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AutoBlog: John McElroy on GM's Value

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Autoline on Autoblog with John McElroy

<!-- sphereit start -->Unlocking GM's Inner Value

john-media-photo-3-opta.jpgEven though it's bankrupt and the price of its stock has collapsed, General Motors is worth a lot more money than most people realize. And if the company were to take a radically new approach to how it runs its business the payoff could be enormous.

GM's market capitalization is at ridiculously low levels. The total value of its stock is presently less than half a billion dollars. But the company is really worth a lot more than that. When you add up the value of all the land, buildings, tools, machinery, equipment, patents, research labs, proving grounds and every other asset it has, GM is worth over $140 billion. There's even more value in the know-how, knowledge and experience of its people.

But how do you unlock all that value?

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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.

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Brand managers have been little more than glorified sales managers.

I'm fascinated with the approach that Sergio Marchionne, Fiat's CEO who is now running Chrysler, is taking to reorganize Chrysler's management structure. Up to now the brand managers have been little more than glorified sales managers. But taking a page of how he turned Fiat around, Marchionne is naming a CEO for each brand and giving them full profit and loss (P&L) responsibility.

This is kind of like the way they did it in the glory days when Detroit's automakers still dominated the global automotive industry. Back then the general manager of Chevrolet, for example, ran the division as if it were a stand-alone company. He'd be in charge of everything from design to engineering, manufacturing, sales and advertising.

Yes, there were a lot of duplicate resources and overlap with GM's other divisions. But if you want to capture 50% of the market you have to tolerate a certain amount of inefficiency. GM was able to grab that much market share because every division had a crystal clear focus on what its brand stood for and the products it had to make. The division managers didn't have to make compromises to satisfy the "greater good" of the corporation.

Why not revive this concept and apply it to the new GM? But with a couple of modern updates.

Certain corporate functions, such as Design, Engineering, and Manufacturing should remain as centralized corporate operations. But under this scheme they would be treated as their own separate business units, with their own P&L.

The different brands, brought back as separate divisions, would contract the work they need from the centralized corporate operations. Chevrolet for example, would contract with GM Design to design the cars and trucks it wanted. It would contract with GM Engineering to develop them and with GM Manufacturing to build them. The same would hold true for Cadillac, GMC and Buick.

The executives running these operations would treat them more like their own business.

This would provide tremendous transparency and accuracy as to the true cost of bringing new cars to market. The budgets of the centralized operations would be determined directly by what they could sell to the car divisions. The executives running these operations would treat them more like their own business. Decision-making would be pushed down much deeper into the organization and would be done far more quickly than today.

Once this system was in place and operating smoothly, the car divisions would publish their own annual reports. The next step would be to go public with their own IPO. Investors would be able to buy stock in whichever division looked best to them, and to ensure it shared in the wealth they generated GM would retain majority ownership in each of them. And of course investors could still buy stock in GM.

The company already did something like this when it owned Hughes Electronics and EDS. Investors could buy GM-H or GM-E stock.

By providing investors with a much clearer view inside the corporation they would be able to invest their money in the most profitable parts of the company. This would truly unlock the tremendous value that is currently trapped within General Motors.

Spin off GM Powertrain, and convince Ford and Chrysler to sell off their powertrain operations to it.

One more thing. I'd spin off GM Powertrain, and convince Ford and Chrysler to sell off their powertrain operations to it. The new Powertrain Company would build engines and transmissions for all three, achieving massive economies of scale and providing each of them with much lower costs. And then I'd do an IPO with the new Powertrain Company, with GM, Ford and Chrysler collectively holding a majority share.

We live in a brave new world. What seemed impossible just a matter of months ago is completely within our grasp today. The auto industry is going through a violent restructuring, and whoever comes to grips with the new reality first is going to be way ahead of all the others.

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The Economist touched on these topics. This is a time where there should be consolidation in the auto industry, but instead there has been fracturing by selling brands to more and more small time players and investors. John's GM Powertrain idea is interesting.

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The part about GM being worth at least 140billion (apparently by adding what seem to be book values of different balance sheet items) made me :rotflmao:

The bit on reorganization is very interesting but only parallel to a Ch11 process that rids New GM of Old GM's debt burden and of cash negative assets.

Edited by ZL-1
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I like everything except the powertrain idea.

What is wrong with it? GM and Ford did the ground work for their 6-speeds except the tuning was done at individual facilities. GM may have lead in HCCI, Voltech, DI and V8, Ford is in lead with forced induction, variable fuel propulsion and Hybrid Powertrain. The only lame duck is Chrysler. At least Ford and GM powertrain co-development seems reasonable.

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Here is the thing about the powertrain. To car fans, it matters what engine is under the hood. To car consumers, they want the best engine with the best power to economy ratio and more likely than not, they don't care if it is a LS, Hemi, or 5.0.

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Here is the thing about the powertrain. To car fans, it matters what engine is under the hood. To car consumers, they want the best engine with the best power to economy ratio and more likely than not, they don't care if it is a LS, Hemi, or 5.0.

Individual tuning can go a long way to make the same engine spectacular to layman. If the blocks and main components are designed collectively, individual engine tuning, forced induction, cam/valve tweaks can make a huge difference. The key here is collectively designing an efficient block.

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What is wrong with it? GM and Ford did the ground work for their 6-speeds except the tuning was done at individual facilities. GM may have lead in HCCI, Voltech, DI and V8, Ford is in lead with forced induction, variable fuel propulsion and Hybrid Powertrain. The only lame duck is Chrysler. At least Ford and GM powertrain co-development seems reasonable.

Nothing drives innovation like competition.

GM is the clear winner in the powertrain department, so this arrangement would not serve their interests.

However, co-operation on specific projects (6spd. transmissions, for example) does make sense.

Otherwise, this would be just plain wrong and would lead to merger speculation, accusations of brand dilution, etc., etc. .

Edited by Camino LS6
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What is wrong with it? GM and Ford did the ground work for their 6-speeds except the tuning was done at individual facilities. GM may have lead in HCCI, Voltech, DI and V8, Ford is in lead with forced induction, variable fuel propulsion and Hybrid Powertrain. The only lame duck is Chrysler. At least Ford and GM powertrain co-development seems reasonable.

Chrysler's not the lame duck unless you're forgetting about their new V6 series, which are said to be some of the most advanced in the world.

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In a perfect world GM should team up with BMW ... hint, hint ... :smilewide:

Been saying that for years.

But then, they have from time to time already.

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Chrysler's not the lame duck unless you're forgetting about their new V6 series, which are said to be some of the most advanced in the world.

Their new engine may be advanced, but what technology are they developing like the ones I mentioned about Ford and GM? EV is replicated, DI is there, no concrete plans of force induction on the table. The only benefit I could see is through Fiat a solid portfolio of smaller engine. But GM and Ford have their own small engine portfolio on the other side of the pond.

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Been saying that for years.

But then, they have from time to time already.

What happened to BMW's plan of supplying engines to Caddy and performance Chevy/ Buicks?

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Been saying that for years.

But then, they have from time to time already.

Yes they have, and some people are working on that very issue, so I'm told ... :smilewide:

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Their new engine may be advanced, but what technology are they developing like the ones I mentioned about Ford and GM? EV is replicated, DI is there, no concrete plans of force induction on the table. The only benefit I could see is through Fiat a solid portfolio of smaller engine. But GM and Ford have their own small engine portfolio on the other side of the pond.

EV is replicated based on who? No one has an EV for sale yet. :P

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EV is replicated based on who? No one has an EV for sale yet. :P

You know what I meant :P. A similar program of plug-in extended range vehicle exists under development at GM.

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Yes they have, and some people are working on that very issue, so I'm told ... :smilewide:

A joint platform and engine development between GM and BMW can keep costs for both down. Not a bad thing. Is that the reason why you were "plucked" to the rondel side?

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Their new engine may be advanced, but what technology are they developing like the ones I mentioned about Ford and GM? EV is replicated, DI is there, no concrete plans of force induction on the table. The only benefit I could see is through Fiat a solid portfolio of smaller engine. But GM and Ford have their own small engine portfolio on the other side of the pond.

The new Phoenix - if that's what they're still called - V6s don't have DI.

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The new Phoenix - if that's what they're still called - V6s don't have DI.

True, the initial ones won't but it is in plan.

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The new Phoenix - if that's what they're still called - V6s don't have DI.

They one that debuted on the GC doesn't, however future versions will. It's designed to be able to make use a number of advanced technologies.

It's called the Pentastar V6 now...legal issue with the name Phoenix.

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A joint platform and engine development between GM and BMW can keep costs for both down. Not a bad thing. Is that the reason why you were "plucked" to the rondel side?

You mean you don't think I'm here because of my handsome good looks and my native fluency in German ... :smilewide:

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You mean you don't think I'm here because of my handsome good looks and my native fluency in German ... :smilewide:

First one - Oh Really? Second one - may be.

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These ideas are not that far out as the economy keeps closing in.

We have already have seen some companies team up in good times and we will see more in tough times.

Many MFG will need a dance partner in the future as income will be less and development cost will be more. GM is in a good place to offer techincal engineering and design as they do produce some of the best engines and transmission in the world.

I know many of their other systems have been handed over to others like Delphi and such but what they do in house is still very good work. Doing this work with other companies and sharing the cast will not only help GM fill their pockets but also save on cost in their new products.

Remember the BMW deal on the 5 speed Auto tranny? That is a kind of deal GM could do with others. The other MFG pays the money and GM build it with a disclamer they can use it after a short time after its release. Cadillac got that tranny 2 years after BMW did.

These deals if made with companies like BMW and Honda could also give GM a little polish to their image.

At worse tarnish the others image to help GM. LOL!

The bottom line is things will be done differently in the future from design, engineering, production and the sale of cars. It will not be a deal on want to but need to to save cost in development.

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They one that debuted on the GC doesn't, however future versions will. It's designed to be able to make use a number of advanced technologies.

It's called the Pentastar V6 now...legal issue with the name Phoenix.

Gm(Pontiac) still own the rights to " Phoenix " ?

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