What’s GM’s Problem?
Thursday, November 17th, 2005
By Mitchell Clark, B.Comm. for Profit Confidential
Frankly, I’m worried about General Motors (GM). More and more people are suggesting that the company might have to go into bankruptcy protection in order to reorganize its debts.
This definitely would not be good for the North American economy. The stock, however, is another matter. It might actually stabilize if the company sought bankruptcy protection. Still, the news would be a shock, and the broader market would be vulnerable over the near term.
It’s not that I don’t like GM products. I do. I own a GMC Sierra truck, and it’s as reliable as the day is long. The interior isn’t perfect, but, after all, it’s a pickup truck. GM actually makes a lot of very good cars, but they have made some bad cars, too, especially compared to the competition.
That’s the problem: this huge multinational corporation just makes too many products. Why make 10 different four-door sedans? Why not make three or four, but make them really well?
One of the only car companies that’s actually making money right now (other than the big Japanese names) is BMW. It makes great cars — I’m a real fan — but their reliability isn’t up to par anymore. I like to say that BMW has gone “corporate.” Its products used to be simple and reliable, while providing drivers with high performance. Now, BMW vehicles seem over- engineered, and their reliability, particularly with their electronic systems, is mediocre at best. BMW is now creating all sorts of new products, but I feel the company has lost its previous appeal.
Of course, the Japanese manufacturers have been eating away at the “Big Three’s” market share for years. GM and Ford are trying to compete on value, but it seems to me that the market has gone more upscale in recent years. People are willing to spend more for a car — if it offers the reliability they seek.
All I know right now is that a GM bankruptcy would not be good for the near-term outlook of both the economy and the stock market. I hope it doesn’t happen. GM knows it’s down, and the company is trying hard. I plan to keep supporting it.
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Tags: global economy, stock market
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Mitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.
