Fans of the federal govern ment’s auto bailout will push the “GM comeback” story at this week’s New York International Auto Show. Good luck with that one.
Taxpayers still own about 26 percent of GM, and it looks increasingly unlikely that they’ll ever get their money back: The share price would have to rise to more than $54, and it’s stuck in the low thirties. Here’s why:
GM’s management team lacks stability, with Dan Akerson being the fourth chief executive in less than two years (oh, and CFO Chris Liddell recently resigned).
One of Akerson’s main focuses has been to ballyhoo the Chevy Volt, but Consumer Reports says GM’s hybrid “just doesn’t make a lot of sense.” More important, it isn’t selling — only 1,210 Volts have sold this year through the end of March.
Akerson also likes to talk about China as GM’s “crown jewel.” Huh? The Chinese market is far less profitable than North America. Anyway, GM lost ground on both market share and profitability in China in the fourth quarter. (China first-quarter sales figures will be issued when GM reports earnings next month.)
GM’s European division, Opel, continues to struggle. It’s not clear when, if at all, Opel will get out of the red.
Adding insult to injury, Ford — which avoided a federal bailout — sold more vehicles than GM in March, for only the second time in the last 13 years. GM sales growth the month before was driven by incentives that were about $1,000 higher per vehicle than Ford and the industry average. This is an indication that Ford benefits from a stronger product lineup than GM.
Of course, part of GM’s problem is that when it took a bailout from the Obama administration, it handed a trump card to Obama’s stalwart ally, the United Auto Workers. The company’s been unable to do much about its huge liabilities for UAW obligations and retiree pensions.
There are other problems. Rising gas prices are sure to hurt GM’s more profitable truck and SUV lines, without doing much for the Volt. And GM is the only major automaker that relies on an outside source (Ally Financial) to finance the majority of its retail sales and dealership inventory financing. In-house (“captive”) financing is generally thought to be crucial to any automaker’s success.
More problems are already in the pipeline. The company’s probably going to have to dilute its shares again: It recently laid the groundwork for further dilution by raising the number of authorized shares from 2.5 billion to 5 billion. I don’t see how GM can meet its UAW pension obligations without issuing more shares — but that will inevitably push the stock price even further below the $54 price that’s break-even for the taxpayers.
Creditors of the old GM (Motors Liquidation Co.) will soon distribute warrants and shares for “New GM” that equal about 25 percent of outstanding shares — further diluting the stock. And when they finally get their equity, the bondholders who were forced to wait when the feds bailed out the company are very likely to flood the market with sell orders. Even more selling will come from other major stockholders like investment banks, the US and Canadian governments and the UAW when the IPO lockup period expires on May 13.
Neither current management nor its government masters dare admit it, but the truth is obvious: The bailout’s been a disaster for taxpayers and GM’s pre-bailout stock- and bondholders — and for GM itself.
Mark Modica was a business manager at a now-closed Saturn dealership in Chalfont, Pa., and then a steering-committee member of Main Street Bondholders, a coa ition of small GM investors. He is an associate fellow at the National Legal and Policy Center.