Author Topic: GM - General Motors  (Read 579267 times)

merkhet

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2987
Re: GM - General Motors
« Reply #1570 on: October 08, 2018, 06:59:08 PM »
Failure to buy back stock doesn't look like that bad of a decision in hindsight, the stock hasn't moved in 5 years, the opportunity still exists...

The bigger capital allocation miss was not acquiring FCAU when they had the chance.  FCAU's market cap when Sergio did the Capital Junkie presentation was I think around $18Bn.  Now it's worth 2x that and the synergies would be massive.  Sergio's estimate was $5B+ per year...  They laid out the case very clearly, there is so much capital waste with every OEM developing the same technologies. 

But GM didn't even entertain the thought because they were "busy merging with themselves."  Which is code for "we have no stock so no upside if this works out and all downside if it doesn't, plus it creates extra work for us."

Actually, it was $10 billion based on a speech he gave at his alma mater.


nkp007

  • Hero Member
  • *****
  • Posts: 562
Re: GM - General Motors
« Reply #1571 on: October 08, 2018, 07:05:34 PM »
Lastly, there was nothing to stop them from doing more aggressive repurchases at the same time.  And the buybacks i'm talking about where they use some of their 20 billion dollar pile, some fixed term debt and other actions they could have taken would not have been or will not be affected materially by the cruise acquisition.  I think I have heard every great investor say that the place to look for owner oriented capital allocation is where mgmt has significant skin in the game.  It's not like I'm rewriting the bible here.  I think it's pretty obvious that they dont think like owners because they arent owners.  And in this case the opportunity cost is magnified because all the ingredients were there...ridiculous amount of excess cash, very low debt, best interest rates in 50 years, soooo much low hanging fruit in an obese organization and a very cheap stock price.

Failure to buy back stock doesn't look like that bad of a decision in hindsight, the stock hasn't moved in 5 years, the opportunity still exists...

The bigger capital allocation miss was not acquiring FCAU when they had the chance.  FCAU's market cap when Sergio did the Capital Junkie presentation was I think around $18Bn.  Now it's worth 2x that and the synergies would be massive.  Sergio's estimate was $5B+ per year...  They laid out the case very clearly, there is so much capital waste with every OEM developing the same technologies. 

But GM didn't even entertain the thought because they were "busy merging with themselves."  Which is code for "we have no stock so no upside if this works out and all downside if it doesn't, plus it creates extra work for us."

Every day that GM does not buy Fiat and recognize these easy synergies is a complete failure of capitalism. It's an obvious move and GM can use cheap leverage. For some reason, there's no boldness from management. I miss Sergio. 

Ahab

  • Full Member
  • ***
  • Posts: 120
Re: GM - General Motors
« Reply #1572 on: October 08, 2018, 09:00:40 PM »
Loving everyone's thoughts about GM these past few days. Speculative comment...I think it would be smart for GM to up its stake in Lyft. Having a large ride-sharing platform in addition to Cruise might prove quite useful in the years ahead.
Long: FNMAT, FNMAN, FMCKO, BAC, JPM, GOOG
Short: PCG, TSLA
Twitter: AhabValue

Spekulatius

  • Hero Member
  • *****
  • Posts: 2985
Re: GM - General Motors
« Reply #1573 on: October 09, 2018, 04:20:00 AM »
Lastly, there was nothing to stop them from doing more aggressive repurchases at the same time.  And the buybacks i'm talking about where they use some of their 20 billion dollar pile, some fixed term debt and other actions they could have taken would not have been or will not be affected materially by the cruise acquisition.  I think I have heard every great investor say that the place to look for owner oriented capital allocation is where mgmt has significant skin in the game.  It's not like I'm rewriting the bible here.  I think it's pretty obvious that they dont think like owners because they arent owners.  And in this case the opportunity cost is magnified because all the ingredients were there...ridiculous amount of excess cash, very low debt, best interest rates in 50 years, soooo much low hanging fruit in an obese organization and a very cheap stock price.

Failure to buy back stock doesn't look like that bad of a decision in hindsight, the stock hasn't moved in 5 years, the opportunity still exists...

The bigger capital allocation miss was not acquiring FCAU when they had the chance.  FCAU's market cap when Sergio did the Capital Junkie presentation was I think around $18Bn.  Now it's worth 2x that and the synergies would be massive.  Sergio's estimate was $5B+ per year...  They laid out the case very clearly, there is so much capital waste with every OEM developing the same technologies. 

But GM didn't even entertain the thought because they were "busy merging with themselves."  Which is code for "we have no stock so no upside if this works out and all downside if it doesn't, plus it creates extra work for us."

Every day that GM does not buy Fiat and recognize these easy synergies is a complete failure of capitalism. It's an obvious move and GM can use cheap leverage. For some reason, there's no boldness from management. I miss Sergio.

The $10B synergy between GM and FCAU seems exaggerated. It would be roughly 5% of the combined revenues. I also think there is a high risk that the merger wouldnít go though.
To be a realist, one has to believe in miracles.

JRM

  • Full Member
  • ***
  • Posts: 200
Re: GM - General Motors
« Reply #1574 on: October 09, 2018, 04:24:58 AM »
Loving everyone's thoughts about GM these past few days. Speculative comment...I think it would be smart for GM to up its stake in Lyft. Having a large ride-sharing platform in addition to Cruise might prove quite useful in the years ahead.

Lyft is trying to IPO as quickly as they can (before the stage coach turns into a pumpkin).  I don't think GM is aligned with Lyft as a strategic partner like they were when they made their initial investment.  Lyft has hedged themselves by partnering with Waymo.  It will be interesting to see how GM plans to go about building its network.  They still own Maven, but that one seems like a non-starter so far.  There are plenty of competing apps in the car-sharing space.

Uber and Lyft should be worried that GM scales its autonomous taxi fleet first and is able to start building a network.  That would obsolete their business model quickly.
« Last Edit: October 09, 2018, 04:26:34 AM by JRM »

RadMan24

  • Sr. Member
  • ****
  • Posts: 319
Re: GM - General Motors
« Reply #1575 on: October 09, 2018, 04:42:44 AM »
Radman, are you saying that because they made a good investment (remember we dont know how great that investment really is because they arent getting much cash up front) that eliminates their responsibility to effectively allocate the rest?


Iím not quite sure I see their errors outweighing their positive actions:

They got out of Europe which will require substantial investment to develop EV technologies before rest of world, as diesel is dead;

they invested heavily in 1500 trucks and large SUVs which are now about to bear fruit over the next five plus years, a dominate position they maintain after maintaining investment in both categories during recession and it paid of hugely;

the Silverado and Sierra are the best trucks GM has ever made, the golden egg for everything else done at this company;

after a hugely successful reentry into the midsize truck segment they are now reentering the medium duty truck market which they had to abandon during recession;

they own cruise and have developed a strong ev enterprise and fuel cell development, which in of itself opens the door to military and defense sectors;

Strong development of mid engine corvette which is GMís Tesla when itís time for electrifying sport cars.

Iím more curious on the specific instances of poor capital allocation for which you are implying. All of the above , further including the soon to be one new Caddy every six months and new Chevy blazer, have yet to boost GM cash flow and earnings.

The list of great allocation of capital is fairly long. The list of mistakes is fairly short.

The auto cycle requires a good deal of capital at the moment but it will tapper off in the future, notwithstanding the fact that this is a horrible industry to be in and price sensitive to the extreme.

Even cruise is dead weight at the moment (in terms of fcf) but would you rather GM own it or sell it to Apple or a competitor and take that risk?

Iíve been long since 2012 during European Debt crisis. The fallout of South American economies also hurt GM over the past three years. Middle East hurt as global oil prices sank. Ignition key crisis didnít help. China is now softening a bit and NA has peaked for the moment.

GMís stock price is unchanged is because the market keeps placing a smaller multiple on its earnings. The play on GM is when the market opens its eyes and see that itís not all gloom and doom and swings to the other side.
« Last Edit: October 09, 2018, 04:59:18 AM by RadMan24 »

vince

  • Sr. Member
  • ****
  • Posts: 414
Re: GM - General Motors
« Reply #1576 on: October 09, 2018, 05:54:56 AM »
RedMan, reread the thread, you are talking past me.  I agree that they did a pretty good job but they could have done all that AND work the balance sheet.  I also agree that the stock price will take care of itself eventually and wouldnt mind if it stayed at same price even after the buybacks...because by now they would have been in a position to either continue the buyback at an even cheaper market cap or the stock would have increased. Either way they would have locked in that created value. And I guess thats the point.  When you have all the ingredients AND a very cheap stock its a no brainer, low risk way to enrich remaining owners.  And I believe the multiple will correct at some point and returns will be reasonably good, however why not make them great? I wont repeat why they didnt, its obvious

vince

  • Sr. Member
  • ****
  • Posts: 414
Re: GM - General Motors
« Reply #1577 on: October 09, 2018, 05:58:55 AM »
Lastly, there was nothing to stop them from doing more aggressive repurchases at the same time.  And the buybacks i'm talking about where they use some of their 20 billion dollar pile, some fixed term debt and other actions they could have taken would not have been or will not be affected materially by the cruise acquisition.  I think I have heard every great investor say that the place to look for owner oriented capital allocation is where mgmt has significant skin in the game.  It's not like I'm rewriting the bible here.  I think it's pretty obvious that they dont think like owners because they arent owners.  And in this case the opportunity cost is magnified because all the ingredients were there...ridiculous amount of excess cash, very low debt, best interest rates in 50 years, soooo much low hanging fruit in an obese organization and a very cheap stock price.

Failure to buy back stock doesn't look like that bad of a decision in hindsight, the stock hasn't moved in 5 years, the opportunity still exists...

The bigger capital allocation miss was not acquiring FCAU when they had the chance.  FCAU's market cap when Sergio did the Capital Junkie presentation was I think around $18Bn.  Now it's worth 2x that and the synergies would be massive.  Sergio's estimate was $5B+ per year...  They laid out the case very clearly, there is so much capital waste with every OEM developing the same technologies. 

But GM didn't even entertain the thought because they were "busy merging with themselves."  Which is code for "we have no stock so no upside if this works out and all downside if it doesn't, plus it creates extra work for us."

Exactly. And for the record I was against the merger and trusted Barra and was 100% wrong.

I was feeling the same way but that was a harder decision with more risk in my opinion whereas my proposal was just a complete no brainer with zero execution risk.  I have also lost trust with mgmt and no longer own it

RadMan24

  • Sr. Member
  • ****
  • Posts: 319
Re: GM - General Motors
« Reply #1578 on: October 09, 2018, 06:29:06 AM »
RedMan, reread the thread, you are talking past me.  I agree that they did a pretty good job but they could have done all that AND work the balance sheet.  I also agree that the stock price will take care of itself eventually and wouldnt mind if it stayed at same price even after the buybacks...because by now they would have been in a position to either continue the buyback at an even cheaper market cap or the stock would have increased. Either way they would have locked in that created value. And I guess thats the point.  When you have all the ingredients AND a very cheap stock its a no brainer, low risk way to enrich remaining owners.  And I believe the multiple will correct at some point and returns will be reasonably good, however why not make them great? I wont repeat why they didnt, its obvious

Balance sheet has to be where it is. They burn cash during recession. BMW will rake in cash just because itís working capital is structured differently than GM. Buybacks are all the rage but even Apple started late and look how well itís done with its capital return.


vince

  • Sr. Member
  • ****
  • Posts: 414
Re: GM - General Motors
« Reply #1579 on: October 09, 2018, 06:43:18 AM »
I've taken the cash burn into consideration based on amounts stated by mgmt.  They have all but ceased doing any buybacks and changed the wording on their latest announcement with regards to the date of completion.  Basically they have stopped and told the market not to expect any