GM’s Viability Plan: Cut Costs and Bank on the Volt

General Motors (GM)announced today that more layoffs are coming for 10,000 salaried workers or 14% of the salaried workforce. GM is being forced to get serious about its survivability as Congress will require an update on it long term viability plans next week. We have included our sector chart for the large automakers in our coverage universe, and as you can see over the last 52-weeks, GM has been the hardest hit of those publicly traded companies. When comparing GM to historical norms, the stock is slightly attractive although that does not mean we are recommending the stock. During a restructuring of this magnitude, probably better to observe than to participate. Fox Business had this to say about the GM news this morning:

“As the deadline looms for a formal long-term viability plan, General Motors is undergoing one of the biggest transformations in its history on a day when it announces more job and salary cuts, it must also look ahead and build cars. One of those is the Chevy Volt, hybrid gas-electric car in which General Motors pinned a lot of hopes.”

It is widely publicized that auto sales were extremely weak in the second half of 2008, but as sales continue to wane the fleet of cars on the road gets older. At some point, people will need to begin buying cars again. Clearly, GM believes that they have a game changer in the Chevy Volt. It remains to be seen whether GM can deliver the gas and emission free drive for 75% of American commuters, but any significant gains in electric technology by GM will be looked at favorably. It seems perfectly suited to woo those in Congress as the Volt reduces emissions, lessens the dependence on foreign oil, and best of all, is American made. The car has widespread appeal to environmentalists, national security hawks, and those that believe American automakers’ best days are still ahead. Long live the Volt! When it is released in late 2010…

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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