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GM's Hard to Like

By W.D. Crotty
November 6, 2003
The Detroit News reports that General Motors (NYSE: GM) will introduce 2007-model Tahoe and Yukon sports utility hybrid vehicles (SU-HV). With GM selling at six times earnings and two times cash flow, should GM shareholders be looking for hybrid success?

Well, at least, GM is not "out fishing" when it comes to hybrids. Last month, King County, Wash., which includes Seattle, said it would buy 235 buses outfitted with a GM hybrid system. GM's strategy is to work from the biggest gas-guzzlers -- buses -- on down.

That said, GM will be late to the hybrid party. Ford (NYSE: F) will launch the Escape SU-HV in the summer of 2004. That fall, Toyota Motors (NYSE: TM) will introduce its third-generation hybrid, the Lexus RX Hybrid. The V6 Lexus SU-HV promises the acceleration of a V8 with the fuel economy of a compact.

Toyota, meanwhile, has sold 150,000 Prius hybrids since they were introduced in December 1997. Toyota hopes to produce 300,000 hybrids a year (not just Prius models) by 2005 -- and that is a stretch goal. In October alone, GM sold 363,043 cars and trucks -- just in the United States. Clearly, hybrids are not a significant chunk of auto sales -- even at 2005 levels.

For GM, hybrids are years away. At least, by then other manufacturers will have informed consumers what hybrids are, how they work, and if they are reliable. It is costly to be first. GM, on the other hand, has a hybrid product (although it is in a bus) and will enter the market as volumes are rising. Odd as it sounds to use the phrase "low cost" when discussing GM, its hybrid strategy may be just that.

But GM's balance sheet is absolutely frightful. There is $232 billion in total debt and net income for the last 12-months was just $3.8 billion. And if the yield at 4.7% looks tempting, it looks less so when you consider that since 1970 (excluding dividends), GM has underperformed its peers in the Dow -- by 1,100%!

Although past performance is not necessarily an indicator of future success, GM's lackluster performance looks likely to continue -- hybrids or not.

W.D. Crotty can be reached at

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