Yes, this fact is quite evident with several vehicle lines. When I went shopping for a pickup truck, I checked the small Toyota truck and the American competition. I was amazed at the differences. The Toyota had much better riding qualities, was quieter and didn’t have the cheesy dashboard that the Chevy had.
We can’t blame GM’s situation entirely on employees’ pensions! Compared to the foreign competition GM and Ford executives are very well compensated salary wise, including multiple incentive performance bonuses, stock options, retirement and severance pay packages. Big Chunks of “Cha-Ching!” $$$$$" [;)]
I think EMD will be profitable. I think there is every opportunity they will expand their business to include the obvioius: commuter cars, maybe even subway cars and light rail cars. Maybe even trolleybuses and hybrid buses . There is a lot of EMD technology (and GE for that matter) to bring Light Rail and Bus technology up to date, to make the propulsion system equal to what low floor has done for body design . And if the USA starts returning to rail electrification, you can bet the EMD will compete head to head with GE.
Mark, does GM not own significant (not controling, but on the order of 40%) portions of both Subaru and FIAT?
(seeing as the Saab 9-2 is a badge-engineered Impreza, I have to believe that the accounts I’ve seen have some basis in fact)
And Dave: I’m not sure EMD can compete with GE in a totally electric market-- if there’s one thing GE knows, it’s electric motors and controls . . . GE produces a line of industrial programmable logic controllers. Here on the forum, all the griping about GE Locomotives centers around the characteristics of their prime movers. . . never the electricals. Talk about your home-court advantages!
I’m not even sure EMD is well suited to continue against GE’s diesels (what with emissions law tightening up) without sinking a BUNCH of money into 4-stroke engine design or an equally resource-intensive development effort in injection and PM trap technology.
If GM had wanted to continue the EMD line, they had partners that would have been a good match; FIAT have a good marine engine and Fuji Heavy Industries (Subaru’s parent Co; the Japanese counterpart to Caterpillar) might know a few things in the heavy diesel market, too. The new buyers probably won’t have the same access to those partners.
I’m guessing the GM accountants looked at the future rail market and didn’t like what they saw-- the writing has been on the wall for EMD for several years. That argues that whoever does buy EMD is more likely to part it out than try to maintain market share against GE.
Edit: Just saw a story that indicated that 1) the sale had gone through and 2) the buyers said that they want to keep building locomotives. Tme will tell, but for now:
Pass the Crow and the salt.
SOLD! The sale will end in March. According to the Detroit News! can’t Believe it, but, yet rail service is diminishing. Who wants to use the rails anymore its all trucks.
Didn’t GM also own Terex equipment manufacturing. If so who advises a CEO to sell off a segment of a company?. Why would some make this choice instead of finding out why its not being successful?
It may not be long before GM sells they car division.
No, neither high school or engineering school had much in the way of economics curricula required for graduation-- 2 units of Micro is all I can report. So far be it for me to claim an economic degree. (Come to that, the critical thinking curricula has taken a pounding, too. And thinking was actively discouraged in several of my upper division ME courses.
Even so,I respectfully disagree with your logic, Mark.
Recent history is replete with evidence that the driving force behind many spin-offs and investment firms is the principal of the whole being worth less less than the sum of the parts; the sales make sense when looked at as money-making opportunities, not as ‘turn-around’ or ‘continued operation’ prospects. . . . The asset does not need to be shut down to be broken up so long as there are convienient dividing lines (such as multiple plants or maybe a plant and a research facility.)
This particular case DOES seem fall in the “let’s expand the manufacturing business” category, and maybe that’s all you’re trying to imply.
If so, I apologize for my myopia, and you can skip the rest of this post.
But,in reading back over the thread, that’s not the feeling I get.
Now, in EMD’s case, (to play devil’s advocate for a moment) there is the locomotive business, the marine propulsion, electrical power generation (both as primary source and as standby power) plus the spares inventory and manufacturing operations. The fact that EMD has been up for sale for several years, and that several other companies (CAT) looked at it and didn’t like what they saw can be construed as evidence that the going concern value of EMD is not as solid as we might wish.
From GM’s standpoint, GM+EMD < (GM-EMD) + Cash. The parts outweigh the sum. No argument there. The question the rest of us are wondering about is:
As may be apparent from my other posts, i’m fond of playing devil’s advocate. I’ve no axe to grind, but I do like to mull things over, and playing devil’s advocate often brings more thinking to light than calmly accepting whatever’s offered. Around my workplace, we’re fond of saying “convince yourself that such and so is true. . . .” and so we try some other theories to see if they fit the observations.
In that vein:
Greenbriar believes that it got good value for its money. I don’t think anyone here will contest that. They’ve been in business for long enough to get that kind of money togeather, so obviously they’re not utter fools. What we’re wondering about here is what form the value they see takes. You maintain that they think they can make a profit in the transportation and power generation markets using EMD’s resources. You’re probably correct. Some of the rest of us are exploring the possibility of other motives, and (speaking for myself) convincing ourselves, with your help, that the motive you ascribe is the most likely one.
re GM: I maintain we’re stating the same point in different ways: GM has chosen to sell divisions to try to maintain solvency; they have not (publicly) gone to the Feds on bended knee like Chrysler or the airline industry. GM without EMD but with cash may survive. 0= GM+ EMD < GM-EMD+cash. no conflict there.
Re: formulas: they’re a little tongue-in-cheek, (like I said, i’ve virtually no economics background) and were intended soley as visual aids and a way to cut down my verbosity. I make no claim that they’re valid economic propositions. Sorry for the confusion-I should have placed a disclaimer on them as i considered doing. My point was that there is immense power in ready cash, and that power has to be balanced against present value of future earnings.
Re 500M Poker-- it’s a moot point; i’m not financed to the point where I could even get into the room for that game; let alone bet the hand Gre
Yes this is true. I hate to see a good American locomotive manufacturer go bye bye into the hands of someone else. I thought all these years GM took great pride in Electro- Motive Division. Well, I guess we’ll have to wait and see what happens. Who knows EMD might do better in the hands of Berkshire Partners and Greenbriar Equity Group.
I can’t answer this question because it contains two assumptions that are untrue: (1) that EMD is not successful, and (2) that GM’s CEO hasn’t investigated why EMD is not successful. The first assumption is demonstrably untrue because EMD found a buyer. The buyer’s cash is a $500 million bet in ca***hat the unit is successful (or soon will be). The second assumption is very likely untrue. GM’s CEO has to have a good idea of the value of EMD – otherwise, he wouldn’t know how much to charge for it.
Overall, Dave, you’re assuming that GM sold EMD because EMD is not successful. The truth is exactly the opposite: GM could only sell EMD because it is successful. Otherwise, there would be no buyer – especially not one with $500 million. There are no economy of scale considerations here as in IBH, because EMD has as much economy of scale as it’s ever going to get.
Indirectly (not directed at you, Dave), I am disappointed (if not surprised) to see all of the misconceptions and outright libel about the EMD sale to Berkshire/Greenbriar, namely, that it’s “a scam” or “they will shut it down” or “it will fail.” I can only surmise that basic common-sense business still isn’t being taught in public schools. These speculations are outside of the rational world. No one purchases a business that is not successful, or cannot be made successful if given proper management and investment. There is the occasional crooked deal, but those people are either operating on a very small scale, or end up in jail – e.g., Adelphia, as well as the CEO of IBH Holding AG. There is also the occasional idiotic deal, but those are easy to identify because the purchaser never actually uses any of his own cash, but trades stock in his company.
But in this case, we’re talking cold hard cash. GM needs cash, not paper, to pay its bills. No one is going to pay $500 million to GM in real dollars with the intention
Why have people been calling EMD an “American locomotive manufacturer”? The last I heard, the only EMD locomotives that are built in the US are ones that EMD outsourced to another company (Super Steel, http://www.supersteel.com/). EMD builds it locomotives mainly in Canada and Mexico at the last I heard.
I once heard that if you corrected our trade deficit to reflect imports of items that are being manufactured in other countries for american owned companies it would reduce that deficit by somewhere in the neighborhood of 60%. Not saying this is good bad or otherwise just curious if anyone else heard this…Mark?
Nicely put. And now W wants to take a $ trillion or so that is now going to the Federal Government to keep things running and turn it to the private sector allegedly to get a higher return to the individual. No mention of what will happen to that individual’s taxes when SSRI submits their bonds to the Treasury Department to be paid off to support the retirees who are entitled to payment.
Now then the individual can “earn” a higher return over the time it is invested if he makes intelligent choices and there is no dot com fiasco in his investment lifetime. The cold facts are that when he draws down his invested funds they could reach a zero figure before he dies. On the other hand, he will likely receive SSRI funds well beyond what he and his employer ever put into that account. If he should live to be 210 years old he will always get that monthly check from the Treasury Department. When the “return” of payments to the receipient beyond his contributions few private investments can compare. Notice how W and business bent on changing the plan neglect this “return” in their sales pitch. There is a larger agenda here. It sure was nice to see photos of such liberal illuminaries as FDR, Harry Truman and JFK featured in larger than life photos at the Republican convention like they were heros to even those diehard conservatives but given they chance they will dismantle every piece of the New Deal including Social Security. Yeah, pretty cool, unless you submit it to the sniff test where it gets a strong bovine odor.
If say US Bolt (of Des Moines Iowa) owned the plant in Lower Sluggonia. Is there a net cash flow since they are not buying the product and they own the plant. This would be opposed to say if Bowman bought the screws from Kazaars Fasteners of Lower Sluggonia and reboxed them. I would imagine it is all just a corporate shell game?