You might find this earlier post on GM very interesting given today's market activity.
First posted on June 27th.
"What is good for General Motors is good for America"
Back in 1955, Charlie Wilson, then chairman of General Motors Corp. made this somewhat pompous statement. Here we are, some 53 years later and look what is happening to the stock of General Motors (NYSE_GM). This stock is at a 53 year low and shows no signs of turning around.
So the question becomes, what happened to America and General Motors? How did this company lose its edge in the marketplace?
HOW DID GM GET IT SO WRONG?
Digging through the history of GM, I found one fascinating item. GM developed an electric car back in 1996 when gas was $1.28 a gallon! They named the battery powered car the EV1 and then basically scrapped it in 2002.
Today there is very little evidence that this car was ever in existence. I am sure you're thinking right about how we could sure use a car like that today with gas prices trading over $4.00 a gallon.
When you look at the stock of General Motors, you'll see that the high for the stock in the last eight years was around $68 in 2002. What's interesting is that high point in the stock was right around the time GM scrapped its EV1 car.
So what happened to GM's first electric car? GM claims there was not enough public demand. That could be, but I think the story is a lot more complicated than that.
You can see all the GM - Big Oil conspiracy theories in the movie
"Who Killed the Electric Car."
WHY KILL THE GOLDEN GOOSE?
From a business standpoint, why would GM want to improve something that would kill the goose that lays the golden egg? General Motors tends to make most of its money on sales of replacement parts. Up to 40% of its profits come from selling replacement parts for existing GM automobiles, so why would they sabotage their own cash flow?
Unlike a gasoline driven car, which has many moving parts, an electrical car like the GM's EV1 has very few parts to go wrong, so therefore part sales and cash flow would go right into the tank for GM. The other perception problem GM has with an all electric car with zero emissions is this: if GM produces an all electric clean car with zero emissions, it's making an admission that all of their other cars are dirty, spew out harmful emissions and pollute the planet.
But look at how GM got it wrong. This may be one of the biggest blunders ever in American corporate history. GM took the lead in electric car technology (smart move), but was not convinced that they as a company could be profitable selling electric cars.
WHO OWNS THE MOST ADVANCE BATTERY TECHNOLOGY?
One fascinating piece of information is that GM acquired advanced battery technology from Ovonic's in the form of a NiMH battery. This battery produces a stronger, longer lasting charge, and was the ideal battery for their second generation of EV1 cars. What came out later was truly a shocker, GM sold this amazing battery technology along with the patent (dumb move) to Texaco who was later taken over by Chevron. Now Chevron owns the technology and the patent!
You have to ask yourself the question... why would an oil company be interested in purchasing advanced battery technology from a major car producer like GM?
I'll let you draw your own conclusions.
Fast forward to 2008 when everyone is mad as H#LL for having to pay over $4.00 for a gallon of gas. Back in 1996 when GM launched the EV1 with very little fanfare, the cost of gas was around $1.28 a gallon.
Why GM decided to scrap the EV1 and look for short-term profits in big cars as opposed to building and preparing to adopt a different business model is still a mystery and one that has decimated GM's stock price in the last five years.
The automobile business has not changed in almost a century and the industry appears reluctant to embrace change. It would now appear that GM's business model like many of its big cars is rapidly becoming outdated and destined for dinosaur land.
LET'S LOOK AT THE STOCK OF GM
Let's take a look at the GM stock chart and see how you would have fared had you purchased GM stock at $68 in 2003. Then let's look at the same stock using a MarketClub's proactive approach. As you can see the results of a buy and hold strategy have been a disaster losing 79% of its value for all share holders while the proactive results have been quite stellar.
If a major company like General Motors can fall to a 53 year low, so can any stock on the big board.
Readers of this blog know that MarketClub uses a proactive approach when taking positions in the marketplace. The world has changed, and it has changed not only for GM but for many other mature companies that are using business models and products that are rapidly becoming outdated and will prove to be noncompetitive in the long run.
I'll finish by saying: "What is good for America in the long run, are smart businesses that embrace change." Maybe General Motors will get it, maybe they won't. The market will decide that one.