GM's Announcement Today
GM announced some good news today. Losses weren't as bad as expected and revenues were unexpectedly strong. Excuse me for yawning. I've seen the movie Groundhog Day too many times and so has the management team at GM. ie, This is more of the same. GM has been in perpetual turn around mode since the Japanese starting assaulting them in North America four decades ago. We've seen cuts after cuts after cuts followed by market share losses and more market share losses. GM is cutting itself to profitability. Without revitalized brand strategies, strong product and the right product mix, that is a going out of business strategy. The same strategy which has cost GM over 50% of its marketshare while it continually cut its way to profitability.
While I am wrote on here a few weeks ago that I was long term bullish on GM, that is with respect to their business prospects, not the stock. Today, while good news, is not anything that hasn't happened a dozen times in the last forty years. Crisis followed by cuts followed by an improved bottom line while the top line market share losses continually crumble. Any better this year? Well, sales in North America are down 12% through June. In auto speak, those are crisis numbers. With massive fixed costs and overcapacity a major issue in the auto sector, sales drops that significant fall right to massive cash flow problems.
There is alot of smoke in todays numbers. First off, last year GM was paying people to buy cars in North America with the "Everyone Gets to Screw GM" discount plan more commonly known as the Friends and Family Plan available to anyone with a credit card. Removing these hugely discounted purchases, the year over year revenue comps are artificially inflated. Additionally, the profits are still from overseas and GMAC, which GM is foolishly offloading for cold hard cash they need to stay out of bankruptcy. Without GMAC's full cash flow at their disposal, GM is going to really be forced to get their act together in the car making business. That is a good thing long term but today's numbers are simply addressing the cost side of the equation. Product mix is still negative with weak high margin vehicle sales and with overall sales down significantly versus the competition.
With GM, it's all about cash flow. They can report all the top end numbers they want, if they can't improve their cash flow significantly, they will have to reorganize under federal protection. The auto industry eats cash like no other with the massive costs of R&D, development, plant upgrades, plant switchovers for new products, marketing, channel management, procurement and on and on and on. With negative or marginally positive cash flow, GM will burns tens of billions of dollars a year. While the product portfolio is improving, is it enough along with the cuts to improve cash flow substantially and sustainably? Lutz still gets a failing grade so far. His designs were too conservative for too long and his leadership has left styling and product mix still in shambles albeit he is recently redeeming his past mistakes with some tremendous designs. Maybe he's just a slow starter. If so, I can live with that.
GM still is short of cash and they are using their cash to buy out employees and will likely have to spend more cash buttressing the messy contractual obligations they agreed to when spinning off Delphi. They need to be using cash on new products but, unfortunately, buyouts have a positive long term impact and they are strapped to do both. The Delphi obligations could be astronomical. Only a legion of attorneys could figure out the obligations but they appear to be as high as tens of billions of more dollars.
Wagoner mentioned strong Saab sales today. Don't play games Rick. That is absolutely hilarious. GM's other units equivalently sell approximately the same number of vehicles in a day that Saab sells in North America in a year. Personally, Saab is the one brand that I wouldn't mind GM jettisoning as it is a rounding error and does not affect the GM brand in any meaningful way.
While GM has to start somewhere, Wagoner needs to feel more pressure to execute. Jerry York will provide that pressure nonstop. And while Wagoner and Lutz didn't create this mess, they have been too lackadaisical waiting till GM was on its death bed for the umteenth time to get focused.
The jury is still out as to whether Wagoner has what it takes to complete the turnaround but I'll give him some due credit. The product mix and product portfolio in North America are still very poor but at least the new designs coming out are some very hot vehicles. And, for those big fat profits, none is hotter than some of the spy photos of the 2007 full size pickups which will sell in droves regardless of the price of gas. And, what about the STS-V with nearly 500 horsepower. Give me a black one with some aftermarket 21 inch wheels and a AMG-type tuner kit and I'm talking more horsepower than an Indy car. Bob, you've got some winners but you need to push the envelope with more aggressive designs.
While I am wrote on here a few weeks ago that I was long term bullish on GM, that is with respect to their business prospects, not the stock. Today, while good news, is not anything that hasn't happened a dozen times in the last forty years. Crisis followed by cuts followed by an improved bottom line while the top line market share losses continually crumble. Any better this year? Well, sales in North America are down 12% through June. In auto speak, those are crisis numbers. With massive fixed costs and overcapacity a major issue in the auto sector, sales drops that significant fall right to massive cash flow problems.
There is alot of smoke in todays numbers. First off, last year GM was paying people to buy cars in North America with the "Everyone Gets to Screw GM" discount plan more commonly known as the Friends and Family Plan available to anyone with a credit card. Removing these hugely discounted purchases, the year over year revenue comps are artificially inflated. Additionally, the profits are still from overseas and GMAC, which GM is foolishly offloading for cold hard cash they need to stay out of bankruptcy. Without GMAC's full cash flow at their disposal, GM is going to really be forced to get their act together in the car making business. That is a good thing long term but today's numbers are simply addressing the cost side of the equation. Product mix is still negative with weak high margin vehicle sales and with overall sales down significantly versus the competition.
With GM, it's all about cash flow. They can report all the top end numbers they want, if they can't improve their cash flow significantly, they will have to reorganize under federal protection. The auto industry eats cash like no other with the massive costs of R&D, development, plant upgrades, plant switchovers for new products, marketing, channel management, procurement and on and on and on. With negative or marginally positive cash flow, GM will burns tens of billions of dollars a year. While the product portfolio is improving, is it enough along with the cuts to improve cash flow substantially and sustainably? Lutz still gets a failing grade so far. His designs were too conservative for too long and his leadership has left styling and product mix still in shambles albeit he is recently redeeming his past mistakes with some tremendous designs. Maybe he's just a slow starter. If so, I can live with that.
GM still is short of cash and they are using their cash to buy out employees and will likely have to spend more cash buttressing the messy contractual obligations they agreed to when spinning off Delphi. They need to be using cash on new products but, unfortunately, buyouts have a positive long term impact and they are strapped to do both. The Delphi obligations could be astronomical. Only a legion of attorneys could figure out the obligations but they appear to be as high as tens of billions of more dollars.
Wagoner mentioned strong Saab sales today. Don't play games Rick. That is absolutely hilarious. GM's other units equivalently sell approximately the same number of vehicles in a day that Saab sells in North America in a year. Personally, Saab is the one brand that I wouldn't mind GM jettisoning as it is a rounding error and does not affect the GM brand in any meaningful way.
While GM has to start somewhere, Wagoner needs to feel more pressure to execute. Jerry York will provide that pressure nonstop. And while Wagoner and Lutz didn't create this mess, they have been too lackadaisical waiting till GM was on its death bed for the umteenth time to get focused.
The jury is still out as to whether Wagoner has what it takes to complete the turnaround but I'll give him some due credit. The product mix and product portfolio in North America are still very poor but at least the new designs coming out are some very hot vehicles. And, for those big fat profits, none is hotter than some of the spy photos of the 2007 full size pickups which will sell in droves regardless of the price of gas. And, what about the STS-V with nearly 500 horsepower. Give me a black one with some aftermarket 21 inch wheels and a AMG-type tuner kit and I'm talking more horsepower than an Indy car. Bob, you've got some winners but you need to push the envelope with more aggressive designs.
<< Home