Is General Motors Closer to a Default?

High gas prices, the credit market, and the housing crisis weigh on General Motors (GM), what was once a great American automaker. But this is not enough and cannot be a justification. There are other deep causes in this situation, which are also shared by Ford Motor (F).

Why, in fact, is Toyota Motor (TM) not in the same condition? Low quality, low quality/cost ratio, lack of attractiveness of products, service to customers, etc, characteristics which hurt a company's competitiveness, are all missing today at GM. 

Can we expect a turnaround? The company tried to reassure investors. Chief Executive Rick Wagoner said GM had enough liquidity to carry it through the year. As usual, costs to insure debt against default skyrocketed and bond prices plunged after Goldman Sachs downgraded GM and said that they would need additional capital. Who would give money in this credit situation to a company that burns cash at such an impressive speed?

The main source of income is big cars, which is a completely wrong mix of products for this market and consumer conditions. How long will it take to adapt and build more efficient and quality cars at a competitive price? I would say that it is difficult, but a giant like GM has the resources, especially human resources, to drive a turnaround. Emerging markets could also help as growth in those countries will balance the negative conditions of mature markets. Let's see if management will be able to drive the ship in these stormy waters. And for the moment, let's observe prices at 53-year lows. It is a high risk, but also a huge opportunity.

Comments

[Richard Wendling]

The other question to ask is will Ford and GM merge somewhere down the line. If they do then the manipulative forces which are at work on these two issues stock prices by their corresponding specialists will tell you a great deal about the future of each company and the potential merger of both. For more information on how I feel about both issues and the specialists that run them click on my website and select the free reports tab at the top of the home page. It will take you to the reports on each issue and others. It will cost you nothing except the time it takes to read the reports and any of the other articles I have listed on the site.

Thank you for your time,

Richard

[Gloria in Michigan]

Due to issues in the service department, I will stay clear of purchasing a General Motors product. 2 General Motors vehicles and issues with not 1, but 2 different service departments in my area, have steered me away from a General Motors purchase.

[Scammr]

GM is doomed and not reacting quickly enough to slowing demand of large verhicles and ignoring the slimmer margin smaller units is gonna be the final straw! RIP!

[mdallensr]

I wanted to replace my 5-year old Yukon Denali with another SUV. I wanted the Buick Enclave, the Yukon Hybrid, or possibly another Yukon Denali. I could not get any local dealers to find the vehicle I wanted or to press GM for a good incentive. I finally quit looking and wanted to order a new Enclave or Yukon Hybrid, and they couldn't even accept an order because of the model-year change over. I couldn't even test drive the hybrid for at least a month. How can you deny a sale when you are in desperate shape? I went to look at the Accura MDX and Lexus GX and drove the Lexus home. No more GM's!!!!

[Doug Korthof]

GM could resume production of the EV1, if it had any sense, and resume leadership in small oil-free cars. Instead, GM is relying on an ad campaign to convince people of the unlikely idea that GM makes small excellent cars. People may laugh

[User 169775]

Those who do not study history are doomed to repeat it..

Looks like F and GM had not learned from the Oil Crisis in the 1970s.. When their lack of fuel-efficient cars gave Toyota and Honda the opening they needed to get into the U.S. market and thrive.

History repeats itself again today, with a vengeance. This time, not only is Toyota and Honda thriving, F and GM are on the verge of once-unthinkable disaster (bankruptcy or worse).

[The Gavster]

GM has been producing fuel efficient small cars for the most competetive market in the world (Europe) for many years. Not always the most aesthetically pleasing, but as the newer models have been rolled out they have become better and better.

Now these Vauxhall/Opel cars are coming to the US in the guise of Saturns (check out the Astra), and for sure they are clearly smaller than people in the US are typically used to buying, but really they are great cars (they handle better than almost anything produced in the US currently) and don't forget Saab, who produces really great cars, a little quirky for sure, but safe, fuel efficient drivers vehicles.

In Europe Toyota, Nissan and Honda do not rule the roost, the competition is just too tough with the European manufacturers who always have to be on the top of their game to capture the customer's attention.

Open your eyes to what you already have access to. Don't judge companies by what they used to do and if you want a vehicle after five years of driving a particular model learn a little patience and wait, if necessary, for a few weeks to get what you wanted.

I cannot believe that someone wakes up in the morning and just 'has' to have the vehicle they are thinking of buying the same day. Did you ever consider that because they are selling well it might not be possible to source you the one you wanted immediately?

[Steve Funk]

Kudo's to The Gavster. Most of the previous posts show little understanding of the auto industry, and I thought this forum was about the industry and investing in it. Bottom line is these comments show that the auto industry has become much like the jeans industry and much less like the hard goods industry. No one complains that Levi's are poor quality, they just like Buckle better and the stock reflects it. These are whims and the money goes to the new guy with cache. When you have the burden of history like GM and Levi you just can't get out from under it, no matter how good your product.

As for investing, there has to be someone looking at taking GM private. Serberos could combine GM and Chrysler and actually start getting some economies out of the deal. Ford would be a candidate, but the Ford family has shown themselves time and again to put their trust fund ahead of good business judgement, and they own controlling stock. Until this shakes out the auto stocks are way too dangerous. And that does not have anything to do with EV1 (which could not sell) or dealer performance.

[BioInvestor]

User 175819: It looks like you haven't figured out how the world works for consumers!

[Jimbo]

I owned GM cars in the past. When I wrote the president of a GM division about an annoying defect that the service department said it could not correct, I never received a reply. Whenever I write the president of Subaru America, I don't get a reply from him but a subordinate does send an intelligent, pertinent reply.I am now driving my third Subaru. I wonder if there is a message somewhere for GM?

[Mister Jimmy]

What a load of crap: "Low quality, low quality/cost ratio, lack of attractiveness of products". My well-maintained 2004 Toyota Sienna required nearly $3,000 of electronic and mechanical repairs before 70,000 miles. Even during the warranty period, my Toyota dealer took a "you did it" attitude. GM has the J.D. Power award and several categories and three (3) GM vehicles made the Motor Trend "top ten" (No Toyota made the list). If "Paolo Pezzutti" is going to write about the auto industry, he should read a little bit about it, too.

[Mister Jimmy]

My apologies. I just read Mr. Pezzutti's bio and learned that he "is a Commander in the Italian Navy, specializing in telecommunications&quo... Mama Mia!!! Impeccable qualifications for being a U.S. auto industry pundit!!!

[User 169775]

Those who defend GM like to point out that GM cars are good-quality and that they get "good" fuel mileage, cars like the Saturn Aura which gets 25 MPG combined (and this is the 4-banger version) and the various awards.

Problem is, in this day and age of $4/gal gasoline, 25mpg isn't good enough. Unless you got cars that can get 40mpg combined (not just highway), you are not going to be competitive against the Japanese under current market conditions.

The consumers have voted with their wallets-- Most of them want fuel economy, and no amount of JD Power awards or superior service will convince a consumer to buy a 25mpg car if he needs something that gets 40mpg.

[Mister Jimmy]

Oh, please. Camrys, Accords, Sequoias, and Tundras do not get 40mpg, city OR highway. And if you need to haul drywall, cement, farm products, or lumber for a living you cannot do it with something that gets 40mpg, either...unless you're willing to drive an ox cart.

[User 169775]

Mr. Jummy, the point is NOT that Camrys, Accords, Sequoias, and Tundras get 40mpg.. They don't. BUT YOU HAVE TO BE BETTER THAN THEM IF YOU WANT TO COMPETE.

You can't be "slightly worse" than them. You can't be "just as good" as them. Competition means you have to be BETTER than them.

So until GM abandons this "25mpg is good" line of thinking and start finding ways to build 40mpg cars that can beat the pants of Toyotas, it will keep circling the drains.

[BADDAD]

I only have one thing to say, I understand people buying imported products to save a buck in this day and age. The problem is all the jobs are leaving this country and in reality people are selling the futures of there own children to save a buck, shame on all of you!!!

[User 169775]

So you want us to subsidize companies that make non-competitive products in the name of "saving jobs" which does absolutely nothing to solve the root problem? Shame on YOU.

[BioInvestor]

Mr. Jimmy, it's actually helpful to focus on the topic and not on the person. The writer's background is irrelevant; the argument stands or falls on its merits or lack thereof.


On June 30 Mr. Jimmy wrote:

My apologies. I just read Mr. Pezzutti's bio and learned that he "is a Commander in the Italian Navy, specializing in telecommunications&... Mama Mia!!! Impeccable qualifications for being a U.S. auto industry pundit!!!

[BioInvestor]

BADDAD, your argument is nonsense. Buying quality products helps the economy, it doesn't hurt it. The only proviso is that businesses respond to this demand and change their products appropriately. If companies don't respond appropriately to what they're doing wrong, only then are we in trouble.


On Jul 01 BADDAD wrote:

I only have one thing to say, I understand people buying imported products to save a buck in this day and age. The problem is all the jobs are leaving this country and in reality people are selling the futures of there own children to save a buck, shame on all of you!!!

[seyjazz]

Let's get right to the point. The US Auto makers made a mistake and they paid for it. Now they are making better cars than their competitors and are really giving people what they want, but it seems that all you cry babies who buy foreign don't realize that, so you buy foreign. You'll pay for it . . BIG TIME . . when you loose you job if the economy keeps going down. . . But you'll blame everybody else but youself. Wake up before it's to late my friend.

[User 169775]

seyjazz wrote: "Now they are making better cars than their competitors and are really giving people what they want, but it seems that all you cry babies who buy foreign don't realize that, so you buy foreign."

In this day and age of $4 per gallon gas, Consumers are demanding cars that can do 40mpg combined or better. GM can only give you cars with a combined 25mpg. How is that "giving the people what they really want?"

Your attempt to blame the consumer for not buying cars that use more gas is rather laughable, I'm afraid.

[BioInvestor]

Seyjazz, I don't see how your points relate. Some of your statements make no sense.

I don't believe that there is evidence that US automakers are making better cars. One survey that I think is pretty objective is that provided by Consumers Union. Here US branded cars don't score well. While the traditional Big Three may be showing some improvement, they’re not up to par yet. Personally, I find it disappointing, but facts are facts.

I also don't see how you can make a statement about the knowledge of those who happen to purchase what are often referred to as foreign cars.

Finally, even if the big three auto makers were to stall or even fail, there's simply no evidence that it present any major problem to the US economy. The companies have been in decline for some time--moving much production off shore, the US keeps humming along.



On July 1 seyjazz wrote:

Let's get right to the point. The US Auto makers made a mistake and they paid for it. Now they are making better cars than their competitors and are really giving people what they want, but it seems that all you cry babies who buy foreign don't realize that, so you buy foreign. You'll pay for it . . BIG TIME . . when you loose you job if the economy keeps going down. . . But you'll blame everybody else but youself. Wake up before it's to late my friend.

[Mister Jimmy]

BioInvestor, if you believe the US economy is "humming along", you and I have a huge perception gap.

[BADDAD]

Dear Bioinvester, so your saying that buying poisioned dog food, lead painted kids toys and the such is good for our economy? Also if you would like to hook up your Toyota or Honda pick-up to the back of my Ford pick-up facing the other way, I would be glad to see who pulls who for a little wager!

[User 169775]

FYI, poisoned dog food or lead painted toys aren't made in Japan.. They are made in China. Unlike China, Japan is an ally of the U.S. in politics, ideology and economics. I'd rather have my money go to Japan than China.

If you hink people care about how much your Ford pickup truck can pull, you have been missing the whole point of this discussion. These days people are more concerned about getting as much mileage out of a gallon of super-expensive fuel than how much someone is compensating for a smaller reproductive anatomy with a bigger car. :-P

[BADDAD]

Dear User 169775, that's not bad. Rather creative for someone who's brain must be the size of a pea! As for Japan being an ally as you say of America, ask anyone who knows anything about thier treatment of American prisoners of war. If you really enjoy giving your money to Japan, why don't you just move there? You can return to your wine glass and finger food now and don't forget to ash that cigar!

[User 169775]

The last time I checked, Japan has a democratically-elected government with a free-market economy that uses a currency NOT PEGGED TO THE DOLLAR, and allows the U.S. to base its forces there.

Can you say the same for China?

World War II was 50 years ago, we defeated a Japan that was run by a dictator (Tojo) and converted into an Ally.

You don't seem to like studying history. I guess GM has the same kind of ignorant people as you in its management, because they sure are repeating history (i.e. 70's oil crisis).

[BADDAD]

So lets see here, we keep troops in Japan which insures thier safety at our cost and in return they ship cars, trucks, stereos, ipods, computers etc. into our country while thier government plays around with the value of the yen to give them an unfair advantage costing american jobs and you say that is a good thing? I over stated the size of your brain apparently!!!

[BioInvestor]

Mr Jimmy, you didn't read what I wrote. I wrote that the companies have been in decline for some time--many, many years. There's no evidence, none, of an adverse affect on the economy. The US economy continues to grow.


On July 2, Mr Jimmy wrote:

BioInvestor, if you believe the US economy is "humming along", you and I have a huge perception gap.

[BioInvestor]

On July 2 BADDAD wrote

Dear Bioinvester, so your saying that buying poisioned dog food, lead painted kids toys and the such is good for our economy? Also if you would like to hook up your Toyota or Honda pick-up to the back of my Ford pick-up facing the other way, I would be glad to see who pulls who for a little wager!

[BioInvestor]

BADDAD, let's try and inject a little intellect into a conversation about investing. Reread what I wrote: I didn't mention anything about poisoned dog food, lead in the paint of toys. The arguments you present in this thread are lacking in substantive content.

You stated earlier that all jobs are leaving the US; they're not. You made a statement that is patently false.

There are problems in some cases with imports from China; there's no evidence that there are problems with all imports. There are always issues, be they in domestic or foreign products. Right now, many overseas banks are dealing with problems in US financial assets; problems that appear to have been created by fraud. Decades ago, we in the US and those in western Europe for that matter had issues with products from Japan.

I'd urge you, if you must post, present a clear, cogent, rational argument for your position. Stop posting nonsense please!



On July 2, BADDAD wrote:

Dear Bioinvester, so your saying that buying poisioned dog food, lead painted kids toys and the such is good for our economy? Also if you would like to hook up your Toyota or Honda pick-up to the back of my Ford pick-up facing the other way, I would be glad to see who pulls who for a little wager!