GM stock takes 24% hit after analyst report
With General Motors dropping its $2.5 billion bomb on Friday, analysts, brokers and the public at large were waiting until today to see where the General's stock price would end up. At the end of the day, it's hovering around $3.36 a share, up from this morning where it hit $3.04, or four pennies away from its lowest rate in over 60 years. The plunge is hardly a surprise as analysts -- and GM -- admit that without a Federally-funded cash injection the automaker would run out of working capital early next year, or worse, before the end of 2008. Throwing salt into the wound is Deutsche Bank, which reduced GM's rating to "sell" with a price target of $0.00.
In addition to the $25 billion in loans that Congress has already approved, Detroit's Big 2.8 have asked for another $25 billion, and House Speaker Nancy Pelosi shot off a letter to Treasury Secretary Henry Paulson trying to get the $700 billion bailout to the financial industry to include the U.S.' ailing automakers. Who knows what kind of stipulations would be attached if such an agreement would take place, but the wholesale removal of GM's board would be a good start.
[Sources: Automotive News – Sub. Req., Detroit News]
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Reader Comments (Page 1 of 5)
Tim 7:14PM (11/10/2008)
Detroit's Big 2.8 more like 2.5 or 2.2
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SITEiNK 4:49AM (11/11/2008)
um.... buy, buy, buy low...
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http://www.ROCKandREVIEW.com/
Travis 10:50AM (11/11/2008)
buy low, sell when it gets to zero?
buy low didn't work with Bear Sterns, WaMu, Fannie/Freddie, etc.
UH2L 7:19PM (11/10/2008)
Analysts have way too much sway and people follow way too easily. GM is still the same company it was yesterday with much the same political, economic and industry situation.
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aaron 12:18AM (11/25/2008)
i couldn't agree more... even though as speculated, there is a danger of GM filing chapter 11 which will basically wipe out the shareholders...
Dan 10:19PM (11/10/2008)
Yes, GM is the same company it was on Friday.
Friday GM had a scary balance sheet in a scary market.
Today the numbers are crunched to put a date of death on the sheet. And that date is so close that investors can no longer reasonably entertain fantasies of a miracle from left field to turn the corner and save the company.
LeMuRfArT 7:27PM (11/10/2008)
im going to catch some flak for this but i blame unions.
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Russell 7:40PM (11/10/2008)
I blame free trade.
Big Rocket 7:47PM (11/10/2008)
@LeMuRfArT: I blame unions, too, but I wouldn't stop there.
1. UAW: The Big 3's average labor cost for every union worker is over $60 an hour. Many of these workers also received contract buyouts up to $100,000 each. This cost of doing business with the UAW is much higher than what Japanese and German competitors pay for non-union American labor, saps the financial health of the Big 3, and reduces the amount of R&D funds available for product development.
2. Upper management: Many top executives enjoy multi-million-dollar salaries, multi-million-dollar severance packages, corporate private jets, and this is just what has been disclosed to the public. Again, this saps the financial health of the Big 3.
3. Marketing Department: Any responsible Marketing department is supposed to look at market trends to guide future product development, thereby safeguarding the future viability of the company. Instead of doing that, the Marketing folks at the Big 3 only looked at short-term profits, and focused on big SUVs and trucks when they sold well with low gas prices. This came at the expense of a diversified product portfolio, and the lack of fuel-efficient cars came back and hurt the Big 3 dearly as gas prices soared.
UH2L 8:11PM (11/10/2008)
Don't blame marketing. Many of us who worked there noted the trends but convincing upper management wasn't always easy, and sometimes not possible. I advocated smaller engines, diesels, bringing over European cars and working on fewer crossover platforms and on more car platforms "just in case gas prices went higher." I and many others were right, but western corporations, (not just automotive), focus on short term profits and quarterly shareholder returns.
Big Rocket 8:35PM (11/10/2008)
@UH2L: Okay, then. Maybe not everyone who worked at Marketing, but the ones on top, such as the Chief Marketing Officer, who ignored the need for a diversified product portfolio, and ignored the advice of people like you.
Nightcrawler 4:28PM (11/11/2008)
I have a hard time blaming the unions. Sure, the union costs are a big part of the problem, but the union is just looking out for themselves and you can't really blame them for that.
When a UAW contract is being negotiated at a time when the automakers are making money, is the union supposed to step back and say "Wait, we can't take that much money for our members. Times may be bad down the road and at that point you won't be able to afford that contract. You'd better give us a less generous deal."
Basically, the unions function is to negotiate the best deal they can, so I can't really blame them for doing it.
Joshua 9:28AM (11/11/2008)
i completely agree with you. unions do not benefit companies.
Epyx 9:51AM (11/11/2008)
Ok, I am no fan of unions but I would have to assume the labor costs in Germany and France rival or surpass the US. How do the German companies and Renault manage to deal with it? VW, and BMW still make plenty of cars in Germany and manage to absorb the high labor costs.
Even if you do blame the Union is GM just as responsible for negotiating the agreements?
I blame crappy cars (not trucks) and nothing else. Sure there are a few good ones but the volume sellers have not been competitive for 30+ years.
Big Rocket 12:25PM (11/11/2008)
@Epyx: Others have mentioned to me union labor costs in Germany were higher than in the US, but I haven't been able to find anything about that from Google, so I can't prove or disprove it. I'm skeptical of such claims, if only because Europe in general has universal health care funded by their taxpayers, whereas GM has to pay exorbitant health care costs for UAW workers out of its own corporate accounts. Now, GM executives agreed to these exorbitant health care liabilities during negotiations with the UAW, but this often came at the threat of a labor strike that would have been more expensive in the short term than caving in to union demands. Having said all that, I agree with your key point: a focus on competitive vehicles is crucial. And the best way to free up funds for R&D, without a bailout by American taxpayers, is to slash executive pay and union labor costs via Chapter 11 protection.
happy_penguin 2:11PM (11/11/2008)
"Big Rocket @ Nov 10th 2008 7:47PM
1. UAW: The Big 3's average labor cost for every union worker is over $60 an hour."
Oh so today it's $60/hr. What happened to $70/hr and $80/hr? I'll tell you what happened to it. It doesn't exist, because the numbers are fabricated by the corporation to generate hate for the employees and the union. How about asking for a balance sheet to prove the figures? Do you even know what the hourly pay is for a union production worker at the big three? Do you think the number could be tripled by benefits? You're gullible.
Big Rocket 4:58PM (11/11/2008)
@happy_penguin: The GM advocates kept mentioning the 2.5 to 3 million jobs that would be lost if GM does not receive a government bailout at the expense of the taxpayers. I suspected it, and I came up with evidence to show the numbers were fabricated by a firm with very close ties to the auto industry. Now, if you don't believe the $60/hr labor cost figures, I would suggest you do the same, and come up with evidence to back up your claim the numbers are fake. Otherwise, nobody is as gullible as you think to take you seriously without evidence.
Washington Post: "The Center for Automotive Research said this morning that if ... GM, Ford and Chrysler ... fail, it will mean the loss of 3 million jobs across the entire auto sector in the first year of collapse."
http://voices.washingtonpost.com/economy-watch/2008/11/report_3m_jobs_lost_with_autom.html
The Ohio State University: "Dr. Giorgio Rizzoni, Director, Center for Automotive Research... His research has been funded by, among others, General Motors, Ford, DaimlerChrysler, Delphi , Visteon, Dana, ArvinMeritor, Fiat, Honda, Lamborghini..."
http://car.osu.edu/drupal/index.php?q=node/46
Bloomberg, 2008: "Ford's... $60 expense for a current UAW member's wages and benefits."
http://www.bloomberg.com/apps/news?pid=20601209&sid=aRxTHKjUeS7w&refer=transportation
David 7:29PM (11/10/2008)
Hell, in for a penny, in for a pound. We decided to fork over nearly a trillion dollars in taxpayer funds to prop up banks that don't even produce anything. What's the big deal about using a fraction of that to bailout automakers that at least manufacture an actual product and employ (directly and indirectly) a great many people?
Attach many of the same kinds of stipulations to the investment -- so eventually we can recoup it -- but give it already. It's time to face reality -- we don't actually want to lose our domestic auto manufacturing. The downsides are almost infinite, the upsides nonexistent. Maybe we don't need three of them, but we damn well need at least one.
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Russell 7:39PM (11/10/2008)
I agree, we need this industry. Anyone saying that we don't need our own auto industry take a look at a DHL company, they decided to exit this market and don't give a sh!t about jobs. Now imagine foreign automakers will say they no longer interested in building cars in the US.
Samurai Jack 7:43PM (11/10/2008)
The "big deal" lies in the fact that the taxpayer's purse isn't bottomless. Many people believe this is so, but they're wrong. The government's creditworthiness extends only so far as its ability to tax its citizens. Americans have shown themselves to be far too selfish to tax themselves for the greater good, let alone the good of the auto industry. We've already spent over a trillion dollars on financial bailouts. We're approaching a trillion dollars in war funding. All of this on top of a huge budget and trade deficit. At what point do you draw the line? Sooner or later the rest of the world is going to call in their markers and we'll all be in a world of hurt. If you say yes to the banks and automakers it will be that much harder to say no to the airlines and retailers when they come calling next week or next month. So again, where do you draw the line? It's not just GM at stake but the future of the country. So choose wisely.