How to ruin a Good Business - Part 1

This is the first in series of blogs looking in the rear view mirror at the automotive industry in the United States.

Early in 2009 as it appeared that the Big 3 car makers were sinking faster than the Titanic, I started thinking about buying stock in GM and Ford. I believed the auto industry was nearing the bottom and was due for a turnaround. My reasoning was fairly simple. Sales were slow because potential buyers were struggling through a deep recession and kept their aging (but debt-free) cars longer than they normally would during better economic times. The Big 3 were stuffing the sales channels shoving 2009s at dealers who couldn't find room to store all the unsold 2008s.

In preparing a bid for the Saturn Motors Division, I researched publicly available SEC filing and investment research reports on the Big 3. While normal people were watching the Super Bowl, I was reading through thousands of pages of annual reports. Frankly, I was taken aback by how much unsold inventory was piling up, how much money each company was losing, and how daunting a task it would be to try keeping these sinking ship afloat.

My first reaction was to short Ford and GM stocks.