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GM has something to prove
Thought you might like an update on how your investment in GM is faring. Today, GM said it generated more than $3 billion in cash last quarter, and it plans to start repaying government loans early. That's the good news.
GM still lost $1.2 billion, but that might also qualify as good news, as Marketplace's Alisa Roth reported this morning:
Roth: OK, so $1.2 billion is obviously a lot of money. But it is less than GM has lost recently, and it's a lot better than GM had predicted it would be doing at this point. So the company's actually feeling pretty confident.
The good news just keeps on coming. GM's CEO Fritz Henderson seems highly motivated to pay back the taxpayers. From Bloomberg:
"This company does seem to have a fire lit under it and is making decisions faster," said auto consultant Keller, who is based in Stamford, Connecticut.
Henderson said it was "my mission" to disprove a Sept. 9 government report predicting that the Treasury would be unlikely to recover all of the estimated $85 billion in federal aid provided to GM and Chrysler Group LLC.
But since I don't own a pair of rose-colored glasses, we're going to stop right there with the good news. First of all, here's what needs to happen in order to repay the government: GM would need to hit a market value of $68 billion. That's $11 billion more than its top market value of $57 billion in 2000.
Plus, GM's burning desire to repay the government might have it chasing short-term strategies at the cost of longer-term sustainability. The government's goals for GM included expanding its American workforce and building smaller, more fuel-efficient cars. Still a lot of work to do in those departments. GM's North American unit lost $651 million while its international business showed a profit of $238 million. It sold a lot of cars in China. More from the Wall Street Journal:
On the green-car front, there wasn't much to highlight in the third quarter. In fact, its best-selling cars in the U.S. included three small- to midsize SUVs -- GMC Terrain, Chevrolet Equinox and Cadillac SRX-and Chevrolet Camaro, the classic muscle car.
U.S taxpayers can't blame GM for chasing profits in China or in the American muscle car market, particularly if it means they are going to get their loans paid back sooner. But if GM doesn't start making moves to bolster its long-term sustainability, especially in the U.S., already skeptical taxpayers may start to wonder what was the point of owning a car company anyways.
Start to wonder?
More to come tonight on Marketplace...
Nice feel good story!
I would have expected Market place to dig littble deeper.
1. Do you know in which form is most of govt. bailout money is invested in GM (clue: it is not in the form of loan).
2. If you know answer to question 1, what needs to happen to for govt to recover its money. (clue: market cap)
Gb, I do address that above. As you point out, the majority of the investment is stock. A public offering is still forthcoming. GM needs to focus on long-term sustainability in order to create the kind of company that will generate the revenue necessary to get the taxpayers' money back. It's an uphill climb, to say the least. I hardly think this is a feel good story. There's just no need to instantly rip everything to shreds like so many people do.
Somebody needs to balance out the reporting. Every news outlet repeats what GM spokesperson wants to be publicized. Today morning in the car the radio guy was saying GM is going to repay the loan(10 million loan). There was no mention of other 50 billion. Average listner assumes GM is paying back entire loan.
Coming back to market cap, even at the height of GM around year 2000 their market cap was only around 55 Billion. You need more than that to recoup the money given to them.
I've actually been pretty impressed with the technology that GM has been bringing to market in just the last 3 or 4 years.
My only question is this: "Why didn't they do this 15 years ago?"
It's not like their entire engineering department just work up and bumped their heads one morning and got a clue. I can only conclude that they've had all this capability for quite some time and incompetent management is the culprit.
