March 15, 2011

Shareholders Beware

The government and the United Auto Workers union are the owner/operators of General Motors. That means whatever profits are realized will be shunted to these folks and the people who have invested their money into this corporation are left holding an empty seat belt.

So if you're a GM stockholder, what can you do? Jonathan Hoenig of the WSJ has a suggestion:

Late last week I traded General Motors ( GM: 31.93, +0.51, +1.62% ) ' stock one penny off the lowest price in its history. But I wasn't buying hoping for a rebound. I was selling it short, looking for a collapse, and I'm holding that position today.

It might seem somewhat counterintuitive. Not only was the stock at an all-time low, but the company recently announced a $4.7 billion profit , its biggest in a decade. Some 45,000 union workers will receive profit-sharing payments averaging $4,300 – a record.

And on that very same day, shares of the company slid below their IPO price of $33 for the first time, a vitally important fact overlooked by most of the enthusiastic media reports. The New York Times didn't mention it in their story until paragraph 15.

This is crazy, public funds are used to rejuvenate the operations and pension funds of a private corporation and then the future recipients of those pensions are treated to a bonus while the taxpayers are left hanging on the line.

[...]If there was ever a stock that makes people emotional , it's General Motors. Either the company is the backbone of the American working man or the poster child for bad business practices. In many ways it's like discussing abortion or gun control. Minds are made up, and opinions will not be swayed.

That emotion, of course, is only exacerbated by the fact that GM received a $50 billion bailout from the Federal Government, an intervention that left taxpayers the largest shareholders, still owning 26.5% of an extremely weak stock. For the government to break even, shares will have to hit an estimated $53 – up 64% from current prices.

General Motors - adios GTO, hola P.U.M.A.


Christopher - Conservative Perspective said...

Great post Sig. Not a finacial wizard here but have tried explaining this to people who got all excited about buying GM stock.

The word frustrating comes to mind but really doesn't cover it well,,,,

sig94 said...

One of the best cars I ever owned was a 2001 Impala. One of the biggest pieces of crap I ever bought was a 2006 Impala - my wife's car. In 2008 I traded in the 2001 Impala on a Ford. It was still running great.

The_Kid said...

Since you brought it up....
GM should have been allowed to fail, been bought by someone and either reincarnated as a healthy business or stayed under the Earth.

Taxpayers supporting private unions is bullshit.

I will NEVER buy a GM or Chrysler vehicle. Given I've never cared for Fords(the new ones are about as ugly a vehicle as I can imagine) I won't be buying a Ford either but I do applaud them for not sucking on the government teat.

And the GM Flagship car? the Volt? for 40 grand and us taxpayers get to kick in SEVEN GRAND for every MORON that buys one? (And they will sell many of these to the Government, so We'll get Screwed Twice because then We'll be on the Hook for Maintenance!)

I wouldn't drive a GM car if you gave it to me for free. The Caprice which used to be the deluxe version of the Impala is about the size of a nissan sentra. Probably smaller actually. WTF? The Camaro is ugly. I like the Corvette but have no use for a 2 seat toy with big insurance and vehicle payments.

Their vans are still butt ugly big square metal boxes, and the rest of their stuff holds no advantage over a wide variety of vehicles with better features, more reliability, better looking and Cheaper.
My 2000 Toyota Sienna van is 86% American made parts and labor. It is # 5 on the list - WELL AHEAD of many 'American' vehicles. Oh, but the money goes overseas? Really, where does the money go when all the parts come form out of the country to be assembled in Detroit.?

What a clown show.

The_Kid said...

PS - The Malibu and the HHR (My wife has rented both in the last year) are the most uncomfortable cars I've EVER been in.

I can't believe how many of those little pieces I see on the road. Goes to the dumbing down of America I guess.

sig94 said...

I agree on the Malibu. I drove a rental a few years back. The HHR is a clown car.

They Say/We Say said...

Japan hit hard this week; the parts for Toyota will be rare for some time. Japan Car stocks will be down-down for some time.
HA, Electric Car owners that are plugged in at home sockets will be in for a shock if Obama's EPA cuts coal mines production and your electric bill rise to the sky.

Rhod said...

GM spent thirty years producing cars with poorly executed cosmetic features that resembled Japanese models. Otherwise, under the slab sides and trim gaskets, lived the quality of a Vega, Chevette and Olds 200 transmission. There couldn't have been a more dishonest and cynical marketing strategy.

At the end, their brlliant advertising catch phrase was "Professional Grade Engineering!" In contrast to what? Amateur Grade Engineering?

The poison entered GM's bloodstream with the asshole Roger Smith. I was screwed so many times by GM that today I wouldn't buy a Delco spark plug,

The_Kid said...

Poorly designed cosmetic features...

That's for sure, any side panels are merely rust accelerators, and as someone pointed out to me when I was a teenager, you can cut yourself to ribbons hand washing an American car.

True dat.

Jim said...

Rhod - the father of quality control, Dr. W. Edwards Deming, was reviled in Detroit and reverenced in Tokyo. Remember when Jap cars were nothing but crap in the early 70's?

No, everything is based on per unit cost. Cheaper bearings, seals, etc. makes GM cars TCO a waste of time and money.

Jim said...

Kid - everything is designed to reduce cost and reduce weight. We suffer with this garbage because of federal mandates and sky high union costs.

The_Kid said...

Jim, I agree.

To me, I feels like the union workers are like hard Coke addicts. Have you ever known one?

All they know is what they need. The outside environment, economics, everything, does not matter.

But to your point. Yea, look at a 2011 Impala. Probably half the weight of a 2000 Impala. And getting smaller as we speak.

You know, I have no problem with light cars. But only if I'm not driving alongside vehicles that can crush me with a look.

Rhod said...

Jim. Detroit didn't think smarter OR harder.