Friday, September 15, 2006

GM and Ford Follow Up

I've been wary about GM and Ford for years now, really even before their absurd $10/share earnings guidance that they continued to reaffirm until it had become a gigantic joke (remember, the company said over and over again they'd hit those numbers this year, 2007 at the latest).

Today's reaction- esp with Ford- reminds us there are a lot of folks renting these names only as long as they have momentum.

And as Scott Moritz reminds us, "[Ford] warned that it doesn't expect to turn a full-year profit on its core North American car operations till 2009."

Meanwhile, "GM has also been grappling with significant turnaround challenges. The No. 1 U.S. automaker reported a second-quarter loss of $3.2 billion, or $5.62 a share, due to huge restructuring charges."

"Conventional wisdom is that you can't turn a ship as big as GM around quickly," General Motors said at the time. "We aim to prove that conventional wisdom wrong."

Look, that's just crazy talk. It might be encouraging if we all just got off a time machine and got handed the current mess. The fact is both companies have known about the liabilities, the slide in market share, and on and on, for years and years. This is an example where "conventional wisdom" merely requires the skill of observation.

Of course both companies are finally getting more serious, the unions so far seem to be persuaded that they need to bring something to the table (although my sense is the rank and file have not yet caught up to the union leadership on this), but face it: these guys are in a hole and have yet to stop digging.

What's worse, if a company is not currently making an obscene amount of money considering the supposed strength of the economy, historically low interest rates, productivity, yadda yadda, then why in the world should anyone think they'll survive the next recession (by that I mean the common stock)?

And don't confuse this with the current debate about whether or not we are actually headed into a recession even as I type. Instead, just ask yourself this: "Would you agree we'll have a recession at some point in the future?... What are the chances it could arrive before 2009 (when Ford hopes to be profitable)? And while Ford and GM are restructuring for the umpteenth time, who really believes Toyota, et al, are going to rest on their laurels?"


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