What Happens When The Government Runs A Car Company?

A little while ago I posted something comparing Facebook's disappointing IPO to the one from GM after its government bailout. Here's more.

(Background: GM’s post-bailout IPO launched in Nov. 2010 at $33 a share. The stock is now trading at around $22 per share.)

General Motors CEO Dan Akerson apologized to shareholders Tuesday for the automakers' poor stock performance, despite the fact that the company posted record profits and regained the title of global sales leader last year.

If GM is doing so well, why is the stock price cratering? Business 101: (a) sales and revenue are not the same as profits; and (b) profits by themselves are not always enough to prop up stock prices - profit margin plays a role as well.

(Akerson) said GM needs to improve the profit margins, pointing out that it's the fifth largest Fortune 500 company in terms of revenue, but only the 20th largest in terms of profit.

That has led to a slump in the company's stock price, "including the 500 million shares held by Treasury on behalf of U.S. taxpayers. The stock is down 33% since the company's November 2010 initial public offering."

Ford's stock performance has generally mirrored GM's since GM's IPO. However, over that same time frame Ford has raised it's bond rating and begun paying dividends again. GM's debt still carries a "junk bond" rating, and it has yet to pay any dividends post-bailout.

GM's CEO blamed its disappointing performance on losses from its European operations and the company's underfunded pension plans.

It sounds like on the one hand he's parroting his government master's party line -- 'Our problems are Europe's fault' -- and on the other hand throwing the unions under the bus.Of course, if GM can't meet its pension obligations guess who'll bail them out - again.

(Akerson) said there was also some concern about what would happen to the share price when the Treasury Department decides to sell its remaining stake in the company, which will put 500 million more shares into the market.

You don't need a Ph.D. in business to figure out what happens when the supply of a good with already-low demand is suddenly and dramatically increased.

Can you say "plummet?"

To deal with pension worries, Akerson pointed to GM's recent announcement to drop traditional pension plans for white collar retirees, shifting them to either a lump-sum payment or purchasing an annuity on their behalf.

No mention of dropping traditional pension plans for union members.

Can you say "blatant political pandering?"