Last week, ex-car czar Steven Rattner seemed to pre-emptively blame rising gas prices for problems at bailed-out General Motors. Now AP reports that GM says that it will cut unnecessary spending in the wake of the Japan disaster. Here’s a novel thought for GM executives, you shouldn’t be spending taxpayer money unnecessarily in the first place! Beyond that, I get the sense that the crisis in Japan will be the next excuse for the continued underperformance of GM stock since its IPO.
Spending cuts less than two years after receiving a $50 billion bailout may be a sign that GM’s problems run deep. I have noted many of the challenges facing GM in my piece written on March 7th. While production disruptions stemming from the lack of Japanese parts is a logical reason for short term concern, it seems that GM and journalists covering GM continue to come up with excuses for the company’s poor performance. I’m getting the sense that GM is a company lacking focus and relying upon misdirection to distract from more serious underlying problems. When I searched for a news release directly from GM to get their take on the disruption, the latest releases I found were from Friday, March 18th. One release was related to a joint GM, NASA project for the Robonaut 2 deployment into space. The other GM release was about a Downers Grove resident who won the General Motors Hero Program and will receive a free week-long loan of a GM vehicle. Talk about taking your eye off the prize! Stories of GM benevolence abound while share price declines are justified by blaming uncontrollable events.
When GM shares took a hit after reporting disappointing fourth quarter earnings, many attributed the downturn to rising oil prices. The problem with that theory is that much of the decline came on the day of the earnings release; a day that oil prices actually declined. Peter Flaherty wrote a piece last week regarding Steven Rattner’s loss of optimism for GM. Particularly surprising were statements by Rattner made during a CNBC interview explaining that the over-arching problem was the pricing of oil and that GM was not well positioned to deal with the situation. I guess Mr. Rattner doesn’t buy into the Chevy Volt hype. He states that GM “can’t suddenly come out with a new car model to deal with the rising price of oil.” Journalists did not pursue the glaring absence of the Chevy Volt as a possible answer to rising oil prices.
The resignation of GM CFO, Chris Liddell, also was viewed as a weight upon GM’s share price. This excuse has merit, as it exemplifies the management instability at GM. There may also be an untold story behind Liddell’s departure. The reason given by GM for the departure was that Liddell wanted to be a CEO and not a CFO. That might make sense if Liddell was leaving to become a CEO at another firm, but that was not the case. This one just doesn’t pass the smell test.
So now we come to our latest in a series of excuses, the Japan crisis. I suspect GM shares will underperform on the news. It should be noted; however, that supply chain disruptions, as well as unstable management and volatile oil prices, should have been noted as risks factors by the analysts who cover GM. None of the negative news seems to affect the positive view on GM given by those that cover the GM story. At some point an honest dialogue should take place regarding the underlying problems at GM. GM ad spending and underwriting fees should not influence the analysis of the company. Journalistic integrity and credibility are suffering as the writing on the wall becomes clearer.
Disclosure: I am short GM, I did not receive TARP funds and I do not receive ad revenue or underwriting fees from GM.