December 20, 2005

Did you see GM at $20 bucks

Pathetic. Blair walks into my office and we chat for a second and than laugh. It is not news anymore. This is old news.

72 month financing, free gas, lower prices - the list goes on and is ridiculous.

Pricing power is gone, and the product sucks. Nobody is to blame except management. Of course, there are lots of issues that I have cut and pasted below from a Bill Cara blog, but so many bad decisions that seem to follow the heard that have led to the demise.

Unless something drastic happens in the economy and or with management, $20 is a pit stop on the way to zero. Good riddance.

FROM BILL CARA:


The problem with North American auto makers, Tues., Dec. 20, 2005, 12:12 PM
GM is trading at exactly $20.00. It traded as low as $19.63 a few minutes ago. The last time GM stock traded in the teens was in the market crash of October 1987. The time before that was the bear market of 1982. I suspect I have readers who were born since then. It might seem like a new world, but it’s not.

For GM, is the problem caused by a labor union? No.

Is the problem caused by bad workers? No.

Is the problem caused by an under-funded pension plan (as big as it is)? No.

Is the problem healthcare? No.

Is the problem gasoline costs? No.

Is the problem a lack of pricing power? No.

Is the problem one of high auto finance costs? No.

So what is the problem that is pulling down both GM and F?

I say it is management.

To coin a word, “Detroit” created the production line, but the Japanese learned how to produce cars more efficiently using robotic technology.

Detroit created the concept of auto fashion, but the Japanese learned how to produce cars with more aesthetically pleasing skins.

Detroit created the concept of the “muscle car” with the high-powered racing engines, but the Japanese learned how to build better engines.

Detroit created the auto tire industry, and the Japanese learned how to dominate that too.

And now within 250 miles of Detroit, across the border in Southern Ontario, where GM, Ford and Chrysler plants are shutting down, the Canadian auto industry is thriving, and that’s because the Japanese arrived to take control.

Today the major top-of-page headline in the Toronto Star business section reads: “Honda Canada lines up new headquarters.” The story starts: “Honda Canada Inc., which is bursting at the seams....”

Are you starting to get the message?

Foreigners can come to North America and dominate. That’s the message.

They are not stopped by the same labor unions, workers, pension plans, healthcare costs, gasoline costs, lack of pricing power, or auto financing costs.

They are in the same competition, but the news they bring is not one of bitching and moaning. They hire the same workers, they build good cars, and they pay their bills and collect their receivables. They show a good profit, and bankers scurry for their business.

Nobody talks bankruptcy.

The clarion call does not go out to the Harvard Business School and the Wharton School of Finance to show them the way to manage successfully.

They can’t afford to make that call.

Are you getting the message? Traders cannot give in to bad management. Avoid it at all costs.

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