"What is good for General Motors is good for America"
Back in 1955, Charlie Wilson, then chairman of General Motors Corp. made this somewhat pompous statement. Here we are, some 53 years later and look what is happening to the stock of General Motors (NYSE_GM). This stock is at a 53 year low and shows no signs of turning around.
So the question becomes, what happened to America and General Motors? How did this company lose its edge in the marketplace?
HOW DID GM GET IT SO WRONG?
Digging through the history of GM, I found one fascinating item. GM developed an electric car back in 1996 when gas was $1.28 a gallon! They named the battery powered car the EV1 and then basically scrapped it in 2002.
Today there is very little evidence that this car was ever in existence. I am sure you're thinking right about how we could sure use a car like that today with gas prices trading over $4.00 a gallon.
When you look at the stock of General Motors, you'll see that the high for the stock in the last eight years was around $68 in 2002. What's interesting is that high point in the stock was right around the time GM scrapped its EV1 car.
So what happened to GM's first electric car? GM claims there was not enough public demand. That could be, but I think the story is a lot more complicated than that.
You can see all the GM - Big Oil conspiracy theories in the movie
"Who Killed the Electric Car."
WHY KILL THE GOLDEN GOOSE?
From a business standpoint, why would GM want to improve something that would kill the goose that lays the golden egg? General Motors tends to make most of its money on sales of replacement parts. Up to 40% of its profits come from selling replacement parts for existing GM automobiles, so why would they sabotage their own cash flow?
Unlike a gasoline driven car, which has many moving parts, an electrical car like the GM's EV1 has very few parts to go wrong, so therefore part sales and cash flow would go right into the tank for GM. The other perception problem GM has with an all electric car with zero emissions is this: if GM produces an all electric clean car with zero emissions, it's making an admission that all of their other cars are dirty, spew out harmful emissions and pollute the planet.
But look at how GM got it wrong. This may be one of the biggest blunders ever in American corporate history. GM took the lead in electric car technology (smart move), but was not convinced that they as a company could be profitable selling electric cars.
WHO OWNS THE MOST ADVANCE BATTERY TECHNOLOGY?
One fascinating piece of information is that GM acquired advanced battery technology from Ovonic's in the form of a NiMH battery. This battery produces a stronger, longer lasting charge, and was the ideal battery for their second generation of EV1 cars. What came out later was truly a shocker, GM sold this amazing battery technology along with the patent (dumb move) to Texaco who was later taken over by Chevron. Now Chevron owns the technology and the patent!
You have to ask yourself the question... why would an oil company be interested in purchasing advanced battery technology from a major car producer like GM?
I'll let you draw your own conclusions.
Fast forward to 2008 when everyone is mad as H#LL for having to pay over $4.00 for a gallon of gas. Back in 1996 when GM launched the EV1 with very little fanfare, the cost of gas was around $1.28 a gallon.
Why GM decided to scrap the EV1 and look for short-term profits in big cars as opposed to building and preparing to adopt a different business model is still a mystery and one that has decimated GM's stock price in the last five years.
The automobile business has not changed in almost a century and the industry appears reluctant to embrace change. It would now appear that GM's business model like many of its big cars is rapidly becoming outdated and destined for dinosaur land.
LET'S LOOK AT THE STOCK OF GM
Let's take a look at the GM stock chart and see how you would have fared had you purchased GM stock at $68 in 2003. Then let's look at the same stock using a MarketClub's proactive approach. As you can see the results of a buy and hold strategy have been a disaster losing 79% of its value for all share holders while the proactive results have been quite stellar.
If a major company like General Motors can fall to a 53 year low, so can any stock on the big board.
Readers of this blog know that MarketClub uses a proactive approach when taking positions in the marketplace. The world has changed, and it has changed not only for GM but for many other mature companies that are using business models and products that are rapidly becoming outdated and will prove to be noncompetitive in the long run.
I'll finish by saying: "What is good for America in the long run, are smart businesses that embrace change." Maybe General Motors will get it, maybe they won't. The market will decide that one.
Co-Founder MarketClub.com
I appreciate all the inputs on this issue. Though please, kerry bradshaw, make your points without resorting to name calling. Practice basic conflict resolution skills when dialoging with other people, and if you never learned these skills, go learn them. The information is readily available to those who seek it.
Anyone could have seen GM and F were bad buys. We all knew oil would go up and consumers would stop buying SUV's and pickups. To say what a surprise it is and act like if they can go down anyone can is silly.
I work for a company that was developing a fuel cell that ran on water. I was told they dropped the fuel cell project because some men from an oil company told the developer and head engineer if he did not stop he and his family would be killed. This fuel cell separated the hydrogen from water, could this be the future of energy the oil companies will kill to stop?
Thank u for your information about big oil conspiracy.This is a far long battle since more than 30 years when the big oil threatenned a poor ingeneer called Mr Nazar.Mr Nazar was french from iranian origin and invented a central power station functioning by an accelerated air system coming into a tower.So this technology was called the Nazar Tower technology.Mr Nazar told me 20 years ago that the big oil have been threatening him in order to not market his technology.
So putting barriers to new technologies is the main strategy of big oils since 30 years in order to continue to control the cash flows of the world.
We recently did a short article entitled "Is GM Headed for Bankruptcy" and a copy of it is posted below. We think the company is heading for trouble, but we also do believe what's good for GM is good for America and to that end, the govt will do what is needed if the capital markets are not able to provide GM financing.
GM shares are down $1.24 and the stock is trading at $11.57, which is the lowest the stock has traded in 30 years! Moreover, the company’s market capitalization is now only six and a half billion dollars. To put that in perspective, while yes the company is a money loser, they still rang up 181 billion dollars in sales last year.
Unlike Chrysler which was taken private by Cerberus Capital Management in a $7.4 billion deal, a deal that happened because Daimler was tired of the bleeding and was actually willing to pay Cerberus to take Chrysler of their hands, GM is another beast altogether. It is way too much larger and unwieldy. Also, funding for very large PE deals have all but dried up, making getting the financing to buy GM might be almost impossible.
So if things get worse and GM is not able to secure funding via the capital markets, the only option might be a government bailout. In 1979, Chrysler was able to secure a federal subsidy which, while much was made of it back then, was only about a billion dollars. Things were different back then in a number of ways. Of note is that Chrysler was also able to turn things around by bring aboard Lee Iacocca, putting out the K cars which were very successful and of course, introducing the mini-van. It will take a whole lot more to turn things around at GM even if they were able to improve their cash situation.
The financial markets are already treating GM paper as junk. It now costs about $3.175 million in upfront payments, plus $500,000 in annual premiums to insure $10 million of GM’s debt for five years. Why any one would pay half the value of the bonds to insure them is beyond us, but we digress. Additionally, GM bonds are selling for 61.5 cents on the dollar. This means it will become increasingly expensive for GM to raise money, assuming they can do it at all. That all adds up to make bankruptcy a strong possibility.
It's not often you find anyone so completely ignorant as Adam here. The NiMH batteries that he implies are "super" (ywhat ajoke - the killed the Ev-1 as much as antything - hardly any better than the original lead acids, they cost over $25,000 and took 8 hours to recharge and
weighed 1200 (!!!!) pounds. Let me count more ways that Adams displays his stupiity : Chevron has managed to reduce the cost of those batteries from $1000 per kWhr to less than $300
and they are used in over a million cars - you know, that really doesn't sound like a technology that is either being "buried," or suitbale for all-electric drive. Toyota mad a mock up plug-in three months ago of a Prius with NiMH batteries and after completely filling all available space (including the spare tire, which they tossed overboard) the best they could do was an 8 mile driving range and enough power to maintain a cruise - the gas engine was required to augment the weakk battery pack during acceleration. They have since dropped the entire idea of NiMH batteries and are joined with Panasonic to make li ion batteries. Not ONE SINGLE electric or plug-in hybrid that has been proposed has decided to use those crappy NiMH batteries, which also use nickel, which isn't even abundant enough to build the number of batteries an electric fleet of 2 million cars would require. We need 250 million cars just in this country alone. Adam the complete Fool. It's fun ripping his silly arguments to shreds. As to the Volt, perhaps Adam didn't notice this, but THERE ARE NO ZERO EMISSION ELECTRIC CARS. A zero emission car would require, guess what Ada the Fool? That's right, a zero emission fuel. OK Adam, point to a utility in this country that produces zero emission electricity (actually, Vermont prodcue only 5 pounds of carbon for every megawatthour it produces, due to the fact that it uses nuclear power. Califonria produce over 600 pounds of carbon for each megawatt hour of power they produce. Looks like anti-nuclear activists are totally responsible for global warming).
Ok Adam, why are you claiming that GM killed the electric car? Are you really so stupid as to not know that Honda built and then ccanceled an electric car in 1996? Or that Toyota also did and canceled theirs the same year that GM did? Why don't you quit lying and admit the obvious : the EV-1 was an overly eexpensive peivce of crap that couldn't meet the transpotation needs of anyone?
Kerry,
I think you missed the point. MarketClub is a financial website. Using our technology you would have made 12% a year as opposed to losing 10% a year for 7 or 8 years holding onto GMs stock. The point we are making is that this is not a buy and hold market anymore. Either you change with the times or you argue and fight against the times ... in which case you lose. If you are trading the market there is only one position, and that is a winning position, everything else doesn't count.
Adam
One problem with designing electric cars is that people believe that one-size-fits all. Cars must go 60mph and have a range of 100 miles. Back in the 70s I drove a Sebring-Vanguard Citicar, a very simple electric car which used off-the-shelf 1970s technology. If I recall it had eight 6V batteries and a 6HP motor. Top end was about 35MPH, and had a range of 35 miles or so (was claimed to be 50, but after 35 or so you would lose speed and power).
Weaknesses? Range was much less at night. The short wheel-base, and was light weight was not good in snow. The batteries were in series, so a bad cell could shut you down. Ozone, either from the motor, or from charging, destroyed the rubber in the tires, giving the tires a very short life. Other than that, it was great, if your commute was in range.
A car like this could easily be built today, and presumably even better. It wouldn't suit the needs of all people, but for some it would be fine. For others it could be a second or third car, used for short trips to the store, or to a friend's house, but not for longer trips on the freeway.
The solution to the high-priced gas issue is not a one-size fits all answer. Different option may suit different people.
I disagree on two points that you've overlooked:
1) It's not at all surprising that GM and other US auto makers are in trouble at this moment. Nobody predicted this rapid doubling of oil and gas prices. US cars are built primarily to meet US demand -- makes sense, it's the home market. But the US has been a different market in terms of gasoline prices, until now. The US consumer chose to drive trucks, more than cars, until now. This has caught all US auto makers off-guard (It's killed Toyota and Nissan truck sales too.) This rapid change in market demand did the same thing to US auto makers back in the '70s also, when it opened the door for Japanese auto makers with smaller fuel-efficient cars to gain a foothold.
2) I saw the EV-1 on the road. It was f_ugly!! Nobody like ugly cars, especially when SUVs are becomming the consumer rage (e.g. 1995-2005). If the electric car was such an obvious and brilliant product concept back then, why didn't Japanese or German automakers develop their own electric car products for significant worldwide sales??? No, they were no smarter and didn't see it coming either -- they were trying to develop SUVs just as fast as they could.
Bottom line: You can't fairly criticize GM when other auto makers around the world were no smarter. Hindsight is always 20/20.
"You have to ask yourself the question… why would an oil company be interested in purchasing advanced battery technology from a major car producer like GM?"
The development of fuel cells and alternative energy methods for powering automobiles is a rapidly growing sector.
Oil companies know that oil is coming to an end so if they are looking ahead they will want to build thir capacity in new energy sources and energy transfer technology.
Ask yourself why the oil majors are retiring so much of their share capital instead of reinvesting the retained profits into new exploration and development of existing oilfields.
As oil dwindles further and demand remains even at this level (though that is unlikely), the price of crude will continue to rise and so will their profit on those remaining barrels in their reserves.
Nuclear energy will play a growing role in electricity supply and fuel cells and hydrogen will displace petroleum as the fuel for automobiles.
Airlines will still need jet fuel/kerosene for take off but they will gradually introduce mixtures such as biofuels and use hybrid technology for the majority of the flight.
This is why Chevron acted the way it did with the electric car patent.It saw the future of energy and acted.
Although I agree that GM has committed some very serious blunders, there are some errors of fact in the above.
GM only leased (and subsidized) the EV1 as the usable battery life was very short, and the battery replacement was very expensive. If this could have come down enough to not need subsidy, they'd have made a killing in replacement parts. As it was, it was near the price of the car to replace batteries at less than one year intervals. Expose a customer to that about one time, and sales go to zero and your reputation is trashed.
Ovshinsky bilked countless VC's out of mucho dollars on everything from glass transistors to amorphous solar cells to battery tech. Every company he has started failed due to product never meeting specs and early failures, and it was better to let each company fail than to have to provide warranty replacements. GM getting some bucks out of what was probably total crap wasn't stupid. Everything that guy touches is vaporware at the best.
It is unknown whether the new battery tech they're working on is truly usable for cars. No one else has it working, and in fact, there's fires from these types, they experience thermal runaway, and just disconnecting the load doesn't save them once that begins, just like the exploding laptops.
Nearly all battery tech isn't even close to good enough for cars compared to expectations for most cars -- it's gotta work everytime, and not lose capacity after only a few charge cycles, and surely not burn/explode. At least you have to mix gasoline with air before it will burn, but a battery is more like smokeless powder when it goes up -- A little slower, but plenty devastating.
And no way to put the fire out.
Vanadium redox "fuel cells" look promising, but are complex (tanks, pumps, tricky controls) and for now are mainly used in huge UPS systems in Japan (whole skyscrapers). Something like this may work, but for now the patent encumbrance means I can't even buy them for my campus solar power systems, no car maker could handle that in volume.
So none are even playing with it just yet.
I am a retired product development engineer and kinda have a clue about all this, and have followed these stories and technologies from the beginning. There is a 200mpg (conventional gasoline) project car on my website I built, which works, but no one would ever buy this -- too noisy, too slow, all that, compared to my Buick. It's fun to drive, though. This kind of efficiency comes at a price -- it's gotta be light, fragile and so on, to get there. Car companies could make these, but in most markets no one would have them.
Doug,
Thanks for your feedback. It is a fascinating subject.
Adam
By the way, to read more about the Chevy Volt, and it's relationship to the EV1 (mentioned in the article above), click on the recent Atlantic monthly article.
http://www.theatlantic.com/doc/200807/general-motors?ca=Q7kAEWmG8t96ocxKs%2FjTJjkto098KqFEslGIsIV20Lo%3D
This vehicle holds a lot of promise.
Regarding:
"Why GM decided to scrap the EV1 and look for short-term profits in big cars as opposed to building and preparing to adopt a different business model is still a mystery and one that has decimated GM’s stock price in the last five years.
"
When GM was leasing the EV1 in CA, they were doing it because CA was requiring that a certain fraction of vehicles emit NO emissions. If a car maker didn't offer a vehicle like this, it couldn't sell any vehicles in the state. Thus, all of the automakers were trying to sell vehicles like this. Most were selling modified golf carts. Unlike the others, GM spent a billion bringing out the EV1. Almost no one leased the thing because gas was cheap. So, eventually, GM dropped the program. However, they didn't lose the knowledge. Many of the engineers who worked on the EV1 are working to bring the Chevy Volt to market. The Volt, a series hybrid, has many of the benefits of the EV1, but has a range extender petrol engine on board as well in case the vehicle's batteries run dry. If GM can get this to market (by 2010), they will have leveraged their previous work on the EV1, and brought an outstanding vehicle to market that will allow people to drive up to 40 miles without using a drop of gas. After this, the petrol engine carries them on.
Not too unlike Polariod totally missing the boat on digital photography. They were stuck in the past and now the company is a shell of what it once was.
Changing gears, over the last two days I received market club tradetriangle signals to exit over half of my positions, which I have done. We'll see how that works out in the next week or so.