GM At Lowest Stock Prices Since 1933
by Hiland Doolittle
The lifelines supporting General Motors are wearing thin. So thin, that six GM executives disclosed that they had sold more than $300,000 in stock and were liquidating their remaining holdings. So thin, that global support for the giant automaker is wavering with foreign governments balking at investment and burdening any possible investments with cumbersome conditions.
The disclosure of the actions by the six executives triggered a furious response. Shares in General Motors fell 22% settling at $1.13. Just a year ago, GM stock still weighed in at more than $20.00. At one point Tuesday, shares sold at $1.09, a trading level not seen since 1933.
U.S. taxpayers have thrown GM a $15.2 billion lifeline. For continued operations, more taxpayer backing will be necessary. The company has also requested government investment from many other bases. Most global interest evolves around jobs. Any future investment will be predicated upon GM’s commitment to keep plants open and people working.
The deeper the recession goes, the less appealing GM looks. Much of the company’s value appears to be in the brand, which has been under fire for years. Designs that are out-of-touch with consumer demand and a work environment overwrought with union benefits, gives the automaker a seemingly prehistoric profile.
The union’s unwillingness to re-negotiate and the taxpayer’s reluctance to provide more support have resulted in more than 40,000 temporary layoffs in the U.S. alone. The company has been using this period to negotiate with creditors and the government. The Obama administration has set a June 1st deadline for the company to submit a viable recovery plan. By that time, either a voluntary re-organization plan will be in place or the company will be forced into bankruptcy.
Job Market Global Woes
General Motors is another of those too-big-to-fail dinosaurs. The union compensation demands are no longer viable and detract from the company’s ability to compete on the global market and in global employment centers.
While GM is a global entity, it remains both an American brand and a heavy albatross. The company’s re-organization plan calls for the company to double the number of units manufactured in Mexico, Korea and China, where wages run from $10.00 to $22.00 per hour. By comparison, U.S. compensation averages about $54.00 per hour.
The GM plan also calls for the closing of at least four facilities in the U.S. and the construction of four new manufacturing plants outside then U.S. While the U.S shoulders the lion’s share of the GM lifeline, global support is waning.
At the recent G-20 meetings, President Obama tried to raise European support for the auto industry and GM. However, Germany led a coordinated resistance effort. Lack of support in Europe has left GM in tenuous straits and squarely on the plate of the U.S. taxpayer.
Jobs and the Recovery
For GM, the handwriting is on the table. Taxpayers and Washington have little confidence in the brand, in the company’s ability to compete and, simply put, believes the union workers are overpaid. That spells GM’s fate.
These factors led Efraim Levy, of Standard & Poor’s, to explain Tuesday’s developments. “It’s a lose-lose situation as far as we see it, and the shares kind of seem to have been doing a levitating magic trick by just staying up there in the $1.50 to $2.00 range. At this point, the differentiation is that you are rooting for a recovery on GM, the company, where there is hope, bust as far as the GM shareholders, there is no real positive outlook.”
GM was first listed on the DOW in 1915. Only General Electric has been listed longer. GM’s capitalization was approximately $690 million as of Tuesday and was the smallest component on the Dow Jones.
In either bankruptcy or voluntary re-organization, shareholder equity will diminish even further. Projections are that shares would be worth about $0.02 or $0.03 each.
The government has a difficult task offering support to a company whose jobs are moving outside the country, who outlines construction of plants abroad and whose brand is deeply tarnished. Apparently, six company executives agree.
The Dollar and Export-Import
With the U.S. government investing trillions in the recovery, other international economies will now have to step up and acknowledge that global trade is changing forever. The U.S. investment in global recovery, like its trade deficit, is out of balance.
As many of the European Central Bank countries play wait and see, the dollar continues to slide. David Walker, a former head of the Government Accountability Office, told The Financial Times the U.S. is at risk of losing its Triple-A credit rating.
These comments drove the dollar to a four-month low as investors concentrated on U.S. debt levels. Against the dollar, the euro rose to its highest point in seven weeks closing up 0.5% at $1.3710.
Economists look for more controls over imports as a means of driving the dollar up and encouraging international investment in the recovery. The U.S. economy is pouring $2 billion a day into covering trade deficits. As companies like GM shift production and jobs to other markets, it may well be time for the U.S, to adopt some protectionist actions of its own.
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
May 15th, 2009 at 2:02 pm
[...] and GM are helping to contribute to the unemployment mess. Chrysler began shutting plant doors on [...]