http://blogs.moneycentral.msn.com/topstocks/archive/2009/07/10/danger-ahead-for-gm.aspx
Danger ahead for 'new GM'
The “best” parts of General Motors (GMGMQ) were transferred Friday morning to a newly created company owned almost two-thirds by taxpayers. The federal government will end up stuffing $50 million into the new entity in the hope that a smaller and less debt-heavy GM can make money in the ravaged domestic car market.
Investors seem to think so, and have driven the stock up almost 40% on the announcment that GM has emerged from Chapter 11 bankruptcy.
The excitement may be premature. GM still has a difficult future.
GM will keep its Buick, Cadillac, Chevrolet, and GMC name plates and dump Pontiac, Hummer, Saab, and Saturn. Once that process is finished, GM may no longer be the largest car company in America. Its market share will probably be below 17%. Ford’s (F) is now above that level and Toyota (TM) is just behind at 15%.
GM has two problems that may make it a bad place to put taxpayer money. The first is that the American car market may never recover to the 16 million vehicles it sold four years ago. Annualized sales are running below 10 million in 2009. Americans have shown a tendency to keep cars longer. A change in the replacement cycle is a bad omen for consumer spending on cars and light trucks.
GM’s more difficult task it to market a much smaller product line against the likes of Toyota which now sells muscle cars, hybrids, sedans, coupes, and its luxury Lexus brand across a deal network that it has carefully built over the last three decades. Toyota has been merciless in competing with GM and has consistently taken sales from the company. It has a chance to deliver a coup de grace with its huge product line and a balance sheet that allows it to develop cars long-term and wait out the recession.