Check out the comment posted by a InvestingDecoded reader on the previous post about Motorola's DROID. Definitely some good insights there. Feel free to share your thoughts on that or any other post as well!
Yesterday it was announced the GM's deal to sell its Saab brand had fallen apart because the buyer pulled out. Koenigsegg, the Swedish sports car maker who had initially agreed to buy the struggling brand, said that it was having trouble coming to a consensus with partner investors on how to take the brand forward once the acquisition was complete.
Whether that was the actual reason or not, I believe that this incident is just another example of the challenges that GM will continue to face as it tries to conecntrate its efforts on its core brands (i.e. Buick, Chevy, Cadillac, and GMC) and shed non-core assets. It also provides further evidence of what I've though for several months already - there's opportunities here that competing carmakers can take advantage of here and opportunities where investors can capitalize.
It's Been a Long Year
2009 has been the toughest year in the century long history for the American automakers. 2 of "The Big 3" have declared bankruptcy, and government money was injected to keep them from going completely under. I've written extensively on what I think is the reason behind the downfall, so I won't rehash previous posts. But what has happened here with GM I think is a good example of how bankruptcy restructuring can't cure all the ailments of a troubled company.
The Saab deal is the 3rd deal this year that has fallen through for GM. Earlier this year, a deal to sell Saturn to Penske Automotive Group (owned by Indycar racing legend Roger Penske) fell through due to financing troubles. Furthermore, a deal to sell GM's German brand - Opel - fell through because GM decided it was more prudent to keep the brand in house and restructure.
It's Not As Simple As You May Think
When GM initially declared bankruptcy, it stated that selling these 'non-core' assets was integral in their restructuring efforts. The thought on the street was that a bankruptcy would allow GM to clean its balance sheet and make these assets more attractive to buyers. Some even went as far as to say they would come out with a competitive advantage of other automakers because they will have paid down their debt levels drastically through the bankruptcy process.
I think it's obvious now that bankruptcy is not a magic ticket as some may have thought. If the company still makes poor products that continues to lose market share as is the case with GM, it will be a long, difficult process to come out of it. In the case of Saab, sales are down 61% over the past year. I find it hard to believe this little tidbit didn't scare Koenigsegg at all.
Where You Can Capitalize
So, we now know plenty about GM's troubles, but what does that mean to you? Well, like I said, you need to make great cars to be successful in the auto industry. A pre-packaged bankruptcy won't solve all your problems. Enter Ford. The only American automaker to not take government money, Ford took steps to sell some of its non-core assets before the economic downturn. It sold Jaguar to Tata Motors on what now seems to be a very very good price for the seller. It has also continued to invest heavily in new products while competitors were forced to cut back. It now has, by far, the freshest pipeline of new cars coming out of the Big 3.
Because of this and what I believe is the best management group in the industry (CEO Allan Mullaly was the head of Boeing Commercial Aircraft and got the hugely successful 787 program going before taking the Ford job), I feel that Ford is a great investment at its current price. I bought the stock a few months ago at $6.70 and it now trades near $9. That's a long way from the $1 it traded at in March. It continues to take marketshare from both domestic and foreign competition and I believe has great potential to capitalize on opportunities when auto sales finally recover. I would sell if the stock got close to $10, but would still keep a close eye on it.
The car industry is one of the most complex and challenging out there. Just ask Private Equity firm Cerberus, who's investment in Chrysler fell flat on its face in a real hurry. Because of this, picking winners and losers can (ironically) be a little easier because it's so hard to recover from a bad situation. GM still has a long way to go in its restructuring and will continue to hit bumps on this road. Long term I think it can succeed as well, but for now, Ford has a big leg up in the domestic auto market.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
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