In an investment world wrought with surprises, this is not one of them: General Motors Corp. (NYSE: GM) announced today that it lost $6 billion in the first quarter and revenue was cut nearly in half.
Trading at a dismal $1.70 a share, you wonder whether this might be GM's final report for the bankruptcy teetering company. Much of the hesitancy of investors and would-be buyers is the warranty protection, or should I say, the lack thereof.
Despite cutting structural costs by $3 billion, revenue dropped from $42.4 billion to $22.4 billion due to declining sales worldwide, mainly in North America and Europe.
As you know, GM is not alone with its struggles. For U.S. automakers, misery loves company. Ford (NYSE: F) trades around $6 a share, and Chrysler filed for bankruptcy protection on May 1 after experiencing a one-year, 48% decline in sales.
An article in www.cbsnews.com today links "dirty politics" with Chrysler's bankruptcy. It's another soap opera out there: "As the car world turns."
I've been thinking about what ultimately brought this trio of automakers to their knees, and my mind keeps taking me to the labor unions and poor production.
Union labor at the three domestic facilities commands an average of $73 an hour, while Toyota (NYSE: TM) pays $47 an hour. The Toyota Corolla became the best selling car in America in July 2008.
These guys should have taken a page from Wal-Mart (NYSE: WMT), a company that has always rejected unions. Rather founder Sam Walton uses profit sharing, incentive bonuses and discount stock share purchase plans to motivate workers and provide great customer service. Wal-Mart was the best performing stock from the 1960s and 1970s.
What this all boils down to is making mistakes, learning from them and never making the same one again. We'll see what happens to the Big Three down the road. For now, I'd steer clear of them all.
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