General Motors Will Burn Your Portfolio

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It was once said that what was good for General Motors (NYSE: GM  ) was good for the U.S.A. My, how things have changed.

The company, along with Ford (NYSE: F  ) and Chrysler -- which last year was carved out of what's now Daimler AG (NYSE: DAI  ) -- has been hit between the eyes by the relentless run-up in crude prices and massive fixed-cost structures. Blistering competition from the likes of foreign players Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) , with their crowd-pleasing, energy-efficient vehicles, certainly isn't helping.

While Toyota itself has had to reverse its U.S. course with plans to cut truck production and begin producing its hard-to-get Prius hybrids in our country, it nevertheless has been a major part of the increasingly competitive current against which GM must swim. In fact, the Japanese company cruised past its Detroit-based rival in the first half of this year, selling 4.8 million vehicles worldwide to GM's 4.5 million.

It takes money to lose money
Then there's General Motors' less-than-dainty cost structure. It was clearly trying to deal with that albatross earlier this month, when it announced a host of measures -- including the lopping-off of salaried heads -- in its all-out run for survival. Another key issue on the bloated-costs front is GM's ability to impose benefit cuts on blue-collar employees, thousands of whom are members of the United Auto Workers. As recently as September, 73,000 GM workers represented by the UAW walked off their jobs. While the strike was short-lived, it sent a clear signal that, healthy GM or not, the company's cost-cutting efforts will be no picnic.

There may be other structural difficulties at the company as well, many of which appear to be going unattended for now. For instance, amid GM's new approach to cutting spending and raising capital, some observers would have liked the company to announce that at least one of its current, fading brands was headed for the scrap heap. By simplifying the company, management would enhance its likelihood of survival.

Pokey progress
But its sluggish effort to crank out really fuel-efficient autos could easily prove to be General Motors' biggest bugaboo. Just last week, the company said it would deliver hydrogen-powered fuel cell vehicles to a pair of postal stations for mail delivery. That follows an initial delivery of GM HydroGen3 fuel cell vehicles to a Virginia post office in 2004. According to the company, the programs helped GM learn about how fuel-cell vehicles operate under certain conditions.

Meanwhile, GM is distributing more than 100 fuel cell vehicles to "real customers to help Chevy and GM understand what it will take to bring larger numbers ... to customers around the world." Terrific, but this overly deliberate approach is the biggest reason why drivers are looking elsewhere for fuel efficiency. Think about GM, and I'll wager you conjure up an image of gargantuan SUVs. That image has to change, and fast.

So at least for a while, GM should muddle along, turning out Suburbans, attempting to deal with its expanding multitude of difficulties, but likely still missing the mark. In the meantime, Fools will be well advised to put their hard-earned investment shekels elsewhere. General Motors is an accident waiting to happen.

General Motors has been knocked to bottom-of-the-barrel single-star status by Motley Fool CAPS players. Would you use a different gear?

Fool contributor David Lee Smith owns a total of 10 wheels, including his bicycle, but hasn't invested in any of the companies mentioned. He welcomes your comments. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (1)

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  • Report this Comment On July 31, 2008, at 12:38 AM, HotStove3 wrote:

    David

    While I usually always Marvel at the opininions of the Stock Advisors at the Motley Fool I truely believe way down in my gut that this picture that has been painted for GM is not going to end this company.

    When I think of GM I do think of my Silverado sitting in my driveway. My dream ride that I saved for 4 years to buy.

    The issue that I disagree with virtually everyone is that this company will fail becuase they do not have a handle on the compact and hybrid markets.

    This spike in oil prices is changing the way the US consumer is purchasing most everything in their lives. Our country will very soon come to the realization that high gas prices are here to stay although 4.00 pg is bargain compared to the rest of the world. The real problem for americans is not 4.00 gas it is the fact that their individual debts are too high.

    GM will shift the bulk of their attention to meet the US needs with more cobalts and malibus and they will continue to make my Silverados.

    Confronted with being out of jobs the UAW membership will bend to support the company or take buyouts.

    While I do agree that present management is slow and methodical and auto manufacturing is a cost based commodity business and that buying this stock will go against everything that I have ever learned about investing if the price of this company dips below $10.00 when they report earnings I will open a position. I will do this for 2 reasons

    #1 The brand names or Chevy and Pontiac are worth over $20 per share

    #2 The pure thought of me going to work tomorrow in a TaTa gives me a stomach ache.

    If I buy below 10 in time I will sell for over 20. Speculative or taking advantage of a market overreaction you folks tell me.

  • Report this Comment On August 01, 2008, at 3:33 AM, rw1683 wrote:

    I would point out that the old saying may still may be true. What is good for GM is still good for the USA. GM is not doing well, and neither is the USA. They are tracking together.

  • Report this Comment On August 25, 2008, at 6:57 PM, BobMichigan wrote:

    "It was once said that what was good for General Motors (NYSE: GM) was good for the U.S.A"

    Just for the record, that was only said by the media. The person who said it said, "What is good for America is good for GM". he was being confirmed for a cabinet post and was asked, "what if something was good for the US but bad for GM." His response meant that GM, as a US company, wouled eventually benefit from anything that was good for the US, no matter what the short term issues for GM would be.

    The media, and you are carrying on the "proud" tradition, LIED and twisted his words. Anyone who says this, is an example of news media who can't get anything right.

  • Report this Comment On August 29, 2008, at 4:19 PM, POpinion wrote:

    I agree the media does tend to lie. I guess that makes Toyota as a "Superior" Company in Quality a lie.

    I do believe what is Good for GM is good for America and visa versa.

    I also think Toyota is good for Japan and visa versa. That is where the competition comes in. America will suport GM and I already do. I'm just sitting back waiting for my profits to roar in.

  • Report this Comment On October 03, 2008, at 6:31 PM, teryflwr4u wrote:

    GM and America are definitely in sync. Both have their heads buried firmly in the sand. GM and America have ignored the trend toward smaller more gas efficient vehicles. Most Americans believe the cost of gas will come back to old prices and they will once again be able to drive a new "gas hog". Both GM and America have made a huge mistake by believing in fantasy. For years, GM has built crappy cars that lost 40% of their value in the first two years after sale. Service evaluations were horrible with many buyers declaring they would never buy another GM product. Now they come to the taxpayers wanting a bail out for their stupidity and stubborness. GM has wanted to only build vehicles with high profit margins (large SUV's) and ignore development on fuel efficient vehicles. Well, guess what, the chickens have come home to roost. Let GM find it's own way out of the mess they have created with the domestic car market.

  • Report this Comment On October 15, 2008, at 11:32 AM, RossABQ wrote:

    The US can't afford to lose any more manufacturing, particularly automotive. Look at WWII, the automakers were all pressed into service making the machines of war, everything from rifles to tanks. They are a national resource and deserve gov't help as much as any bank.

    IMO their biggest problem right now is perception; they are perceived to make only SUV's, and perceived to have lower quality. Neither is really true. Toe to toe, they make great products, but it's going to take a long time to eliminate the perceptions. I don't see the lower retained value as a big problem, people don't trade in cars every 3 yrs anymore. People are also beginning to realize that cheap imports (Hyundai, Kia) aren't the same as Japanese cars.

  • Report this Comment On October 15, 2008, at 11:33 AM, RossABQ wrote:

    PS --- the UAW has outlived its usefulness, time to go away.

  • Report this Comment On October 15, 2008, at 1:35 PM, usalady wrote:

    GM and Ford DO make gas effecient vehicles, hybrids, flex fuel vehicles...but they are NOT ALLOWED to sell them here. I think ford has a diesel that gets 60 mpg but is only allowed to sell it in europe. I thought gm or ford were selling almost all of their flex fuel autos to brazil -- where one can pull up to pump and nozzle in the ethanol. I believe stragegically we can't let them go down... If we end up in a war where Japan (toyo) is friend of our enemy...who's gonna build the motor power to win it? Just thoughts....I think keeping the big 3, or big 2 (if gm and chrys merge) in business is possibly strategic defense if anything. It's time to close the book on Unions in USA. Grownups don't need "unions" to do their talking...they need lawyers. haha

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