Bankruptcy, GM in same sentence
By: Drivers.com staff
Date: 2005-04-18
Over the past year, General Motors shares have tanked from almost US$50 a year ago to near $25 today. As the king of auto manufacturers, GM’s demise would be about a 10 on the economic earthquake scale, but at least one investment pundit has put that idea on the table recently.
His reasons: GM is a bloated behemoth, weighed down with massive labor costs it can’t shake off and a bureaucracy that is, to say the least, mature. GM is old, set in its ways and can’t adapt to the future, says this pessimistic observer.
Ok, so that’s riding the wave of popular sentiment on GM and it’s recent record. GM’s share of the North American market has dropped from about 50% in the 1950s to just under 27% in 2005. And GMs February, 2005, sales are down 10 percent from last year, according to Autodata Corp.
But hang on. Hold your horses … or your horsepower. Something as big as GM doesn’t slip away that easily. It’s too soon to write it off yet. The fat lady hasn’t even gotten in her SUV to drive to the opera house yet.
Here’s another look at the picture. At US$30 a share, states a Canadian investment magazine, this “pug-ugly may be just a little bit better than the market thinks it is.”
Admittedly, says Canadian investment writer Ian McGugan, the company is in bad shape. “If it were a blind date you’d fake the flu and cut the evening short.” Still, McGugan says, it’s worth an investor second look. After all, it’s still selling 9 million vehicles a year, and a 2004 J.D. Power survey, he adds, rated GM’s quality in first place domestically, “ahead of such quality stars as Porsche, Nissan and Mazda.”
Despite way-high labor costs and pension and health care obligations (it costs about $75/hour for an assembly line worker) GM can find a way to get out from under, argues McGugan. And it’s in no one’s interest to see the company go under – not the union’s, not government’s and not its creditors.
That’s powerful motivation to find solutions. Add to this the potential value of its assets and GM could be a good bet for investors, McGugan reckons. After all its financing section earned about US$2.9 billion last year (a possible $30 per share right there) and then there’s its huge overseas assets.
To top it all off, a lower U.S. dollar would help a GM recovery by making its products cheaper abroad, McGugan points out.
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