Looking Down the Road
Harley Davidson had a 4 times larger market cap than GM, based on the stock price just before Chapter 11. Does anyone think that stock value is representative of a revitalized low cost GM in a 15 million SAAR, 15% market share, low fuel price market? There could be a good argument made that buying GM stock after they reemerge from BK could be the equivalent of buying a good company at an IPO price. No guarantees of the low fuel price, but I’d bet on the 15% market share and 15 million SAAR within 3 years.
With labor costs trimmed down to S. Detroit standards and a shedding of many other costs, the restructuring task force has supposedly enabled GM to break even during periods when the SAAR is at it’s current 9 – 10 million level. Imagine the profits when and if the SAAR reaches 13 – 15 million if they can maintain 80% of their recent market penetration. Imagine 16 – 17 million SAAR again! There will be a rush to reopen plants and hire/rehire workers. IF the price of fuel remains low, and heavy Trucks and SUVs remain popular, there will be big profits even if GM and Chrysler have to pay CAFE fines for not reaching the CAFE target. Will the production constraints imposed due to task force mandates, in the face of the current low SAAR, enable Ford, Toyota, Honda, etc. to make market inroads? GM and Chrysler won’t be able to respond quickly to an uptick in the economy.
What is not being mentioned is that the moves of the task force will impact transactional profit of both dealers and the manufacturers. It will go up. Yes, consumers WILL pay more. Dealers will have less same division competition. New vehicles will sell with less incentive and rebate spending. Doesn’t sound like a Democrat objective, but that’s what’s going on! Sounds like Obama wants OUT as soon as possible. Once the gov’t is out, the manufacturers can fix some of the things the task force imposed that turned out to be counter productive. They will also be free to screw things up again.
Personally, I don’t have ANY interest in investing in companies who so back stabbed their customers! GM and Chrysler’s Dealers are their customers, something they seem to forget.
It is also amazing to me how many people don’t understand that the factory makes it’s money when it drafts the dealer’s floor plan account immediately after a new vehicle is produced. The OEMs have ALREADY BEEN PAID for all those vehicles laying around on dealer lots! I wonder how many on the “task force” actually know this?
