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  • Writer's pictureJeff Matthews

Fixing a Hole at GM

Pressure grew on General Motors Corp., with its shares falling to a 23-year low yesterday as rival Toyota Motor Corp. said it would boost production, potentially surpassing GM as the world’s biggest auto maker.—Wall Street Journal.

In the wake of GM CEO Rick Waggoner’s Wall Street Journal op-ed self-defense a few weeks back (described in “General McClellan Awaits Battle…In Detroit”), we now find financier and GM shareholder activist Kirk Kerkorian selling GM stock—12 million shares worth—for tax purposes.

Kerkorian simultaneously annoyed the Feds and spooked investors betting on a Kerkorian-led turnaround of what has been “the world’s biggest auto maker” that perhaps Kerkorian’s knees are buckling. Most likely, they are not.

But this fascination with being the “world’s biggest auto maker”—what’s the point? Frequently in today’s Journal article the wordsmiths revert to that sort of language to describe the beleaguered company:

GM, still the world’s largest manufacturer, remains a colossus, with more than $190 billion in annual revenue and 325,000 employees worldwide… If being “a colossus” matters, however, why is General Motor’s market capitalization less than the $19 billion of cash the company’s automotive business had on hand at the end of last quarter?

In fact, it does not matter.

Perhaps it mattered in the 1960s—the glory years of American manufacturing and the apotheosis of “Man in the Grey Flannel Suit,” when “Made in Japan” held the same derogatory connotation that some now associate with cars made in Detroit.

But it does not matter today, when GM is fighting for its life on many fronts—trying, simultaneously, to lower its cost structure, raise quality, reduce its dependence on trucks and SUVS by introducing fuel-efficient models—and all the while avoiding bankruptcy.

When the Beatles’ uninterrupted string of Number One hits (starting with “She Loves You”) was bizarrely interrupted by the failure of the “Penny Lane”/”Strawberry Fields” single to outsell the reigning Number One, Ringo said it was the best thing that could have happened: it took all the pressure off.

The band went on to do their best work—the White Album—and take their place in history.

(“Penny Lane”/”Strawberry Fields” was held to Number Two by an entirely forgettable Number One song. Whoever identifies that song honestly, no Googling allowed, will be rewarded with nothing but their name on this blog.)

Far be it for me to prescribe a solution to the list of GM’s woes. But I suggest they stop worrying about staying “Number One.”

Get over it, already, and move on. The risk to GM, in my opinion, is not losing a few points of unprofitable market share to Toyota: the risk is becoming the Number One Chapter 11 filing in history.

Jeff Matthews I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

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