AFSCME 3357-HOF'S BLOG

GM reports losses. Stock tanks. Sales Slumping. Junk bond rating - imminent: Other than that Mrs. Lincoln, how did you like the play?

If you don't like to see General Motors get hammered, for God's sake, don't read or watch the news. At the beginning of this year, despite facing lots of adversity, General Motors stock was trading fairly steadily around $40.00 per share. With the announcement of a quarterly loss a couple days ago, GM stock went in the toilet. As I write this it is trading in the $28-29 range, more than a 25% drop from the beginning of the year. Big company stocks in mature industries just don't drop like that do they? I guess they do.

Google Financial Information: GM

One of my readers who shall remain named K___ W. Sent me a link to an analysis by Executive Intelligence Review at

http://www.larouchepub.com/other/2005/3211gmac.html


Boy, what a downer article - probably accurate to a fault, but a downer. Here's the part that was most striking to me:



"GM Decline to Junk Shows Waning Confidence in Automaker," headlined a long, March 8 Bloomberg News analysis of the fallout from February's sharp drop in U.S. auto sales. During 2004, General Motors tried to pump up its sales with circus-level rebates for auto buyers of more than $5,000 per vehicle (the entire U.S. auto sector gave an average $2,700 rebate on every vehicle in 2004, but GM's doubled those of the other makers). When, at the beginning of 2005, it tried to reduce the rebates somewhat, while oil, gasoline, steel, and industrial commodity prices were zooming up and total auto sales were falling, GM hit a wall; its January sales were 9% below a year earlier, and February's were 13% down despite its having suddenly lowered prices in mid-February. Its bonds' credit rating is now just one notch above junk, with a "negative outlook" from Fitch rating agency pointing the way to junk-bond status within weeks or months.

It's hard enough when GM pays twice as much in employee health costs as even the captive domestics, Pays a lot more in retiree and "legacy costs", has older factories,etc., but when the Finance arm has to pay junk bond rates, it's going to be the straw that broke the camel's back. GMAC is what has kept General Motors going over the last few years. After 9-11, the General's decision to ramp up rebates to spark sales, not only probably saved the company, it may have saved us from the worst economic downturn since the Great Depression. GM would have a hard time doing the same thing today.

My solution?

If I were the chairman of General Motors, I would call a stakeholder's conference. I would invite local, national and international government officials, representatives from unions from all affected contries, investors, suppliers & their unions, dealers, retirees, and randomly selected customers. Over a week, run through all the what-if scenarios, with computer simulations available to play out the results, and see if we could get a consensus on policies that give everybody a better future than is now in the cards. Right now, as things are going, I can't imagine a scenario that doesn't put General Motors in bankruptcy in 5-10 years, maybe sooner. That would be bad for me personally, but it would be worse for a lot of other folks.