General Motors (NYSE:GM) CEO Rick Wagoner said in an interview with the Financial Times on the weekend that the pain could be over for GM in terms of pension problems, retiree healthcare costs, and U.S. job cuts. Investors were certainly excited by what they heard. The shares closed up 73 cents on the news.
But is this reason enough to jump on board the GM bandwagon?
Turnaround Won't Be Easy
Back in June, General Motors offered up plans to shift some of its focus toward more fuel-efficient cars. Here are some of the highlights:
- A new global compact car program for Chevrolet
- A next generation for the popular Chevy Aveo
- A high efficiency engine module for the U.S. market
- Cessation of production at four plants that build pickups, SUVs and medium-duty trucks
- A strategic review of the Hummer brand
News then hit the tape last Tuesday detailing how GM plans to sell more fuel-efficient trucks. I think that's likely to help retain some consumers who are reluctant to make the switch over to puny cars.
These plans sound pretty good at first - focusing on smaller cars and more fuel efficient larger vehicles does seem to make some sense especially with the cost of fuel around $4 per gallon - but pinning hope on the Chevy Aveo? I just don't see folks lining up to buy what looks to me like an oversized roller skate.
Rebuilding the company's focus will take time and money. These are two resources that General Motors is running short on.
And although the company is certainly making efforts to goose liquidity, how do we know that it won't need to raise money, or find itself wanting for cash at some point down the road particularly if the market in North America remains soft? In short thoughts like these give me pause.
Long Road to Climb for Stock Price
I understand that GM is trying to adjust to the times and make a shift to more fuel-efficient vehicles, but I have a hard time believing that analysts and investors are going to cozy up to this story anytime soon. It will take several quarters at least to win over the investment community.
Another big obstacle could be tax loss selling. I'm sure there are a lot of impatient investors out there that could jettison their shares by year-end in order to book a tax loss. That could drive the shares down even further. (To learn more on the benefits of selling losses to reduce taxes on your portfolio gains, read our related article Selling Losing Securities For A Tax Advantage.)
It's important to note that GM isn't the only carmaker out there that's struggling. Ford (NYSE:F) continues to battle for market share in North America and is trying adjust to the times. Ford will also be doing some retooling of its own to focus on fuel-efficient cars.
Bottom Line
Wagoner's comments sound good, but I don't think General Motors is out of the woods yet. It's going to take time for investors to warm to GM's attempted turnaround story.
The bizzare positive to come out of this is that the investment community isn't expecting too much out of the company on the earnings front except red ink, so any good news could cause the stock to pop.
