The Chevrolet Volt Is A Mask To Divert Attention From The Collapse Of The General Motors Business Model, Which Claims That GM Has Ignored Alternate Power Trains Until Now Because Its Products Have been Based On Working With Proven technology

Implications: The market capitalization of the Detroit Two (Chrysler having been privatized by Cerberus is no longer a public company with a transparent market 'cap.') is a grand total of less than 20 billion dollars with GM accounting for an astonishingly tiny 8 billion of that.   Toyota, which is in fact the world's largest viable car company due to the fact that its profit alone is more each year than GM's market capitalization has a market cap of more than $160 billion.   There is no reason, other than nostalgia, for GM today to be in the Dow Jones Industrial Average at all. It has the smallest market cap, in fact, of any of the 30 members of the average, and the market cap of the two largest, General Electric and Microsoft are each more than 25 times the market cap of GM. Exxon Mobil, another DJIA member, made more profit last quarter than GM's market cap. The steady march of GM to bankruptcy is simply now unavaoidable, Volt or no Volt.

Analysis: When Rick Wagoner took the helm of GM, as CEO, in the late 1990s after outsider John Smith had steered GM from the shoals of an almost sure bankruptcy filing, which it was facing in the late 1980s, the stock stood at $60 a share and the company's market cap was around $50 billion.

GM's legal and finance staffs had prepared the paper work in 1990 for a Chapter 11 filing. Then the GM Europe purchasing manager Ignacio 'Inoki' Lopez told his bosses that if he were placed in charge of global purchasing he could save a billion dollars immediately and build from there to rapidly cut the costs of purchased goods and services by billions more. The GM board decided that it had little to lose and brought him and his team to Detroit.

By simply and arrogantly by fiat reducing the amount GM paid to its suppliers Lopez reduced what we now call cash burn to a manageable figure within months of his arrival in Detroit, and the bankruptcy filing was quietly shelved.

The OEM American supply base for a number of reasons was structurally unable to resist Lopez agenda of simply abrogating agreements. The system had become too cozy and the supply base was unable to diversify either its product lines or customer base, so the supply base became trapped in a downward spiral of margin annihilation.

Since corporate rape, taking margin by force from the supply base, was working the GM board placed enough power in Lopez's power ungry and greedy hands to destroy GM over the long term-exactly what has in fact happened.

After the greedy and power hungry Lopez stabbed his benefactors in the back by stealing GM's long term product plans and departing literally in the middle of the night for VW whose board had promised him that his dream of building an assembly plant in his Spanish hometown would be for them a priority which he had discovered it was not for his Detroit employers, GM continued to utilize the 'Lopez' method to squeeze its suppliers to death and thus avoid having to make any long term plans to insure against the value that their global competitors were beginning to get from low labor cost countries.

GM was also able to ignore the possibility of commodity price increases by simply not allowing its suppliers to raise their prices for such a reason; it was a short sightedness that Lopez would have been proud to take credit for and in fact was a direct outgrowth of his 'method.'

As the US supply base crashed and low labor cost countries began to figure more prominently in the operations of the global OEM automotive industry GM's board found another European manager for its purchasing department, Bo Andersson, from its then recently acquired Saab Group. Andersson was brought in to replace Harold Kutner who had replaced Lopez and who was very concerned with what he saw as GM's lack of  long term strategic planning for purchased goods and services.

At the beginning of the twenty-first century Andersson and newly promoted Rick wagoner then set in motion a strategy that has now finally killed General Motors. First they killed off all of the structure for long term planning that Harold Kutner had put in place at GM.

The they instituted what has become known in Detroit as Andersson's China Price Strategy.

First Andersson picked a parts category such as axles. Then he took  the latest blueprints and manufacturing technology of which GM had knowledge from the best supplier, in terms of quality, and, astonishingly, valuing such prints and processes at zero, he simply handed them out to Chinese suppliers, qualified or not, Andersson didn't know or care, and got a price quote for volumes, quality, and delivery schedules for which there was no way of knowing if they could be met or even attempted.

The China price so obtained would be flung back in the face of the supplier who was building the part and had included in his price the enormous costs of developing the part and developing manufacturing technology. "Meet this China price , Andersson's subordinates would brainlessly demand,  or else the part will be re-sourced to whomever this Chinese company is. It was arrogantly suggested to the astonished supplier executives that they should either move their operations to China or get a Chinese partner if that was the only way they could meet the price.

No thought was given whatsoever by Andersson or Wagoner to the increasing costs of commodities, the possibility that Chinese currency would rise against the US dollar, or that Chinese labor rates would climb. In December 2005 with all three factors clearly changing in favor of China Andersson nonetheless ordered his 'team' to increase its 'spend' in China to $30 billion in 2006.

It is instructive to note that Chinese currency alone has risen enough against the US dollar in just the last 3 years to wipe out even a 15% margin on cost reduction versus US suppliers. When you add increased Chinese labor rates and increased prices for commodity minerals and metals during the same period to the total you see that the margins that GM calculated into that $30 billion are now gone completely and that outsourcing to China is probably done at a loss by GM today!

So the new mantra at GM is 'insourcing,' but it is far too late to restore lost capacities, workforce, and economies of scale to the mutilated OEM American automotive supply base.

During this period of clueless China pricing and cost cutting GM also fell behind in design and technology. The Chinese supply base could not help out there at all.  The company told us that it was going with proven technology rather than take risks on such innovations as hybrids. Suddenly now we are to believe that GM will make a few plug-in hybrids with an unproven technology and re-invent itself. Isn't this where we came in?

GM's problem is easy to state. It had only short term planning and only wished to please Wall Street.

GM has not made a penny of profit in at least 4 years during which time it has lost more than $50 billion.
 
GM's management tells us that the biggest problem it faced was legacy costs.

GM is downsizing not its cars but the company to give the illusion of cost containment.

GM is surviving today only on borrowed money; its cars aren't selling; and its credit is literally gone.

GM does not belong in the DJIA, nor should anyone lend it money until it changes its top management, which has continued to receive high pay while it has destroyed the company.

I would guess that someone will soon buy GM for its sales and distribution network and for its operations in China. Such a plan seems already underway for Chrysler, and Ford would have been gone already if the Ford family weren't desperately holding on to its rapidly vanishing operations and value.

If the Detroit Three, or Two are still around in 2012 there will be no familiar faces at the top. The current managements of GM and Ford have failed.