Bravo Ford

Much of the press on the calamitous state of the US auto industry centered around General Motors. Spare a thought for Ford, which has quietly done some amazing things.

Ford was the only one among the Big Three that did not take the US government bailout. They also were the only one that did not go into Chapter 11 bankruptcy. And yesterday, they announced pretty good 2009 results. They made a profit of $ 2.7 billion in 2009. Yes, t-h-e-y m-a-d-e a p-r-o-f-i-t- i-n 2-0-0-9 ; one of the most brutal years for the auto industry. They gained market share in the US. Their fourth quarter volumes were up 26%. By any standards, an impressive performance.

Sure the numbers hide some real worries (as they always do). Their main business of selling cars actually lost $1.4 bn in 2009. That loss was offset by their finance arm – Ford Motor Credit which made a profit of $1.9 bn. (just goes to show that taking a loan to buy a car is for suckers). But in Ford’s favour, in the fourth quarter, the car business too made a tidy profit. But by not going into bankruptcy, they are left with a huge debt on their balance sheet - GM and Chrysler have much lesser debt now as they “restructured their debt” (read shafted creditors). Such are the advantages of not choosing to go into bankruptcy.

And their endemic problem with the massive pension obligations of retired workers remains an intractable problem. Its an irony of sorts that companies can be ground to dust in paying large sums to keep the retired folks in comfort. Whoever invented the concept of a defined benefit for retired employees based on their last drawn salary for the rest of their retired life ought to be shot. As should the accountants who decided not to create a fund for it, but leave it unfunded for future generations to pay “somehow”.

But suddenly Ford is looking good. GM is still debating the merits of hiring an “outsider” as a CEO (the last refuge of a company bankrupt of ideas of how do run a business well). It decided to shelve this idea at least for now. Toyota’s woes in the US are making the headlines daily. Chrysler has virtually gone absent. The other Japanese giants are also wobbling a bit. Ford is gaining market share.

Detroit and the automakers have had nothing but bad news and abuse for many years now. Every bit of good news ought to be celebrated there.

Bravo Ford. Take a bow.

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The right royal mess at GM Europe

Politicians should, in general, not meddle in business. A great illustration of this danger is the mess brewing in General Motors Europe.

Facts of the case are as follows. When GM was entering bankruptcy last year, the fate of GM Europe was in serious doubt. In any case GM Europe had too much of manufacturing capacity in Germany, the UK , Spain and Belgium. Even under normal circumstances a big restructuring was inevitable. Now there was serious threat of complete closure.

In waded the politicians. No less than the redoubtable Angela Merkel, Chancellor of Germany. She was coming up for an election. In Germany, auto workers are next only to God. No way was she allowing job losses amongst auto workers in Germany. So she forced an auction, put together a curious alliance of a Canadian spare parts manufacturer (Magna) and a Russian bank (Sberbank) to buy GM Europe. She then offered them $6.6 bn (yes 6.6 billion) and they had to commit no closures and job losses in Germany. Unsaid, but obvious, was – I don’t care what happens in Britain and Belgium – you can go and shut those. She forced a reluctant GM to agree to this ; at that time GM was weaving drunkenly on the ropes and in no position to even talk back to Merkel.

Now Britain, Belgium & Spain would not take this lying down. But they didn’t have the money to do anything about it. But a case is on in the European Union’s competition commission against the German plan. Merkel is no fool – she knows how to twist the Commission and get what she wants. So there the situation lay.

In waded the US of A. The US government has been overseeing the restructuring of GM. One of their demands has been for GM to produce greener and smaller cars. Now GM was doing a fair bit of development of such cars in Europe. If GM Europe went away, all that would be lost.

GM was also not too keen to sell GM Europe to Magna. They saw them, and especially the Russian connection, as competition and did not want all that technology to go to them for them to compete with GM in Russia where Chevrolet is doing pretty well. And how could they be a global company with no business in Europe ?

GM has got over its hangover now having come out of Chapter 11. It is now not mortally terrified of Merkel. So it said a couple of days back, that it was pulling out of the deal that she had forced on them.

There’s complete chaos. The Germans are absolutely furious (holy cow – plant closures in Germany and those b$%# Americans are backing out). The British are delighted (less job losses in the UK). The Russians are livid (not really sure why). The Americans are smug. GM is bracing for a huge fight. With all the politicians mucking about, what chance does GM Europe have ?

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The Hummer Deal

On a clear day, you won’t see General Motors any more. At least the GM of yore. GM is being cut apart and fed to any meat eater in the vicinity. One titbit, Hummer, is going to an unexpected place.

Hummer, for the auto uninitiated, is a gas guzzling Sport Utility Vehicle, particularly loved by the Americans. It was very popular, but is no longer so – its global sales declined by 62% in Q1. A few days back it was announced that Hummer would be acquired by Sichuan Tengzhong, a Chinese company based in Chengdu.

This is not the most obvious of deals – lets put it that way. Why is an unknown Chinese company doing this acquisition ? The deal looks shaky for a number of reasons.

Firstly Sichuan Tengzhong makes highway and bridge structural components, construction machinery , energy equipment and yes – trucks carrying cement mixers. What has this got to do with American SUVs ? Where is the business fit ?

Secondly, Hummer is a gas guzzler on a steep decline. What will Tengzhong do with it. The CEO of Tengzhong says the deal "will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S." Really ? Where’s the strategic fit ?

Thirdly Tengzhong operates in China. Hummer is sold mostly in the US. Where’s the geographical fit ?

And finally, and most important of all, these two companies are literally, and figuratively, a world apart. I am willing to bet that few people in Hummer can point to Chengdu on a map. Equally few people in Tengzhong may be able to point to Detroit on a map. Where is the cultural fit ?

M&A is a difficult business. More acquisitions fail than succeed. This seems a particularly difficult one. Methinks the deal was done because of the “kick” it gave a Chinese company to get a famous American brand and business and because GM will sell anything to anybody provided he/she/it/whatever shows the cash. Difficult to see how this deal will succeed.

For the sake of the brand and the people associated with that business, I hope I am dead wrong.


PS – I am 100 not out today – this is my 100th post. I am a relative baby in blogging terms – having taken to it only a little while ago. To use the cricket analogy, there have been streaky shots galore, edges that have not carried, catches dropped but an occasional elegant cover drive for four. Sometimes rain has threatened to stop play, but somehow the clouds have always cleared . On the way, I have made lovely new friends – Aparna, Rads, Adesh, Zoobie, Le Embrouille Blogueur, Hang, Ajay, Mark, Kanmuri, Reva , Chris, ….. and cemented many old friends – Kiwibloke, Dada, Hassan, Aashish, Preeti ….. and the others who read and ping me but don’t comment. To all of you, a big heart felt Thank You , Xie Xie. I have been touched by your warmth and support. And like a good cricketer, I am taking guard again, head down and waiting to play the next ball.

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From Michigan to Guangdong

If your sales grew last month by 25% in the largest car market in the world (at the moment) ; if you were No 2 in the market behind a faltering market leader; if you had beaten the Japanese nicely; if your two most famous brands are household names and aspirational in the market; if your other American rivals are nowhere in sight; you should be over the moon - Right?

Wrong - for this company is GM China. And because of the troubles a continent away.

GM has got everything right in China. Its beaten the Japanese. Its beaten the other Americans hollow. Volkswagen is the leader because of historical reasons ; they came into the market very early. They once had a market share of 50% - which is now down to the teens.

Just pause for a moment. Worldwide the car industry is in doldrums with the bottom falling out of sales. And GM China announces that in March their sales grew by 25% over last year. Wow !

So here's a wild thought for GM. Get out of the US and move your headquarters to China. Become a "Chinese" company. In the country which is the largest car market in the world. In the country, which, without doubt, will be the fastest growing car market for some time. And in the country where you have a star subsidiary while the parent is in the geriatric ward.

Sure there are a host of issues. Local competition is heating up. You still can operate in China only through joint ventures. Profit margins are being squeezed. etc etc.

But the view from Guangdong is a lot better than the view from Michigan. Nǐ lái zhōngguó ma ?

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How the mighty fall

I read the news from General Motors yesterday, that they are discontinuing their Pontiac line from next year, with some sadness.

I grew up in the days when what was good for GM, was good for America. The best selling business book was, of course, "On a clear day, you can see General Motors". Any aspiring MBA graduate could reel off the famous five of GM - Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac. Every Hollywood movie of those days had one these beauties as a star character. GM was, after all, the largest company in the world.

Those days, mass communication was still at its infancy. The internet had not arrived. Doordarshan had just made its tentative steps in India (with such wonderfully stimulating programs such as Krishidarshan). Yet all of us had known a lot about GM, even without stepping outside India and only seeing Ambassadors on Indian roads.

Pontiac is 83 years old. It was introduced when Alfred P Sloan was the legendary chairman of GM. Its heydays were the 60s and 70s. Pontiac models such as GTO, Firebird, Grand Am, Grand Prix and Trans Am were household names a generation ago. GTO was even immortalised in a song in 1964 which hit the charts. The American love affair with the car was at its peak (not that it has gone away now). And Pontiac and GM were heroes.

The story after that is all too well known. A long decline started and GM slipped. And slipped and slipped and slipped. Pontiac slipped along with it. If today's generation were asked to reel off the top five car brands that come to their mind, Pontiac is highly unlikely to feature. Pontiac who ? what ?

Pontiac is a grand old lady, whose best days are long gone. It is time for it to approach its Maker. But for some people at least, it will mean the passing of an era. Of a world that's gone and will never come back. Its OK to wipe a tear.

Pontiac RIP.

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