Auto Sales Reported. Is The End Of Times Near?
That is a sadistic joke. Well, the apparent perkiness on GM's turnaround efforts were short lived. Of course, we knew that. GM is simply hacking away at itself to achieve profitability rather than solving the real issues: sales leadership. Think of it as someone who has plastic surgery to remove their excess weight but does not change their eating habits. You should view GM in the same light until they consistently restore sales growth and the right product mix into the market. All we see today is a GM which has a smaller book value and less instrinsic value as it continues to bludgeon itself or the term I like is it is committing seppuku and has been for forty years of slashing. The good news is that GM has a massive product introduction planned for the next three years. The bad news is they sales success now.
Today, the reality sets in. GM is seeing market share losses and sales losses accelerate within North America. The numbers we are seeing out of GM are extremely serious. People are simply overestimating the health of GM. For that matter Ford, Daimler Chrysler and Nissan are all reporting staggering sales drops. Total sales drops of 20 to 35% will lead to catastrophic consequences for these companies should they continue. At this rate GM and Ford will each burn through over ten billion or more in cash this year from what I've read. Their cash flow is negative or close to negative and simply cannot continue with such high capital requirements.
A little secret. Transportation stocks were warning you of this report. Trucking and railroads in the US are highly correlated to the health of the auto business in addition to being correlated to this commodity boom and current account deficit trade boom. While my data is dated, autos were once the largest clients of rails. Are they still?
While I am long term bullish on GM, and for that matter Ford, I am very negative on their investability. They have cut so far into the muscle of these companies that the critical mass required to maintain their pension plans is likely beyond repair. Eventual reorganizations will likely be required. Such a mess will only fuel debate within the national health care and pension crisis. Under such situations, outside interests will finally have control over how GM and Ford execute their business strategties. They will not wait for forty years to see GM turn the corner as shareholders have. Crisis creates opportunity and there is tremendous opportunity within Ford and GM.
Today, the reality sets in. GM is seeing market share losses and sales losses accelerate within North America. The numbers we are seeing out of GM are extremely serious. People are simply overestimating the health of GM. For that matter Ford, Daimler Chrysler and Nissan are all reporting staggering sales drops. Total sales drops of 20 to 35% will lead to catastrophic consequences for these companies should they continue. At this rate GM and Ford will each burn through over ten billion or more in cash this year from what I've read. Their cash flow is negative or close to negative and simply cannot continue with such high capital requirements.
A little secret. Transportation stocks were warning you of this report. Trucking and railroads in the US are highly correlated to the health of the auto business in addition to being correlated to this commodity boom and current account deficit trade boom. While my data is dated, autos were once the largest clients of rails. Are they still?
While I am long term bullish on GM, and for that matter Ford, I am very negative on their investability. They have cut so far into the muscle of these companies that the critical mass required to maintain their pension plans is likely beyond repair. Eventual reorganizations will likely be required. Such a mess will only fuel debate within the national health care and pension crisis. Under such situations, outside interests will finally have control over how GM and Ford execute their business strategties. They will not wait for forty years to see GM turn the corner as shareholders have. Crisis creates opportunity and there is tremendous opportunity within Ford and GM.
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