Revisiting GM

A few weeks ago I wrote about GMs woes and how the future just does not look good. Today I have a few more facts for you to digest. I hope you do not own GM stock or collect a GM pension check.

Here are some numbers:

1. GM monthly sales are down for the fourth consecutive month.
2. GM lost $4 billion in 2004.
3. GM is slashing 30,000 jobs.
4. GM is closing 12 plants to "bring capacity in line with demand."
5. GM's SUV sales are such a disaster it is offering "Red Tag" discounts of $10,000 on some models.
6. GM's market share fell 1.2% in November, to 23.8%.
7. Industry wide vehicle sales fell 15.7 million units, from 16.6 million a year earlier.

Things are not looking too good for our bell weather stock are they? Here is another fact that is hard to escape. It costs GM $2500 more to build a car than it does Toyota. Most of this cost comes from GMs ever increasing medical insurance costs. You see, GM has nearly twice as many retirees as current employees. GM provides pension checks and medical coverage for these retirees. Over the next several years as GM reduces their workforce by 30,000 the percentage of retirees to employees will climb even higher. GM has dug itself into a hole from which there is no escape.

Now their latest news release: GM will increase production in 2006 to 1.25 million vehicles up from 1.18 million this year; a 6% increase. Does anybody see a problem here? Why would you increase production when you are selling less vehicles, trimming your workforce and shutting 12 plants to "bring capacity in line with production?"

There is only one answer; the management at GM is incompetent. They deserve whatever befalls them. Unfortunately, our ever-vigilant government will probably step in and bail them out when the hammer falls. This will only prolong the inevitable. And remember, as GM goes, so goes the country.

As mentioned last week, our Risk Adjusted Asset Management System (RAAMS) indicates that we are in a period of high market risk and therefore we are invested in defensive funds to take advantage of any adverse move. Does it work? Well, since 2000 our portfolio has increased 162%. How have your investments done the last five years?

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