Someone may need to remind Obama why he wanted this job in the first place. The day he goes visiting W, analysts slash GM’s outlook to kaput. This from the WSJ . . .
General Motors Corp.’s shares Monday plummeted to a price it hasn’t seen since 1946, on rising concerns the auto maker will run out of cash in the next few months and that any government bailout won’t be beneficial to shareholders.
Shares of GM fell 23% to $3.36, after earlier hitting a 62-year low of $3.02, as analysts at both Barclays Capital and Deutsche Bank cut their target prices and investment ratings on the stock.
Barclays now targets GM shares at $1, while Deutsche Bank slashed its target price to zero.
Jeff Embersits, chief investment officer of Shareholder Value Management, said GM’s freefall reflects investors’ growing concern about the company’s liquidity, and how little faith the market has in the benefits that a government bailout would have for shareholders. Another problem with the potential bailout, Mr. Embersits added, is that it may cause foreign auto makers to ask their governments for similar aid. If this occurs, it will wash out the benefits of any aid to GM.
In another article in the WSJ, we cut to the chase . . .
America has two auto industries. The one represented by GM, Ford and Chrysler is Midwestern, unionized, burdened with massive obligations to retirees, and shackled to marketing and product strategies that have roots reaching back to the early 1900s.
The other American auto industry is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently. Their factories are newer, their brand images and marketing strategies are more coherent — Toyota uses three brands in the U.S. to GM’s eight — and they have cars designed for the competitive global market that exists today.
There is no mystery here. Detroit has been playing on borrowed time for at least the last decade, if not longer. The brutal fact is that they’re not viable businesses as they’re currently constructed.
The Detroit Three employ more than 200,000 people directly, and sustain nearly 3 million more indirectly, according to the CAR study. Diminished as they are, the Detroit Three still account for about 4% of U.S. gross domestic product. They also represent a way of doing business that has run its course. GM’s plea for a federal bailout makes that official.
This is about jobs and halting the drum beat of bad news. There are lots of ways that the government could help, including giving buyers tax rebates for buying American cars, relieve the funding load on either or both their health care or pension obligations, offer low cost loans for retooling, or a straight cash infusion. All of which will help, none of which addresses the core problems of a bad product mix, an expensive labor force, and the staggering burden those 3 million dependents create. Until something is done on that front, the bigs will continue to skate from disaster to disaster. Now you know why Obama is so keen to overhaul healthcare.
Tags: Bailout, Big Three, Ford, GM, Chrysler, Honda, Toyota, Decision Making
