Q. What does the future hold for General Motors Corp.? We’ve been shareholders for years.
–W.S., via the Internet
A. The world’s largest vehicle manufacturer sold 9.2 million of them last year, the most in 27 years, but sales motivated by incentives can’t make up for its series of wrong turns since the 1970s.
It’s hard to believe this shrinking company once so dominated the U.S. car market that regulators talked of breaking it up. Although there is no absolute certainty it will file for bankruptcy, there is no absolute certainty it won’t either.
That’s because so much depends on the sales strength of its new sport-utility vehicles and domestic sales in general; parts supplier Delphi Corp.’s bankruptcy proceedings; sale of its controlling interest in General Motors Acceptance Corp.; and negotiations with the United Auto Workers union, including at Delphi.
And that’s not even taking into account the economy or oil prices.
General Motors (GM) shares receive a weak “hold” rating from Wall Street analysts. That has been eroding recently, according to Thomson Financial. The opinions include one “strong buy,” two “buys,” nine “holds,” two “sells” and four “strong sells.”
After posting a loss of $8.6 billion last year, General Motors reduced its vehicle prices, sliced its dividend in half, cut executive salaries, reduced health benefits for salaried workers and made plans to change its pension plan for salaried workers. It already had announced it would slash its employee count by 30,000 hourly jobs and close 12 plants by 2008.
The goal is an $11 billion cost reduction by the end of 2010.
In addition, company critic Jerome York, a key aide to billionaire Kirk Kerkorian, who has a 9.9 percent investment in GM, has been named an outside director. Kerkorian and York pressured the firm to restructure aggressively.
Despite the moves and Chairman and Chief Executive Rick Wagoner’s repeated vows that there are no bankruptcy plans, its debt rating has been reduced further by major ratings services into “junk” territory.
Moody’s Investors Service, in cutting it to B2 from B1, pulled no punches in its statement: “The downgrade reflects increased uncertainty that the company will be able to achieve all the steps necessary to establish a competitive wage, benefit and supplier cost structure outside of bankruptcy.”
Total return of its shares was 1.1 percent as of Thursday, following declines of 48 percent last year and 21 percent in 2004. The dividend cut makes them less attractive to many.
The company is not giving earnings forecasts. Industry analysts predict a five-year annualized growth rate of 5 percent, according to Thomson.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@tribune.com.
