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PlanMaestro

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one thing i have been thinking about is the universally accepted belief that GM has no competitive advantage.

 

does GM have competitive advantage?

 

consider these:

 

1. GM has been badly operated (not counting recently) for decades, decades!

2. GM has been saddle with HUGE pension obligations due to past management/unions (kind of related to above)

 

Now people can argue GM went into bankruptcy recently, but it took a 2008 like event to put them into bankrupty

 

also GM would not have had to file for bankrupty if they did want F did which was to raise tons of money before 2008 hit (not that could be attributed partially to luck for F and mostly due to bad management on GM part)

 

 

And GM is still around and kicking (I understand it went through bankruptcy)

 

now does GM have a competitive advantage?

 

I think GM is not your typical manufacturing company selling some widgets

 

the scale and complexity of cars provides some competitive advantage

 

The question on competitive advantage, the operating leverage, and the pension are the biggest problems to me at first glance.  Without too much digging, I would think that car companies can have an advantage due to scale and/or management.  I don't think there is too much brand equity in cars.  A management team that focuses on cost control (taking advantage of the scale) would probably do better than others and a new entrant would be hard pressed to develop a cost advantage.

 

I think the operating leverage is also a little scary.  It appears management is trying to reduce some liabilities through debt reduction.  At least things seem to be improving, in which case the leverage can be beneficial (op margins expanding to 10%). 

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Hi All, looking for the SEC filings on the tarp warrants (or just the strikes/dividend adjustments/expiry dates), anyone have the info/link?  (or how I can search for the tarp info on the SEC filing?)

 

Thanks!

 

GM has a FAQ on their IR website that mentions the relevant data about the warrants, strike, expiration etc... They are not TARP warrants, they are a result of the bankruptcy, some were give to bondholders etc... They do not have the div reduction feature. I can't remember if the prospectus is linked of the IR website but the FAQ answers most of your questions.

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Hi All, looking for the SEC filings on the tarp warrants (or just the strikes/dividend adjustments/expiry dates), anyone have the info/link?  (or how I can search for the tarp info on the SEC filing?)

 

Thanks!

 

GM has a FAQ on their IR website that mentions the relevant data about the warrants, strike, expiration etc... They are not TARP warrants, they are a result of the bankruptcy, some were give to bondholders etc... They do not have the div reduction feature. I can't remember if the prospectus is linked of the IR website but the FAQ answers most of your questions.

 

Ah, I see--that website was unavailable when I checked (I guess they have server issues), but I couldn't find the dividend adjustment from the cached version.  Not having one makes sense, then.

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i was wondering if anyone have any insight into why the GM b warrant are trading so low?

 

- gm b warrant is getting cheaper relative to gm common

- also if you look at jan 2015 call strike $18, it cost $10.95? the gm b warrant (strike is $18.33) is only $11.93 at the expire date is jul 2019

 

what gives?

 

hy

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SumZero analyzes GM:

 

http://sumzero.com/headlines/automobile_and_transportation/GM/161-gm-is-a-radically-improved-business-stock-could-double

 

$50 intrinsic value estimate is based on a simple average of P/E and EV/EBITDAP based valuation approaches. I arrive at a P/E based valuation of $46 by applying an 11x multiple to fully diluted 2014E EPS of $4.19. I use 2014E because by this year projected US auto demand is more normalized (16mm), and K2XX will be fully rolled out. My EPS estimate assumes little improvement in GME ($1.3bn EBIT loss). There is upside to my EPS estimate if the US market returns to my fully normalized assumption of ≥17mm units (each additional1mm adds $0.60 to EPS). Each 100mm of share repurchases adds $0.27 of EPS. If GM Financial doubles EBIT by expanding into prime lending ($1bn increase) this adds $0.40 to EPS. 11x is a reasonable multiple of sustainable mid-cycle earnings for a business with good downside protection. GM currently trades at a discount to most comps.

 

I arrive at my EV/EBITDAP based valuation of $55 by applying a 4.0x multiple to my 2014E core auto EBITDAP of $17.1bn. To this I add projected net auto cash, GM Financial at book value, foreign JVs at 10x equity income, and the present value of NOLs using a 14% discount rate. I deduct pension/OPEB liabilities net of tax. 4.0x is a reasonable EBITDAP multiple for a solidly profitable auto business, and is a discount to most comps.

 

 

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I am getting more interested in this idea.  It has a few characteristics that historically have made for a good investment:

 

1. Post-Reorg equity with improved balance sheet and cost structure

2. "Forced Selling" Overhang

3. Investor stigma

 

Add in economic tailwinds to boot.

 

My initial concerns are:

 

1. Limited competitive advantage - I think scale is definitely here, but it seems brand equity is limited.  Although, there must be some advantage in the more important pick up market as Ford and GM share a large percent of the market.  Maybe it's a buy American thing.

 

2. Pension obligations/Unions - Probably more of a lack of knowledge on my part.  How do most people view it?

 

I need to dig some more into the capital allocation plan as well.  With a lot of  liquid assets and a seemingly depressed price, why aren't they buying shares?  Are they going to try to buy another block from the Treasury? 

 

The estimated $40 to $60 ranges I see don't seem unreasonable.

 

 

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jay gm just recently bought 300mil shares from the treasury

 

*200m

 

I knew that, I meant open market purchases.  I am guessing they are saving cash in case they want to buy more from the treasury?  Have they communicated any plan on their >$20b in cash?

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jay gm just recently bought 300mil shares from the treasury

 

*200m

 

I knew that, I meant open market purchases.  I am guessing they are saving cash in case they want to buy more from the treasury?  Have they communicated any plan on their >$20b in cash?

 

I have heard GM is not buying back any shares atm b/c they don't want to potentially negate their NOL's (a rule I've heard of, but can't speak to, others are on this board could, involving 5%+ shareholders). The rules expire for GM in November. So far in 2013 the Treasury has sold ~$500M of GM stock, or about 6% of their stake: http://www.reuters.com/article/2013/03/12/gm-treasury-idUSL3N0C33OB20130312

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I have heard GM is not buying back any shares atm b/c they don't want to potentially negate their NOL's (a rule I've heard of, but can't speak to, others are on this board could, involving 5%+ shareholders). The rules expire for GM in November. So far in 2013 the Treasury has sold ~$500M of GM stock, or about 6% of their stake: http://www.reuters.com/article/2013/03/12/gm-treasury-idUSL3N0C33OB20130312

 

Strange -- AIG never said anything like that.

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  • 3 weeks later...

Ford earnings are out  http://corporate.ford.com/our-company/investors/investor-news-detail/pr-ford-posts-first-quarter-pretax-37920

 

Highlights

* Most profitable quarter in North America, but Europe still sucks

* In North America quarter-o-quarter revenues were up 20%. Operating margins were down slightly, but they are ramping up investment here, so everything looks solid

* Regarding Europe... company expects a $2 billion loss for the year

* Solid results from the financing division

* For full year 2013, the company's guidane remains unchanged, so pre-tax profit equal to 2012

* Looks like Ford took some market share in the US and China 15.2 to 15.9%

* Random piece of info that I did not know... the Ford Focus is the world's best selling passenger car

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  • 2 weeks later...

be careful

 

http://www.sec.gov/Archives/edgar/data/1549575/000154692713000077/dalalstreet132013q1v3.txt

 

it looks like he has swap GM common for GM warrants

 

which is something that i done a little while ago

 

GM'B warrant is a long long term option, it a better way to leverage your GM shares, most of my GM investment are in warrants

 

EDIT: GM is pabari's second largest holding by value

 

Pabrai raising cash as well?  He sold GM last quarter.

 

http://www.dataroma.com/m/holdings.php?m=PI

 

I can feel the warm fuzzy feeling of validation washing over me.  I love it when someone I admire does the same thing that I've done.

 

Notably, I think it's interesting that (assuming an AUM of $600M) Pabrai seems to have invested a notional value of 30% of his fund into GM based on the warrants.  (5,928,876 warrants x $31 per share of GM.)

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  • 2 weeks later...
  • 2 weeks later...

J.D. Power has released the results of its latest Initial Quality Study (IQS),

 

"Porsche Leads Brand Rankings, Two GM Brands among Top Five

Porsche ranks highest among nameplates included in the 2013 IQS, with an average of 80 problems per 100 vehicles (PP100). GMC ranks second with 90 PP100, and Lexus ranks third with 94 PP100. Infiniti (95 PP100) and Chevrolet (97 PP100) round out the top five. Overall initial quality for the industry averages 113 PP100."

 

 

http://www.jdpower.com/content/study-auto/vURhToQ/2013-u-s-initial-quality-study-results.htm?page=2

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  • 2 weeks later...

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