Auto Manifesto

April 1, 2009

White House Statements On Viability Plans

The White House basically told GM and Chrysler their plans won't work ("are not viable"). Both companies are uncompetitive, have too high of cost structures to survive and compete, and rely too much on large vehicles and SUVs. And both have overly optimistic outlooks on marketshare retention and pricing power.

Specifically, the summaries say GM's assumptions are break-even at best by 2014, with legacy liabilies reaching approximately $6 billion per year by then. This says it all: "Even under the Company's optimistic assumptions, the Company remains breakeven, at best, on a free cash flow basis throughout the projection period, thus failing the fundamental test of viability." Further, "Under its own plan, GM generates $14.5bn of negative free cash flow over its 6 year forecast period."

As for Chrysler, the statements included "...every single one of Chrysler's brands are in the bottom quartile based on JD Power APEAL scores", "... about 40% of quality issues (IQS/100 vehicles) are design related...", and " the first quarter of 2008, approximately 34% of buyers were subprime or near-subprime..."

The summary cited excessive costs due to a lack of scale, falling marketshare, overly optimistic assumptions, low quality image, and low odds of keeping up with CAFE standards.

Read the GM summary here.

Read the Chrysler summary here.

Finally, the White House goes on to back the warranties of vehicles purchased from these two companies during the restructuring period.

I'll leave you with this thought. Might GM and Chrysler products experience a decline in quality? Will it be hard to pinpoint if it's because low employee morale results in lower product quality, or struggling dealerships submit every little fault as a warranty claim? After all, it's backed by Uncle Sam. Just a thought.

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