One day (May 27), General Motors' bondholders reject an offer to drop an estimated $27 billion in debt claims in exchange for a 10% stake in the company's stock. And the next (May 28), they accept one: a new deal that includes the option to buy 15% more shares.
As this icon of American manufacturing fails to stave off Chapter 11, many observers are asking: How did GM go from long-time leader and star – to – exemplar of failed business practices and faulty management?
In the words of a recent business journal: "Seriously, who ever expected to see the day when General Motors -- General Motors! -- would totter on the verge of bankruptcy? Now that's a shock of near-existential proportion." (CNET news)
Not exactly. Fact is, long before the mainstream diagnosis Elliott Wave International’s (EWI) team of experts foresaw the reversal in General Motors’ fate -- in no small measure because of GM's metamorphosis from a car manufacturer into a financial heavyweight. As the following archive of EWI’s analysis shows, there was nothing “existential” about GM’s flip flop from auto-industry wonder to washout:
· October 2002 Elliott Wave Financial Forecast observed the growing deficit in GM’s pension funds and wrote: “The losses will weigh on profits, just as they drove them higher in a bull market.”
· October 2003 Elliott Wave Financial Forecast: "The deflation that the car industry, and then the rest of the economy, has experienced to date is nothing compared to what is about to unfold."
· July 2004 Elliott Wave Financial Forecast: "A breakdown of car companies' bottom lines makes the depth of the economy's dependence on the now-stumbling financial sector glaringly apparent. In 2003, GM got 87.5% of its profits from GMAC [its debt financing arm] NOT Car sales…As the credit bubble deflates, financial stocks will mimic the performance of technology stocks from the mania's 2000 peak."
· August 2004 Elliott Wave Theorist: "The auto industry is locked into a competitive rebate-offering death spiral. It's a tug of war now, but deflation will win the contest."
· March 2005 Elliott Wave Financial Forecast:"The lowering of prices by up to $2000 on some of GM's most popular SUV's in the middle of a model year is considered 'highly unusual.' It is still the early stage of a trend that will surely lead to the failure of at least one of the two remaining US car companies."
AND: Since peaking in April 2000 at 94.63, GM’s stock has been “making a series of lower lows and lower highs, the very definition of a downtrend.”
· April 2005 Elliott Wave Financial Forecast: “Former GM President Charles Wilson said, 'What's good for GM is good for America, and vice versa.' It’s the ‘vice versa’ part that investors need to focus on now. Some may simply dismiss the automaker as a manufacturing relic. But, GM remains a tremendously important financial player in the U.S. and global debt markets. After General Electric, GM is the biggest issuer of corporate debt, with $136 Billion outstanding. It is also a bellwether debtor in the Lehman Credit Index, the benchmark corporate bond index used by many fund managers. As one manager notes: A GM downgrade to junk status would be 'horrific' because most institutions are not allowed to hold junk bonds and would be forced to sell. Lehman will change the way it calculates its benchmark index in an effort to forestall a potential market-decimating event... and to stave off a market shattering event. It will not succeed." (Later in 2005, GM bonds were downgraded to junk.)
Flash ahead to today: GM stock is more than 90% below its 2000 peak, an all-time historic low.
In the end, our analysts make a powerful distinction: It's the difference between watching the major, history-moving events unfold through a “rear-view mirror,” and thus, becoming historians -- VERSUS –
Seeing those events unfold through the “windshield,” and so, becoming forecasters.