Terry Kosdrosky wrote a Wall Street Journal article GM Expects Its Sales To Slide for June and July (subscription required) that outlines General Motors continuing problems.
Still, in a sign of how difficult it can be for auto makers to shore up pricing, GM plans to continue with a limited incentive program that expires July 5.
GM's forecast, given at the company's quarterly sales-and-marketing update for analysts and the media, underscored the challenge the company still faces in attracting customers in an era of high gasoline prices, even as the buyouts and early retirements of about 35,000 hourly workers announced Monday show some progress in its efforts to reduce costs. Demand in particular has waned for some of the larger models of pickup trucks and sport-utility vehicles, which carry hefty profit margins for Detroit's auto makers.
Goldman Sachs Group Inc. analyst Robert Barry said GM's continuing market-share losses and excess capacity "all highlight that GM fundamentals remain under severe pressure," adding that the personnel reduction and planned plant closings can be seen "more as offsets to such pressure than as indications a turnaround is underway."
I have not written much about GM recently, although I still maintain my short position. The stock has certainly done well, bouncing from the high teens to nearly $26 per share today. And GM has made tremendous progress by reducing its headcount by 37,000 people. It has made gains in other areas as well.
That said, I remain bearish. Although GM did exceedingly well with its employee reduction, I am somewhat concerned that nearly one-third of the employees decided to walk. Surely, the morale cannot be good at GM. And that will translate into production costs in one form or another. Moreover, much of GM's lineup is still gas guzzling SUVs and trucks. With higher oil prices, I expect more pressure on this segment. I believe that the housing sector has been very strong for a few years and is now weakening. Many people will be faced with higher mortgages and higher gas bills. I expect their desire to drive more economical vehicles to increase. And as the housing sector weakens, so might the overall economy. If this year's stock market returns are poor, then that is simply more pressure for GMs pension and healthcare plans. Many of those taking the retirement package will maintain their pension, so the pension is still important. And if that was not enough, DaimlerChrysler is expected to announce another employee pricing sales program and, although GM is only planning a more modest sales program over the long weekend, I would not be surprised that it is forced to join DaimlerChrysler with its own employee sales program, further damping profits.
I continue to remain rather cautious on this sector. While I think GM's management has done a remarkable job to date in reducing costs and steering around the various obstacles, GM is still not in control of its destiny. Higher oil prices and the economy in general are driving GM's fate. So I continue to remain bearish.
As a matter of disclosure, I remain short GM shares.
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