Stay away from GM in its death spiral
Posted Mar 14 2008, 11:40 AM by Robert Walberg
While the old saw "as goes General Motors, so goes the nation" no longer holds much relevance, it's interesting to note that with oil prices skyrocketing to $110 per barrel, gold prices reaching the $1000 per ounce pinnacle and the economy on the brink of recession, that GM's shares have plunged to levels not seen since Ronald Reagan was president. So even though GM and the auto industry no longer drive the U.S. economy, they most certainly are victims when it crashes.
Of course, like the passenger that gets seriously injured for failing to fasten their seatbelt, much of the pain GM feels today is the result of its own bad decisions. When gas prices were cheap (hard to believe that we're only talking a few years ago), GM and its brain trust decided that bigger was better. So it gave us the Cadillac Escalade, GMC Yukon and Chevy Suburban. If that weren't enough, the company decided to acquire the Hummer brand name -- the very symbol of SUV excess, especially with regard to burning gas.
Considering that margins were higher in these oversized vehicles, and that consumers couldn't buy big enough, you could hardly blame them for chasing the almighty dollar. Unfortunately, management's job is to not only address the current needs but to envision where the marketplace is going -- and on that front GM failed miserably. It didn't foresee the relentless climb in energy prices, leaving it with a boatload of unwanted inventory and a dearth of smaller, gas/green friendly cars.
Compounding these bad decisions is the current state of the economy in which consumers are going to want to spend less and get more -- mileage in particular -- out of their cars. So it came as no surprise that GM -- despite some nice new product like the Buick Enclave/GMC Acadia line -- posted miserable sales figures in February.
As a result of the bleak sales picture, GM did what it always does: it announced more production and job cuts. Of course, the one job it didn't cut was that of CEO Richard Wagoner. In fact, GM's board gave Wagoner a package that could total as much as $5.7 million in 2008. I'm sure that news sat well with all the union workers that made concessions or lost their jobs for the sake of restoring GM to profitability.
How in the name of good conscience does the company reward Wagoner with a compensation package of that size when all he has done is help oversee the demiss of this once great company? He failed to match production with demand; he failed to chart a bold course when it comes to design (all GM models look alike); he failed to predict the shift in consumer demand (forcing the company to follow rather then lead) and he failed to make the tough decision to reduce the number of brands. What he succeeded in doing is selling off the company's money-making financing arm, demoralizing the workforce, overseeing a sharp drop in sales and shareholder value and making gobs of money for himself in the process.
Obviously all of GM's woes don't fall on Wagoner alone, but he's the captain of the ship and the ship is sinking. It's time for a mutiny before it's too late and there's nothing left to salvage. Until there's a change at the top, there will be no change in the bottom line -- and that is to avoid GM shares even at today's depressed price
Stay away from GM in its death spiral
Discussion in 'Prius, Hybrid, EV and Alt-Fuel News' started by mwbueno, Mar 15, 2008.
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Discussion in 'Prius, Hybrid, EV and Alt-Fuel News' started by mwbueno, Mar 15, 2008.
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