The fall of An American Automotive Icon, now you would think that I would be referring to Ford Motor (NYSE:
F) but you would be wrong, I am referring to General Motors (NYSE:
GM).
Back in early 2006 we watched as General Motors slipped down to dangerous levels with rumors of bankruptcy looming through out Wall Street. The big question was: will GM be able to pull out of the mess? especially with Kirk Kerkorian and his Tracinda Corp selling a chunk of their position late in 2005, approximately 12 million shares.
The stock dropped under $20 a share and things were not looking good for GM, at least not on the surface. But Kerkorian was not done with General Motors, apparently he sold his position to take advantage of a tax loss but he did jump back in and reacquired his position and then some.
General Motors then announced a restructuring plan and at the time Kerkorian made it clear that he wanted to be a part of this plan to bring the automotive giant back to its former glory. Rick Wagoner obviously sat in a position that no CEO envies, and he had some tough decisions ahead of him.
The Kerkorian stock reacquisition and the turnaround plan gave a nice boost to GM stock and gave hope to investors that the company would reemerge from the abyss. So in the middle of the stock climbing from the $19 range in February 2006 to a high of $36.56 not too long ago, hitting a point that they have not seen since early 2005, they appointed Kerkorian’s right hand man Jerry York to the companies board. In my opinion his experience and input was a necessity for GM, only if it was embraced.
GM sold off a majority stake in their GMAC Commercial Holding Corp to an investor group led by affiliates of Kohlberg Kravis Roberts & Co., Five Mile Capital Partners, LLC, and Goldman Sachs Capital Partners, they acquired a 78% interest in the division for $1.5 billion.
Now just to continue with the recent history lesson of General Motors, the company has faced union ordeals and various other obstacles in 2006 including a potential deal with Carlos Ghosn's Nissan Motor Co. and Renault SA. This is a deal that Kerkorian had pushed for and when it was dismissed by the board of General Motors, well that led to the departure of Jerry York.
This should have been a red flag for any investor in General Motors, because York in the mix gave the company hope to regroup after an over $10 billion loss in 2005.
Since his departure the stock has slipped down as word got out that Kerkorian unloaded more stock than he did in 2005 but this was different than in 2005 as he sold it at a profit and reinvested it in MGM Mirage (NYSE: MGM). That was a sign that Kerkorian was potentially done with General Motors for the moment.
I’ve spoken about General Motors on several occasions being a company that could rise from the ashes and regain the glory of being an American Automotive Icon, with the help of Kirk Kerkorian. But with the departure of Jerry York, the stock dropping below the $31.50 plane was enough for me to speculate that Kerkorian may not be coming back as he did earlier this year.
Well as of early this morning it seems as though Kerkorian not only trimmed his position but unloaded his entire holdings in General Motors. Some analyst may view this as the elimination of a corporate distraction but I see it as the beginning of potentially being a downward spiral, which could push the stock back into the low $20 range if not into the high teens.
Keep in mind that Kerkorian may be just sitting on the sidelines waiting for a more opportune time to build his position once again but I feel that would be in the teens and not in the $20 range.
I will be the first to say that I would like nothing more than to see General Motors rise as a company once again but at this point it may be some time coming before that occurs.
Investors in the automotive sector that are looking for a turnaround situation may want to keep a close eye on Ford Motor (NYSE: F) as Bill Ford has become a realist and put Alan Mulally at the helm of Ford. Granted they mortgaged the entire company to raise $18 billion but it was a necessary evil and investors only need to look at Mulally’s track record to keep their faith level in Ford high.
Ford’s turnaround could potentially make the stock a teenager in 2007 and put the company back in the saddle as an automotive leader not only in the United States but globally.
Louis Victor
NAMC Newswire
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