The HS Dent Financial Blog

RSS      

Even Fresh Out of Bankruptcy, General Motors is Doomed

We have to admit, the Camaro is a hot car.  We wouldn’t mind having one ourselves.  But unfortunately for General Motors, the Camaro — no matter how powerful its V8 might be — will not be enough to pull the company out of the abyss.

If all goes as planned GM will come out of bankruptcy today, in record time.  We won’t revisit the details of the bankruptcy here, as we’ve fairly well beaten this topic to death in prior posts.  Instead we want to comment on an article in today’s New York Times:  ”GM Flexes a Muscle Car Again“

Amid the gloom of bankruptcy and a miserable market for new vehicles, G.M.’s new Chevrolet Camaro muscle car is winning over consumers looking for a little excitement in a bland landscape of look-alike sedans and watered-down sport utilities…

G.M. sold 9,300 Camaros during the month of June — more than either its entire Buick or Cadillac divisions could muster on their own.

That last sentence is worth repeating.  GM sold more Camaros in June  than their entire Buick and Cadillac lines!

While sales of the car were brisk — due in part, no doubt, to its prominence in the Transformers movie that came out that month — it should be remembered that sales company-wide were down 40 percent during the first six months of the year.  So, the Camaro’s sales have to be taken in context, and that context is one of continued low demand for autos among Americans struggling to cut back their expenses.  

Americans binged on expensive autos for most of the 2000s, lured in part by 0% interest and other incentive programs following the September 11, 2001 terror attacks.  Essentially, we pulled future sales forward to the present for most of the decade, and in the interest of maintaining top-line sales General Motors sacrificed profit.   This was not sustainable…thus the company found itself bankrupt when the financial crisis proved to the the straw that broke the camel’s back.

The Times hits on another topic that we found noteworthy:

The latest edition of the Camaro is tapping into nostalgia some drivers have for the glory days of the American auto industry.  Its long hood, rakish grille and brawny fenders echo the powerful look of the Camaro in its heyday, when G.M., Ford and Chrysler turned out tire-squealing cars that defined Detroit.

The “Nostalgia Wave” has been quite predictable in recent decades.  In the late 1980s and early 90s, there was a surge of interest in old classic cars from 1950s.  As the 1990s progressed, this nostalgia drifted toward 1960s and then 1970s muscle cars.

It’s really quite simple to see what was at play in this trend.  Men in their late 40s and 50s go through the typical male midlife crisis in which they lust after that car they couldn’t afford when they were 17, so they buy it — now!  

Everyone knows a guy like Clint Eastwood in the recent movie Gran Torino who has a beauty of a classic car that he brings out on the weekends.  Sometimes, he doesn’t even drive it.  He just cracks open a beer, sits in a lawn chair, and looks at it.

At any rate, this explains some of the success of the new Camaro and the new Ford Mustang, both of which have gone with 1960s retro designs.  Baby Boomer men in their early 50s remember well the original Camaro that this new model evokes.

This hardly constitutes a strategy for relaunching the company, however.  General Motors — like the Baby Boomers themselves — is at a stage in life where it looks backward in time to better days as opposed to looking forward into the future.   And really, who can blame the company for its nostalgia, given its current state?  Even after the bankruptcy, the company still has a bloated, inefficient, and confrontational workforce and a product mix that is geared toward an aging clientele and that is heavily weighted in expensive trucks and SUVs.

We would be shocked if the “new” GM makes it five years before returning to the bankruptcy courts for protection.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy