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Auto Industry: Something’s Smelly At GM

July 28, 2009

Something’s Smelly At GM

IBD: 24 July 2009

Bailouts: You’re a once-mighty auto company that’s been bailed out by taxpayers, taken over by government and just posted a 22% sales drop. What’s your next move? Why, unveil a new men’s fragrance, of course!

It got little attention, but GM’s decision to launch its new fragrance line in honor of Cadillac’s 100th anniversary may go down as one of the most absurd moves by a troubled corporation ever. No doubt they kept a team of highly paid MBAs busy for months with the project, while the car end of their business was imploding faster than a black hole.

Is this what we get for our money — the $51 billion we taxpayers have ponied up to bail GM out of its self-inflicted woes?

“Cadillac, the new fragrance for men,” doesn’t seem like much to start the “New” General Motors Corp. on. Likewise, it’s never good to see that, amid all the cutbacks, GM’s lobbying budget remains virtually untouched. We guess the new “Government Motors” needs the political clout.

Disappointing? You bet. The White House created a so-called “Car Czar” to oversee the auto industry. The Big Three, we were told, had been totally irresponsible and needed the government’s help and the taxpayers’ cash.

Well, so far, not so good. Just one month after the government took a 60% stake in GM, it reported its first half sales fell 22%.

Worse, its global market share fell to 12% — down from 12.3% a year ago and 14.1% in 2005. Last year, Toyota took over from GM as the world’s largest automaker, and this year GM will lose its Hummer, Saab, Saturn and Pontiac lines, becoming even smaller.

We didn’t expect an instant turnaround. But then again, we also didn’t expect to find out that men’s cologne would be part of their new product lineup.

And no, we’re not just picking on the auto industry here.

At least one major American automaker seems to be getting its act together. Ford rejected a big government bailout. How’s it doing? It posted a $2.3 billion quarterly profit in the second quarter, confounding analysts and critics alike.

“We strengthened our balance sheet, reduced cash outflows and improved our year-over-year financial results despite sharply-lower industry volumes,” said Ford Chief Financial Officer Lewis Booth.

And it’s not as if GM has nothing going for it. Quite the contrary.

For one, GM’s newly reissued Camaro is a big hit.

Orders are literally running faster than production right now, forcing those who want a Camaro right away to pay more than the sticker price to get one.

And sales are booming — overseas. GM recently announced that its sales rose 38% in China in the first half, while setting sales records in seven Latin American countries during the same time. GM in the first half sold almost as many cars in China (814,442) as it did in the U.S. ( 947,518). Its share of Europe’s market is growing.

This underscores why GM should have been allowed to undergo a normal bankruptcy — not the politically rigged one that the government forced down all of our throats.

Today, GM might not exist, it’s true, if forced into a regular bankruptcy court. Its assets would have been sliced and diced to pay off its creditors. But those assets would live on. What automaker wouldn’t want to have the Camaro in its stable right now?

A regular bankruptcy would have given GM bondholders first call on its assets. Instead, they literally had money stolen from them.

More importantly, GM could have dumped its most onerous labor contracts with the United Auto Workers, while focusing on truly profitable cars. As it is, the UAW ended up with a major ownership stake in GM at the expense of its creditors and taxpayers.

GM exited bankruptcy on July 10. Today, what’s left after that politicized union-friendly travesty is two GMs.

One is the sickly domestic GM, which still has enormously costly labor contracts that give it roughly a $2,000 per car disadvantage when competing against the 12 foreign companies that make cars here. This GM can’t make money — especially now that government bureaucrats and union leaders are, in part, calling the shots.

Then there’s the other GM, the viable one. It posted big sales gains in foreign markets in the second half, and is the one part of GM that could not only survive, but thrive.

If GM manages to make it, it won’t be because of the taxpayer bailout. It will be because people elsewhere still want to buy its cars.

We hope GM can survive in the U.S. But we rather doubt it can with a management that thinks that perfume will cover up the stink of political meddling and the lingering bad odor of its ruinous retirement and health care costs.

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