Fiat Chrysler Automobiles’ CEO Sergio Marchionne’s quest to merge his company with General Motors continues to garner attention and draw suggestions that GM might be shooting itself in the foot by ignoring the offer to talk. Two respected sources weighed in on the drama, most notably CNBC anchor and ex-hedge fund manager Jim Cramer who has lost confidence in GM management and dumped his shares of the company.
Rumors have circulated that General Motors is considering building Buick SUVs in China which would be sold both there and in the USA. The timing of the leaked plans could not be worse as China markets continue to collapse, spreading contagion to world markets. The timing also coincides with GM’s negotiations with the UAW, raising the suspicion that GM is using the rumor to leverage their bargaining power with the UAW.
Why is GM focusing so much on the Chinese market at the worst of times? Regardless of the weakening Chinese economy, it would be challenging to convince American consumers to purchase SUVs built in China given the perception of lower quality and safety standards. China also has not been the best of US allies considering ongoing computer hacking allegations, aggressive military build-ups and unfair currency devaluation tactics.
Oh, sure, after another dismal performance (operating loss of $47 million) for Tesla Motors during the most recent quarter, its stock price took an immediate dive of 9-10 percent. But while that merely returned the electric automaker back to irrational exuberance territory – as compared to the drunken sailor highs it has enjoyed in recent months – it didn’t take long for some market analyst to restore the inflation.
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 appears – two years after Boeing had fire incidents from installed lithium ion batteries that shut down deliveries of its vaunted Dreamliner 787 – that its “solution” to “vent” heat and flames outside the aircrafts has prevented any catastrophes, so far.
But it hasn’t alleviated concerns about the batteries’ physics and makeup. Last week Boeing issued a warning to its airline customers to not carry bulk shipments of lithium-ions because if they catch fire or overheat, they’re unstoppable. A spokesman told the Associated Press that the manufacturer has advised airlines not to transport the batteries “until safer methods of packaging and transport are established and implemented.” Likewise, the FAA simultaneously stated that its research has found that carriage of lithium ion batteries “presents a risk.”
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.