Between The Lines: MT's Angus MacKenzie's on GM's Sinking Stock Price

Edward Niedermeyer
by Edward Niedermeyer
between the lines mts angus mackenzies on gms sinking stock price

Angus MacKenzie did everything but call TTAC by name in his essay GM Shares Tumble. So What? Yes, the Motor Trend scribe can “almost hear the Detroit death-watchers rubbing their hands with glee” at the news of GM's stock hitting two-year lows. It's true. Every time GM's share price dips, we light giant cigars, twirl our collective mustache and laugh maniacally. That Mr. MacKenzie sees critical coverage of the auto industry as journalistic schadenfreude goes some ways towards explaining Motor Trend’s increasingly toothless car reviews. But how can MacKenzie, an experienced car hack, justify pinning Detroit’s woes on anyone other than, well, Detroit? Hey, a man’s gotta eat.

What prompted GM's share price slump, said analysts, was a drop in the overall auto market, and worries about future profits in light of disappointing February sales… What the analysts really meant was Wall Street's money men don't think GM's a good bet for making them a quick buck right now. And if the money men don't think a company can make them a quick buck, then it's basically worthless.

This kind of rhetoric– references to unnamed, evil “money men”– smacks of Ye Olde International Jewish banking conspiracy. As populist as such a sentiment may be, it’s unconscionable for a responsible journalist to perpetuate such a well-worn shibboleth.

More to the point, MacKenzie is dead wrong. The short-term thinking that caused GM's stock price to head for the basement came from RenCen— not Wall Street. Nobody from the financial community forced General Motors to squander billions on misbegotten foreign alliances, or destroy its brands, or capitulate to union demands. Nobody told GM’s management to buy Saab and Hummer, or set-up Saturn. The end result of GM’s self-inflicted management failure is a company in deep financial crisis. This is clearly, unequivocally, completely GM’s fault.

In an era when nameless screen jockeys can move billions of dollars at the touch of a computer keyboard, Wall Street's institutionalized ADD has resulted in a feverish short-term view of the auto business. Lengthy product cycles and huge investment costs, combined with a fickle, cyclical, fashion-driven market, are just too damned difficult to deal with.

Sure. Automotive analysts like John Casesa begin looking at the car industry, get bogged down in the numbers and market cycles, throw up their hands and say, “Whoa! That’s just too damned difficult. Forgeddaboutit.” And what of all those institutional investors who’ve stood by The General for decades? In fact, GM was once known as a “blue chip stock,” held as much for its healthy dividend payments (recently halved) as its share price.

There’s one reason this is no longer true: the company’s management has run the automaker into the ground. And why’s that? According to Mr. MacKenzie, it’s all about GM’s pesky quarterly financial reports.

Maybe that's why the world's most successful automakers — Toyota, BMW and Porsche, to name three – are those that have never had to sweat a quarterly earnings call with a posse of skeptical Wall Street analysts ready to trash their stock price when they don't see the opportunity to make that quick buck.

Wrong. BMW files quarterly reports. Toyota files quarterly reports. As does every major automaker you can name save privately-held Chrysler– and we all know how well that’s going. As publicly held companies (save Porsche), ALL automakers have to face the music. Just like GM.

Never mind. MacKenzie is determined to paint GM as a victim– even if he has to undermine his own argument to do it.

Bunkie Knudsen, who ran Pontiac and Chevrolet in the '50s and '60s, reckoned it all started to go wrong when Fred Donner became president of GM in 1958. Knudsen was outraged Donner would insist on talking about GM's stock price, and what the analysts thought about it, at his daily meetings with the heads of GM's divisions. Before Donner, those meetings were mostly about making cars and trucks. After, as the financial engineers took over from the real ones, GM's cars and trucks got worse and worse.

Again, how is this Wall Street’s fault?

Bunkie Knudsen believed in a simple concept: The people in Detroit had to make good cars, and if they did, the people in New York would take care of the stock. After decades of fixating on financial engineering, GM is only now getting back to the business of making good cars. Only problem is, no one in New York seems to care anymore.

Reality check. It’s not “the money men’s” job to “care” about making good cars. That’s GM’s job. This they’ve failed to do, in spectacular fashion. MacKenzie’s finger-pointing at dark forces on Wall Street doesn’t change the fact that GM is in a hole of its own making. Their share price reflects that reality, which GM, like MacKenzie, refuse to face.

[Read MacKenzie's rant here.]

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  • Pachiguy Pachiguy on Mar 25, 2008

    Excellent demolition job on ill-informed gibberish, Edward, thank you. People who know nothing about which they are writing should be restrained from doing so. One minor quibble: Porsche is a publicly held company, albeit of a strange hybrid variety. It is listed on the Deutsche Borse as Porsche Automobil Holding SE. 50% of the capital is publicly quoted non-voting preferred and 50% ordinary voting shares, with the ordinaries entirely owned by the Porsche and Piech families. Of course, with the preferred being non-voting, the question of how much attention the P&P families have to pay to the holders of the ordinary is moot. Nevertheless, Porsche does report semi-annually, has a reasonably comprehensive investor relations section at the website, and holds an annual analyst conference in Stuttgart following the announcement of full-year results. Interestingly, Porsche fought a long war between 2001 and 2004 with Deutsche Borse for admission to the Prime Standard of the Frankfurt stock exchange (from the General Standard), with Deutsche Borse ultimately successful in its insistence that without quarterly reports, Porsche did not meet the investor transparency requirements of the Prime Standard. Incidentally, Porsche shares haven't been doing too well lately - down to E106.22 just before Easter from a high of over E180 in October (adjusted for the delisting of Porsche AG and relisting as a holding company). Reasons likely include concerns about consolidating VW, the Panamera development costs (in the high hundreds of million euros), as well as the pummeling luxury consumer cyclicals usually take in a recessionary bear market - see the share price charts for Coach and Burberry over the last year, for instance. Indeed, almost all automakers have seen their share prices suffering and in some cases collapsing - BMW, Renault, Fiat, Toyota, Honda, Ford - GM is hardly alone. But we couldn't expect misguided crusaders like Angus MacKenzie to understand that...

  • Functionalist Functionalist on Oct 17, 2008

    Remember C. Van Tune's Death Valley torture test and the Speed Blind tests? Those were very entertaining. MT's conducted a wide variety of greats tests. People canceled their subscriptions for naming the Prius the car of the year, yet today it's such a respected and significant car today. Plus, it's still entertaining and informative.

  • Hugh I have no trouble believing they exaggerated somewhat, but I also figure they were factoring in the cost of the research and engineering. I am just disappointed at how they abandoned their own product (again).
  • TheEndlessEnigma Mustang, MX-5
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  • Dan65708323 I think Ford it going to go under. They can't lose 3 billion ever year for years. All their EV's are on stop sales. Good luck Ford.
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