GM stock price skids to 20 year low - Shares slipped as low as $18.33

[Marc]

Well, imagine that...

Shares tank as production plans from rival Toyota threaten to boot General Motors into second place.

December 20, 2005

DETROIT (Reuters) - Shares of General Motors Corp. fell to an 18-year low Tuesday after Toyota Motor Corp. unveiled production plans for 2006, increasing fears that GM will be toppled by its Japanese rival as the world's largest automaker.

Toyota said it plans to make a record 9.06 million cars in 2006, just shy of the 9.15 million cars and trucks that some analysts expect GM to build next year.

Shares of General Motors (down $0.85 to $20.20) slumped by 4.8 percent in afternoon trading on the New York Stock Exchange. The stock fell more than 5 percent to $19.63 earlier in the day -- its lowest point since 1987, after being adjusted for its spin-off of Delphi Corp. in 1999.

Shares have plunged nearly 50 percent this year.

GM does not provide sales or production forecasts on an annual basis, but some analysts said the current trend points to GM's inevitable tumble to second place for the first time in 70 years.

"Toyota will probably be the largest producer in the world at the end of 2006," said Richard Hilgert, auto analyst at Fitch Ratings, citing GM's slumping sales of large sport utility vehicles in the fuel-conscious market.

Burnham Securities analyst David Healy expects GM to produce 9.15 million vehicles in 2006, and expects Toyota to surpass GM as the world's largest automaker in 2007.

Toyota's production increase of 10 percent comes at a time when GM is shrinking capacity by slashing 30,000 jobs and closing 12 facilities in North America.

The automaker has lost nearly $4 billion this year as it struggles with high health-care and commodities costs, loss of U.S. market share to foreign rivals and sinking sales of large SUVs, its long-time profit generators.

"Investors are reacting to the Toyota figures," Argus Research analyst Kevin Tynan said. "Although it shouldn't be any great surprise. ... We've been saying for a while that at the current pace, Toyota will surpass GM next year."

Tynan said at current gas prices the Japanese automaker would overtake GM by the end of 2006.

Tynan also said many investors may be cutting losses at the end of year to offset gains made in 2005.

To make matters worse at GM, a strike at bankrupt Delphi could shut down plants and force the automaker to burn through billions of dollars a week, analysts say.

GM is said to be considering offering Delphi workers buyout packages, which would add to the automaker's obligation of up to $12 billion to former employees who were sent to Delphi after the spin-off.

But analysts say they would rather see GM pay for buyouts instead of facing a strike.

As part of its broader restructuring efforts, GM also negotiated a deal with its union that would save it $1 billion a year in health-care costs.

Analysts have said the cost-cutting efforts are not enough to turn things around at the auto giant until it starts regaining market share.

GM has also said it plans to sell a controlling stake in its General Motors Acceptance Corp. finance arm to restore investment-grade rating to the unit. But analysts have said a sale is not imminent.

"GMAC is definitely not going to be sold in 2005. So there's certainly going to be no news headline pop into the rest of this year. That's another reason investors are selling."

[Wes Bucey]

One aspect of the Big 3 I've hesitated to raise in this Forum is the reliance of each of the Big 3 on US tax laws which justify creating large "tax losses" in some operating divisions in order to shield profit in other units. The big payers in the stock market are aware of this and factor such into their equations of "liquidation value" versus market value of the stock shares.

At this point, most of the big investors are looking real hard at ALL the automotive sector to determine if there is residual value or if all the real estate and operating equipment really have a negative value because of the cost to convert them to other use.

The reason GM even considers selling GMAC is because GM is being pressured by the investors who will see it through bankruptcy, Those investors need their multiples buoyed up to use the shares as collateral on other deals. As junk rated securities, the shares can't be used as collateral on 3rd party deals. By spinning off GMAC, GM will make some lucky players instant BILLIONAIRES! You have to know that the "smart money" has been buying these shares up as they fell lower and lower as average investors lose courage and dump the shares rather than ride them into the toilet.

[Howard Atkins]

It's because they only bully the manufacturers

COMMENTARY
It could be all over for General Motors

THE famous Chinese general Sun Tzu wrote in The Art of War, “The responsibility for a martial host of a million lies in one man. He is the trigger of its spirit.” The best historical example is probably the Battle of Issus, in which Alexander the Great faced an enormous army of Persians.

Alexander knew, however, that he didn’t have to defeat all the Persians to win; he could win by defeating only one, as long as that one was the enemy king. He therefore orchestrated a cavalry charge against King Darius who lost his nerve, turned his chariot, and fled from the battle, thus telling his entire army that he thought the day was lost.

When any general — or the chief executive officer of a modern corporation — shows that he does not know how to handle a crisis, the organization’s morale collapses quickly. Any insider or even outsider with training in organizational psychology, meanwhile, knows that it is all over for the military or business entity in question.

I first saw this phenomenon at IBM during the early 1990s, when its CEO blamed the company’s problems on “too many employees standing around the water coolers.” Whether true or not, this was hardly the root cause of the company’s declining performance and this statement painted a devastating picture of a leader who simply did not know what to do.

The statements and actions of General Motors’ executives are now painting an equally bleak picture. CEO Rick Wagoner’s “A Portrait of My Industry” (Wall Street Journal, Dec. 6) shows that the company lacks the proactive leadership it needs to survive.

Wagoner praises the improved quality of GM vehicles, for which his company certainly deserves credit. Then, however, he complains about the “spiraling cost of health care in the United States” that adds $1,525 to the cost of every GM car and truck. Getting the United Auto Workers to agree to absorb more of the health care costs and then rewarding their cooperation with plant closings and 30,000 job cuts, however, does nothing to address the underlying problem: poor quality health care that wastes 30 to 60 cents of every health care dollar.

To put this waste in perspective, GM spent $5.2 billion on health care in 2005, of which $1.5 to $3 billion was squandered on poor quality. Dividing this among 565 million outstanding shares translates to $2.65 to $5.30 per share, which is a lot for a stock that now trades in the low $20s. Another way to look at it is that each GM customer paid $450 to $900 for medical mistakes and inefficiencies.

The fact that “A Portrait of My Industry” merely complains about the health care costs instead of offering a solution is especially distressing because GM’s own industry association, the Automotive Industry Action Group, is ready to spoon-feed the company an off-the-shelf solution. The AIAG has worked with the American Society for Quality to develop a health care-specific version of the internationally-recognized ISO 9000 quality system standard.

Implementation of ISO 9000 by GM’s health providers would reduce waste, inefficiencies, and medical mistakes that harm or even kill GM’s employees and retirees. (Roland E. Moore, director of the Department of Veterans Affairs Medical Center in Plains Township described some readily available medical quality assurance techniques, all of which are consistent with ISO 9000, in his letter of Nov. 13.)

Although GM already compels its part suppliers to meet the similar ISO/TS 16949 quality standard, it has yet to use its enormous purchasing power to demand similar performance from its health care suppliers. This lack of decisive and constructive action suggests very strongly that this company will not be around at the end of this decade.

Isn't ISO 9001 supposed to be for all industries!!!

[Wes Bucey]

I recall visiting the issue of spiraling health care costs and concurrent increases in all kinds of insurance (from product and personal liability to health insurance) at some time in the past.

Then, as now, I decried the general attitude of helplessness to control costs by attributing all woes to "the other guy."

Insurance companies claimed that spiraling lawsuit awards increased their costs, but ignored the disastrous investments they had made in securities, including some dot com investments. The insurance company solution to spiraling lawsuit awards (not backed up by ANY statistical study to prove their case) was to limit the awards to the plaintiffs who had been injured, rather than get to the root cause of lawsuits - major gaps in the quality of service and goods delivered by the policy holders.

Similarly, health care costs are predicated on high insurance costs for doctors and other healthcare providers. Few seem to focus on the root cause and employ Corrective Action and Preventive Action to lower the number and severity of incidents resulting in lawsuits.

Why have we as a profession failed to make an impact on corporate America that Quality really saves money, not costs money? What can WE do, starting today, to make EVERYONE more aware of the concept of problem solving to get to and eliminate the root cause of a problem?

[Howard Atkins]

Wes,
I am ignorant of the situation in the US but in Israel we have hospitals that are ISO9001 registered.Auditors from hospitals won the second and third prizes in a national auditor competition
My local hospital has an annual quality circle improvement competition with a festive evening for prize giving and the local quality managers organisation volunteer help.

[Wes Bucey]

Originally Posted by Howard Atkins

Wes,
I am ignorant of the situation in the US but in Israel we have hospitals that are ISO9001 registered.Auditors from hospitals won the second and third prizes in a national auditor competition
My local hospital has an annual quality circle improvement competition with a festive evening for prize giving and the local quality managers organisation volunteer help.

Even registration to ISO 9001:2000 does not guarantee an efficient operation, nor does it guarantee quality of goods or services. An organization may have good intentions when seeking registration, but experience has shown the road to "Hades" is paved with good intentions.

As a long-time Demingite, I am very leery of competitions and contests, in addition to slogans and individual awards for doing what one was supposed to do as a normal part of one's job.

You may have caught some of my rants in the ASQ Forums where I decry the mindless activity of some short-sighted folks attempting to institute Lean techniques in their organizations.

Notably, I mark as ridiculous most 5 S programs which make a big deal out of normal neatness and housekeeping as if it were some new discovery and where organizations hand out awards simply because someone picked up trash to make a clear path to perform work.

More problematic, but still an occasion for more extraneous activity than focused, effective activity is "kaizen" as practiced by many organizations. I won't continue the rant here, perhaps in another thread at another time.

My main point is that isolated examples of "some" organizations performing quality work do not constitute a trend. (after all, even a stopped analog clock is right twice a day!)

[Craig H.]

I find this very interesting. Here at the Cove we have anecdotal evidence of automotive suppliers being beaten about the head and shoulders to induce lower prices, yet the health care suppliers, supposedly largely responsible for GM's problems, are left alone? This fails the sniff test.

The Five Rings reference earlier is prophetic.

[bmccabe]

Originally Posted by Wes Bucey

Why have we as a profession failed to make an impact on corporate America that Quality really saves money, not costs money? What can WE do, starting today, to make EVERYONE more aware of the concept of problem solving to get to and eliminate the root cause of a problem?

That’s simple. Because the American way is based on piracy.

Check out this book:
http://www.amazon.com/gp/product/089...lance&n=283155
Engrained in Americas subconscious, is this steal, and retire young to a tropical island, name yourself king, and live happily ever after attitude. No remorse – I got mine, to he11 with you. Look good for the quarterly report, cook the books if you have to. Nevermind about next year, I’ll have sold 1000000 shares by then, and it will not be my problem.

Greed – As I have said before.