Download GM stock plunges as products slip behind

GM stock plunges as
products slip behind
BY JAMIE BUTTERS
FREE PRESS BUSINESS
WRITER
http://www.freep.com/money/autonews/gm17e_20050317.htm
Lose money!
• General Motors Corp.'s latest efforts to fix its
crucial North American car and truck
business have been pummeled again by
competitors with hotter brands.
• That's why the automaker announced
Wednesday that it expects to lose money in
the first quarter -- and the reason its stock
fell to its lowest level in more than eight
years.
Aging Models
• GM sells more high-profit pickups and SUVs
in the United States than any other
automaker. But its models are aging; they
face more competition, and more Americans
are shifting to cars, wagons and crossover
vehicles, now that they face higher gas
prices and have more good vehicles to
choose from.
• GM is making a lot of those ever-improving
cars, but its new offerings just aren't selling
at the volumes or the prices that GM had
hoped for and built its business plan around.
Market Share Falls
• With GM's U.S. market share falling to 25.1%
through the first two months of the year, the
world's largest automaker has cut its
financial outlook, and investors see its future
in the bleakest terms in almost a decade.
• Its stock price -- which represents how
profitable investors think it will be in the
future -- fell today by a shocking $4.71, or
13.6%, to $29.01.
The Economics
Price
• Monopolist sets MR P*
equal to MC.
• It then compares
price to Average
Cost (AC).
• If P > AC  Profit!
MC
D
AC
Profit
MR
Q*
Quantity
If Demand Falls!
Price
MC
D
• Monopolist still sets P*
MR equal to MC.
Profit
• It then compares
Loss
price to Average
P**
Cost (AC).
• If P < AC  Loss!
AC
Dnew
MRnew
Q** Q*
Quantity