Author Topic: GM - General Motors  (Read 434061 times)

TheEnterprisingInvestor

  • Newbie
  • *
  • Posts: 24
Re: GM - General Motors
« Reply #10 on: May 25, 2012, 07:56:47 PM »
I am conflicted about GM.  On the one hand the liabilities are more in line, it looks superficially cheap (not as cheap when the pension obligation is considered), and there's probably a lot of operating leverage there with the pent up demand.  On the other hand its still a tough business with bad management and a tough European situation.  I've considered the warrants for some time but just can't seem to get interested enough to buy them.  As an owner of AIG warrants, I can't say that the overhang of government ownership or GM's history that bothers me.  Part of it I guess is that I just can't figure out what the misperception is on GM and part of it is an aversion to owning bad, capital intensive businesses.  Maybe its just so cheap with such upside that I need to bite the bullet and buy the warrants, I don't know.  I'd be interested to hear some more  from investors who are long (or perhaps short).


PlanMaestro

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2182
    • Variant Perceptions
Re: GM - General Motors
« Reply #11 on: May 29, 2012, 04:37:12 PM »
Why you can still “See the USA in your Chevrolet”
http://www.economist.com/node/21534795?fsrc=scn/tw/te/ar/from0to100

Since then a steady stream of attractive small cars has begun to restore Chevrolet’s fortunes, such as the Cruze, now America’s best-selling compact. Improvements in quality and finish have also been seen across Chevrolet’s whole range, notes Joe Phillippi of AutoTrends Consulting. But its revamped small-car range is the key to cracking Chevrolet’s biggest American challenge: as with its Detroit rivals Ford and Chrysler, its cars sell well in the Midwest but poorly in the coastal cities, especially among the young: Chevy’s market share is 23% back home in Michigan but just 6% in California.

Drivers’ perceptions may not yet have caught up with the quality of Chevrolet’s new line-up. Steve Witten of J.D. Power, which measures consumer behaviour, says it can take ten years for buyers to respond to such improvements: despite Toyota’s recent recalls, a smaller share of buyers reject its cars on quality grounds than reject Chevys. Mr Witten says most customers quickly narrow their choices down to a shortlist of just three models, though there may be 15 that meet their requirements. A good brand image is what gets a car onto such shortlists. So Chevrolet’s anxieties about its current ad campaign, based around the ponderous slogan “Chevy Runs Deep”, are understandable.

A year ago Chevy sacked Campbell-Ewald, the Detroit ad agency it had used for 91 years, dumped its old slogan of “Like a Rock”, and launched the new campaign through Goodby, Silverstein of San Francisco. Last month a GM executive publicly lamented that some of the new agency’s ads had not been top-grade. Now the carmaker is launching a sweeping review of its marketing efforts worldwide.

hyten1

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 947

hyten1

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 947
Re: GM - General Motors
« Reply #13 on: June 01, 2012, 10:56:41 AM »
good summary of GM pension liability and asset

http://edge.media-server.com/m/p/e85ut6n4/lan/en

PlanMaestro

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2182
    • Variant Perceptions
Re: GM - General Motors
« Reply #14 on: June 01, 2012, 08:39:14 PM »
good summary of GM pension liability and asset

http://edge.media-server.com/m/p/e85ut6n4/lan/en

Thanks Hyten, very interesting information.

PlanMaestro

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2182
    • Variant Perceptions
Re: GM - General Motors
« Reply #15 on: July 06, 2012, 01:38:28 PM »
Americans discover easy lending when it comes to automobiles
http://www.washingtonpost.com/business/economy/americans-discover-easy-lending-when-it-comes-to-automobiles/2012/07/05/gJQAdTiVQW_story.html

But there’s another, less-noticed factor: Investors and private-equity firms are rushing to buy securities made up of bundles of car loans, seeing these assets as both safe and lucrative. In the first six months of this year, the nation’s largest auto lenders, such as GM Financial and Santander Consumer USA, have pawned off $10 billion of their subprime auto loans on investors, a 20 percent increase over the same period last year. That gives these lenders more capacity to loan to consumers with questionable credit histories and, in turn, helps drive auto sales even higher.

It may seem surprising that private-equity firms and other investors are willing to pour billions into auto-backed securities after getting burned by similar mortgage-backed securities when the housing bubble burst. But, analysts say, the auto market is different than housing in several key respects.

For one, Americans appear to be less willing to default on their car payments than to walk away from their houses — even in the depths of the recession, auto loans performed better than most. And, in the event of a default, it’s easier for a lender to repossess a car and sell it off, especially right now, when prices for used cars are so high.

Yet the fact that the subprime auto market is expanding so rapidly — with some buyers paying interest rates in excess of 10 percent — has led to some concern.

Packer16

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2985
  • Go Riders Go! Go Pack Go!
Re: GM - General Motors
« Reply #16 on: July 06, 2012, 02:16:32 PM »
I took a second look at GM and they appear cheap and not as capital intensive as in the past.  They only spent 4% or revenues on cap-ex and had EBITDA margins of around 8.6%.  The warrants (I bought the "B" warrants) appear to be a cheap way to play GM with some good upside leverage if GM's marlet cap doubles (which would put GM still at a discount to other multinational car firms).  With the car replacement cycle kicking in and an open financing market as desribed below, GM should be able to perform pretty well.   They also have some emerging markets exposure (about a 14% market share) to boot.


Packer   
« Last Edit: July 07, 2012, 04:07:38 AM by Packer16 »

beerbaron

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1380
Re: GM - General Motors
« Reply #17 on: July 06, 2012, 05:45:09 PM »
I took a second look at GM and they appear cheap and not as capital intensive as in the past.  They only spent 4% or revenues on cap-ex and had EBITDA margins in excess of 20%.  The warrants (I bought the "B" warrants) appear to be a cheap way to play GM with some good upside leverage if GM's marlet cap doubles (which would put GM still at a discount to other multinational car firms).  With the car replacement cycle kicking in and an open financing market as desribed below, GM should be able to perform pretty well.   They also have some emerging markets exposure (about a 14% market share) to boot.


Packer   

They might run CapEx under their normalized rate. What's your estimate average CapEx for a car company?

BeerBaron

PlanMaestro

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2182
    • Variant Perceptions
Re: GM - General Motors
« Reply #18 on: July 06, 2012, 06:54:20 PM »
They might run CapEx under their normalized rate. What's your estimate average CapEx for a car company?

BeerBaron

The OEMs have been pushing the capital intensive activities to the suppliers for years. For example, Magna International can build a car almost by themselves, but they lack the distribution, brand and financing.
« Last Edit: July 06, 2012, 07:27:53 PM by PlanMaestro »

PlanMaestro

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2182
    • Variant Perceptions
Re: GM - General Motors
« Reply #19 on: July 06, 2012, 07:40:41 PM »
A Weight Hobbling G.M.
http://www.nytimes.com/2012/05/04/business/gm-profit-falls-but-surpasses-forecasts.html?pagewanted=all

Because the Treasury Department still owns a 26 percent stake in the company, G.M. remains saddled with pay restrictions that limit its ability to recruit new talent, a ban on corporate jets, and lingering image problems in the eyes of some consumers.

Company executives usually deflect questions about the effect of government ownership on their business, or their frustration with it. But in a rare interview on the topic, G.M.’s chief executive, Daniel F. Akerson, said he longs for the day that G.M. can finally say goodbye to its biggest shareholder.

“I try not to let it bother me,” Mr. Akerson said. “But the fact is it does bother me.”

The farewell celebration won’t be happening anytime soon. Based on G.M.’s current stock price of $22.37, taxpayers would lose an estimated $15 billion if the government’s shares were sold today. Unless the stock rose quite significantly, the chances are slim that the Obama administration would sell its 500 million shares before the November election and invite criticism from Republicans about the wisdom of the auto industry bailout.

Mr. Akerson said he has regular conversations with Treasury officials, but has never gotten guidance on when they intend to divest. “I don’t know what the government’s plan is,” he said. “I think it would be helpful if they would publicly state it.”

After pumping in nearly $50 billion to save G.M., American taxpayers owned about 60 percent of the company when it emerged from Chapter 11 in the summer of 2009. The government sold the bulk of its holdings at $33 a share in the company’s public stock offering a year later.

But the administration is not eager to sell the rest at a loss. “As with all of our investments, we try to balance the goals of maximizing taxpayer recoveries and exiting as soon as practicable,” said Timothy G. Massad, the assistant Treasury secretary overseeing the Troubled Asset Relief Program. “We don’t have a specific timetable, but we’ll continue to watch the market closely.”

Like partners in a three-legged foot race, both the company and the government are hobbled by their connection. Unless G.M. improves its performance and gets the stock price up, the government can’t sell without losing billions. At the same time, uncertainty about the government’s stake worries some investors and hurts consumer perceptions of G.M. cars.

In a survey last quarter of 30,000 Americans shopping for new vehicles, 32 percent of those who rejected a G.M. model said they would not consider buying from the carmaker because of the bailout.

While that is down from 59 percent in 2009, “G.M. still has quite a hangover,” said Art Spinella, president of the firm that conducted the survey, CNW Marketing Research of Bandon, Ore. “That’s a significant number of people who will buy something else because of the bailout.”

Chrysler, the other Detroit automaker to receive government aid, fared better in the most recent survey. The company paid off its federal loans last year, and just 22 percent of shoppers said they had avoided a Chrysler product because of the bailout.

Mr. Akerson said the negative feelings about G.M. were an unfortunate byproduct of the past struggles that led the company to seek government assistance.

“All we can do is put numbers on the board and hope people start to believe in our story,” he said.

Government ownership is also affecting G.M. internally. Mr. Akerson said the company has lost a half-dozen candidates for management jobs because of salary restrictions on companies getting TARP financing. G.M.’s search for a new head of human resources lasted months because several promising contenders balked at the uncertain time frame for the government’s exit.

The government’s ban on corporate aircraft is mostly a matter of inconvenience for Mr. Akerson and his senior staff members. He was stuck in a Paris airport for five hours last year after missing a connecting flight to China, and often spends an entire day traveling to remote factories for visits that last two or three hours.

“It is part of the deal,” Mr. Akerson said. “There’s no use complaining about it.”

He was more troubled by how G.M. had become, in his words, “a political football.” He still seethes about being called to testify before Congress in January about the safety of the Chevrolet Volt, which experienced battery fires after government crash tests. “I think the whole thing was politically driven,” he said.

Mr. Akerson also said he believed that politics were affecting the government’s decision to hang on to its G.M. stock. President Obama has been pointing to the turnaround at G.M. as a bright spot in the nation’s economy. But if Washington were to sell G.M. shares at a loss, the comeback story would be eclipsed by the cost to taxpayers for its rescue, he said.

“That’s why I don’t think they are going to sell in an election year,” Mr. Akerson said. “Right now, this is a positive for the current administration. If they sell it this year and don’t get all the money back, it’s not a positive.”