Governments owning shares in GM will be offering them for sale any minute now. The American people want it off the books as fast as possible and who can blame them? There is a window of opportunity because car demand and equity demand are both reasonably strong. They could weaken any day.
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GM financials for the first half of the year were declared yesterday and showed the first two consecutive quarters of profit for three years. Very good. But remember this is still in part a trick of the light; GM is able to offset those years of losses against tax in the US. Its post-tax earnings are therefore unsustainably high. GM remains a cost to the taxpayer, though it has repaid some state loans.
Secondly there is no real evidence of knock-out product: market share gains in the key markets were miniscule where they existed. The core strength that GM shows in its sales development figures is China and Korea rather than US and Europe. They are annualising at $2.8bn of profit.
Thirdly, GM is being run by the Rotary Club. Just take a moment on the GM website to look at the composition of the main board. There is no motor industry experience. None. The chief executive Ed Whitacre, a telecoms man, is handing over responsibility to his look-alike, Dan Akerson, a telecoms man. Akerson is the fourth GM CEO in a year.
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Fourthly, the dealership network will remain in a mess for quite a while as a result of the brand cull… a strategic decision that can be applauded because GM now has four mouths to feed, not eight.
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By GlobalDataOutside the US, brand development is still very odd. Opels are Vauxhalls in the UK only. Daewoos built in Korea are small and sold in Europe as the cheapest of cheap budget cars, and called Chevrolets. It’s too late to change. But what a great collectors’ item that is for muddled messaging; Johnny Yong Bosch plays John Wayne. GM Europe has losses running at a rate of $800m a year.
The focus of GM’s presentation of results was incentives – and more specifically, the lack of them. No doubt the intention was to show that GM is not discounting its way to market share gains. One slide showed “reducing incentive trend”. Another showed higher transaction prices and a third highlighted the strength of the sales mix and the amount of content that had been paid for. The strength of profit in the second quarter relative to the first was almost entirely due to selling more expensive cars into a rising market: “mix and industry” as CFO Chris Liddell cryptically expresses it.
You can’t really say that either is a sign of an improving GM. All it says is that market demand is healthy and people are feeling sufficiently secure to spend a bit extra on content.
Forgive this last bit, Mr Akerson, when we haven’t even met yet, but I’m not convinced. You had your five minutes of fame on the conference call to say hello and make a good first impression. You blew it.
You said that your appreciation of this industry had grown tremendously since you joined the GM board in July last year (how could it not?); you said it was premature to discuss plans and objectives (fair but dull); and you said that you were going to concentrate on building and selling the world’s best vehicles (actually, they’re not).
Like your cars, the words need better content and richer mix. You are in the driving seat now and we need to see instant performance. No thanks on the shares therefore. We can wait. They should be cheaper nearly-new in the aftermarket.
