General Motors (GM) CEO Dan Akerson apologized to shareholders Tuesday for the automaker's poor stock performance, despite the fact that the company posted record profits and regained the title of global sales leader last year. Since the initial public offering in November 2010 at $33, shares of GM have fallen almost 36%.
There are many problems facing GM right now, but Europe definitely tops the list, as the European arm of the company lost $256 million during the first three months of 2012. Akerson has indicated he sees that Europe is a problem and is working to correct it. He has already signed agreements with labor unions in Poland and the United Kingdom to attempt to slash production in order to meet the current low levels of demand. Akerson indicated that he sees the corner for the struggling automaker, but I don't see it. What Akerson is describing is what he has been describing for the past year, with next to no progress to show for it.
In the United States, GM has been doing OK, but it is one of the worst-performing automakers in terms of volumes. Due to the bankruptcy and many efficiency improvements, GM North America was, however, able to deliver $1.7 billion in segment operating income (a 35% increase year over year). Akerson said in an interview that he would gladly sacrifice volumes for profitability. The following chart shows GM's total sales and percent change (year over year) for the first five months of 2012.
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The U.S. Treasury department still owns roughly 500 million shares of GM, and Republican presidential candidate Mitt Romney has indicated that, if elected, he plans to sell the lot quickly after coming into office. Doesn't sound like such a good business model, taking a loss of more than 50% on the investment in GM. That being said, I do not see a big jump in the share price anytime soon, so that almost $13 billion could be put to better use elsewhere.
Another problem that Akerson has voiced his opinion about is altering the bureaucratic operations of the global automaker. In a sense of irony, it seems the bureaucracy has delayed the process. GM is remodeling up to 70% of its models over the next three years, which will help the struggling automaker, but that light at the end of the tunnel is still very far away. Europe continues to be a mess, China appears to be slowing (sales at the dealer level fell last month, while production still remains high), and auto sales in the U.S. are stabilizing despite the weak economy. Should the economy falter even more, I expect auto sales to be one of the first victims.
Shareholders at the meeting on Tuesday were also complaining about the lack of a dividend. GM had $31 billion of cash on hand at the end of the first quarter; $4 billion will be used to transfer white collar pensions into an insurance company fund. Shareholders were also calling for a share repurchase program to attempt to offset the dilutive effect of the government's shares. These are items that would be important if GM was on stable ground. However, with the current problems hanging over the company's operations, these will have to be pushed to the back burner. I would continue to stay away from GM stock; $20 is developing into a support level, but with the 500 million shares and the weakness in the U.S. economy, the risk greatly outweighs the reward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
