General Motors’ shares have taken a hit this week with the catalyst for the latest downturn being news out of China. Continued weakness in China (including weakening car sales) has led the country to devalue its currency in an attempt to bolster its economy at the expense of its trading partners. This latest news confirms my views that GM’s China gamble puts the company and its shareholders at increased risk. The horrible performance of GM’s stock over the past few months also brings into question the rationale for the much-hyped share buyback that was instigated by ex-Obama Auto Task Force member, Harry Wilson, in photo.
General Motors recently announced that it will spend $5 billion on a joint venture with Chinese state-owned SAIC Motor to develop vehicles for emerging markets. The announcement came around the same time that GM reported results for 2015 second quarter earnings, which showed cash and cash equivalents decreasing $2.2 billion in the first six months of the year. Marketable securities also declined by $2 billion during that time frame.
It would appear that the insiders at General Motors do not have as rosy a view on the financial outlook for the company as they would have the rest of the public believe. The well-paid executives at GM sold out of another $2.8 million worth of shares in June according to Yahoo Financial statistics. Of course, the sales of shares are pure profits for the higher-ups at GM, considering that the elite group of executives receive millions of dollars’ worth of GM shares for free through stock options.
General Motors seems intent on becoming the global leader in producing money-losing vehicles that attempt to compete with Tesla. The latest so-called Tesla Killer from GM is the Chevy Bolt and the hype is beginning with media articles such as With Jab at Tesla, GM Amps Up Chevy Bolt Promotion, Testing. GM shareholders need this latest sequel to the Tesla Killer series as much as movie aficionados need another sequel of Police Academy.
Earlier this month, the Wall Street Journal reported that the United Auto Workers union (UAW) was drawing up contingency plans to strike if upcoming negotiations with General Motors, Ford and Fiat Chrysler Automobiles do not satisfy UAW officials. The UAW is leveraging the good timing of the negotiations, which are occurring at the same time as the auto industry’s cyclical top.
The Wall Street Journal recently reported that Fiat Chrysler Automobiles CEO, Sergio Marchionne, has been pressing for a merger with General Motors. Marchionne has been appealing to hedge funds and activist investors in a move that seems to verge on desperation. The main takeaways from the appeal are that the government bailouts of GM and Chrysler were not a long-term fix for the industry and that Mr. Marchionne is one of the few experts on the industry who is honest enough to admit it.
The New York Times reports that the Justice Department has concluded that there was criminal wrongdoing by General Motors as the company covered-up a deadly ignition switch defect for years. That defect has now been blamed for causing the deaths of at least 107 motorists. While many observers may have been able to come to the conclusion that GM was guilty long before the Justice Department’s recent epiphany, the bigger question now is, what’s next?
It appears that General Motors is trying to remedy one of the latest criticisms against them. That criticism is that the company has way too large a “cash hoard” and most recently came from former Obama Auto Task Force member turned shareholder activist, Harry Wilson. Well Harry, be at ease; GM has managed to reduce that so-called hoard by over $3 billion in just three months as first quarter earnings flopped on Wall Street.
The verdict is in from the National Highway Traffic Safety Administration (NHTSA) on General Motors’ corroding brake line problem. Despite having received thousands of complaints from motorists regarding brake failure due to brake line rust, the agency claims GM does not have higher failure rates than other manufacturers. The clear evidence to the contrary makes this a classic case of what economists call "regulatory capture." First identified by Nobel laureate George Stigler (in photo) in 1971, it's when a government agency tasked with protecting the public interest instead acts to the benefit of an industry or particular company.
Depositions for General Motors’ executives, including CEO Mary Barra, will begin in May, according to the Detroit News. The testimonies will be at the center of class-action lawsuits (set for trial in January, 2016) against GM for its ignition switch defect cover-up and are slated to conclude in early October of this year. It will not be the first time Barra has testified under oath about the recall debacle which is now blamed for having caused 74 deaths.