10A079 Whither GM? by Jim Davies, 11/20/2010

General Motors came back this week as a "success story," so the President assured us all, but while I have no special knowledge of the auto market and certainly not of the recent complex financial manipulations in D.C. and Detroit, something smells fishy to me about its much-ballyhooed IPO.

Fifty billion stolen dollars were handed over to the company in 2008, and somehow a good part of that has been returned, with high hopes for the rest. The stock of GM, however, has evaporated; $100 billion was lost, often by former employees. This week's offering with a first-day price of $34 a share raised over $20 billion but not a penny of that goes to former shareholders. This is government's alternative to bankruptcy, and it doesn't seem right.

A company thrives when it delivers what customers want to buy; with good quality, pricing, etc., and while controlling costs well enough to return a healthy profit to those who placed their capital at risk. In the case of GM during recent decades, all that has been questionable. Since 1980 I've had six successive GM cars in the garage and only one that wasn't, and five of the six were good value. Three were Pontiacs, one a Buick, and two were Saabs - and that odd GM car out was a Saab made before the GM buyout. So the record shows that I like GM cars. But (by my personal taste) whereas those brands came with flair and performance, and while I've heard well of Saturn, I've always seen Caddy as too expensive and cumbersome, and Chevy as too spartan (Corvettes excepted, of course.) So what is the new GM doing? - getting rid of its best brands and keeping the ho-hum ones! Doesn't look too smart from here.

Has the new GM shed the heavy cost of excessive, Union-driven benefits? Oddly, this week's announcements didn't mention them, yet they added $2,000 to the price of every GM car and may have been the factor that ultimately broke its back. Meanwhile the star of its 2011 roll-out is the Volt, with a $40,000 price tag and a battery with a range of 40 miles, supplemented by a 149 hp gas engine if you happen to want to drive further. It's earned all kinds of Green awards, but I'm not optimistic about buyer demand - and neither is GM, it seems, for the car has to be propped up by a $7,500 "tax credit." All told, I'm unimpressed by the new incarnation. Even if I'd had some money, I'd not have bought stock at that IPO.

In a zero government society if a company failed, scavengers would buy any profitable residue, put usable assets to good use and sell the rest. The result would be the most vibrant, competitive industry possible. Every alternative is sub-optimal for everyone concerned.

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