In the latest GM Death Watch, RF points out that GM is dancing on the point of a spear. The LA Times puts it into a different perspective. After the stock market closed yesterday with GM down 6.4 percent from Friday's closing, the company that was once the largest and most profitable in the world is "now is a less-significant business than Starbucks Corp., Gap Inc. or computer game retailer GameStop Corp." GM's total market capitalization is currently $7.3b, down from $14.1b on January 1. Starbucks, on the other hand, "still has two digits before the decimal point: Starbucks' shares are worth $11.9 billion in all." And as if to rub salt into wounds, they point out "you could fit nearly 17 GM's in Coca-Cola's $124-billion market cap." How the GM board can sit idly by and watch this unfold is anyone's guess, and why they keep the current impotent leadership around defies logic. GM's workers, suppliers, dealers, stockholders and customers deserve better than this.
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It is a bizarre state of affairs.
You have the Board of Directors (BOD) happily standing by current management whilst they lose 50% of their market cap. in half a year. What exactly will it take before the BOD lose confidence in current management?
People have been sacked for less.
Personally, I find it disgusting that the rank and file are ALWAYS expected to make make concessions (i.e lose jobs) when there’s a slight downturn in the market. But if management lose $6.8 billion in 6 months, no-one is accountable for it.
And DC wants to bail this company out…..?
I knew the end would be near, when I realized a few years ago, that Tata, the Indian conglomerate (Tetley Tea, stores, locomotives, Tata SUVs trucks and cars, now Jaguar and Land Rover, many other businesses) was valued several times higher than GM at the time.
Then, watching GM sell off all of the family silver (i.e. what once made it a conglomerate), and finally even family jewels (such as GMAC) left them not only unable to sell anything further off to stave off the inevitable, but emasculated too (sorry, couldn’t resist).
This is not unusual in a cyclical industry, especially autos. When times are tough you can’t give the stock away, when times are good, it’s like they are printing money. I’ve seen auto shares go from $2 a share to $72 a share in just a few years. It has nothing to do with the asset value of the company, just the mind share of the investment community. I’m not saying that GM is not in deep doo-doo, I just saying that you can’t judge GM’s fortunes on the stock price alone.
Remember the good old days when GMAC more than made up for GM’s losing money in the vehicle business? An article from Bloomberg today paints a dark picture for GMAC. “Credit-default swap prices give ResCap a 100 percent chance of default within the next five years, based on a JPMorgan model.” (link below)
As for the GM board, if ANY BoD has been negligent, these people have. Where the hell are the share holders? They need to get some litigation going to take these bystanders to the cleaners personally. A WSJ article from a few days ago dealt with CEO compensation. The boards of some companies are deciding that millions per year are enough and that the CEOs don’t need a going-away present too.
http://www.bloomberg.com/apps/news?pid=20601103&sid=a6SMjLqT9mzw&refer=news
The tipping point will be cutting out the dividend entirely – the legacy GM shareholders will no longer allow their dwindling investments to not reward them for their ignorant support of Red Ink Rick and Bozo Bob. Until then it’s business as usual rearranging the deck chairs on SS GM.
I’ll add that there must be a major conflict of interest due to the friendships of Rick and the BOD. I cannot understand how a company can slide so quickly into the red and not have a major shake up of its tip tier management. The BOD must be getting something major out of this that they will keep him in charge.
only thing I can figure is that the banker dominated Board supports Red Ink Rick since he is enriching them with constant asset sales in which they reap investment banking fees, and the billions GM pays in interest for debt. hence the sale of Hummer next and another borrowing of $10 Billion being mentioned.
GM’s stock is still part of the Dow Jones average right? I checked a few months ago and they still were, at what point do they kick there asses out of that list? I would assume that would be headline news since they have been there for something like half a century. What sort of impact will that put on the public when everyone hears about it? Or will Wall Street just leave GM as a market indicator until they collapse, I wonder what sort of market scare that would cause if any since there stock is worth little at this point.
With the lack of concrete action at GM, is it possible that behind closed doors, the BoD recognizes that GM is headed for C11 no matter what they do? Are they actually counting on C11 to allow them to reorganize the company without paying the huge costs it would take to do it outside C11?
Pointing to a company’s market capitalization, without reference to any other indicators, is likely to be very misleading. That’s because the market cap — as an equity measure — represents, potentially, the tip of the iceberg. For one thing, the company could be very leveraged, so that debt, rather than equity capitalization, counts for the lion’s share of the company’s investment value. For another thing, the company could be very large and important, yet because of economic downturn or mismanagement the prospects for equity investors would seem bleak and so the price is bid down. A lot of potential value may waiting to be unleashed after a bankruptcy, reorganization, or selling the company off part by working part. This sort of thing is where the Wall Street bankers make their money.
Take, for instance, the comparison made above: GM vs SBUX. GM’s market cap is $7.25B while SBUX is at $11.90. SBUX is twice as important as GM, right? Wrong. GM’s Enterprise Value is booked at $28.13B while SBUX is booked at $12.75B. By that measure, GM is over twice as important as SBUX (not the other way around), only their equity price is hobbled by a large proportion of debt and a bleak sector outlook. Take another financial measure: GM’s yearly revenue is $180.41B, while SBUX is at $10.09B. By that measure, GM is 18 times more significant than SBUX. All these stats are available at any financial website — even Yahoo Finance.
I could go on. The point is, equity is “risk capital.” It’s the first thing to be rewarded when times are good, and the first thing to be wiped out when things go wrong. GM’s pathetic market cap reflects the fact that it is saddled with debt and struggling to compete in a huge but struggling sector, not that it is “insignificant.” GM may have been a bad investment to a stock buyer, but it’s still a huge deal economically — a much bigger deal than Starbucks.
One final point is that once a company has as much debt as GM has, and is sailing in such choppy waters, the folks in charge start to have a moral and potentially legal obligation to look out for the bondholders and lenders, not just the shareholders. This may also color the acts of the BoD.
On the bright side, there’s never been an easier time for GM to go private. Any takers? Where’s Cerberus?
Can’t see how they will avoid starting bankruptcy proceedings. After the big wigs reward themselves with huge bonuses and pat each other on the back.
Keeping the present leadership around defies logic?The eneptitude and the bungling and the complete incompetance flows right down to the shop floor.
Us hourly, and to be fair some of the lower salary have no choice,but to keep our head down and our mouth shut.Bunker mentality is the term that comes to mind
The older and wiser mnagement is now taking the same attitude.Lots of For Sale signs in the high end neighborhoods.If the ship goes down the casualty list will be horendous.Shareholders will
just be collateral damage.
I pesonally think GM can be saved but its gonn’a take a massive change.At this point I don’t see that happening.
Market Capitalization is really the ONLY thing that matters. The CEO’s job is to build shareholder equity, not destroy it.
Only logical explanation: people in key positions must still be making a lot of money.
Grab what you can and then bail out with your golden parachute and screw everyone else.
While I am no fan of GM’s management and board, I can understand their lack of action. GM has access to the same pool of management talent as other firms.
Sometimes, punting problems down the road IS logical because making hard decisions NOW is so risky. That they’ve done this over and over is breathtaking, but understandable.
Changing GM’s culture when it was profitable would have been very risky – given the ingrained attitudes in management and labor. (Examples: Wildcat strikes in the 90’s and allowing models to whither without updates).
The “GM that-could-have-been” example that comes to mind is Caterpillar. But any attempt to employ a Caterpillar solution to GM at that time would have resulted in horrific publicity, political pressure, (possible) judicial expropriation, and (possible) violence.
Few firms have management up to such a challenge.
Results and performance are not the same thing. Just cause Rick’s decisions are not having good results does not mean he is not performing what any other CEO or whatever might do. I’m only pointing that fact out.
Stock markets and all the loop wholes in a company seem pretty complicated. Anyhow not my company, although I feel angry when thinking about some of this stuff, I’ll need to let go and let go and vent…..fuck GM.
I really am not aware of all that is logical in business, especially one the size of GM. Its prudent to learn about these kind of business for the knowledge of were exactly the money is going. Still priorities need to be choosen, and perhaps bailing a company out of C11 is the seemingly best available option. A better choice for the economy and everyone’s financial bottom line in this generation. Life is not fair and things can get a lot worse. Its not just doing the right things morally and ethically. Balancing ethics, morality, and welfare often means sacrificing some good.
Time to buy, its creeping up. slowwwwwwwwwlyyyy
What wildcats strikes, ihatetrees could you be more specific?What were the dates of said wilcats?
Facts are neither the UAW or the CAW has sactioned any ilegal walkouts in the last 25 yrs.
Just wanted to set the record straight.Let not forget that at any time manangement could of drawn a line in the sand.But nobody at a senior management level had the balls to do it.Heaven forbid it might have impacted thier bonus.
The union fullfilled thier obligation to get the best possible deal for the rank and file.Management caved and management and only management is why the big 3 are in doo doo.
A bit unfair.
You have to look at Enterprise Value = Stock Value + Debt.
GM’s enterprise value is still pretty high due to high debt.
The real problem: lack of positive cashflow to support that debt.
Mikey
It sounds like you are agreeing that the union wage is too high and the benifits too great.
mfgreen40:Yeah your right in hindsight they should have clipped our wings years ago.But they didn’t management was too greedy themselves.
Hey they should have shoved the big profits from trucks into small car development.Instead they lined thier pockets.Now we pay the price.
mikey:
I guess technically the strikes in 1996 were not illegal. But there were costly shutdowns…
http://www.nytimes.com/specials/downsize/gm-strike.html
Google “uaw strikes 1996” for more news stories…
Mikey
I have a lot of respect for you and I agree,managment failed big time.
jaje: “The tipping point will be cutting out the dividend entirely – the legacy GM shareholders will no longer allow their dwindling investments to not reward them for their ignorant support of Red Ink Rick and Bozo Bob. Until then it’s business as usual rearranging the deck chairs on SS GM.”Yeah, losing that dividend is really the key to waking GM up to their dire situation. Roger Smith was quite proud of the fact that the dividend was paid every year during his disasterous 10-year tenure at the helm of GM. It didn’t matter to him the market share that GM had lost during the same period.
So long as the primary emphasis is placed on paying that miserable dividend (which is exactly the mindset of all the finance guys running the show at GM), until it’s gone, nothing is really going to change about the way GM operates.