The Real Deal with General Motors
The situation at GM is bad. Even Ray Charles an see that.GM's cars are good cars. But sales are down. Way down.
Why?
Well, let's talk about competition for a moment.
Competition is healthy. Without it, business is dead.
...the international competition, once trivial compared with General Motors, is now bigger than General Motors. Intense competition within the auto industry has resulted in steady improvements in the workmanship, performance, safety and design of cars, while holding down prices. That's the ideal outcome for consumers but not for General Motors, which, as the largest automaker, had the most to lose.Competition is often described as a force that brings the greatest good to the greatest number.
Pop-culture economics assumes that competition crushes the little guy, but in practice it's often the big enchilada that gets eaten. A T& T was besieged by competition and now barely exists. ABC, CBS and NBC have been pecked down by cable stations. Sears and Kmart, even combined into a single company, are shadows of their former selves, with falling sales and far fewer locations. In recent years, McDonald's and Microsoft have seen flat or faltering market share, as more nimble competitors move in.
But who really are we talking about? Workers, investors, executives?
Today, business to me means a company like Netflix crushing sales of Blockbuster, which 15 years ago in turn crushed sales of mom-and-pop video stores. I saw it with my very eyes, being that I grew up in Florida, where Blockbuster was born. Every Friday my mom took me to a mom & pop to rent ONE movie for the weekend. I went religiously, even when the store lacked central AC and reeked of Cuban leftovers.
Until Blockbuster moved in.
What I'm saying is that cycles are a part of life and no where is that more evident than in business. Clay Cristenson's seminal book "The Innovator's Solution" makes a clear and compelling argument about the cyclical nature of business -- the more a company grows and advances, the closer it gets to its downfall.
Humans are the same way: weak yet limber at first, then robust and wise during our middle years, only to end up begging for help in our last years.
A la business: The leaders ultimately morph into laggards; Growth becomes cumbersome.
And that is what makes business such a fascinating field: its ALL about innovation.
When my dad was born, GM controlled over half the market share for cars. Today, it is less than 25%.
But here is why I'm perplexed.
The retiree benefit fiasco, job cuts across the board, skyrocketing energy costs, and pressure from foreign companies -- and the price of GM stock climbs higher every day. The stock dropped to $26 when the bad news first barraged the mainstream. Amidst all the sensationalism and ballyhoo, the stock price has since gravitated towards $36.
Clearly, investors like the future of GM, even if Toyota reigns supreme down the road. GM may not be built to last, but apparently its shares are.
Moral of the story?
Major selloffs sometimes create major opportunities if the marketplace has over-reacted -- Michaels Jackson's lawyers aren't the only ones making money.
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