THE BIGGEST DOG GENERAL MOTORS
There's little left in auto maker's tank
After a year of bad news, job cuts and junk status can anything save GM? OMAR EL AKKAD reports
General Motors Corp.
(GM-NYSE)
$19.42. U.S., down $20.64
If one wanted to pick a single moment to define GM's misfortune this year, there'd be no shortage of candidates. The company's stock -- half its value having disappeared this year -- hit multidecade lows almost weekly; job cuts came fast and furious, and shareholders called for heads to roll.
But perhaps the most telling sign of how serious a mess GM is in came late in November when the company announced 30,000 job cuts in North America. The cuts themselves weren't surprising, but what shocked many was news that GM would slash almost 4,000 jobs in Canada, the vast majority at GM's Oshawa plants. Those are the same plants J.D. Power ranked first and second in North America for quality.
To put it simply, consumers are shunning North American cars, and Detroit's Big Three don't seem to have an effective plan to win them back. In 1962, GM's U.S. market share for its domestic names was more than 50 per cent. Today, it's just over 25.
After cutting GM further into junk territory this month, Standard & Poor's said bankruptcy is not "far-fetched," given the auto maker's current position. GM head Rick Wagoner has said Chapter 11 isn't on the radar, but a number of factors could prove him wrong, including a potential strike at the company's largest auto parts supplier, Delphi Corp. A large part of GM's current turnaround plan is dependent on sales of its hugely profitable SUVs, but high energy prices have made the gas guzzlers less popular.
But in the end it may be what GM chooses not to focus on that finally breaks the company's back. All the time GM management has spent on job cuts and union negotiations has taken the focus away from the final product. As a result, many consumers increasingly view Asian vehicles as more reliable, and are thus willing to pay more for them. To compensate for that value gap, GM pressures parts makers to lower costs, but the result is often lower-quality components, which inevitably only widen the perceived gap for consumers. This cycle may not be vicious enough to kill GM overnight, but it may eventually spell the downfall of one of the bluest of blue chips.
JEAN COUTU
Tylenol won't ease this retailer's pain
PJC.SV.A - TSX
$14, down $3.10
It's a good thing Jean Coutu sells drugs, because investors needed all the pain relievers they could get this year. Plagued by poor results from the U.S.-based Eckerd chain, which Coutu bought for $2.4-billion (U.S.) last year, shares of the Canadian company plunged per cent in 2005.
The turmoil led to a management shakeup in a bid to restore investors' shattered confidence. Three years after stepping down as chief executive officer, founder Jean Coutu returned to take the reins from his son, François.
The elder Mr. Coutu has his work cut out. The company needs to spruce up the dowdy Eckerd stores, but it's not exactly flush with cash. Worse, according to CIBC World Markets analyst Perry Caicco, a few more lousy quarters could put Jean Coutu in breach of its loan covenants. Another Extra-Strength Tylenol, please. John Heinzl
DOMTAR
Paper maker falls prey to difficult year
DTC - TSX
$6.71, down $7.79
It was a rough year for the paper and forest sector, and it ended on an especially difficult note for Domtar Inc.
In late November, the paper maker -- throttled by the high Canadian dollar, low product prices and rising energy costs -- said it would chop 1,800 jobs in a restructuring that includes the permanent closing of its historic pulp and paper mill at Cornwall, Ont.
Sawmills in Grand Remous and Malartic in Quebec will also be shut down, along with two machines at a paper mill in Ottawa, while a Vancouver coated paper mill will be sold.
That wasn't the only jarring news for investors. In October, Domtar also announced it would suspend common share dividends. The day after the mill closings were announced, Domtar had its credit rating cut by Standard & Poor's Ratings Services. John Heinzl
LOBLAW
Super-Wal-Mart spooks investors
L - TSX
$56.37, down $15.65
Who's afraid of big, bad Wal-Mart? Judging by the way Loblaw's stock went south in 2005, plenty of its shareholders are. All year, Canada's largest grocery chain girded for battle with the world's biggest retailer, whose supercentres -- which include a supermarket and discount store under one roof -- have taken a big bite of the U.S. grocery business.
Earlier this month, Wal-Mart confirmed it will bring its supercentres to Canada in late 2006 or early 2007.
Wal-Mart doesn't deserve all the credit for driving down Loblaw's stock. As Loblaw chairman Galen Weston told an investors' meeting in November: "Consumers are clearly bargain hunting. We may be entering what could be a prolonged drought, in terms of growth in many areas in the retail industry." John Heinzl
FIRST CALGARY
Energy firm tanks in banner oil year
FCP-TSX
$8.52, down $10.28
How do you go about slashing your stock price in half when you're a junior energy player in a year that saw natural gas prices go through the roof? Here's how.
First Calgary was on a roll going into 2005: It's share price had seen triple-digit increases in previous years, and it was sitting on a natural gas find in Algeria. That's when trouble started. Rumours began that the energy company would soon be taken over by a big player, possibly from Europe. But the company's Algeria reserves weren't proven, and investors had pushed the share price so high that any suitor would have a very hard time justifying the price tag. And so the auction deadline passed with no deal, and investors bailed. Then came talk of a joint venture in Algeria, but that too fell through, causing more investors to bail. And so First Calgary decided to go it alone in North Africa. Omar El Akkad
FOUR SEASONS HOTELS
Hotelier's excuses wearing a bit thin
FSH.SV-TSX
$57.84, down $40.27
It may be tempting to say it's not a big deal that Four Seasons shares have lost 40 per cent of their value this year, given that the chain trades at such a hefty premium compared with its peers. After all, even after a 40-per-cent discount you'd still pay more than $300 (U.S.) for a Four Seasons room in New York.
But problems start coming up when those peers are outperforming the Toronto-based luxury hotel manager. This August, Four Seasons shares experienced their biggest one-day slump in six months after the company missed earnings expectations. For weary investors, the list of excuses was nothing new.
But analysts aren't giving up. Business in the Middle East is booming, and the company's fundamentals aren't awful. Four Seasons is still all about the upscale experience, it's just had a roach motel kind of year. Omar El Akkad
RESEARCH IN MOTION
RIM's legal woes land it in doghouse
RIM-TSX
$76.75, down $22.03
Some of you may remember RIM as last year's Star of the Year. The BlackBerry maker had given corporate types a way to say "I'm so important I need to check my e-mail at funerals," without actually saying it. This time last year, everything was looking up for RIM. Well, everything except a nagging U.S. patent lawsuit.
A year later, RIM is in the dog house. NTP Inc. is winning legal decisions left, right and centre and even a settlement with the patent firm would cost RIM billions. But if RIM ultimately loses its legal battle, a ban on U.S. sales could be a death blow for the company's growth prospects.
But RIM shares didn't lose a fifth of their value this year just because of legal troubles. Product delays late this year certainly didn't help. News that RIM rivals were signing deals with NTP made it clear the sharks are circling. Omar El Akkad
© The Globe and Mail
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