USA: HOW GENERAL MOTORS LET DOWN ITS SHAREHOLDERS.

USA: HOW GENERAL MOTORS LET DOWN ITS SHAREHOLDERS. -

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Last Updated: 31 Aug 2010

$m 1983 1984 1985 1986 1987

Market

capitalisation 18,755 23,415 24,853 22,269 20,978

Equity capital

raised

(net) 212 602 2,755 (352) 423

Capital

expenditure 4,007 6,047 11,123 11,735 7,057

Acquisitions - 2,006 4,354 270 8

$m 1988 1989 1990 1991 1992 Totals

Market

capitalisation 19,314 25,553 25,489 23,627 17,781

Equity capital

raised

(net) (534) (1482) 13 2,496 549 4,682

Capital

expenditure 5,626 7,505 7,538 7,212 6,590 74,440

Acquisitions - - - - - 6,638

The table shows some key components of GM's performance over the decade 1983-92. GM started the decade with a market value of $18.8 billion. Over the next 10 years it proceeded to raise a net $4.7 billion in new equity, but still managed to close the period valued at a mere $17.8 billion - a dazzlingly awful return for its shareholders. After a decade of inflation, investors not only failed to protect their capital by investing in GM, but its value fell in absolute terms despite the significant amount of new capital raised. GM determined on a spend one's way to success strategy. More than $6.6 billion was invested during the mid-'80s when GM took the acquisition trail. An even more startling statistic is that during this period GM invested no less than $75 billion in new plant and equipment, some of which could have been returned to shareholders. If only a fraction had been, investors could easily have received payouts in excess of GM's opening market value. GM clearly destroyed shareholder value over this period.

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