The Truth About Cars » Shareholders http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Mon, 28 Jul 2014 10:00:52 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Shareholders http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com Hammer Time: Are Shareholders Worth It? http://www.thetruthaboutcars.com/2014/05/hammer-time-are-shareholders-worth-it/ http://www.thetruthaboutcars.com/2014/05/hammer-time-are-shareholders-worth-it/#comments Wed, 28 May 2014 14:20:07 +0000 http://www.thetruthaboutcars.com/?p=448804 balancing act

Capitalism has no loyalties.

Everybody is replaceable.

Products. Employees. Employers. Services. Alliances. Joint Ventures. Financiers. Even the executives of multinational firms along with their board of directors are only as good as whatever quarterly numbers can be cooked up by their ‘independent’ auditing firm.

Capitalism is the ultimate “Let’s go!”, “Do it!” and “Screw you!” of economic systems. You name the angle or need in capitalism, and chances are that there is a market substitute that can immediately fill the gap. Even government regulations can be routinely challenged by trade organizations, international courts, and the all too common political handshake.

All this reality happens… on paper.

The truth is that capitalism is tempered by the culture where it’s practiced.

In the world we live in today, corporations and industry interests always pursue laws and relationships to protect their gotten gains. The ultimate goal of some companies isn’t progress. But to keep certain competitors and market substitutes far away from the hands of the free market.

Consumer first? Hell no! Earnings first? Hell yes! This brutal reality of corporate self-interest brings on a few tough questions when it comes to the American auto industry in particular.

Everyone has their own hierarchy of worthiness when it comes to an automaker’s success. Bonuses, dividends, stock options and pensions are all realigned to account for the rewards of good work.  So with that in mind, let me have you think about a question that has bugged me now for several years.

Are individual shareholders worth it?

As I look through the recent history of our industry, I am having trouble figuring out a single scenario where individual public shareholders made the difference. Ross Perot couldn’t kick Roger Smith’a ass into gear. Lee Iacocca and Kirk Kerkorian were the crown jesters of a pointless takeover exercise. As for Ford, wasn’t the fact that the Ford family held sway the major reason why an industry outsider like Alan Mulally was successful at restructuring the company? He didn’t need to worry about holding off on a strategy, or hiring some lackey to his management team,  just because some schmuck with a big block of stock thought he knew more.

Smaller shareholders are nothing more than gamblers. If something bad happens, they are the last to know and for good reason. They don’t know anything. Even if they did, their shares don’t enable them to help create that change. I can’t think of one solitary situation in the last 50 years where a small shareholder has been able to make a difference in any automobile company.

Who has offered the greatest stability and success in the long run? In our industry it may very well solely rest in the wiser and more patient hands of the family controlled business.

The most successful Japanese auto company is owned by the Toyoda family. The most successful European company, Volkswagen, is ruled by Porsche Automobil Holding. A German holding company owned by the Porsche families.

As for American manufacturers, only Ford, a company controlled by the Ford family for well over a century, was able to survive the 2008 meltdown without a direct bailout. The shareholders did nothing but lose all their money and offer many of us a golden opportunity to short their stocks. John Q Public and Cerberus were inevitably replaced by the unions, Fiat, and Uncle Sam.

Could individuals shareholders ever make a difference in this business? If not, do they simply make it easier for the family with limited resources to control the business?

Instead of offering a reflexive yes/no based on ideological allegiance, I want you to also think about the financial issues. We are in a heavily cyclical industry. White knights, along with new leaders, have helped save nearly every automaker from bankruptcy or a hostile takeover at one time or another.

But can this defense be better executed with a family that has their own name and reputation to defend? Instead of a bunch of shareholders who are in it simply for the stock price?

My answer is yes. I think small shareholders serve as nothing more than a money pool for those who are doing the real work. In a well-run organization they offer liquidity. In good times, they get dividends and stock appreciation. In bad times, they usually don’t have any means to change the running of a car business for the better.  This business has far too many influencers on too many levels for public shareholders to effect change.

Am I wrong?

Author’s Note: Even when Steve is wrong you can reach him at Steve.lang@thetruthaboutcars.com

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GM Shareholders Unflappable As Recall Repairs Begin This Week http://www.thetruthaboutcars.com/2014/04/gm-shareholders-unflappable-as-recall-repairs-begin-this-week/ http://www.thetruthaboutcars.com/2014/04/gm-shareholders-unflappable-as-recall-repairs-begin-this-week/#comments Mon, 07 Apr 2014 12:58:22 +0000 http://www.thetruthaboutcars.com/?p=788714 GM-building-US-Flag

In spite of General Motors losing $3 billion in shareholder value over four weeks since the recall crisis began, Bloomberg reports investors are holding onto their shares in the belief the automaker will recover from the debacle. Though questions about the delay persist, most shareholders are pleased with how CEO Mary Barra is guiding her company through the maelstrom.

Other factors in the massive stock decline include overseas challenges and weaknesses in product lines, including bringing European profits into the black, while Chevrolet’s Silverado fights Ram’s offerings in order to regain its traditional place in the monthly sales charts.

For those affected by the recall, CNN Money reports repairs of the out-of-spec ignition switch found in a handful of 2003 – 2011 vehicles will begin Monday, though the repairs will focus on the original recall of 2003 through 2007 models first, with fixes due later for 2008 – 2011 vehicles. GM advises consumers to make an appointment with their dealers before bringing in their affected vehicles. The repair is free of charge, and will take 30 minutes to accomplish, though customers may have to wait longer due to “scheduling requirements,” according to the automaker.

Speaking of the dealers, Bloomberg reports GM dealers as a whole have had to “act as therapists” for their customers who, like owner John McEleney of Clinton, Iowa, have been bombarded by recall news on a daily basis:

It’s a little bit unnerving because GM is on the front page — not of the business section, but the front page of the paper and the lead story on the news every day. People are concerned because they’re GM owners and they see all this publicity regarding GM.

Regarding the emergency injunction that would have forced GM to request affected consumers to park their cars until they were repaired, Detroit Free Press says U.S. District Judge Nelva Gonzales Ramos in Corpus Christi, Texas needs more time to thoroughly examine the brief filed on behalf of 15 families.

As for the National Highway Traffic Safety Administration, New York Times reports the agency and Congress both face questions over the former’s handling of the GM recall, from funding and punishments available to the NHTSA, to how the agency couldn’t find a clear link between the out-of-spec ignition and undeployed air bags in 2003 through 2006 Chevrolet Cobalts and Saturn Ions. Consumer advocate and former NHTSA chief Joan Claybrook offers this summation:

General Motors made the part, they designed the part, they sold the part that was defective and they knew about the problem fairly early on. And I believe that General Motors has the greatest culpability. But there is a really important story about NHTSA’s failure to handle this properly.

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DCX Shareholders Vs Daimler Management: Round 2 http://www.thetruthaboutcars.com/2010/10/dcx-shareholders-vs-daimler-management-round-2/ http://www.thetruthaboutcars.com/2010/10/dcx-shareholders-vs-daimler-management-round-2/#comments Sat, 16 Oct 2010 14:54:50 +0000 http://www.thetruthaboutcars.com/?p=369021

In 1999, a group of shareholders launched a court action against DaimlerChrysler management. They shareholders felt that their shares in Daimler AG (before the DaimlerChrysler “merger of equals”) were undervalued because management used an unfair exchange ratio (1.005 shares of DCX to every share of old Daimler AG). In 2006, a Stuttgart court ruled in favor of the shareholders and ordered DaimlerChrysler to pay them €230m (about $321m in today’s exchange rates). As far as everyone was concerned, that was the end of that. But not to Daimler.

Daily Finance reports that Daimler went back to court. A higher one. The Higher Regional Court (Oberlandesgericht) in Stuttgart, to be precise. They appealed the lower court’s ruling. And this time, Daimler won. “If the agreement is result of a negotiation process which is backed by a large majority of shareholders, that’s the best warranty that the executive took adequate care of the economic interests of their respective investors,” said the court in a statement, “A court has only limited powers of review in these cases”. In other words, “You lot voted for it, you lot live with it.” As a result, the previous ruling of Daimler paying the shareholders represented in the suit, an extra €22.15 per share in question, was overturned. DaimlerChrysler, the gift that keeps on taking.

This is not necessarily the end of it. The DCX shareholders can go all the way to the Bundesgerichtshof, if they so choose.

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Ford Shareholders Meeting: Profit This Year, But No Dividend http://www.thetruthaboutcars.com/2010/05/ford-shareholders-meeting-profit-this-year-but-no-dividend/ http://www.thetruthaboutcars.com/2010/05/ford-shareholders-meeting-profit-this-year-but-no-dividend/#comments Thu, 13 May 2010 21:39:59 +0000 http://www.thetruthaboutcars.com/?p=356479

After four straight profitable quarters, Alan Mulally’s forecast today of a “solidly profitable” 2010 shouldn’t come as a huge surprise. But, as Executive Chairman Bill Ford put it to Ford shareholders at the company’s annual meeting [via AP],

It is the very early days in our recovery. We still have a lot of debt

And he’s not kidding. As of the end of Q1 2010, Ford was carrying $34b in debt. And though Ford faces a higher cost of borrowing because of its staggering debts, Bill Ford was clear that he wouldn’t trade places with Ford’s Detroit competitors, which cleaned out their balance books, at the expense of government bailouts and accompanying PR problems. After all, while GM and Chrysler were rebuilding, Ford managed to outperform both of them last year by gaining sales and market share. And Ford’s leadership sees that momentum carrying forward into next year.

Alan Mullaly told stockholders [via BusinessWeek] that

We expect to see continued improvement in 2011. We’re clearly on a path now of profitable growth. The improving global economy is a slow gradual recovery especially in the United States, but with very solid fundamentals. Also, we’re bringing on more and more products.

But the news out of FOrd’s annual shareholder meeting in Delaware isn’t all good. After a meteoric rise in its stock price since hitting lows in the $1 range last year, Ford’s challenge is in convincing stockholders that more growth is still possible.Says Efraim Levy of Standard & Poor’s:

Ford has taken advantage of the weakness of their competitors, and now the challenge will be to continue to outperform them. They’re not out of the woods yet.

And that’s because so much money has been made on Ford stock since last year’s low, that pressure to sell is inescapable. One hedge fund manager who recently sold off Ford holdings for an average return of 275 percent explains:

The company is doing fantastic but I don’t know if there’s a lot of upside. When Ford’s outlook was very cloudy and not as positive, there were regular buy signals.

Further hurting chances of further growth in Ford stock is the news today that shareholders had voted down a plan that would redistribute the Ford family’s closely-guarded preferred-share voting majority to the rest of Ford’s shareholders. This is the sixth time such a measure has been voted down, although with 30 percent voting in favor, this time was the closest it’s ever been to passage.

Moreover, Ford will not institute a dividend for stockholders, despite the projections of profit. That decision underlines the importance of reducing Ford’s debt load. Bill Ford explains that

the most important thing we can do as a company is get the balance sheet in order.

But there’s more to running an automaker than merely attracting equity investment, and Ford’s operational strength means CEO Alan Mulally is the man of the hour at the Ford shareholder’s meeting. Bill Ford waxed effusive about the former Boeing CEO, who has rapidly become one of the most respected executives in the industry, saying

Alan has been completely superb for this company. We’d like him to stay as long as he wants.

And with profits looking likely this year and the next, Ford’s shareholders can rest assured that their investment is about as strong as any other in the auto sector… especially if they bought in at the $1-$1.50/share low last year.

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Hyundai CEO Ordered To Pay His Company $60m For Money-Losing Deals http://www.thetruthaboutcars.com/2010/02/hyundai-ceo-ordered-to-pay-his-company-60m-for-money-losing-deals/ http://www.thetruthaboutcars.com/2010/02/hyundai-ceo-ordered-to-pay-his-company-60m-for-money-losing-deals/#comments Mon, 08 Feb 2010 18:19:25 +0000 http://www.thetruthaboutcars.com/?p=344579

For years, TTAC has argued that General Motors suffers from a profound lack of accountability. Specific instances include the $2b “Fiatsco,” most of Roger Smith’s tenure, and cars like the Pontiac Aztek and Cadillac Cimmaron. Incidents like these helped GM along its decades-long plunge into bankruptcy, unchecked by the lax corporate governance of what came to be called its Board of Bystanders. Hyundai’s CEO may have received similarly lax treatment from South Korea’s criminal justice system, but at least the shareholders are standing up for their investment.

AFP [via Google] reports that Hyundai Motor Chairman, Chung Mong-Koo, has been ordered by a South Korean Seoul Central District court to pay $60 million in damages to Hyundai Motor Company. The suit was brought forward by 14 minority shareholders of Hyundai Motors and a non-governmental group called “Solidarity for Economic Reform.” This suit was brought about because shareholders believe that Chung Mong-Koo and Kim Dong-Jin brought huge losses on the company when, in 2001, Hyundai Motors participated in share sales of affiliates in the Hyundai Chaebol (Hyundai Airspace & Aircraft Co. and Hyundai Hysco).

“The court has recognised the fact that Chung made Hyundai Motor participate in the share sales to head off any threat to the Hyundai Group’s managerial rights, even though it could inflict damage on his company,” Yonhap news agency quoted the judges’ ruling as saying. “This is a case that reveals the problem of family-run management that focuses on the interests of major stockholders and the executives of Hyundai Motor.” If only GM’s investors had taken such proactive steps about the firm’s inept and insular management years ago, they might not have been wiped out in the government’s bailout/takeover.

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