Monday, November 21, 2005

GM: The Agony Continues

Amazingly, this morning’s announcements by Rick Waggoner, CEO of General Motors, all focused on cost reductions and/or layoffs. Not a word about its salient challenge- getting customers to buy more GM products at prices which cover all costs, including a return to capital.

The original research which drives my large-cap equity portfolio strategy has shown that turnarounds such as this one are fraught with risk, and, thus, rarely return a company to a path of consistently-superior total returns. Even if expense levels are cut, the ability to regain healthy revenue growth rates seems to be a very rare phenomenon. In short, shareholders will continue to wish they had simply bought the S&P500 index for the long term, rather than continue to hold GM stock.

I knew for sure that GM is still in trouble when Waggoner attributed this newly-announced initiative to “our smartest people.” Translation: ‘Look out! The best minds who have assisted me in bungling the management of this former market-leader over the past few years have conspired to bring you another page from the same book.’

Don’t hold your breath for the return to health of this industrial wreck. At best, Waggoner will perhaps engineer a merger of equally-unhealthy auto makers before GM runs out of time and money.

No comments: