Auto Bail-Out...Investing in Change or Maintaining the Status Quo?
At Yacktman Capital Group, when we buy common stock of a company we are not just buying stock, but more, we view ourselves and our clients as becoming part-owners of the business. You can read more about our investment philosophy on our website, but essentially we are attracted to businesses that are non-cyclical, have low capital requirements, and as such, have a high and consistent return on tangible assets. The complete anithesis of such a business would be the autos.
This morning GM reached a penny shy from it’s all time low since the Great Depression of $1.69. This isn’t surprising to us, however, for not a whole lot has changed from the 1930’s till now with regards to The Big 3 (GM, Ford, and Chrysler). We came across a very well written Opinion article that can be found on the NYT website.
The author is none other Mitt Romney, former Governor of Massachusetts, candidate for this year’s Republican presidential nomination, and the son of the late George Romney, auto chief executive for American Motors.
Without disclosing too much from this must read article, Mr. Romney indirectly poses a question that goes far beyond the auto bail-out plan, but addresses the question for bailing out any industry. The question is this: are we throwing money at these distressed companies only to maintain the status quo, or are we wisely investing tax dollars that require change and encourages greater efficiencies and a competitive spirit?
Another highlight, he states, “Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check."
We’d be better off burning the bail-out cash than throwing it at an industry that has been destroying capital! It is certain we cannot keep drudging along the same path we’ve been meandering along for decades – it’s time for businesses, investors, and the U.S. consumer (let’s not forget our own personal stewardships) to start focusing on what Mr. Romney says as “[managing] with an eye on cash flow, balance sheets and long-term appreciation.”
The time is now…Carpe diem!
Disclaimer: The specific securities identified and discussed should not be considered a recommendation to purchase or sell any particular security. Rather, this commentary is presented solely for the purpose of illustrating YCG’s investment approach. These commentaries contain our views and opinions at the time such commentaries were written and are subject to change thereafter. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. These commentaries may include “forward looking statements” which may or may not be accurate in the long-term. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable. Past performance is no guarantee of future results.