General Motors Is Headed For Bankruptcy -- Again

[X Factor 1,112]

General Motors Is Headed For Bankruptcy -- Again

President Obama is proud of his bailout of General Motors. That’s good, because, if he wins a second term, he is probably going to have to bail GM out again. The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share. However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.

It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling. It would be too embarrassing politically. Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.

GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.

In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market. For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011. With a loss of market share comes a loss of relative cost-competitiveness. There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.

To help understand why GM keeps losing market share, let’s look at the saga of the Chevy Malibu.

The Malibu is GM’s entry in the automobile market’s “D-Segment”. The D-Segment comprises mid-size, popularly priced, family sedans, like the Toyota Camry and the Honda Accord. The D-Segment accounted for 14.7% of the total U.S. vehicle market in 2011, and 21.3% during the first 7 months of 2012.

Because the D-Segment is the highest volume single vehicle class in the U.S., and the U.S. is GM’s home market, it is difficult to imagine how GM could survive long term unless it can profitably develop, manufacture, and market a vehicle that can hold its own in the D-Segment. This is true not only because of the revenue potential of the D-Segment, but also because of what an also-ran Malibu would say about GM’s ability to execute at this time in its history.

GM is in the process of introducing a totally redesigned 2013 Chevy Malibu. It will compete in the D-Segment with, among others, the following: the Ford Fusion (totally redesigned for 2013); the Honda Accord (totally redesigned for 2013); the Hyundai Sonata (totally redesigned for 2011); the Nissan Altima (totally redesigned for 2013); the Toyota Camry (refreshed for 2013); and the Volkswagen Passat (totally redesigned for 2012).

Automobile technology is progressing so fast that the best vehicle in a given segment is usually just the newest design in that segment. Accordingly, if a car company comes out with a new, completely redesigned vehicle, it had better be superior to the older models being offered by its competitors. If it is not, the company will spend the next five years (the usual time between major redesigns in this segment) losing market share and/or offering costly “incentives” to “move the metal”.

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[rocks 494]

Maybe if they didn't make such crappy vehicles...

[X Factor 1,112]

Maybe if they didn't make such crappy vehicles...

Yep and it goes to show why bailing out failed companies may not be a good idea. The market place had already spoken about the quality of the products they made in comparison to others.

[Teddy B 17,252]

But they're too big to fail.

[mox 298]

I wouldn't put too much stock into this article. GM, like the rest of the economy, is struggling. Headed towards bankruptcy? Every company whose stock is down is "headed towards bankruptcy." Woodhill's been a huge critic of the bailout for a long time, so of course he's going to see what he wants to see. He picks one example with the Malibu, says the 2013 model isn't as good as the 2012 model, but can only support this because it doesn't beat a couple other cars in gas mileage, and its drivetrain isn't the latest and greatest. Consumer Reports (which gave the 2013 Malibu a favorable rating, although rightly dinged them on fuel economy) says this about the drive train:

While this powertrain isn't as efficient as the full hybrid system in the Toyota Camry or Ford Fusion, the Malibu Eco doesn't cost as much as those cars either.

http://news.consumerreports.org/cars/2012/03/just-in-2013-chevrolet-malibu-eco-video.html

Would have been nice if Woodhill mentioned that. Woodhill is basically saying the Malibu sucks because it's not some other car he likes. And even if he's right about the Malibu, one car does not determine an entire company's fortunes, especially not one the size of GM.

GM does have an image problem, but then the whole US automobile segment has been struggling with an image problem for years. And they very well could wind up in bankruptcy again, but it won't because Woodhill wishes it. This is nothing more than a shot in the dark, so that if he happens to be right, he can point back to this article and call himself prescient.

[Teddy B 17,252]

I wouldn't put too much stock into this article. GM, like the rest of the economy, is struggling. Headed towards bankruptcy? Every company whose stock is down is "headed towards bankruptcy." Woodhill's been a huge critic of the bailout for a long time, so of course he's going to see what he wants to see. He picks one example with the Malibu, says the 2013 model isn't as good as the 2012 model, but can only support this because it doesn't beat a couple other cars in gas mileage, and its drivetrain isn't the latest and greatest. Consumer Reports (which gave the 2013 Malibu a favorable rating, although rightly dinged them on fuel economy) says this about the drive train:

http://news.consumerreports.org/cars/2012/03/just-in-2013-chevrolet-malibu-eco-video.html

Would have been nice if Woodhill mentioned that. Woodhill is basically saying the Malibu sucks because it's not some other car he likes. And even if he's right about the Malibu, one car does not determine an entire company's fortunes, especially not one the size of GM.

GM does have an image problem, but then the whole US automobile segment has been struggling with an image problem for years. And they very well could wind up in bankruptcy again, but it won't because Woodhill wishes it. This is nothing more than a shot in the dark, so that if he happens to be right, he can point back to this article and call himself prescient.

Why wouldn't you put too much stock in this article, is it not true? Most companies stocks are on the way up, not 39% less than what they were worth just two years ago, and 49% under the Dow average. GM is in trouble.

[Obama 2012 1,714]

I wouldn't put too much stock into this article. GM, like the rest of the economy, is struggling. Headed towards bankruptcy? Every company whose stock is down is "headed towards bankruptcy." Woodhill's been a huge critic of the bailout for a long time, so of course he's going to see what he wants to see. He picks one example with the Malibu, says the 2013 model isn't as good as the 2012 model, but can only support this because it doesn't beat a couple other cars in gas mileage, and its drivetrain isn't the latest and greatest. Consumer Reports (which gave the 2013 Malibu a favorable rating, although rightly dinged them on fuel economy) says this about the drive train:

http://news.consumerreports.org/cars/2012/03/just-in-2013-chevrolet-malibu-eco-video.html

Would have been nice if Woodhill mentioned that. Woodhill is basically saying the Malibu sucks because it's not some other car he likes. And even if he's right about the Malibu, one car does not determine an entire company's fortunes, especially not one the size of GM.

GM does have an image problem, but then the whole US automobile segment has been struggling with an image problem for years. And they very well could wind up in bankruptcy again, but it won't because Woodhill wishes it. This is nothing more than a shot in the dark, so that if he happens to be right, he can point back to this article and call himself prescient.

the whole American automobile industry segment has been struggling? Really?

Ford had to be bailed out? Ford has been failing and struggling?

Ha.

[rocks 494]

Ford has been failing and struggling?

They make ####### cars.

[mox 298]

Ford stock:

Current price: 9.62

52 week high 13.05

52 week low 8.82

Over the last year, Ford has lost about 27% of their value. Not exactly 39%, but pretty significant.

[Obama 2012 1,714]

They make ####### cars.

The fusion disagrees with you.

[rocks 494]

The fusion disagrees with you.

If only they still made these...

[Teddy B 17,252]

If only they still made these...

I'd prefer one of these.

[rocks 494]

I'd prefer one of these.

Good choice. Mine was a more realistic option! Those are also good. Have you been in a new Mustang? They're horrible.

[Teddy B 17,252]

Good choice. Mine was a more realistic option! Those are also good. Have you been in a new Mustang? They're horrible.

I haven't driven a Mustang since I worked for Ford as a mechanic in the 80's. My buddy and I also used to race a Shelby GT at New England Dragway during that time, lot's of fun. I still think they make one of the better vehicles around. I own 2, an F150 and a Edge, both drive nice and cause little to no problems in the repair department.

[rocks 494]

I haven't driven a Mustang since I worked for Ford as a mechanic in the 80's. My buddy and I also used to race a Shelby GT at New England Dragway during that time, lot's of fun. I still think they make one of the better vehicles around. I own 2, an F150 and a Edge, both drive nice and cause little to no problems in the repair department.

Wow you got lucky. I have had nothing but trouble with Ford (and GMC). As a result I can only trust Japanese vehicles now.