GM Posts $7.6B Profit, Are Bailout Critics Still Singing 'No Bailout' Tune?

The editor of JeffCars.com recently received a personal plant tour at the Lake Orion auto assembly plant from Alicia B. Davis (r), the highest ranking African American female at GM, and Nina Price (l), a communications manager for GM, who started her career as one of the plant's supervisors. Davis, who was responsible for reopening the plant, after it was closed temporarily during GM's turbulent years, has since been promoted  to a new position back at the Detroit headquarters.

Are the auto bailout critics still saying no to the government bailout of the auto industry? Just wondering: Will Romney try to backtrack, after the scathing op-ed he wrote earlier this week, regarding President Obama and the auto bailout?

One Year Later: 5 Things the Critics Aren't Saying About the Auto Bailout

President Obama is taking a spin in GM's first post-bankruptcy mass-production electric vehicle, the Chevy Volt. 

When President Obama made the decision to bailout the auto industry, with billions of tax payers hard earn dollars, he took a lot of heat from his critics. Many sought to characterize his decision to attempt to save GM and Chrysler as government intervention in the private sector. Now that the American public had a significant ownership stake in both car companies, GM's name was loosely being translated as Government Motors. 

Let's take a look down bailout lane to see what the critics aren't saying one year later.

  

Profitability of GM

Before 2007, GM hadn’t turned a profit until this year. Just this quarter, GM netted a healthy $1.3 billion, as a result of building reliable, appealing vehicles consumers yearned to buy, without huge incentives. Eliminating huge incentives have led to higher transaction prices and higher resale values. 

Yes, had the government not invested in GM we would have missed out on such iconic products as the Corvette or for that matter the Cadillac brand. Moreover, we wouldn’t have had the opportunity to experience GM's award-winning post-bankruptcy products: the all-new Lexus ES fighter, the Buick LaCrosse; the fuel-efficient Chevy Equinox crossover; the return of the retro-designed Chevy Camaro; and the Cadillac SRX crossover.

According to data from the Commerce Department, as cited by Automotive News, a respected industry trade magazine, the motor vehicle output overall in the United States was $314 billion of GDP in the second quarter of 2010 compared with $223 billion in the year ago period and $352 billion in the 2008 quarter. Again we ask: Should President Obama have listened to his critics?

Senior Management Change

Over the years critics of  the auto industry have complained about the U. S.-based automakers home-grown, out-of-touch senior managers with relatively little corporate experience outside of Detroit being out of touch with today's car buyers.

Unlike Chrysler and GM, Ford Motor Company's heir, William Ford, decided to step aside a few years ago from running the family business into the ground, allowing a seasoned industry-outsider, Alan Mulally, a former senior executive at Boeing Airlines, to run the industry. However, until the government intervened into the business affairs of GM and Chrysler, this would have never happened.

As a result of President’s Obama's administration heavy-handed involvement in the auto industry, GM was forced to let go two GM lifers, Rick Wagoner and Fitz Henderson, replacing them with two outsiders, Ed Whitacre and Dan Akerson.

Just maybe had this been done before the government got involved in GM’s business, an industry outsider, attempting to learn the business, would have made better use of GM’s manufacturing partnership with Toyota, specifically during its heyday and prior to Japanese-automaker recent rash of reoccurring recalls. Some believe had they (GM) worked closer with Toyota, the automaker would have never been seeking a bailout.  

Also the bailout forced GM and Chrysler to shed duplicate brands and slow-selling, lack luster models. This would have never been done prior to the bankruptcy bailouts. Was there really a need for Saturn, Pontiac and Hummer? Its being reported that GM is selling just as many vehicles with four key brands.
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And, Chrysler was forced to join hands with Fiat and reexamine their product portfolio, eliminating slow-selling models. Unlike GM, we've only seen one new post-bankruptcy product from the automaker, the Grand Cherokee. Chrysler claims the 2011 Jeep is the best vehicle they've ever built. So far early sales numbers show consumers are snapping up the new Jeep. As of now, we must honestly say its too early to examine the automaker, until they get a few more of their post-bankruptcy products out on the road.

Post-Bankruptcy: Are Chrysler And GM Vehicles Worth More?

Since the new Chrysler (or Chrysler Group) has emerged in partnership with Fiat, the American Leasing Guide, now says all three of the American brands (Chrysler, Dodge, Jeep) are now worth significantly more than they were before bankruptcy. This is good news to customers who are either trading in their vehicles or for the few who had plans on leasing a vehicle. For leases, higher residuals values typically result in lower car payments, which means less money coming out of your pocket in this tight economy.

For the months of July and August (post-bankruptcy), the 36-month residual values set by the American Leasing Guide are 32.5% for Chrysler, 34.8% for Dodge and 37.4% for Jeep. Jeep's value increased 5% from May and June (pre-bankruptcy), Chrysler’s rose 3.7% and Dodge’s rose 3.5%. While these residuals values are still lower than the industry average, the new Chrysler (or Chrysler Group) is making progress with aged products. The only newly designed vehicles in the companies portfolio are the Dodge Challenger and the Dodge Ram.

Like the Chrysler Group, now that GM is out of bankruptcy, they too, should benefit from increase residual values with their vehicles. Unlike the Chrysler Group, GM has a slew of newly designed products debuting over the next 12 months. Just maybe the government bailout wasn't a bad thing. If both GM and Chrysler pay back their loans, this should quiet all of the critics who were adamantly against the bailout.

Two Pontiacs Remain for 2010, Former Toyota Executive Takes on CEO Role

Although GM has decided to eliminate the Pontiac brand, as part of its new reorganization plan, the embattled automaker will continue to produce its only joint venture vehicle with Toyota, the Pontiac Matrix, and keep the American made G6 in its portfolio for the 2010 model year.

As a side note, GM has selected a former telephone company executive to become the new Chairman for the automaker, while Chrysler, under its new approved reorganization with Fiat, has promoted Jim Press, the first American executive to serve on the board while at Toyota, to deputy CEO. I believe this is a good move. Many critics believe Press should have been appointed to that position initially, as opposed to Bob Nardelli, who drove Home Depot into the ground as CEO of the world's largest home improvement company, before he was forced to leave.

Judge Approves Chrysler's Marriage, GM Files for Bankruptcy

As opposed to rehashing everything you'll be hearing and/or reading in the media, we just wanted to drop a few lines. Chrysler has now been approved to reorganize and merge with Fiat. While this shot gun marriage was a necessary evil, it will be interesting to see if American consumers will warm up to its import owners small vehicles. Fiat hasn't been known for building quality vehicles.

And like Chrysler, GM has followed suit, filing for bankruptcy. Unlike Chrysler, GM is expected to take up to eighteen months for the ailing automaker to return with a leaner dealer base, smaller employee count and four strong brands - Chevy, Cadillac, GMC and Buick. If you're in the market to buy a Saturn, Hummer, Saab or Pontiac, don't worry. Uncle Sam has agreed to honor your new-car warranty. However, if you're trading in a GM or Chrysler brand, it may not be worth as much these days.

D-Day: 10 Black Chrysler Dealers to Lose Stores, Consumers Win in the End

On June 9, Chrysler will have 10 fewer black dealers selling its vehicles. According to our reliable industry sources, 9 men and 1 woman will be officially out of business, leaving 37 in business after the dust settles: 2 females and 35 males. While Chrysler plans to eliminate 789 dealers over the next month, both the minority and black dealer population for the automaker will still maintain the same market share prior to the cuts, 5 percent and 1.5 percent respectively. Obviously Chrysler executives put a lot of thought into its dealer hit list before making the announcement - avoiding any potentional headaches with the civil rights community and other minority dealer advocates over having acceptable representation. Many critics were expecting Chrysler - since they're currently privately-owned - to slice more minority dealers.

For consumers, this restructuring means that the dealers on Chrysler's targeted list must clear out their new-car and parts inventory by the June 9 deadline in order to take advantage of any factory rebates and incentives. Thus, consumers should be able to work some good deals over the next few weeks as those dealers become desperate to eliminate their inventory.

After the deadline, the targeted dealers will no longer be apart of the Chrysler franchise system. What does this mean to you? It means any new vehicles remaining in inventory will not qualify for any factory incentives. Also unless you're paying cash for one of Chrysler's new vehicles, while the company is in bankruptcy, you may find you'll have to cough up a larger down-payment to secure financing from some of the major financial institutions - since the residual values have dropped and auto loan delinquencies are at an all-time high, according to the American Bankers Association. In fact, over 3.53 percent of new-car loans in the last quarter of 2008 were late 30 days or more, as compared to 1.35 percent of new-car loans in the last quarter of 2004.

And across the street at GM, the bankruptcy word continues to loom. Just like Chrysler, GM is also eliminating dealers - roughly 1,200 over the next 18 months. Unlike Chrysler's dealers, GM will have more time to wind down their business as long as the company can avoid bankruptcy. However, if GM is forced into bankruptcy like Chrysler, they will face a similar accelerated path of eliminating dealers. As of now, we haven't been able to determine how many minority dealers are on GM hit list.

Although we hate to see any dealer close shop, these tough economic times will cause the remaining dealers to increase their level of customer service in order to stay in the game. Thus, this means that consumers are back in the driver's seat again - getting good deals and improved customer service!

Ford Offers Minority Dealers Bailout Plan

While GM and Chrysler are working with the government to determine the viability of their organizations, Ford is taking a different route - focusing on the health of its minority dealers, according to Automotive News. In a once in a lifetime opportunity, Ford is offering dealers in its minority dealer development program, which consist mainly of African Americans and Hispanics, an opportunity to buy their store (dealership) for $1. The dealers will have until September 30 to accept Ford's offer and they must prove that they have adequate operating capital to run their stores. Thus, in this unprecedented move, Ford will write-off the remaining loan balances.

While this is a good move for the minority dealers, who are working to pay off their loans to Ford, it will be interesting to see if the dealers will be able to secure financing for operating capital through outside sources, since the credit market is so tight. Due to the current economic climate, several of the majority-owned stores are having difficulty keeping their doors open due to the inability to secure financing. I guess as the old saying goes.... where there's a will there's a way.

Typically dealers are apart of the automakers minority dealer development programs in order to seek financial assistance, allowing them the opportunity to realize their dreams. Since most stores cost more than a few million dollars to buy, most minorities aren't in a position to fork over that much capital, so the automaker agrees to provide special financing through its minority dealer development program. Without this type of program being provided by the automakers, we would have only a handful of minority dealers today.

Just last year Ford offered to buyout a number of dealers in its minority program, who were struggling to stay afloat prior to the bottom falling out of the economy. I guess with this latest offer from Ford, could this be the end of the minority dealer development program or a way for the automakers to reduce their dealer count? I guess time will tell.

Obama's Unprecedented Move: Gov't Guarantees GM And Chrysler New Car Warranties, GM's CEO Steps Down

Obama's lays out his vision of the U. S. auto industry on Monday, helping reshape GM and Chrysler, who are both seeking government assistance to weather the rough roads ahead. Inside sources have revealed that the President plans on backing the warranties of all of GM and Chrysler vehicles on the road today in order to maintain consumer confidence, while both companies restructure. Added to the drama, Obama forced GM's CEO to step down. To read more about this unprecedented move, click here.

Buyer Beware: 9 Warning Signs to Help Consumers Steer Clear of Doing Business with a Financially Insolvent Dealer

A number of dealerships around the country are expected to close their doors due to declining new vehicle sales.

With new vehicles sales down by over 16 percent, which translates to over 2 million units, for the first eleven months of the year compared to last year, industry analysts are estimating somewhere between 3,000 to 3,600 dealerships will fold within the next year. There simply isn't enough customers buying vehicles to support the number of dealerships currently in existence.

Being that this is the case, how should consumers safeguard themselves from doing business with a dealership in dire financial straits? Seeing that most dealerships are privately-owned, there is no way the average consumer would have access to a dealer's financial statement. In many cases, there is no advance warning to the employees or the public.

The Bill Heard organization, one of Chevy's largest dealership chains in the country, was still working car deals and servicing vehicles just hours before closing its doors and filing for bankruptcy. On the surface everything seemed normal, business as usual. Even Heard's employees claimed they were uniformed about the financial health of their employer until the doors were closed on September 24. Most of the employees were notified during their lunch hour to secure all of their personal belongings.

If the employees didn't have advance warning, what about the consumers who had dropped their vehicles off for service on their way to work? Adding to that, what about the consumers who traded-in unpaid vehicles prior to the stores closing their doors? Who is responsible for paying-off their vehicles, if the dealer didn't? How are consumers supposed to secure the appropriate paperwork to register their new vehicles with the DMV ( Department of Motor Vehicles)? What about the customers who purchased a vehicle from Heard weeks earlier only to find out now that their trade-in was never paid-off? Now these customers are faced with making two payments, one for the vehicle they're driving and the other for a vehicle they no longer own. Even more important, these customers have a black mark on their credit report for not making a payment to the traded-in vehicle.

In order to avoid dealing with a financially strapped dealership, here are some proactive steps to keep you in the driver's seat before buying or servicing a vehicle.

*Check the complaint status of the dealership, using the Better Business Bureau Web site, www.bbb.org, determining if its accredited by the BBB, if they have resolved complaints filed by customers and how the BBB rates the company. Its to say most businesses will receive some complaints. However, what consumers should look for are the type of complaints, how they were resolved and the like. If the dealer isn't resolving the BBB's complaints, what incentive would the dealer have to resolve his customers?

For instance, if consumers would have accessed the online report of the BBB for Bill Heard Chevrolet of Union City here's what they would have found: On June 12, 2008, this company's accreditation in BBB was revoked by the BBB's Board of Directors due to failure to eliminate or address complaints on file with the BBB.

Furthermore, consumers listening to the local news during Labor Day weekend would have heeded the warning of the Georgia's Office of Consumer Affairs to avoid doing business with Bill Heard stores, which was seeking more than $50 million in penalties from the organization for misleading advertising, forgery and misrepresenting both the value of vehicles and customers' incomes in order to secure car loans.

*Does the dealership have an adequate supply of new vehicles in inventory? With the soft economy, a number of dealers have curtailed the amount of vehicles they have in-stock. However, if a dealer who normally stocks seventy new vehicles, currently has ten vehicles in-stock. This could be a red flag, signaling the dealer may be experiencing financial constraints

*Consider alternative options before trading-in a vehicle which has not been paid-off. If your vehicle isn't paid-off, you should consider selling the vehicle yourself or taking it to a reputable dealer, like CarMax, which purchases your vehicle outright without you buying a vehicle from them. If there is a difference between the pay-off and the amount CarMax appraises your vehicle, you're personally responsible for making up the difference before your vehicle is paid-off. Typically, within forty-eight hours of CarMax purchasing your vehicle, they will provide you with a bank draft, allowing you access to your funds. Obviously, you'll make money off your trade if you sell it yourself.

Furthermore, make sure you know your pay-off, before trading in your vehicle. Contact your loan provider for the most current pay-off.

*Perform a google search, peruse your local business newspapers and visit your local news stations Web sites, seeking stories related to your local area dealerships. In some instances, consumers can find stories alerting consumers of financial problems or issues pertaining to a particular dealer or dealership.

*Provide the finance institution you're currently making payments to with the name of the dealer paying-off your vehicle. By doing this, this minimizes the chance of a customer holding the bag, with two car payments and a blemish and a black mark against their credit. Most trade-ins carrying a balance should be paid-off within twenty days by hte dealer. Stay in touch with the loan officer to make sure the dealer has paid-off the vehicle. If the vehicle isn't paid-off within twenty days or before your next payment is due, this could be a sign the dealer is experiencing financial difficulty.

*Stay away from dealers who insist you must buy today. In this climate of customer service, if there is excess pressure by the dealership staff to buy a vehicle now, this could be a sign the dealer is experiencing financial constraints, too. With car sales being slow, most dealers have plenty of inventory and are willing to work at your pace. There are deals to be had everywhere!

*Consider doing business with a referral, dealer or salesperson you have a personal relationship with. Someone who knows is less likely to let you do business with them if they realize they're running an unscrupulous operation. Can you imagine your church member or bridge partner taking advantage of you?

*Register your vehicle with the DMV (Department of Motor Vehicles). Don't wait for the dealer to register your new vehicle. Most dealers will provide you with a temporary tag for one month, while you're securing the appropriate documents. If you ask the dealer to provide you with the appropriate paperwork with in ten days of purchasing your new vehicle, this will minimize the chance of an unscrupulous dealer or one strapped from cash not providing you the appropriate documents. There are a number of cases where customers have allowed the dealer to apply for their tag only to learn weeks later the store has gone out of business and the vehicle was never properly registered.

*Consider working with a Credit Union. Unless a dealer is offering 0 percent financing, a credit union typically offers competitive rates. Most credit unions will assist you in purchasing a vehicle, minimizing the chance of you being duped. Regardless of the assistance being provided by the credit union you're still responsible to take all necessary precautions, ensuring you have the appropriate paperwork to register your vehicle and that your trade-in is paid-off.

By following the aforementioned steps, this should minimize the chance of you doing business with a dealer experiencing financial strains.

Detroit Executives Driving to Washington

The above photo features Rick Wagoner, CEO and president of General Motors, in a three-car envoy headed to Washington. Wagoner is riding as as a passenger in a Chevy Malibu hybrid.

After the Big three took a public lashing over their first trip to Washington, flying in their corporate jets and having no actual business plan in hand, things are a lot different this time. The top executives of all three automakers have agreed to cut their pay plan to $1 a year, like the president of Chrysler did in the late seventies when he was seeking assistance from the government. Moreover, to start off the new year, GM has agreed to eliminate their fleet of private jets.

Although most Americans are still somewhat leery of offering a loan to the auto industry, at least for now, the focus will be off of the lavish lifestyle of the executives and focused on helping America's blue collar workers - the backbone of our economy.