Sometimes, you get the feeling that a particular company is cursed in some way. It seems that whenever things start going their way, something comes along and derails the momentum. So it is with GM. Many who owned the pre-bankruptcy stock would claim this to be karma; some kind of cosmic payback for stiffing the holders of their old stock before rising, phoenix like, from the ashes of bankruptcy. Others would say it is inevitable when a company depends on government largesse, has a history of bad, overpaid management, has powerful unions, or whatever narrative fits their particular political gripe. Generally, though, the reality is more mundane.
In the case of GM, the biggest problem that they still have to overcome is the public perception that, when it comes to fuel efficiency, they are way behind the pack. A glance at the list of best and worst cars for fuel economy found here, sees GM without a vehicle in the “best” list, but well represented in the “worst”. To be fair, they are making it a priority and have improved their overall efficiency considerably, but even given that, there are problems. Their most heralded attempt to address it was the launch of the Chevy Volt. That vehicle has had a few teething problems, but a bigger problem for their “plug in” strategy would be a 2011 Gallup poll that found that Americans would be reluctant to buy an electric car, even if gas prices rose significantly. They would look first for a more fuel efficient, gas powered car.
Much was made last month of tremendous sales figures for US auto manufacturers, based largely on improving sales of trucks and SUVs, but if the recent spike in oil prices leads to a sustained rise in gas prices, the increase in sales of gas guzzlers will be short lived. A move back to fuel efficiency as a priority is not good news for GM as it seems that, true or not, Americans perceive other manufacturers as a better bet for a fuel efficient car. Higher oil prices, then, could make that recovery a short-term, temporary phenomenon for General Motors.
There are two ways to analyze the future performance of a stock, fundamental and technical. In this case, the fundamental analysis points to a possible weakness going forward and a technical analysis points to now as a good time to sell in order to take advantage of that.
Since the IPO of the new shares 32 months ago, it has been a rough ride for investors. They are finally looking at a profit on the $33 offer price again, although a 6% increase over the last 2 ½ years is hardly stellar. We were at these levels about a month ago, before a quite dramatic sell-off. The drop was arrested by the good sales figures mentioned above, but long term holders will most likely be nervously watching for any sign of a down turn, determined not to miss the chance of a cheap cut, or even the possibility of a small profit. Their panic should we drop back below $33 is likely to accelerate any drop in price.
The market is indicating significant gains today (Thursday), following Ben Bernanke’s comments after the close yesterday, which might give a great opportunity to sell into strength at an established point of resistance, or, if options are your preferred play, pick up some out of the money puts fairly cheaply.
I don’t believe that this increase in oil prices will be enough to stop the upward trend of US stocks generally, but, if prices remain stuck above $100/BBL and gas starts to edge back toward, or even over, an average $4, then US buyers are likely to make fuel efficiency a priority for future purchases; a trend that cannot be good for GM.