Is General Motors
Problems are something that GM has in spades. In addition to significantly cutting earnings guidance for the first quarter (and all of 2005), the company announced that instead of expecting $2 billion in positive free cash flow for 2005, it's now expecting negative free cash flow of $2 billion. In response, the market sent the stock down to a 13-year low.
The problems at GM are legion. SUV sales are declining, and that's forcing the company to rely on less profitable auto sales. GM's cars generally remain overpriced relative to Japanese competitors (based on resale value), and the company continues to struggle with market share. What's more, GM has to increasingly rely on incentives and rental car fleet sales to move its product.
Worse still, Japanese makers such as Toyota
Many roads lead to how GM got into such dire straits. High retirement and health-care benefit costs have hurt, and many have suggested that the company is far too big for its own good and should take the lead of Ford
So what now?
Some investors will no doubt see the company's $2-per-share dividend as a security blanket, while others might view the company's rock-bottom price-to-sales ratio as a sign of "value." I don't buy either argument.
With pathetic profitability and growth relative to companies such as DaimlerChrysler
If someone figures out how to turn this behemoth around, the rewards could be considerable. Of course, the same could have been said about Penn Central, Bethlehem Steel, Eastern Air Lines, and so forth. I'm not suggesting that GM is heading for the big Chapter 11 in the sky, but I am pointing out that there really is no such thing as "too big to fail" anymore.
As anyone who reads my work regularly knows, I'm a sucker for deep-value turnarounds. But not all turnaround opportunities are created equal, and the key to making money is identifying the companies that really have a strong chance of coming back. Though time might prove me wrong, I just don't think we've seen the worst yet from General Motors, and I'm staying far, far away from this stock for now.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).