GM - General Motors

[merkhet]

That's the million dollar question.

 

My best guess is that people have had a long memory about the bankruptcy in '09 but we are now almost 7 years removed from that.

[rishig]

That's the million dollar question.

 

My best guess is that people have had a long memory about the bankruptcy in '09 but we are now almost 7 years removed from that.

 

Or that 6 PE for peak earnings converts to 10 PE on normalized basis and that is a fair price to pay? Also, may be I think we have an idiot at the top - I thought the $500M on Lyft was just pissing off good money.

 

I am long at current price, but I want to know why I could be wrong

[jay21]

Autonation sees slowdown in high end luxury cars.

 

http://www.wsj.com/articles/autonation-ceo-sees-slowdown-in-premium-luxury-cars-1452080663?mod=yahoo_hs

 

GM has fairly diverse brands---wouldn't call them "high end luxury"?

 

GM trading at 6 PE on 2016 earnings?

 

Given that US sales and US EBIT margins are at peak, can they be considered peak earnings (after one takes out one time expenses)? What more does GM have to do at the business level for Mr. Market to give it a higher PE ratio? The question I have is why is Mr. Market delusional about valuing GM here

 

I am asking this same question in the FCAU thread

[hyten1]

http://www.autonews.com/article/20160106/OEM06/160109920/automakers-strike-back-at-silicon-valley-disruptors

 

 

[oddballstocks]

So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

[LowIQinvestor]

I have never purchased a Chevy, but am planning on looking at the Chevy Tahoe. My SUV might be on its last legs...

 

Rode in the passenger seat of one recently and it was quite cushy.

[merkhet]

So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

 

If my Prius was to die tomorrow, I would consider buying a Camaro. Purely emotional. The new ones look amazing.

[Mephistopheles]

So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

 

I own a Honda Civic and I love it. If I were to get a new car it would probably be the same thing. When I can afford something luxury - I've always loved Audi's and BMW's, and now Tesla. Let's see.

 

Never given thought to a GM car, probably never will. Never had a thing for Chevy or Cadillac or any of their other brands. But clearly 10 million people feel differently, and hence I own the stock :D.

 

I actually do like those big Chevy's from the 1960s, I think the Bel Air. I would consider owning one of those in the future.

 

[fareastwarriors]

Judging from the responses on http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/best-car-for-value-investors/ , American cars won't do well in this forum.

 

I might be the odd person out here since in my family we have from GM, Camaro and Silverado truck, and from Ford, a Mustang and F150 truck. 

[Phaceliacapital]

A true american.

 

BTW I do think it's not wise to use data from this board as a good representation of average consumer behavior.

[ZenaidaMacroura]

So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

[rpadebet]

That's the million dollar question.

 

My best guess is that people have had a long memory about the bankruptcy in '09 but we are now almost 7 years removed from that.

 

Or that 6 PE for peak earnings converts to 10 PE on normalized basis and that is a fair price to pay? Also, may be I think we have an idiot at the top - I thought the $500M on Lyft was just pissing off good money.

 

I am long at current price, but I want to know why I could be wrong

 

+1 I too have come around to this sort of justification for the price. 6PE at peak converts to 10-12 PE normalized.

 

But I do think Lyft investment is fine. They need to do something different from the other car makers if they wish to compete with the TSLA's of the future. Ride sharing and driving automation is likely going to reduce the need for people buying their own cars. As a car manufacturer you want to hedge against that disruption risk or be part of the phenomenon to some extent.

[DTEJD1997]

So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

If you want to test drive one you are going to have to buy it first!

[Mephistopheles]

Are current earnings necessarily at a cyclical peak? You can argue that for China and North America, but at least for NA there are still plenty of sales to be made up from the crisis.

 

But then Europe is just picking up and South America is at a trough. ROW ex NA and China has a long way to go, and good chance NA does too.

[LowIQinvestor]

Do you guys think the replacement cycle is over?

Average age of light vehicle on U.S. roads stayed flat at 11.4 in 2013, IHS says

 

http://www.autonews.com/article/20140609/RETAIL03/140609837/average-age-of-light-vehicle-on-u.s.-roads-stayed-flat-at-11.4-in

[pocoapoco]

So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

Traded my BMW in for a Chevy Silverado about a year ago. It's been a great truck.

[RadMan24]

Are current earnings necessarily at a cyclical peak? You can argue that for China and North America, but at least for NA there are still plenty of sales to be made up from the crisis.

 

But then Europe is just picking up and South America is at a trough. ROW ex NA and China has a long way to go, and good chance NA does too.

 

And what? Go back to 9 million a year? GM was profitable all the way from 13 million to 18 million.

[Mephistopheles]

Are current earnings necessarily at a cyclical peak? You can argue that for China and North America, but at least for NA there are still plenty of sales to be made up from the crisis.

 

But then Europe is just picking up and South America is at a trough. ROW ex NA and China has a long way to go, and good chance NA does too.

 

And what? Go back to 9 million a year? GM was profitable all the way from 13 million to 18 million.

 

Huh?

[RadMan24]

Even tho they are at or near a cyclical peak, it doesn't mean the cycle is going to go straight down. What if the cycle remains between 16-18 million sales a year for a few years? That's tons of potential cash flow, if GM continues to run their company well.

[Dalal.Holdings]

Even tho they are at or near a cyclical peak, it doesn't mean the cycle is going to go straight down. What if the cycle remains between 16-18 million sales a year for a few years? That's tons of potential cash flow, if GM continues to run their company well.

 

Many investors, having the memory of the great recession seared into their memory, assume that the next down cycle will equal the intensity of the largest recession since the great depression....this is classic vividness and recency bias.

 

People think that auto sales will crash to 9M/year just as they did in 08. The next recession will surely be as large as 08 (and not the so many other less severe, relatively brief recessions that occurred in history)...

[Picasso]

I think the bigger question has little to do with the P/E multiple. So you buy this at 7x and think you're getting this great bargain. That is all fine and dandy, but where do your returns come from? 

 

Is GM going to grow EPS at 15% on average for the next 10, 20 years?  What exactly will EPS growth look like?  It also seems like they always have "one-time items.". Whether that is a recall or currency issue or labor costs, etc. It's never a clean earnings flow.

 

Where is the capital going?  It seems like half goes back to shareholders and the rest gets eaten up. The Volt (and to an extent the upcoming Bolt) are compromises that eat up investor capital to be compliant with regulations. They aren't the best products and it's hard for them to earn any reasonable return for investors. How much more of this will go on as Uber, Tesla, and others redfine what consumers expect from car ownership or lack thereof?

 

Now if you just want to flip this back out at 10-13x EPS that is a different story. But it seems like people are kind of falling in love with the long-term story given the various investors we have in the company, like Pabrai or Weschler. That to me seems silly. That said, I have owned this stock in the past post bankruptcy and it can give you opportunities to buy at 5x EPS with a solid balance sheet. We're not there again but it's getting close.

[oddballstocks]

So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles. I've had a host of other issues as well. We fixed the head gasket on a Lumina and it went to 300k.

 

I rented a Cruze two years ago and was excited to drive it. The car had good power, the problem was at the hotel it kept opening the trunk and had problems starting. I called the rental company and the manager drove out to swap my car with a Charger (I was impressed) and said the Cruze was plagued with electronic issues like this. It's a shame because I would have considered buying one, but with that and the gasket issues I went Toyota.

 

I wish GM would really get their act together and bring their sedan quality up to their truck standards. I'd have no issue buying a GM or Chevy truck, but Impala or Malibu? It's risky. To me that's an issue, why is the manufacturing process that different for certain types of vehicles?

[merkhet]

Now if you just want to flip this back out at 10-13x EPS that is a different story. But it seems like people are kind of falling in love with the long-term story given the various investors we have in the company, like Pabrai or Weschler. That to me seems silly. That said, I have owned this stock in the past post bankruptcy and it can give you opportunities to buy at 5x EPS with a solid balance sheet. We're not there again but it's getting close.

 

I think most people are looking for the flip from 6x P/E to 10x-12x P/E. I'm not sure that I've heard anyone who is thinking about marrying this position. (Not sure what Pabrai or Weschler's thoughts are on this.)

[Spekulatius]

Are current earnings necessarily at a cyclical peak? You can argue that for China and North America, but at least for NA there are still plenty of sales to be made up from the crisis.

 

But then Europe is just picking up and South America is at a trough. ROW ex NA and China has a long way to go, and good chance NA does too.

 

And what? Go back to 9 million a year? GM was profitable all the way from 13 million to 18 million.

 

It's funny that the carmakers mentioned tHer break even car volumes, but doesn't that imply that the pricing does no change either. I have seen low break even numbers for GM and the like for the 90's, the 2002 recession endless times before, but hey never see, to have been correct. I also assume that pricing goes to hell togehter with the volumes as well, which makes the downturn considerably worse.

[RadMan24]

Are current earnings necessarily at a cyclical peak? You can argue that for China and North America, but at least for NA there are still plenty of sales to be made up from the crisis.

 

But then Europe is just picking up and South America is at a trough. ROW ex NA and China has a long way to go, and good chance NA does too.

 

And what? Go back to 9 million a year? GM was profitable all the way from 13 million to 18 million.

 

It's funny that the carmakers mentioned tHer break even car volumes, but doesn't that imply that the pricing does no change either. I have seen low break even numbers for GM and the like for the 90's, the 2002 recession endless times before, but hey never see, to have been correct. I also assume that pricing goes to hell togehter with the volumes as well, which makes the downturn considerably worse.

 

This has been true in the past, which is why GM keeps a $20 B (or close to) buffer of cash. If you get a chance, there are some VIC write ups that address these concerns. If you're on the fence..

 

The thesis does include that GM won't channel stuff, less reliant on discounting and more reliant on flexible manufacturing to address inventory problems. And when a shock does occur, they will hopefully have enough cash to maintain capital expenditures and future developments to withstand downturn. GM states in its 10K breakeven is around 10-11 million units I believe, but, assuming it goes from 18 million to 13 million overnight, no business can adjust that fast, there will be losses. Hence, the cash pile that provides the business a little bit of a margin of safety. Of course there are risks, it's GM afterall, but a lot of non-investors seem to have the same negative outlook on GM and how the industry can't keep or maintain its current state of affairs. I do believe GM's inventory levels are down year over year, from 730,000 to 680,000. Therefore, I don't see any significant red flags yet.