Professor Elam

FEb 29, 2008 / In an unexpected move today GM CEO Rick Wagoner announced that the company is exiting the North American market. “We are profitable the world over and expanding market share except in our home country. We are embracing globalization, not running away from it. We see value for shareholders by seeking a Chrysler style sale on our North American assets and spinning that company off from GM. Stockholders will then have our strong brands in North America as well as a globally positioned firm that is expanding in the hottest markets of India and China.”
Wall Street, not to mention Detroit, was rocked with this news. Already hedge funds are said to be eyeing cash brands like Chevy, others are considering auction prices for the rest of GMAC. GM shares jumped 15% in pre market trading as analysts saw increased shareholder value in the two (or more) new firms. “Stripping off GM NA will finally send a message to the remaining 74,000 UAW workers that this is Alamo time for them,” noted an auto analyst familiar with the story. Goldman Sachs is rumored to be in talks with Ford over a similar proposition. “Handing the keys to GM headquarters in Detroit to the UAW is not out of the question,” quipped one analyst.
On CNBC after the market close, Jim Cramer noted that GM shares had lost 50% from their recent high of 42 last October. At the recent low of 22, ‘that’s close to the Kekorian low.’ Cramer was referring to the ill fated attempt by billionaire Kirk Kerkorian to gain control of GM. GM was cool to the idea of a merger with Nissan/Renault. Kerkorian gave up when the shares came back above his average cost and sold out.
Okay just kidding, but was I? GM recently recorded a $39 billion loss. While management announced one would need a PhD in Accounting to understand it, everyone understood that it wrote off tax credits. The credits only have value against earnings. After three years without any earnings, the credits had to go but can be revived with earnings to offset. While everyone assumes things change gradually they do not. Witness the sale of Chrysler, and Mercedes paying the buyers to take it. In the last few years, Britain has lost control of all its auto industry to foreign holdings. VW has Bentley, BMW has Rolls, and Tata just bought Jaguar and Land Rover from Ford. Ford paid $4.75 B for the pair, with little to show for the effort. Ironically it too needs the cash from the sale. Even storied MG will be resurrected in Oklahoma by a Chinese purchaser, Nanjing.
We wish GM and Ford the best. Our 1995 Suburban is perhaps the best styled of that entire model run over the years. It has required little maintenance. My 2003 Ford Escape is perhaps the best vehicle I have ever owned. At 93,00 miles, I have yet to experience an actual repair, normal wear, yes, repairs, nada. No one does better than that. Can Ford and GM convince the public to come back while they still can, Ford and GM, that is.