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I am no fan of GM.
Imagine if I offered you the opportunity to buy a company that sells a product that trails its competition in almost every category. It costs more to build their product. Margins are minimal. The company is on the hook for entitlements to its employees. And to add insult to injury, the product they produce is subpar on quality when compared to its competition. Would you buy this company?
If your answer is yes, go ahead and drop some cash on GM. For those with a little sanity, play the risk/reward scenario somewhere else.
Don't get me wrong, GM could be a great trade in the short term. For all the technicians out there, they can give you all the details. For those that buy stocks as a medium or long term play, GM isn't even on the radar. Most bloggers will detail reasons that are pro and con from the standpoint of the fundamentals, the management, or even the technicals. I will cover reasons why not to by GM stock from the consumer's standpoint.
GM makes products with poor quality, plain and simple.
Before all you Silverado driving guys give me a beating, hear me out. I am not saying that every single GM product is garbage. Their trucks and SUVs have been pretty good. I personally like the Silverado, although I do not own one. The Cadillac line has come on strong in the last 6 years. But GM is bigger than Trucks and Caddys. Just like a diversified investment portfolio, a company can't have all it's eggs in one basket when it comes to profits. With GM, that has been trucks and SUVs. What happens when that goes sour? Oh, never mind, that is already happening. Check your local newspaper to see the results to the tune of 15.5 billion dollars. And that's in the red, not in the black. That's chump change compared to GM's third quarter of '07, and the losses just keep on coming.
Most of the time, the debate about GM, Ford, or Chrysler is always framed by the "Buy American" premise. Somehow, people that buy American cars and trucks are suppossed to be more patriotic than those that didn't. If you buy a foreign car, then you are sending money overseas, and are a defacto Benedict Arnold. The problem for GM that has increased over the years--and it has taken a lot of years-- is hard core GM buyers have been slowly abandoning their first love, not because a foreign lady enticed them, but because their first love took them for granted and gave them a poor product time and time and time again. GM customers have ended up broke, sad, and lonely. Sounds like a good GM themed country song.
Case in point: talk to anyone with a GM vehicle that is two years old and ask them how much "upside down" they are in their loan. Don't talk to just one person, talk to as many as possible. Now do the same thing to Honda and Toyota owners. Compare the data.
Toyota and Honda owners are only upside down in their loans for a little over a year after they drive it off the lot. The cars hold their value, regardless of whether or not you want to argue that it is "only perception".
Value perceived is value achieved, and both Honda and Toyota are achieving.
Honda and Toyota cornered the market on fuel efficiency, and they slowly started taking away market share from the domestics with trucks and SUVs. They were smart, though. They didn't put all their eggs in one basket. High oil prices hurt the truck and SUVs, no problem. Diversification wins the day. On top of that, Honda and Toyota planned years ago for hybrid technology, and in the last 3 years it has paid off big. Go back to 2004 and see what GM's vice president of product development was saying about the hybrids at the following link:
http://money.cnn.com/2004/01/06/pf/autos/detroit_gm_hybrids/
What does GM have to show for the hybrid market? Oh yes, I forgot . . . they have the Johnny-come-lately to the party Chevy Volt in which they will lose money on every single one they sell. How is that good business again? My dad used to tell jokes about the dumb farmer from across the river (I grew up in Ohio, so you can guess where he was talking about) that would buy 50 bales of hay for $5 each and sell them at the market for $5 each. The dumb farmer claimed he was making up for the price by selling volume. Seems to me that GM has adopted this policy toward their hybrid line of vehicles. An expensive advertising campaign, perhaps?
GM vehicles simply do not last as long as the foreign cars. My own anecdotal evidence would be completely dismissed by domestic car zealots, but I can tell you that if you have popped the hood and actually turned wrenches on both domestics and foreign cars like I have, you would know what I am talking about. The only upside to GM vehicles have over foreign cars is the parts cost about 1/3 less......but it doesn't help when you have to fix it 3 times as often.
Have you ever had a GM car that had radiator problems? Many people did, since GM used "Dex-cool", and orange colored radiator fluid, in their systems from 1995 to 2004. Most people ended up overheating their cars and blowing their head gaskets (thats a $1600 or more repair). Every winter people are told to "winterize their cars" and some people top off their GM cars with green radiator fluid. The problem is that the orange fluid in the car doesn't mix with the green, causing clogging and overheaing. Only after a lawsuit did GM stop using Dex-cool . . . talk to any mechanic and they would have told you that Dex-cool was garbage back in 1996. Of course, it took 8 years and countless GM owners parting with their money for the change to take place. If you were lucky enough not to have the Dex-cool clog your cooling system, it also would eat away all of the gaskets in came in contact with, and depending on the car, more $$$$ in repairs. Water pumps, heater cores, and even transmissions are affected by this hair-brained idea that took over 8 years to correct. That is just one of many, many reasons people don't want to buy a GM vehicle.
The "Buy American" reason to buy a GM vehicle is also going the way of the dodo. Honda employs well over 15,000 Americans at its plant in Marysville, Ohio. Hondas . . . built by Americans, in America. Jobs supporting American families. Think about all the people connected to dealerships here in America selling Hondas. Now add all the mechanics doing the maintenance to Hondas here in America. The "Buy American" tagline for GM and Ford is tiresome, boring, and specious. It may have given them a bump in yester-year, but you can't treat your customers this bad for this long and expect them to stay.
For argument's sake, let's say that GM turns around tomorrow. How long will it be to gain back a customer's confidence in quality? That's for a marketer to figure out, but I can guarantee you, it doesn't happen overnight. Even if GM starts making the highest quality cars on the road starting tomorrow, it will take years for the perception to change. You must win customers to sell product, and you must sell product with real margin to make money. GM hasn't been doing it, and it shows.
Again, GM may be a trading opportunity for some, but I am staying away from it. For all the accolades I have laid upon TM and HMC, I am not buying them either. In this economic slowdown, there will be tough times ahead, and the shares will only get cheaper in the next 6 months. That will be a buying opportunity soon. Buy quality, and avoid garbage in motion.
-----Jonathan
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