it would save jobs at the automaker, and at auto parts companies and other firms that supply it. But Obama criticized some of Chrysler's bondholders and creditors that refused to agree to a proposal to reduce the automaker's debt by nearly $5 billion. "I stand with Chrysler's employees and their families and communities," he said. "I don't stand with those who held out when everybody else is making sacrifices. That's why I'm supporting Chrysler's plans to use our bankruptcy laws to clear away its remaining obligations." The bankruptcy filing evoked memories of 1980, when the United States provided more than $1 billion in loan guarantees to keep Chrysler afloat.

Closure of Pontiac shows GM still doesn't get it

Speculation that General Motors plans to kill off its Pontiac brand instead of trying to revitalize it with new models and better values is an indication that the country's largest automaker is still locked-in on a highway to failure. With new leadership at the top and billions of dollars in federal loans, General Motors should be making plans to build better, more-attractive cars across all of its divisions. Instead, the automaker is trying to suck the remaining life out of itself as it careens toward bankruptcy. An official announcement about Pontiac's fate is expected as eartly as Monday, according to Cable News Network (CNN). A GM spokesman, Jim Hopson, declined to comment Saturday on the future of the Pontiac brand, saying the automaker was not prepared to comment at this time, CNN said. Pontiac was GM's third-best selling brand last year, outselling Cadillac and Buick. But Cadillac is the corporation's most-profitable brand and Buick is very popular in China, CNN said. Pontiac once built GM's most exciting vehicles, from the high-performance GTO to the flashy Firebird. The 1964 Pontiac Tempest LeMans GTO is credited with creating a new class of American car, the muscle car.