Fool Blog: This Company Is an Utter Disaster

This morning, General Motors (NYSE: GM  ) announced that it would cut white-collar jobs, speed up some plant closings, suspend its dividend, and stop providing health-care benefits to salaried retirees over age 65.

What did you do this morning?

The story
"We are responding aggressively to the challenges of today's U.S. auto market," said GM Chairman and CEO Rick Wagoner.

That's entirely true. And while we applaud an aggressive strategy to right the company's ship, it's not inconceivable to think that many of these problems could have been averted long before now.

Joe Magyer: In January, I pegged GM as the Worst Stock for 2008. The shares have since slid, oh, about 57% or so. That's not to say "I told you so," but, well, I told you so.

Look, I'm not Nostradamus. The problems that have hounded GM this year were scrawled on the wall when I first tarred the stock: high fixed costs in a decreasing sales environment, huge sensitivity to commodity prices, and inept management.

And while management isn't likely to blame itself for the liquidity crunch it's facing, hey, I will. Management's stubborn refusal to fully suspend its dividend earlier this year was an obvious mistake, and it flubbed in not taking the strike at American Axle (NYSE: AXL  ) more seriously in its early stages. And I won't even get into management's being so incredibly behind the curve on producing higher-gas-mileage autos. Well, I sort of just did, but I'll leave the bulk of that rant to Brian.

Tim Hanson: You know, I sort of feel for GM. This is a once-great company undone by bad management, some bad products, and an unfortunate labor/benefits situation. Even worse, in an effort to get back to respectability, the company plowed a lot of time, effort, and resources into making and marketing its gas-guzzling Hummer brand a few years ago -- ignoring prediction after prediction that gas prices would start to skyrocket. It would have been better off nurturing some brand like Saab or Saturn, which could have diversified its portfolio and given it an option to cope in the current environment.

That's pretty much a clean sweep of what a company can do wrong.

So ... maybe I don't feel for GM. Its troubles are largely of its own doing. The good news is that it has competed well internationally and has generated some serious buzz for its Chevy Volt project. The reality of the Volt still seems like it's four or five years off, but if the company can stay solvent long enough to get there, it might have a fighting chance.

Of course, with GM's luck, either gas prices will drop, or Toyota (NYSE: TM  ) will secretly manage to scoop its technology. Stay far away from this stock.

Brian Richards: As I see it, GM's biggest problem is a simple one: There's less consumer demand for its products.

Toyota and Honda (NYSE: HMC  ) both have market values far greater than $50 billion. GM and Ford (NYSE: F  ) are $6 billion and $10 billion, respectively.

What's wrong with that picture?

Detroit has not only been caught by its foreign rivals -- it's been lapped. Over the past decade, that's nowhere more evident than in the hybrid car space.

With its acquisition of Hummer in the late 90s, GM became what The Atlantic termed a "poster child of environmental irresponsibility," producing Hummers, trucks, minivans, and, of course, SUVs.

The story is obvious ... now. But because GM didn't focus on more fuel-efficient vehicles, Toyota became king of the hybrid. When GM finally caught on, it was too late. The Chevy Volt could be a lifeline, but the effect it can have on GM's bottom line is both uncertain and years away.

"We have to build cars and trucks that people want to buy," CEO Wagoner said recently. According to The Atlantic, GM's "public image got so bad that focus groups liked the company's cars better when the logo was removed."

Ouch.

That's not a problem that one vehicle (the Volt), one restructuring, or even one great quarter can erase. Of GM's many problems, its biggest may well be that there aren't many of its cars and trucks that people want to buy right now.

What are your thoughts on GM? Is it an utter disaster? A value at current prices? Chime in below with a comment.

Joe, Tim, and Brian do not own shares of any companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 15, 2008, at 4:30 PM, TMFBomb wrote:

    What kills me about GM (and Ford for that matter) is that it never seems to learn. Let's ignore for a moment how it flubbed hybrids...GM hasn't even caught on to the credit crunch. It's recently offered, get this, 0% financing for 6 years on many of its cars! Is there such a thing as a subprime stock?

  • Report this Comment On July 15, 2008, at 5:14 PM, optomist1 wrote:

    This piece would be equally valid if written three years earlier.....the Malaise in Motown has been a long time coming....energy spike aside; the big three have worked long and hard to get to this point....now its a race for the bottom of the pool. Decades of gross mismanagement, piss poor or vacuous stewardship, unbridled greed and a very misplaced sense of industrial arrogance have come home to roost. Thirty plus years since the first Asian onslaught and the big three continue to play catch up. A drop in oil prices will enable the big three to resume their inefficent way of business...a very broken business model.

  • Report this Comment On July 15, 2008, at 6:26 PM, liaminh wrote:

    We shouldn't bash GM's management for making cars people in this country wanted: gas guzzlers.

    It is not GM's fault that many Americans get their information from Rush Limbaugh, Fox News and the like. In fact, many still believe Global Warming is a hoax.

  • Report this Comment On July 15, 2008, at 6:59 PM, weiwentg wrote:

    Dodge and Cox has about 1.5% of assets in GM and Ford. I wonder, is the California water supply contaminated with some psychoactive drug?

    GM, Ford and Chrysler: within 10 years, one of them will be dead.

    Saying that we shouldn't bash GM's management for making cars that people wanted at the time is only half the story. The Big 3 and the UAW staunchly resisted increased fuel economy standards that would have led to smaller cars. They insisted on foisting gas guzzlers off on folks.

    Well, now people are starting to want smaller cars. I'm really hoping "one of them will be dead" comes true. That will reduce these folks' lobbying power. The nation should not be held hostage to the needs of the automakers. I know things will suck for Michigan's economy, but face it - the Big 3 are so poorly managed that things already suck.

    Even before oil skyrocketed, you could have seen this coming. It was only logical that China and India would get richer and increase the demand for oil - and increase carbon emissions.

  • Report this Comment On July 15, 2008, at 8:42 PM, overley wrote:

    When any company is beholden to a union and unable to compete with foreign competitors on price and quality, this is the end result. If not for the loyalty of American buyers, this would have occurred years ago. I sincerely hope they can turn this around.

  • Report this Comment On July 15, 2008, at 10:35 PM, sethmcs wrote:

    I bought 1,000shares of GM and 1,000 shares of Ford. I love how people seem to want to buy when stocks when they are high and sell when they are low. I could not make money otherwise. Autos according to my knowlegdge of financial history are cyclical and this down cycle will end within a year or so and the upcycle will begin. Why? Because those trucks and SUVs that people are currently stuck with because they owe more than the trade will eventually need to be replaced. Two factors will help GM and Ford in the next few years. First, weak dollar will become a competitive advantage as the weak yen once was and second the improved cost structure of removing liabilities for pensions and welfare benefits will be felt strongly on the bottom line.

  • Report this Comment On July 15, 2008, at 10:35 PM, Clint35 wrote:

    The managers at GM are idiots who wouldn't know a macro-economic trend if it bit them on the nose. How were Toyota and Honda able to become such dominant companies here in the states. Obviously they're good companies, but Ford and GM made it easier for them than it could have been. Gm has been sitting on their butts for a long time. They haven't made any innovations in ? well, who knows how long. The few they have made have only been used on prototypes to display at auto shows. Even at this low stock price I don't think there's any value left in GM shares. I think it's an old dog soon to be put down.

  • Report this Comment On July 16, 2008, at 8:50 AM, 1DeathbyHUMMER1 wrote:

    My GMC Acadia will be the last GM I ever buy, that's for sure. The sunroof leaks, the rear hatch leaks and after the 7th trip to the dealer, they are finally replacing my engine that has this incessant knocking sound. Reminds me of my John Deer tractor only not as smooth.

    Note to GM: Your customers are losing faith in your abilities to provide quality, reliable transportation. No wonder your company is in the toilet.

  • Report this Comment On July 18, 2008, at 11:22 PM, ollie0 wrote:

    Joe,

    Everything you say about GM, its poor planning by concentrating on those gas guzzling torpedo boats, Giving up on The EV1, and years of knucklehead leadership are all correct.

    You forgot to add the over inflated ego of everyone tied to GM from the Chairman down to the car sales people. I was in a GM dealer back in the early 80's when they were building crap like full sized vehicles with gas engines converted to run on diesel. The salesman popped the hood to show me the engine while it was running. It sounded like it was coming apart. I said to the guy, "have you sold any of these things?" to which he answered, "what GM builds America buys". Crap flows downhill, the rest speaks for itself.

    Jim Sirman, Covington, GA

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