On Friday, GM’s stock hit a 26-year low when it slid to $17.38 (and you really don’t want to adjust for inflation).
The stock has since perked up on the oil dip, but the “perfect storm” might be brewing. The US car market is currently down for the count, and for those still buying cars, words like “Prius” and “Civic” come to mind, not “Hummer” and “Suburban.” Meanwhile, labour uniions have put even more pressure on GM’s strained financial performance and cash position.
Like Ford and other American car companies, GM has demonstrated a spectacular ability to get stuck building cars its customers wanted a few years ago, and is once again scrambling to catch up with the times. With $27 billion in cash and short-term investments, GM has some flexibility, but its financial position is not what would described as strong: the current ratio (current liabilities less current assets) is now below 1X, meaning that GM owes more in the near-term than it has on hand, at least as of the end of December.
A quarter century ago, it would have been unthinkable that GM and other American car giants might one day be bought by, say, Chinese or Japanese companies, or go belly up. It doesn’t seem so preposterous anymore.