General Motors... RIP

General Motors, and to a lesser extent, Ford, appear to have failed to learn the lessons of the 70's and 80's. They failed to anticipant the needs of the American car owners and find themselves stuck without a profitable models that people want to buy. The market for their cash cows, SUVs, has dried up thanks to rising oil prices. Their smaller, more fuel effecient models, are being pummeled by the Japanese and European competitors.

In the 1990's, when fuel was cheap, they bet the company on SUV's. It paid off handsomely. They had something that the Japanese and Europeans car companies were not offering the American market. But they failed to take that money and plan for a day when the SUV market would cool off, or when their compeitiors would start to take their customers in the SUV market.

The day of reckoning is finally here. GM looks like it is going to end up in bankruptcy. Despite the fact they claim they don't want to, it is going to happen. They don't have a choice. If GM does file, they could emerge as a company without the burdens of debt, dead products lines (such as Oldmobile & Buick), pension obligations, and most important, union contracts. No company (that I can think of) is really going to want to buy their assets of factories and unsold stock.

Ford is not that far behind them. But I don't see Ford going bankrupt... willingly. The problem is that if GM does come out of BK without liabilites and most of their manufactoring assets, they could pose a serious competitive threat to Ford. GM will have the leeway to make cars and sell them for less than Ford. That will shave Ford's profit margins, and they will feel the need to similarlay shed their debts the same way in order to level the playing field.

The exact same things is happening in the airline industry. United went bankrupt. Delta is not far behind. The other large US carriers have already done it, or will, in order to compete against debt free competitors.

There is a wild card here. China. China is starting to build cars. They want to become a major car exporter like Japan and Korea. They can make their own brands and slug it out in the US market, taking years and years to build a customer base. Or, they could simply buy GM's factories, stock, and possibly even their name, in a bankruptcy sale. Wouldn't that be a surprise? If they come in with a decent offer, the bankruptcy judge would be obligated to sell. And the shareholders of GM would more than likely be glad to get something out of their holdings.

Perhaps if GM was to go "into play" with China making offers, then there are a couple of other options that could play out. First, Ford would be dumb not to buy GM. They could buy it simply to kill it and keep it from becoming a competitor. The problem is that Ford doesn't have the war chest to do this and win. Ford would have to borrow the money to do this. If they could convince investors that they kill GM and become the only major American car company, and compete sucessfully at home against Japan and Germany, then it might be a good bet.

Another option is Toyota might buy GM. Toyota is 10X the size the GM when measured by capitalization. Toyota could, if pressed, afford to eat GM, keep any good scraps, and throw away the rest. If Ford makes a serious play to buy and kill GM, then Toyota may have to do this.

The Chinese are going to find it hard to outbid Toyota for GM. Toyota wants to sell cars to China. They don't want to compete with the Chinese for the American car market. If China can make and sell cars in America to Americans, then they will eventually become stronger and stronger, just like the Japanese were in the 1970's, and Korea was in the 1990's.

So I'm betting that Toyota will end up buying and killing GM in the next 5 years after GM sheds its liabilites through bankruptcy.