For US Automakers, Where Does Broken Trust Go?
Charlie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Suppose it was essential that your investors, customers, and the general public forgive your company? What if your competition did not require such forgiveness? Recently, General Motors (NYSE: GM) repurchased the last tranche of shares it was required to buy back from the US Government. Sadly, US taxpayer is still hung out for 300 million shares that the US Government must trade on its own, which means all of us taxpayers are on the hook to the tune of about $15-$20 billion, depending on which report you choose to believe. My math says that at $15 billion in the red now, we taxpayers need $50 per share to be whole again. No matter who you believe, thats a lot of pain. For GM, now selling for about $27 per share, it seems likely that the company will need a lot of forgiveness to get people to quit holding a grudge.
One report has GM bemoaning the fact that sales had suffered from the perception of "Government Motors" as a result of the Federal bailout of GM. The hope is that now with the "last buyback" the perception will be put to rest and customers would flock to the new GM. Of course! It should be easy to forget and forgive a federal bailout, skewering shareholders and bondholders as well as dealers, propping up unions at the expense of taxpayers, and turning Federal bankruptcy law on its head, not to mention $15-$20 billion down the tubes. That's a lot of broken trust, seed for a grudge of epic proportions.
The variables in "grudge holding" include the damage done, the personalization of damage and the availability of alternate paths, among other things. Invest a lot of money, a lot of energy, or a lot of emotion in a grudge and it can be held a long time. An example of this is Lousiana Pacific (NYSE: LPX) and its LP Siding, which became synonymous with faulty building products for more years than it would care to recall. But their broken trust didn't involve government bailouts and two or three other transgressions.
"Government Motors" is not the only miscreant. There is Chrysler for instance, who also got its second bailout, knifed even more dealerships, got maneuvered into the hands of Fiat for a song, and delivered losses to taxpayers with no chance to come out even. An even bigger grudge there! I used to be a Chrysler guy, owning more than 6, from my 67 Barracuda to the requisite minivans. I was a huge admirer of Lee Iacocca, who saved them on the first bailout. No taxpayer losses, they paid loans back early, and made great cars! Fiat (NASDAQOTH: FIATY), who owns more than 61% of Chrysler, has a problem with consumers like me. I would'nt buy Chrysler ever again, no matter how good the cars get. Fool me twice...shame on me.
Then there is Ford (NYSE: F); no bailout, no taxpayer risks, sending great cars out, including a plug-in hybrid. Well, what have we here? No grudge, no continuing government involvement, no taxpayer hangovers. Looks like they benefit from the whole dynamic. How much better would GM products have to be to pick one over the competition? I suspect Ford is where will consumers send their broken trust. Perhaps GM can watch BP, persistently underperforming at a P/E of 7 even after finalizing payments. Then again, the taxpayer bailout wasn't an issue for BP who paid out of pocket along with hefty fines and compensation.
So GM, consuming taxpayer funds, wiping out many dealers, investors and paying NO compensation, may need to look beyond BP to judge how long potential customers might hold grudges.
SkepikI has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors Company. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!