The Exporting Of GM
Fans of GM's independence and the current plan to turn the company around received two blows in as many days, at least on the surface. The boards of Renault and Nissan said they would be open to forming a three way alliance with world's largest automaker, a move that could concentrate enough shares with the foreign automakers and Kirk Kerkorian to give the group effective control of GM.
Renault and Nissan may buy as much as 30% of GM as a part of the global triumvirate, which would put as much as $7 billion in cash into GM's coffers. The press has pointed out that alliances between US car company's and their overseas counterparts have faltered before, but the temptation of the large cash influx is likely to at least turn the head of GM's board.
The other news that threatens the turnaround of the car giant is its drop in June U.S. sales. Units sold dropped 26% to 407,722 and market share was only 27.2%. Making new news worse, sale of Toyota's for the same period rose 14.9% to 223,019.
The press was also filled with stories about how much the Renault and Nissan share prices have risen over the last few years, compared with the drop in GM's market capitalization.
GM's huge problems could be the largest stumbling block a for both the Renault and Nissan board, who, as fiduciaries for their public investors are faced with answering the question about how they would run GM differently. GM's negotiations with the UAW in 2007 may well decide the fate of the company. If the automaker has billions more in cash on its balance sheet, management loses much of its leverage for concessions.
The largest problem, however, may be GM's dropping units sales. The company argues, with some good reason, the sales figures for the summer of 2005 were high due to incentives that cut into the profits on most of the vehicles that they sold during the period. Even with this explanation, it is hard to rationalize a drop of 143,000 unit sales in June while Toyota added 29,000 units during the same period.
Another critical issue is where the sales are being lost. The evidence is now fairly clear that gas prices are cutting into the sales of pick-up and SUVs which were once large profit producers, especially for GM and Ford. In June, sales of the GM Chevy Silverado dropped over 46%. The company's GMC Sierra sales were off 47% and the company sold 34% fewer Chevy Trailblazers than it did a year ago.
The investment by Renault and Nissan is still a long shot, very long. The GM board is unlikely to abandon the turnaround plan that it has publicly endorsed and hand effective control to Kerkorian, Nissan and Renault. And, the two overseas car companies are not likely to walk into the hornet's nest of GM's falling sales and labor problems. It makes good headdlines, but it is a hard a sell for the shareholders of Renault and Nissan because it has too much chance of undermining all of the progress both companies have made by dragging them into GM's problems.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities
in companies he writes about.
Renault and Nissan may buy as much as 30% of GM as a part of the global triumvirate, which would put as much as $7 billion in cash into GM's coffers. The press has pointed out that alliances between US car company's and their overseas counterparts have faltered before, but the temptation of the large cash influx is likely to at least turn the head of GM's board.
The other news that threatens the turnaround of the car giant is its drop in June U.S. sales. Units sold dropped 26% to 407,722 and market share was only 27.2%. Making new news worse, sale of Toyota's for the same period rose 14.9% to 223,019.
The press was also filled with stories about how much the Renault and Nissan share prices have risen over the last few years, compared with the drop in GM's market capitalization.
GM's huge problems could be the largest stumbling block a for both the Renault and Nissan board, who, as fiduciaries for their public investors are faced with answering the question about how they would run GM differently. GM's negotiations with the UAW in 2007 may well decide the fate of the company. If the automaker has billions more in cash on its balance sheet, management loses much of its leverage for concessions.
The largest problem, however, may be GM's dropping units sales. The company argues, with some good reason, the sales figures for the summer of 2005 were high due to incentives that cut into the profits on most of the vehicles that they sold during the period. Even with this explanation, it is hard to rationalize a drop of 143,000 unit sales in June while Toyota added 29,000 units during the same period.
Another critical issue is where the sales are being lost. The evidence is now fairly clear that gas prices are cutting into the sales of pick-up and SUVs which were once large profit producers, especially for GM and Ford. In June, sales of the GM Chevy Silverado dropped over 46%. The company's GMC Sierra sales were off 47% and the company sold 34% fewer Chevy Trailblazers than it did a year ago.
The investment by Renault and Nissan is still a long shot, very long. The GM board is unlikely to abandon the turnaround plan that it has publicly endorsed and hand effective control to Kerkorian, Nissan and Renault. And, the two overseas car companies are not likely to walk into the hornet's nest of GM's falling sales and labor problems. It makes good headdlines, but it is a hard a sell for the shareholders of Renault and Nissan because it has too much chance of undermining all of the progress both companies have made by dragging them into GM's problems.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities
in companies he writes about.
posted by douglas mcintyre at 6:11 AM
Subscribe
<< Home