R.I.P. General Motors (1931-2006)

[Lee Florack]

How then does one account for those of us that have owned Toyotas and now
prefer domestics for style and price?

Honestly?

I have NO idea whatsoever.

 

[Lee Florack]

If one follows the market they would know GMs share prices are going up, not
down. I bought shares of GM in 1960 at 40 1/8. When the share price
reached 90 1/2 it split two for one. When the share price reached 92 1/4 it
split again two for one. The current total values of those 40,000 shares is
around four times what I paid, not counting the excellent dividends GM paid
for 45 years.

I think the question was regarding the RECENT performance of the
company and stock shares.

 

[Lee Florack]

I guess we can assume you do not own a business, it that is what you
believe, right?

I'm not sure what would make you think that. Jason makes the
assumption that GM's loses will continue at the same rate as they
recently have. I think the problems are about to get worse. GM has
recently sold off the most lucrative portions of its business to
gains some cash reserves. Although I agree they needed to do that,
it does not look good for making more money anytime soon after
selling off the money-makers.

 

[Lee Florack]

That may be what you believe but it is not factual. EVERY manufacture offers
discounts to fleets and rental car companies. The current rate is around
$600 per vehicle, if you buy five or more. To rental car companies the cars
are their product, that they dispose of in a year or less. Most corporate
fleets whose vehicles, far more trucks than cars, are just one more tool
used in their business keep them in service for five years of 300K, on
average, because of federal tax deprecation laws. They
prefer domestics because they are more concerned about the overall costs of
ownership then whose name is on the hood.

Did every car manufacturer own a large piece of Hertz or Avis? No,
that was Ford and Chevy.

 

[Lee Florack]

You are confused, it is a violation of franchise law for a manufactures to
sell their vehicles to anybody but their dealers. The dealers are who sell
or lease to buyers, individuals, fleet, rental car companies who ever, the
sale must go through a dealership. All dealer, buy law, buy from their
manufacture at the same price. What difference does it make to manufacture
or dealer, who buys or leases their vehicles?

I must admit, you utterly confused me with this one.

 

[Lee Florack]

Actually, the shares closed at 22.88, which means that your intitial
investment at 40.125 is now worth 91.52 (4 x 22.88). Which means that you
got an annual return of around 5% (the dividends) for a total return of
around 1000% (it takes about 14 years for a something that returns 5% to
double in value). Meanwhile, the SP 500 index had a return of about 1700%
plus dividends (the value of the S&P index does not include dividends). I
assumed of 5%, which is probably generous, considering that the yeild is now
4.3% and one of the highest dividend yields of any large-cap stock.

Apparently, Morningstar agrees with me:
http://news.morningstar.com/classroom2/printlesson.asp?docId=142859&CN=COM

Morningstar writes: "Though dividends would have provided some ease to the
pain, General Motors' return has been terrible. You would have been better
off if you had invested your money in a bank savings account instead of
General Motors stock."

Investing is stocks is one of the best ways to get a good long-term return
on your investment. However, GM is an exception to the rule.

Excellent analysis. When Mike says GM stock is/has done well, one
would need to ask, "Compared to what?"

 

[Jeff]

Did every car manufacturer own a large piece of Hertz or Avis? No, that
was Ford and Chevy.

And Ford sold off Hertz because they need the cash.

Jeff

 

[Jeff]

I must admit, you utterly confused me with this one.

I have to agree with Mike Hunter on this one. I am don't know the laws of
the fifty states, but there are franchise laws that state this. I think they
are different for each state, but I am not sure.

Jeff

 

[Lee Florack]

And Ford sold off Hertz because they need the cash.

Yup.

 

[Jeff]

I'm not sure what would make you think that. Jason makes the assumption
that GM's loses will continue at the same rate as they recently have. I
think the problems are about to get worse. GM has recently sold off the
most lucrative portions of its business to gains some cash reserves.
Although I agree they needed to do that, it does not look good for making
more money anytime soon after selling off the money-makers.

They are also doing other steps to save money. However, with their legacy
costs (healthy care and pension for retired workers) and their union
contracts, they have quite a problem that won't be easy to work out.

Jeff

 

[Lee Florack]

I have to agree with Mike Hunter on this one. I am don't know the laws of
the fifty states, but there are franchise laws that state this. I think they
are different for each state, but I am not sure.

Jeff

I might agree with him too if I could figure out what he said.

 

[Ray O]

I might agree with him too if I could figure out what he said.

The auto dealer franchise laws prevent the manufacturer from competing with
dealerships so fleet sales are all delivered through dealerships. That
said, there are some exceptions in some states like MA and CA where the
manufacturer can sell some vehicles directly to employees and qualified
vendors. In other states like Illinois, automakers cannot do a retail
delivery even to an employee and so employee purchases must go through a
dealership.

 

[Jason]

Did every car manufacturer own a large piece of Hertz or Avis? No,
that was Ford and Chevy.

Now I understand why there almost all of the cars on the Avis rental
lot were cars made Ford and Chevy.

 

[Jason]

They are also doing other steps to save money. However, with their legacy
costs (healthy care and pension for retired workers) and their union
contracts, they have quite a problem that won't be easy to work out.

Jeff

Jeff,
I agree with you. I believe the health care costs and pensions of the
retired workers will keep any foreign car companies from buying GM. Do you
agree or disagree with me?
Jason

 

[Bob Palmer]

If one believes what the people that own the vehicles think of them, is
the most accurate 'survey,' then one should buy what the most owners
actually buy. More buyers, year after year, buy more of the vehicles sold
by GM, Ford and Chrysler than the buyers of all the twenty some import
brands combined. It is logical to assume that buyers would not continue
to buy the vehicles they do if they did not believed they were reliable.
One can not deny buyers buy the more of the number one selling car in the
country, the Camry, because they believe it is the most reliable car. The
same is true for the buyers of the number one selling vehicle in the
country, the Ford F150. The number one hybrid, the Pruis. The number one
small car, the Civic. The number one large car, a Buick. The number one
selling small SUV, the Escape,. The number one selling mid size SUV, the
Explorer. The number one selling large SUV, the Suburban. The number one
selling mini-van the, Dodge Caravan, or the number one selling large van,
the Econoline.


mike hunt

Just as an example - if you own the number one SUV, the Explorer, you cannot
rent a trailer from U-Haul. They refuse to let their trailers be hauled by
Explorers due to the number of crashes and lawsuits. Best selling does not
mean the best. Also, many sales figures for domestic models are padded by
fleet sales - some as many as 60% of sales (Ford F150).

 

[Jeff]

Jeff,
I agree with you. I believe the health care costs and pensions of the
retired workers will keep any foreign car companies from buying GM. Do you
agree or disagree with me?
Jason

I agree.

However, I don't see why another company couldn't buy parts of GM and leave
the pension and healthcare costs to GM. For example, a different company
could buy say Hummer or Saab and leave GM stuck with pensions and health
care costs.

Alternatively, GM could do what the airlines have done and declare
bancruptcy, and shift the cost of the pension to a government agency and
dump the health care altogether.

GM has said it won't do that, but in a few years, they might not have a
choice.

Jeff

 

[Jeff]

Now I understand why there almost all of the cars on the Avis rental
lot were cars made Ford and Chevy.

When I rented a car from Hertz a few years ago, it was a GM car. I was
wondering why they would rent me a GM car instead of a Ford. If I really
liked the car, I would have bought it instead of the Ford. Last two times I
rented from Hertz, this year and last summer, I got a Subaru and Saturn SUV.
They were both good vehicles. I could see myself buying either one.

Jeff

 

[Blair Baucom]

Tucker

http://www.hfmgv.org/exhibits/showroom/1948/tucker.html

Blair

 

[Gordon McGrew]

If one believes what the people that own the vehicles think of them, is the
most accurate 'survey,' then one should buy what the most owners actually
buy. More buyers, year after year, buy more of the vehicles sold by GM,
Ford and Chrysler than the buyers of all the twenty some import brands
combined. It is logical to assume that buyers would not continue to buy the
vehicles they do if they did not believed they were reliable. One can not
deny buyers buy the more of the number one selling car in the country, the
Camry, because they believe it is the most reliable car. The same is true
for the buyers of the number one selling vehicle in the country, the Ford
F150. The number one hybrid, the Pruis. The number one small car, the Civic.
The number one large car, a Buick. The number one selling small SUV, the
Escape,. The number one selling mid size SUV, the Explorer. The number one
selling large SUV, the Suburban. The number one selling mini-van the, Dodge
Caravan, or the number one selling large van, the Econoline.

Did you factor in the fact that ~25 - 30% of domestic vehicles are
sold to fleet purchasers at deep, deep discounts? Accountants like
them because they are cheap and generally they don't have to drive
them. Then they sell them in three years which is one reason that the
resale value of your GM car sucks.

Among people buying cars for their own personal use, import brands
have been taking market share away form the Big 3 for decades now.
You keep including Chrysler in the Big 3 but they aren't really a US
company anymore and Toyota will likely pass them in US sales this
year. There really are only two domestic companies now and both are
in a world of hurt.

 

[Gordon McGrew]

You are confused, it is a violation of franchise law for a manufactures to
sell their vehicles to anybody but their dealers. The dealers are who sell
or lease to buyers, individuals, fleet, rental car companies who ever, the
sale must go through a dealership. All dealer, buy law, buy from their
manufacture at the same price. What difference does it make to manufacture
or dealer, who buys or leases their vehicles?

Because they make less money on fleet sales because they are
discounted. I don't know the franchise laws but I do know that all of
the news sources seem to agree that fleet sales are less profitable to
the manufacturers than individual buyers"

http://www.detnews.com/apps/pbcs.dll/article?AID=/20060329/AUTO01/603290375/1148/BIZ

Headline: Fleets mask Big 3 woes
Growing reliance on low-margin sales drains profits
Bryce G. Hoffman / The Detroit News

"Faced with eroding market share, both General Motors Corp. and Ford
Motor Co. are using fleet sales to keep volumes up and factories
running at the expense of profits and brand image. In fact, all of
the recent market share gains at DaimlerChrysler AG's Chrysler Group
can be attributed to higher sales to government agencies, commercial
fleets and daily rental agencies rather than retail sales to
customers."

"Because the volumes are big, the margins are low. That not only
results in lower profits for automakers, but also reduces the resale
value, known as residual, of their cars and trucks."

"You've basically sold the cars at a substantial discount, and then
they come back to the market in large chunks," said Art Spinella,
president of CNW Marketing Research Inc. in Bandon, Ore. "Residual
values get slammed."

http://news.ft.com/cms/s/9b29fcf6-d653-11da-8b3a-0000779e2340.html

"However, he admitted that Chrysler, the US division, needed to cut
stocks of unsold cars and lower its reliance on low-margin fleet
sales, which hit a new record in the quarter."

http://www.chicagotribune.com/business/chi-0604140166apr14,1,3475398.story?coll=chi-business-hed

"Gagnon's marketing tool of offering low-cost financing to high-risk
consumers and boosting discount sales to fleets backfired. Instead of
increasing sales, it spawned loan defaults and sharply lower residual
values on trade-ins to help create the mess Mitsubishi is in."