These posts over the past year have chronicled General Motors’ Enronesque slide toward what is increasingly appearing to be an inevitable reorganization case under chapter 11 of the U.S. Bankruptcy Code. That probable fate was reinforced this past week when GM announced a band-aid restructuring plan that is akin to rearranging the deck chairs on the Titanic.
The newest GM plan really is pitiful under the circumstances. GM lost a staggering $8.6 billion last year, and that doesn’t even count another $12 billion of bankrupt Delphi (a part of GM until 1999) losses that GM might have to make up. In the face of this flood of red ink, GM announced that it will cut dividends by $565 million and cut another $900 million in costs through reducing executive salaries and health benefits. The biggest news was that GM CEO Rick Wagoner will take a 50% pay cut to $1.1 million, but there was precious little word on how the company is planning on bridging the rest of its $6 billion or so in losses. Conan O’Brien characterized the plan pretty well when he commented in a monologue that, since General Motors is cutting the salaries of its top executives, the executives will now be earning so little they will be forced to drive GM cars.
Moreover, it’s not as if GM has been a sterling investment over the years. As this Floyd Norris/NY Times article and accompanying chart notes, an investor who bought a share of GM stock at its price of $40.13 at the end of 1960 would have received $127.58 in dividends and received four distributions of stock worth $20.62 at the time those dividends were issued. If all of that had been reinvested in GM stock, then the investor would now own 11.6 shares, which is worth a bit more than $500. That amounts to a return of less than 6 percent compounded for those 45 years, which would be even less once brokerage fees and taxes are included in calculating a true net return.

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