Through The FLY's Eyes: General Motors

from Theflyonthewall.com










Incest Is Best

As Kirk Kerkorian forces General Motors (GM) to change, the incestuous relation between GM's management and labor becomes more apparent. Management has done very well financially over the years and the pension fund and healthcare benefit obligations assets are over $100 billion. GM's market cap is about $20 billion--so the shareholders have been screwed for the last 40 years.

It only took one year to begin the turnaround process:

* GM introduces cost savings of $9 billion
* End of incentives lead to a good jump in revenue growth despite a big market-share loss from 27.3% to 24%
* GM appears to be benefiting from better product mix
* Higher interest rates will help pension fund obligation
* Raw material prices most likely are peaking for GM and could benefit from raw material price declines in 3Q and going forward

The market cap of Toyota Motors (TM) is $170 billion versus GM's $20 billion. This comparison clearly shows how bad the situation is at GM. And this awful performance is why Kerkorian was able to buy a 10% stake in a company with over $100 billion per year in revenue.

GM has massive upside potential as long as the entrepreneur ends the close relationship between management and labor. If Kerkorian continues to succeed, shareholders should be well rewarded.