General Motors are desperately trying to save themselves
In politics, you have election promises. In automotive, you have technical partnerships.
In addition to all of the millions of other things I do on a daily basis, I trade on the US markets. I'm also Australian, which means to trade on said markets you normally run your entire life on Red Bull (not that wings help much with ETFs). I also help my closest friends and family do the same (mostly because it's neither taught nor widely recognised as a legitimate way to make money in Australia). It creates a bit of a community around the people who trade with me and whether a good or a bad day I enjoy the discussion and analysis.
On Wednesday this week GM and, a relatively new battery manufacturer, Nikola announced a technical partnership based around research and development on new electric vehicles. The week before another partnership was announced with Honda to re-push into the Asian and European (and subsequently Australian) markets. As a result, last night I had friends in my little trading community come to me (in amongst the current tech-sell off we're seeing with the big technology stocks) and ask whether GM and Nikola were good buys right now? They'd seen the two stocks make positive moves and they were interested. And so they should be.
Here's the thing, technical partnerships are not going to save General Motors. GM is in a hole the size of the mass craters you see on the moon. They buggered up their last round of manufacturing and technical partnerships, they pulled out of almost all big markets on earth apart from the US and they cut their losses in Asia. The latest announcements feel a lot like too little too late. It gets worse as well.
These technical partnerships mean that General Motors need to take part of their supply chain outside of the US again. Automotive manufacturing was one of Donald Trump's original election points in the US. He wanted to move some of the biggest worldwide supply chains from their international homes back to the US. And if (or when) Donald Trump gets re-elected (the love for friends in America makes me wish he won't, but the opportunity to capitalise on his re-election makes me wish he will)? I can't imagine he's going look too favourably on one of America's great car makers out-sourcing their international supply.
But General Motor's problems go way beyond the surface. Because all of these surface solutions are solutions to new problems. They're solutions to GM's exit from Australia and some Asian markets and they're solutions to GM's lack of research and development into renewable energy, a sector which in America is damaging oil in a big way. General Motors has a much bigger problem moving forward which they need to address first.
The General Motors product, whether it be Chevrolet, Cadillac, Buick or GMC, is trash and worse still it isn't keeping up. I digress, Ford (last month) unveiled their new Bronco and the interior for the first time in recent memory didn't look like a Ford interior. Oh no, the Ford interior looks like something that came from the Land Rover special vehicles department or the Aston Martin Q department. It looks premium, and the software on the infotainment system looks next generation as well. It's not just Ford either, their luxury vehicle arm Lincoln has been getting the hang of that luxury interior feel as well.
Stock is a big problem for GM as well. The feather in General Motors' cap, the Corvette, has been back-ordered in the US for almost 12 months. The stock is in such a bad place that it's looking like RHD conversions will make it to Australia before American customers get their hands on cars like the much-anticipated Z01.
It's been a painful and slow killing as well for General Motors. The good news is with the slimming of the business the company is starting to look like it has potential to be profitable again. The bad news is the partnership that was announced with Nikola for battery supply on Wednesday was quickly countered by the new entry into the market by the Saudi Arabian government, Lucid. And that car (the Lucid Air) is looking like a genuine bad boy. Not just that but the shift of the Saudi's into EV manufacturing tells you just how advanced the big players in energy are on renewables.
So how does General Motors save itself now? Well, it doesn't save itself by playing catch up, that's for absolute sure. But at the same time, it needs to catch up. For what it's worth, General Motors needs three things. It needs capital, it needs established research and it needs strong product to springboard off. So my suggestion? It needs to merge or purchase a company that is far more advanced in that field before it gets gobbled by its competitors brand by brand.
Here's the thing GM, I get it, it's hard to admit someone else does something better than you after you've been doing it for decades. But it's getting to the point that almost everyone is doing it better than you. And it's causing you to miss opportunities. Like for example the opportunity in the Australian luxury vehicle market. You could've ditched Holden with the demise of the Commodore altogether and replaced it with Cadillac which still has prowess in the Australian market.
Or the Tesla opportunity. How could you have thought that producing a $20,000USD Electric Vehicle which was stripped to the bone compared to the competitors in market and with a far worse range was ever going to be a successful deal? The car wasn't even American, it was a copy of something from Europe. You should've poured cash into Cadillac's research and development department and have that manufacturer premier the best of your product. Luxury brands act as a two-pronged sword, profitability and press. You sell for more and you get to give your new tech exposure in the process.
At this stage of the conversation, which was on Facetime thanks to Coronavirus, I'd been talking non-stop for almost 30 minutes. My friend who'd suggested the buy was glassy-eyed and obviously not listening. He finally chimed in to say "Well, I already bought the stock". The rest of us sat silent for a minute digesting the information. He then justified the decision with the most Robinhood thing I've ever heard. "the share price was and still is rising".
At the time of writing this article, it's Friday in Australia, just ending Thursday in America. While the tech sell of last night continued (in a much more subdued form and possibly no form at all) an interesting stock caught my eye. General Motors ended trading with almost 9% of its total value wiped out since Wednesday. It just goes to show that I'm not the only one who believes General Motors' problems extend far beyond simple technical partnerships as solutions. A move I compare closely to an election promise. Empty until fulfilled.
Join my new tribe @ Engine Economics.