Taking Back America!
On January 20, 2009, Ford Stock closed the day at $1.80 per share. As of this moment, Ford is a little lower on the day, and trading at $9.23 per share. When GM reissued itself in early November of 2010, It started its new life out at $34.00 per share. Looking at its quote a moment ago, it has dropped today to $19.80 per share. What we have is a tale of two auto companies, one managed by people who have spent their lives in the auto industry, and the other, managed by people who have spent their lives as a part of America's Academic Elite. Ford's P/E ratio right now is 1.95 while GM's is 5.75. Boiled down, for every $1.95 you spend buying a share of Ford Stock, you'll get back a dollar in profit annually, should that company continue to perform as it is currently. For GM stock, you'll need to spend $5.75 for the same results.
In January of 2009, both companies had a decision to make. Both were in financial dire straights, and both had chosen different paths to deal with their earlier transgressions of making bad decisions for themselves. GM allowed herself to be purchased by the Federal Government, while Ford did not. (There is enough material to write about the politics of the GM bailout for a dozen blog posts to be sure, but that is not what this is meant to become, so please bear with me.)
For years, decades even, we on the political right have been locked in a debate with the political left about whether government bureaucracies were better at making private sector decisions or if private citizens would be better suited to make such decisions. What we have now, is an opportunity to see that debate played out in a rare apples to apples comparison. The management team at Ford believe that building cars that people want is their mission. GM's management team is operating under the premise that the public needs to have their behavior tweaked so that they will be more likely to purchase the cars GM wishes them to buy. We will revisit this article on a quarterly basis, and annually in order to get the lay of the land so to speak.
For now though, I can tell you one thing, Ford doesn't need to resort to crap like this in an effort to make herself look like a good buy for her shareholders. GM it seems is pulling out all the stops in order to deceive her shareholders, which as it turns out includes you and me, into thinking that everything is coming up roses. Some time last week, I read that GM has experienced a whopping 79% increase in its fleet sales. Which basically means that most of its business is now government contracts. What's worse for GM, these sales are seldom profitable for the auto manufacturer, but serve only as a good will gesture. Further, it sure looks fishy that the government is suddenly only purchasing vehicles from GM, and then announcing, just as suddenly, improving sales figures. Shockingly, when you buy your own product, it does not carry the same economic impact as when someone else pays you for it. To prove this to yourself, hold a dollar bill in your right hand. You have one. Now place the bill in your left hand. How many dollar bills are you holding now? Now we have this, from the Daily Caller:
Car dealerships’ lots are filling up with unsold trucks and SUVs because GM built more vehicles than it can sell in order to inflate sales claims and artificially boost its profits, The Daily Caller has learned.
The Detroit automotive giant records sales for vehicles in dealers’ inventories before car buyers make their purchases, said Mark Modica, a National Legal and Policy Center associate fellow.
GM’s overbuilding “probably helped [GM] in the second quarter, but will hurt in the third quarter,” a Standard and Poor’s Capital IQ analyst added.
Third quarter results won’t be made public until after the November election, allowing Obama to tout the company’s short-term success while masking troubles that are not yet apparent to voters.
Now, here's the good news for we reluctant owners of GM stock, meaning U.S. citizens, also from the same Daily Caller article:
Reason Foundation senior policy analyst Shikha Dalmia said GM is stable and making profits, but added that the company would need to sell stock at $55 per share in order for taxpayers to recover their investment.
In a free market system, both profits and losses are important. Losses are every bit as necessary to economic health. They signal that something needs to be changed. They let management know that their plan is not working, and that if the course is not corrected, further economic pain will be experienced. What the bail out did, was to socialize GM's losses. The thinking was that GM had become too big, and therefore too important to be allowed to fail.
So now, we have an auto manufacturer who is being subsidized to build cars that no one wishes to purchase. Each Chevy Volt produced costs the American people about a quarter of a million bones. Now, that reluctant investment will be sitting in lots collecting dust, until car dealerships begin their K-Mart season and start slashing prices. Whether you buy a Volt for 40 grand or 30, or not at all, its cost will remain the same quarter million.
In about two months time, we will be inundated with shouts of how Barack Obama got Bin Laden and saved GM. The truth is that our nation, and the auto industry also would be much better off had GM been allowed to suffer a bankruptcy. Whether she survived or not, there are 19 other companies currently building cars in America. Volkswagen, Toyota, Subaru, Honda, and Ford, just to name a few, are all here building their cars in our great nation. Not one of these companies needs to lie about their results to make a President look good though, they merely build cars that their customers actually want.