Now I’m blogging again to say happily that something miraculous has happened to save the day: GM has recovered. When Kirk Kerkorian, the investor who helped save Chrysler in the 1990s, purchased nearly 10% of GM's common equity at a price around $30 per share, that was the magic component to help GM’s turnaround.
But the fundamental numbers also weren't so bad as expected. Second quarter results show that while GM has a ways to go, they can make it through until their new designs and improved reliability help create a sustainable future. Its North America auto unit rose 5.8% from the second quarter of 2005 (to $28.6 billion), with a loss of $232 million compared with a loss of $1.3 billion the same quarter in 2005. GM's auto operations were profitable in Europe, Latin America, and Asia as well.
GM will continue to have to cope with the pressure of stiff global competition and gas and interest rates both on the rise, in addition to a line of now unpopular big fleet cars. While they’ve taken steps to reduce the massive costs of employee health care, this is still an area where they will need to find a way to scale back. But GM's management team has put together a solid come-back plan, including new product introduction, cutting back unpopular models, and cost reductions across the board. Sales got a boost through its recent "Employee Discount" incentive pricing plan, though this cut into profits.
Retiree benefits are going to be a major problem to profitability down the line, but for now, GM has a big store of cash on hand to deal with the near future. Last quarter, GM increased its cash balance by $500 million to a whopping $22.7 billion.
Type of stock: The Big Three auto maker faces huge hurdles in the road ahead, but it is not facing near-bankruptcy as I had feared earlier this year.
Price target: The stock is still way overvalued at $30 and change, so I’m not saying it is a pick at this level. But keep your eye on GM. I was wrong: it isn’t going to Chapter 11. This iconic American Big Three car maker is staging its comeback. God bless GM -- many employees and shareholders rely on this great American car company.