Thursday, June 05, 2008

GM's Further Woes

This week's GM shareholders' meeting was cause for more gloom and doubt about the continuing viability of America's largest- by market share- auto maker.

Yesterday's Wall Street Journal had one article noting that the price for credit-default swaps on GM instruments has been soaring, indicating a higher perceived risk of bankruptcy. It's cash position, relative to, say, Ford, is very weak. In light of GM's need for some serious product policy turnarounds, it's looking increasingly as if the company might finally bottom out financially before it can ever re-ignite sales and profit growth, let alone achieve some semblance of consistently superior total returns for shareholders.

No surprise there.

But this morning's edition of the business newspaper went much further in documenting the incredible, continuing ineptitude of the nation's battered vehicle-producing giant.

As the Journal article reports in a piece ominously titled "GM Shifts Its Strategy Into Reverse,"

"After three years of restructuring and tens of billions of dollars in losses, General Motors Corp. shifted direction once again Tuesday, unveiling plans to close four truck plants and possibly sell its Hummer brand.

The moves were forced on GM by soaring gasoline prices, which are prompting more consumers to opt for more fuel-efficient vehicles. The struggling auto maker must now try to rapidly reduce its dependence in North American truck sales, once seen as the key to its turnaround.

The abrupt shift, outlined at GM's annual meeting, is an acknowledgement that Chairman and Chief Executive Rick Wagoner miscalculated in 2005 when he bet big on trucks. That plan, based on expectations of steady vehicle sales and gas prices in the U.S. through 2008, won the backing of GM's board and helped Mr. Wagoner prevail in a 2006 board-room battle with then-shareholder Kirk Kerkorian."

If you are, sadly, unfortunately, still a GM shareholder, those paragraphs ought to be sufficient to end that. Plus the knowledge that Kerkorian sold his GM position and now owns shares of Ford.

Need I even state what I think the board should do to/with the hapless, inept Wagoner?

How can GM's board possibly defend continuing to let Wagoner hold any job at the company after an error of such tremendous magnitude that the vaunted turnaround of two years ago now must be reversed? SUVs were the wrong bet, and now Hummer has to be sold. How much do you think anyone else will pay for the latter, with US gasoline prices near and above $4/gallon?

Can you say, "shareholder value destruction," Rick?

As CNBC covered Wagoner's opening remarks at the GM meeting the other morning, I heard Wagoner try to smear lipstick all over the pig, including hopefully mentioning the company's new Volt electric car.

Too bad it's due out in....... 2010. Will an independent, non-bankrupt GM even still be around to produce and market the car by then?

Take a look at the nearby 45+ year stock price chart for GM, Ford and the S&P500 Index. Makes you sick, doesn't it?

At least Ford has had positive price action over nearly half a century.

Yet, in the same timeframe when the S&P rose nearly 2000%, GM has actually lost ground, and is now worth less, on a price basis, then it was when Kennedy was President! Sure, throw in some dividends and it's probably positive by a bit.

The bad news about Wagoner is how little he seems to understand what it takes to get GM to the point of delivering consistently superior shareholder returns. The only good news is that he's really not that much worse than every other GM CEO for the past half-century.

They have all been pretty mediocre CEOs, with boards to match, judging by the complacency with which the latter have allowed the former to preside over the slow death of this American automotive giant.

You know it's really bad when the Journal writes,

"Some shareholders are frustrated.

"You don't get a sense that the General Motors crowd really gets it," said Sister Patricia Daly, who represents the Sisters of Saint Dominic of Caldwell, N.J., a religious order that owns GM shares, in an interview on Friday.

"Even in the 1990s, it was clear they weren't going to be able to sell the big SUVs for 15 years without any impact." "

Now that's really scary, isn't it? A Catholic nun has better instincts about the US car market than the CEO of GM?

Here's hoping, for their Order's sake, that those sisters are out of GM by the end of tomorrow.


Anonymous said...

As bad as management is and has been . . . once again the Board fails in its most basic of responsibilties: Don't let a small number of inept people in high places destroy the company!

Sad, and even more scary that the fate of hundreds of thousands, directly and indirectly, and to a lesser extent the economy as a whole, depend on what happens to GM.

Perhaps if Obama wins the election, GM will see a Democratic Congress and White House and try for a government bailout.

I'm not sure if that would be better or worse than GM essentially ceasing to exist.

C Neul said...

Thanks for your comment.

Yes, as usual, inept boards fiddle while companies burn...nothing new there.

I'll have an upcoming post on this phenomenon soon.

As to Obama and GM, who knows? It would, of course, be a disaster. That industry needs to LOSE capacity, not preserve weak players.


C Neul said... to your second paragraph? Not to worry.

Very little of the economy will really be affected by GM's demise.

Certainly NOT the whole economy. This is not 1960. GM's contribution of value added to the economy is much less proportionally than it was in prior eras.

As to its employees? They should have seen this coming for a decade..or several, per my chart.

Be not afraid.