GM: A Work in Progress

General Motors (GM/NYSE) has done okay since being recommended on Controlled Greed.com at $26.75 per share in April 2005. We've had a rough road between then and now, especially when it was trading below $20 for a while. And even though it has been mostly above $30 recently, I've been saying more work needs to be done.

GM is like a supertanker at sea. And while I believe it's not lost at sea, I know it won't turn on a dime.

I continue holding my stake because the company is a work in progress and I knew that when the position was established two years ago.

You and I get reminded of the GM rocky road when reading articles like the one in today's Wall Street Journal:

Despite strong showings by GM's auto operations in emerging markets, net income plunged 90%, mainly as a result of its share of a big loss by GMAC Financial Services, its former lending unit, which was hurt by increasing defaults on subprime, or high-risk, home loans. Hefty profits from GMAC, in which GM still retains a 49% stake, in the past had helped offset difficulties in GM's auto business.

GM also continued to struggle in North America, where its auto business has slashed tens of thousands of jobs and billions of dollars in fixed costs but still ended up losing $46 million in the quarter. Its efforts to cut back in North America contributed to losing its title as world's No. 1 auto maker by vehicle sales to Toyota Motor Corp. earlier this month.

Comments

[Robert]

Like a supertanker....not. More like those 700 pound bedridden over-eaters. Dependent on others for their every daily activities.."bring me food, dear.."turn the TV on, dear..on and on.....the outcome will be an early death.

[John]

Robert: I take it you're not long GM? ;-)

[Gary Huntzinger]

No one in their right mind can argue the failures at GM in the 80's. That is no excuse for us to not be in our right mind in 2007. In 2005 & 2006 Toyoyta had a larger number of vehicles that they recalled for quality issues than they actually manufactured in those two record volume production years. These affected cars are now being considered for replacement being from two to five years old. Defective quality is the price of Toyota's exploding volume. I do not see any analyst reporting this as a possible reason for major concern at Toyota with the April malaise ending the great run of year of year monthly sales.

The Japaneese workers not American who manufactired the sludge engine debacle has Toyota very concerned as quality is slipping on all fronts. For the first time in 25 years they have the potential to loose long standing customers just as GM did back in the 80's. The year 2007 marks a change in Toyota's perceived quality advantage because the American car buyer is intelligent and the quality perception and reality come to terms in 2007. My money says Toyota has peaked as their poor recent quality will eventually cost them many long standing customers to GM.

Speaking of GM, they have finally stopped the negative cash flow in their last two quarterly reports. As soon as the GM cash flow goes positive the stock price will explode. If you believe in trends and you look at the incredible turn around at GM in quality and cash flow then you have to believe this sleeping giant is awake and doing a whole lot more than just gaining momemtum. GM at the end of the first quarter 2007 has 14 billion dollars more in cash than GM stock is presently worth.

GM's current stock price relative to current trends and cash in the bank, is the biggest mystery to me on Wall Street. GM has had a fully funded pension plan for three years and the union and company are working much better together in the here and now as they are heading into this contract year. Case in point, the GM/UAW Health & Safety cooperative effort has just put them into first place in not only the auto industry but all industry. A momumental turn around if you looked at GM a few years ago. In this contract year, a cooperative effort continues from their mutal realization that they will win or loose together. This contract can result in a win/win agreement drastically reducing the $1700 per car advantage that Toyota has in health care.

If our government gets involved in the Japaneese yen de-value manipuplation and health care cost to the average American, then the disadvantage number gets much closer to equality in fixed cost per car. You ask why is this an issue, take an honest look at how much content is American made or Japaneese made in Toyota. Take a look at Japaneese national health care and goverment controlled trade value of the yen.

I have and my money is now on GM, not Toyota. If this contract in the fall is a win/win and the government tries to level the playing field, then the analyst will scream as loudly as they can. BUY GM, one of the greatest turn around success stories in the history of US capatalism!