Backing a company that is too large to fail is an Obama mistake

I have never been a fan of consolidations in government or business. If you track back to my May 31st and June 2nd posts, I explain my position in greater detail. Cost savings are always disguised when the entity grows larger and more complex. Some of GM and AIG's problems grew out of the consolidations of the past.

Of all of the economic maneuvers of the Obama administration, the strategy that has me most concerned is the continued financial backing of companies that are still considered too big to fail. AIG, GM, Chrysler and major banks have been the recipients of tax payer bailouts. I continue to maintain that no company in America can become so large that it's failure would significantly damage our Nation.

I just came across this quotation that I think the Obama team needs to live by:

"Any intelligent fool can make things bigger and more complex......It takes a touch of genus-----and a lot of courage to move in the opposite direction." Albert Einstein

While the auto industry (GM) is shedding divisions like Pontiac, the underlying intent is to make GM as strong as ever. GM officials will seek to do this in a way that would avoid competition. Removing a Pontiac from the market place will water down the competition for GM. Money thrown at AIG and the banks is going to end up in the hands of overpaid, over-egoed executives. This has already been widely reported to have happened. As for the working middle-class; they have been the ones that are forced to "sacrifice".

I keep going back to the AT&T model here. I think that it took courage to bust apart an American corporate icon that simply became too big and controlled too large a sector of the American economy. I maintain that GM needed to be broken into 4 separate corporations left to compete for our dollars. Insurance and banking industries need to be separated and appropriately regulated. We can no longer afford to let this failed marriage experiment in capitalism lead our lives. If we don't move in the opposite direction as Einstein proposed, our problems will remain with us for decades to come.

tomtoak

U.S. Automakers Taking Different Roads

Why don't I follow my own advice? If you track back to an earlier post (February 21, 2009), you can read about my feelings on that date regarding the troubles being experienced by the United States automakers. At that time, I discussed the big three and concluded that Ford Motor Company was the best bet into the future.

I'm not a financial wizard; but I told readers that if I had to lay my money down, I would put it on Ford. Here we are a couple of months later and the share price has gone from $1.85 when I wrote the article, to a close yesterday at $5.69 per share. In the meantime, GM and Chrysler continue towards some form of bankruptcy, even with the help of the government.

Yesterday, we learn that Ford has outsold Toyota for the month of April because of the growing interest in its Ford Fusion hybrid automobile. While sales were way down from last year, Ford captured 16% of the existing market for the month.

GM continues to wallow in stupidity. GM cars fell more sharply than its trucks; and as reported in the Associated Press story, GM "goes against the Federal goal of selling smaller, cleaner cars." The definition of disaster is General Motors. Evidently, a forced change at the top has made no difference in steering the company into a road to the future.

I think it is a huge mistake for the Obama administration to offer GM, one more penny. While there is validity in trying to protect our prior investment, I just don't think that the team at GM knows how to make wise decisions. Casting aside their Pontiac division is going to be a devastating blow to the company. Pontiac was their 3rd best selling brand. What's more important is that they had many models, like the Pontiac G6 that was affordable, gasoline efficient, and stylish. Pontiac had its own followers throughout the country as Pontiac car clubs are found throughout the United States. I don't think there is a Buick car club to be found (I have not researched this). I happened to stay at a hotel one day in the Midwest that was hosting a Pontiac Grand Prix convention. The parking lot was quite a site. I actually traveled their in my own Grand Prix having no knowledge of the convention. Needless to say, I fit right in.

I have owned a number of Pontiac Grand Prixs and the mileage on these models was a respectable 26 MPG. The Pontiac G6 was rated at 30 MPG. My Pontiac Vibe (4 wheel drive model) is rated at 31 MPG and I had a Pontiac Bonneville that gave me 24 MPG.

In a recent article on GM, it was reported that their Pontiac brand was the best selling GM product among young people. If GM is going to market towards the middle-aged and elderly population, they will be out of business in a very short time. I think they should have been forced into a structured bankruptcy and the company split into 4 separate companies. Maybe then they could have found one executive that knows how to run a car company.

I guess I've bought my last Pontiac!!

tomtoak

Will the U.S. Automakers Survive?

I've decided to change gears today and talk a little bit about the economy. Keep in mind I'm no economist. I was frustrated by an Associated Press story yesterday that reported on General Motors (GM) stock price hitting a 70 year low. I have always bought GM products, yet 4 years ago when I purchased my last car, I was given reason to pause. I'm not surprised that GM is in trouble; serious trouble.

As I purchased my Pontiac Vibe in 2005 (4 wheel drive, 31 MPG, mini SUV), I asked the salesman what the construction next door was all about. He told me that they were building a new Hummer dealership. I was shocked! Didn't GM have a clue about the future of our oil supplies? I did, and I don't sit in or anywhere near their boardroom. How can these captains of industry be so clueless?

I did a little research and came across GM's 4 point turnaround plan from November, 2005. If the people making the decisions then are the same people today, my prediction is that GM is going down and shouldn't get any more taxpayer money. In the report, it is mentioned that Pontiac G6 sales were up 100% in 2005 vs. 2004 (a car with good gas mileage). They reported the HUMMER brand had posted its largest increase, up 86% with the launch of the H3s (a vehicle with terrible gas mileage). The plan called for rolling out luxury SUVs, large pickup trucks and entry luxury cars (vehicles with poor gas mileage).

When people in a boardroom are so far removed from Main Street, they just can't seem to get it right. GM's new approach (2009) is to restructure the company by focusing on the core brands, Chevrolet, Cadillac, Buick, and GMC. They probably have more Pontiac's on the road but Pontiac will become a highly focused niche brand. Saturn will be phased out. Can you see a father telling his son: why don't you go down to the dealership and buy yourself a Buick, Chevrolet, Cadillac or GMC truck. Ya, these brands are real sexy for today's youth.

If I had to bet on an American car company, I'd bet on Ford. They managed to have enough cash to avoid Federal loans at this time. In the very little bit of research I did, they seem to be competing very well overseas. In one report I saw, Ford placed 3rd in the European Union and 1st in Ireland. My past problem with Ford was poor mileage performance, but I think their team has been turning that around. Heck, I'm no financial guru, so don't listen to me; however, I'm going to suggest that the current stock price of $1.85 per share might be a good opportunity. With incentives to buy cars in the Stimulus Bill, and help in the credit markets, we will start buying cars again. Ford is my bet to survive and get through this. GM; I think you may have lost me as a customer.

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