With a global recession and the threat of pollution hanging over the political environment, the pressure is on in the car industry. Car manufacturers such as General Motors Company (GM) must work harder than ever to maintain and expand their market. So how is General Motors coping with these demands, and how is this reflected in its stock price?
Despite attempts to work alongside BMW in creating futuristic fuel cells for power efficiency, the company’s stock hit a low of below 20 dollars a share on Wednesday. Although this can indeed be blamed in large part on the instability of the global economic climate, General Motors must do more to maintain its leading market position.
Currently, General Motors’ stock has a price-to-earnings ratio of around 6.5. The average for the 12 months as a whole, when the ratio has been normalized, is even lower – standing at 4.5. In my opinion, GM’s prosperity is marred by how Ford (F) has one thing that General Motors doesn’t have – an upgraded investment rating of BBB- from BB+. Fitch, which is one of the world’s major credit rating agencies, defines this upgraded level as a company which is an acceptable risk to take.
Unfortunately, General Motors currently face the label of being more prone to economic changes – and considering the impact of the credit crunch in 2008, a similar crisis could easily happen again and create turmoil in the company. Honda (HMC) was downgraded in February by Moody’s after facing an uphill battle to retain market share, whilst Italian company FIAT (FIATY.PK) tumbled from BB- to BB in light of a tough South American market.To continue reading, click here.