Odd isn’t it, how in both the Western European and the US car markets, power struggles emerge simultaneously to establish who is pulling the strings on the leader of the pack?
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VW is in a three cornered struggle with its two largest shareholders, Porsche and the State of Lower Saxony. Either can now exert influence at least as strong as that of existing management if they set their mind to it.
GM management has got such a multi-cornered fight it doesn’t really know who to fight first. But fight it must if it is to retain control. The gang of yapping hounds include the predatory principal shareholder (Kerkorian), the overpaid employee (UAW) and the defaulting supplier (Delphi).
Over the weekend, GM completed its punch-up with the union and emerged bloodied but grinning. First thing this morning it managed to slot in an announcement of its achievements only a few minutes before it was due a scheduled announcement on its third quarter earnings (which were horrible).
Immediately after the earnings release there was a meeting with analysts to try to convince them that it can build on the labour cost reductions and generate enough from other sources to offset the likely impact of its wayward supplier.
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By GlobalDataBut first it had to raise its estimate of worst-case losses from Delphi’s collapse into Chapter 11. Its initial guidance was that Delphi – its biggest supplier and former in-house captive component maker – would cost it somewhere between zero and $11bn. Now the outer edge of the envelope is at $12bn.
Is there any chance that Delphi could wipe out all the benefits from cutting $3bn off the annual health care costs agreed with the UAW after the quick and dirty weekend bloodletting? The direct question from an analyst at the scheduled meeting was met with the response that the expectation was that Delphi’s impact would be at the mid-point of $6bn. The health care savings – plus $12bn from cost saving on component purchasing made $15bn. So no. There would be net gain. Not a wipe out.
It is a pity that when GM has just made its first real breakthrough in escaping from its legacy costs, it has to magic numbers out of the air to balance the books. When your principal supplier is on the skids, it hardly seems a propitious moment to go asking the gizmo market if it can serve up a few cheap ones. GM is a distressed buyer, not a strong buyer.
In the end though, none of the enemies that VW and GM have been forced to engage with are the real ones. The real fight is the one in the market place. The real enemy for both is the same one. It is called Toyota. Everything else is simply a symptom of leading players forgetting to stay lean. In both cases, employees are too numerous and paid vastly more than the norm for the peer group.
The Delphi descent into Chapter 11 last week was bound to produce repercussions for the whole industry. We cannot necessarily expect every week to start with a major initiative, but we can expect an initiative every week for a little while yet.
Rob Golding
