Tuesday, November 13, 2007




A few days ago, a friend asked me what I thought of GM. I wrote the following reply. I realized later that it has been months since I have discussed the car business, formerly a regular feature of my blog, in the IP.

So here are my current thoughts on GM, as related to my buddy a few days ago:


No, I don’t like GM here. In fact, I just closed a put position yesterday at an enormous profit. I closed it not because I am enthusiastic about GM now, but only because I found it prudent to take a profit. I've hurt myself too many times in the past being a pig.

Why not GM?

--If we reach 16mm light vehicle sales in the U.S. this year, that will be a lot. That will make it very tough to make money in the car business.

--GM didn't get enough on the Jobs Bank in the new contract. They are coming at the problem in a different way; i.e., by reducing head count, but labor remains a fixed cost and thus there is too much incentive to overproduction, the bane of the Big 3. If GM can really limit production of the Enclave/Acadia/Outlook, I'll be impressed. But I'm not betting they will be able to do so.

--More problems will arise at ResCap.

--More auto credit problems will arise at GMAC.

--I hate the stock market, and the economy here.

--The mortgage problems, as I have said on my blog months ago, are not limited to sub-prime loans. Home equity loans have been a huge source of car financing, and that spigot has been shut. This will especially hurt GM in its expensive and big profit SUVs and Caddies.

All that having been said, when things shake out in the economy (a couple years), and I am looking for a car company to buy, GM will be near the top of the list, right after F. (I love the article in the WSJ today saying "no one" anticipated F's being closer to profitability than GM. Apparently, I am nobody. See my old IWCs, and note that I held onto a piece of F when I dumped GM at about $31 way back when. But I digress.) Product is very good. The contract, other than the Jobs Bank problem, was a good one. Its best feature may have been aligning the interests of the UAW with those of GM by putting so much stock in the VEBA. F, by the way, was able to fund its VEBA with an even greater proportion of stock.

GM is making a lot of progress, but not enough to counter some industry/economy/financial headwinds.

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