GM shares tumbled to their lowest point in two years last week, and you could almost hear the Detroit death-watchers rubbing their hands with glee. But the longer I watch, the more I'm convinced Wall Street just doesn't get the auto business. And as the shenanigans of the sub-prime mortage mess continue to unfold, I'm not sure anyone should take Wall Street's view on anything anymore without a truckload of salt.
What prompted GM's share price slump, said analysts, was a drop in the overall auto market and worries about future profits in light of disappointing February sales. Well, gee, with home prices in freefall and a recession rumbling on the horizon (thanks largely to...er, the sub-prime mortgage fiasco), no one saw that coming... What the analysts really meant was Wall Street's money men don't think GM's a good bet for making them a quick buck right now. And if the money men don't think a company can make them a quick buck, then it's basically worthless.
You see, making a quick buck is really all the Wall Street money men care about. They don't care about building industries. They don't care about creating jobs. They don't care about ensuring America has a strong and self-sufficient industrial base. All they care about is making the deal, taking the margin, then moving on.
The sub-prime mortgage mess (which is, it could be argued, like the collapse of a giant Ponzi scheme made barely legal by some fairly arcane accounting) is a perfect example of Wall Street's financial compass. (And, sickeningly, the money men who created the mess are the ones being bailed out by the government, not the poor folks losing their homes.) The increasing desperation of one-time Wall Street darling Cerberus, panicked by the fact it can't unload the debt it took on to buy Chrysler, is another.
I've said this before, but it's worth repeating: In an era when nameless screen jockeys can move billions of dollars at the touch of a computer keyboard, Wall Street's institutionalized ADD has resulted in a feverish short-term view of the auto business. Lengthy product cycles and huge investment costs, combined with a fickle, cyclical, fashion-driven market, are just too damned difficult to deal with.
Maybe that's why the world's most successful automakers --- Toyota, BMW, and Porsche, to name three -- are those that have never had to sweat a quarterly earnings call with a posse of skeptical Wall Street analysts ready to trash their stock price when they don't see the opportunity to make that quick buck.
Bunkie Knudsen, who ran Pontiac and Chevrolet in the '50s and '60s, reckoned it all started to go wrong when Fred Donner became president of GM in 1958. Knudsen was outraged Donner would insist on talking about GM's stock price, and what the analysts thought about it, at his daily meetings with the heads of GM's divisions. Before Donner, those meetings were mostly about making cars and trucks. After, as the financial engineers took over from the real ones, GM's cars and trucks got worse and worse.
Pulitzer Prize-winning author David Halberstam wrote in his book, "The Fifties," that Bunkie Knudsen believed in a simple concept: The people in Detroit had to make good cars, and if they did, the people in New York would take care of the stock. After decades of fixating on financial engineering, GM is only now getting back to the business of making good cars. Only problem is, no one in New York seems to care anymore.