GM may have set its company record for pretax profit last year when it brought in $7.6 billion, but the company still has battles to fight. These were outlined at the annual shareholder meeting last week, where optimism was blunted by the fact that GM shares have dropped 33% since the company’s initial public offering in November 2010.
Investors, the mighty and faceless mob that demand a stock price to rise like an escalator without a destination, do have valid concerns. The first involves the U.S. Treasury owning 32% of GM. That’s a huge chunk of company that will eventually be sold off into the public market. GM CEO Dan Akerson would like the Treasury to, at least, provide a plan for a divestment to ease or eliminate market uncertainty.
The second problem is Europe. GM has been losing money on the continent since 1999 ($16 billion total), and last quarter dropped $256 million as the banking crisis continues and unemployment lingers. The recent marketing deal with English Premier League behemoth Manchester United should pay off strategically in the long run, but the move was part of GM’s short term effort to cut marketing costs (i.e; foregoing both Super Bowl and Facebook advertisements).
GM hasn’t been successful in Europe in a long time, and it will take a bit longer for the ManU deal to pay its benefits, and even longer for the European economy to recover. Likely a situation that, unfortunately, needs more patience for a complete recovery. But while we all wait for the recovery to kick in, GM has already begun European consolidation, shutting a plant in Bochum, Germany. (Speaking of patience…analysts estimate it taking FIVE YEARS for GM to close the plant because of job guarantees.)
GM pension obligations are a third problem on investor’s minds. There are 400,000 hourly retirees and dependents that may be offered a pension buyout. GM has…$134 BILLION in pension obligations to pay off, the largest figure for any company in the U.S.
That’s a lot of money to owe and a lot of folks that will be affected by the GM decision (including shareholders). And another reminder of how immense and intertwined our economy is.
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