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Treasury Assistance Comes at High Price For GM

Tuesday, 1 Dec 2009 | 8:33 PM ET

There's a change at the top for General Motors as the U.S. government (and the Board) flexes its muscles and dictates company policy. As we have said on many occasions, assistance from the U.S. government comes with a high price and lack of independence is at the top of the list. So Fritz is out.

As General Motors staggers forward, expect more changes (and challenges) as the US automaking industry comes to terms with the new reality of today's economy. Less demand means lower production levels and requires a new and fresh perspective. It is not evident yet what path GM will take to be competitive and relevant. The truth is that GM leadership is doing their best to save a wounded organization burdened by years of bad decisions. And despite the government's intervention, GM is still gasping for air.

The news today highlights a basic truth; many US industries are attempting to remake their businesses to be successful in the new economic environment. Adjustments will be slow and difficult; you are seeing that in the US automaking industry.

You can expect to see the same pattern with financial institutions as well as the real estate industry. There is more carnage to come and to deny this eventuality is clinging to wishful thinking. Recovery will not be a straight line up. And many companies will not survive.

Investors should not hope for a V-shaped recovery for the U.S. economy which is looking less likely by the day.

Expect bumps, such as the transition occurring today at General Motors, and invest based on the assumption that a rocky road still lies ahead. And be very careful as you allocate capital in this fragile world; your portfolio returns depend on your cautious perspective like never before.

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Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top investment 100 advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.

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