Novice Investing - GM Kills Its Golden Goose

Date: Tuesday 07th 2008f October 2008 01:56:49 AM

GM Kills Its Golden Goose - 04/04/2006

By: Novice Investing Staff

General Motor Corporation (GM) has finally cut the final ax. It decided to sell 51% of its cash-cow business, GMAC, for $ 14 Billion. That is more than GM's market capitalization. But then again, this is the goose that lays golden eggs for General Motor. In recent years, GM cars' division hardly make any money, only to be helped with its finance arm, GMAC.

With this deal, no wonder GM shares dropped in heavy trading. GM has not proven that it can produce and sell cars profitably and now, the golden goose has been sold. Further evidence was shown when the company announces its March 2006 sales. Sales for the month fell 15 % while Japanese rival Toyota reports a 7% increase in auto sales. But still, the deal might ease General Motor's highly leveraged balance sheet. It will get a much needed cash to persuade its employee to take on its cash offer to depart the company. With the buyout, General Motor can reduce its workforce without having to worry about the powerful union. It can then eventually reduce its cost structure in line with its Japanese rivals.

The good thing about the deal is that General Motor still retains 49% of its finance arm. This preserve some of the cash cow the unit might generate. It also shows that management is ready to tackle the labor issue by accumulating the much needed cash. $ 14 Billion can buy out a lot of employees these days.

So, is General Motor stock a worthy investment? That is hard to say at this point. It is basically a race against time. When GM can bring its cost structure in line with competitors, it might have a chance to survive. Even then, the race has just begun. The more efficient GM still needs to prove that it can sell quality vehicles to consumers, instead of giving out rebates year in and year out. When that happens, then perhaps GM stock is worthy of your investment dollars.

END
You can view other helpful commentary by clicking here
Distributing your own investing content is easy. Simply, click here.

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding General Motor Corp. (GM) or any other securities.

[Resources] [Forum] [Link Partner ] [Novice Investing Directory ] [ Submit Your Article Here ]