In 1953 President Eisenhower nominated Charles Wilson to be his Secretary of Defense. Wilson, then the President of General Motors, had overseen GM’s war production during World War II. During his confirmation hearings he was asked if he could make a decision that was bad for GM. His response is remembered as a classic example of arrogance – “What’s good for GM is good for America.”
However, that’s not exactly what he said.
Continue readingPresident Barack Obama fired GM CEO Rick Wagoner. He was replaced by Fritz Henderson, who had been Vice Chairman and Chief Operating Officer. While I agree that Wagoner should probably have been fired, I think his replacement should have been someone from the outside. Promoting from within is a good thing when a company is doing well, but not when the company is collapsing. General Electric, for example, has always promoted new CEO’s from within. But GE was not in trouble when Welch took over, or when he handed the reins to Immelt. IBM was in trouble when the Board brought in Lou Gerstner, an outsider, to, as he put it, teach that elephant to dance. GM is in serious trouble. As an insider, Henderson may be too in step with the corporate culture to change anything. As an outsider I can see what Henderson might miss.
So how would I fix GM?
Peter Gosselin, writing in the Business Section of LA Times, Saturday, May 24, 2008, writes that Ford, GM, and Chrysler are in serious trouble because of the price of gasoline. He quotes Robert DiClemente, chief U. S. economist at Citigroup in New York “The economic outlook has been taken hostage by the relentless surge in oil prices.” Gosselin adds that Ford Motor Co announced Thursday, May 22, 2004, that it was abandoning any hope of making a profit this year or next now that sales of its gas-guzzling pickup trucks and Explorers have plunged.
Gosselin and Bill Vlasic, writing in the(Click here) (or here for New York Times home)quote Ford CEO Alan Mulally saying the auto industry has “reached a tipping point” where energy costs were fundamentally changing what kind of vehicles Americans buy.
While Gosselin and Vlasic write that Ford, GM, and Chrysler are in trouble, Toyota and Matsushita Electric are investing US $192 Million / 20 Billion yen to build plants to manufacture batteries for hybrids (Click Here).
You can see this by looking at the stock value of these companies. An investment of $2,000 in Ford and General Motors, on Dec. 24, 1999 would be worth Toyota and Honda would be worth about $540 today, not counting the value of any dividends paid, as both Ford and GM lost 73% of their value. On the other hand, An investment of $2,000 in Toyota and Honda stock on Dec 24, 1999 would be worth about $2,860, not counting any dividend payouts because Toyota increased 11.36% and Honda increased 72.53%. These data can be found on the Google financial pages, (click here).
| Date Investment | 12/2000 | 5/2008 | % Change |
| Toyota | $1,000.00 | $1,113.60 | 11.36% |
| Honda | $1,000.00 | $1,725.30 | 72.23% |
| Ford | $1,000.00 | $274.10 | -72.59% |
| GM | $1,000.00 | $273.20 | -72.68% |
| Toyota & Honda | $2,000.00 | $2,838.90 | 41.95% |
| Ford & GM | $2,000.00 | $547.30 | -72.64% |
Mr. Gosselin can be reached at Peter.Gosselin (at) latimes.com
(Please Note that I am not licensed to sell investment advice. This should not be construed as such. It is just an interesting observation. Note also that I have no investment in any of these securities. I do own a ’99 Chevy Malibu and a ’99 Mercury Sable. My next car will get 45 mpg, which means it will probably be a Prius.)