"It is not hard to imagine a time in the not-too-distant future when General Motors Corp. will not exist. In fact, a lot of investors are imagining such a scenario… The GM-is-dying argument is certainly compelling, which is why the stock is down 75 per cent over the past eight years." Of course, the Globe and Mail's eye-opening lead is the prelude to an argument that GM's shares are undervalued. David Berman says GM could be a terrific buy IF the automaker returns to profitability. "A number of savvy institutional investors, not exactly prone to making silly guesses, are making big bets on a recovery." The "number" of investors adding to their GM shares seems to be one: "Legg Mason increased its holdings in GM by 5.4 million shares at the end of 2007, bringing its stake to 15 million shares." Yes, well, good luck with that. The more important point: the Mail's tacit admission that The General is in a fight for its life which it could well lose. This marks a fundamental shift in perception. If the [erstwhile] car-buying public picks-up this vibe (so to speak), it could further depress GM sales, which would push them further and faster towards Chapter 11. Send in the flacks, STAT!
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“David Berman says GM could be a terrific buy IF the automaker returns to profitability.”
Robert, Berman’s statement reminds me of a line from Steve Martin’s comedy act in the ’70s: “There are 2 steps to becoming a millionaire. Step One–1st get a million dollars.”
How does Berman–or you–propose that GM return to profitability? What would have to happen for GM to return to what it was prior to the’70s?
Perhaps the difference between “profitability” and “market share” escapes me.
Times are different, consumers’ needs, wants, and expectations have shifted, technology has changed–plus the number of ready, willing, and able competitors have skyrocketed compared to where GM was 30 years ago.
To many these days, GM is either an unfavorable remembrance of cars their parents had before they bought import, or a nameless, faceless entity that doesnt even appear on the consumer’s radar screen. Given that, how could GM come back?
At $20 + , I don’t think it is cheap enough. Compared to Ford a $6 , GM seems kinda high. I bought quite a bit of Ford few years back at $25 a share and still have it.
For years, the big three have built and told us what to buy, never paying attention to what the consumer wanted and asked for. Now that we have spoken and demanded more for our money, the big three don’t know what to do. They have been so busy pushing crap cars on us, and we have not bought them, they are at a loss. What do you mean I can’t buy a new Chev. Pickup with a standard transmission? Good by Chevrolet.
Couple of years back when GM stock was at $19 / share I bought it because I knew then that massive attempts at business model change needed to be taken. My holdings increased to $40+ a share based primarily on the speculation surrounding the labor agreement with the UAW and buzz against some new compelling product. I sold at $40 and made a healthy profit. This time around I will not buy as I think there still is downside and do not see permission to believe that the “tough” decisions to right GM’s North America ship are being taken.
As an aside RF—-when you talk about GM’s recent stock slide—it would help if you put it in perspective to the total market. I think everyone’s portfolio has taken a hit in recent months including those that do not own GM.
As an aside RF—-when you talk about GM’s recent stock slide—it would help if you put it in perspective to the total market.
The DOW is down 15%; GM is down 50%. In comparison, Toyota ADR’s are down a bit more than 20%.
Toyota’s stock is down, despite ongoing gains in market share, because economic downturns are not good for car sales, so stocks like these are being discounted for pessimistic future expectations.
GM’s stock is down for those reasons, plus because it is become more obvious to the market that the turnaround “plan” isn’t working. The massive 3rd-quarter writedown suggests that even GM doesn’t believe it’s working, otherwise they would have continued to carry those losses for future use.
PCH101—thanks for you post—it helps put things in comparative perspective.
Interesting read Berman leaves me with the impression that this thing could go either way.
There is indeed a valid arguement that GM has lost the battle.Having said that gambling is gambling.A guy can go to the roulette wheel and place outside bets all day.Chances are your going to lose your shirt.On the other hand you could double your money and walk away.Umterp 85 did just that.
Anybody that reads the news is aware that GM is trying to buy off the high paid senior hourly people.For example a 54 year old uneducated 36 year employee,gets a chunk of cash and a NOT guaranteed pension.Do you take the money and run?
Or do you stand pat and take your 75k a year?
I guess playing the stock market is no different from any of lifes decisions,its a big F—en gamble.
WHAT? pch 101! The turnaround plan is not working? Quick, somebody tell the board of directors so they can veto Ricks 33% raise.
All employeees at the lower levels were told that we all need to make sacrifices or the turnaround wouldn’t work.
I know its not upper managements fault that GM could fall apart.
Its them greedy union bastards eh!
Quick, somebody tell the board of directors so they can veto Ricks 33% raise.
If Wagoner had even an ounce of dignity and integrity, he would have not only rejected the raise, but also given himself another pay cut in order to help fund his turnaround “plan.”
Mikey’s posting points out correctly one of the on-going massive problems in the domestic auto companies: on one hand they tell the public labor costs are eating them alive and must be reduced, and then turn around and hand out millions of dollars in salary increases, bonuses and perks to the upper management. The working folks of America are generally tired of all of this. It is the perception of it all. I do not believe the public can accept seeing the millions paid to executives while the companies the executives oversee are losing gazillions of dollars.
A close friend of mine is one example of probably many thousands, he is so disgusted by the overpaid management types, for the first time in his 69 year life he purchased a non domestic car, a Toyota. I am willing to guess the milions paid the executives in these troubled economic times will cost GM et.al. many millions more in lost sales from disgusted consumers.
A heavy consideration when I bought my ’07 TrailBlazer was supporting what’s made here. Yes Toyota and Honda make lots of stuff here, but GM’s total compensation for workers was higher. Given the heavy cuts in compensation for active workers, and the offloading of what they pay to retirees, that’s no longer the case. I think I’d go for a Pilot or something from Toyota at this point, and certainly the greed, no other word for it, in the raises for Wagoner would push me toward this decision. It’s very misleading for GM execs to say they’re in a turnaround when they continue to bleed cash and we’re in or headed for what increasingly looks to be a potentially disastrous economic plunge.
They’re going to turn it around? Two examples of folks I work with, buying new GMs:
1) Lady purchased a new Pontiac Torrent and regrets it – it been in the shop multiple times for repair under warranty and it’s brand new – lucky that long warranty is in place.
2) Co-worker bought an Aveo and needed new tires – OEM were made in China, wore out incredibly fast and were some uncommon size that simply wasn’t available locally outside of the dealer. The dealer had to get them from…Calgary. Get this, he paid $100 more for a pair of these tires (again Chinese replacements) than I did for a pair of Traction T/A’s for my Impala.
So these are examples of the type of “incentive” that buyers have to buy GM new and help turn it around?
Oh yeah, the sector shaft on my Impala needed the dreaded clunk fix for the second time in two years. Some kinda quality. I let an independent do it. GM got the price of the lube kit.
raast: Correct on the Aveo comments. I have an employee who has owned one for less than two years and the tires were pretty much worn out at 28,000 miles, and it cost her $300.00 for a new set (that was the cheapest price she could find to replace them). The car is falling apart. She said next time she will buy Honda or Toyota.
Where is she going to get her 13″ tires replaced? I’ve replaced mine for less than $200, labor included.
Speaking as a Toyota and GM dealer, start quizzing your friends that own Toyota’s about tire wear (Camry, Rav4, and Sienna). 28000 miles is looking pretty long in the tooth for the models mentioned. No manufacterer is infallible.
“Legg Mason increased its holdings in GM by 5.4 million shares at the end of 2007…”
Ironic — I watched a 60 Minutes segment last night about Carl Icahn (sp?), the (in)famous “corporate raider” who uses the same strategy to gain leverage over the Boards of Directors of various companies. He (as a “major shareholder”) encourages cost-cutting measures to raise the stock price, then (in many cases) he gits while the gittin’s good.
The stockholders love it, but it’s essentially a way of bleeding a company dry, and Chapter 11 is a real possibility.
Watch Legg-Mason to see what transpires.
Buy the shares of the automakers who have understood the oil equation. That’s not GM.
Oil just went past 107/barrel.