The GM Posterboys
Today, GM stock plunged 14%, the steepest single day loss since 1987. GM forecast its largest quarterly loss since 1992 on significant weakness in its North American automobile operations. GM slashed its estimate for annual profit by more than 50 percent, and restated a 2004 fourth-quarter profit as a loss.
GM blaimed lost market share, higher material and production costs, and escalating retiree health costs. GM estimates full-year earnings of $1.00 to $2.00 per share, excluding special items, down from its previous target of $4.00 to $5.00 a share. GM forecasts a first-quarter loss of about $1.50 per share, excluding any special items. Previously GM had targeted being in the black or green for the quarter. Sales have shrunk 10% and production will be cut to deplete excess inventory.
These results have been achieved in a growing economy, imagine what would happen in a bad one. GM acts like a large hedge fund which manages retiree health care operations, the profit center being the lending arm, and the loss center being a shrinking automobile manufacturing arm. GM has a market cap of $16.5 billion and $170 billion in debt. GM bonds will probably be downgraded to junk in the near term. Technically speaking, GM could be considered insolvent and approaching bankruptcy. A federal bailout in the future, is not out of the question.
GM has become the posterboy for: executive and board level malfeasance, unrealistic executive compensation, abandonment of the U.S. manufacturing base, weaseling on labor contract negotiations, and finally, for adhering to the "your only as good as your last quarter" mentality which fosters a total lack of innovation and foresight. Next.
Bloomberg: GM Sees Loss
GM blaimed lost market share, higher material and production costs, and escalating retiree health costs. GM estimates full-year earnings of $1.00 to $2.00 per share, excluding special items, down from its previous target of $4.00 to $5.00 a share. GM forecasts a first-quarter loss of about $1.50 per share, excluding any special items. Previously GM had targeted being in the black or green for the quarter. Sales have shrunk 10% and production will be cut to deplete excess inventory.
These results have been achieved in a growing economy, imagine what would happen in a bad one. GM acts like a large hedge fund which manages retiree health care operations, the profit center being the lending arm, and the loss center being a shrinking automobile manufacturing arm. GM has a market cap of $16.5 billion and $170 billion in debt. GM bonds will probably be downgraded to junk in the near term. Technically speaking, GM could be considered insolvent and approaching bankruptcy. A federal bailout in the future, is not out of the question.
GM has become the posterboy for: executive and board level malfeasance, unrealistic executive compensation, abandonment of the U.S. manufacturing base, weaseling on labor contract negotiations, and finally, for adhering to the "your only as good as your last quarter" mentality which fosters a total lack of innovation and foresight. Next.
Bloomberg: GM Sees Loss
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