Stock Picks-Is GM Chairman Losing It?
Author: Richard Stoyeck

Don't you just love it? General Motors can't make a quality car
to save its life, which is what it's trying to do, and it wants
Nissan to give it billions of dollars to show respect for a
failed company. Over the last couple of years, you have heard
of failed nation states, many of them in Africa. Countries that
can't feed themselves, and have just about as much wealth as is
necessary to put an embassy in NY, so their diplomats can dine
at the United Nations, and park overnight with diplomatic
plates.

Now we have failed corporate states like General Motors who
can't get out of their own way, and probably have no
justification for remaining in business other than the fact
that they've been around for something approaching a century.
If you really think about it, other than the employees who
would anyone miss General Motors if they went out of business
tomorrow, maybe even today. The remaining players would
immediately pick up their market share, and we wouldn't have to
watch the slow market attrition that is taking that share down
anyway.

There will come a time if they remain in business, that only
aliens coming to visit our planet will buy General Motors
vehicles. The news recently is ludicrous. Carlos Ghosn runs
Nissan-Renault. This man has done a world-class turnaround over
the last several years, making billions of dollars for a company
that very few thought could be turned around.

Rick Wagoner is the typical corporate bureaucrat that spent
decades at GM while its market share slid down the tubes. The
two of them have been talking about some sort of consortium at
the behest of GM's major shareholder Kirk Kerkorian, who wants
GM turned around tonight, today, yesterday. Wagoner has now
decided that Nissan should pay GM billions of dollars for GM's
perceived greater value.

What value? Hey dude, you just lost $10 billion last year.
You've bought out thirty five thousand employees that you can't
find work for. You're a textbook case study in how to lose money
by selling inferior products, and you believe you bring greater
value to a partnership with Nissan, than Nissan brings to you.
HELLO, ANYBODY HOME?

One of the first lessons anybody learns if they are active in
the stock market is, you have to deal with reality, not your
perceived reality, but what's really taking place. GM has yet
to do a full, truthful self-assessment and figure out where
they are. What are you doing wrong? You can't be doing things
right, and lose $10 billion in a year. You've got sales all
right, but your customers are so disenchanted with your product
that they are not allowing you to price your product at a number
that allows you to take a profit out of the sale. That's how you
lose money, and you can't make it up on volume.

You also have the issue of your competition's pricing. The
other guys are giving their customers perceived value and real
value. The value is so great, that it is disallowing you a
profit in the vehicles that you are putting on the market. It's
that simple.

But wait, there's more!!

Toyota, your main rival for world supremacy just came out with
a new Lexus LS 460 with built in features that GM isn't even
thinking about. It's not even on the drawing boards at GM. THE
LEXUS CAR PARKS ITSELF. It's got sonar distance finding devices
that link up to its navigation system. This thing can pull into
a parallel parking position with the driver basically watching
the car park itself.

Mercedes will envy the paint job at twice the price, and a
first ever 8-speed transmission. How does a car with 380
horsepower get 19 miles to the gallon anyway? With a crash
sensing system that prepares the brakes and airbags for the
coming impact, this Lexus may give new meaning to the word
safety. What's going on here? For $70,000, Lexus will give you
a car that BMW, and Mercedes can't even dream about making for
the price.

I have talked with representatives of the Japanese automobile
companies. They think GM is on the ropes, and who can argue.
The old giant is pumping out iron that just doesn't do it
anymore. The only employees happy at the company are
hebephrenics on the assembly line who are taking too many pain
killers. There's also Chairman Rick Wagoner who appears to be
constipated in every interview he gives, and wants a financial
tribute from Nissan to boot.

The Future of GM

General Motors will continue to exist. If the consumer bought
only on the basis of quality, and bang for the buck, GM would
have filed for bankruptcy years ago. The consumer buys for
other reasons though, aside from quality. Some have never
driven a Japanese car, and wouldn't consider it. Once you drive
Japanese, buying American cars becomes unthinkable. Some buyers
live in sections of the country where there is peer group
pressure to buy American, such as the Midwest.

People on the East coast, and West coast however have basically
shunned GM's vehicles. The Big 3 automaker will never recapture
anything in those two markets again. I can't imagine how they
turn around corporate morale. With seventeen layers of
management compared to Toyota's five, I don't know how anyone
is proud to say, "I work for GM".

Would I love to see GM come back? You bet I would, how does it
happen with an arrogant management team, trained by the guys
that lost the ship to begin with. Wagoner's team are the type
of guys that would have screwed up the Iraq war worse than what
it is, and I can't imagine how it could be much worse. You need
an outsider, with no loyalties to insiders, who can come in and
SHAKE THINGS UP. Is it going to happen? Probably not, but that's
still what it takes. GM may have already gone through critical
thresholds, and will just continue to peter out. Toyota on the
other hand has just announced they are hiring 8,000 new
engineers. Any takers?


About The Author: Richard Stoyeck's background includes being a
limited partner at Bear Stearns, Senior VP at Lehman Brothers,
Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace
University, NYU, and Harvard University, today he runs
Rockefeller Capital Partners and http://StocksAtBottom.com