Posted Fri Sep 19, 04:26 pm ET
Posted By: Paul Raman, CFA

Weak North American sales, falling production volumes and rising raw material costs are increasing our concerns for the General Motors (GM) stock. Significant incentives to stimulate sales and keep inventories lean are eating into margins.

Furthermore, GM sales are hampered by poor resale values. The company is at a disadvantage compared to its competition owing to huge pension and health care costs. These issues compel us to rate the shares a Sell with a six-month target price of $7.

GM is undertaking operating actions to improve cash flow by approximately $10 billion through the end of 2009. These include headcount reductions, structural cost reductions of approximately $2.5 billion in GMNA by capacity reductions, downward revisions of capital spending plan from $8.5 billion to $7 billion in 2009, and suspension of future dividends on stock (which is expected to improve liquidity by approximately $800 million).

The company announced to trim 15% of its North American work force by November 2008 and has planned a reduction in salaried employment costs in the US and Canada by 20% or $1.5 billion in 2009. It has started offering early retirement packages to these workers. The company estimates an expense of over $900 million over the next few years to adjust its manufacturing capacity, including plant closures and output reduction. It plans to spend $100 million in 2008, $200 million in 2009, and $600 million after 2009.

Read the full analyst report on GM

http://www.zacks.com/stock/news/1482...hout+a+Bailout

 

GM is however moving in the right direction as far as product is concerned. I was at the dealer a week ago and had some time to kill while I was waiting on my car so I strolled around the showroom looking at the new stuff. I was very impressed with the new Malibu. It looks even better in person than in the photos. Even though it is an older product my Wife liked the Equinox. And of course we all know the HHR is a winner.

I think GM's biggest problem going forward is one of perception. It doesn't matter how good your stuff is if you can't get people to even consider it. Too many times people run to Honda and Toyota without giving the competition a second thought because that it what everyone says is good.

 

Nothing more than free market capitalism at work-- if a company doesn't produce what people want, people will buy from other companies.

Free market = good.

 

Lord please NO BAILOUTS.

This was a mistake. I understand what the reason is behind it but in the long run it will fail again.

 

Another Bailout, Might as well. Hell we're already paying back 700 Billiion WTF is alittle more.

 

When the GOV says 700 Billion, they mean 1 trillion.

 

Just add to it. Its better then the Great Depression II

 

There is no bailout. What was promised to the Big Three was up to $25 billion in low-interest loans in exchange for developing more fuel efficient, alternative fuel, and emissions/fuel-free vehicles as part of the new fuel economy bill passed last year. Like everything else the government has promised the Big Three, it is NOW being taken away. They don't want to spend the money now, so the government is calling it a bailout to make the Big Three look bad.

Fritz Henderson said it'd be nice to have the money to speed up development of the new cars, but it has not been budgeted and the company will do fine without it. I think of anyone, Chrysler LLC is in the worst shape and ripe for another takeover.